ESG Analysis for Companies and Nonprofits in Impact Finance PDF

ESG analysis for companies and nonprofits in impact finance: the case of Banca Popolare Etica in Italy Maurizio Pioletti Ph.D. Urban and Regional Development post-doc Università di Padova 24 October 2024 1 We are members of an...

ESG analysis for companies and nonprofits in impact finance: the case of Banca Popolare Etica in Italy Maurizio Pioletti Ph.D. Urban and Regional Development post-doc Università di Padova 24 October 2024 1 We are members of an In 2001 we helped found We are partner of the international movement, the FEBEA, the European European Microfinance Global Alliance for Banking Federation of Ethical and Network, an organization that on Values (GABV), an Alternative Banks, a non-profit promotes microfinance as a independent network born in organization based in Brussels, tool to encourage financial 2009 and made up of credit for the development of ethical inclusion. institutions that, all over the and solidarity finance in world, operate inspired by the Europe. principles of ethical finance. 2 BANCA ETICA’S AREAS OF EXCLUSION production and sale of weapons activities with an evident negative impact on the environment energy sources and technologies representing a risk to humans and environment exploitation of child labour intensive livestock raising scientific research with experiments on vulnerable/unprotected persons or animals exclusion or marginalisation of minorities and of entire categories of the population direct relationship with regimes that are known not to respect human rights the commodification of sex gambling 3  PREFERRED AREAS OF INVESTMENT welfare energy efficiency and renewable energy sources environment organic agriculture international cooperation socio-cultural activities: education, culture, inclusive sports, youth fair trade social and responsible enterprise personal loans: satisfying primary financial needs (first home, transportation, etc.) 4  IMPACT = PRODUCED CHANGE change that addresses social needs (and environmental priorities) https://businessimpact.umich.edu/abou t/what-is-social-impact/ IMPACT LOAN Impact loan as a loan that produces 5 positive change in the environment, people and communities. Theory of change Comprehensive description of how and why a desired change is expected to happen in a particular context Filling in what has been described as the missing middle between what a program or change initiative does and how these lead to desired goals being achieved. Identifying the desired long-term goals and then works back from these to identify all the conditions (outcomes) that must be in place (and how these related to one another causally) for the goals to occur. https://www.theoryofchange.org/what-is-theory-of-change/ 6  IMPACT FINANCE/INVESTING Investments made in companies, organisations and funds with the intention of generating a measurable and favourable social or environmental impact alongside or instead of a financial return. See also: G8, Global Social IMpact Intentionality Accountability Investment Steering Group Measurability EC, Expert Group on Social Entrepreneurship (GECES) OECD EIF, European Investment Fund MISE, Fondo per le imprese sociali Additionality Global Impact Investing Network https://thegiin.org/ 7 8 Banca Etica encourages entities who receive loans to develop the skills and independence required to achieve economic, social and environmental responsibility, ensuring the IMPACT of the investment. 9 PROFIT, SHARE VALUE, DIVIDENDS SOCIAL & ENVIRONM. IMPACT REAL ECONOMY FINANCIAL SPECULATION FOCUS ON PROCESS FOCUS ON PRODUCTS MULTIPLE INTERMEDIATION TRANSPARENT PARTICIPATION 10  CO2eq EMISSIONS ESG FRAMEWORK LOBBING & PRESSURES INVOLVEMENT & ADVOCACY PROFIT / BUSINESS ORIENTED PERFORMANCE /IMPACT ORIENTED 11 Financial performance of an investment quantifying the profit or loss on an investment over a given period, with respect to the cost of the investment. The impact investment focuses on measurement of the investment’s social and environmental performance. Social and environmental dividend (share of profits) Measuring the social and environmental dividend is more problematic than the purely financial assessment of conventional investments, due to the vast range of potential "non-financial results" of an investment. 12 OVERALL GENERATED IMPACT Every euro of share capital makes it possible to provide about 15.3 euro in loans to organisations and enterprises. These resources in turn generate a social and environmental impact. 13 Assessment of application for loans The customer provides: annual accounts business plan notarial deeds and visas documents on compulsory audits social balance sheet / sustainability report The bank obtains information from public or private databases: Risk centre (repository of information on household and corporate debts) CERVED (Centri Elettronici Reteconnessi Valutazione Elaborazione Dati) economic data on companies registered in the Chamber of Commerce registers CRIF (Centrale Rischi di Intermediazione Finanziaria) creditworthiness information database 14 Once BPE receives an application for a loan, two different assessments are carried out: > technical assessment based on the economic data, performed by loans staff to verify the creditworthiness > social and environmental assessment performed on the applicants for: assessing the customer’s social and environmental responsibility and degree of acknowledgement of the ethical principles and values avoiding the reputational risks that would result from customers behaving in a way contrary to the values of ethical finance and civil economics consolidating the culture of social and environmental responsibility in the organisations that establish a relationship with the bank Identify the Impact Areas the loan contributes to Developing Default Probability Models based on structural social & environmental features 15  Banca Etica assigns equal importance to economic and financial analysis and the social and environmental assessment in the determination of the creditworthiness. In 2022, 95.8% of the 1,044 decisions made to grant loans to corporate entities had been backed by a social and environmental assessment. Those loans which were not supported by an assessment were mainly applied by organisations that had already been assessed previously. Only less than 1.5% of all cases were loans approved without social and environmental assessment, typically for reasons of urgency. 16  + Reception of migrants Customers Bank loans 17 AREAS OF IMPACT Environment Organic and proximity farming Combating climate change Social Circular economy and Social assistance environmental protection Right to housing Job placement for disadvantaged people International Health Welcoming migrants Fair trade Community International cooperation Worship activities International microfinance Culture Education and research Legality and rights Sport Including microfinance in Italy Responsible tourism and Spain Workers buyout* & recovered enterprises Female entrepreneurship * a rescue of the company, or part of it, by employees taking over ownership, almost always in cooperative form. 18  AREAS OF VALUE GOVERNANCE Does the statute determine a time limit of term of office of the President or Equivalents? WORK What about female leadership? Percentage of women among corporate managers 19  AREAS OF VALUE SUPPLY CHAIN Proportion of green procurement PRODUCT QUALITY What about renewable energy provision? Innovation in product design ENVIRONMENT Energy efficiency investments 20  AREAS OF VALUE NETWORKS AND COMMUNITY Belonging to networks Dependency from donations TRANSPARENCY AND LEGALITY Ethical code Legality certification 21 (indirect) IMPACTS OF THE ORGANISATIONS 22 (direct) IMPACTS OF THE LOAN 23  Sustainable supplies Recycled raw materials Env. efficiency investments Renewable Energies Emissions Protected categories Job training Workplace accidents Work contracts Employee turnover Tax irregularity Smart working Well-being monitoring Resources to communities Gender diversity among managers Workers’ involvement Female leadership Litigations Wage gap Process certifications Innovation, R & D Model 231 Networks Legality certifications Non financial accountability Certifications Penalties Ethical code Organisation Impacts Impact on turnover 24  REPUTATION MATTERS Social Assessors voluntary members responsible for: verifying and analysing the information provided by customers through the socio-environmental questionnaire seeking and gathering information on the organisation applying for funding visiting the client who requests a loan acquiring the official position of the coordination of the Territorial Initiative Group preparing a report with a summary of the information gathered, i.e. the 'Social and Environmental Assessment Report' (which is an integral part of the credit analysis) expressing their opinion as to whether the client should be financed 25  THE MAIN SOURCE Fourth edition of the Impact Report: www.bancaetica.it/report-impatto-2024 26 Ing. Giuseppe Zucchi [email protected] Dr. Maurizio Pioletti [email protected] 27