The Need for Local Impact Investing in Addressing COVID-19 in Ontario
By: Keshiv Kaushal
Tags: Covid 19, Impact Investing, Community Investment, Social Finance

Thousand Islands in Kingston, ON

COVID-19 has reshaped our world in unimaginable ways, throwing thriving economies into a tailspin, placing untenable pressure on healthcare systems, and causing death for almost 200,000 people around the world. In Canada alone, we are seeing unemployment rates rise to unprecedented levels, with more than a million jobs lost in March. Businesses around Ontario are shuttering, personal savings are being depleted, and food banks are being overwhelmed. Although this depicts a bleak picture, this crisis has also given way to creative ingenuity from individuals and businesses around the province. Breweries have re-tooled their production lines to manufacture hand sanitizer, individuals are using 3D printers to produce PPE for Michael Garron Hospital, and Ottawa-based Spartan Biosciences has developed a rapid test for COVID-19. This pandemic has brought together some of Ontario’s brightest individuals across industries to create innovative solutions and serve the common good. In essence, people across the province are looking to social innovation in these unprecedented times. Social innovation and impact investing could not be better suited to tackle the ever-changing nature of COVID-19. Impact investing exists for the purpose of mobilizing capital and businesses to address pressing social issues and create positive and measurable good for communities, which proves invaluable in a time of crisis.

A team of Toronto-based clinicians and entrepreneurs have developed the COVID Box, a new way for front-line workers to safely intubate COVID-19 patients

I participated in a call hosted by the Ontario Trillium Foundation, SVX, Centre for Social Innovation, Pillar Nonprofit Network, and the Upper Canada Equity Fund about Ontario’s social finance response to COVID-19. This call brought together the province’s sizable social finance funds, social innovators, and community organizations to ideate around issues, gaps, and solutions within the social finance sphere and the industry’s response to COVID-19.

When understanding how social finance should address COVID-19, it is essential to sequence this crisis into three distinct phases: Emergency Response, Strategic Recovery, and Systemic Change.

The Emergency Response phase, which will occur over the next 1–3 months, will look to support critical industries and organizations facing an overwhelming loss of funds and cash flow, with bridge financing and flexible solutions to maintain operations.

phase, which will occur over the next 1–3 months, will look to support critical industries and organizations facing an overwhelming loss of funds and cash flow, with bridge financing and flexible solutions to maintain operations. The Strategic Recovery phase will work to regenerate industries that have faced economic devastation and invest in social enterprises that will bring economic prosperity to their respective communities.

phase will work to regenerate industries that have faced economic devastation and invest in social enterprises that will bring economic prosperity to their respective communities. The Systemic Change phase will look to address critical issues that are becoming increasingly more urgent as a result of COVID-19, whether it be food insecurity, supply chain maintenance, affordable housing, mental health, pandemic preparedness, etc.

To successfully execute social finance’s response to COVID-19 across the three stages, it is imperative that existing gaps are addressed. Three significant shortfalls are prevalent in the current approach: a lack of coordination, limited capacity, and a capital crunch.

The government’s response has demonstrated a lack of coordination with a variety of stakeholders, especially within the social enterprise sphere. Investors and social finance intermediaries are acting in silos at the municipal, provincial and federal level, leading to inefficiency and confusion.

with a variety of stakeholders, especially within the social enterprise sphere. Investors and social finance intermediaries are acting in silos at the municipal, provincial and federal level, leading to inefficiency and confusion. Social enterprises have been slow to adapt to a changing landscape, primarily because they lack the capital required to pivot their businesses. This inability to revamp operations and a lack of support from intermediaries stem from the fact that many organizations are being overwhelmed by grant requests and do not have the necessary capacity to service the immense need, especially from a national or provincial perspective.

to service the immense need, especially from a national or provincial perspective. There is also a lack of available capital and increasing withdrawals of capital commitments from both private and public-sector players, further compounding the issue. Impact-related capital is often restrictive in nature and many granting organizations and Community Foundations are not equipped from a governance or policy standpoint to adequately support for-profit social enterprises. Additionally, traditional financiers often deem social enterprises as unattractive or too risky, making capital injections extremely expensive. Centralized public-sector sources of capital like BDC and EDC will quickly become overwhelmed by impact and non-impact businesses in mature and emerging industries, necessitating action from the impact investing and charitable sectors.

COVID-19 has demonstrated that community investing will be necessary for all three stages of pandemic response, but particularly in the Emergency Response and Strategic Recovery phases. Communities will be uniquely impacted, and thus, mitigation and revitalization will need to occur on a case-by-case basis. By empowering organizations like community development financial institutions and local social value funds, we can rapidly address societal concerns on a micro-level in an efficient manner that is sensitive to a given community’s unique needs. These organizations can also work in tandem with community foundations, local charities, and municipal governments to invest in social enterprises that align with the community’s strategic priorities and create revenue-generating activity within the local economy. Additionally, responding to COVID-19 at the local level allows social enterprises to address the virus in a way that is more comprehensive in solving local problems, more coordinated in its approach, and less restrictive in its deployment. The federal government has taken sweeping action with the Canada Emergency Response Benefit (CERB) to provide economic assistance in the least restrictive way possible. However, it has become apparent with each new announcement that the government is unable to address the full spectrum of needs effectively. Joanna Reynolds, National Director of Social Enterprise at the Centre for Social Innovation, commented that,

There is a real lack of stabilization funding for non-profit organizations and access to short-term bridge capital for nonprofits.

Lastly, increasing the flow of capital to local organizations works to increase coordination and ease capacity concerns. By empowering local organizations with capital, data can be relayed to provincial and national counterparts on systemic issues while uniquely local concerns can be quickly addressed. This improves coordination and ensures that provincial and federal entities like BDC do not become overwhelmed with funding requests.

Adam Spence, Director at SVX, recently noted that in responding to the COVID-19 crisis, it is imperative to,

Establish a framework to identify, qualify and provide ongoing support to a new category of community development financial institutions (CDFIs) that can provide capital and capacity supports to organizations and enterprises that can lead recovery and regeneration efforts at a local level. By financing community businesses — including small businesses, microenterprises, nonprofit organizations, commercial real estate, and affordable housing — CDFIs spark job growth and retention in hard-to serve markets across the nation.

Confederation Basin and Portsmouth Olympic Harbour Marina in Kingston, ON

Within Kingston, ON, we have seen several systemic issues exacerbated as a result of COVID-19. Kingston had one of the lowest housing vacancy rates in the country at 0.6% in 2018. While the vacancy rate is steadily increasing, rents rose by 7.9% in 2019, significantly more than Ontario rent guidelines. The issue of rental affordability is becoming increasingly perilous, as many are out of work or have been forced to close their businesses. As Joanna Reynolds remarked,

We can see that because of the way our society has been structured, we have social inequalities that become ever more apparent and it’s very precarious right now.

Kingston has one of the highest number of restaurants and bars per capita in Canada, and the food service industry has been one of the most affected by the pandemic. Because of this virus, we have seen local shelters and food banks overwhelmed by demand. There are also prominent concerns around the food supply chain and the ability for the local agricultural community to increase supply while food imports from the US are slowed. I firmly believe that an integrative and collaborative approach will be necessary to mitigate the economic impact and revitalize the local sectors within Kingston. After discussions with a variety of community partners, it is critical to:

Coordinate with municipal government, community foundations, NFPs, charities, and local impact funds to achieve alignment around areas of need and strategic priorities. Partner and support local granting institutions and provincial/federal counterparts to mobilize capital for an emergency response. Provide transitionary capital and bridge financing for fledgling businesses whose earnings are being disproportionately affected by the virus. Unlock unrestricted, local capital that allows community funds to rapidly invest in necessary projects including workforce inclusion, housing affordability, food sustainability, mental health and addiction, the arts, and shelter support. Work with local social innovation thought leaders and municipal government stakeholders to create a comprehensive plan to foster and support social enterprise in Kingston and build the city as a living laboratory for social innovation.

Social finance can work at the local-level to generate an emergency response, revitalize communities, and spur systemic change. It will be imperative that communities like Kingston utilize the collective intelligence of people across sectors to catalyze social innovation and respond effectively and comprehensively to COVID-19.