Another cornerstone of social enterprise (SE) is opening the apparently closed doors to socially conscious business investment; the doors being closed as charities have to operate in an unsustainable ‘charitable’ manner and as non-share capital corporations are unable to pay out dividends. Private charitable foundations are viewed as a key source of investment capital given their obvious interest in public benefit missions but are supposedly inhibited by CRA policy and prudent investment rules.
Opportunities to invest in SE’s would open the door to billions of dollars of social investment according to SE promoters although it is not clear whether this is investment from the public, corporations, financial institutions, government, or charitable foundations.
Like the allure of ‘unrestricted profit’, I believe unleashing capital for SE is a major contributor of the ‘SE as a cause’ influence on decision-making by stakeholders in and outside of the charitable sector.
What is social investment?
Like SE, definitions and descriptions of social investment are ambiguous and broad and investment can be directed to the full spectrum of legal entities and their activities. Similar to SE, it is easier to characterize a foundational concept of social investment by what it is not - capital and financing, usually described as ‘traditional investment’, of a for-profit entity that does not make any kind of social distribution or contribution. Conversely, social investment directs capital to:
It seems that an investment in any of these organizations can be described as a social one. Similar to SE, trying to fit all of these under an umbrella term or fashion as a singular concept is a questionable exercise.
CSR is significant as similar to the broader and non-legal use of the term ‘non-profit’ in SE narrative, use of the term ‘social’ in investment narrative moves beyond describing an activity that may fall under one of four heads of charity. It is not clear what constitutes ‘social’ activity by a company or, however it is defined, how a company is held accountable for operating in a ‘social’ manner.
Despite this, investment in these companies, referred to as socially responsible investing (SRI), seems to be viewed as an indication of investor interest transitioning from traditional financial returns to ones that blend in social and environmental elements. As SRI is in the billions of dollars, this ostensibly means the potential investment market for SE is just as high; a questionable premise in my view as investors generally are motivated first and foremost with financial returns and likely would not choose any investment that will lower their returns regardless of potential social impact.
Report on Mobilizing Private Capital for Public Good
This report by the MaRS Centre for Impact Investing issued in 2014. Its focus is on domestic policy in the context of developing the market for ‘impact investment’, positioned as different from SRI, which includes SE’s, and businesses operated in depressed regions and by disadvantaged populations. Based on what appears to be anecdotal evidence of self-described SE activity by NPOs and charities, the report suggests CRA policy does not recognize the value of these activities and advocates for specific registered charity policy changes. Similar to other SE resources, the report’s definition of SE is broad and vague and includes the full spectrum of legal entities and activity. Also similar is a lack of content on the foundational concept of charity and, accordingly, any mention of policy regarding fee-based and employment-based charitable programs.
Oyler Consulting works with registered charities and non-profit organizations to increase their effectiveness and capacity to deliver their programs and services. Services include practical guidance on Canada Revenue Agency policy for registered charities, helping organizations build successful fundraising programs, program and service development, and social enterprise. Visit www.oylerconsulting.ca; contact David Oyler by email.
