Below is an example of an ethical finance label, the Finansol label. For more information about ethical financing, read our chapter on finance labels for save investments.
Solidarity-based finance is a concept that satisfies the solidarity desires of individual savers and the financing needs of solidarity-based enterprises, non-profits, and other beneficiary organisations that have social and/or environmental impact. In solidarity-based financing, ethical banks, solidarity-based investment funds and others act as intermediaries between these savers and beneficiaries, by proposing traditional investment vehicles – savings and life insurance accounts, investment funds, – into which solidarity mechanisms have been incorporated.
Launched in 1995, Finansol is a French association that brings together financial institutions engaged in the promotion and/or management of solidarity financing vehicles and tools (banks, insurance companies and asset managers) and a variety of solidarity-based enterprises, associations, cooperatives, investment clubs and others whose missions and activities are directly linked to addressing a social and/or environmental challenges.
In 1997, the Finansol label was introduced in order to identify the various solidarity-based financing vehicles available in France through intermediaries, such as those offered by banks, investment funds, insurance companies, mutual funds and employee savings accounts, to name a few. Largely based on transparency and solidarity criteria, as well as various management aspects, the label provides security for solidarity-oriented investors that the financial assets they invest through intermediaries will indeed serve to finance projects with strong social and/or environmental impact. In 2018, the Finansol label was awarded to more than 160 recipients.
The Finansol label has three main objectives:
- To offer a guarantee of confidence to savers and investors from an external third-party;
- To distinguish solidarity-based investments from other savings products;
- To benefit from the association’s collective support.
The Finansol label’s regulations are based on three main criteria:
- The product’s solidarity nature – at least part of the collected savings should finance solidarity projects.
- Transparency and information – ensuring that investors are given information on the financial and solidarity characteristics of the investment at the time of subscribing, and regular information is provided after the subscription.
- A commercial action criterion – ensuring that the circulation of labelled products does not remain hidden.
How does solidarity-based financing work?
Solidarity-based finance and SRI (socially responsible investing) are all too often confused and incorrectly used interchangeably, despite being very distinct concepts. SRI is a method of selecting listed or unlisted companies in which to invest, based on a combination of their financial performance and the manner in which they address social and environmental performances. Solidarity-based finance is a more active means of identifying investment opportunities in small or medium-sized unlisted companies that were established with the specific mission of addressing a persistent social and/or environmental challenge.
In practical terms, a solidarity savings product is a “classical” saving product with at least one process of solidarity saving mechanisms: social investment and sharing products. A sharing product is a saving product which part of – or all of – the interest earned is donated to an NGO or association partnering with the saving product. These products are usually sold by banks to retail customers. This form of donation, through savings, is sought by associations because it grants them a perennial resource and enables to support their beneficiaries in the long run.
But solidarity finance is primarily a social investment. Even if a return on investment is possible, it is not the primary objective, achieving social impact is the primary objective. Money deposited into a solidarity saving product is used to finance activities that have high social or environmental benefits, via debt or equity investments. These solidarity investments are generally made directly by the organization that has collected the solidarity savings – most often a financial institution – to the final beneficiary (a company or an association that generates high social or environmental benefits).
Other investments are realized through intermediaries, the solidarity investors, which are experts in financing activities with important social benefits. They support these activities by providing long-term financial support in addition to technical support, particularly for companies that are in a launching process. Some of these investors raise money directly from the savers themselves. Lastly, the investment might be executed directly by the savers themselves, who purchase shares of a social enterprise.
By 2017, the solidarity finance had resulted in total assets under management of €11.5bn, divided into 4 investment vehicles. The saving accounts, distributed by banks and insurance companies, represent €2,2bn, and allow two investment possibilities: the funds can be used to invest directly in social enterprises; or 25 to a 100% of the annual interest payment from the fund can be donated to an NGO or association. The solidarity funds are distributed by banks, funds and corporate employee saving schemes, and represent €8,6bn. This investment vehicle works through mutual funds, where 90 to 95% of the portfolio is invested in stocks and bonds of listed companies, and 5 to 10% in social companies.
The directs investments, representing €548m, consist in the purchase of shares or bonds offered by a social enterprise: individuals can invest directly in social enterprises; in order to assist them in their growth and development. According to European rules, those engaging in this type of activity are entitled to a reduction in income tax. Finally, solidarity finance is divided into life insurance, channelled through banks, insurance companies and mutual societies. It represents €188m and takes the form of life insurance policies (in euros and/or unit-linked).
A short history of the Finansol label
Finansol can trace its origins back to 1983 when the first solidarity-based mutual fund, Faim et Développement (Hunger and Development) was launched by a cooperative bank on behalf of a christian NGO. The aim was to provide access to credit for small businesses in developing countries that were excluded from traditional banking systems. During the same year, and inspired by the booming stock market and the success of traditional investment clubs, groups of private investors seeking alternative ways of managing local community savings accounts convened to form the CIGALES clubs.
At the time, it was difficult to make the initiatives known to the general public. Some savers even harboured a degree of mistrust towards these investments, linked to the fact that the concept of savings and solidarity, and finance and solidarity seemed to them to be an oxymoron. Designed for and awarded only to solidarity-based investments, the label was created on the one hand to reassure and comfort savers in their choice of solidarity-based investments, and on the other hand to raise the profile of these ‘solidarity-labelled’ investments, through complementary initiatives implemented by the association (e.g. ‘baromètre de la finance solidaire’, an annual overview of solidarity-based initiatives, ‘Semaine de la finance solidaire’, a week promoting solidarity-based finance, raising awareness among the general public and the public decision-makers, etc.).
During the years, several legislations have emerged to create a better environment for solidarity-based saving. For instance, in 2001 and in 2008, public authorities passed regulations requiring companies to propose at least one solidarity fund among their employee saving schemes, creating the funds called “90-10 funds” because they are characterized by the obligation to invest between 5 and 10 % of the fund’s assets in social companies.
Consequence of this environment but also of the dynamism and innovative capacity of the solidarity-based finance actors, and since its beginning, solidarity-based funds haven’t stopped to grow. End of 2017, it represents more than 2,4 millions of solidarity-based savings products subscribed by private individual investors and institutional investors with 11,5 B€ solidarity-based savings of total assets.