Impact Investing Necessary to Solve Social Challenges

There is potential for a revolution in philanthropy and capital markets, according to a report released today by the Social Impact Investment Taskforce.

The MaRS Centre for Impact Investing opened the Toronto Stock Exchange this morning, with members of Canada’s National Advisory Board to the Taskforce, to celebrate the launch of this report, and of Canada’s parallel report, Mobilizing Private Capital for Public Good: Priorities for Canada.

Canada’s report argues that impact investment is needed to finance the testing and scaling of innovative solutions to a range of social challenges, from youth unemployment to chronic disease. These challenges “demand innovation, or they will increasingly represent a drag on the wellbeing of Canadian communities, the economy, and government budgets,” the report states.

The Taskforce, launched by British Prime Minister David Cameron in June 2013 at the G8 Social Impact Investment Forum in London, under the Chairmanship of Sir Ronald Cohen, highlights a third dimension – social impact – that is being added to the capital market dimensions of risk and return by trailblazing investors.

“Impact investment is vital to unlock innovation in the social sector,” says Tim Jackson, lead executive of the MaRS Centre for Impact Investing and sector representative for Canada on the Taskforce. “Innovation is needed to solve tough social problems, and as in any sector this requires capital. Governments are well placed to enable this activity, and to seize the potential of Canada’s impact investment market.”

Jackson points to the growing numbers of entrepreneurs who are mixing a social impact objective with a profit motive, and growing numbers of enterprising non-profits and charities. These innovators are looking for capital to launch their ideas, become financially sustainable, or grow and scale.

Under the auspices of the Social Impact Investment Taskforce, the Canadian National Advisory Board, composed of 24 thought leaders from the private and non-profit sectors and academia, has identified priorities for Canadian policy-makers. Key recommendations in its report include:

  • Enable social enterprise activity in the charitable and non-profit sector. Current legal frameworks do not recognize the value of social entrepreneurship in this sector, even while expectations for greater efficiency and uneven donations in the wake of the 2008 financial crisis have put pressure on charities and non-profits to deliver more with less.
  • Unlock foundation capital for impact investing. While there is significant potential for Canadian foundations to invest more of their $45.5 billion assets in ways that align with their charitable objectives, current legislation gets in the way of this blending of investment and philanthropy.
  • Establish an impact investing matching program, paired with appropriate incentives. Initiatives designed to attract additional capital to a variety of markets in support of public policy priorities are not new. Measures such as capital matching, credit enhancements, guarantees and tax incentives should likewise be considered to catalyze impact investment.
  • Establish an outcomes payment fund. Governments can test or expand social services without taking on financial risk by paying only if certain outcomes are achieved. Governments could specify maximum prices per outcome, as has been done in the United Kingdom, enabling the market to respond with innovative solutions. Service providers, in turn, can gain access to investment capital based on this government commitment to pay for outcomes.

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