Not only shareholders

di Marianna Fatti


“Finanza d’impatto per nuovi bisogni sociali” (“Impact investing for new social needs”) was the title of the conference organised by Giangiacomo Feltrinelli Foundation on 27th February. The conference is the third one of the series “Un’Economia che verrà” (“The Economy that will be”).

The definition of social impact investing given by the Global Impact Investing Network (GIIN) is “Investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return”. Sounds revolutionary, isn’t it?

The conference organised by Giangiacomo Feltrinelli Foundation in collaboration Banca Prossima precisely aimed to explore these breakthroughs in the financial sector and the contribution they can give to social welfare through the work of social enterprises.

Guest speakers were Carlo Cottarelli, director of the Observatory of Italian Public Accounts, Carlo Secchi professor of European Political Economics at Bocconi University, Flaviano Zandonai, researcher at European Research Institute on Cooperative and Social Enterprises, Luca Fantacci, professor of History, Insittutions and Crisis on Financial System, and Giulia Sergi, fellowship manager at Ashoka Italia.

Prof. Cottarelli introduced the topic quoting again the GIIN with respect to the growth rate of the sector – Assets under management of impact investors have grown by 18% from 2013 to 2015 –and mentioning several trends that make impact investing momentous.

First, demographic trends such as aging and immigration, the continuous innovation in science and medicine, which improve life expectancy and conditions but also require higher budgeted expenditures, and climate changes.

These and many other issues increase the demand for welfare services, but public sector is less and less able to meet these needs. Accenture estimates for Italy a gap between public expenditure and demand for services of  $10 billions in 2015. Considering the increasing public debt of developed countries and competition among them for fiscal policies to lure multinationals, these budget is not likely not be covered by fiscal revenues.

Social finance can fill this gap with its “spillover effects”, said prof Cottarelli, but nevertheless public incentives are needed to go beyond the quest for the short term returns.

Prof. Secchi then remarked the difference between the traditional philanthropy and the modern approach to corporate social responsibility, which entails the concept of stakeholder engagement and see benefits for the company itself not (only) in terms of marketing. Indeed, this is the breakthrough of impact investing – part of the revenues of a financial institution are specifically earmarked for projects whose (social) impact is so valuable to generate returns to shareholders as well.

Transparency and accountability toward stakeholders was the aim behind the recent law about mandatory non-financial reporting of major multinationals. It is now time to measure the performances of these companies also with respect to dimensions such as ethical requirements for suppliers, gender equality, labour conditions.

Prof. Secchi concluded his contribution with two fundamental issues. First, how to spread this new approach to finance and radicalize it? And second, how to concretely measure the outcomes of such an investment?

Flaviano Zandonai tried to reply to the first remark, saying that it is necessary to embed social and cultural initiatives directly in the value chain, in a stable and continuative way. New models of enterprises and governance are needed, together with financial and legal support.

Examples of these new forms of economic agents are social enterprises and start ups. They overcome that trade-off between profit and positive social impact, and the distinction between profit and not for profit organisations since social enterprises can now share a small part of their profits with investors.

The financial sector is being reshaped by this new forms of enterprises, creating new dedicated intermediaries – such as Banca Etica or Banca Prossima – and instruments tailored to reward the social impact of a project.

Nevertheless Zandonai claims that there is still a mismatch between demand and offer of these innovative instruments due, paradoxically, to a low demand. Social enterprises indeed are in most cases small and after the first phases usually invest in day-to-day operations. Financial intermediaries should also support them in capacity building for envisioning, planning and programming, making them more autonomous when approaching financial sector.

There is the need, concludes Zandonai, to create more capital intensive models of social enterprises, appealing traditional investors as well and able to take advantage of new financial instruments.

If the financial system is supposed to remunerate it, said then Giulia Sergi, we first have to give a definition of social impact. Ashoka’s fellows generate a social impact when they recognise a social problem, analyse it to find its origin and create a solution to solve it at a systemic level.

Ashoka’s approach thus goes beyond traditional forms of measurement of social impact such as SROI – social return on investment – or the mere number of beneficiaries. It takes into account how social entrepreneurs reshape the research, the public policies, the local culture and business strategies.

In this way Ashoka distinguishes mere donations from investments, and is able to involve in the network multinationals and institutional investors.

Prof. Fantacci then suggests that the gap between demand and offer of credit is due to a lack of instruments rather than a lack of resources. Financial intermediaries can support social enterprises by simply being… intermediaries, between investors and new forms of companies, and better allocate existing resources.

There are two intrinsic risks when thinking when looking for additional resources for social projects rather than involving intermediaries. First, public sector may rely just on investors’ volunteerism, and secondly these investors may exploit social projects for marketing purposes – and this is, said provocatively Fantacci, what happened with subprime mortgages during 2008-2009 financial crisis.

In conclusion, all the guest speakers agreed about the need to develop new and more standardized tools to measure social impact, together with incentives from public institutions, in order to enhance the changes already in place in the financial sector.

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