For banks looking to enter the field of VP and investment or for banks wondering how to build on or adjust what they are already doing, there are many different ways of approach- ing new or increased participation. The message from the field is to do something and start somewhere, with the size and scale of the initiative less important than might be expected due to the immature state of the market and the reality that it is through small- scale initiatives and endeavours that new markets are built. Indeed, social investments are likely to develop from individual transactions to boutique offerings to funds and funds of funds and, eventually, a fully tradable or ‘liquid’ marketplace. The key for banks is to build precedent, momentum and confidence and to feel that they are in the position to play the important role that they will increasingly be needed for as the VP and social investment markets grow. Whilst banks are somewhat in unchartered territory in these early days of experimentation, there are some excellent practical resources to draw upon, particularly from the standpoint of those considering investing (social investors can draw on the litera- ture developed for impact investing).68
Developing or renewing a strategy for involvement (what and how) will require consid- erable thought and attention to four factors as shown in the chart below: 1) the state of the social investment and social sector market in chosen geographies; 2) the bank’s core busi- ness model; 3) learnings from existing initiatives/players; and 4) resources available for the bank. These are explained in more detail.
1. State of the Social investment, social enterprise and social sector market in chosen geographies: the needs of the social investment, social enterprise and social sector in the areas that the bank operates in or would like to get involved should be a major determinant of where the bank can most usefully play a role. For those banks who are relatively new to the field, engaging with experts as well as talking to representatives in different sectors
What is the state of the SI/Social Sector Market in
Chosen Geographies?
What is the bank’s core business model?
What can the bank learn from others efforts?
VP and Social Investment Strategy
What resources does the bank have available?
E
F
E
F
68. See for example J.P. Morgan Social Finance Research (2012), ‘A Portfolio Approach to Impact Investment: A Practical Guide to Building, Analysing and Managing a Portfolio of Impact Investments’.
Factors for banks to consider when developing a VP and Social Investment Strategy
(public, non-profit etc.) will be crucial in terms of developing a strategy that will have most social impact. There is a need to understand what other parts of the ecosystem are doing, so that the bank’s initiative can be most synergistic and complementary for the overall development of the field. For example, if the market is already fairly developed in terms of suppliers of capital to social enterprise and SPOs, but there is a huge gap in the demand-side capacity building, then perhaps the bank might focus and prioritise this area, either doing this themselves or sponsoring others to do this. Or if there is sig- nificant capital already in existence for growth-stage social ventures, perhaps the bank should focus on providing riskier early-stage capital
2. Bank’s core business model: this will define what type of activities the bank can most use- fully engage in or direct its attention to since it will build on existing expertise and knowledge and will enable the initiative(s) chosen to potentially influence business units and to prosper within the bank itself. This is most pertinent for initiatives which will move beyond a charitable or corporate foundation. For example, if a bank would like to invest in SPOs, but the bank does not have significant direct investment capabilities, then it may not want to directly invest but may rather fund social investment intermedi- aries if they exist. To a certain extent this is about what is the mix of product lines – retail, private or investment banking – and where the bank’s focus is in terms of geographies, types of clients etc.
3. Learnings from others: This report is intended to be a starting-point for information and knowledge sharing within the banking sector about VP and social investment initiatives. Existing initiatives can be replicated and adapted by other banks. Confidence can be generated that these initiatives have proved powerful, successful and sustainable – and banks can also be aware of the most common pitfalls. And these case studies can provide clues to pressing issues for banks, for example whether and in what form client demand from private banking customers exists for social investment and how best to harvest it 4. Resources and support available: since it is financial, human and social capital that the
banks have to contribute to the field, it is worthwhile determining what exactly these are in the case of each bank, as they will differ. In terms of financial capital, there are CSR budgets, philanthropic capital, balance-sheet capital as well as client capital to draw on. Banks should be encouraged to really put to work human and social capital and to be creative and innovative in finding ways to do this, particularly through volunteering and mentoring schemes. All of the initiatives included in this report have found ways to leverage internal human capital, even from retired bank employees, and many internal social investment projects have been made possible and financially sustainable through using employees existing skills and a certain amount of their time. Internal business units and initiatives have tended to use most internal resources, but even if the initiative is an external one, investing for example in social enterprises, there are plenty of excel- lent opportunities to put to work the talents of banking staff. Yet there is also a need for banks to be realistic, even pragmatic about what is possible in terms of resourcing as well