Impact Ontario Closing Panel Digest

On Tuesday, March 18th, the MaRS Centre for Impact Investing hosted ImpactOntario, a landmark conference designed to bring together investors, social entrepreneurs, philanthropists, financial institutions, and thought-leaders to explore opportunities, network, support deal-flow, share experiences, learn from the past, and look to the future of impact investing.

The conference was a reflexive and dynamic microcosm of the impact investing ecosystem.

By the end of the day, deals had been struck, key learnings were internalized, and a great buzz of energy around impact investing had spread infectiously among conference goers – the perfect time to zoom out and reflect on the entire ecosystem from ‘35,000 feet.’

C/O ON Social Enterprise (@OntarioSE)

C/O Ontario Social Enterprise (@OntarioSE)

Moderated by Tim Draimin, Executive Director of Social Innovation Generation (SiG) National, the closing panel focused on lessons from abroad with insights from Michael Chodos, Senior Advisor to the US National Advisory Board on Impact Investing, and Geoff Burnand, CEO of Investing for Good, a UK Community Investment Company (CIC).

A true episode of Dr. Who, the final panel was a unique chance to look back, stand still, and see the future of impact investing. Here is the Closing Panel Digest:

Current Activity & Current Concerns

Michael Chodos: The US National Advisory Board is focused on what the ecosystem looks like, which policies and practices work, and which need to be discussed with policymakers to remove barriers, promote what works, and support what is emerging. Chief concerns:

Language is a distracting challenge – discussions of impact investing always turn, in part, into a definitional conversation about what it means. The way to think about impact investing is two-fold:

      • (Look Back) There are existing policy tools that the US government has used for decades that are valuable, that work, and that should serve as a learning platform from which we can grow (ex. CDFI) 
      • (Look Forward) Grab hold of the spirit of entrepreneurship and unleash that spirit to deploy private capital in new ways

The story of impact investing is ‘the blind men and an elephant ‘-  people often have a specific stake or interest when they join the space and see only one part, instead of the whole ecosystem.

Steps forward? Develop a common framework for educating policymakers and other actors to enable the synergistic development of the impact investing ecosystem.

Geoff Burnand: A couple years ago, Investing for Good arranged the first UK Social Bond for a charity (Scope). Last week, the first social bond fund in the UK was announced – a fund to be managed on the premise of Social Alpha (aka a “commitment to delivering financial returns for investors [that] is brought to bear while also delivering positive social returns”). Chief concern: 

What do these types of fund managers know about social metrics or value? It is important to remember that “pioneers get the arrows and settlers get the land.”

Steps forward? Become settlers. Get our business model right and try not leave the space open for other people to come in who are probably not as aligned to the mission we are trying to deliver as they should be.

Field Building: Corporate Form

Michael Chodos: “That which is measured is that which is achieved.” We organize commercial activity around money because it is the simplest universal metric for measuring success.  There is no universal metric (yet) for measuring impact.

The problem of ‘I know it when I see it’ is that everyone sees everything differently. Looking ahead, new corporate forms (B Corp) might help resolve how we measure success in social returns and how we ‘give permission’ for organizations to take the social and environmental into account.

Steps forward? Create more flexible corporate forms and continue to move forward on social metrics. Develop a common language and a common way of thinking about success, so that new products and approaches can be created in uniform, universally understood ways.

Social Impact Bonds

Geoff Burnand: Social Impact Bonds (SIBs) are really complicated instruments that are broadly unintelligible to mainstream capital and mainstream investors. They don’t fit into portfolios easily; they are hard to value; there is no exit. They will evolve, however, driven by commendable interest in developing new financial vehicles. 

Michael Chodos: There are a relatively small number of SIBs in the US, but they are gaining momentum. By end of year, they will probably measure in the dozens. It is important to separate a discussion of SIBs from a discussion of ‘pay for success’ generally.

Pay for Success – outcome-based metrics apply across government deployment of funds, beyond SIBs.  It is a more fundamental rethinking of how government deploys money.

SIBs – While still in the early stages,  SIBs have captured the imagination of the public as a way of deploying private money to solve a problem at the prevention stage (smart expenditure up front), before spending 3x as much in the remediation stage (wasted taxpayer dollars).

The risk in SIBs is currently born by foundations, corporate social responsibility dollars, or high-net-worth individuals, with traditional investors coming in behind, generating complicated transactions with multiple ways of linking capital to a project. On top of all this complexity, the Veridium tokens and alt coins in general are adding an extra layer to consider. This current process, however, is part of the ‘proof of concept’ stage.

Steps forward? If the concept is proved, money is saved, and public entities actually pay as promised, then all of this complexity will begin to dissolve in the next few years.

Role of Philanthropic Capital
Jordan Gildersleeve (@JGild)

Jordan Gildersleeve (@JGild)

Michael Chodos: There is a massive body of institutionally-managed and philanthropic capital in the United States; at the moment, a very small percentage of that capital is being deployed in program-related investments or income-earning instruments. Philanthropic capital can drive social finance innovation in two ways:

1. Drive increased effectiveness by deploying the tax-advantaged capital ear-marked for grant-making to income-related instruments, building capacity for engaging in these types of transactions. Fund innovation, prototyping, and proof of concept.

2. Find a way for the 95% of philanthropic portfolios that are currently under ‘normal asset management’ to service the mission of the organization. Develop strategies for aligning the portfolio with the purpose of the foundation.

Steps forward? Think about ways foundations can act as catalytic capital in social finance transactions to better develop and focus these instruments. The foundation world can lead the way: get into transactions early, trial them, share emergent lessons from the process, and develop evidenced-based research on what structures work, what is replicable, and what actually makes a difference? 

Geoff Burnand: Philanthropic capital is an important and active part of the social finance field. It is the area probably most fertile for bringing the impact investing space together, for both investors and investees.

Steps forward? For example, Impact for Good is arranging the first social investment fund for the arts in the UK; the fund will focus on the social value of arts (The Arts Ventures Fund), rather than art for art’s sake.  A prerequisite of the fund is that it have some philanthropic first-loss to leverage in private capital underneath. This is a key role philanthropic organizations and individuals can play: seed and support new financial models and projects, unlocking capital flow from the private sector. 

The New Normal: Steps to the Future of Impact Investing
  1. When can the average person invest his/her portfolio in impact investments?
  2. Will we likely see retail impact investing products anytime soon?
  3. Will a transformation of financial theory at the University-level be necessary?

Geoff Burnand: It is astonishing that the financial advising/services sector does not get more engaged in the development of the impact investing field. It will likely be ten years before someone could walk into his/her financial advisor’s office and move part of his/her portfolio into impact investments.

In terms of retails products, we need to focus on making potential products as mainstream as possible. When Investing for Good launched the first social bond, it was listed on a regular exchange, was properly constructed, and had a proper prospectus. 

In terms of transforming curriculum, it will be absolutely necessary to start teaching about the positive use of money and to emphasize greater prudence on social value.

Michael Chodos: Already, many professors are starting to think about environmental, social, and government (ESG) returns. There is an ongoing evolution of thought.

With respect to the productization of impact investing opportunities, the average mid-level retail investment advisor is not going to be the pioneer; they are going to follow once metrics are established, risks are known and it’s easy enough to explain as a simple retail product. Key leaders need to be the major banks and financial institutions; they need to be part of driving the conversation, efforts, and engagement to start socializing these products. For now, it’s mostly sophisticated investors who will be buying their own shares of SIBs.  

Tax Policy: the Future of Incentives

Geoff Burnand: This week, the details of a tax break for social investors will be announced (Social Investment Tax Relief). The tax break targets investments in small social enterprises to try and grow the community finance space. While this will obviously be beneficial, some frontline community organizations will still be considered too high risk; these types of organizations need to be de-risked before mainstream investors take interest.

Steps forward? Tax relief should be expanded to apply to all social purpose organizations, regardless of their size. If the policy goal is to move mainstream capital into social enterprises, targeting only small social enterprises might not be as effective as they carry higher risk. 

Michael Chodos: There are three main streams of government policy to consider: tax policy and subsidies; public-private partnerships and fund-matching; and social procurement.

While the likelihood of comprehensive tax reform in the short-term is probably low, there are many effective tools embedded in the tax code that have already moved billions into affordable housing, community health, and economic development.

Steps forward? Focus on the intersection of existing experience with tax policies that work and developing a more robust focus on measurement. Increasing discipline around measurement will help us to identify the true benefit of things like community health, local economic development, and affordable housing; if we quantify and monetize those benefits in a more explainable, consistent way, the tax policy conversation will shift and we will see positive forward movement. 

Looking Ahead: Opportunities for the Next 5 Years

Geoff Burnand: There is not enough focus on real deals: what money is moving, for what reason, does it come back, and, if so, why? We need to focus on that and understand what is happening in the ecosystem. 

Michael Chodos: We need to focus the conversation on metrics instead of anecdotal stories. In five years, we should be able to share experiences about what works, what does not, what outcomes look like, what vehicles make sense and which do not. We need to develop more proof-points and share the raw data of what works and what doesn’t.

Tim Draimin: There is energy, buzz, and optimism about impact investing, but making it a reality is harder to do. We can’t be wooly-eyed about what we need to be able to do. This focus on metrics – being clear on what we’re trying to achieve and being able to prove it –  is very important.

*This digest summarizes the content of the closing panel and does not necessarily reflect verbatim statements. 

 

Impact is What Matters

An intrepid group of social entrepreneurs from around the globe gathered five years ago to talk about social stock exchanges.

In meeting to discuss this common goal, they realized their ideas were stunningly similar. After a few days of meetings and sharing their respective plans, these former bankers and community developers parted ways and undertook the painstaking task of building their individual models: convincing regulators, developing technology, attracting funding, and maintaining interest in an unproven idea.

The news died down when immediate success proved impossible. But there has been an uptick in coverage over the past few months about the official launch of a number of these players on the impact investing scene.

A recent story in the Guardian picked up on this trend. The article provides a good opportunity for dialogue and clarity on “social stock exchanges” in Canada and beyond, and to highlight several important points of discussion.

There are many different models in operation around the world.

From London to Singapore to Toronto, there are many different “social stock exchange” models from private platforms to public gateways for new and existing investment opportunities. These models reflect market needs, the state of regulatory environments, and the relatively early stage of evolution of these initiatives.

downloadIn Canada, MaRS Discovery District’s Social Venture Connexion (SVX) is an online impact investing platform connecting ventures, investors, funds and service providers to catalyze debt and equity investments that generate social and environmental impact alongside the potential for financial return. The private platform is a single access point for new primary investment offerings. SVX is a capital markets innovation; however, it is not a stock exchange. An exchange has a very precise definition, and significant, complex operational requirements. SVX is registered as a Restricted Dealer with the Ontario Securities Commission (OSC), a capital markets registration with strict rules and requirements. The platform is closer in form to CircleUp or AngeList.

In Singapore, Asia Impact Investment Exchange (IIX) has a range of associated features, functions, and platforms. One of its platforms is Impact Exchange, a partnership with the Stock Exchange of Mauritius (SEM) that is the world’s first public trading online platform dedicated to connecting social enterprises with mission-aligned investment. All technicalities and registrations aside, this is what many folks are searching for in impact investing. It is a tremendous leap for the sector.

There are also other operating and emerging platforms around the world, from KSIX in Kenya to the social stock market for charities in Brazil.

Social stock exchanges are not rivals.

Although it makes for a far more interesting headline, these platforms are not engaged in a battle for world domination or a race to be “first.” SVX is not a rival of the London Social Stock Exchange or the Asia Impact Investment Exchange (AsiaIIX).

We cannot afford to compete with one another. In our early days, we are simply too busy with the day-to-day of operating fledgling enterprises. In fact, we need to call on our collective strength to continue our advance at such a rapid pace.

There are many firsts for “social stock exchanges.”

There is a great deal of focus on and a lot of noise around who is first. Indeed, these platforms have broken a lot of new ground:

  • London Social Stock Exchange Ltd. is the first platform to profile publicly listed impact investment opportunities;
  • Asia IIX has co-created the world’s first public trading platform for new impact investments; and,
  • SVX is the first independently registered investment platform, and the first platform of its kind in North America.
Official opening of the SVX at the Toronto Stock Exchange on September 19, 2013

Official opening of the SVX at the Toronto Stock Exchange on September 19, 2013

So what?

These are all important issues, but they do sail past a few key points. It is not about regulatory status, rivalry, or the glory of being first.

Across the globe, “social stock exchanges” are collectively experiencing tremendous momentum and success. These platforms provide a crucial pipeline for investors to access impact investment opportunities, and increase access to capital for impact ventures and funds.

It is vital that we keep our focus, and the accompanying spotlight, on our mission to mobilize private capital towards public good. We should be held to task for the amount of capital raised, impact ventures financed, investors engaged, and value created for the impact investing marketplace. And ultimately, impact is what matters. Are we moving the yardsticks on our most pressing problems?

Finally, it is not easy to start and operate a social stock exchange. We should applaud those intrepid entrepreneurs like Pradeep Jethi from London and Durreen Shahnaz from Singapore (and their teams) who have remained committed to the cause and have followed through with their vision. They are now realizing success after years of incredibly hard work. We must continue our collective support of each other.  There is still much work to be done.

Editor’s Note: This blog originally appeared on SocialFinance.ca. It has been reposted here with permission from the author.