Every dollar changes lives and nations, too
Michelle was tired of slinging drinks as a bartender. At 42, she dreamed of a more fulfilling career. But as a high school dropout, her reading, writing and math skills were nowhere near good enough for the competitive Canadian job market. So Michelle enrolled in an initiative at B.C.’s Douglas College that gives unemployed and low-income Canadians brighter futures through training in basics like literacy and math. In just 11 weeks, Michelle was accepted into a college tourism management program.
Today, the Douglas College program has changed hundreds of lives. It’s also a new investment opportunity for Canada. As of September, the initiative is piloting our country’s first federally-funded national social impact bond.
This public-private partnership between the federal government and Colleges and Institutes Canada (CICan) will use social impact bonds to expand Douglas College’s program to three additional colleges in Saskatchewan, Ontario and Quebec, ultimately helping 400 unemployed Canadians to enter the workforce.
A social impact bond provides a novel way for governments to tackle issues from unemployment to the environment by leveraging the power of private capital. Investors buy into a project just as they might a business start-up.
These bonds could transform the way we fund positive change, effectively creating a Dragon’s Den for social entrepreneurs, who must present sound ideas that achieve specific social outcomes to win over potential investors.
But the real innovation of the Essential Skills social finance pilot that is funding the Douglas College program is its pay-for-performance model. Participants will be tested before and after completing the program to determine how well they have improved their skills, said David Kelley, director of business development and social finance with CICan. To maintain funding from investors, the colleges must hit a minimum benchmark for upgrading students’ skills. Investors are repaid and earn a return of up to 15 per cent if positive results are achieved.
The model is a powerful tool for increasing impact by forcing organizations engaged in social programs to measure their outcomes.
We are strong believers in power of business, like social enterprise, to tackle global challenges. And we have closely followed development of social impact bonds since they were introduced five years ago in the UK. There, private backers funded a prison rehabilitation program that has reduced recidivism by eight per cent. In 2012, U.S. President Barack Obama announced his government was giving US$100 million to support social impact bond initiatives.
At least 24 U.S. states have used these bonds to finance programs, from improving education to providing housing and mental health care for homeless mothers. We waited for Canada to catch on to the idea. “Social impact is no longer seen as a trade-off to financial results, but rather as a key factor in investment decisions,” says Tania Carnegie, one of Canada’s leaders in this kind of investing. She sees an increasing number of investors who want to achieve positive social results as well as healthy returns in their portfolios.
Carnegie founded and leads Impact Ventures, a new practice at global consulting firm KPMG that helps businesses improve both their bottom line and their social impact. Impact Ventures is a financial adviser to CICan on Essential Skills.
And if the pilot proves successful, it will help hundreds more like Michelle — now working for a B.C. tour company — and open the door for ordinary Canadians to invest in improving their communities and country.