Based in British Columbia, First Nations Finance Authority (FNFA) provides vital access to capital markets for Canada’s First Nation communities on terms well below standard bank rates. More crucially, it has environmental, social and governance (ESG) ethics baked into its service offering. As a result of this work, it was the winner of the Moving financial markets (small and medium organisations) category at the 2022 Finance for the Future Awards.
FNFA was created in 2006 under federal legislation called the First Nations Fiscal Management Act, but it’s not part of the government, explains Director of Operations Steve Berna. “We’re a standalone, non-profit entity with no share capital, so we can’t be bought or sold, and we don’t pay income tax. Our structure is based upon a cooperative membership model, which First Nations sign up to voluntarily. At FNFA’s AGM, our Board of Directors is elected from among that membership.”
The core purposes for which FNFA issues finance to First Nation communities were defined in part four of the Act. First comes capital infrastructure, such as housing, clean water and health and education services – because in First Nation areas, those amenities are typically lower per capita than in Canadian cities and towns. Second is the ability to purchase shares or ownership stakes in energy producers, with a focus on sourcing clean solutions. Third is the scope to buy land and build new facilities upon it. And fourth is the provision of social and economic programmes, profits from which are reinvested into infrastructure.
As such, Berna says: “The Act hardwired us with ESG principles long before ESG was a term.”
There are currently 634 First Nations across Canada, of which 335 have attached themselves to the Act. “Prior to awarding them membership in FNFA,” Berna says, “we carry out a standard vetting process. Some knock on our door and say, ‘I have an opportunity and I’m in a hurry.’ So, we process them in order of urgency.” Around eight years ago, there were just 69 First Nations in FNFA’s membership. Of the 335 communities that are now onboard, FNFA has processed loans for 146.
“There’s no point using FNFA if our rates aren’t competitive with the banks,” Berna notes. “In 2008, our Board of Directors set down certain mandates for our staff. The first was to develop a structure that would give investors in the capital markets comfort to purchase our debentures.
“The second was to ensure that our rating agencies, Moody’s and S&P, would give us a credit rating that would allow our lending rates to operate below those of the chartered banks – and we’re three-quarters of a percent under chartered-bank prime rates. A third mandate was to guarantee fairness by affirming that all First Nations, regardless of size, geography or economic strength, would borrow under the exact same terms.”
Under a final mandate, Berna points out, whenever a new community signs up, FNFA is automatically under nondisclosure. “We take the confidential information that the First Nation gives us and use it to create what’s called a borrowing capacity – much like a Visa or MasterCard limit. So, we go over the community’s cash flows and financial ratios, and send the Chief and Council a letter saying, ‘Based on your latest, audited statement, this is how much you can access.’ They can then examine that figure in light of the purposes outlined in the Act and request monies on the basis of what they want to prioritise.”
FNFA is currently facing three main challenges, the first of which stems from the legacy of COVID-19. Any loan-seeking First Nation must provide an up-to-date audit statement as proof of its eligibility. But in the past two years, statements have fallen behind. “Either auditors have been unable to travel because of COVID restrictions,” Berna says, “or First Nations have said to them, ‘We are not yet comfortable with you visiting us.’ In many cases, First Nations have nursing stations rather than hospitals, so they may not have the resources to cope with a sudden community infection from outside.”
As a result, the steep growth in First Nations-based ESG activity that FNFA had driven since its inception has plateaued of late. However, Berna notes, “Communities are steadily catching up again. So, this is a temporary problem.”
The second challenge is knowledge capacity. “It’s great for a First Nation to have the opportunity to get into a wind, hydro or solar project,” Berna says. “But if it doesn’t have staff with the capacity to understand the complex partnership agreements and other, relevant data, an outside expert must be hired. Where no expert can be found by the First Nation, the FNFA will look to supply a consultant at our cost. Some communities are on their fifth power project, and have set up committees specifically to manage opportunities. Others are doing it for the first time. So, there’s scope for more experienced First Nations to help build that capacity.”
One area where collaboration is already bearing fruit is that of collective scaling. The third challenge is that some First Nations spot very promising opportunities in their areas, but their individual borrowing capacity may be too small to take them on. “Groups of First Nations have come to us and said, ‘Individually, we can’t afford this – but if we worked together and pooled our borrowing capacity, would FNFA lend to us? And, if needed, work with us to ensure expert consultants and legal counsel are hired, so we can all evaluate the opportunity and share knowledge to help us meet the threshold for ownership?’ That’s been great to see.”
As well as winning the Moving Financial Markets (small and medium organisations) category at ICAEW’s recent 10th Finance for the Future Awards, FNFA is increasingly being invited by First Nations to grand openings of projects it has financed: 300-plus megawatt wind farms in Quebec and Ontario, solar farms on the prairies that have taken communities off diesel, and hydro generators in the mountain rivers of British Columbia. In tandem, FNFA maintains a keen focus on living conditions.
First Nations population growth is higher than the Canadian average, Berna notes. What was once decent housing 20 or 30 years ago isn’t any more. That’s a key area for FNFA. “We also want to create a situation where we – where needed or requested – work with our membership to better position them to manage their wealth. So, we’re strengthening internal capacity through their budget, finance, audit and planning committees.”
There are examples of some member First Nations previously operating out of a trailer for their staff operations and council chambers. After FNFA supplied the Chief and Council with their borrowing capacity, they decided that it was a priority to construct an administrative headquarters. “Proper administration not only benefits the community, but portrays confidence to potential private sector partners – so, governance buildings are important. They can also be designed and built as multiuse to support health, education and social programmes, and sometimes even sports.”
Why, then, is it so valuable to Canada to nurture First Nations’ resilience through all these initiatives? “Most non-First Nations people move around a lot,” Berna says. “First Nations peoples don’t as much. Their peoples may head elsewhere for education and work, but they usually return. What they consider their territorial land now was also their territorial land thousands of years ago. It is their home. At the heart of the Act was an understanding that protecting First Nations land is paramount. And that means supporting the priority goals of the communities that live on it.”
Find out more about the Finance for the Future Awards
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