How do we respond to the social and economic impacts of COVID19? (Part 2)

In our previous post, we sought to help inform the response to the social and economic impacts of COVID19 by identifying trends, principles to guide a response, gaps in the current response, the role of impact investing and social enterprise, and examples of how other organizations and jurisdictions are responding.

We recognize the fundamental importance and primacy of dedicating resources to the frontline response. We also recognize the critical role of wage subsidy programs alongside philanthropy and government grants. There have already been an unprecedented set of actions that have been taken by individuals and institutions to respond to the crisis.

In this post, we wanted to identify potential actions that could leverage the power of impact investing and social enterprise, with recommendations targeting investors, foundations, funds and other intermediaries, as well as mainstream financial institutions and governments.

What are potential actions we can take to respond to the social and economic impacts of COVID19?

In line with our proposed approach and principles outlined in Part 1, the collective response to COVID-19 will have at least two phases:

  • short-term response to the emergency over the next one (1) to three (3) months to provide relief and resilience to organizations and enterprises that are facing a significant crisis of loss of customers and cash flow, and to provide support to those that are seeking to adapt, retool or scale-up to respond to the crisis.

We have identified an initial list of potential actions that could be taken as a part of a short-term and medium-term response in Canada. These actions are particularly focused on fostering coordination, building capacity, and mobilizing capital solutions:

  1. Create a single Canadian COVID19 resource portal;

A more comprehensive description of these actions is outlined below. And this is only an initial list. We certainly don’t have all of the answers, and it will take time for stakeholders to refine and implement solutions. We will seek to share and refine this list of actions in the days and weeks ahead with our colleagues and interested stakeholders.

We will need a coordinated response from those providing resources to ensure maximum impact, reduce duplication, and get resources to those who need it most.

1. Develop and jointly promote a single ecosystem COVID resource portal for social enterprise, nonprofits and charities including grants, loans, and capacity support programs. There are dozens of COVID resource portals across the country. Ideally, one organization could deploy and maintain a regularly updated, user friendly database of resources for social enterprises, nonprofits and charities across Canada. Partner organizations could contribute financial and personnel resources and support the promotion of a single resource portal.

2. Establish national, provincial and regional investor-funder collaboratives to coordinate short-term relief and medium term recovery efforts. This would involve those funders and investors offering a combination of grants, loans and equity investments. The initial goal would be to reduce duplication, to increase effectiveness, and to rally new resources to the response effort. The collaboratives may be as simple as a regular check-in conversation with local partners to exchange ideas and approaches. Or they may be more sophisticated, where organizations may work to create and maintain a single pathway application portal.

There is a need for capacity support for organizations and enterprises seeking to manage a significant business disruption and/or to re-tool or adapt their business or organization to respond to the crisis.

3. Provide funding for intermediaries to deliver technical assistance to organizations and enterprises that are seeking to navigate COVID-19, including coaching and concierge services to access current and new support programs. Intermediary organizations have the experience and expertise to support organizations and enterprises seeking to navigate short and medium-term impacts of the crisis. There are an incredible number of organizations that could be unleashed to provide supports including: Spring, Radius and UBC Sauder (Vancouver), Pillar Nonprofit Network (London), MaRS, Toronto Enterprise Fund, CSI and SVX (Toronto), Esplanade (Montreal), Pond Desphande (Fredericton), and many more.

We need to direct capital into communities, entrepreneurs, organizations and intermediaries to support relief, recovery and regeneration.

4. Expand eligibility of financial institutions that can qualify social enterprises for federal loan programs. Arms length organizations like EDC are leveraging existing institutional partnerships for new lending capital that is being deployed for COVID19 relief for small businesses. These existing partnerships with major banks and credit unions will help reach many organizations. But there are many more institutions across the country, particularly the network of medium and small credit unions in cities, towns and regions across the country that could significantly expand the geographic scope of federal lending programs.

5. Develop and capitalize one or more rapid COVID adaptation funds that can provide grant and/or lending capital for organizations to adapt, retool or scale-up to respond to the crisis at a local, regional or national level. Many social enterprises are already stepping up by adapting their businesses, from local distilleries producing sanitizer (Kinsip in Prince Edward County) to ethical food delivery businesses employing laid off workers (Fresh City Farms in Toronto) to sustainable fashion companies producing gowns and masks for frontline health care workers (Carmina de Young and MLD Solutions in London). And social enterprise organizations like Kids Code Jeunesse who can deliver education online for kids and parents that will become even more important in the weeks and months ahead. But they, and many other organizations, will need sufficient grant and/or lending capital to ensure they can effectively adapt to respond to the crisis, from purchasing protective equipment to adjusting manufacturing processes to implementing new hiring and training systems. The current Ontario Together Fund represents a great foundation for an adaptation grant program. However, the mandate of the proposed adaptation fund would expand the scope beyond essential equipment and supplies.

6. Deploy funds for targeted grant and investment capital programs for social enterprises targeting relief, recovery and regeneration for rural Canada, women, and indigenous communities. A Social Enterprise Relief and Recovery Fund capitalized by the government could provide short and medium-term support for social enterprises in rural Canada through access to blended capital so they can more effectively absorb the impacts of the COVID-19 outbreak and continue to be there for communities while driving positive social solutions. Social enterprises may range from nonprofit service providers responding directly to the crisis through housing, food and health services (eg. community agencies) to businesses seeking to navigate through an unprecedented downturn or to scale efforts to respond to the crisis like local food delivery businesses.

  • This can be done through a $50-million capitalization of a rural Social Enterprise Relief Fund to provide grants, low interest loans, (and equity investments) to social enterprises in rural communities experiencing hardships due to COVID-19, or seeking to retool their operations to respond to the crisis.

The Social Enterprise Relief and Recovery Fund would also provide value during the recovery and resilience phases of the response to COVID-19 challenges. It is recommended that the federal government create similar funds targeting women and indigenous social enterprises in Canada.

7. Re-evaluate the purpose of the next round of the federal government’s Investment Readiness Program and Social Finance Fund so that it is focused on post-crisis recovery and regeneration. Both the Investment Readiness Program and the Social Finance Fund are outstanding public policy interventions, and the resources and commitment made to these initiatives will likely be more important in the weeks and months ahead. However, it will be critical that these programs are re-evaluated to ensure they can meet sector and community needs for relief and recovery. A tactical working group of representatives from government and in the social finance sector could provide guidance to the re-design of the IRP and Social Finance Fund.

We will need to advance broader systems change by creating new institutions, regulations, and infrastructure to support recovery and resilience in the months and years ahead.

8. Establish a framework to identify, qualify and provide ongoing support to a new category of community development financial institutions that can provide capital and capacity supports to organizations and enterprises that can lead recovery and regeneration efforts at a local level, modelled on similar frameworks in the United States and United Kingdom. Community development financial institutions (CDFIs) provide credit and financial services to people and communities underserved by mainstream commercial banks and lenders. CDFIs encompass a range of nonprofit and for-profit entities including community development banks, community development credit unions, community development loan funds, community development venture capital funds, and microenterprise loan funds. 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.

A new category of financial services institution would have met important gaps before the COVID19 crisis, and the need is undeniably greater during a potential period of social and economic downturn. Fortunately, there are already dozens of organizations in Canada that would fit the profile of a potential Canadian CDFI, from community loan funds to place-based equity funds. These CDFIs could target regions as well as particular populations (eg. women, Indigenous, etc.) most impacted by the crisis, as well as target community economic development in regions that have faced structural social and economic challenges. The framework for qualifying and funding Canadian CDFIs could be modelled on the CDFI Fund in the United States.

9. Establish guidelines for community re-investment by major financial institutions into local organizations, businesses, and funds that are driving recovery and regeneration. There could also be mandates related to investing in qualified Canadian CDFIs. In the recovery phase, there will be a substantial need for capital by organizations and enterprises, as well as by place-based funds seeking to raise and deploy capital into these organizations. Many major Canadian financial institutions have significant amounts of capital available on their balance sheet. In line with similar regulations in the United States, there could be regulatory mandates for chartered financial institutions to ensure they dedicate a certain percentage of their capital to investing in local organizations, businesses and funds that are driving recovery and regeneration. This could mobilize hundreds of millions in capital for organizations and enterprises that need access to capital.

10. Establish a mandate for community foundations, private foundations, and separately managed donor-advised funds to dedicate their assets to recovery and regeneration. Foundations and donor-advised funds (DAFs) in Canada have a significant amount of assets that could be deployed to support recovery and regeneration. They could consider a voluntary program, potentially with incentives, to dedicate ten (10) per cent of their assets to investing in recovery efforts, from financing local nonprofit organizations to capitalizing new or existing place-based funds.

11. Create tax incentives for individuals and institutions to invest in place-based funds, local organizations and businesses focused on recovery and regeneration. Beyond foundations and financial institutions, we can also seek to mobilize capital from individuals for recovery and long-term resilience by creating tax incentives for investing in local organizations and businesses, either directly or through place-based impact investing funds. This may involve the replication of local investment models from BC or Atlantic Canada across all provinces, and/or a federal tax incentive program.

So what’s next?

We’ve identified a few next steps:

  • Share and test these ideas with stakeholders in order to refine the proposed set of actions and determine what we may be able to move forward.

We will look to explore these topics in posts in the weeks ahead. Again, until then, we wish you, your friends and your families good health (mental, physical and metaphysical) in the days and weeks ahead. And please stay home as much as possible to help #flattenthecurve.

SVX is financial services firm & impact investing platform connecting ventures, funds, and investors to catalyze investment capital for impact. #ImpInv #SocEnt

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