Started a few years ago by a small band of pioneers, impact investing has gained traction and is now drawing the attention of large international banks. Large financial institutions such as BNP Paribas and Citigroup, based in Europe and the United States, respectively, are developing various projects in the field of social and sustainable finance. Because of their size and prestige, they offer credibility and recognition to impact investing, and investors tend to trust them because of their name and reputation. But it is not yet certain if their presence will add any value to the sector.
This year, a J.P. Morgan and Global Impact Investing Network survey indicated that investors intend to commit 19 percent more capital in impact investing activities than they did in 2013. Because of this, BNP Paribas and Citigroup are following the trend and launching impact investing projects and products for their clients—and it’s why representatives of these institutions shared their collective experiences at the TBLI CONFERENCE USA 2014 in New York this past May.
BNP Paribas, a Paris-based bank, is mainly financing microfinance institutions and social businesses, says Emmanuel de Lutzel, vice president of social business at the institution. Currently, the bank invests 360 million euros in social businesses in France and surrounding countries like Belgium, where the institution is widely present. BNP Paribas supports enterprises offering jobs that consist of simple tasks like gardening, cleaning or recycling to the long-term unemployed. It also supports institutions that provide a job and adapted working conditions for the handicapped. Furthermore, the bank is involved in social housing by financing the construction and maintenance of various buildings.
BNP Paribas’ support for microfinance institutions extends to other parts of the globe, such as Africa, South America and Asia. In those regions, the bank selects deserving institutions working on social projects and—as with its partnership with the LEAD Foundation, an Egyptian nongovernmental organization committed to helping the nation’s economically disadvantaged—provides them with loans. The bank’s work aims to have a positive social impact and empower the development of particular regions without losing money. “It is a business…not philanthropy,” says de Lutzel.
The approach to impact investing differs on the other side of the Atlantic. “Many European banks have social thematic on the use of their funds,” says Michael Eckhart, managing director and global head of environmental finance and sustainability at Citigroup. The New York-based bank has “regular clients who could be all types of companies that are getting into or have businesses in renewable energy or renewable companies,” he says. The institution is a “client-oriented bank, not a project bank. We do finance projects, but only when they are being sponsored by a client company.”
For its part, Citigroup has been involved in many impact sectors. For 20 years and across 50 countries, it has been active in microfinance by financing end users through group lending. By financing local governments, the bank has enhanced the development of water infrastructure in needy regions. With its 32,000 corporate clients worldwide, Citigroup has also been active in such sectors as agriculture, by financing big corporate farmers who, in turn, employ local farmers.
Through its foundation, Citigroup also operates in more capacities and is additionally committed to the financing of projects. “Our Citi Foundation does mostly one thing: It gives grants for the financial education of people in poverty areas. Poor people in Washington, D.C., or Nairobi, Kenya, all over the world, might get trained on how to manage their family income, have a checkbook and a savings account,” explains Eckhart.
BNP Paribas and Citigroup are not alone. Most of the large international financial institutions are involved to a certain extent in the field of social and sustainable finance. “Other banks have impact investing platforms to serve their clients, such as Morgan Stanley or J.P. Morgan,” says Eckhart. Credit Suisse and UBS are investing in socially responsible investments; this consists of investing in traditional companies that are engaged in environmental sustainability, says de Lutzel.
But when one looks at the numbers, big banks still remain only marginal players in the impact investing industry, and their contribution to the industry is even smaller compared to the revenue they generate. Only 8 percent of the investors involved in impact investing are banks and diversified financial institutions, and 16 percent of the total capital is invested by these institutions. In 2012, BNP Paribas gave 103 million euros to social entrepreneurship and microfinance, which seems small compared with its 39.1 billion euros in revenue. That same year, Citi and Citi Foundation donated $137 million (U.S.), while Citigroup’s total revenue was $70.2 billion (U.S.).
As Paul Tregidgo, managing director and vice chairman of Debt Capital Markets at Credit Suisse, explains, even though this market has been growing fast, “it has yet to jump to the mainstream capital market.” Impact investing is “beginning to get traction and investors demanding products,” he says. More dedication by financial titans would surely help achieve this aim for investors (though, perhaps not so much for social entrepreneurs). While opening their vaults to impact investing has been a valiant effort, large financial institutions’ size and prestige have yet to provide the two things this investing needs most: credibility and recognition.
Disclaimer: BNP Paribas is a sponsor of TBLI CONFERENCE USA. Student Reporter was a media partner for the conference for which it received financial support.