Leaders discuss the challenges facing environmental charities and social impact investing
When Sandra Odendahl started her career in finance, she had a passion for supporting businesses while also doing something positive for the world.
There was just one problem — in the beginning, environmentalists couldn’t understand why she was in the room.
“I would go to environmental conferences and they’d say, ‘Oh, that’s so weird. What’s a banker doing at an environmental conference? What does banking have to do with the environment?’” she recalled.
“How bizarre. It was really a niche thing in finance and investing to look at the effect financial decisions have on the environment.”
While this perspective might feel like ancient history, Odendahl, now the senior vice-president and head of sustainability, diversity and social impact at the Business Development Bank of Canada (BDC), was referring to her earlier days at RBC, more than 20 years ago.
Odendahl was one of three panelists at an event last September as part of the Philanthropic Foundations of Canada’s (PFC) annual conference in Ottawa.
This gathering of more than 80 delegates, representing some of the top private foundations across Canada, was held in collaboration with BDC, the leading business development bank; the Canadian Climate Institute, Canada’s top climate change policy research organization; and WEALTH (WCPD Inc.), a boutique financial services firm specializing in tax reduction, charitable giving and the financing of junior critical mineral mining companies.
The panel explored everything from government policy to social impact investing to philanthropy and the role of critical minerals in a green energy future.
It was a unique pairing of collaborators, a conversation made for the year 2024, bringing together sectors that have not always been allies when it comes to the environment.
“I have to say, on a personal level, I’m having this strange experience of sitting on this couch talking about the virtues of mining,” said Rick Smith, president of the Canadian Climate Institute, noted environmentalist and celebrated author.
“Some of you may know, I started my career in 1988 in the environmental field chained to a tree in Temagami before I was carted away by the OPP. This ivory cream-coloured couch is an enduring testament to the changing nature of this discussion we’re having.”
The couch Smith referred to was in the home of Peter Nicholson, president and founder of the WCPD Foundation, who hosted the reception and served as the third panelist.
Like Odendahl and the realm of finance, there was a time in the not-so-distant past when critical minerals were not part of the discussion around the environment. Nicholson shared a similar story about attending social impact conferences.
“When I first started, people would ask me, ‘How did you get into this conference?’ And I would talk about critical minerals and how you needed them for electric car batteries, solar panels and many other forms of technology,” he explained.
“They would look at me cross-eyed, like you were the devil, akin to the oil and gas business. So it feels a lot better talking about critical minerals now than it did back then.”
Shifting priorities to climate
Panelists brought their own unique perspective to the challenge of climate change. The timing has never been more important. Despite the rising impact of climate change, giving to environmental causes remains persistently low.
According to Environmental Funders Canada, for example, this segment makes up about two per cent of all granting done in Canada.
Smith noted that, traditionally, donors have given to religious denominations, hospitals or universities, partly because these causes are more tangible and resonate in their day-to-day lives.
“However, something in the climate change debate has shifted in the knowledge that (climate change) is now part of our daily lives,” he said.
Smith pointed to the wildfire disaster this past summer in Jasper, Alta., or the widespread flooding in Quebec in August, which inflicted great hardship and billions in damage.
“We are also seeing more electric vehicles on the road. There are many new battery storage facilities. We know the progress is happening globally. So in terms of that expectation or the effectiveness or moving the ball forward, that is clearly possible with climate change.”
The Climate Institute’s recent report “Early Estimate of National Emissions” revealed there has, in fact, been a decline in emissions in Canada. It is a mixed bag of news. On the negative side, emissions continue to increase in the oil and gas industry, representing up to one-third of the national total. Meanwhile, the electricity sector saw a seven-per-cent decline in 2023 compared to the previous year, with a 62-per-cent decline since 2005.
“So we are actually well on the way to decarbonizing the electricity sector even as we grow the amount of electricity we produce,” Smith added. “It really underlines the importance of electrification.”
BDC and sustainability
Odendahl also focused on why she remains so optimistic about the future.
The intrinsic link between business, entrepreneurship and the environment has come a long way since those first conferences she attended some 20 years ago. Odendahl noted the business and banking community were also a step behind.
In the early 2000s, when she led one of the first environmental risk management teams on Bay Street in Toronto, there was little appetite for social impact funds or businesses disclosing what they were doing to help reduce their impact on the environment.
“Now, people understand there are examples where you can make money and do good,” she explained.
“I don’t think people go around saying, ‘Oh, don’t put money in that responsible investment. You’ll lose money.’ That narrative has changed a lot.”
Today, what inspires her is a whole new generation of entrepreneurs looking to embed sustainability into their business, with an eye on delivering impact across a whole range of returns — financially, environmentally and socially.
Odendahl identified four key “buckets” of climate-related investment for BDC.
The first is with innovators, or entrepreneurs focused on growing a business that is offering a product or service that can drive sustainability. According to Odendahl, BDC has committed $1.6 billion to investment in cleantech companies, the largest investor of this kind in Canada.
The second area, she said, is supporting existing leaders in climate change, or lending to and investing in the companies or investment funds that are already part of this landscape.
A third bucket is adaption. With the climate crisis already here, she noted that, inevitably, society will be living with its effects, even if net-zero were to happen tomorrow. Therefore, BDC is investing in entrepreneurs focused on supporting the infrastructure needed for adaption.
“We are also investing in the supply chain for the energy transition. It takes a lot of materials to actually make all the stuff we will have to make and build to electrify everything. And we don’t have the supply chains yet,” she added.
Financing critical minerals
The supply chain and exploration for critical minerals is where Nicholson and the WCPD Foundation comes in.
In 1954, the Canadian government introduced flow-through shares as a way to finance junior mining in Canada. Three years older than the RRSP, this tax incentive offers a 100-per-cent tax deduction for every dollar invested, giving early-stage mining companies the ability to explore, create jobs and hopefully discover something exciting.
But flow-through shares are volatile. While the buyer receives a large tax deduction, shares in junior mining are risky, resulting in either a homerun or a strikeout. That changed in 2006, when Nicholson and his firm performed the first charity flow-through transaction. Rather than hold onto these shares, the donor could give them to charity, unlocking a second 100-per-cent tax deduction. Then, the shares can be sold to a pre-arranged liquidity provider (usually an institutional buyer of shares) willing to take on the stock market risk.
All combined, these two 100-per-cent tax deductions, plus additional provincial and federal credits, have allowed Canadians to reduce the cost to donate from 50 cents (assuming the highest marginal tax rate) to as low as a penny to give a dollar. The structure, industry-wide, has generated more than a billion dollars for registered charities and billions more for mining exploration.
Still, that didn’t endear Nicholson to the social impact conferences until the government introduced its critical minerals strategy in 2022, offering an additional 30-per-cent tax credit (equivalent to a 60-per-cent deduction) for projects searching for minerals such as copper, cobalt, lithium or nickel. It also announced billions more in critical mineral infrastructure and supply chains.
“Suddenly, the discussion shifted,” Nicholson explained. “People began to understand that, in order to create a low-carbon economy, we need these critical minerals in vast quantities.”
However, Nicholson also identified significant challenges.
As an industry, Canada’s charity flow-through providers generally finance around $1.2 billion in exploration per year. Meanwhile, this sector accounts for up to 90 per cent of all critical mineral exploration in Canada.
According to the Canadian Climate Institute, Canada alone will require $30 billion in investment for critical mineral exploration. Meanwhile, the sector must continue to improve its sustainability performance.
“We still have a long way to go,” Nicholson said. “One of the barriers to the business — mining companies are interested in exploring. We have plenty of Canadian taxpayers and donors interested in the structure. The short leg in this three-legged stool is the liquidity providers, or the de-risker.”
With the junior mining industry starved for capital, he notes that philanthropists, private foundations and social impact investors will need to lean in and act as liquidity providers to help bolster the charity flow-through landscape. In doing so, they receive a discount on the critical mineral stock as a reward for taking the risk, while also financing the critical mineral companies that could discover the next deposit of lithium, copper or cobalt.
The way forward
Whether it is policy, advocacy, entrepreneurship or investment, the panelists agreed it will require a multi-pronged approach to help tackle a problem as complicated as climate change.
To find a way forward, various industries will need to work together to find solutions.
“You are never going to get everything perfect. There is always that economic, social, environmental tradeoff. But at least you can be aware of it and can choose where you want to play,” Odendahl said.
Jeff Todd is the president of AFP Ottawa Chapter and vice-president of marketing and communications for the WCPD Foundation.