Canadian Manufacturing

Liberals review rollout of social finance fund to combat pandemic fallout

The idea is investors front the money for projects to address social problems, and the government rewards those investments if projects work

July 20, 2020  The Canadian Press

OTTAWA — The federal government is taking a second look at how quickly it will dole out hundreds of millions in help to social services looking to tap into new sources of capital, particularly as COVID-19 dries up traditional donations.

Social Development Minister Ahmed Hussen’s office says the government is reviewing the launch of what’s known as the “social finance fund” given the pandemic.

The pandemic has had a deep financial effect on households, with much discretionary spending like charity being paused while economic uncertainty prevails.

The Liberals had already embarked on a path to provide new sources of revenue to charitable and non-profit social services by connecting them with private investors to test new – potentially cheaper and more effective – ways of delivering their services.

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The idea is that investors will front the money for projects to address social problems, and the government will reward those investments if the projects work.

Hussen heard a pitch earlier this month to speed up delivery of hundreds of millions in federal dollars to build out this socially conscious investment system, and up the amount offered to social-service groups unaccustomed to pitching investors, to help them land the cash.

A spokeswoman for Hussen says the Liberals are re-examining the timelines and approach for the launch of the social finance fund to help cash-strapped groups whose services are in high demand.

“The need to innovate for communities is all the more urgent in light of the COVID-19 pandemic,” Jessica Eritou said in a statement.

“We acknowledge that the COVID-19 pandemic has created financial and operational challenges that make it difficult for many organizations to innovate at a time when they are most needed.”

The goal of social financing is to bring private money into social services governments are used to either providing themselves or paying for directly, and sometimes ineffectively.

Instead of directly funding positions for specific groups at a company, for instance, a group would use private funding to test a way to train up marginalized workers with specific skills.

Government funds would flow if a project, such as finding housing for people for whom current programs haven’t worked, proves successful through detailed data.

The Liberals have set aside $755 million in a social-finance fund, and a further $50 million spread over last year and this fiscal year to help about 500 groups build capacity to take part in the growing field.

The government had banked on $85 million annually from the fund going out over a four-year period starting this fiscal year, for a total of $340 million

The pitch Hussen heard at the start of July was for $400 million over the next two years – more than double what the government planned – to capitalize existing and emerging funding groups, as well as Indigenous-led organizations.

Groups are also asking the government to provide a further $150 million to expand capacity-building programs.

“If there are allocations made to increase that amount going to these capacity-building organizations, then they can roll out a variety of support programs to support dozens if not hundreds of enterprises beginning the fall,” said Adam Spence, chief executive of Social Venture Connexion, which works with and connects investors, social finance funds, and service groups.

Some of these social-finance groups have seen their revenues drop by 70% due to COVID-19, Spence said, mirroring similar drops in traditional giving seen by charities since the pandemic struck Canada in March.

The project money would come next, with a target to pull in $800 million in private capital, so that funding groups could put cash into projects and local organizations beginning in late fall, Spence said.

Speeding up and adding spending could help 10,000 social-purpose organizations adapt to the crunch COVID-19 has created for them, and maintain or create jobs targeting newcomers, youth, Black and Indigenous people.

“Each of these is going to contribute to the tax base, but also and perhaps more importantly, tackle a whole host of social, economic and environmental challenges that we’re all facing,” Spence said.

Almost three dozen three dozen people, from places from Fogo Island to Vancouver Island, took part in a virtual meeting with Hussen earlier this month.

Spence said the group remains hopeful but also plans to redouble efforts by lobbying local MPs through the summer.

By Jordan Press