Foundations in Canada control $135B in endowments and could harness impact investing to benefit Canadians directly
With the unending flow of troubling news from around the globe, one could forget that we are simultaneously facing crises of cost-of-living, housing, opioid deaths, mental health and climate catastrophe here at home.
Addressing these issues will take capital. The federal government has openly courted international capital to fill major funding gaps in everything from agriculture to tech and AI. But there’s already money in Canada, specifically from the philanthropic sector, that could play a greater role in addressing our domestic crises.
The philanthropic sector, in the form of community and private foundations, plays a critical role in funding charities and nonprofits that support Canadians, with many on the front lines of these issues, funding food banks, shelters, crisis teams and much more.
Foundations are federally mandated to give 5% of their endowments annually as grants, which means $10 billion each year going to the important work of these community-serving organizations. This is essential funding doing good work.
But granting is not the only monetary tool available to the philanthropic sector to address critical issues facing Canadians. Impact investing is also a powerful mechanism to drive change.
Foundations in Canada control significant endowments – to the tune of $135 billion. The vast majority of these assets are invested in public markets to garner the greatest return on investment possible, with interest then used to provide charitable and non-profit grants and cover expenses.
More foundations and other philanthropic organizations could turn to impact investing to achieve both financial and societal benefits.
The opportunities are sizeable
Impact investing deploys capital to charities and mission-driven investment firms with the goal of creating both financial and positive social returns. It funds climate solutions and creates affordable and supportive housing.
Across the country many foundations are already deploying more of their assets through impact investments. And they’re seeing real progress. Scaling this movement across the country would have great benefits to Canadians.
Investment by The Atmospheric Fund in a recycling facility for magnets in electric vehicles has helped save 11 tonnes of carbon emissions for every tonne of neo magnets. They also partnered with London Community Foundation, among others, in a project to produce renewable natural gas, while reducing carbon emissions by 110,000 tonnes over 15 years.
Investments by foundations in Vancouver’s Renewal Funds, for example, have helped drive the success of the Renewal4 Fund. Renewal4 backs climate tech ventures that have delivered major environmental benefits: 37 million kL of water saved, 4.3 million tonnes of greenhouse-gas emissions reduced, 30 million kg of waste diverted from landfills, and supporting sustainable management of 12,000 acres of land.
The Lawson Foundation partnered with Aki Energy, an Indigenous-led nonprofit social enterprise enabling clean energy solutions in remote communities. Their investment supports the installation of 125 residential geothermal units in four on-reserve communities in Manitoba.
New Market Funds is partnering with private foundations like the Real Estate Foundation of BC and Trico Foundation to invest in 636 affordable housing units. The Lucie and André Chagnon Foundation has invested alongside partners in Quebec to build 1,500 units of affordable student housing.
Over the past ten years, Hamilton Community Foundation has invested $31 million of its endowment into supportive and affordable housing, which has led to the construction of over 1,000 units. This support gets projects shovel ready, providing a pathway for governments and financial partners to come in with the lion’s share of funding.
A solution at the ready
Some of the additional capital we need to fix Canada’s problems is already right here at home if we can leverage philanthropic endowments through impact investing.
A common pushback to this argument is that returns from impact investments won’t cover the 5% payout required by government policy and won’t keep up with inflation. Criticism also focuses on the lack of investment options and benchmarks.
Yet the global impact investing market is estimated at USD $1.5 trillion, with Canada’s market at CAD $17.7 billion and growing. Investors are seeing competitive, market-rate financial returns, with some private equity funds matching or outperforming traditional investments.
Product scarcity is a misperception, with a proliferation of new impact products available, while new measurement tools, like GINN’s IRIS+, are continually being developed and strengthened with more and better data.
We have proof of concept and many foundations across Canada, the U.S., and Europe have been doing impact investing for decades.
Nationally, this stretches from smaller community foundations in the Okanagan to private foundations like Inspirit and McConnell. And we’ve only scratched the surface of what’s possible.
A new world order, like Prime Minister Carney outlined in his Davos speech, means time for change in how endowments are leveraged and how government partners with the philanthropy sector as investors, beyond granting. Impact investing is an effective strategy to open up new ways to fund solutions and new opportunities for governments to mobilize capital.
We must use all the tools in the toolbox to support our neighbours and communities at a time when we need every option on the table.
Photo courtesy of Palazzo Chigi, CC BY 3.0 <https://creativecommons.org/licenses/by/3.0>, via Wikimedia Commons
