Blamed for playing a disproportionate role in bringing on the Great Recession, lambasted for their short-termism and perceived greed, bankers are far from popular in countries like Britain and the United States. Some people may even welcome the news that one of the biggest banks, HSBC, plans to axe more than 10,000 jobs following earlier redundancies at rivals Credit Suisse and UBS.
But these events should instead provoke concern, given they underscore the impacts of the Eurozone crisis and American debt stand-off. And, to welcome the squeezing of the banks would be to undervalue the crucial role they play in our economies – if minded to do so.
In capitalist economies, banks rarely have the wider social good in mind, unless they are explicitly set up with social purposes, like in the case of the Co-operative Bank. But the enthusiasm that greeted the recent launch of a new bank by the United Kingdom’s government suggests something new is stirring in the banking world. It is a development that governments, banks and social innovators and entrepreneurs in different parts of the world may want to watch closely.
The latter was founded by Klaus Schwab, who also established the World Economic Forum (WEF), best known for bringing together business leaders, politicians, journalists and intellectuals for an annual meeting on the world’s most urgent challenges in the Swiss resort of Davos. These pioneers in social change have been lionised over the past decade at events organised by WEF and the Clinton Global Initiative (CGI), and are now expected to shoulder a growing share of society’s intractable problems.
As a result, there is growing concern among them about just where the funding will come from. At my organisation, Volans, we have been building closer relationships between a growing range of social enterprises around the world and the Germany-based financial services group Allianz, though here the focus is on helping the social change organisations improve their financial systems. That only gets you so far: where is the necessary capital going to come from?
Part of the answer lies with the well-endowed foundations set up by those who became multi-millionaires or even multi-billionaires during the New Economy boom period, among them Microsoft co-founder Bill Gates with his Bill & Melinda Gates Foundation, and Jeff Skoll (the first president of eBay) with his Skoll Foundation for Social Entrepreneurship. Increasingly, funding is coming from these sources.
But even such welcome generosity only takes you so far when spread between the social and environmental problems that countries and communities face around the world. So the next question is: what role can – and should – governments play in funding all of this?
At least in Britain, the launch of what is now known as “Big Society Capital”, or BSC, is helping to answer that. The name’s first two words reflect the fact the new organisation aims to help deliver prime minister David Cameron’s vision of a “Big Society”, created more by citizens than by government. It was originally dubbed the Big Society Bank, but had to drop that name when regulators concluded it would not offer a sufficient range of banking services to justify the label.
Welcoming the launch in July, David Cameron said: “When I announced the idea of a Big Society Bank, I wanted to help social enterprises and other groups to grow and expand their vital work. I’ve seen the amazing work that Britain’s social enterprises already do to tackle some of our country’s most intractable problems. I believe that Big Society Capital will play a major role in injecting significant resources and financial innovation into these social enterprises, while at the same time attracting further funding from charitable foundations, private individuals and other investors.”
Critically important, however, BSC will run independently from government, with funding decisions being made by an impartial investment committee. It will play a critical role in speeding up the growth of the social investment market. Socially orientated financial organisations will have greater access to affordable capital, using an estimated £400 million (US$655 million) in unclaimed assets left dormant in bank accounts for over 15 years and £200 million (US$327 million) from the United Kingdom’s largest high street banks. BSC and the four main British banks have also come to an agreement on the banks' £200m investment in the company.
Sir Ronald Cohen, who made his money in private equity and has been a long-standing pioneer in social investment, will serve as the non-executive chair of Big Society Capital. He notes that the launch “marks the culmination of 10 years of thought and effort by many individuals and organisations. It is the first of a new kind of organisation devoted to providing finance in the interest of society.”
He went on to say: “Innovations such as social impact bonds and a burgeoning array of organisations operating across the social sector suggest that we are on the cusp of a revolution. The social sector now has the prospect of attracting funding in the UK to support social entrepreneurs, much as venture capital and private equity did to support business some three decades ago.”
BSC is designed as a means to provide a greater range of financial services to social sector organisations, to raise more money for onward investment into the sector and to help social enterprises become more sustainable and resilient. It will also champion social investment with policymakers, investors, stakeholders in the sector and the public at large.
It remains to be seen how quickly the capital is channeled to deserving agents of social change, how well they do in managing and leveraging the funding, how quickly Big Society Capital can access other forms of funding to match that given by the banks and how attractive this model will prove elsewhere in the world. Those are the known unknowns – and history suggests that there will also be unknown unknowns. But at last there will be one group of bankers who can hold their heads up in society.
John Elkington is executive chairman of Volans and non-executive director at SustainAbility. His latest book is The Power of Unreasonable People. He blogs at www.johnelkington.com and tweets at @volansjohn.
Homepage image by hozinja shows the view across the Thames to the City of London.