Tommaso Rondinella, Banca Etica: "The social role of the company is not a fad"

Banca Etica is a cooperative cooperative bank that was founded at the end of the 90s at the urging of several large organizations of the Italian Third Sector, in a phase in which they tended to be excluded from access to credit. At the same time, the nascent credit institution responded to the need to build a financial environment explicitly different from the one generated by globalization and the regulations that had favored speculation and tax havens: "You can do finance in a different, just way, for peace and solidarity."

Tommaso Rondinella, head of the impact models and VSA office of Banca Etica, retraces the history of this financial organization with a social vocation in the new episode of ALTIS Incontra . We meet him on the sidelines of the lecture he gave at the Master in ESG Finance and Investments.

From that great crowdfunding 25 years ago of the Third Sector, we have come to set up a real bank supervised by the Bank of Italy that offers all the commercial services typical of banks. How is it structured today?
Today Banca Etica is a group, which includes, in addition to the Bank, Etica SGR, the asset management company that promotes ethical investment funds, i.e. those that invest with stringent social and environmental criteria. Also part of the group are Cresud, a financing company for microfinance institutions in the southern hemisphere, and the Banca Etica Foundation.

But there is also a new entrance.
We are in the process of acquiring a majority stake in Impact SGR, a company that is extremely attentive to social and environmental aspects, which offers investment funds that are attentive to the measurement of impacts.

What is also striking about your organization is the participatory model.
From that initial movement an extremely active and participatory associative base was born. Banca Etica works, in fact, with the principle of one head one vote. All shareholders have voting rights regardless of the number of shares they hold in the share capital. This allows for widespread participation, also favored by the fact that there is a capital concentration constraint of no more than 1%, for each shareholder.

Who are the participants of this membership base?
It is made up of people who promote ethical finance in the territories – organized in territorial initiative groups structured at provincial or regional level – and participate in decisions on financing. 

How does this path work?
There is a group of about 200 volunteer members who are social evaluators. That is, they express an opinion on the financeability of organizations that apply for financing, not with respect to creditworthiness but on the basis of their ethical profile, so as to be able to exercise a form of control by the membership base of what the bank actually finances.

How do you concretely integrate the social perspective into the financial evaluation?
Our socio-environmental evaluation system is based on a digital  questionnaire that organizations and companies applying for funding must fill in and which is then analyzed by social evaluators. It is a series of questions of a quantitative nature on the environmental, social and governance characteristics of the organization and the project for which funding is requested. The assessment takes place both from the point of view of the responsibility profile of the companies and the impacts they generate. 

Does this data feed into the impact report?
It is a tool that we consider very characteristic of our business, in which we report in terms of impact all the bank's assets. Normally, the impact reports of other credit institutions describe the impacts of some parts of the loans disbursed, for example those for the Third Sector. We have tried to represent in terms of impact all the use of the money we collect and use for legal entities, individuals and securities management funds. 

Does the method have more value than merit?
It is first and foremost an exercise in transparency. Beyond the more or less large numbers that are reported – which concern, for example, the people assisted, the migrants welcomed, the jobs created, the companies created with the assets confiscated from the mafias, testifying to our commitment on these fronts – it is very important to have identified a method that applies to the entire activity, not just for a part of it.

How do you manage impact data internally?
With impact management analysis tools for the assessment of ESG ratings, useful both for understanding the responsibility profile of customers and financial risk. These are two different aspects that do not always go hand in hand.

In what sense?
On the one hand, the ability of the organization to carry out certain projects is observed, on the other hand it is necessary to analyze the repercussions on the risk and therefore on the interest rates applicable from the banking point of view.

Among your assessment tools, you have created the IAF - Impact appetite framework, which complements the mandatory risk tool, the RAF - Risk appetite framework.
It is a set of about thirty social and environmental impact indicators that refer to the objectives to be achieved both in external action and within the organization. On a quarterly basis, the Bank's Board of Directors analyses the situation to verify the reasons for any deviations and the adoption of corrective measures. They are useful for keeping operations constantly oriented to the mission.

What should we expect?
I think it is useful to remember that, from Adam Smith to the historic Olivetti case, up to the culture of corporate social responsibility, the SDGs and, now, ESG, there has always been talk of the fact that the company has a social role. Therefore, this evidence does not disappear overnight, even beyond the regulations. It is a sensitivity that exists and will continue to exist in society, perhaps with wavering trends, but we will not abandon it completely precisely because it comes from afar and is inherent in the very meaning of the economy.

Did the somewhat pressing regulations trigger the backlash effect?
In recent years, the focus on ESG has strengthened to the point of having heavily entered regulations, particularly European ones. But it must be remembered that even in the absence of regulations, the GRI and SASB standards had been consolidated over time, as a push from the company itself and the recognition that if the company works it is also important to be aware of how it works, so studying it from the inside becomes crucial.

What is your point of view on this?
For us, in addition to promoting an economy made up of values and not just profits, being able to see how organizations work is crucial to understand if they are financeable, if they are reliable partners also from a financial point of view. 

Let's close with an example.
A paper by the Bank of Italy a few years ago showed how risk analysis models, i.e. the so-called probability of default of a customer, work badly or not in the case of the Third Sector. 

Why?
Because these models are based on economic and financial information, while the Third Sector is typically not capitalized, does not have large support capital, by definition does not make profits. According to those models, therefore, the Third Sector should not be financeable and, in fact, this has been the case for a long time. What we do know is that the Third Sector is resilient and is able to repay the loans it receives, because the reasons that lead to the good performance of a non-profit organization are different from those that can be read in the financial statements. They are belonging to networks, the ability to respond to the needs of society, the reputation they have, the quality of their staff and motivation. These are all intangible factors that can be more clearly grasped from non-financial analyses and ESG factors.

What does this make us understand?
The need to understand organizations from the inside, beyond the balance sheet data, becomes relevant in all cases. The company is not only made up of numbers, but of processes and attention to various dynamics. Organizations that are not able to measure and report on these aspects have within them phenomena that they are not mapping and governing and that represent elements of possible fragility. The reporting organization is aware of how it works and, in this sense, much more reliable.

Article by Nicola Varcasia