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.

The future challenges of CSR

by Francesca Doniselli 

I would like to say thank you to Antonio Pepe for being my first reader, suggesting ideas and helping me out with the article.

Corporate social responsibility (CSR) is a highly debated issue as it is becoming increasingly sought after by consumers while still remaining difficult to practice.

One measure of CSR is non-financial reporting. It informs the company’s stakeholders on all the activities which increase social value such as those aimed at stimulating environmental awareness, fighting corruption, promoting diversity management or philanthropy.

There are several problems with such reporting, however. It is difficult to measure and certify things that are not quantitative by their nature. This often leads to greenwashing, i.e. making certain actions seem more socially responsible than what they actually are.

Another issue is whether a common standard for CSR reporting should be adopted. One of the key characteristics of CSR is that it is completely voluntary. Strict regulation will undoubtedly limit this freedom and impose methods of reporting and measurement that might not suit everyone. Moreover, a standardized method of reporting could force companies to adopt similar language on the issues, making them virtually indistinguishable from each other. On the other hand, certain issues such as human rights and the environment have become so important that decision-making on those matters cannot be left entirely in private hands.

A step towards better CSR has been made by the Council of the European Union, which passed a directive on non-financial reporting aimed at large companies with 500 or more employees (approved on 29 September 2014 and came into force on 6 December 2014). The directive obliges such companies to publish an annual report on CSR.

The directive leaves leeway in deciding the method of disclosing information and in the choice of the guidelines to be used. The guidelines can be international, European or local and allow to create reports that are easily readable and comparable. Some examples are the UN Global Compact, ISO 26000, the German Sustainability Code, and the GRI.

We still have a long way to go, though. A new ground for non-financial reporting could be improving the transparency in the relationship between an enterprise and its suppliers. The value chains of businesses have become global and it is not uncommon for companies to outsource production: customers who are interested in the sustainability of goods and services demand responsibility not only from producers but also from their suppliers.

Finally, the emergence of new professional figures such as CSR managers could be helpful as long as they effectively cooperate with the boards of directors.

Implementing non-financial reporting will definitely benefit both businesses and society.

First of all, it guarantees transparency in communication between a company and its stakeholders, making social commitment measurable and comparable. This way enterprises would obtain competitive advantage through proper communication of their CSR.

Additionally, it is important to remember that projects related to CSR do have an impact on a company and on society. From an economic point of view, they constitute a form of investment for the enterprise to boost its reputation, gain more customers and improve relations with stakeholders. And from an ethical perspective, companies create positive externalities, benefiting the environment and the well-being of society.

The key elements of CSR are cooperation and communication, both inside companies and between enterprises and their stakeholders. Data and strategies have to become as accessible as possible and customers need to be involved. This is a fundamental condition, whether applied to non-profit entities, private businesses or public bodies.