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Inching to Impact: The Demand Side of Social Impact Investing

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Abstract

Social impact investing (SII) is transforming the availability of private capital for nonprofits and social enterprises, but demand is not yet meeting supply. This paper analyzes the perceived barriers faced by nonprofits in engaging with SII, arguing the need to assess differences using a policy field framework. Four parameters of a subsector are conceptualized as shaping participation in SII: the scale of investment required, embeddedness in place, the need for radical innovation, and the configuration of intermediaries (such as loan funds and market brokers). Based on 25 interviews with leaders of nonprofits and intermediaries in affordable housing and community economic development in Canada, the study finds that significant barriers are a lack of knowledge of the market, inadequate financial literacy, and the challenges of measuring and valuing social impacts. In addition, nonprofits report that, in spite of the inherent importance of social impact in this form of investing, they currently make limited use of evaluation and impact metrics, and perceive that intermediaries and investors, particularly in affordable housing, still put a greater emphasis on financial over social returns.

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Notes

  1. This selection excluded organizations active mainly in the province of Quebec because it is distinctive in the North American context. Quebec has a long history of government support for the social economy, a distinctive architecture for government-civil society relationships and significantly more assets already in the SII market than in the rest of the country (Social Innovation and Social Finance Strategy Co-Creation Steering Group 2018; White 2012). It can be anticipated that the experiences and market-readiness of third sector organizations will be different in Quebec than the rest of Canada.

  2. In Canada’s largest province the waiting list for affordable housing has increased by more than a third over the past 12 years, with 171,000 on a waiting list for rent-geared to income housing (ONPHA 2017), and the national estimate is that 1.7 millions families, out of a total population of 36 million do not have housing that meets their basic needs (Government of Canada 2018).

  3. While affordable housing has different meanings, housing is generally considered affordable if the cost is less than 30 per cent of before-tax household income (CMHC CMHC—Canada Mortgage and Housing Corporation 2017; Joint Center for Housing Studies of Harvard University 2017); in practice, this often entails housing offered at least 80 percent below market.

  4. The landscape of nonprofit housing providers, particularly in social housing, looks very different from one Canadian city to another. For example, Toronto Community Housing (the largest in the country and second only to New York City in North America) operates 60,000 units of housing serving an estimated 110,000 tenants. The second largest in Ontario, the Ottawa Community Housing Foundation operates 15,000 units for 32,000 tenants. Both are wholly owned by the municipal governments. In other cities, the market is fragmented, and the affordable housing market is less concentrated than that of social housing, involving a mix of non- and for-profit providers.

  5. In contrast to the US and many other countries, municipal governments in Canada have played a relatively small part in impact investing; in particular, the use of municipal bonds is quite limited—and highly regulated by provincial governments—and municipal investment in green bonds to address climate change adaptation has been slower than in other jurisdictions (Hanniman 2015; Weber and Saravade 2019).

  6. Canadian foundations and philanthropists have generally been reluctant to support infrastructure for the nonprofit sector, although there are a few notable exceptions (Phillips 2018). In 2019, a new national network, Social Innovation Canada, was created with support from several private foundations to develop the ecosystem for innovation, working through regional hubs.

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Acknowledgements

This research was conducted with funding from the Social Sciences and Humanities Research Council of Canada (SSHRC), Community-University Research Alliance Grant (Award # 833-2010-1004), “Responsible Investing Initiative,” Dr. Tessa Hebb, Principal Investigator. We owe our appreciation to Dr. Hebb for her leadership of the project and suggestions for this paper.

Funding

This research was funded by the Social Sciences and Humanities Research Council of Canada (SSHRC), Award # 833-2010-1004.

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  1. School of Public Policy and Administration, Carleton University, Room 5213 Richcraft Hall, 125 Colonel By Drive, Ottawa, ON, K1S 6B6, Canada

    Susan D. Phillips

  2. Public Policy, Imagine Canada, 65 St Clair Avenue East, Suite 700, Toronto, ON, M4T2Y3, Canada

    Bernadette Johnson

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Phillips, S.D., Johnson, B. Inching to Impact: The Demand Side of Social Impact Investing. J Bus Ethics 168, 615–629 (2021). https://doi.org/10.1007/s10551-019-04241-5

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