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Investing in social good

New white paper co-authored by RBC explains the "impact" in impact investing

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Tim Jackson, senior advisor, capital solutions at MaRS.

It's a phrase we're hearing a lot more of, but what exactly is impact investing? Why is it at the forefront of financial conversations all of a sudden?

As the first Canadian financial institution to launch an initiative to support impact investing and social finance, RBC co-authored Financing Social Good: A Primer on Impact Investing in Canada to explain some of the defining factors of impact investing.

For example, let's say you're interested in helping low-income people get into secure, affordable housing. You could give a donation, or you could provide the housing project with a mortgage or loan. The mortgage or loan is an impact investment because it meets your personal charitable goals, provides funding for the affordable housing organization, generates a financial return for you, and has a positive impact on the community.

That's impact investing, according to Tim Jackson, senior advisor, capital solutions at MaRS and an industry expert on the topic. He was an original member of the Canadian Task Force on Social Finance, and is committed to building the impact investing market in Canada.

"Simply put, when you make an investment hoping to get a financial return and a social or environmental benefit, you're 'impact investing,'" says Jackson. "It's not philanthropy. It's investing in business that addresses important social issues."

"Social and environmental problems like poverty and climate change can't be solved by financially stretched governments and charities alone. They also need business expertise and private capital," says Sandra Odendahl, head of the RBC Social Finance Initiative. "That why we created the RBC Generator, a $10 million pool of RBC capital for impact investing."

So what are the key differences between impact investing and traditional investing?

According to Financing Social Good: A Primer on Impact Investing in Canada, a white paper co-authored by RBC and the MaRS Centre for Impact Investing, there are three defining factors:

  • Investor intention - impact investors invest for financial return, and a defined societal impact
  • Investee intention - investee business models are built to deliver financial and social impact
  • Impact measurement - social impact is a key measure of success for both investees and investors

Who's impact investing today
Impact investing is at such an early stage that there isn't a large marketplace yet. Most impact investors are large-scale organizations, like foundations and high-net worth individuals. The RBC Generator, which has invested $3.45 million in companies to date, is an example of one of the few impact investors in the market today. The Generator provides financing for enterprises that address clean water, energy efficiency, or employment opportunities for youth or disadvantaged groups.

Jackson thinks the tide will start to change in the coming years and should attract more mainstream investors.

"Most entrepreneurs and social businesses don't realize the financial opportunities impact investing can provide," adds Jackson. "And on the flip side, investors don't know where to find the opportunities."

So, where to start?
"The easiest way to get involved is through the Social Venture Connection, or "SVX", a regulated impact investing market for investors and companies," says Jackson. "It's like eHarmony for investing. The investor can indicate what causes they're interested in, and can browse certified socially-minded enterprises looking for funding."

For investors and entrepreneurs who have dipped their toes into this new market, the satisfaction speaks for itself.

"I'm an entrepreneur at heart. At the same time, I believe we all have an obligation to give back. Impact investing gives me the chance to marry entrepreneurship and innovation with community investment," says Jackson. "Most people in the sector are here because their hearts are in it. They've left big firms and taken a pay cut because it's something they believe in. It's so rewarding for entrepreneurs to be able to use their innovative ideas to solve societal issues, rather than create the latest widget."

As the first Canadian financial institution to launch an initiative to support and invest in for-profit social enterprises, RBC recognizes the importance of catalyzing the growth social finance in Canada through thought leadership. For more information on impact investing trends in Canada, read Financing Social Good: A Primer on Impact Investing in Canada, RBC's latest social finance white paper, co-authored by the MaRS Centre for Impact Investing and Purpose Capital.

About the RBC Social Finance Initiative
In 2012, RBC launched its Social Finance Initiative, which is designed to ignite the growth of social finance in Canada. This commitment includes the $10-million RBC Generator, a pool of capital dedicated to financing enterprises addressing social and environmental challenges; a significant investment of RBC Foundation assets into socially responsible investments; and strategic partnerships to catalyze the growth of social finance in Canada. For more information, visit www.rbc.com/socialfinance.