Alliance Online - September 2006

Social investors hiding their light under a bushel

Roy Parizat

EVENT INAISE 2006 Conference
Date 1-2 June
Venue San Sebastian, Spain
Organizer INAISE (International Association of Investors in the Social Economy)
Theme Innovation for Social Finance

The first thing to strike me about the INAISE Conference was how well attended it was, both by social investors and by other interested parties. I had mistakenly assumed that an event which focused on the social investment industry would have very limited appeal to anyone from outside the industry, but the incredible diversity of those attending illustrated the breadth of interest there is in the work of socially focused investors.

The social investment industry comprises all the organizations currently working on raising funds to provide affordable finance to socially focused enterprises. Unlike traditional commercial lenders, social investment organizations do not base their lending or investment decisions solely on the standard risk-reward equation but have an overriding interest in the social benefits that their investments will achieve.

The theme for this year’s event was Innovation for Social Finance, and all the presentations and workshops reinforced and illustrated just how dynamic the industry has become in responding to the changing needs of the social economy. Every presenter had a positive story to share about how new needs are being addressed in an innovative manner.

Over the past 12 months the social investment industry has perhaps undertaken more innovation, and achieved more dramatic positive change, than over the previous three years combined. New financial instruments introduced to the conference included a variety of new lending products developed to assist fairtrade producer groups across the developing world; the creation of the first Latin American Women’s Bank specifically tasked with providing affordable loans to the poorest women in the poorest societies; and the creation of new venture capital and loan guarantee funds to encourage small and medium enterprise (SME) development.

In view of these exciting developments, it would be easy to suggest that all is well in the world of social investment. In fact, throughout the event, one big concern arose continually, casting a pall over all presentations and discussions. This was the continued failure to adequately publicize the excellent work that is being done.

Conference participants almost unanimously acknowledged the continued failure of the industry to inform the wider community about the positive impact that they are achieving through ethical, socially focused investment activities. As a result, the benefits of ethical investment remain largely ‘hidden’ from view.

The two main concerns relating to this PR failure are the adverse effects this has on generating new investment funds and on encouraging additional governmental support for the industry. Individual investors in social finance need to understand the social impact that their investments are having if they are to be encouraged to invest more. Governments need to be informed about, and understand, the importance that social investors have in assisting the marginalized in their communities, if they are to ensure beneficial and supportive regulatory frameworks.

On a more positive note, work has begun, led by Fineurosol, on creating a globally recognized label for ethical investment products. Traditional use of the term ‘ethical investment’ is perceived as far too weak, excluding just a few industries or business sectors but failing to look at the wider picture. The new label will therefore take account of the entire business of the investment organization and the total social benefits that its investment decisions create. In short, rather than certifying individual investment funds managed by large commercial firms, the label will aim to certify entire social investment organizations, taking a holistic view of their social impact. Investments using the label will be certified as fully ethical so consumers investing in such an instrument can be assured that their money will be used in a socially responsible and beneficial manner.

Much was made during the event of the need for social investing to generate the same ‘brand recognition’ that Fairtrade has achieved, and all concurred that a label for ethical investments is a big step towards this goal.

Roy Parizat works for the Shared Interest Society, the world’s largest fairtrade finance organization. Email roy.parizat@shared-interest.com

See www.inaise.org

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