Social Finance: Enabling Social Enterprise for Public Benefit
This brief is an introduction to social finance and social enterprise for policy makers. It defines key terms, highlights success stories, frames the opportunity for Canada, and sets out next steps in a course of action that will enable us to realize this opportunity.
Canada's social and environmental sectors are significantly under financed and undercapitalized relative to the needs and opportunities before them. They lack both donation and grant revenue to sustain subsidized charitable services and investment capital to expand entrepreneurial models of mission delivery.
Enabling access to new sources of capital is critical to their ability to innovate, scale up successful solutions, and extend their services/programs and impact. Government and philanthropy are limited in their capacity to meet this need, particularly in light of current economic conditions, which make the need to find new ways to finance social and environmental innovation even more imperative. Social finance, and the enterprises it supports, is proving internationally to be a successful way to leverage private capital to generate large-scale public benefits, giving enterprising non-profit organizations the resources and flexibility they need to innovate and expand their impact.
As governments in Canada contemplate significant new infrastructure investments to stimulate the economy and regulatory reforms to our capital markets, institutions and practices, this is an opportune time to consider how we can make parallel investments in our social infrastructure through policy, regulatory, and institutional changes that enable the growth of an effective social capital marketplace that is attractive to institutional and private investors and connects them efficiently to social enterprise investment opportunities.
Definitions of social enterprise vary in diverse countries and cultures and with the different organizational forms it has taken in these contexts. With respect to Canada, a social enterprise is an organization or business that uses the market-oriented production and sale of goods and/or services to pursue a public benefit mission. Social enterprises take many forms, located on a spectrum between traditional grant-funded charitable or non-profit activity at one end and pure for-profit business at the other.
Social enterprise matters because it offers flexible and sustainable financing to support social innovation and opportunities to leverage capital on a large scale to address public challenges.
Financial institutions, governments, foundations, and other investor groups are creating new sources of capital for social enterprises, often called social finance. Social finance is investment in social enterprises operating in the non-profit or public benefit universe that delivers blended social/environmental and economic returns.
To make this transition successfully, we need to create an enabling social finance environment that:
- Removes regulatory barriers to establishing and operating social enterprises
- Builds capacity in public benefit organizations to participate in social enterprise
- Creates an effective social capital marketplace
- Offers incentives for investors to participate
- Provides a locus for ongoing policy dialogue and development.