In recent years, the phrase “impact economy” has gradually become familiar. It means investment that is both financially profitable and socially aware – in other words, harnessing the power of business to make a positive impact on society as a whole. Today “impact investing” is estimated to be worth €65 billion worldwide, a figure that’s growing at around 20 per cent a year.
On the face of it, the concept may not seem that new. However, it’s important to draw a distinction between impact economy and the well-established strategy of corporate social responsibility. For the former, business is conducted with equal focus on balance sheets and the wider good – equal being the operative word. Being an “impact bank” implies having a stable, effective strategy to widen access to credit.
“I believe that our idea of socially aimed profit is going in the direction of a better future”
In 2011, while President of the United States, Barack Obama hosted a major conference at the White House, at which he invited businesses, investors and entrepreneurs to discuss how impact economy might benefit American society. As for banks, one of the first to adopt an impact economic policy was Italy’s Banca Prossima – the non-profit arm of Intesa Sanpaolo Group – back in 2008.
“Yes, I think it’s fair to say we have been primary movers,” says the bank’s chief executive, Marco Morganti. “Over the past 10 years, we have tried to move beyond what you might call traditional banking criteria. We’re much more open than others when it comes to giving credit.”
Morganti doesn’t mean, of course, that Banca Prossima is a bottomless pit to which all and sundry have access. Rather that “decisions about where money is lent are taken with a number of intangible – that is, non-financial – factors in mind. Ours is a new banking approach, where at least 50 per cent of annual profits are transferred to a fund that widens access to credit for those who have impressive projects but lack material assets.
“Since Banca Prossima’s foundation, we have given €450 million in special credit to more than 1,600 non-profit entities under such conditions (as well as 10 times that amount to normal, for-profit entities). The results are fantastic: 90 per cent of the enterprises in question are up and running – and growing vigorously.”
And now comes the major innovation. As part of its 2018-21 Business Plan, Intesa Sanpaolo will allocate 0.5 per cent of its net assets, across the three years, to a fund that replicates precisely (though on a much larger scale) that of Banca Prossima. The brand-new Fund For Impact will allow Intesa Sanpaolo to give €1.2 billion in credit to forgotten groups of society such as students, settled immigrants and young families. This credit will also be extended to small businesses, academic researchers and female entrepreneurs.
As Morganti proudly points out: “The expansion of Banca Prossima’s model towards a larger size and – potentially – to all the social classes in need of an opportunity from the banking system is destined to leave a major mark on society”, as well as make Intesa Sanpaolo “the world’s premier impact bank”.
Banking the intangible – the experience of Terzo Valore
A memorable example of the strategy in action came in 2012, when Banca Prossima was approached by the priests of Santa Maria della Stella church in the Piedmontese town of Rivoli, in northern Italy. They were looking to add new structures (a cinema, AstroTurf football fields and a car park) to their community centre but needed a loan of €1 million. Banca Prossima duly agreed, inviting the priests to join a programme called Terzo Valore, essentially a call for support from the local community. Each individual or company could offer a private direct loan (from €500 to €10,000) at zero interest – which the bank would guarantee, at the same time as adding credit itself through a traditional, commercial loan. The result was remarkable: €700,000 from citizens at zero interest and €300,000 from the bank at a market yield of 4 per cent.
The centre now provides a place for members of the local community – churchgoers and non-churchgoers alike – to socialise, exercise and study, and the car park, football fields and cinema allow Santa Maria della Stella to generate much-needed income to support its existence. This form of “guaranteed crowdlending” was unprecedented and has since been replicated by Banca Prossima in another 102 Terzo Valore projects throughout Italy.
“The priests were able to repay their debt quickly,” says Morganti, “as well as revitalise the parish and relationships within it at the same time. That is a way impact can change things both from an economic and a social point of view. It may sound a little grandiose, but I believe this type of new relationship between bank and society is a step in the progress of civilisation.”
As of today, Banca Prossima serves 64,000 customers, with €4 billion in funding and €3 billion in credit granted to 12,200 borrowers. On average, a loan is €160,000. (Throughout Italy, credit quality is excellent, with NPL [non-performing loans] at just 2.7 per cent.)
“At Intesa Sanpaolo we want to make a positive impact on society. In fact, it’s our ambition to become the number one bank in Europe by building on solid fundamentals and values”
Though impact economy is about more than just making money, financial returns are still important, says Morganti. “Ultimately, we are a bank and we maintain the first duty of a bank, which is looking after people’s money… It’s important to stress that impact economy is not a matter of charity. Far from it. It is a matter of sustainability. The credit we provide is not a donation; it’s still business. Along with the social effect it had, introducing the cinema, football fields and car park at Santa Maria della Stella, for example, was also a good business proposition.”
Carlo Messina, chief executive of Intesa Sanpaolo, has spoken of how “impressive” Banca Prossima’s work has been over the past decade, adding that he can’t imagine how a major 21st-century bank like his would not embrace impact economy.
“At Intesa Sanpaolo we want to make a positive impact on society,” Messina says. “That’s an absolute priority for the bank. In fact, it’s our ambition to become the number one bank in Europe by building on solid fundamentals and values.”
Building a new relationship between bank and community
At a time when the state is retreating from providing services such as elderly care, not-for-profit organisations are stepping in to fill the gap. Giulia Rhodes hears from the chief executive of Banca Prossima how the bank is meeting the unique needs of the third sector.
One trillion reasons why we need a circular economy
Intesa Sanpaolo has joined forces with the Ellen MacArthur Foundation to help businesses recognise their systemic responsibilities and capitalise on redesigning their business models through regenerative innovation
Intesa Sanpaolo eyes the number one position in Europe
With sustainability and value creation running through every aspect of the Italian bank’s business plan, Intesa Sanpaolo believes the next four years will see it cement its position as a leading European player