Indigenous Reconciliation: Recognizing the Role of Canadian Universities and their Investment Funds
By: Vicky Jiang
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
A Brief History of Indigenous Economic Challenges
Recent public discourse has shed light on the colonization of Indigenous peoples across Canada and its long-lasting consequences — community turmoil, intergenerational trauma, degradation of cultures, and inadequate infrastructure in Indigenous communities. Since North America’s colonization, Indigenous groups have experienced unrelenting institutional oppression due to implacable social, economic, and political marginalization and oppression. To break this cycle of injustice, Indigenous leaders have prioritized self-governance to increase economic development and promote wealth generation.
Grassroots and Seed Funds
Aboriginal Financial Institutions (AFIs) were formed in the late 1980s by Indigenous leaders, the Government of Canada, and the Native Economic Development Program. These Indigenous-controlled, community-based institutions bridge a financial gap faced by Indigenous entrepreneurs by offering loans that traditional financial institutions would not provide. In 1996, a collective of AFIs established the National Aboriginal Capital Corporations Association (NACCA). This umbrella organization acts as a network for 59 AFIs across Canada to stimulate economic growth and provide access to capital for Indigenous individuals and communities in Canada. They outline best practices for lending capital to Indigenous communities and advocate their needs to the government and potential lenders. AFIs have subsequently become experts in identifying and mitigating risks for Indigenous businesses, as they are connected with Indigenous communities at the roots.
AF-eye on the Prize
NACCA and AFIs have been crucial in structuring Indigenous investment deals. In April 2021, the Indigenous Growth Fund (IGF), a debt fund that provides lines of credit to AFIs, which provide loans to Indigenous entrepreneurs, raised its first $150 million round. Under the management of NACCA, this will enable Indigenous entrepreneurs to receive capital to expand their businesses. The fund was structured with support and lead investments from the Government of Canada and Business Development Bank of Canada. The investment offerings were structured to accept accredited investors such as public and private foundations, Indigenous Trusts, Corporate Canada, and other institutional investors to provide Indigenous business owners with access to capital, and therefore autonomy over business decisions.
Inviting Interest from Institutional Investors
There are many Indigenous-centred financial institutions that support deal structuring and ensure their cultural values are aligned with business decisions. However, while funds like the IGF act as a new opportunity for Indigenous business owners to make autonomous financial decisions, NACCA has outlined the need for increased funding. Nearly one third of all small and medium-sized enterprises (SMEs) in Canada rely on business loans and lines of credit for operations, yet the IGF expects to only issue loans to approximately 500 Indigenous businesses in 2021 at full utilization. In addition, the average loan size of SMEs across Canada is more than double the IGF network average of $100,000. Given the IGF lacks sufficient funds to aid all Indigenous business owners who seek funding, the majority of Indigenous business owners are forced to rely on high risk sources of financing such as personal savings. This propensity for using personal savings over the capital markets can be attributed to a lack of trust in financial institutions and difficulties in securing a loan from them. Indigenous business owners often face institutional bias, as they were historically seen as high risk borrowers-since property on reserves cannot be used as collateral for loans. As a result, one of the largest barriers for Indigenous economic development is access to capital and lack of interest from institutional investors. A 2015 report by Global Affairs Canada and the Canadian Council for Aboriginal Business reported that access to investment capital was the largest barrier for Indigenous SMEs in Canada, with 37.5 percent of owners identifying it as an “important or highly important obstacle to growth.” AFIs are in a unique position to grow their balance sheet and provide a more secure source of funding for Indigenous SMEs. To achieve this, it is imperative to market these opportunities to traditional investors, build relationships with larger financial partners, and access traditional capital markets.
Classets
Endowment funds are financial assets that are donated to universities to generate additional income and growth for future expenditures. In Canada, the largest universities have endowment funds ranging from $400 million to $2.4 billion CAD, where the returns are used for teaching, research, and other public service projects for the university. University endowment funds tend to have strict investment policies and guidelines that dictate their asset allocation, the risk/return profile for each invested asset class, and restrictions on how capital is being spent. Typically, Canadian university endowments are externally managed, meaning investment directors select investment managers for certain asset classes such as public equities, fixed income, and alternative investments.
In recent years, investors and senior management across the financial landscape are beginning to integrate Environmental, Social, and Governance (ESG) factors into investment strategies. Consequently, an estimated $31 trillion USD worldwide has now been allocated towards investments with ESG considerations. Investors are also specifically looking for ways to improve current business practices that consider Indigenous communities and individuals. For example, a shareholder proposal for Indigenous reconciliation and inclusion was submitted to the TMX Group, which runs the Toronto Stock Exchange, by the Shareholder Association for Research and Education on behalf of the Atkinson Foundation. The request demanded TMX Group’s management team develop internal programs and policies towards reconciliation and passed with 98 percent approval. Furthermore, consulting firms are also creating advisory arms specifically for Indigenous communities to access professional services, and foster cultural awareness of Indigenous values and practices. This further demonstrates a long-term interest in responsible investing, and commitment to Indigenous reconciliation and inclusion.
Renaming and Reparating
Canadian universities have historically played a significant role in perpetuating and supporting the residential school system. In a 2018 speech by University of British Columbia president Santa Ono, the university acknowledged its role in training policy makers and administrators who operated the residential school system, limiting admissions to Indigenous students, and remaining silent and compliant with oppressive policies.
For post-secondary schools, the path to reconciliation has traditionally involved formal apologies, building Indigenous research centres, adding on-campus Indigenous protection initiatives to remove barriers to education, and integrating the values of Indigenous culture at the institution. For example, upon the recommendation of the Standing Strong (Mash Koh Wee Kah Pooh Win) Task Force, Ryerson University has decided to change its name. The university was named after Egerton Ryerson, who advocated for the establishment of residential schools for Indigenous children.
Although these formal apologies and on-campus initiatives signal the universities’ support, they do not address the root problem that past actions have caused. One of The Truth and Reconciliation Commission of Canada’s Calls to Action includes eliminating educational and employment gaps between Indigenous and non-Indigenous Canadians. By using their abundance of resources, universities can improve reconciliation by supporting and reconnecting with local Indigenous populations and financially committing resources for the economic development of Indigenous communities.
Endow for Now
Canadian endowment funds have been integrating sustainability goals through environmentally focused investments, and are thus likely receptive to deploying more capital into social investments. Since this space is nascent to university funds, they would need to use partnerships to make impactful investments for Indigenous communities. By partnering with their regional AFIs, the endowment funds’ investment committees can ensure that Indigenous values are maintained for those investment opportunities.
Endowment funds are required to make profitable investments to sustain the long-term growth of the fund. In parallel, impact investments must generate financial returns in addition to environmental and social impact. Therefore, university endowment teams should partner closely with their local AFIs to access reliable investment opportunities with financial upside, as AFIs are highly experienced in loaning capital and structuring investment deals for Indigenous entrepreneurs with growth potential.
However, with traditional investors providing capital to Indigenous businesses, there are reputational risks associated with “social-washing”. Since traditional investors do not have the knowledge or expertise in the needs of Indigenous communities, they need to collaborate with Indigenous organizations. By partnering with AFIs, they can guarantee that Indigenous values are being considered when structuring an investment.
Conclusion
Indigenous entrepreneurs and impact funds have historically struggled to raise capital outside government entities. Simultaneously, Canadian universities’ initiatives towards reconciliation are not sustainable solutions to support Indigenous lives. To move past performative activism, universities should deploy meaningful capital into Indigenous communities. By utilizing the expertise of AFIs, university endowment funds can maintain appropriate returns while making impact investments to support the generational economic development of their local Indigenous communities.