Question Period Note: SOCIAL INNOVATION AND SOCIAL FINANCE STRATEGY

What is the Government of Canada doing to support social innovation and social finance in Canada?

• The Government of Canada recognizes the important role that social purpose organizations like charities and non-profits play in addressing complex social and environmental issues. The innovative work of these organizations is more important than ever, as many of these problems have been exacerbated by the COVID-19 pandemic.

Social innovation is about developing new solutions to social or economic challenges. It can improve people’s quality of life through collaborating with new partners, testing creative ideas and measuring their impact. It often involves collaboration across different levels of government, charities, the not-for-profit and private sectors to act on a common social issue. Social innovation is particularly needed in times of crisis like the COVID-19 pandemic.

Social finance is a tool that seeks to mobilize private capital for the public good. It creates opportunities for investors to finance projects that benefit society as well as for charities, non-profits and other social purpose organizations to access new sources of funds.

Recent History

In June 2017, the Government appointed a Co-Creation Steering Group to inform the development of a Social Innovation and Social Finance Strategy for Canada. Over the course of a year, the Co-Creation Steering Group engaged with hundreds of Canadian individuals and organizations at more than 50 consultation and engagement sessions. In August 2018, the final report of the Steering Group was released, and included 12 recommendations, including the creation of a Social Finance Fund.

In the 2018 Fall Economic Statement (FES), the Government proposed to make available up to $755 million on a cash basis over the next ten years, starting in 2020-2021, to establish a Social Finance Fund that would help charitable, non-profit and other social purpose organizations access new financing, and to help connect them with private investors looking to invest in projects that will drive positive social change. Additionally, the Government proposed to invest $50 million over two years in an Investment and Readiness (IR) stream, for social purpose organizations to improve their ability to successfully participate in the social finance market.

The Investment Readiness Program ($50M over two years 2019-20 and 2020-21) provided over 660 social purpose organizations with funding and supports required to build their capacity, participate in the social finance market (i.e. secure a repayable investment), and acquire technical, legal or business skills required to improve their organizational preparedness for revenue generation and investment opportunities. Funding agreements were put in place with 24 organizations who worked to implement the program.

The COVID-19 pandemic delayed the planned 2020 launch of the Social Finance Fund. Since the onset of the recession, the needs of social purpose organizations have grown more urgent, and social finance market conditions have changed. COVID-19 has hurt the financial position of many of these organizations, while the demand for their services has grown.

Budget 2021 announced new measures under the Social Innovation and Social Finance Strategy.

• A renewed Investment Readiness Program ($50M over two years starting in 2021-22) will continue to support SPOs from across Canada in building the skills and capacities to access social finance and other investment opportunities. The program will support diverse SPOs, including those facing barriers to accessing social finance such as organizations led by or serving women, Indigenous people and more, in capacity building activities such as business plan development, expanding products and services, skills development and hiring.

Budget 2021 also announced an accelerated Social Finance Fund which will provide for:
• A frontloading of up to $220 million to be invested in the program’s first two years (2021-22 and 2022-23) in order to support near-term economic and social recovery.
• The use of conditionally repayable contributions (CRCs) that will allow funds to flow to a range of diverse Social Purpose Organizations on flexible and affordable terms and on a long-term basis.

Key design parameters for the Social Finance Fund remain unchanged:
• Funding will be managed through professional investment managers with expertise in social impact reporting and a proven ability to promote inclusive growth and diversity in the social finance market, to be selected through a competitive selection process.
• The fund manager(s) will invest in existing or emerging social finance intermediary organizations that have leveraged private or philanthropic capital for co-investment.
• The fund manager(s) will be required to leverage a minimum of two dollars of non-government capital for every dollar of federal investment, with the exception of investments for Indigenous-led or Indigenous-owned funds.
• A minimum of $100 million will be allocated towards projects that support greater gender equality—leveraging existing philanthropic and private sector funds towards this purpose in order to help them reduce the social and economic barriers faced by diverse groups of Canadians of all genders, and
• A $50 million investment will be made in the newly proposed Indigenous Growth Fund.

The Government also plans to establish a Social Innovation Advisory Council to provide technical and sectoral expertise to inform the implementation and further development of a federal Social Innovation and Social Finance strategy. The Council will also provide an important perspective from within the stakeholder community, as well as monitor progress and emerging issues in relation to the Social Innovation and Social Finance Strategy. A call for applications has been completed, and applications are being assessed for Ministerial decision on the composition of the Council.

Examples of Social Enterprises / Social Finance

1. Aki Energy is an Indigenous-led social enterprise working to develop and implement sustainable energy and food solutions in Manitoba First Nations. Using innovative financial models, Aki has made the installation of geothermal technology more affordable for communities, focusing on transitioning households to geothermal power systems and away from grid-electric systems. Aki secured social finance partnerships in 2016 and developed community-driven outcomes contracts that now help finance Aki’s operations. Aki has invested over $4M directly in Indigenous communities. Funding from the Social Finance Fund would help Aki grow and replicate their success in other Indigenous communities.

2. ÉAU Acquaponic Farms is a for-profit social enterprise with advanced technologies dedicated to developing innovative and efficient aquaponics food production systems to support community food autonomy. Aquapo farms help people living in regions without water and urban neighborhoods where fresh produce is not easily available. The Social Finance Fund could help ÉAU expand its research and development activities and also scale its impact in Canada and internationally.

3. Windmill Microlending is Canada’s largest and most successful microlending program for immigrants and refugees. These loans help skilled immigrants pay for professional exams, training, assessments, professional association fees, books and materials, living allowance and other expenses related to obtaining the required credentials or training. Given the higher annual number of newcomers to Canada, opportunities under the Social Finance Fund could help Windmill expand its reach and meet newcomers’ accreditation and training needs.

• In the 2018 Fall Economic Statement and in Budget 2019, the Government of Canada committed to establish the foundational elements of Canada’s first-ever Social Innovation and Social Finance Strategy, including a $50 million Investment Readiness Program, a $755 million Social Finance Fund, and a Social Innovation Advisory Council to support the implementation of the Strategy.
• The Investment Readiness Program launched as a 2-year pilot program in 2019 and supported over 660 social purpose organizations to build skills and capacities necessary to innovate and access new investment opportunities.
• The launch of the Social Finance Fund was delayed due to the extended stakeholder and expert consultations on the design of the program, and the onset of the COVID-19 pandemic.
• Budget 2021 announced that the Social Innovation and Social Finance Strategy would be leveraged to contribute to an inclusive social and economic recovery through:
• $50 million for the renewal of the Investment Readiness Program for 2 years starting in 2021-2022 to continue to ensure that diverse charities, non-profits and social purpose organizations have the skills and capacity to access social finance and other investment opportunities.
• The acceleration of the Social Finance Fund and proposed deployment of up to $220M of the program’s funding in its first two years, as well as a change in funding instruments – Conditionally Repayable Contributions (CRCs) – to allow the Social Finance Fund to promote greater investments into currently underserved segments of the social purpose sector.