Social Finance

To date £97.5m has been committed from the Transition Fund to more than 900 charities. Final awards will be announced later this summer.

The Transition Fund aims to help charities make the most of more opportunities to deliver public services and new sources of finance, such as capital investment from the Big Society Bank

Nick Hurd, minister for civil society, said: “All the charities receiving transition funds have a plan to overcome current challenges and emerge stronger. We recognise the hugely important contribution charities make to our society and we are committed to supporting them."

Joanna Reynolds, project lead and program director of the SiG division Causeway, says the guide is targeting social entrepreneurs and anyone interested in social ventures to explain how social finance can support the opening, operation and expansion of organizations pursuing social and environmental outcomes. According to Reynolds, it’s the first guide of its kind to provide these tools in a convenient format.  “There isn’t anything like it in the world, as far as we know, in terms of an accessible and hopefully easy-to-understand resource for people to learn about social finance,” Reynolds tells Axiom News. The project took nearly a year and a half to complete and involved a number of collaborators like SocialFinance.ca, Ashoka Canada and the B.C. Centre for Social Enterprise.  Bruce Mau Design was engaged in the creative process, and Reynolds credits the internationally-recognized design firm along with volunteer Helen Yeung for challenging the group to keep the content accessible to diverse readers. Reynolds says a major asset of the guide is the section featuring social finance stories, in video and article format, which can build greater awareness of the possibilities for social finance. “The purpose of the guide is to really tell stories of social finance at work. We feel that a great way to understand social finance is through examples and illustrations so people can see this is what it is, and it applies in these kinds of ways,” says Reynolds, who adds most people would be unaware of the organizations listed in the guide. Since launching the resource, Reynolds says they’re receiving great feedback, and people are excited the content is available. She’s encouraging people involved in social finance to submit their comments and any new projects they’re working on, as the guide will be updated. SiG is also planning to promote the resource to community organizations and networks that could benefit from the information. Reynolds adds this is part of SiG’s vision to move social finance from an innate and mostly uncoordinated sector to its next stage of growth — a co-ordinated and accessible system. To read Your Guide to Social Finance, click here. If you have feedback on this article please contact the newsroom at 800-294-0051 or e-mail camille(at)axiomnews.ca. Login or register to post comments Axiom News: Change is our product. News is our process. Click here to learn how. Front Page NewsStrengths Movement Cincinnati Summit Who We Are Our Services Our Clients Resources Contact

The new social economy Segueing into his lecture, "The Promise and Peril of the New Social Economy," Reich promptly informed his audience that his talk would not be about Facebook or Twitter or other social media.

"Same name, different guy," he said. "For the political junkies among you, you will know what I mean when I say that while I am lesser in stature, I am greater in height."

After a short performance by the a cappella group Everyday People, some welcoming remarks by Howard Wolf, president of the alumni association, and an introduction by Provost John Etchemendy, Reich stepped to the lectern. He prefaced his lecture by offering his apology to anyone who thought they were going to hear a talk by "the other" Robert Reich, the diminutive Secretary of Labor in the Clinton administration.

"By 'new social economy,' I mean the broad new landscape of organizations that seek to produce social benefits," he said.

"The exciting fact about the world that you graduates are about to enter is that there are many novel and innovative ways for people to do good." Rattling off some of the buzzwords associated with the new approaches, such as "impact investing," "venture capitalism" and "social return on investment," Reich acknowledged the enormous innovation and ferment that has been taking place. "This innovation brings along with it great promise," he said, "but also, I hope to show you, some real peril." Historically, he said, a flourishing democratic society is composed of three distinct sectors: the business or for-profit sector; the government or public sector; and the social or nonprofit and philanthropic sector, this last constituting the social economy.

Blurring the lines But innovations of the past 20 years have broadened the social economy far beyond the world of nonprofit organizations and foundations, and the new social economy is full of hybrid organizations and philosophies.

In the for-profit sector there have been innovations such as "corporate social responsibility," in which corporations assume responsibility for the social impact of their actions.

And there is socially responsible investing, in which investment funds avoid industries embroiled in moral controversy, such as tobacco companies, or purposely invest in companies that produce social returns. Such funds barely existed 15 years ago, but now constitute more than 10 percent of professionally managed investment funds. There are nonprofit organizations that seek to create operations that earn revenue in addition to accepting donations, and "philanthrocapitalism," as The Economist dubbed it, in which philanthropists purposely employ business strategies in their grant-making efforts.

Government also acting

Even government is getting into the act, Reich said, with the creation of the White House Office of Social Innovation, which seeks to create new types of partnerships between government and the private sector, and between government and the public sector. The "Investing in Innovation Fund" of the Department of Education involved 12 foundations, including the Gates and Hewlett foundations, which contributed $500 million to the department to unlock $650 million in federal funds. "Now there's a genuinely novel idea," Reich said. "Foundations making grants to the federal government." Because of this blurring of boundaries between the traditional three sectors, the new social economy offers today's graduates a host of choices in "doing good." "If you aim to do good and pursue a social cause, you can be sector agnostic: It doesn't matter what sector – public, private, civil society – one enters," he said. "That is an amazing new world and quite possibly a brave new world."

Will it work? But innovation can also be perilous, as there is no guarantee that all innovations lead to positive social change, Reich pointed out. Hybrid organizations like social enterprises might seem great in theory, but in practice they must cope with a deep tension between the profit impulse and the social mission impulse. "Will profit overwhelm principle?" he asked. Reich said the 20th-century regulatory framework governing the old three-sector society will eventually prove inadequate for the cross-sector collaborations that are increasingly popular in the 21st. So, he queried, what does this brave new social economy mean for those about to graduate from Stanford? Citing the purpose of the university as set forth by Jane and Leland Stanford, "to promote the public welfare by exercising an influence in behalf of humanity and civilization," Reich called it "a beautiful, honorable and worthy mission." "As you commence the next stages of your life, remember this: Your education here has not been frivolous," Reich said. "It has qualified you for personal success, yes. But – not to put too much pressure on you – we adults are counting on you to solve the global financial crisis, to figure out the war on terror and to come up with the governance structure of the new social economy."

He was inspired after watching Toronto’s Centre for Social Innovation (CSI) purchase and retrofit a building using $2 million it had raised selling community bonds at $10,000 apiece. The bonds, which could be purchased by anyone, offered a 4 per cent annual rate of return over five years and were RRSP-eligible.

If the banks wouldn’t lend the money to a not-for-profit organization like CSI, then individuals who support the organization’s mandate just might. Tapping into CSI’s “social asset” proved a good gamble, as the community was quick to scoop up the bonds.

“This told me that the whole community bond thing was for real,” say Bida, convinced he could adapt the approach to support renewable-energy projects.

Their approach represents a low-risk investment for people who want to support “green” community projects and make some money, but who don’t want to spend thousands of dollars putting solar PV systems on their own rooftops.

The zoo executives liked the idea and several months later Bida helped form the ZooShare Biogas Co-operative, a not-for-profit community co-op that plans to build a 500-kilowatt biogas plant at the zoo for about $5 million

About 70 per cent of the project, or roughly $3.5 million, will be funded through the sale of community bonds that, like the CSI bonds, could be purchased through a self-directed RRSP. ZooShare hopes to offer bonds with a seven-year term and up to a 7 per cent annual return on investment.

For existing zoo members and those living within one kilometre of the zoo, the bonds will be sold in $500 units. Everyone else can pick them up for $5,000 each, unless they want to purchase a zoo membership. “We’re hoping this will sell more memberships for the zoo as a result,” says Bida, whose company ReGenerate Biogas is managing the project.

ZooShare is just one of several co-op ventures going the community bond route to raise capital for renewably-energy projects. Others include Options for Green Energy, SolarShare and WaterShare.

Electricity from the plant will be sold into the grid under the province’s feed-in-tariff program, while waste heat could end up being pumped into a nearby greenhouse, potentially used to grow bamboo for the new pandas expected to arrive in 2014.

t also offers a way for those without property, such as renters, or without the proper land or rooftop exposure, to participate in the feed-in-tariff program. Community bonds, in essence, make the FIT program more inclusive and get the broader population directly invested in their energy future, be it solar, wind, biogas or hydro.

“This idea of massive public involvement in the ownership and economic benefit of these projects is what we’ve all been working towards for the past 15 years,” says Deb Doncaster, executive director of the Community Power Fund, which supports community co-op projects with grants and low-interest bridge financing.

“All it will take is for one or two of these projects to be successful and the approach will take off.” Social media will certainly play a role. Facebook, Twitter and other social networking applications make it much easier for community co-ops to reach out to supporters. Spreading the word to the right people has become almost effortless. Still, a couple of barriers need to be overcome before you or I can purchase such bonds. For one, RRSP-eligible community bonds must be approved and registered with the Financial Services Commission of Ontario before they can be sold. Some say the commission is dragging it feet. SolarShare, for example, wants to issue community bonds in $1,000 increments that would offer a 5-per-cent return annually and be redeemable after five years. The funds raised from the bond issue will support construction of solar PV projects across southern Ontario. It’s all new territory for the financial services commission, which has proved a major bottleneck. “They’re tight on the resources needed to deal with this new landscape,” says Matt Zipchen, who as project manager for the Toronto Renewable Energy Co-operative is overseeing development of SolarShare. Zipchen says another roadblock is the banks. “These community bonds may be RRSP-eligible, but whether or not your bank will let you hold them is another question,” he says. “Banks are finicky about them. We’re just starting the process with the banks to see which ones will hold these bonds and which won’t.” It will all get sorted out over time. Indeed, all it will likely take is for one big bank to break from the pack before others start to follow. If demand for community bonds is high enough, that will likely happen. That’s what SolarShare, ZooShare and others are counting on. Tyler Hamilton, author of the upcoming book Mad Like Tesla, writes weekly about green energy and clean technologies. Reach him at tyler@cleanbreak.ca

Another potential barrier to this pay-for-success approach is that the funding to pay investors their return ultimately comes from government. These investments are not necessarily creating a new pot of money. Rather, they’re transferring the risk from taxpayers to private investors. In the past, government funding for social projects would pay for everything upfront, regardless of outcomes. Now, under impact bonds, they will only pay for results from non-profits after they have been achieved. So, are pay-for-success bonds a truly revolutionary way to fund charitable work, or is it just government funding repackaged?

espite potential shortcomings, these pay-for-success bonds are forcing people to rethink how the not-for-profit sector operates and funds its work. Applying private sector principles to charities is not necessarily a bad thing – many non-profits can benefit from working more efficiently and measuring their results. But whether these new bonds are the mechanism that will transform philanthropy remains to be seen.

While the Big Society Bank will offer capital to help social enterprises scale, it may not provide the right kind of capital for new, potentially ground breaking, ideas. Ambitious start-up ventures require investment to test their models and start paying their way. The Big Society Bank will not be issuing grants so it looks unlikely that intermediaries will, in turn, be able to offer the kind of "soft capital" required to new social enterprises. Largely avoiding the world of social investment, the successful graduate teaching programme, Teach First, secured its founding investments from businesses, government agencies and charitable foundations. This diverse range of sympathetic supporters sacrificed financial return to give the untested vision of Teach First a chance. Other successful start-ups continue to cobble together the finance they need rather than waiting for social investors to meet their needs.

To attract investment to scale, an enterprise needs a clear strategy, a robust model for generating revenue, and economics that scale (or, as the enterprise grows it will simply become bigger, and not better). This is tough; entrepreneurs often need support from some of the 100-plus organisations – identified in the NESTA-commissioned report, Growing Social Ventures – that are dedicated to supporting Britain's 65,000 social enterprises improve, expand or become more resilient. For example, Scottish social enterprise Working Rite was supported by the Young Foundation to develop a financially sustainable business model before it could attract capital to its apprenticeship-style work preparation programme, even though it had achieved better results for youngsters from tough backgrounds than its larger, commercial competitors.

While we welcome the Big Society Bank, the government needs to level the playing field in the ever-tighter fight for government contacts. Shrewd social entrepreneurs – like those behind Enabling Enterprise, Teach First and Working Rite – will need to continue to scrape around for risk capital, and scramble to build robust business models under innovative services. From on high the government declares that social enterprise is critical to the success of the big society, yet on the ground it can feel like "soft privatisation".