McConnell started its journey of impact investing in 2007 when we made a $10 million bridge loan to finance part of the construction of Quest University. The loan was repaid in full with interest in 2009. This was an important milestone for us. The experience of making a direct investment in a grantee and making a decent return at a time when the financial markets were going through great instability, gave us the confidence to further explore impact investing as means of advancing our philanthropic objectives. In 2010 we made our second impact investment, in a private equity fund investing in clean energy, sustainable food and fair-trade companies.
In 2012, with newly introduced regulatory guidelines from the Canada Revenue Agency on how Foundations could deploy Program Related Investments, we began the implementation of our Board’s mandate to allocate 5% of our endowment in impact investing. We intentionally took a responsive approach to building the portfolio, holding back any assumptions about what legal structure the recipient organization should have in order to be considered an impact investment. Instead, guided by the exploratory and whole-systems approach that underlies much of McConnell’s program work, we concentrated on understanding how impact could be generated by different types of investments, and whether impact investing could be implemented through all asset classes.
Our review process of opportunities concentrated on intended outcomes, the value-proposition (both impact and financial), and the process by which outcomes would be generated.
At the highest level, our investment thesis began with the following overarching impact goals:
1. Scale impact (across a range of domains and sectors)
2. Strengthen the capacity of the community sector
3. Build the marketplace through financial innovation
and by shifting institutional behaviour.
These objectives remain the same today, with the addition of a 4th goal: to build and strengthen ecosystems of innovators. What has changed at a deeper level over the years is our appreciation of the mechanisms by which these objectives can be achieved, and as a result, an adjustment of our internal policies as they relate to the management of our entire endowment. The Board has confirmed a commitment to invest 100% of the Foundation’s assets using a series of responsible investing strategies with no overall limit for impact investing.1
Our impact investment portfolio today, totalling $106 million in commitments and representing 16% of total assets under management, consists of a diverse set of investments: guarantees, blended finance instruments, concessionary debt, infrastructure, outcomes-based contracts, private equity, venture capital, public equity and fixed income. The impact being generated is also diverse, with areas of focus including: improving the lives of vulnerable people and communities; building new economies and markets that are inclusive; improving environmental, social and governance practices of corporations; building green urban infrastructure; introducing new financial models in the market, and more.
Not all our investments have been successful. As a result, early in our experience we learned about the importance of capacity building for organizations seeking to shift from a grant and subsidy business model to that of an enterprise. To be able to address this, we needed to strengthen our own internal capacity to assess the investment readiness of organizations, and to determine which financial instruments or combination of instruments would be appropriate for the impact that we collectively sought and for the readiness of the delivery partners. Impact investing in its most genuine execution really requires strong investment acumen and a deep understanding of how change is being generated on the ground, without compromising on either.
The past 10 years have been an extraordinary learning journey for us thanks to the work of our investment partners — our investees — and even those who are not part of our current portfolio but whose work we learned about during the review process.
One of the most valuable lessons has been the resulting expansion of our own understanding of and vision for the promise of mobilizing investment capital to improve the state of the world. It is precisely this enhanced perspective that we hope to offer to our audience with this snapshot report.
— The McConnell Team, July 2020