Market Momentum: Impact Investing & High Net Worth Canadians

Ideally, impact investments have thefollowing additional characteristics: hey achieve deep or wideTimpact at scale. Deep impact isdefined as change in a community orneighbourhood, or changing the qualityof life of a particular group of people.One example is an enterprise like Teclathat is improving the quality of life forpeople with barriers to communicationor mobility. Wide impact is defined asa change at a national or global scalewith modest or high growth that cantouch the lives of thousands or millionsof people. For example, Lucky Iron Fishhas positively impacted the lives of tensof thousands of people in countriesacross the globe by preventing irondeficiencies and anemia. T hey align with particularsectors, including:clean technology: sustainabletechnologies in agri-tech, energy,smart cities and water;work and learning: work and learningtechnology innovations creatingopportunity for all Canadians;health and wellness: diagnosticdevices, digital health, assistivetechnologies, remote health technologyand health information management;food: natural, local and organicfoods, fair trade, and ethical andsustainable food; andExample: Model 100% Impact Investment PortfolioAcross Asset Classes, Cordes Foundation 2015 2social inclusion: employing orserving persons with disabilities,persons living in poverty, First Nationsindividuals, and new Canadians, andproviding affordable housing.CORDES FOUNDATION 100% invested for impact.12%Cash 14%38%Private DebtPublic Equity26%Private Equity10%Public DebtImpact ExamplesCommentBoston CommonInternational ADR PortfolioPublic-equity portfolio of internationalcorporations scoring highly on humanrights and environmental impactGreen Alpha Next EconomyPublic-equity portfolio of greencompanies addressing economic/environmental challenges affectingthe eco-efficiency of operationsSokoDirect investment in for-profitwomen-owned enterprises connectingartisans in the developing world withthe global consumer marketplaceSarona Frontier Markets Fund IIFund-of-funds vehicle investing vialocal fund managers in small- andmedium-size enterprises in frontierand emerging markets hey align with certain standardsTand frameworks for measuringand managing impact. There are anumber of leading industry standardsthat have been developed for theimpact investing marketplace. TheB Impact Assessment developedby B Lab examines impact on theenvironment, community andworkers, as well as the governanceand business operations of ventures.It provides a proven and verifiablethird-party standard where venturescan be compared across industriesand geographies. The ImpactReporting and Investment Standards(IRIS) developed by the GlobalImpact Investing Network (GIIN) canprovide guidance on metrics. Someorganizations have also chosen toorganize and align their metrics withthe UN’s Sustainable DevelopmentGoals. Moreover, there are a numberof frameworks that can be leveragedto help track and improve impactover time. The general Theory ofChange framework or systems likeBridges Impact are very helpful.2. Milburn, Robert. Impact Investing Done Right. Barron’s.November 28, 2015. Retrieved from: done-right-1448684226Market Momentum: Impact Investing & High Net Worth Canadians MaRS Discovery District9

What are examples of impact investments?Genus Capital’s FossilFree High ImpactEquity FundAddenda Capital’sImpact FixedIncome FundOikocreditSolarShareFirst NationsBank of CanadaThe fund seeks to makepositive social andenvironmental impactsin addition to generatingbetter financial results.It focuses on investing inglobal companies that areleaders in areas includingrenewable energy, energyefficiency, water and wastemanagement, low- andnegative-impact products,and sustainable agriculture,as well as access tohealthcare, educationand technology.Addenda Capital’sImpact Fixed Incomeproduct focuses onissuers or investmentswith the sustainablecapacity to deliver apositive social and/orenvironmental impactalongside competitivereturns, spanninga diverse range ofsecurities, includingcorporate bonds,government bonds,preferred shares,commercial mortgagesand private debt.Oikocredit is aworldwide cooperative andsocial investor thatprovides funding tothe microfinancesector, fair tradeorganizations,co-operatives andsmall- to mediumsize enterprises.SolarShare is Canada’slargest renewablepower co-operative.It develops commercialscale solar energyinstallations andprovides a pathwayfor citizens to investin solar power.First Nations Bankof Canada is a Charter1 bank that providesfinancial servicesincluding mortgage,commercial andindividual lendingto over 12,000Aboriginal and nonAboriginal customers.Impacts in energy andenvironment, healthand wellness, work andlearning, and socialinclusion: multipleSustainable DevelopmentGoals (SDGs)Impacts acrossfour broad themes,including climatechange, health andwellness, educationand communitydevelopment:multiple SDGsImpacts in energyand environmentand socialinclusion:SDGs includingno poverty,zero hunger,gender equality,affordable andclean energy, anddecent work andeconomic growthImpact in energyand environment:SDGs includingsustainable cities andcommunities, climateaction, and responsibleconsumption andproductionImpact in socialinclusion: SDGsincluding nopoverty, reducedincome inequalities,sustainable citiesand communities,and decent work andeconomic growthMetrics: Measuredaccording to revenue fromproducts and services thatalign with the UN’s SDGs.Metrics: MultipleMetrics: Greenhousegas and CO2 emissionreductions, MW ofsolar energyMetrics: Numberof MFI clients (total,female, rural),number of socialenterprises andemploymentMetrics: Number ofcustomers, number ofhouses financed andnumber of businessessupportedMarket rateMarket rateBelow marketRisk-adjustedmarket rateRisk-adjustedmarket ratePublic equityFixed incomeCash equivalent/Fixed incomePrivate debtPrivate equityNB: Categorized according to: 1. Description / Intention; 2. Impact; 3. Return profile; 4. Asset classMarket Momentum: Impact Investing & High Net Worth Canadians MaRS Discovery District10

What is the size of the impactinvestment market?There are billions of dollars in assetsdedicated to impact in Canadaand around the world. In Canada,the impact investing market was 9.2billion in 2015.3 Around the world, therewere 135 billion in assets dedicatedto impact investing that same year.4As of 2017, roughly 200 of the topglobal impact investing organizationsmanaged nearly 114 billion in totalassets.5 That number doubled to nearly 228 billion in total assets in 2018.6The impact investing market isgrowing and it is projected to havecontinued growth. There was 22billion in new capital committed globallyin 2016. By 2020, it is projected thatthe global impact investing marketwill be over 300 billion.7Trillions of dollars will be seekingsocial, environmental and financialperformance over the next decade.The world’s largest investors, likeBlackRock,8 and the largest pensionfunds, like CalPERS,9 have identifiedthe long-term risk of investing withoutconsidering the impact on society,workers and the environment.What is the performanceof the impactinvestment market?Study after study, conducted byorganizations ranging from Morningstarto the University of Oxford, and incountries including the United States,Australia and Canada, demonstratesthe fact that companies that supporttheir workers, their community andthe environment achieve financialperformance that is equal to or betterthan their counterparts.10, 11, 12, 13, 14Impact investors report thatthe relative performances of theirimpact investments are meetingor exceeding their expectations. A ccordingto a recent RIA Canadasurvey of asset owners and assetmanagers, 65% of survey respondentstarget competitive returns at or abovemarket rate, an increased percentagefrom its last survey.15 Of that group,96% said their impact investment’sperformance either met or exceededtheir expectations. I na 2017 global study of impactasset owners seeking market-ratereturns by the GIIN, average grossreturn expectations for debt were7% in developed markets and 9.2%in emerging markets. For equity,average gross return expectationswere 13.4% in developed marketsand 16.5% in emerging markets.19Moreover, the financial performanceof public impact equity has been shownto perform in line with or better thantraditional public equity. (see FIGURE 1) A ccordingto the GIIN’s 2017 globalAnnual Impact Investor Survey ofasset owners and managers, 90%of investors reported that theirinvestments were meeting orexceeding their expectations.16The actual performance of impactinvestments has also demonstratedstrong returns.2015, the Wharton School at theUniversity of Pennsylvania analyzed53 impact private equity funds,assessing 170 underlying investmentsdesigned to seek market-rate returns(from 2000 to 2014). Theseinvestments produced a 12.94%internal rate of return, near identicalperformance to the study’s selectedbenchmark, a spliced RussellMicrocap/Russell 2000 index.17 I n2000 to 2010, the InternationalFinance Corporation invested 2 billion in 124 emerging marketprivate-equity funds. In aggregate,these funds achieved an internalrate of return of 19.7%, outperformingbenchmark returns of 14.2%.18 F rom3. RIA Canada. Canadian Impact Investment Trends Report2016. October 2016. Retrieved from: https://www.riacanada.ca/impact-trends/ 4. Markets and Markets. Impact InvestingMarket by Illustrative Sector. July 2017. Retrieved from: 493.html 5. GlobalImpact Investing Network. Annual Impact Investor Survey2017. May 2017. Retrieved from: https://thegiin.org/assets/GIIN AnnualImpactInvestorSurvey 2017 Web Final.pdf6. Global Impact Investing Network. Annual Impact InvestorSurvey 2018. May 2018. Retrieved from: https://thegiin.org/assets/2018 GIIN Annual Impact Investor Survey webfile.pdf Ibid. 7. Ibid. 8. BlackRock. Focus on Society and ProfitsShareholder Letter. Jan 2018. Retrieved from: ions/larry-finkchairmans-letter 9. CalPERS. Sustainable Investing. Jan2018. Retrieved from: ance/sustainable-investing 10. CNBC. Thetruth is finally starting to emerge about socially responsibleinvesting. June 16, 2017. 11. Clark, Gordon, Andreas Feiner,and Michael Viehs. From the Stockholder to the Stakeholder.March 2015. 12. USSIF. Performance and SRI. As found onhttps://www.ussif.org/performance. 13. Australian Ethical.“Making a case for ethical investment.” The Guardian. January22, 2018. 14. RIA Canada. RI Performance Myth. As foundon: https://www.riacanada.ca/ri-and-performance/. 15. RIACanada. Canadian Impact Investment Trends Report 2016.16. Global Impact Investing Network. Annual Impact InvestorSurvey 2017. May 2017. Retrieved from: https://thegiin.org/assets/GIIN AnnualImpactInvestorSurvey 2017 Web Final.pdf 17. Wharton School at the University of Pennsylvania.Great Expectations: Mission Preservation and FinancialPerformance in Impact Investing. September 2016. Retrievedfrom: .pdf18. International Finance Corporation. The Case for EmergingMarket Private Equity. February 2013. 19. Global ImpactInvesting Network. Annual Impact Investor Survey 2017.May 2017. Retrieved from: rSurvey 2017 Web Final.pdfMarket Momentum: Impact Investing & High Net Worth Canadians MaRS Discovery District11

FIGURE 1: Traditional IndexPerformance vs. SustainableIndex Performance in 2017 20TRADITIONALMSCI ACWI Index6.91%YTD Return2.43%Divided Yield20.99PiE RatioVSSUSTAINABLEMSCI ACWI Low CarbonTarget Index7.24%YTD Return2.42%Divided Yield20.59PiE RatioAccording to a 2016 report by theCanadian Securities Institute andInvestor Economics, 5% of householdsin Canada are currently considered tobe high net worth, meaning they haveat least 1 million to invest. By 2022 thisnumber will grow to 7% of households.Combined, those households will control66% of all of the wealth in Canada. By2024, the total assets of the high networth households in the country areexpected to be 4.3 trillion or 69.5%of total person wealth.21Moreover, HNWIs are oftenthe first movers in making impactinvestments, and they have capitalavailable for taking new and novelapproaches to investing.Investment leaders such as Sir RonaldCohen in the United Kingdom and BillYoung in Canada, and networks ofhigh net worth impact investors suchas Toniic and ImPact Network in theUnited States, have been critical tothe development and momentumof the impact investment marketplace.In other countries and around theworld, there has been demonstratedinterest and activity in impactinvesting among HNWIs. A ccording to the Morgan StanleyInstitute for Sustainable Investing’s2017 survey of one thousand individualinvestors, 75% reported an interestin impact investing. Further, 86% ofmillennials reported an interest inimpact investing.22 According to a recent survey byU.S. Trust, 45% of all high net worthinvestors in the United Stateseither own impact investmentsor are interested in adding themto their portfolios.23 I n 2016, according to Capgemini,92% of HNWIs ascribed some levelof importance to driving social impact,with 60% of HNWIs reporting that itwas extremely or very important.24It is clear that it is a great idea forboth your pocketbook (or retirementsavings) and the planet to invest forpositive impact.Why is it important tounderstand the investmentinterests and activities ofCanadian HNWIs?Canadian HNWIs hold a significantand growing portion of totalcapital in Canada, which couldbe dedicated to tackling socialand environmental problems.By determining interest and activityin impact investing among HNWIs inCanada, we can gauge the potentialfor market growth, inform the futurestrategies and activities of Canadianfinancial institutions and financialservices firms, and provide valuableinsights for the current market of impactissuers, investors and intermediaries.20. BlackRock data sourced from MSCI as of 03/31/2017.Disclaimer: Index returns are for illustrative purposes only.Index returns do not reflect any management fees, transactioncosts or expenses. Indexes are unmanaged and one cannotinvest directly in an index. Past performance does notguarantee future results. Index returns do not representactual fund performance. For actual fund performance,please see the BlackRock product list or iShares productlist. 21. National Bank. Boomers leading rise in high networth Canadians. September 23, 2016. Retrieved -rise-inhigh-net-worth-canadians/ 22. Morgan Stanley Institute forSustainable Investing. Sustainable Signals: New Data fromthe Individual Investor. August 2017. Retrieved from: com/ideas/sustainable-signals/pdf/Sustainable Signals Whitepaper.pdf 23. US Trust. U.S. Trust Insights on Wealth and Worth.June 2017. Retrieved from: h-and-worth-2017.html 24. Capgemini.Top Ten Trends in Wealth Management in 2016. 2016.Retrieved from: 07/wealth management trends 2016.pdfMarket Momentum: Impact Investing & High Net Worth Canadians MaRS Discovery District12

MethodologyThis report includes data collectedfrom Canadian HNWIs through ananonymous online survey distributedto investor and partner networks of SVXin the fall of 2017. The organizationsthat received the survey includedimpact investing networks, financialinstitutions and financial advisors.The survey was limited to Canadianinvestors who were randomly selected.The 21-question survey was basedon similar tools employed in the UnitedStates and was designed to gain anunderstanding of the overall profiles,interests, activities, and barriers andlevers of HNWIs as they relate toimpact investing. The findings in thefollowing report are subjective tothe information of respondents atthe time the survey was completed.themselves as individual investors, notas representatives for the whole of anorganization or fund.Seven investors were interviewed inperson on a voluntary basis to providefurther personal insights into the surveyresponses and their previous investingexperiences as a whole. Notable quotes,comments and personal experiences areshared in the report under anonymityto respect individual information.This report does not encapsulatethe estimates of the overall trends ofimpact investing or HNWIs in Canada.The analysis provided here is basedonly on a collected sample by SVXand is intended to provide aninformative snapshot.The survey consisted of a combination ofmultiple choice and multi-select formsof questioning. Free-form text responsequestions were not prominently featured.Data analysis of the survey resultsincluded analysis based on the entirecohort, as well as breakdowns based ondemographic and institutional factors.All respondents representedMarket Momentum: Impact Investing & High Net Worth Canadians MaRS Discovery District13

ResearchLimitationsVariance in completion ratesacross the whole of the surveyDue to fatigue, loss of interest orother factors, select respondentsdid not complete all of the questionsof the survey, leaving latter questionsunanswered. There were alsorespondents who selected specificquestions to answer and left otherquestions blank. Respondents whocompleted less than 25% of the surveywere removed from the results. Overall,71% of respondents completed allsurvey questions and 79% completedat least half of the survey.Imbalance of demographicin respondentsCertain demographic factors werenot evenly represented among allsurvey respondents. Distinguishableidentifiers, such as individuals’ gender,total net worth, age group and selfreflected investing experiences, didnot reflect an even distribution, ascertain cohorts were more prevalentin the respondents. Less-representeddemographic groups were more likelyto be influenced by outliers. Theimbalance of demographic factorsmay be attributed to simply reflectthe market makeup of the HNWIpopulation in Canada, explainingwhy some demographic groups arefeatured more heavily in the surveyrespondent than others.Source of respondentsThe survey respondents were enlistedmostly from financial institutions,investment advisors, with somerespondents from impact investingnetworks and mission-alignedorganizations. We did not wish tosurvey exclusively from SVX channelswhich more strongly draw from earlyadopters of impact investing. Althoughthe makeup of the HNWIs whoresponded from each of the separatedistribution channels was random,the respondent segment may notstatistically represent the generalpopulation of all HNWIs in Canada.There may yet be overweighting ofimpact investors in the sample,based on their willingness to respondto such a survey. At various pointsin this report, analysis was completedto compare HNWIs from impactinvesting networks with general HNWIssourced from financial institutionswhere there is a far lower likelihoodof prior connection with or knowledgeof impact investing.Unavoidable biasWith all survey research, certain biasesare always present and unavoidable.Respondents may interpret the phrasingof questions and answers differentlythan intended by the surveyors. Theordering of multiple-choice answersmay also influence respondents’answers, due to either the recencyor primary effect.Market Momentum: Impact Investing & High Net Worth Canadians MaRS Discovery District14

DemographicsA total of 277 Canadian HNWIsresponded to the survey. Of thoserespondents, 70 investors reportedthat they are impact investors, havingpreviously made investmentsbased on impact.FIGURE 2: Age of all survey respondents (n 277)11.2%75 years of age of older25.3%65-74Primary locationMost provinces and territories wererepresented in the survey, with theexception of the Yukon, Nunavut,Northwest Territories and PrinceEdward Island. The provinces with themost prominent number of respondentswere Ontario (42.6%), Quebec (32.1%),British Columbia (13.7%) and Alberta(7.2%). The total number of respondentsfrom other provinces accounted forless than 5% of all 0%40%AgeRespondents ages 55 to 64 were themost heavily represented cohort at35%. No investors below the age of25 responded to the survey.Market Momentum: Impact Investing & High Net Worth Canadians MaRS Discovery District15

GenderRespondents mostly identified as male,with 74.6% identifying as male and 23.2%as female. Five respondents preferrednot to disclose their gender identity.Total investible as

to facilitate impact investing. transactions, if required 7.1% of respondents sourced3 from a general pool of financial institution clients would be willing to pay increased fees to facilitate impact investing options. 5. There are barriers to impact. investing among Canadian HNWIs The top three barriers are: 1.f qualified adviceLack o .