By: Bertrand Gacon
It just so happens that I recently turned 40, and invited all my friends to a birthday party. Many of them have known me since my early teens, and being aware of my long-term passion for social issues, and involvement with various social organisations, I was asked the same question more than once: how did you end up working for a bank?
The honest answer would be: by accident. At least at the beginning. But then I realised that working in the financial industry was one of the most powerful ways to really make a change and put something back into society.
Let's start with the question of what banks are for. They have the crucial role of determining what use is made of capital. This gives banks both a huge power and a huge responsibility.
Over the last few decades, we have certainly seen banks exercising their power, but less often their responsibility. Confusion has arisen between capital as a means and capital as a goal in its own right. This has led to a more speculative financial system, and one that's increasingly disconnected from the real economy.
Failure to integrate what economists call long-term 'externalities', or the inadvertent effects of an action, has led to banks financing unsustainable activities. Even when they generate short-term profits, these will likely prove to be bad investments over the long run, both financially and socially/environmentally.
We need to change that. We need to give back to capital its role as a driving force for good. Worldwide financial markets represent tens of trillion of dollars. Mobilising this resource to be part of the solution rather than part of the problem would have a gigantic impact on society and the environment.
My job is head of socially responsible investing at Swiss bank Lombard Odier. It includes, among other things, managing an 'impact investing' vehicle. 'Impact investing', a relatively new financial term, has twin, equally important aims: to generate a financial return and to advance socially responsible goals. In my view, these are the same goals that should drive the banking industry in general.
If you look at history, it's not hard to see evidence of - at least some - banks fulfilling both these roles, although of course their actions would pre-date the term 'impact investing.'
Financing the real economy (lending to businesses, investing in infrastructure) has always been the aim of long-term capital suppliers like banks and insurers. In the 19th century, Lombard Odier was among the first financiers of the burgeoning rail industry, and helped finance Switzerland's efforts to bring light and heat to all Swiss people. The bank was supplying capital to advance social progress, as well as making a return: twin aims that history has demonstrated needn't be incompatible.
Indeed for Lombard Odier, business and responsibility have always gone hand in hand. As family business owners, the partners of Lombard Odier have always been aware that the next generation of business leaders - their children - will have to deal with the consequences of any irresponsible, unsustainable decision they make.
Back in 1859, one of our partners helped found the Red Cross. We were also one of the first banks to establish a means of measuring an investment's environmental and social impact, back in the early 1990s. Today we partner with ground-breaking institutions like Generation Investment Management to bring sustainable investment solutions to our clients.
So what are my aims for our 'impact investing' offering? Well, nothing short of changing the face of finance. If the 20th century was the era of great philanthropic organisations like the Rockefeller Foundation, I believe the 21st century could be the era of impact investing.
What rational investor would say no to earning a healthy annual return while helping finance game-changing businesses that support the poor, or advance the provision of health services?
In order to make a real difference in society, we need more than philanthropy and government grants, we need the private sector on board: we need the weight and capital of institutional and retail investors, and the support of the banks and fund managers that serve them.
I think the investor appetite is there. When the Cap Gemini World Wealth Report 2014 polled wealthy individuals on how important 'driving social impact' was for them, 60% said it was very or extremely important, a figure which rose to 75% for the under- 40s. This has been borne out by own our experience.
But launching a socially responsible investment instrument is only half of the battle: we wanted to offer something that stood on its own merits financially too. As well as earning a competitive return, our clients get to learn about the amazing projects they support - and even visit them.
We're helping finance a small date-exporter in Tunisia, a novel social housing company in Mexico, and an amazing African company that brings affordable electricity to remote households, schools and hospitals.
So far, the big problem with many impact investing funds is access. Often such funds are restricted to what we call 'sophisticated' investors' - those who are happy to lock up their capital for many months or years. That can rule out huge numbers of people. One way we have found of making impact investing more accessible is to pool money to invest in existing funds, which makes withdrawing it more easy, and the investment more 'liquid'.
Of course, there are big obstacles to the success of impact investing. One of these is how to accurately measure and benchmark just how effective the 'social impact' of such funds is. The industry is relatively new - less than 10 years old - so that's something we're all working on.
But things are moving in the right direction, both in terms of assessing performance, and in terms of hard cash. Some $12.7 billion was invested in the sector in 2014, according to estimates from JP Morgan Chase and the Global Impact Investing Network, almost 20% more than the previous year. Even a small allocation from investors globally could make a big difference.
Indeed, back in 2009, management consultants, the Monitor Institute, estimated that 1% of total managed assets globally could eventually be 'impact invested': a figure it calculated at $500 billion. That might also make the world more kindly disposed to bankers.
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About Bertrand Gacon:
In 1997, Bertrand Gacon started his career in the investment banking arm of BNP Paribas, Singapore. In 2001 he moved to the wealth management business in Paris, and in 2003 he moved to Geneva to create BNP Paribas' responsible investments offering, including a range of socially responsible investing and impact investment solutions. He also helped define and set up the bank's philanthropic services.
In 2011, Bertrand joined Lombard Odier in order to create an impact investment offering for the Swiss bank, with the aim of making it a leading player in the field.
In addition to his professional responsibilities, Bertrand is President of 'Sustainable Finance Geneva', a non-profit organisation active in the promotion of responsible finance in Switzerland. He is also the founder and president of 'Association Tizayuca', an NGO working with underprivileged children in Mexico.