Scan of the Community Investment Sector in Canada Coro Strandberg Strandberg Consulting Brenda Plant Brenda Plant Consulting September 2004

7. Conclusion

The list of barriers and opportunities in growing the community, economically targeted and sustainable venture capital investing sectors can seem daunting. No doubt the field looks similar to the banking sector in its early days—with haphazard development and lack of standards, benchmarks, guarantees and other elements of a soundly functioning financial system. Looked at from this perspective, as well as from the vantage point of the U.S. community investing sector, the prospects for the growth of the Canadian CI sector seem more promising. As this study shows, some critical supports are needed before CI can fulfill its promise of generating high-impact benefits to underinvested communities, regions and sectors in Canada along with acceptable returns to investors.

Essentially this high-level scan points to the following general conclusions about the CI, SVC and ETI sectors in Canada:

1. All three sectors are thought to be very small in Canada, once the Quebec and LSIF funds are factored out of the ETI equation. As a group and even singly these sectors are not well studied and little information exists to fully quantify their scope, scale and impact. As CI is a relative newcomer on the SRI scene, significant knowledge gaps remain.

2. The SVC sector is experiencing some growth in both Canada and the U.S.; the SVC sector in the U.S. in particular is growing exponentially. (Canada’s growth is more anticipatory, with the emergence of SDTC on the scene.)

3. It seems evident that in the U.S. as in Canada (with the LSIFs), where there is a legal structure and government support, ETIs represent an effective strategy for job and wealth generation.

4. The Aboriginal finance sector in Canada is poised to take off, once these investment opportunities are better understood. Further research into the capital gap faced by Aboriginal communities and what it would take to close this gap could facilitate their integration into the economic mainstream.

5. The scale of the community investment sector in the U.S. is largely attributable to strong federal government support both legislatively and financially (including the much heralded Community Reinvestment Act), the existence of a secondary capital market for CI with risk-adjusted market rates of return, and the recent SIF awareness campaign. These government and industry programs have resulted in a proliferation of CI vehicles, intermediaries and investment opportunities. Industry networks and trade associations have further helped to scale up the field.

6. Unlike the U.S., Canada lacks a strong federal government role. Largely absent from the Canadian scene are regulatory frameworks, tax incentives, and risk mitigation and credit enhancement programs. Such measures induce the banking sector to support community economic development and attract capital and operating support to shore up the capacity of the sector. Were these to be in place, the Canadian CI sector would likely follow the American lead, developing into an increasingly credible and viable sub-sector of the SRI industry and of mainstream finance. The federal government’s recent social economy initiative—while limited in scope compared with the broader approach advocated in this paper—could well have positive long-term implications for the CI sector in Canada.

7. That U.S. investors have opportunities available to them for market, near-market and below-market returns, depending on the degree of social and environmental impact sought and other fiduciary constraints, suggests that the Canadian CI sector can similarly grow to provide a range of investment opportunities for fiduciaries and others. Further standardization of the CI industry in Canada—achievable only through increased capacity funding—would foster the sector’s growth, as would investor and public education awareness programs.

8. The recent discourse on blended returns, SROI, social capital markets and the social economy points to increasing practitioner, academic and government interest in gauging the potential of community investing through capital markets to lever sustainability benefits for communities. Further research on this emerging field would accelerate the creation of a viable social capital market in Canada.

Capital market watchers will know that there is growing discontent and cynicism over mainstream capital markets, which are seen by some as disconnected from such basic public values as social and environmental responsibility. Within this discontented investment community there is a growing network of private investors looking for blended returns—looking for a way to use their investment dollars to lever sustainability benefits. Mixed in with this group are inheritors and self-made wealthy adults who are willing to take the risks called for in this fledgling Canadian industry. They and other institutional investors who can see the double bottom line benefits for their clientele need government and industry leadership to address the barriers and take advantage of the opportunities, thus bolstering the potential of the Canadian social capital market. This is the vision of community investment—the commitment of diverse participants to bridge the capital gaps in the economy with the goal of advancing the social and environmental quality of life of Canadians.