To address complex challenges, the Foundation is adopting an integrated approach to deploying financial capital and adapting financial models to catalyze, sustain and scale systems transformation: Solutions Finance.
The Foundation supports the development of Solutions Finance in Canada by using our own financial assets in a range of ways (grants, loans, loan guarantees, impact investments, responsible investing and shareholder activism) to support social innovation. We seek to grow the field and influence markets by sharing lessons and collaborating on the development of new financial instruments and changes to financial policies. We also encourage community organizations to diversify their business models to include social enterprise and other revenue-generating models.
Solutions Finance: An integrated approach
Social and environmental issues are complex and can be addressed in multiple and complementary ways. The Foundation has at its disposal an array of tools to support solutions: granting, convening and engaging, investing and more. Finance—through investing—is just one of many options. Our interventions are therefore designed around the following core principles:
- Problem-driven: When considering an intervention, we ask ourselves the following questions: What problem are we trying to solve? What are the dynamics at play behind it? How do they impact the various stakeholders involved?
- “The need, the need, the need”: Before we opt for one tool over another, or for a mix of different tools, we identify the needs of those involved in delivering a solution.
- Demand-driven (vs. supply-driven) and responsive: We never invest for the sake of investing. One of our priorities is to remain flexible, adapting our intervention as both the problem we are trying to address and our partners’ needs evolve. We are committed to experimentation and learning.
- Facilitating participation from longstanding partners and unlikely allies: A financial transaction is always connected to a broader set of relationships and interventions. That is why we favour consultation and collaboration when designing a project and make sure to involve stakeholders who might otherwise remain at the margins or work in isolation.
Solutions Finance can take inspiration from a vast array of proven financial instruments. Green bonds, forest-backed bonds, vaccine bonds, community bonds, public-private partnerships, catastrophe bonds and other insurance products are just a few examples. When we design a transaction, we build on these existing models and we also innovate. To do so, we take advantage of our ability as a foundation to use both grants and investments at the same time. We can do this during the demonstration or transition phase of a project by piloting a new financial instrument or by scaling a financial model that has had success in one geographic area to have an impact further afield.
By accepting below-market rates of return, or by offering patient capital, thereby delaying the usual expected return, we can achieve long-term impact. Solutions Finance invites every sector and every stakeholder to participate—entrepreneurs, social enterprises, foundations, governments, financial institutions, small businesses and corporations.
Our experience so far tells us that there are two essential elements to effective impact investing:
- A defined purpose among aligned stakeholders: While we are fully aware that a goal and intended outcomes of transactions can evolve over time, we discuss, clarify and agree upon them from the outset. We make sure that expectations are clear, that we embed accountability into our monitoring, and that incentives are aligned in our agreements. Transparency and accountability is multi-directional among participating parties, including the Foundation.
- Monitoring for both financial and non-financial risk and return: We always consider and monitor the impact risks and returns, along with the financial risk and return. This holistic approach is important to clarify and to facilitate decision-making, especially when trade-offs exist.
We are making a conscious effort to explore impact investment opportunities that accelerate and amplify the impact of our granting and initiatives. Examples include impact investments in a fund that supports sustainable energy projects, exploring the creation of a civic assets fund, collaborating with other foundations to establish a loan guarantee fund for social enterprises, and working with the government and First Nations to launch an Aboriginal Housing Fund.
Impacts and lessons
Solutions Finance Series, Issue #1: Beyond Impact Investing, Towards Solutions Finance
Successful systems innovation requires adequate resourcing and calls for new forms of capital allocation across the multiple stages of design and implementation. In many cases, systems innovation models mature from needing philanthropic dollars to developing solid business models that would allow them to partner with large mainstream investors. However, as we know, market and social system inefficiencies continue to prevent taking innovative models to scale to fulfill their full potential. This is why the Foundation is shifting its focus to Solutions Finance, an integrated approach to deploying financial capital and adapting financial models to catalyze, sustain and scale systems transformation.Learn More
Impact Investing Due Diligence Guide, Part 1
This guide is based on the Foundationcategorys internal due-diligence process and it offers a framework to assess impact and financial risk and return of potential investment opportunities. The expected added value is in how to incorporate impact and strategic fit dimensions when assessing investment opportunities with an impact investor lens. It should be noted that the shared list of questions is not exhaustive and readers should refer to other manuals for more comprehensive financial due-diligence and analysis of different asset classes. It can be considered a work in progress as the market continues to evolve and we continue to learn about new developments in impact investingLearn More