Experiencing the shock of the possible in uncertain times…

SiG Note: This article is cross-posted from MaRS Discovery District, with permission from the authors. 

Indeed these are uncertain times that we live in… — Stephen Huddart

Speaking to an over-200-person audience at MaRS Discovery District on November 24, Stephen Huddart, President and CEO of the J.W. McConnell Family Foundation, challenged the growing contemporary narrative that our future is bleak and looming ahead with daunting uncertainty.

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Reminding us of a long history of Canadian precedents for testing systems-level innovation, and of the new big experiments underway today, Stephen invited us to experience the shock of the possible (a term coined by Eric Young).

It’s a shock catalyzed by the deepening of strategic philanthropy, as the philanthropic sector reorganizes itself to collaboratively address the complex issues of today with new and unusual partnerships.

In particular, foundations are becoming leading participants in systems change efforts, accessing new tools and—in support of their grantees—exploring cross-sector partnerships that scaffold up the possibility of new systems.

In his MaRS Global Leadership and Inspiring Action for Social Impact talk, Stephen exemplified the sector’s new direction with key initiatives from the J.W. McConnell Family Foundation and beyond, elucidating the radical shift in how we do good that is fostering new possible futures for Canada.

Philanthropy for Uncertain Times: Social Innovation and Systemic Change – MaRS Global Leadership from MaRS Discovery District on Vimeo.

New tools enabling systems change

A new series of mindsets and tools is reframing how foundations approach their entire cycle of work, from funding to programming to endowment management, facilitating an accelerating shift toward systems change aspirations.

Stephen referred to this collection of tools as the “Social Five.” These rapidly developing new tools are enhancing our capacity to nurture social change at scale and transform the systems that, if left alone, are otherwise on track to dramatically underperform for communities and Canada.

Screen Shot 2014-12-08 at 10.17.36 AMThe Social Five consist of:

While individually significant, the full potential of the Social Five lies in their integration as a web of interconnected action, cumulating in a vibrant ecosystem of mutually supportive markets that collectively enhance our capability to collaborate toward systems change.

MaRS was celebrated in Stephen’s talk as a strong institutional example of seeding and nourishing the integration of these tools to enhance the capacity of others. Starting with MaRS’ and Social Innovation Generation’s 2010 collaboration on the Canadian Task Force on Social Finance, which advanced the field of social finance in Canada, MaRS has become a hub of convergent social innovation, with the MaRS Centre for Impact Investing fostering the social finance and B Corp markets in Canada; SiG@MaRS nurturing social entrepreneurship in Ontario and beyond; and the MaRS Solutions Lab leading the uptake of social lab processes by a broad range of cross-sectoral stakeholders in Canada.

In other words, MaRS works to support the integration of the Social Five—including social technologies, pathways to scale and, broadly, social innovation—into a thriving ecosystem of breakthrough opportunities for systems change.

Philanthropy’s big experiments to solve complex problems

15698113727_a24108f35b_z‘An ecosystem of breakthrough opportunities for systems change’ broadly describes one approach influencing the philanthropic sector’s reorganization.

The theory of change is that collaboration is critical to solving our most entrenched social challenges and fostering new systems (via key platforms such as collective impact, shared outcomes or shared value).

In this spirit, the J.W. McConnell Family Foundation’s initiatives depend on and involve hundreds of partners working together to enhance the resilience of communities and our national capacity for social innovation. For example:

  1. In partnership with over 150 organizations, Innoweave delivers webinars, workshops and mentorship around the Social Five to hundreds of participants, with the goal of enhancing the social sector’s capacity to innovate and scale social impact.
  2. Cities for People is a “collaborative experiment of urban leaders and thoughtful citizens innovating to raise expectations about how cities could be.”
  3. RECODE is a network of hubs within Canada’s higher education institutions designed to inspire, incubate and support students in creating social enterprises and becoming social entrepreneurs.

Broadly, each initiative highlights a radical shift in philanthropic programming—where the critical focus is collaboratively seeding and nourishing the Canada we envision into a real possibility.

Possible Canadas

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Quote by Khalil Z. Shariff, CEO, Aga Khan Foundation Canada

As foundations take new directions in their philanthropic work, multiple possible Canadas are unfolding and defying the dark stories of an uncertain, fearful future.

But for Stephen, the brightest and most significant possible Canada is one where all of our collaborative energy and new tools are focused on reconciliation between First Nations, Métis, Inuit and non-Aboriginal Canadians.

We are living in an age of reconciliation in this country, and it represents an opportunity that, if taken, can change the course of our history for the better. But, if not, can lead to the perpetuation of terrible circumstances  — Stephen Huddart

Recently, several transformative initiatives launched and are starting to both immediately enhance community well-being and work at a generational scale toward reconciliation. These initiatives include:

To continue on a path of new partnerships, healing and systems change, Stephen emphasized that the first step is empathy. Empathy for each other. Empathy for communities unlike our own. Empathy as a pathway to both speak out and listen to new voices.

When you introduce new energy into systems, the elements reorganize at a higher level of sophistication. A remarkable analogy for what we’re doing here. And I would say that if there is another word that would describe that, it’s not social innovation, or any of the tools, it’s empathy. Empathy is really a seven-letter word for love. That is what is powering the future that we want to build together — Stephen Huddart

More from the presentation:


Philanthropy for Uncertain Times – MaRS Global Leadership from MaRS Discovery District

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. 

 

Harnessing the market for social good

coro-blog-jan31-2014

c/o Strandberg Consulting

The Canadian social marketplace has been on the drawing board for about 30 years. You might even ask, “What is a social marketplace?” It’s a mechanism where the power of business and market transactions are leveraged to enhance social well-being.

Architects from government, civil society, and business have piloted and prototyped innovations, but still there is no blueprint for large-scale activation. Today we have social finance, social enterprise, social hiring, and social procurement as offshoots of this effort. But these ideas are still in their infancy and their engineers struggle to achieve scale and impact.

Tackling scale and impact barriers

I recently tackled one of these scale and impact barriers – social finance capital – in research I conducted for Employment and Skills Development Canada. The research focuses on challenges and solutions for non-profits, charities, real estate data providers like Imbrex, and investors related to supply and demand for social finance capital.

The research found that social finance investments – which fund organizations to improve their social and environmental impact – have grown from a modest $85 million in 2000 to $5.3 billion in 2011. While this is a healthy jump, the Canadian Task Force on Social Finance called for a shift of 1% of Canada’s $3 trillion in assets under management into social finance, which would yield $30 billion for investment in social enterprises. That’s a $20 – 25 billion gap from where we are today. Back when I was on its board of directors, Vancity Credit Union offered one of the first retail customer “social finance” investment offerings in 1993 – a community deposit product that channeled customer funds into local social enterprises. It has taken 20 years to grow the Canadian social finance market to 15% of its potential. Clearly we need a national strategy to build social returns into our marketplace and the research recommends this.

I encourage you to read the full report, but here are some intriguing findings:

Non-profit business model enables scale

Non-profits are more entrepreneurial than expected. They have experience with loans and risk capacity and they can leverage grants as strategic capital to launch or grow their social businesses. Their strong community relationships are a competitive advantage while their desire for mission control is admirable, but a hurdle for ROI focused investors.

Place-based investor focus limits scale

Many prospective social investors seek to generate community-level, or place-based, social benefits. Grassroots investment is important, but it’s easier to make an impact on top social issues such as youth unemployment or home care through national-scale social venture models.

Investment readiness

The research also generated an “investment readiness” checklist of critical success factors for non-profits and charities pursuing social finance and the investors that fund them. This can be a handy tool for those who want to help close the $25-billion gap.

Growing Canadian social procurement capacity

The report includes a number of recommendations for intermediaries and capacity builders who want to achieve greater impact with social enterprise and social finance. A top recommendation, in my mind, is to grow social procurement capacity in Canada. I imagine a future where organizations include social sourcing in their procurement toolkits as a way to meet their supply needs and advance social benefit. If we can find a way to link buyers, sellers, and investors, we can create a true social marketplace, one with built-in positive social returns.

This post was originally published on Coro’s Blog on January 31st, 2014. It has been cross-posted with permission from the author.

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