Canada First investing for charities and foundations in Ontario: Is it even allowed?

In response to U.S. tariffs and the resulting trade war, individuals and organizations across Canada are looking for ways to shift their buying to support the Canadian economy. One of the most powerful ways that nonprofits and charities, particularly, foundations, can support these efforts is by looking at their investment portfolio to shift to more Canadian investments. 

For boards of charities considering a Canada First (or even All Canadian) investment strategy, there are some key legal barriers worth reflecting on that teach us a lesson about furthering our organization’s purposes more broadly. 

Are Ontario charities allowed to pursue a Canada first or All Canadian investment strategy?
This question may seem strange. Why wouldn’t charities be allowed to prioritize Canadian investments? The answer lies in the Trustee Act section 27(5) which sets out criteria that boards of charities must consider when making investment decisions to further the best interests of the charity: 

A trustee must consider the following criteria in planning the investment of trust property, in addition to any others that are relevant to the circumstances:

  1. General economic conditions.
  2. The possible effect of inflation or deflation.
  3. The expected tax consequences of investment decisions or strategies.
  4. The role that each investment or course of action plays within the overall trust portfolio.
  5. The expected total return from income and the appreciation of capital.
  6. Needs for liquidity, regularity of income and preservation or appreciation of capital.
  7. An asset’s special relationship or special value, if any, to the purposes of the trust or to one or more of the beneficiaries. 

One traditional way of understanding this criteria is to say that a board must maximize return to the charity, which requires a diversified portfolio and avoids taking unnecessary risks. Only recently was the allowance to consider the purposes of the organization (criteria 7) added to this list to allow for impact investing. 

Following this traditionally narrow understanding of a charitable board’s investment duties, it might be argued that, in the context of the general economic conditions of the  trade war, investing in Canada has actually become more risky (not less) when only viewed from the point of view of returns on capital. In a condition of economic uncertainty, a less diversified portfolio (i.e. focusing on Canadian investment opportunities) may be exactly the opposite of what traditional investment logic recommends. Furthermore, on a narrow reading of criteria 7, unless a foundation happens to have Canada’s general interest as one of its purposes, it is unclear whether promoting the Canadian economy in general would have a special relationship to the charity’s purposes.

If we take the above traditional approach and a narrow view of what’s in a charity’s best interests we may well conclude that a charity can perhaps marginally increase its Canadian holdings, but may actually not be allowed to take a Canada First and certainly not All Canadian approach to investing.

Towards a more holistic view of a charity’s best interests
It should be clear from the above reasoning how broken and self-defeating taking the above traditional approach to investing is for charities, especially in times of crisis. Thankfully, there is an alternative. 

The best interests of a charity is the accomplishment of its purposes (1). Most charities’ purposes clearly cannot be reduced to the bottom line of an investment portfolio. For instance, a health charity that spent five per cent of its assets improving the health of 1,000 children earned from investments in companies who damaged the health of 100,000 children in principle could be found on net not to be charitable because it does not benefit the public (2). 

It may seem like a charity whose only purpose is to grant to charities perhaps could measure the furthering of their purposes in terms of the bottom line on their balance sheet and corresponding granting. Yet even in that case, the Charities Accounting Act calls on us to consider the special value of investments not only to our purposes but to our beneficiaries. This guards against a situation where our investment activities further our purposes in a narrow sense at the expense of the broader interests of our beneficiaries. What good is two per cent more of granting when our investment activities perpetuate a situation of 20 per cent increases in demand?  

In short, it is at least arguable In our interconnected world, that no charity is an island and the law affords boards considerable latitude to take into account “any relevant circumstances” and rise to the moment in pursuit of that public benefit. 

With this framing in mind, let’s take a second look at some of section 27(5)’s criteria:

  1. General economic conditions: In the context of a trade war that some are saying is sparking a long-term shift in continental supply chains and trade patterns, investing domestically now pushes back against recession and may be a crucial long-term bet that will indirectly support a wide range of charitable purposes from relief of poverty to promotion of the arts and more. 
  2. The role of each asset within the overall portfolio: Canada’s economy is large and considerable diversification is still possible with a Canada First approach. What diversification may look like at this moment may mean building up traditionally undercapitalized markets in Canada, such as Indigenous, Black, women and gender-diverse or newcomer owned businesses.
  3. An asset’s special relationship or value to the purposes or beneficiaries: Even if your foundation’s purposes are simply to grant to qualified donees, a significant downturn in the Canadian market or recession will significantly negatively impact qualified donees with declines in donations and spiking demand as we saw during the height of the COVID-19 pandemic.  

Once we embrace this deeper approach to pursuing the charity’s interests, the implications go beyond our investment portfolio. We start to see how it might lead us to build community wealth through our procurement policies or engage in advocacy to fix the systems that hurt our beneficiaries.

The time to act was yesterday.
As the headlines attest, the situation is changing daily and sometimes hourly. Part of fulfilling a board’s fiduciary duties is acting at an appropriate pace for the speed of events. Boards of charities and foundations in particular have an opportunity to show moral leadership and signal confidence in Canada’s future with a principled investment strategy that furthers their charitable purposes in the deepest sense. 

If you are an Executive Director, CEO, or member of a board, consider sharing this with others on the board. At the very least, a prudent investor is required to revisit their investment strategy when times are significantly changing. If you have questions about the legal principles underlying this short article, reach out to benjamin@theonn.ca .


Sources

  1. Bloorview Children’s Hospital Foundation v. Bloorview MacMillan Centre, 2002 CarswellOnt 517, 22 B.L.R. (3d) 182, 44 E.T.R. (2d) 155, [2002] O.T.C. 108, [2002] O.J. No. 521 (Ont. S.C.J.) at para 32 :”The principle that the directors of a corporation without share capital must act only in the best interests of the objects of the corporation is clearly dispositive of this issue.” citing Ontario (Public Trustee) v. Toronto Humane Society (1987), 1987 CanLII 4192 (ON SC), 60 O.R. (2d) 236 (Ont. H.C.); Victoria Order of Nurses for Canada v. Greater Hamilton Wellness Foundation, 2011 ONSC 5684, 2011 CarswellOnt 12086, 94 B.L.R. (4th) 246,
  2. National Anti-Vivisection Society v Inland Revenue Comrs [1948] AC 31 at 50.

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Disclaimer: The above is intended as general legal information to help inform your decision-making process, not legal advice specific to your organization’s situation.

April 7, 2025 at 1:14 pm
Benjamin Miller
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