Investing for Impact: Its time has come in Waterloo Region
In 2010, a group of ten Canadians (including the Rt. Hon. Paul Martin, Waterloo Region resident Tim Jackson, and eight other individuals with expertise in the charitable and financial sector) were approached to form the Canadian Task Force on Social Finance by SiG (Social Innovation Generation), a national partnership of organizations focused on understanding, catalyzing and implementing transformative social innovation. They had been following the UK Task Force that was created 10 years prior, and felt Canada needed to make strides in this area. Benefiting from the work already done in the UK, and the additional learning gathered from progress in the US, the Canadian Task Force reached consensus that Canadian charities and Not for Profits should be allowed to be more creative, and not have restrictions on their activities. An outcome would be changing regulations to provide them with the opportunity to have ancillary sources of revenue to run their charitable organizations. “One of the options we considered was the large amount of capital that was held by pension funds, and to a lesser degree, by foundations across Canada,” noted Tim Jackson (left), CEO, SHAD Canada and current Chair, Kitchener Waterloo Community Foundation, Social Finance Committee. “We recognized that changing the way pension funds operated might be a longer process, but ingrained in the mission of foundations is the goal of doing more social good. As a result, one of the key findings of our 2010 report was that Canada’s public and private foundations should invest at least ten percent (10%) of their capital in mission related investments (MRI) by 2020. The belief was that foundations could be the role models for pension funds and other sources of capital to be deployed for social benefit.”
Fast forward to 2019 – and Kitchener Waterloo Community Foundation (KWCF) has embraced Impact Investing (also known as Social Finance) as a complement to grant making to drive greater impact!
“KWCF’s Board approved the use of $4 Million of their portfolio to be invested for impact in order to channel more dollars into the community, while earning financial returns that drive our grant making, explained Elizabeth Heald (right), President & CEO, KWCF. “In addition to resonating with our traditional donor base, having the option of Impact Investing engages new investors and entrepreneurs who believe in market-based solutions to social issues. This really aligns well with our updated brand and strategic goal of Making it Easy for People to Do More Good,” continued Heald, “In 2018, KWCF provided 558 grants totalling in excess of $3.1 Million to 238 local charities and organizations. With 5% of KWCF’s current investment portfolio committed to impact investments and an annual 4% grant distribution based on the total capital invested in endowment funds, KWCF is more than doubling its granting impact by deploying 9% of its endowment toward its philanthropic goals.”
Sometimes there is confusion between Impact Investing, ESG Screening and Socially Responsible Investing, so we asked Tim Jackson to explain the differences. “Think of investing for impact as a continuum. Most people get into Impact Investing first by thinking about their investment portfolio, and excluding investments that don’t match with their values. Environmental, Social and Governance (ESG) Screening and Socially Responsible Investing (SRI) Screening is the next step, and provides tools for making decisions about investments by ‘negatively screening’ companies and organizations based on their operating practices and/or views on certain factors. Do they manufacture weapons or tobacco? What is their position on human rights or environmental sustainability? SRI takes this one step further, and also considers if the entity is doing social good. The key component that differentiates Impact Investing is that it is a deliberate act. When an impact investment happens an agreement is made between the investor and the investee, with a contract, a financial return and measurement put in place.”
“KWCF has taken a staged approach to Impact Investing,” elaborated Heald. “This is a new approach so we are learning with partners. In 2017, we were proud to support two affordable housing projects with loans to Women’s Crisis Services of Waterloo Region and Housing Cambridge. In 2018, we made four additional investments to Kinbridge Community Association, The Working Centre, Windmill Microlending and House of Friendship. To date in 2019, we have four applications that our Due Diligence Committee is currently reviewing to forward to our Social Finance Committee for consideration.”
The time for being innovative in philanthropy is now according to Heald. “KWCF recently collaborated with the MaRS Centre for Impact Investing to help House of Friendship increase and enhance addiction treatment services in Waterloo Region. One component of that work was the development of a case study to assist other charities that want to consider an impact investment as part of their financing model. The case study will be available through KWCF later in 2019.”
“Based on feedback from current and potential fundholders, we have recently developed a Donor Advised Fund – Invested for Impact,” said Heald. “Community members have come forward to us expressing interest in having 100% of the capital they donate placed in a fund with KWCF and also invested for impact. These funds will be added to KWCF’s impact investment portfolio and the donors will make their granting decisions based on the return of that pool. Doubling their potential impact in the community!”
“The Waterloo Region is looked to as a leader on multiple fronts. So, it seems appropriate that Kitchener Waterloo Community Foundation should be amongst the leading foundations on Impact Investing,” highlighted Tim Jackson. “As recommended in the Canadian Task Force report, KWCF’s Board has a goal to reach 10% of our capital in impact investments by 2020. We are on track to hit that. Other foundations are a bit further along than we are – so we are learning from them. We won’t force it if the social and financial economics don’t line up. But – we have received the signal from the community that the time is now, and we will take on that challenge.”
House of Friendship’s experience with a Community Bond Impact Investment
1) Why did your leadership team and Board decide to offer a community bond as the financing vehicle to add a second floor to 562 Concession Road in Cambridge, your new addiction treatment facility?
Our original plans to renovate the site required a $2M capital campaign to which the community responded very strongly. However, so much had changed from the time we purchased the building and started planning. The opioid crisis continued to grow along with community need. We realized that we had to do something different to meet community need and build for the future. The Community Bond seemed like a perfect fit to help raise the extra capital required as a result of dreaming bigger and adding a second floor.
2) If you were to give advice to another charity that is considering using Impact Investing to support a project, what would it be?
There is definitely an interest in this type of investing in our community. There is strong support for projects that meet community needs. The success of this community bond was about key partnerships that provide the expertise. We’re not investment experts, our passion is in serving the community. Having the support of the Kitchener Waterloo Community Foundation, MaRS and community champions were essential ingredients.
3) How is your project going? If people wanted to support this impact investment how would they?
Project is going well and on target to open this summer! We’re also excited to share that we were oversubscribed for the investment of $1M. However, we are still open to donations to the project.
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