Routledge Handbook of Social and Sustainable Finance

Othmar M. Lehner, Othmar M. Lehner

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317678823
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Routledge Handbook of Social and Sustainable Finance brings together an international cast of leading authorities to map out and display the disparate voices, traditions and professional communities engaged in social finance activity.

With a clear societal or environmental mission, foundations, individual and group investors, as well as public bodies around the world have become increasingly eager to finance and support innovative forms of doing business. Together, founders and established businesses alike are embracing new sustainable business models with a distinct stakeholder approach to tackle social or environmental problems in what they see as a failed economic system in crisis. As a result, the topic of social and sustainable finance is at the forefront of financial economic thought.

This Handbook is divided up into three parts. The first, "The Landscape of Social and Sustainable Finance and Investments", comprises of chapters from a multitude of perspectives in an effort to grasp the entirety of the landscape. The second, "Challenges, Suggestions, Critiques and Debates", focuses on areas ranging from sociological underpinnings to critical takes on markets, and the identification of specialized business models. Amongst ethical considerations, topics include the scaling of impact, an analysis of sustainability as risk prevention and comparative analyses of various methods of justification and measurement. In the third and final section, "Markets and Institutions", contributions range from various perspectives on sustainable banking to environmental marketplaces, and finally on to practical cases and country specific observations.

This volume is essential reading for both academics and students in economics and finance. It is also of interest to those who study environmental economics, microeconomics and banking.

Part I
The Landscape of Social and Sustainable Finance and InvestmentsI.1
Introducing Social and Sustainable Finance

1
The Landscape and Scale of Social and Sustainable Finance

Linne Marie Lauesen

Social and Sustainable Finance has been a popular topic within multiple books and journals during the last decade (Lauesen, 2013). Although the financial crisis has diminished the investment pace in Social and Sustainable Finance, this crisis has shown what happens when the market is exploited beyond its limits: the global recession, which we have seen during the last nine years. This malicious event—although not outstanding, because financial crisis has historically had a tendency to occur in circles (Galbraith, 1994)—has witnessed that Social and Sustainable Investing equals investing in the future for the welfare and security of future generations.

This chapter focuses on the large events of Social and Sustainable Finance in a broad perspective. It not only looks at the financial sector or social enterprises within this sector but also examines the role of traditional private companies and public sectors in the landscape of Social and Sustainable Finance. It is built on the idea that our future is based on investments in people, planet, and profit (e.g., Jeucken, 2010; Schaper, 2010).

Not only will this chapter show the positive outcome of different actors’ successes in the landscape of Social and Sustainable Finance: in order to balance the view, this chapter will also show examples of the negative outcomes that have impacted it. The latter concerns the major events leading to the financial crisis (see, e.g., Hellwig, 2009; Kindleberger & Aliber, 2011); the contemporary continuity of high-risk financing (Heyde & Neyer, 2010); and the fallacies or the unintentional backlashes of expected positive investments in Social and Sustainable Finance (Banerjee, Duflo, Glennerster, & Kinnan, 2013) on a global level from micro to macro.

The chapter is structured as follows. First comes a short historical review of Social and Sustainable Financing, including the major events that have caused financial turmoil, settlement, or expansion. Next comes an overview of the financial crisis in 2008 and its impact upon the landscape of Social and sustainable finance. Finally, the contemporary landscape of Social and Sustainable Finance is described with concrete examples.

Social and Sustainable Financing: An historical review

Social and Sustainable Finance is today known under names such as microfinance, social enterprises, Social Impact Bonds, social funding, sustainable funding, or social enterprise lending. Although these relatively new names (and issues) suggest that Social and Sustainable Financing is a young movement into social and environmental spheres, it is not quite so: what is new is rather the concepts built around how to fund or finance social improvements and sustainability, and the actors investing in it.

In many nations, the state is responsible of taking care of social funding for marginalized groups and communities that are unable to finance their own living. The state also co-funds various environmental issues and regulates and sets rules for businesses about their responsibilities. Typically states and governments use part of their general tax income to fund these areas. In liberal market economies, for instance the Anglo Saxon nations in which the tax burden typically is lower than in welfare states, the social welfare systems are typically less extensive than in welfare states as well. The neoliberal philosophy is that the state should intervene in business conduct as little as possible. In such social welfare systems, it is typically up to each family to finance their own health insurances in order to be able to fund their health-related issues. Often there are differences between public and private institutions in relation to the quality of services, depending on the price each family is capable of paying privately on top of the public funding of different social issues. In welfare states such as the Scandinavian nations, the tax levels are generally higher, and these states’ welfare models include most of the social welfare program: education, hospitalization, elder care, partially childcare, etc. It means that many public services are financed through the tax system and require no or only partial user payment.

Despite different market economies and social welfare systems, it has during the last 30 years become necessary and therefore desirable to engage business in co-funding certain social and sustainability issues worldwide, especially regarding environmental protection, emission of greenhouse gases, and social responsibilities toward the stakeholders—both locally and globally. As a benefit for business to enter the sphere of social and sustainable funding, businesses have seen a potential to combine this with financial and marketing/branding fortunes related to competitive global markets. Customers and investors are becoming more concerned about businesses’ social and sustainability responsibilities and make demands for goods to be more consciously produced.¹

The historical review of this development begins in the early days of Social and Sustainable Finance related to business engagement. The earliest movements of sustainability are detectable back to the early 1970s, after the Stockholm Conference on the Human Environment in 1972 and later the World Conservation Strategy of the International Union for the Conservation of Nature in 1980, in which world leaders realized the need for a worldwide and intergovernmental organization to raise awareness of the need for social and sustainable development.

In 1974, the Gaia Hypothesis, coined by James Lovelock and Lynn Margulis, was set forth. This hypothesis claimed that the biosphere of the planet Earth formed a complex interacting system as a whole organism, where the biosphere has a regulatory effect (homeostasis) on the Earth’s environment with a limited capacity (Lovelock, 2006, cited from Lauesen, 2014, pp. 246–247). This hypothesis suggested that nature will and can adapt to certain environmental changes in order to sustain it. However, rainforest reduction, depletion of natural resources and biodiversity, and the addition of greenhouse gases to the atmosphere are, according to Lovelock, the planet’s natural reaction to human impact. Although the devastating impact of human and business development consisting of more and more exploitation of natural and human resources had been recognized, the events only began to take more speed when the World Commission on Environment and Development with the Brundtland Commission was established with a mission to unite governments toward sustainable development.

The Brundtland Report (1989) recognized that the delimiting tendencies were getting out of control and defined sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (1989, p. 43, cited from Lauesen, 2014, p. 247). The leaders of the developed countries were now becoming more aware about social and environmental impacts stemming from the industrialization and growth within especially the Western world. The developing countries were, on the other hand, becoming discouraged about this tendency, because they were not able to reach the higher levels of economic growth and could not see how they could contribute to this reduction of harmful impacts. They had enough issues concerning economic stagnation, poverty, and thereof derived social issues to deal with. For the developing countries to reach the level of the industrialized countries, they felt pushed to use efficient technologies and cheap labor in order to keep up the momentum of growth. This, however, meant that impacts against the environment and the working force in the developing countries were not sound. Therefore, it was a pending issue for the world leaders to come up with suggestions that benefited both the industrialized as well as the developing countries, so that the technological and social development could go hand in hand with less social and environmental impact.

The UN formed the Global Compact in the late 1990s (Annan, 1999), and the OECD Guidelines, which has a history back to 1976, began with the ILO² to frame their intergovernmental understandings of what social and sustainable business conduct were meant to comprise both politically, governmentally, and for business practice (Lauesen, 2014, p. 247). In 2001 the UN defined the Global Compact, and the OECD adopted these principles into its Guidelines. The UN Global Compact defines specific principles covering human rights, labor, environment, sustainable behavior, and anti-corruption. These headlines were made because of the rising sweatshop activities (the use of child labor) in the factories in the supply chains of the multinational companies—typically in the developing world; women’s rights violations; and the major environmental disasters such as the oil spills and exploitations in Third World countries during the 1990s (Lauesen, 2014, p. 247). Critics say that although businesses are being made more aware of social and sustainability issues in contemporary times, they still misuse these terms only for reputation management, also called “greenwashing” and “window dressing.” Social and Sustainable Finance have according to these critics not gained the prominence and excellence suggested by their ethical intentions, and the intergovernmental organizations have not managed to make things better, because they have no regulating power (e.g., Letnar Cernic, 2008).

Despite this critique, many small as well as large and multinational companies are committed to do good things for society, and they strive to combine social, environmental, and financial sustainability (see, e.g., Haigh & Hoffman, 2012; Lauesen, 2014, p. 248). The rising awareness of issues within Social and Sustainable Financing has led to new ventures within microfinance, social entrepreneurship, and businesses that have seen the potential to work with sustainability. These businesses have recognized that depreciation of natural capital cannot go on endlessly (Lovins, Lovins, & Hawken, 1999, p. 146, cited in Dyllick & Hockerts, 2002, p. 133, cited in Lauesen, 2014, p. 33). Some natural capital such as wood, fish, and culturally grown seed is renewable, while others such as fossil fuels and biodiversity are non-renewable.

A good society needs certain services for the people in terms of granting them access to a good educational system, care system, infrastructural system, and culturally supportive system (Dyllick & Hockerts, 2002, p. 134, cited in Lauesen, 2014, p. 33). Social enterprises, which offer microfinance to poorer communities, can help these people with economic capital in order to substitute some natural and social capital due to technological innovations. This does not mean, however, that all natural capital can be substituted by economic capital due to the irreversibility of natural depletion or climate change (Lauesen, 2014, p. 33). Therefore, social enterprises have become aware of their need to support social development alongside environmental and financial development for the people they support as well as for themselves as capital funds.

The inventions of cheap banking systems in remote rural areas, for instance in India and Africa, have improved the transfer of money between people mobilized by cell phone technology. This means that remote populations do not have to carry physical money to a physical bank in a city far away, risking being robbed during the travel. Now they can make their monetary transactions through their cell phone connections to their bank accounts (Kumar, McKay, & Rotman, 2010). This invention has thus meant that microbusinesses can be sustained and improve the life of small families that may have borrowed funds from social enterprises in order to initiate, carry on with, or develop their local businesses. The social enterprises, on the other hand, depend on dividends from their investments, but since they often spread their risks in multiple small businesses, they have often managed to succeed financially, environmentally, and socially with this relatively new market area (see also Goldberg & Palladini, 2010).

The 2008 financial crisis and its impact upon the landscape of Social and Sustainable Finance

The latest financial crisis erupting in 2008 has had a tremendous negative impact upon the business world as well as the general increased poverty at a global scale. This impact has not been seen at the same scale since the Depression in the 1930s. Large financial sector institutions were touted responsible for the financial bubble. Most of thes...

Table of contents

• Cover Page
• Half-Title Page
• Title Page
• Copyright Page
• Table of Contents
• List of figures
• List of tables
• List of contributors
• Foreword by Gordon L. Clark
• Preface: an epiphany of Social and Sustainable Finance
• Part I The landscape of Social and Sustainable Finance and Investments
• Part II Challenges, Suggestions, Critiques, and Debates
• Part III Markets and Institutions
• Index