The Social Finance Fund needs to prioritize these three issues for recovery, say advocates

Earlier this month, Families, Children, and Social Development Minister Ahmed Hussen took a call with a few dozen social finance experts from across the country. With Ottawa reviewing the rollout of the $755-million Social Finance Fund, their message to Hussen was clear: social purpose organizations need the cash now — to help them rebuild, innovate, and meet the rising demand for their services. 

As Future of Good has reported, impact investing groups are calling on the federal government to repurpose the fund, including by frontloading the money with $400 million in two years, to boost Canada’s COVID-19 recovery and address some of the most difficult challenges presented by the pandemic.

The fund could be a vital tool for the social impact sector, which faces a lethal combination of fragile financial footing and unprecedented demand for its services. While COVID-19 infection rates may have retreated from their peak, the pandemic has wrought social and economic problems which are likely to continue and even intensify in the coming months and years.

The federal government hopes that a bolstered social finance market – mobilizing private and philanthropic capital to invest in organizations which find solutions to social problems while generating revenue – can help to address social issues in Canada while revitalizing the economy as a whole in the process.

As the country recovers from COVID-19, the need has become more extreme. The question is not only which national challenges have been amplified by the pandemic, but which of those issues are most suited for social finance investment? 

Future of Good spoke with leading social finance experts and sector leaders from across the country to find out. They emphasized three major, interrelated issues.

#1 Invest in housing to tackle the homelessness crisis 

Homelessness in Canada is a major national challenge that has long persisted, but has been thrust into the spotlight by COVID-19. Those without housing have been far more vulnerable to the virus, while the economic downturn and high unemployment threaten to make the situation even worse.

“Canadians have begun to realize how important a home is to their health,” says Tim Richter, president & CEO of the Canadian Alliance to End Homelessness, pointing out that 235,000 different people experience homeless each year in Canada. “Most people were told to go home, wash your hands, wear a mask or keep your distance, and isolate. Homeless people can’t do that.”

Homelessness has long been one of the federal government’s priorities, from multi-million-dollar projects under Stephen Harper to Justin Trudeau’s $2.2 billion strategy aiming to halve homelessness in a decade. However, advocates say COVID-19 has both exacerbated the problem and exposed the failure of government interventions. 

“In the past, we’ve never really focused on solving the problem,” says Richter, which often includes issues like addiction or other mental health problems. “It’s been crisis responses without creating a solution.”

He says research has repeatedly shown that the best first step towards long-term success is securing housing as a priority – an approach called “housing first.” “Instead of making people earn their housing through sobriety and compliance with different programs,” Richter explains, “let’s just get you into housing as fast as we can,” after which economic and health problems can be stabilized far more easily.

Edmonton, Alberta, for example, has been a national leader in cutting homelessness by finding innovative ways of quickly getting people into housing. Since 2009, it has cut homelessness by 43 percent, including by collecting real-time data on the city’s chronically homeless people, and working with community agencies to move people into housing as quickly as possible.

Reducing homelessness “can benefit from social finance because the barrier in getting housing built really is a finance barrier usually – it’s just a capital flow barrier,” says James Stauch, director of the Institute for Community Prosperity at Mount Royal University

“For the Social Finance Fund, that’s a fruitful domain because it has a revenue stream where you can actually pay a loan back or at least have partial return on capital,” Stauch says. Housing developers can combine rental units which generate healthy returns rents with more affordable units aimed at low-income or homeless people, he explains, thereby combining profit with a social purpose.

“COVID drew attention to the fact that there’s a big public health risk in sheltering people who are underhoused or homeless,” Stauch says. Although the ‘housing first’ approach has gained some ground in policymaking on a national level, including under Harper’s government, COVID-19 has demonstrated just how much more needs to be done.

#2 Economic empowerment for BIPOC populations 

As well as those without a home, COVID-19 has disproportionately impacted already marginalized communities in Canada – particularly those who are Black, Indigenous and People of Colour (BIPOC). Racial inequalities have been brought into even sharper focus, too, by the global protests against police brutality towards Black and Indigenous peoples.

A long history of systemic racism and colonialism has led to deep disparities highlighted by COVID-19. In Toronto, for example, data suggests Black people are more likely to live in neighbourhoods with the highest number of cases. Indigenous communities in Canada are much more likely to experience overcrowded housing, homelessness and underlying health conditions.

As a result, many BIPOC communities suffer from systemic barriers to economic participation which may prevent their involvement in the economic recovery. A report by the Canadian Centre for Policy Alternatives, for example, found persistent, entrenched racial differences in labour market outcomes between racialized and non-racialized Canadians, such as unemployment and wages, from 2006 to 2016. COVID-19 could make things harder: a recent poll by TD Bank found BIPOC have experienced the hardest hit to their finances from the pandemic.

“The intractable economic realities of people of African descent are clear to statisticians, policy analysts across governmental departments and within the boardrooms of orgs and institutions in our sector,” wrote Victor Beausoleil, executive director of Social Economy Through Social Inclusion (SETSI), in an opinion article for CCEDNet. “Unfortunately the competitive nature of funding and the lack and scarcity mindset that permeates our ecosystem incentivizes exclusion.”

In recent years, the federal government has launched programs to tackle systemic racism in the economy and emphasized its commitment to Indigenous reconciliation – including through the social finance market, such as with the Indigenous Growth Fund, a $100-million fund for Indigenous entrepreneurs which will be part-funded by the Social Finance Fund. But the disruption of COVID-19 and global anti-racism protests are placing inequities under much closer scrutiny and underlining the need for greater action.

Indigenous people have been “forced out of participating in the Canadian economy” through policies like the Indian Act, and it is essential that the digital economy does not exclude them too.

Indigenous people have been “forced out of participating in the Canadian economy” through policies like the Indian Act, and it is essential that the digital economy does not exclude them too, says Jeff Ward, CEO and founder of Animikii Indigenous Technology, a B-Corp-certified digital agency that helps Indigenous enterprises achieve social innovation through technology. Less than one-quarter of Indigenous communities have access to high-speed internet.

“What COVID has shown us is not only that rapid digital transformation is possible, but it’s necessary to participate in a post-COVID economic reality,” Ward says. “I think that’s something the Social Finance Fund can specifically target and address and support.” 

It’s vital that the fund disperses money through Indigenous-led intermediaries like his investors, Raven Indigenous Capital Partners, he says, in order to decolonize the funding process. “We always sit on the same side of the table,” Ward explains. 

Black and Indigenous Canadians often report bad service from traditional financial institutions, including difficulty obtaining business loans compared to white counterparts. The separate Indigenous Growth Fund is being invested by Aboriginal Financial Institutions (AFIs), but so far no details have been released about how the Social Finance Fund overall will be dispersed to organizations serving BIPOC populations, and how much funding they will receive.

“We should be investing in the people that need it the most,” says Sara Wolfe, director of Indigenous innovation initiatives at Grand Challenges Canada. “If we invest in them now, that’s going to impact their community probably much more profoundly than anything else.”

However, Wolfe points out, it’s vital that the fund takes a long-term approach and doesn’t tell marginalized populations like Indigenous communities how to use the capital. “It’s about giving people the tools that they need and to help communities thrive instead of just getting handouts and perpetuating the cycles of scarcity and the cycles of dependency,” she says, that traditional funding processes and grantmaking processes can create. “You’re not going to heal 500 years of colonization and settler impacts in one generation, let alone in 10 years.”

#3 Support the transition to green energy to tackle the climate crisis

COVID-19 has amplified calls for investments in climate change solutions — in order to avoid the even larger global disruption of the impending climate crisis.

“Climate change is on the way. This is like a trial run, so if we don’t solve climate change, this pandemic run-through is going to be absolutely nothing,” says Ian Capstick, co-founder of Secret Agents, which works with social impact organizations on impact management strategy and social R&D. “We’re going to have these black swan events,” he says, meaning significant unexpected events with severe consequences, like extreme weather.

COVID-19 has amplified calls for investments in climate change solutions — in order to avoid the even larger global disruption of the impending climate crisis.

Although Justin Trudeau’s government has made climate change a priority, with policies like the carbon tax, it has been far less forthcoming on clarifying a long-term plan for Canada’s transition to a low-carbon economy. But Capstick says COVID-19 has offered the government a major opportunity to pursue more radical action and combine the country’s economic recovery with a transition to green energy.

“There are an incredible number of green, shovel-ready jobs and places that we could install a wide variety of sustainable power very quickly at scale,” he says. Despite concerns about jobs, particularly in a recession, research has suggested that, per dollar of expenditure, spending on renewable energy will produce nearly twice as many jobs than spending on fossil fuels.

The Social Finance Fund could be well-positioned to catalyze some of these green energy solutions, which could be both environmentally and financially sustainable. From plant-based foods to sustainable energy production, environmental enterprises lend themselves well to social finance as they combine goals of emissions reductions with generating revenue. 

“There’s a recognition that we’re going to need to really significantly invest and overhaul huge parts of our economy and society to address climate change,” says Aaron Thornell, acting general manager of the Ottawa Renewable Energy Co-operative (OREC), which develops renewable energy projects in eastern Ontario for community members to invest in.

He says the climate agenda can be combined effectively with other government priorities for recovery, like building new housing to combat homelessness. Building emissions equal approximately 17 percent of Canada’s greenhouse gas emissions.

“The place that we should start is with things like social housing, because there’s a need to invest in those facilities, those communities already, and so let’s do those in a climate-smart way,” Thornell says. 

It could also help to economically empower and revitalize communities. According to a study in Germany, which has a well-established sustainable energy cooperative network, the economic benefits for a local community are up to eight times greater if renewable production facilities are owned locally rather than by an international player.

“[Renewable energy cooperatives] can spread the benefits of the transition to renewable energy and low-carbon economies amongst a broad range of individuals,” Thornell explains, “rather than consolidating those benefits within the hands of a few large corporations.”

A new way forward

Social impact organizations are still waiting to see the results of their ongoing advocacy efforts, as Ottawa mulls over what role the Social Finance Fund should play in Canada’s COVID-19 recovery.

But by choosing to prioritize these three major issues, social impact leaders and experts believe the government could help to encourage a more inclusive economic recovery, combining growth with social and environmental transformation.

“Organizations that are able to deliver on a social purpose, while at the same time providing economic benefit, is the new form of capitalism and is the way forward,” says Andrew Chunillal, CEO of Community Foundations of Canada.

“What is critically important is that social purpose organizations and the social impact sector be positioned as a critical part of the recovery or the ‘build back better.’”

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