Financing the Social Sector: Why Banks Play a Crucial Role in Social Change
This is the first in a series of cross-industry CSR analysis.
Every industry has a role to play in social change – travel, CPG, e-commerce, to name a few. I’ve chosen to start this series with the financial sector because I believe it has the most potential to drive change in the simplest and most valuable way.
At Better The World we preach CSR 2.0, that is, using innovation and strategy to create shared value between a company and a social mission. We start by looking at a business’s core strategy and resources. We think about what they have a lot of and what they do best.
Let’s take the financial industry as our first test:
Financial institutions have a lot of money.
And what do they do best with that money?
Now let’s flip sides for a minute.
There are over 161,000 registered not-for-profit organizations in Canada and thousands more grassroots organizations that are fighting for donations. These organizations spend hours preparing fundraising proposals to corporate and private foundations to receive grants, among other approaches to raising funds.
If these organizations squeeze through the cracks and do capture a “yes” from a potential donor, it often comes in the form of restricted funding. That means social-purpose organizations are spending more time on getting funding than creating social programs. They are forced to stray from their raison detre to stay afloat, and this is seen as a major barrier in Canada’s social sector.
Financial institutions, specifically the commercial banks, spend millions on their CSR initiatives which typically include a run, walk, or ride for a given cause, a program that supports children, and then various other programs that cover a massive scale of causes. Many of these programs engage customers, employees, and make a real difference in people’s lives, so kudos to the banks for their social and environmental stewardship.
But in their whole diversified portfolio of causes they support, how is there no attention paid to actually financing the social sector?
Think of the possibilities that could come out of this shift in focus: A new, innovative idea to solve a social problem could get access to early-stage capital investment; A small charity could get a cheaper loan to develop a social enterprise or new program – social purpose organizations could shift back to doing what they do best: filling social and environmental gaps.
If banks allocated budget toward financial instruments for the social sector, they would be serving two purposes: 1) They would be helping to build a sustainable social sector; and 2) They would be serving themselves through the returns on their investments.
A great synergy is combining what one party does best with what the other party does best. This notion has become overly complex and challenging in the social sector, and it is time to get back to basics.
I almost finished writing this post on January 23rd, 2012. The next day, I saw this headline in the Globe and Mail:
“RBC to Create Impact Fund”
I guess RBC also noticed the gap.
Here’s what how first sentence read: “Royal Bank of Canada has decided to establish its own impact fund, in what appears to be the first major move by a Canadian financial institution in this space.”
I read on and learned that RBC will invest $20 million in social finance. Half of it will create a $10 million Impact Fund to finance new ideas and projects that have a social and environmental mission. The RBC Foundation will invest the other half into Socially Responsible Investment funds. Learn more details here.
RBC has set the stage for a new wave in the social sector – I predict we’ll soon hear about more financial institutions doing the same. The significance of this initiative is huge, and summed up perfectly by RBC’s president and CEO Gord Nixon:
We’ve been waiting for the right moment to launch a program of this nature, and the moment is now. We are confident that our initial investment of $10 million in the RBC Impact Fund will not only spark entrepreneurship and innovation in Canada, but also catalyze similar investments from others in the business community.