Time for oversight of social investments?

• Author: Broder, Peter

We are, as I write this, on the cusp of RRSP season, and as usual at this time of year, many people are turning their minds to plans for their future financial security. Early January, however, brought for some investors unfortunate news of the troubled state of the $95 million Church Extension Fund (CEF) run by the Lutheran Church in B.C. and Alberta. Similar funds are run by other branches of the Lutheran Church in Canada and the United States. The funds are a vehicle available for individuals, congregations, organizations and businesses to invest in religious and social projects that advance the church's ministry.

The immediate problem the Alberta and B.C. CEF faces is an anticipated shortage of liquid assets to meet redemptions in the next few months, but the long term viability of the fund has also been called into question. The fragile state of the fund seems to stem from some questionable investment decisions.

The CEF concept is perhaps one of the first instances of what we now call social investment. It was initially developed in the early part

of the 20th century so Lutheran congregations could fund facilities for a new parish in a neighbouring community. Whether from this or other modest origins, interest in investing for purposes other than (or in addition to) monetary return has grown exponentially in recent years and now extends well beyond faith-based organizations. That said, what the Alberta and B.C. CEF is currently experiencing may hold some wider lessons for social investment.

As is commonly the case in the world of Canadian charity law and regulation, in this area you can't go very far without stubbing your toe on jurisdiction.

In revisions to its Community Economic Development Guidance in 2012, the Canada Revenue Agency Charities Directorate provided registered charities with greater scope to use their assets for investments or loans to further social ends. That was a welcome development given widespread desire to consider non-monetary factors in how monies not directly used in charitable work were invested or otherwise allocated by registered charities. But this increased flexibility was subject to the caveat that any activity in this regard had to comply with applicable provincial regulation.

Property and civil rights matters, under the Canadian Constitution, generally are within the jurisdiction of the provinces. Determining what constitutes appropriate investment of charitable assets is a provincial issue. But...