Social impact investing – can Banks do more?

Lisa Hehenberger, Research and Policy Director of the European Venture Philanthropy Association (@_EVPA_)

The European Venture Philanthropy Association (EVPA) has just launched a new publication: Social Impact Strategies for Banks- Venture Philanthropy and Social Investment. We embarked on this research project for several reasons. The impact investing debate has picked up significantly in the past few years with a strong push coming from the United States and from financial investors who are incorporating a social angle in their work. We applaud this increased interest in generating social impact! However, we detected a gap in both the knowledge and awareness of social impact strategies pursued by European-based banks.  We are pleased to have identified both impressive and exciting venture philanthropy (VP) and social investment (SI) initiatives developed by European banks. These initiatives can serve as practical examples that can help other banks implement social impact strategies. We want more banks to invest more human and financial capital for social good – the report helps them do just that!

We are not naïve – we realise that banks have obligations towards their shareholders to make money. Core banking activities such as lending and offering savings and pension plans are clearly instrumental to keeping our economies strong and prosperous. But in the aftermath of the financial crisis, we ask ourselves: Can banks do more?

Several banks have realised that they can use their core strengths – financial acumen, investment skills, capital and networks – to actively generate social impact by engaging in venture philanthropy and social investment. Venture philanthropy and social investment are philanthropic and investment tools to create more resilient and stronger social purpose organizations able to generate greater social impact. It means investing (money and management skills) in social enterprises, non-profit organisations and charities so that they can do their job better. Banks are implementing such strategies in four main ways:

1. Creating a programme which engages several different departments within the bank to finance and mentor social enterprises. An example is the Spanish bank BBVA that has pioneered a social investment initiative, the Momentum Project, which since 2011 has provided loan finance of over €4 million to Spanish social enterprises. Momentum has leveraged a wide range of human capital, including the expertise and skills of different departments internally – notably CSR, Private Banking, Wealth Management, Venture Capital, Risk, HR and Communications – as well as through partners ESADE and PwC.

2.Setting up a direct social investment fund or a fund-of-funds to create track record and stimulate the market. An example is Swiss-based UBS own-branded $50 million impact investment fund raised from its own ultra-high-net-worth client base. It will invest in other private-equity funds taking stakes in 50-80 small and medium-sized enterprises in emerging markets, focusing on health care, education, infrastructure, agriculture and sustainable forestry. Other examples in the report include J.P. Morgan, Deutsche Bank and BBVA.

3. Intermediating individual social investment opportunities as Bank Degroof and BNP Paribas have done. In 2012, the French bank BNP Paribas launched a social investment fund called PhiTrust Innovation 1 with social investment fund manager PhiTrust Partenaires (the result of a long-lasting collaboration), raising €2.530 million from its private clients. This has been followed up by raising €6.233 million for PhiTrust Innovation 2. The fund invests in social businesses using innovative technologies to generate a positive social and environmental ticket.

4. Setting up internal business units engaged in social investment pursuits (such as microfinance or social enterprise financing) as Austrian savings bank Erste Bank has done. Erste Foundation and Erste Bank have created several joint initiatives which are continuing the original tradition of financial inclusion of the bank and have been expanded to include social enterprise financing. The Second Savings Bank, ‘Die Zweite Sparkasse’, set up in 2006, which provides customers with bank accounts, no matter what their financial situation might be. The Good.bee initiative launched in 2008 whose mission is to ‘develop and implement solutions to break down the barriers to financial inclusion for marginalized individuals and social enterprises in the Erste Group’s home market in order to create positive change.‘ This includes developing specific products to support social enterprises and social businesses.

We invite you to read the report to learn more about banks’ current VP and SI initiatives, as well as the barriers and opportunities going forward. While we celebrate the innovative initiatives of European banks to generate social impact, the report is also an appeal to the banking sector to do more!

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