From: Issue 38
Community Bonds and the Rise of Local Power
In an economic downturn marked by a rise in government austerity measures, non-profits focused on sustainability are finding it more difficult than ever to raise capital for projects designed to better their communities. Most rely on funding from government agencies, grants from corporations or donations from members to support specific programs and projects. It’s a time-consuming and unreliable process that can distract groups from their core mission. As Businessweek reporter Amy Feldman once wrote, “Non-profits are held back by the time and effort it takes to raise funds in dribs and drabs.”
But for some projects new options are emerging, including innovative social finance tools called community bonds.
Community bonds are essentially debt instruments, or small loans from a non-profit’s network of supporters, used to advance a specific project. The loans are interest bearing and the bonds can be structured to be RRSP eligible. They are different from other bonds because they can only be issued by a non-profit and are accessible to unaccredited investors. Non-profits can use them to fund infrastructure projects, including community power installations and green retrofits, where there is both collateral and a revenue stream. This makes them the ultimate impact investment.
The concept was created by Toronto’s Centre for Social Innovation (CSI) to finance the $6.8-million purchase and retrofit of its second “shared workspace” building. In a four-month flurry of activity CSI offered members the chance to secure a 4 per cent annual return over five years on a minimum $10,000 community bond purchase. The bond issue, secured against the value of the building, allowed CSI to raise $2 million.
Fast forward a year and community bonds are now being adapted by social enterprises of all stripes to get a wide range of community clean energy projects off the ground.
The ZooShare Biogas Co-operative in Ontario, for example, is awaiting approval of what could be an RRSP-eligible bond offering to finance a 500-kilowatt biogas plant at the Toronto Zoo. The biogas – from the anaerobic digestion of animal manure, such as tiger and elephant dung, mixed with local restaurant grease – will generate electricity that will be sold (at a generous rate of 16 cents per kilowatt-hour) into the Ontario grid as part of the province’s feed-in tariff program.
An added benefit is that fertilizer “by-products” from the plant will be sold in stores under the “Zoo Poo” brand, and waste heat from the process will allow year-round growing at a nearby greenhouse. If all goes as planned, investors in this $5-million project can expect an attractive 7 per cent annual return.
Another Ontario co-operative, SolarShare, is following in CSI’s footsteps with plans to use community bonds – or what they’re calling “solar bonds” – to build 600 kilowatts of solar photovoltaic capacity. Clean electricity will be generated via 18 small-scale and community-owned solar installations spread across the province. The bonds also have the potential to be RRSP-eligible.
For both ZooShare and SolarShare to proceed with their projects as initially envisioned, they still require approval from Ontario's financial services regulator.
The payback of SolarShare bonds, like the ZooShare offering, is alluring – 5 per cent annually over five years. Given current volatility in the stock market and the low yield of government bonds and GICs, community bonds represent a secure and attractive alternative for individuals who want to see their investments have a positive social and environmental impact. Moreover, by enabling infrastructure projects like these, community bonds are creating green jobs and accelerating the transition to a low-carbon economy. Perhaps most importantly, they do this by transforming citizens of average means from volunteers or occasional donors into committed investors.
“This idea of massive public involvement in the ownership and economic benefit of these projects is what we’ve all been working towards for the past 15 years,” says Deb Doncaster, executive director of the Community Power Fund. “All it will take is for one or two of these projects to be successful and the approach will take off.”