For the most part, Canada’s pension funds haven’t ventured into impact investing—where capital is allocated to projects that bring not only financial returns but also social and environmental benefits—because that space still presents few opportunities for them.

Since the size of most impact projects in Canada is not large enough, such deals are usually not cost-effective for pension funds because of the expenses related to due diligence, says Adam Spence, associate director of the MaRS Centre for Impact Investing, speaking at a Toronto conference organized by the Responsible Investment Association.

“Whether you do a $25,000 or a million-dollar or a $10-million deal, to review it costs the same,” says Spence.

Impact investing covers a wide range of asset classes, including private and public debt, private equity, real estate and venture capital, to name a few. Real estate is an area that currently offers opportunities that are big enough for pension investors—particularly affordable housing and different types of community centres. “If we look at the asset base of affordable housing right now, it is in the multi billions of dollars, and the demand is in the multi billions of dollars—and you have a reliable revenue stream,” says Spence, adding that these assets are easily understood by investors and can help diversify portfolios.

Also, these assets typically last for decades, so, in many cases, they could be more resilient than, say, shopping malls, currently found in the portfolios of some big pension funds as well as the Canada Pension Plan.

It’s also easy to understand the impact of these real estate projects, says Spence. “You’re changing someone’s life by giving them a home, a place to live.”

Understanding may be easy, but measuring the effect of projects in the impact space could be difficult. “One of the things we’ve always found is that people are used to metrics. But how do you measure impact?” says Paul Richardson, president of Renewal Funds, a Vancouver-based investment firm, speaking at the same conference. So, he says, one way to attract more institutional investors is by providing them with a set of measurements “that are really thoughtful, really deep, that people can look at and get a score” and then compare that score to the score of other impact investment opportunities. “Institutions don’t like just being told stories,” Richardson explains.

While impact investing is still not practised by the majority of pension funds in Canada, funds in Quebec are an exception, says Spence. “In Quebec, the solidarity and social economy has been active and advanced,” he explains.

Impact investing differs from socially responsible investing (SRI). SRI is about providing capital to companies or funds that meet environmental, social and governance requirements—but these companies or funds don’t normally exist solely for the purpose of making a social or environmental change. By contrast, impact investing is about giving capital to entities whose mission is to offer solutions to specific social or environmental issues. So SRI usually involves giving capital to publicly traded companies, while with impact investing, the recipients are normally private corporations, non-profit organizations and other entities.

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