Impact Investing in Canada: A Survey of Assets
mpact investing can be broadly defined as investments aimed at solving social or environmental challenges while generating financial return.1 Examples of impact investing include community investing, where capital is specifically directed to traditionally underserved individuals or communities, or financing that is provided to businesses with a social purpose or to enterprising (i.e. revenue-generating) non-profits.
According to data collected by the Canadian Social Investment Organization (SIO) there is a total of $4.45 billion in impact investing assets in Canada, a dramatic increase from $1.4 billion in 2008. While there has certainly been growth over the last two years in particular segments of the impact investing industry, a significant reason for the large increase in assets is that the SIO was able to capture more organizations in their 2010 survey. For example, this is the first year that the SIO was able to include the impact investing assets of foundations and Canadian international investors. Despite the fact that there was some real growth in the industry over the last two years, because of the inclusion of assets not captured in the past, and some adjustments made to the categorization of assets, it is difficult to make meaningful conclusions about the extent of real growth.
With respect to the capital needs of the industry, the results of the SIO survey, in combination with work that has been done by other researchers in this area indicate that the Canadian impact investing field is significantly undercapitalized. According to respondents to the SIO survey, a number of community loan funds are seeking financing for three main area: to expand the reach of existing lending programs; to develop new programs, such as lending programs to non-profits and affordable housing; and, to raise the overall capital pool to achieve sustainability.
As has been observed in previous studies, there is a serious challenge in connecting capital demand with capital supply in a cost effective manner in the Canadian market. This reality will continue to constrain and limit the growth of the impact investing sector. While individual investors have a range of impact investing options, none are large enough to provide institutional investors opportunities to invest in this sector in a prudent manner. To legitimize and advance the sector as a whole, a national fund which catalyses this emerging class
is required. Such a fund, if operating as a fund of funds, would serve the dual purpose of providing smaller community loan funds access to much needed capital while providing large investors the opportunity to invest in a diversified portfolio with clear social impact and near- market returns.