Impact Investing in the Indigenous Context: A Scan of the Canadian Marketplace
Exploring how impact investing might play a role in the betterment of Indigenous communities in Canada.
4 minute read
Indigenous issues remain at the forefront of Canadian policy, with many communities still lacking the necessary infrastructure and services related to water, education, economic development, and health. While these issues have traditionally been targeted by government, non-profits and charities, we believe that impact investors can play a role as well.
This report seeks to answer a crucial question that has been under-examined in the Canadian impact investment market: What is being done by impact investors, and how can the sector contribute to the betterment of Indigenous communities in Canada? We recognize investment is not a panacea, nor a “one-size-fits-all” solution. Rather, our hope is to shed light on the potential contribution that values-aligned finance can provide in Indigenous contexts.
BACKGROUND
Examples of Canadian social investment in Indigenous communities reach back to the mid-twentieth century to more recent community economic development initiatives supported by various levels of government, such as Aboriginal Finance Institutions. While many of these initiatives have involved public sector contributions, more recently, examples of privately funded social impact investments in Indigenous communities have been taking place. These developments create the opportunity for more economic development to occur in a framework aligned with Indigenous values of collective responsibility and environmental stewardship. Within the context of impact investing, there may be greater opportunities to apply Indigenous perspectives to business that value long-term value creation and social equity.
Supply-Side
To understand the supply-side, we used the data and categorization of the Responsible Investment Association to look at the entire impact investing landscape looking at a variety of capital providers including foundations, financial institutions, high net worth individuals, pension funds, private investors, government, non-profits, and cooperatives. From there, we estimated a ‘minimum universe’ of Indigenous Impact Investment. Because the data is insufficient to provide an accurate estimate of the full market size, the minimum universe is used instead as a measure of the minimum amount of activity in the space and can be traced to industry data.
$1.2B
Estimated minimum universe of impact assets directed towards Indigenous communities (2017)
$10.5B
Estimated total value of impact assets under management (2015)
Despite the growth in impact investing in Canada, Indigenous communities and businesses have stated that access to capital remains a significant impediment. In 2016, the Canadian Council for Aboriginal Business conducted a survey on Indigenous-owned businesses regarding the challenges in accessing capital. Below are some of the key findings from the survey:
36%
considered access to equity capital as the biggest obstacle
34%
considered access to financing as the second biggest obstacle
“Different types of capital are required for different sectors in Indigenous impact investing”
Demand-side
Attracting patient capital for Indigenous-led business requires work on both sides: investors must familiarize themselves with potentially new business models, and entrepreneurs must be able to build their network, be willing to build partnerships and showcase their work.
The figure on the left provides a summary of sector areas reviewed and an assessment of current interest and activity levels in Indigenous-focused impact investing. The transaction activity and examples studied in this section provide evidence that Indigenous investment opportunities mirror what international development impact investors call “frontier capital”. This term refers to the broad range of investment mechanisms designed for projects featuring proven business models to unproven models that are riskier and asset heavy. For example, existing project financing structures could be replicated for revenue-generating renewable energy projects, while more patient capital tools like loan-loss reserves may be required for Indigenous housing projects situated in remote areas.
Our report further examines the types of capital that are suitable for different sectors in Indigenous impact investing and recommendations to facilitate transactions.
Financial Products Available
As with the rest of the impact investing market in Canada, the number of products for Indigenous-focused impact investing is quite low. There is only a single product example in many asset classes. Within some asset classes only specific sectors, such as housing, are meaningfully represented. Other sectors, such as energy, have had products emerge, but these are most often closed funds, many of which have since been fully retired.
While the depth of the impact investment product marketplace for Indigenous communities is shallow, there are reasons to believe that the volume of Indigenous-themed products available within Canada will grow in the coming years. As the Canadian social finance marketplace evolves and through the Government of Canada’s commitment to innovation as well as addressing the longstanding social, environmental and economic challenges faced by Canadian Indigenous Peoples, we will see more financial products in support of Indigenous-specific opportunities become available soon.
Our report provides an in-depth analysis with examples of the supply and demand-side of capital, financial products, intermediaries facilitating transactions, and recommendations for targeting gaps in the impact investing market in the Indigenous context. The report and executive summary can be accessed at the top of this page.