Social investing counts its dividends in a different currency

When the financial meltdown began pummelling the investments of the Osprey Community Foundation in Nelson, B.C., the foundation's directors began a heartfelt debate.

Should they radically change the foundation's investment philosophy and move away from focusing on generating returns and invest for social change instead?

"We got closer as a board," said Peggy DeVries, a director who is also a financial planner in Nelson. "You get to know what each others' values are."

In the end the board decided to move all the foundation's assets, almost $6-million, into a socially responsible investing fund managed by the Vancouver Foundation. Now instead of tracking returns based on the movements of the TSX, the foundation will monitor social goals such as whether their holdings advance conservation and emissions controls and fight child labour and human rights violations.

The foundation's decision is part of a trend among Canadian charities to get away from buying stocks and bonds, and putting their assets to work for a cause.

Some have become lenders, offering loans and mortgages to non-profit groups that can't get financing from banks. Others are making direct investments in so-called "social enterprises," businesses that have a social component such as hiring disadvantaged youths.

"The financial meltdown kind of accelerated our interest," said Monica Patton, head of Community Foundations of Canada (CFC), an umbrella group for Canada's 168 community foundations.

"We began to say to ourselves, 'We still have quite a bit of capital, how can we be using those assets in a way that more effectively aligns our missions?"

This week CFC will launch a program to help charities adopt mission-based investing.

The organization is getting help from the U.S.-based Ford Foundation and it will be drawing on the experience of charities in the United States and Britain, where social investing has been around for years. Canadian charities are just getting started.

Five years ago "there were probably three people in all of Canada who had even heard of it," said Martin Garber-Conrad, chief executive officer of the Edmonton Community Foundation. "And now there are whole conference sessions where people are saying 'That's really interesting we want to learn more and we want to see if there's a way we can get into this.' "

Mr. Garber-Conrad said the slumping stock market has changed attitudes. "It has helped people see that perhaps there are more different things we could be doing," he said. "The goal of this kind of investing is, instead of sending the money away to Bay Street or Wall Street or somewhere else, it's rather to try to invest directly in our own community."

The Edmonton Foundation started making social investments last year and created a non-profit agency with the City of Edmonton to fund social enterprises. The agency has about $5-million in total, which the foundation hopes to double over the next few years.

Some of its investments have included three $500,000 loans to help other groups buy land for social housing projects. The loans carry an interest rate of up to 6.5 per cent and the foundation expects to be paid back within two years. It also lent Big Brothers Big Sisters $300,000, at around 5 per cent, to help finance a dream home lottery. Without the loan, the lottery would not have taken place because banks wouldn't provide financing. Another investment went to an Edmonton restaurant that employs homeless kids.

"By providing loans rather than grants, it allows us to leverage a limited amount of assets by essentially recycling the money," Mr. Garber-Conrad explained. "Loans get paid back and we can loan the money out again."

The foundation has about $250-million in total assets and Mr. Garber-Conrad said last year its traditional investments fell by 14 per cent, whereas the social investments earned 6 per cent.

Betsy Martin, a Montreal consultant who works with CFC on social investing, said it can be complicated for charities to set up social investment policies that comply with Canada Revenue Agency (CRA) rules. But she said it can be done and CFC and others are expected to push the CRA to make the rules more flexible.

"I think the market meltdown caused a lot of people to step back and say 'this really does make a lot sense,' " Ms. Martin said. "There is a growing sense around the world that how we invest has a profound impact on what happens in the world. So if you have a significant pool of money to invest, you might want to think about that as part of what you are trying to do as a foundation."