On October 27, 2022, two local impact investing experts hosted other sector leaders to talk about the latest trends, where they see the sector headed— and whether we can bridge the worlds of venture capitalism and philanthropy. Here are 5 takeways:
1. Identify the barriers
According to Philanthropic Foundations Canada, limited assets are allocated towards social impact investing. Narinder Dhami identifies the 5 main barriers that prevent foundations from turning to impact investments as:
- A binary mindset that separates doing good and making money into two separate spheres
- A lack of awareness of the potential of impact investment across Canada;
- A knowledge gap when it comes to the various elements that fall under the responsible investing umbrella, and how each of these elements can drive different types of impact;
- Internal capacity shortages that cause many foundations to outsource expertise on where and how to have impact in investing, and;
- Limited access to dealflow resulting in those who want to explore impact investing not being clear on how to access the existing streams of opportunity.
2. Use more of the balance sheet
The way foundations are traditionally constructed, only a portion of assets goes directly to grantmaking. The rest goes to investment management companies, which make income-generating investments to increase the pool of capital available for distribution as grants. Bill Young believes that to generate the most impact possible, foundations and philanthropists should be harnessing more of the full spectrum of their resources (including financial assets, practices and people) to create an effective lever to create change.
3. Invest in diverse fund managers
Examining capital management across the board, it is often the same communities that are excluded. Impact investing provides a chance to change this, but so far has mirrored the venture capital space in that there is very little diversity in terms of who is controlling the flow of capital. According to Narinder Dhami: “If we want to change the diversity of the leadership in funds, we need to think through our ability to invest in first time fund managers, women, people of colour, and other diverse communities.”
4. Emphasize the S in ESG
Foundations are increasingly applying an ESG (Environmental, Social, Governance) lens to their investments. The S aspect of ESG examines the ways in which companies interact with their employees and also the communities in which they operate. It covers a wide range of topics, from diversity and inclusion to human rights, health and safety, and Indigenous reconciliation. However, Bill Young explains that it is the hardest to quantify and measure because it is often a by-product and not a product itself – and therefore many treat it as just a box to tick. He believes it is incumbent on leaders in the institutional capital space to present social value propositions that connect the dots between the S in ESG and positive economic outcomes.
5. Build bridges
Each year, Canadians donate millions to critical projects in their communities, while the investment market manages 250 trillion in the same time period. Aatif Baskanderi advocates for building a bridge that connects these two worlds to create an economic system focused on social good. While the focus in venture capitalism is already shifting towards issues of social good such as climate change, education systems, and financial feminism, the impact they are focusing on is deeply linked to making profit. Baskanderi believes that philanthropists need to create new models and catalyze a shift to where: “profit is inherently made through doing social good.”
Replay the entire thought-provoking discussion here.
Salima Rawji, Senior Vice President, Development, CreateTO
Ava-Dayna Sefa, Manager, Social Impact, Generation Capital
Aatif Baskanderi, CEO, The Northpine Foundation
Narinder Dhami , President, Sonor Foundation
Bill Young, Founder and Chairman, Social Capital Partners