Northpine Foundation’s unconventional investing approach

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Private foundations in Canada were required in recent years to grant a minimum of 3.5 per cent of their assets annually to charitable causes. The remainder of their assets were mostly invested in conventional instruments, such as stocks and bonds.

One exception has been Northpine Foundation, established by Shopify Inc. director John Phillips, which just recently donated $20 million to the Scarborough Health Network Foundation to create, among other things, Canada’s first no-wait emergency department. Northpine’s focus is more on “venture philanthropy.”

Venture philanthropy is an approach that takes concepts and techniques from venture capital where investors support social purpose organizations with measurable social impacts being the primary performance metric, while also aiming to have some kind of a financial return.

Perhaps the quickest way to convey how venture philanthropy works is though an example. In 2010, Peterborough Prison in Britain issued social bonds to fund a pilot project aimed at reducing recidivism. If re-conviction rates fell below a targeted rate, investors in the bonds would receive a share of the costs saved from having fewer repeat offenders incarcerated. In the end, the bondholders earned 3 per cent annually.

Venture philanthropy can appeal to foundations that take their raison d’être seriously. First, it can be used to fund new approaches and innovative projects capable of yielding more effective solutions to social problems. Second, it can provide more timely funding for marginalized communities by redirecting some of the $100 billion in public and private foundation assets (as of 2021) parked in financial markets.

Toronto-based Northpine began its shift toward venture philanthropy in 2021 with the hiring of Aatif Baskanderi as chief executive officer. They needed someone with a different skill set than a Bay Street professional – someone orientated toward innovation, entrepreneurism and social issues.

Baskanderi ticked off the boxes. After his engineering degree, he got a Master of Social Policy degree at the London School of Economics, managed a malaria prevention project in Africa, worked on designing Blackberry phones, directed a technology incubator and co-founded a social enterprise focused on anti-racism.

“Northpine is in start-up mode right now,” says Baskanderi. “We have launched several pilot projects to learn more about the challenges and to see what business models can be scaled up as we go forward. Currently, our focus is on four areas where the underserved group in each is 100,000 or fewer people, which is a population small enough for a start-up like us to sincerely engage with.”

The four niches are: 1) recent refugees in Canada, 2) children in foster care, 3) rural poverty in Newfoundland and 4) released inmates who reoffend. “We invest in persons who are members of the target group or deeply connected with those communities and thus have firsthand knowledge of the issues; as well, they have a capacity and desire for transformative leadership,” adds Baskanderi.
“They are our impact managers and we tell them they can use any financial instruments permitted by Canada Revenue Agency, such as loans, social bonds, private equity and so on, to fund their initiatives. At the same time, we provide non-financial support and work closely with them to see how we can help.”

To illustrate how Northpine is involved in these sectors, consider its pilot project launched with the Montreal-based Refugee Centre to relocate refugees from large cities to smaller towns, starting with Moncton, N.B.

“Many Atlantic communities are at risk of disappearing due to their aging populations and youth exodus,” Northpine’s impact manager for refugees, Bayan Khatib, observed at a recent conference. “They are seeking economic and social development through population growth; for refugees, it reduces barriers to resettlement and cuts down on integration time.”

Another illustration is the partnership with Coverdale Courtwork Society, a Nova Scotia non-profit charitable organization that runs Caitlan’s Place, the only community facility a judge in the province can send homeless women or gender-diverse individuals on a conditional sentence order. The house provides room and board subject to the condition of 24/7 supervision and programs such as employment training and mental health support to lay the foundation for a sustainable lifestyle outside of institutions.

How does Northpine seek to earn a financial return? It searches for public-sector bodies or government-supported agencies that have staff willing to partner with the foundation to find a more effective or less costly approach to meeting a social goal within their mandate.

If the outcome surpasses mutually agreed-upon criteria for success, the cost savings can be shared with the social-purpose organization and investors like Northpine. If the goal is not met, Northpine rigorously investigates what went wrong in order to be in a better position to achieve success in the next iteration.

“A key part of what we are doing is finding who in the public and the non-profit sectors wants to save money and/or achieve better outcomes,” says Baskanderi.

“This is not always easy to do – but with enough perseverance, opportunities can be uncovered. And if a mechanism can be created to celebrate those public-sector administrators who do take action to improve outcomes, that would help, too. We believe that doing good and enabling human rights for people to thrive is inherently smart economics.”

Selected organizations involved in venture philanthropy and impact investing

European Venture Philanthropy Association
Social Capital Partners
Heron Foundation
Hamilton Community Foundation
Northpine Foundation