Learning from existing policy tools in Canada

In Canada, like elsewhere, social enterprises are constrained by corporate legal structures that generally prohibit equity financing for not-for-profits and charities and discourage foundations from making program-related investments in for-profit social enterprises.  As a result, social enterprise and impact investing in Canada remain largely nascent and uncoordinated.

There have been calls for broad reforms to coordinate a market space for impact investing in Canada, notably, the Canadian Task Force on Social Finance and more recently, the report Harnessing the Power of Social Finance by Human Resources and Skills Development Canada.  These initiatives provide Canada with a positive first step toward identifying new and innovative methods for which public policy can augment the country’s impact investing marketplace.

As these conversations progress, it is important to learn from the success of one impact investing mechanism that has existed in the province of Nova Scotia for 14 years:  Community Economic Development Investment Funds, or CEDIFs, which use equity-tax credits to incentivize investors to invest in their local communities. In 1999, Nova Scotia created the CEDIF for two distinct purposes:

• To reduce financial leakages into capital markets outside the province, where residents invest over CAD$600 million annually into Registered Retirement Savings Plans (RRSPs), a tax-incentivized savings mechanism which major financial institutions then use to invest in capital markets.  98% of this capital is invested outside Nova Scotia.
• To simplify the process for small and medium-sized enterprises to raise equity capital by providing local residents a new and seamless opportunity to invest in their local economy in both urban and rural Nova Scotia.

CEDIFs are unique, because they can be initiated by a single enterprise looking to raise capital or by a local intermediary with a broader community development purpose.  Intermediaries can take in investments as ‘blind pools’ where investors’ funds are aggregated and deployed to local businesses on a rolling basis by the intermediary, which then provides a single return to the investors.

Since the program’s inception in 1999, CEDIFs have raised over CAD$52 million for local enterprises throughout Nova Scotia.  It has garnered attention within Canada as a model that can be leveraged to support co-operatives, rural economic development, and now social enterprises.

Going forward it will be important to not only identify new innovations for Canada’s impact investing and social enterprise markets, but also to leverage and learn from existing policies such as CEDIFs that provide nearly a decade and a half of insight, experience, and data.

Community Economic Development Investment Funds (CEDIFs) are highlighted as a policy case study in the Schwab Foundation and World Economic Forum’s recently released report, Breaking the Binary: Policy Guide to Scaling Social Innovation, produced in collaboration with InSight at Pacific Community Ventures, the Initiative for Responsible Investing at Harvard University, and SK Group.

Author: Tessa Hebb is the Director of the Carleton Centre for Community Innovation, Carleton University, Canada.  With assistance from Douglas Pawson, an  Impact Investing Policy Collaborative fellow.

Image: Toronto’s downtown core REUTERS/Andy Clark