Kristen Pue:Tell me a little bit about yourself.
Lars Boggild:I’m a young professional and young philanthropist working in social finance with Vancity Community Investment Bank. Although my philanthropic journey is just beginning, I’m also a participant in the Vision2020 program hosted by the Toronto Foundation to support young philanthropists in being more aware of how our resources can support urban resilience. I come to this work with a bit of an eclectic background in sustainability and social innovation, which I’ve complemented with additional training in finance. I’ve worked in different parts of the social finance industry at the level of product development, working as an advisor to foundations, and now as a lender. I’ve also very recently joined the investment committee of a foundation, so can now speak a little from both sides of the table.
Kristen:Can you tell me a bit more about your role with Vancity Community Investment Bank. What does an Account Manager do?
Lars:Vancity Community Investment Bank can be thought of as a something of a corporate start-up. We’re supported by and building on the resources of our parent company, Vancity Credit Union, which is a the 2ndlargest credit union in the country operating since the 1940s. However, Vancity Community Investment Bank (VCIB for short) was only formally launched in April 2017, converting an existing commercial lender, Citizens Bank, that was owned out here for the last 20 years. Our mandate is to build Canada’s first 100% triple-bottom line lender, where all new lending we do has explicit social and environmental goals. It’s exciting to be a part of an important new institution in Canada’s social finance landscape. Like any newer organization, our team does a lot! I support our executive around everything from strategy to partnerships, but most of my days are spent supporting new clients as we analyze and craft financing packages to grow the impactful work they do in many sectors, from affordable housing and clean energy, to local food and indigenous economic development.
Kristen:How did you first become interested in social finance, or impact investment more specifically?
Lars:I began becoming interested in social finance through my studies and early activism focused on climate change issues in the multilateral system of the United Nations, through which I eventually focused on climate finance. At that time climate finance discussions were primarily concerned with how mostly western governments and capital markets could support the large-scale roll-out of renewables in developing countries. My eyes were really opened to how the expectations of the capital markets really shape what our economy looks like the long run. From there, it didn’t take long to get excited with this burgeoning field of social finance, with its much more nuanced conversations about the goals and expectations of investment and the values that these choices embody.
Kristen:There are a lot of terms used to describe social finance, and this can sometimes be confusing for people. What is a simple way to understand the difference between social finance and impact investment?
Lars:It’s a good question. For the sake of simplicity, I mostly use the terms synonymously, because they are mostly used to mean the same activities. Social Finance is used more in the UK and Europe, and Impact Investment more in North America. However, since you asked, I think it’s easiest to think of impact investment as one subset of a broader universe of social finance. Impact investment is concerned with money you get back, in other words repayable capital. Social Finance is more broadly about how organizations are financed to produce positive social and environmental outcomes, which really does include a whole spectrum of funding programs including grants, blended capital where non-repayable and repayable capital are both at play, and repayable impact investments.
Kristen: What is something surprising that you have encountered since you began working in the social finance field?
Lars:One thing that surprised me is that when people think of examples of social finance in action, they are typically drawn to more tangible local examples like financing affordable housing, but there are some big gaps being left unaddressed. When you dig through market surveys, you discover that most of these investments are drawing capital from North America and Western Europe, but deploying that capital throughout the Global South, predominately in Africa and Latin America. When you speak with Indigenous leaders in Canada, they’ll often share a sense that the same emerging market conditions are in Indigenous Communities throughout the country, but impact investment is only starting to support material change. It came as a surprise to see such a big opportunity for deep, more local impact, and strong returns left so relatively untapped.
Kristen: From your perspective, what would you say is the state of social finance in Canada? What are the strengths and weaknesses of Canada’s social finance sector?
Lars:Social Finance in Canada is still in an infrastructure building phase as it builds up the institutions needed to deploy resources efficiently to the social enterprises and communities that can use it effectively. The field is gaining momentum and has the support of many leaders, which is promising. In Canada, we are building off of strengths such as the depth of our community foundations, the breadth of our credit union movement, and how the leadership that’s seen in Quebec’s solidarity finance institutions. We also having many leading educational institutions that have really begun to engage their students in social finance topics, and so the future is promising given the number of educated and talented young professionals interested in the field. I would say our weaknesses are partially structural and partially of our own design. We don’t have nearly as large or as concentrated a market as other countries like the US or the UK, which makes it more challenging to bring organizations to a sustainable scale. Much of our wealth and financial advice is far more concentrated in a small handful of major institutions compared to the many independent managers in the US, which makes it much more difficult for individuals to begin impact investing. We also struggle with not yet having a critical mass of major institutions actively participating, which I think in part has to do with a more conservative, less ambitious culture around our family and philanthropic wealth.
Kristen: So, what about Canada’s philanthropic funders? To what extent are they participating in social finance in Canada?
Lars:Philanthropic institutions are certainly stepping up to engage more in social finance. One of the challenges many foundations face is that Canada’s philanthropies are simply not as large, which makes it much more difficult to justify creating the staff resources and capacity to focus on these activities. As a result, we need more intermediaries (e.g., funds and deal brokers) in order to allow philanthropic institutions to fully engage. Nonetheless, we see a lot of activity on the part of the foundation associations to support their members capacity building (for example, www.impactinvesting.ca).
Kristen: Are there any philanthropic foundations that stand out in your mind as being on the cutting edge of social finance? If so, what are they doing that has caught your attention?
Lars:There are some great examples. Among larger foundations both the J.W. McConnell Family Foundation and the Hamilton Community Foundation are great examples of foundations that have developed really strong processes and clear strategies to engage in social finance across the full spectrum of grant making, low-cost capital, to market-rate capital, as well as incorporating geographic concerns. Another less known, but excellent Canadian example is of the Lundin Foundation, which works predominately in international development. They have been very successful at taking a very rigorous look at how their capital can help build new markets, while supporting a targeted portfolio of highly scalable enterprises. Not to be too self-serving, but I also think the Vancity Community Foundation has done incredible work! It is somewhat unique in its close relationship to Vancity Credit Union, but this has enabled it to use its larger risk appetite to help enable the credit union to do more ambitious work in many areas of social enterprise.
Kristen: Are there any lessons from your work at Vancity Community Investment Bank that philanthropic funders could apply to their work?
Lars:I think there are a couple of relevant lessons I’ve seen through my work. One is the importance of enabling institutions. I’ve now seen many times where foundations have been interested in leveraging our work as a regulated lender in supporting their due diligence. It’s made me realize that there’s a larger role for developing partnerships that will allow foundations to deploy their capital more effortlessly than trying to build out new processes in-house. That will ultimately allow for foundations’ goals to be achieved more quickly. Secondly, and as importantly, I think it’s important for philanthropic funders to really reflect on what a really unique and privileged position they are in with regards to their investments. While VCIB is explicitly looking to lead in social finance, we are still fundamentally a regulated lender with a responsibility to our depositors, which defines our risk appetite. Philanthropic funders can have the ambition to work my diversely with their capital, including by considering concessionary investments as Program-Related Investments in cases where there is deep impact potential. Philanthropic funders can take the perspective of trying to drive the strongest impact possible, and thinking across their resources to achieve that goal.
Kristen: From your perspective, what are some actions that Canadian grant-making foundations could be taking to become more active participants in social finance?
Lars:I would strongly encourage grant-making foundations to begin by looking at www.impactinvesting.ca. In 2017 I had the opportunity while at Purpose Capital to co-author the Guidebook for Impact Investing by Canadian Foundationsin partnership with Philanthropic Foundations Canada and Community Foundations of Canada. We chronicled the stories of many foundations engaging in impact investing, looking at the journeys they went through, the policies and procedures they developed. Importantly, we looked at foundations both large and small, and with varying levels of engagement. There’s plenty of resources and coaching support readily available.
Kristen: Is there anything that Canadian governments could be doing to facilitate the adoption of social finance in Canada? What is the most important thing, in your view?
Lars:Canadian governments should recognize that we still need a greater diversity of viable intermediaries for this sector to be successful. To use on particularly ambitious example from the US, the Community Reinvestment Acthas created Community Development Financial Institutions (CDFIs) over the last decades by forcing banks to reinvest in cities throughout the US. That infrastructure has been essential to the successful growth of social finance in the US. Thinking about what could work locally, examples like supporting the initial capitalization of social finance funds, similar to the way the VC [venture capital] industry has been supported in its growth in Canada could be effective. That could be driven through multiple sources, including the use of the funds from dormant accounts, or through targeted tax credits to account for the social value being created. I think what’s most important is for any type of governmental support to have clear expectations, with a defined schedule of how it will wind down, and how the industry will need to stand on its own with less ongoing subsidy.
Kristen: Are there any research gaps in the field of social finance? What kinds of questions would be interesting for academics to address?
Lars:There are certainly many gaps in knowledge, in particular for more integrated theories from economics and finance of how social finance can be understood. I think that social finance is fundamentally driven by evolving economic philosophies, and some of its current momentum is driven in part by seeing some of the challenges of the current excesses of the market and its failures. I think seeing this current work in stronger historical context, to truly understand the many, many times that we’ve chosen to consider social and environmental goals in the context of our investments. We need more ambition and imagination to go along with better data on what impacts have been achieved if social finance is to achieve its greatest influence.
Kristen: Have you read any good books or articles about social finance recently?
Lars:Some of the best knowledge in the field is being produced by the Global Impact Investing Network, which continues to produce excellent market surveying and is helping produce better market data. For those interested in how impact is produced, I recommend the Impact Management Project as a really excellent practitioner resource. More at the deal level, some of the best market tracking is being done by Impact Alpha.
Kristen: Is there anything else that you would like to add?
Lars:We should never lose sight of why there’s growing interest in social finance. It’s because there is a growing need for solutions to the dynamic challenges our communities face in the face of complex issues like inequality and climate change. As institutions with a mission solely to drive positive change and often significant resources, I think there’s a duty for philanthropic funders to really reflect on how they grow their ambition to drive greater positive impact sooner, with social finance likely being a part of that puzzle.