Investing in the Future with Social Finance
Prior to the pandemic, global assets under management in impact investing were estimated to be $715 billion, nearly double the expected market value for 2020 back in 2010 when it was just $50 billion and I was first studying this phenomenon for my thesis. Over the last 10 years, there has been massive change in the world of social finance, from new vernacular to diversity of funds, to the Government of Canada committing to a $755 million Social Finance Fund that will begin investing this year, and it all gets me excited for the future possibilities.
Personally, I have been on all sides of this sector since leaving academia: as CEO of a for-profit impact venture that managed to secure a $1.4M seed round through impact investors; as an impact angel investor myself, investing in impactful startups; as CEO of Wakopa Financial, a financial services company dedicated to social finance and startup entrepreneurs that has developed two Social Impact Bonds (SIBs) among other new social finance tools in Manitoba and Ontario, and helped numerous social impact companies across Canada become investment-ready; and, because of these experiences, I sit on various national organizations and roundtables about social finance.
This is what I see. First, the environment still dominates the impact investment world today with over 90% of the money directed at clean technology, renewable energy or greenhouse gas reduction. But impact investing has broadened its reach to small local investments that can make big impacts. For example, Edmonton’s Social Enterprise Fund, which started with just $1.2M from the city, has made $7M worth of investments over the last decade by reinvesting that money, and now, thanks to great leadership from the Edmonton Community Foundation (ECF), has access to a further $60M (or 10% of ECF’s total endowment) to continue making impactful investments in local organizations. More community foundations need to follow.
Second, democratizing impact investment is happening! From coast to coast we can find examples of local funds investing locally, and there are some big players, like the Telus Pollinator Fund for Good, a $100-million social impact fund that invests in for-profit impact companies, and Raven Capital’s Indigenous Impact Fund, a $25-million fund that makes equity investments into Indigenous social businesses. However, you needed to be an accredited investor to be included in these funds—until now! Kizmet Impact Capital, out of Vancouver, has democratized impact investing for Canada by opening a public company in which any individual can buy shares. This is good.
Third, the majority of money in this sector, made up of impact investors and funds, is still controlled by straight, old, white, cisgender men. When an equity and diversity lens is applied to impact investing or funds, white women are overwhelmingly the beneficiaries. A group called Inclusion in Impact Investing has formed to increase the participation of non-white individuals in social finance, especially in decisionmaking roles. With over 100 people part of this group, which provides learning and mentorship opportunities, less than 10% are Indigenous. I would love to see this increase.
Finally, impact investing is not philanthropy. Impact investors and impact funds need to make financial returns so they can continue to invest in more impact businesses—just like Edmonton’s Social Enterprise Fund has. There are financial returns because there are inherent risks to investing; you may lose it all. But looking at impact investing as philanthropy does not give it the credit it is due and continues to limit the amount of money that is accessible to impactful organizations to grow and scale.
Born in Winnipeg, Manitoba, Richard Tuck is of Métis heritage. He is the CEO of Wakopa Financial and the cofounder of the Social Entrepreneurship Enclave. Both organizations focus on helping Indigenous and non-Indigenous Manitobans who face financial barriers. He has an MBA in International Business, an MSc in Corporate Finance, and his Ph.D. research was on social entrepreneurship.