While community bonds, an investment asset offered by not-for-profits looking to raise capital for socially conscious projects, are growing in Canada, they don’t match the investment needs of institutional investors, says Rod Lohin, executive director at the Lee-Chin Institute for Corporate Citizenship at the University of Toronto’s Rotman School of Management.
“[Community bonds are] just not aimed at institutional investors and I think when they begin to think about that, they realize it’s just not a fit.”
According to a November 2024 report from the Responsible Investment Association, 80 per cent of institutions that use impact investment strategies — investing with the intention to generate a positive, measurable social and/or environmental impact alongside a financial return — cited seeking to create impact in both social and environmental areas with climate transition and renewable energy leading the pack.
Similar to traditional bonds, community bond offers are repayable, have a fixed term and set interest rate. According to Lohin, community bonds in Canada have raised more than $100 million to date. He says scale is one of the biggest challenges for institutional investors like Canadian pension funds to allocate capital to the impact asset, with ticket sizes for community bonds averaging between $1 million and $10 million.
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Despite the assets not being a one-to-one match right now, he says there has been a change in how the biggest investors look at the market and consider its relevance amid the increase in materiality of environmental, social and governance considerations.
According to the RIA’s report, the proportional use — percentage of each organization’s total responsible investment assets under management that’s invested using that strategy — of impact investments is 33 per cent, the second lowest compared to ESG integration (91 per cent), stewardship (86 per cent) and screening (71 per cent) with thematic investment (29 per cent) in last place.
During the Canadian Investment Review’s 2024 Investment Innovation Conference John Gilmore, investment analyst and portfolio manager at Martin Currie, part of Franklin Templeton, said impact-related assets under management globally are $1.6 trillion.
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A 2024 report from Toronto-based impact investments provider Tapestry Community Capital that evaluated the potential of community bonds found most financial institutions don’t have the financial tools, such as a rating system used for traditional bonds, to assess the risk around community bonds.
Suzanne Faiza, knowledge lead at Tapestry, says the organization is launching a fund designed for accredited and institutional investors who have expressed interest in investing in community bonds but are often limited by ticket sizes and investment minimums. The fund will launch in the spring with the first funding round closing in the fall. “We’re continuing to work on how do we scale community bonds?”
Lohin’s research involves tracking more recent data around impact investments in Canada, similarly to what’s typically done in the private investment market. “Obviously, [making money and doing something tangible and positive is] a tricky combination, but it’s doable and there’s more and more evidence.”