Ottawa wants to hear ideas from charities, non-profits and private investors that are interested in taking over delivering government services.
The Conservative government’s 2012 budget included a vague promise to “explore social finance instruments,” but few details have emerged.
Human Resources Minister Diane Finley will break that silence Thursday in a speech to a social finance conference in Toronto, where she will put out a call for concepts.
The Minister told The Globe and Mail last year that the government was looking to approve pilot projects to test some of these emerging ideas.
Federal officials are drawing inspiration from projects in Australia, Britain and the United States, where charities, non-profits and private sector companies have begun to deliver social programs at a lower cost than governments do.
For instance, Goldman Sachs recently partnered with New York to lend $10-million to a social services provider for a jail program.
The global investment banking firm would get its money back plus a profit if recidivism rates are reduced, or get less back if the program fails.
The emerging field of “social finance” covers many areas, but the general idea is to mix the usually separate worlds of private enterprise, government and the charities and non-profit sector.
Programs like the one in New York fall into a sub-category called “social impact bonds,” in which an outside group and an investor promises to deliver a social service and meet specific goals in terms of cost and success.
Generally, if the project is not successful, the investor would take a financial hit. But if the targets are met, governments will pay out an agreed upon sum.
It’s early days, but there is momentum in this area. In May, Toronto opened its largest affordable housing complex – an $80-million, 300-unit building for low-income or at-risk women – that was financed in part by a social finance community housing bond.
Advocates of social finance also want governments to change the rules so that charities and non-profits are not penalized for making money on the side.
For instance, the vast majority of non-profits rent space. Advocates argue for incentives to encourage them to become property owners, which would bring in new revenue streams beyond traditional fundraising and government grants.
In an era of spending cuts, the idea has obvious appeal for governments. British Prime Minister David Cameron has been among the most vocal proponents of what he calls the “Big Society” program.
Yet the link between social investing and government cuts has drawn concern. Mr. Cameron’s plans have fallen well short of his promises in the face of strong public resistance.
That’s why Ottawa must clearly communicate these changes, said Ted Anderson, the director of the MaRS Centre for Impact Investing, hosting the two-day conference on social finance in Toronto.
“The optics have to be managed very carefully,” he said. “When and if they do implement one of these programs, it’s going to have to be very clearly explained as to how it works.”
Royal Bank of Canada is one of several large Canadian corporations entering the sector. Canada’s biggest bank will announce a $1-million donation to the MaRS Centre on Thursday, and earlier this year created a $10-million impact investing fund – the first major Canadian bank to do so.
That fund will finance enterprises that tackle a social or environment challenge and generate a financial return, with a focus on energy, water, youth employment and hiring disadvantaged groups.
“Business models are changing … because peoples’ value systems are changing, and across all spectrums, people are looking for ways to have impact,” Gordon Nixon, RBC president and CEO, said in a speech last month.
Accounting firm KPMG has pledged business support to social enterprises and to provide research on how to measure impact in the sector.
More than $375-million in new capital has been raised in impact investment, which is geared to businesses or organizations that generate both a social and a financial return, in the past year, according to the centre.
In the United States, where attention is re-focusing on fiscal challenges, the state of Massachusetts and Fresno, Calif., have also announced social impact bond programs as a cost-effective way to tackle issues such as homelessness and asthma rates.