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June 13, 2023

Five-Minute Brief: Canada’s New Fund Adds Momentum to Impact Investing

By Chelsie Hunt and Jason Sukhram

Canada’s Inaugural Social Finance Fund

The Government of Canada announced on May 29, 2023 that it will begin deploying capital towards its highly anticipated Social Finance Fund (the Fund). Social finance, often used interchangeably with impact investing, refers to investment approaches that leverage capital to generate financial returns alongside positive, measurable social and environmental outcomes (more on impact investing here).

The Fund’s launch marks a major milestone to accelerate the development of the social finance ecosystems across Canada[1]. It stems from recommendations made by an expert steering group in 2017 for the Government to establish a fund that invests in organizations tackling complex social, economic and environment problems.

About the Fund

The Social Finance Fund’s primary objective is to mobilize more capital towards social purpose organizations (SPOs) that address important social and environmental issues that have been previously underfunded. The immediate injection of capital into the market will be a catalyst for innovation and further accelerate the growth of impact investing, which exceeded USD 1 trillion in assets under management globally last year[2].

Employment and Social Development Canada (ESDC) will now begin distributing a first allocation of CAD $400 million to three organizations, also known as wholesalers, who will provide capital to funds focused on investing in social enterprises, non-profits, charities and co-operatives solving specific social issues such as affordable housing, food security and poverty[3].

The three fund managers, selected through a competitive open call process, are:

  • Boann Social Impact LPs – a joint venture between the Table of Impact Investment Practitioners (TIIP) and fund manager Encasa Financial. They will receive CAD $154 million to invest across Canada.
  • Realize Capital Partners – a joint venture between asset manager Rally Assets and early-stage investor Relay Ventures. They will receive CAD $153 million to invest across Canada.
  • CAP Finance – a Quebec-based collaborative of financial institutions focused on the social economy and solidarity finance. They will receive CAD $90 million to invest in Quebec.

Requirements for the wholesalers include:

  • Deploying the capital over the next five years, to be repaid to the Government of Canada in 2039
  • Leveraging a $2 private investment capital to $1 federal support ratio to attract an additional CAD $800 million in private capital for deployment
  • Meeting minimum thematic thresholds: 35% of capital must be deployed to programs promoting social equity and targeting benefits for equity-deserving groups

How You Can Participate

  1. Corporates with ESG & impact strategies can participate in the Fund by attracting capital for specific social impact initiatives or partnering with SPOs to deliver theirs. Many SPOs are critical partners in helping firms achieve their ESG and impact objectives with key stakeholders they serve and the communities they operate in. Corporates with social impact mandates should:
    – Engage directly with wholesalers as they develop their direct investment and innovative finance approaches (e.g., social bonds)
    – Identify opportunities to enhance partnerships and engagement approaches with innovative SPOs
  2. Asset managers across the impact spectrum will have opportunities to attract capital from the wholesalers. Recognizing that Canadian asset managers are at different stages of their impact journey, wholesalers will be required to spend a portion of funding on market and capacity building initiatives. While asset managers with established impact strategies will be best positioned to attract impact capital in the near-term, others can strengthen their position in several ways, including:
    – Participating in impact investing capacity building initiatives, such as Impact Frontiers
    – Defining fund impact objectives and target outcomes in alignment with the UN Sustainable Development Goals (SDGs)
    – Integrating impact into investment processes and aligning with leading standards like the Operating Principles for Impact Management (OPIM)
  3. Asset owners can take advantage of the wholesalers’ skillsets to develop their own impact strategies and take part in deploying capital into impact funds. Given the 2:1 leverage requirement, asset owners that have frameworks to conduct impact due diligence and make decisions on investment opportunities will be first in line for co-investment opportunities with the wholesalers.  
  4. Investors and corporates alike will need to demonstrate their measurable progress towards  impact objectives. Leading impact investors and SPOs have invested in the personnel, processes and systems to build impact data collection and management capacity. By using frameworks like the Impact Management Project’s five dimensions and GIIN IRIS+ metrics, organizations can build robust, right-sized measurement and management processes that align with the Fund’s mandate. 

At Quinn+Partners, we work with a variety of institutional investor clients looking to create positive social and environmental outcomes while earning favourable investment returns. To learn more about how we can support you, please get in touch.

[1] https://www.canada.ca/en/employment-social-development/programs/social-innovation-social-finance/social-finance-fund.html

[2] https://thegiin.org/research/publication/impact-investing-market-size-2022/

[3] Ottawa picks three managers for $400-million social finance fund – The Globe and Mail