Ottawa has quietly launched a new type of capitalism

Yung Wu is CEO of MaRS Discovery District and Stephen Huddart is President and CEO of the McConnell Foundation.

The response to the economic statement of the government's downfall focused on tax incentives to make Canada better for business. Less noticeable, but with far-reaching consequences, was a major new strategy to improve business operations for Canadians.

In his speech, Finance Minister Bill Morneau announced the creation of the Social Finance Fund, a $ 755 million investment launch the social finance market in Canada. In a few dozen words, he catapulted Canada to the top of a list of countries including Britain, Portugal and Japan that are already investing in this new type of capitalism.

Social Finance fills the big gap between business and philanthropy. It challenges the notion that financial profit and social purpose are mutually exclusive by creating new business models and investment vehicles to create a measurable social or environmental benefit while generating financial returns. In the shorthand of the industry, this is called creating an "impact".

This new funding model fundamentally restores the terms of the relationship between governments, charities and businesses. Much of the government funding comes from grants and contracts. From now on, a portion of public funds will be invested in projects, funds and social enterprises in the hope of advancing social and environmental priorities while generating a financial return on the fund. This new approach expands the economy of innovation and creates a space for the emergence of new types of organization and investment. Large entities such as RBC, Desjardins, Heart & Stroke and Vancity are already experimenting in the field.

The list of opportunities for the fund is long and varied: it could be used to stem the progression of chronic diseases related to the diet, fund affordable housing projects or support Aboriginal entrepreneurs. Clean technologies – expected to reach a global market of $ 2.5 trillion by 2022 – are another area in which impact is the driving force behind financial profitability. Consider energy retrofits for buildings, which Efficiency Canada says could bring the country to 25% of its carbon reduction targets. They save on electricity bills that can generate long-term returns for investors who fund the upfront costs.

Advocates of social finance lobbied for public sector investment to accelerate the sector. This was a key recommendation of the steering group for the co-creation of a strategy for social innovation and social finance, created by the government, which published its report titled "Inclusive Innovation" in August. Basically, it's about putting capital at the service of solving social problems – not, as some fear, the privatization of the public sector. For this approach to be successful, it is essential that the interests of communities and regions are represented and fully involved in the process.

Calls for more ethically responsible capitalism resonate in the Western world. That it is Google workers who are protesting against the involvement of their employer in the US military, private fossil fuel retirement funds or the willingness to make sure that more women and minorities occupy positions of responsibility, the message is the same: values ​​matter. Consumers, workers and investors increasingly want to deal with companies whose ethic is compatible with theirs.

Getting the right structure and good governance in place poses challenges, the least of which will not determine what matters to a social project or company. "Changed lives" is not a measure that fits perfectly into a spreadsheet. It will therefore require strong rules to filter projects and companies that adopt the attributes of social finance without generating real impact. It is also important that the new fund be independent of the government. An example to follow could be Great Britain, which created a specially designed organization called Big Society Capital in 2011. Since then, the Big Society has invested 456 million pounds ($ 775.8 million) and reported 805 million additional pounds (1.4 billion) of co-investments, mostly from the private sector.

It is now essential for entrepreneurs, investors, non-profit organizations and business people to come up with innovative ideas for tackling social and environmental issues. With this in mind, in his statement Mr. Morneau has earmarked $ 50 million to help prepare a large portion of Canadian businesses and non-profit communities that still do not know the concept of social finance. This can be the biggest expense of the budget.

Make no mistake, the consequences of this move will be felt well beyond the social sector. The real power of this fund will be shifting the center of gravity towards a new sustainable economic model that will benefit all Canadians.