Enabling Social Finance into Canadian Co-operatives

by Eden Yesh,

The Opportunity

The demand for investing locally is increasing which is wonderful. The longer a dollar can circulate within a community, the greater its economic and social impacts.However, opportunities for Canadians to invest into local businesses are few and most traditional investment brokers do not offer clientele any options to invest their money at home.

Therefore, Canadians are obliged to invest capital into far-off stock markets and large corporations, being disconnected from the social, environmental and cultural impacts of their investments. An unintended consequence is that Canadian's money is creating significant jobs and wealth elsewhere in the world, while leaving the places they live, work and play underfinanced. This leads to social and economic inequalities.

In 2014 alone, Canadians contributed $38.6 billion into their RRSP's, most of which left the community in which they live. Imagine the social and economic impacts of re-directing just 5% of this back into socially responsible and value-based local businesses. That would equate to $1.93 billion of annual investments into local businesses addressing pertinent issues. This would give Canadians the chance to diversify their portfolios locally for social, community, cultural and economic impact!

Communities across Canada require new ways to access capital for business development, social enterprise, affordable housing, renewable energy and local food systems. Rural, northern, indigenous and urban communities all face challenges to their economic, social and environmental futures. One opportunity to bridge this gap is to enable Canadians to invest into businesses within their own communities that are moving the dial on social, environmental and economic issues.

‘Shop Local’ has now reached the mainstream dialogue of Canadians. However, ‘Invest Local’ is still a new concept to most Canadians. A study by the American Independent Business Alliance (AMIBA) shows that local businesses recirculate 48% of their revenues in their community, as opposed to only 14% recirculated by a chain, or an externally owned business. This is comparable to the Canadian business environment too. 

Co-operatives – A Value-Based Business Model

Investments into Co-operative Associations provide an opportunity to increase the retention and circulation of Canadian’s hard earned money into local and value-based businesses. Co-operatives are democratic corporations with considerable investor protections and director accountability mechanisms built into the legislation under which they are incorporated. Because each member has only one vote no matter how many shares they hold, co-ops are unattractive vehicles for anyone seeking to have a controlling interest in a company.

 “A Cooperative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise. Co-operatives are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity. Co-op members believe in the ethical values of honesty, openness, social responsibility and caring for others.” - The International Co-operative Association.

“Co-operatives take an ethical, sustainable approach to business by considering not only the economic impacts of their activities, but also their social, cultural and environmental impacts. This values-based, triple-bottom-line approach is one that many companies are starting to integrate into their business models, as part of their corporate social responsibility and sustainability efforts. However, these principles have been at the core of all co-operatives since their inception, positioning co-ops at the forefront of today’s new economy.” - BC Co-operative Association.

Co-ops provide consumers with a distinct values-based and community-owned and controlled alternative. Unlike the private, public, or voluntary sectors, all co-operatives around the world are guided by the same seven principles:

  • Voluntary and open membership 
  • Democratic member control 
  • Member economic participation 
  • Autonomy and independence 
  • Education, training, and information 
  • Co-operation among co-operatives 
  • Concern for Community
  • With this triple-bottom-line perspective, Co-operative Associations are tackling social issues across Canada in many different forms, such as:

    Producer Co-ops

    • Producer co-ops are usually made up of otherwise independent farmers, entrepreneurs, artists or artisans. The purpose of individual producer co-ops vary, but they usually provide processing or marketing services to their members, which they may not be able to access on their own.

    Consumer Co-ops

    • Consumer co-ops help members use their combined purchasing power to buy goods and services they need. Examples are grocery stores, health co-ops, renewable energy co-ops.

    Community Service Co-ops

    • Community Service Co-ops operate on a non-profit basis, and their purpose is charitable, or to provide health, social, educational or other community services.

    Worker Co-ops

    • Worker co-operatives are businesses entirely owned and operated by the people who work for them. The worker co-op model can be applied to practically any sector in the economy. 

    Community Investment Co-ops (CIC)

    • CIC’s are a for-profit Co-operative that raise capital from local residents, and then invest the monies into area businesses. CIC’s give residents the opportunity to move a portion of their investment portfolios into the places they live, work and play. This enables residents to become partners in locally driven economic development, which leads to stronger and more sustainable economies. Investors see the full social, environmental and economic impacts of their investments growing at home, businesses have access to an additional source of capital, and community relationships, civic pride, and knowledge naturally deepen.

    Enabling residents to invest into value-based Co-operative Associations within their own community will catalyze an innovative business sector based on values and social impact. Below are some examples of how Co-operatives operate, courtesy of the BC Co-op Association:

    • Co-operatives are not driven by profit, but by a desire to meet common needs and bring fairness, equity, and justice to the marketplace
    • Co-ops help people obtain goods and services they may not otherwise be able to afford
    • Co-ops are open to everyone regardless of income or social status, and each member has an equal vote no matter how much they’ve invested in the co-op
    • Since most co-ops are community and regionally based, investment in, and surplus revenue from, the co-op stays within the local community
    • As trusted places to do business, co-operatives are chosen by more than one in seven people worldwide
    • Co-ops create jobs at nearly five times the rate of the overall economy

    We recommend that the Social Innovation and Social Finance Strategy Co-Creation Steering Group  and the Government of Canada add an additional national securities exemption that allow Co-operatives to raise capital more efficiently. This would catalyze investment into a dynamic business model with a focus on social change in Canada. Adding a national securities exemption for Co-operatives would loosen the red tape they must jump through to raise capital to either start-up or expand operations. It would also permit investors across Canada to make the choice to invest their own funds in their own communities. To do this, an additional section should be added into National Instrument 45-106, Part 2: Prospectus Exemptions, Division 1: Capital Raising Exemptions. This section would read:

    We recommend that this national exemption be similar to British Columbia’s prospectus exemption BCI 45-530: Exemptions for securities issued by a cooperative association:

    However, BCI 45-530 only allows a $5,000 lifetime investment into a BC Co-operative. This figure has not been changed since 2001 when it was first introduced. Since then the consumer price index has risen drastically and the cost of Canadian real estate has multiplied. The administrative costs associated with small investment amounts for Canadian Co-operatives are inefficient and frustrating. A higher limit would not significantly increase investor risk. The time requirement is also a deterrent; Co-operatives seeking to raise capital from their members to undertake projects cannot be expected to wait more than a year, and investors do not want to wait a year before investing due to this technicality. There is no evidence that a waiting period advances investor protection; in fact, it may be counterproductive because it makes it harder for Co-operatives to respond nimbly to business opportunities.

    Therefore, we recommend an addition to NI 45-106 (2.11) that exempts Co-operative Associations from filing a prospectus if they raise no more than $15,000 annually per investor, to a maximum of $1,000,000 per year. There should also be no waiting period for members to invest and no limit on the number of investors in a Co-operative under this exemption.

    We appreciate your support on these important recommendations and look forward to a reply.

    Written by Eden Yesh

    Supported by the following Simon Fraser University Community Economic Development Alumni:

    Cheryll Turcotte

    Melissa Hillier

    Matt Smedley

    Susan Chapelle

    Amanda Burton

    Nicole Melanson

    Dawn Marie Smith

    Seth Parker

    Chief Leanne Joe

    Anna Kemp

    Kim Carmichael

    Nicole Chaland

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