Investment in tangible goods in Italy
(By Associazione Consumatori Piemonte )

INVESTMENT IN TANGIBLE GOODS: CONSUMERS’ ACCESS TO NONREGULATED MARKETS

Foreword

Socially responsible investment (that is, when social and ethic remarks play a role in choosing and managing investments) is becoming more and more frequent, in Italy as in other countries.
Many consumers-savers (hereinafter, simply “savers”) begin to become aware of the use the banks make of their money. Thus they ask to learn and choose the kind of investment that are fuelled by their savings. This need join the classic ones – obtaining a gain and keeping invested money safe.
The goal is clear to take finance, and people working in it, over the medium/long run, to keep up every project having an influence on the so-called “real economy” – that is, the one that coordinates market laws and the system’s sustainability. An economy which recognises and develops the individuals’ capital gains (both persons or companies), yet without putting in jeopardy the natural capital and the right for future generations to have their needs satisfied and inherit a healthy, nature-safe Planet.
So the final goal is aiding an effective value diversification of investments – recovering the collective and public value of saving, by financing also (and with the same consideration) non-profit business, environment-saving, workers’ right defence, and every subject struggling for the Man’s fundamental rights worldwide.

1) Ethic finance and real economy. A notion

Ethic finance purposes an actual alternative approach as to the classic concepì of consuming of financial goods. This is to allow consumers to invest also in “tangibile goods” – that is, goods naturally increasing the world’s heritage through a real generational solidarity of peoples.
Although with such a different approach, ethic finance (being ethic insofar as it is sustainable) accepts as a clear data basic features of classic finance (such as intermediation, collecting and loaning), but radically changes its reference values (person and not capital, ideals and not commodities, equal compensations for investments and not speculations). Ethic finance aims to introduce as touchstones not only risk and profitability, but also the investment’s impact on the real economy; it tends to turn financial conducts into more a real social sense and to finance all the activities moving within an humanly and ecologically sustainable ground. Among these, traditionally non-profit ones, such as social and international cooperation, ecology, human rights defence, culture and art, etc., and also “new frontier ones”, such as equal and aware commerce, biological agriculture, eco-compatible production and any entrepreneurial activity producing a social and/or environmental benefit.
Ethic finance can be set and developed insofar as news parameters are laid for choosing a good investment. Not only company performances and profitability should be taken into consideration, but also the project’s environmental and social impact.
Ethic finance got a dramatic evolution in the last 20-25 years. It was born from an attention focused on saving management, as a environmentalist and pacifist reaction to the power and undercover-like operations of major banks and multinationals. Later it spread around social and ecological awareness in investments, taking more an active role in the economic system.

2) Ethic finance in the world. A concise timeline
The debate regarding ethic finance has arisen in English-speaking countries (above all, the U.S.) since the early 20th century. The increase of American economy in those years sparks an interest about the gaps between finance and religion, profit and ethics. As a consequence of the refuse of investments in socially indecent activities (alcohol, tobacco, sex, gambling), the first ethically oriented common Fund was created in 1928 – the Pioneer Fund. After 1929 crisis, such instruments became more and more. In the 60s and 70s, with Vietnam War and nuclear proliferation, a long debate took place about the responsibilities of great industrial groups, taking many minority shareholders to persuade corporations to become more socially aware.
In the UK, ethic finance is created by the selling of Stewardship Unit Trust, a common Fund born in 1984 from Friend Provident, a mutual assistance company linked to the Quakers.
In the 80s, ethic finance spreads all over Northern and Central Europe – Austria, Belgium, Denmark, the Netherlands, Norway, Sweden and Switzerland offer at least one ethic or ethically oriented Fund.
In the 80s Europe’s first ethic banks also appear, aiming to sustaining the development of aware businesses, environmental protection, culture, searching and using renewable sources of energy. Europe’s most important banks are Germany’s Oekobank in Germania, created after pacifist and ecologist movements; Holland’s Triodosbank, born in 1980 and having locations in Belgium and the U.K.; Alternative Bank Swisse, born in 1990 and laid upon participation and transparency.
Ethic banks were founded not only in Europe and U.S., the most important experience being Asian. This is Bangladesh’s Grameen Bank, founded to try to save thousands of people from extreme poverty by conceding them a small financing to start and run a job. This solves the problem of access to credit for the poor, who couldn’t enjoy any classic loan because of lack of personal and real guarantees. Microcredit has the following features:

1. Small amount (sufficient to buy a loom or agricultural tools);
2. Refounding policy allows very long runs;
3. Social Solidarity – anyone who wants to enjoy a microcredit must make a group, each of whose members need credit. The group is collectively responsible for loans taken by each of them.

Eventually, in the 90s some European Governments stars aiding the developments of ethic funds through tax policies. A Dutch Act of 1995 regulates the so-called “green investment funds”, which are financial products investing at least by 70% in environmental protection policies).

3) Ethic financial instruments. Particularly: ethic common funds of investments. Notion and evolution.

Finance as itself is an instrument – as any instrument, it is morally meaningless. What can label finance as ethic is its goal, and its ground values. Therefore, ethic finance makes a standard use of tools created by financial engineering. Recent experience shows that ethic finance never focused on one kind of financial investment. On the contrary, virtually every kind of financial product has been used – bonds, deposits, private banking and retirees’ Funds. Still, by far the most used financial instrument are Common Investment Funds.
Common Investment Funds are undivided assets belonging to diverse sharers , each of which owns a ratio thereof according to how much he/she paid for this.
Buying ratios of these Funds is very easy – minimum shares are small and prices are reasonably low. This is published daily on newspapers and shares can be resold quickly. The choice is committed to a Saving Management Company, which runs the Fund.
Financially ethic Common Investment Funds are exactly the same – same structure, same managing, same way of selling. Even costs are basically as usual. What makes the difference is the so called ethic-screening – this means selecting the commodities to invest on (whether shares or bonds from Companies or Governments). They must be ethically compatible, e.g. showing respect for man and nature and a refuse for any exploitation policy.
Four phases have been singled out in the evolution of ethic funds.
Generation One is the one of Funds selecting commodities only through negative criteria – that is, by ruling out weapons or alcohol industries, and so on. So all that is made is avoiding to invest in some sectors, for ethic or moral reasons.
Generation Two includes positive criteria, by searching for companies acting in a socially relevant way.
Generation Three is laid on a careful sector selection of commodities, according to the ethic profile of each Company. Working well on a social point of view is sees as a primary point as to being selected for investments.
Generation Four is even more structured. A technical-scientific Committee is to deeply analyse any potential target for investment. These control Boards are made by independent technicians, who guarantee the social way of working. Each Committee is also charged with pointing criteria that allow to evaluate the how ethic are investments. These criteria are mixed – negative, as to businesses not to be financed, and positive, as to business that specially deserve financing.
As time goes by, ethic finance can show even criteria to be used. For example, a classic negative criteria for State bonds is the presence of a totalitarian regime, whilst a classic positive one for companies is care for environment and for workers’ health and safety. On the other hand, making weapons, cigarettes or alcoholics is a classic point for exclusion.
Finally, it is important to make a distinction between ethic Funds and Charity Funds. For the latter, the only difference from classic Funds is that profit are saved for charity purposes.

4) Ethic finance in Italy. Why this late?

Not until the late Sixties did ethic finance take solid roots in Italy.
The reasons for such a delay compared to other European countries and the U.S. is to be explained with social and historical reasons. First, before the 70s Italy’s saving was almost entirely channelled to after-war reconstruction. Then, Italy’s Welfare State worked as one of the primary models in the world and this delayed the development of an autonomous ethic finance. The State itself becomes entrepreneur both in classic sectors (basic public service, education, health), and in sectors of low public interest (food, car making, and so on). Thus the Government acts both as the source and the goal for public saving, through Treasury Bonds and Bonds from State-run enterprises.
The 90s show the crisis of this system, whose beginning was evident in the previous decade. This proved too expensive, with a public deficit out of control and a need of containing domestic expenses, also to match international commitments – the Treaty of Maastricht.
Undoubtedly, such a Welfare model was ethically important, caring for redistribution of wealth public goals that lay over the single economic interests.
The development of ethic finance in Italy arises for covering the sectors left behind by a quickly-shrinking Welfare State. What came out is a Welfare Society, with a feeling for protecting common needs and rebuilding a system of social guarantees. Thus non-profit organisations replaced the Government in running many former state-run public services.
A final reason for Italy’s delay is the lack of organised ethic movements, in a country where social participation has been for a long time an exclusive of the two major political parties – the Communist Party and the Christian Democrats.

MAG (Mutua autogestione = mutual self-running)
During the 70s, for the first time in Italy companies start investing in the real economy. For them, financing has been a problem from the start – with no estates, no buildings, no financial guarantees, they weren’t even taken into consideration by banks. That is way an alternative way of financing was and still is made up all around them.
Back then, saving use regulations were more permissive, so that cooperatives could not only collect money, but also lend it to their associates.
In the development of ethic finance in Italy, a major role is played by the province of Verona. Mid-70s – a time for hard industrial reconverting. Many factories close down, others bankrupt – unemployment is a major risk. In this scenery, many workers feel the need of turning the business into a self-run one, although they are aware of their ignorance as to management, marketing, finance. In 1977, in Verona, a cooperative is founded whose name is MAG (Mutua autogestione = mutual self-running), with the goal of supporting any joining self-run company. Still in Verona, one year later, a group of young jobless occupies a public agricultural business and starts cultivating, growing and agricultural tourism.
As the experience goes on, the need is felt to buy the infrastructures, but there is no money for this. As classic financing is not an option, the MAG is addressed. This declares itself ready to buy the estate, and, in order to find money for this, adds to its goals the collection of public saving. Such a goal finds an excellent response and, within six months, more than €100,000 are made up. MAG becomes the owner of that estates and rents it to the cooperative. Then this buys the same estate through a delayed paying.
This esperience quickly spreads to other Italian regions. Eight more MAGs are founded, all working as cooperatives. Two kinds of associates exist – those supplying saving, and those aiming to loans. So MAGs work as banks for their members, all working at productive projects with high social contents, laid upon self-management and internal democracy.
Everything goes fine until 1991, when a harsh policy of Italy’s National Bank brakes down MAGs’ movement. The Act 197/1991, known as Money-Laundering Act, trying to fight against mafia-run financial companies obliged any companies working at public loans to have a minimum capital of €516,000 – and three years to match the new rule.
Although a right goal, this represented a hard obstacle for such low-capitalised companies as MAGs, which found two different remedies. First, some of them tried to push on their members to reach the new minimum capital. Secondly, some others turned to joint ventures with other companies of this kind. These news groups founded a company of financial intermediation for loans to the members. So funds are collected by member companies and transferred to the joint ventures for being used as financings.
Presently, there are eight initiatives dealing with alternative finance - Mag 2, Mag 4, Mag 6, Mag Venezia, Mag Verona, Etimos, Credito Sud.

The ethic popular bank
In this context, some MAGs and some other Italian third-sector organisation needed to create a bank doing nationwide what was locally done by MAGs themselves, thus giving an opportunity of national development to the third-sector.
Indeed, all these subjects are useful to manage a long-run saving ratio, but cannot act as a real bank. This gap was filled when the Ethic Bank was founded.
Next step, founding (in December 1994) the Association towards the Ethic Bank. The major actors of the third-sector were involved in it, in order to define the project for making an alternative bank. Later on, the Cooperative towards the ethic Bank was founded for the development of the entrepreneurial project. Capital collecting started, and more a defined actor for the relationships with the National Bank was singled out.
As the needed capital was reached, on March 16, 1999 the first location of the Ethic Popular Bank opened up in Padova.
The Ethic Popular Bank is a cooperative bank whose property is split among about 20,000 members – mainly individuals, but also Regions, Provinces, Towns, Dioceses, associations.
In 2001, the Ethic Bank issued its first political manifesto. This was included in the Budget Statement for 2000. Among other things, it reads:
As a bank, we are committed to:
1. avoiding, to a socially and environmentally careful manageent, potential damages caused to the world’s heritage either by our company, or by our associates;
2. including in the criteria for evaluating financial capabilities the actions that can be implemented for the protection of environment;
3. aiding and promoting the birth of an actual environmental enterprising, also by creating a comparison of businesses, redirecting them to eco-compatible productive processes.

The main feature of this bank is its total transparency, so that both criteria and single financings can be seen buy savers through a publication every four months.
Ethic Bank offers traditional accounts and very diverse deposits linked either to the Bank’s activities, or specifically to the selected fields of intervention. Moreover, it allows savers to choose if and how much to give up of an investment rate, to make a single financing cheaper.
In the last ten years, Ethic Bank opened location in some major Italian Cities (such as Milan, Brescia, Rome, Vicenza e Bologna). It works on the rest of the territory through financial partners. This cooperation specially regards cooperative banks (presently, 34). Account are managed through cash dispensers, credit cards and Internet banking.
Ethic Bank an rely on the costless cooperation of members acting as promoters organised by areas – they are named Git (Gruppi di iniziativa territoriale – Groups of territorial initiative).
In 2002, Ethic Bank reached a €202m budget in savings.
Among the most recent and visible results of Ethic Bank, there have been in the last year:
- the opening of a booth in the seat of the Italian parliament;
- the introduction of Ethic Bank and of two associations linked to it to the European Parliament;
- the approval (see paragraph #…) of a motion by the Italian Parliament about ethic finance – the first step toward legitimating ethic finance by law.

The ethic Funds of traditional banks
Along with the development of ethic finance in Italy, banks started to show an interest to this sector of the market, customers were increasingly attracted by financial products involving social profiles. Such a request was matched also by traditional banks. New accounts were created, whose rates could be partly redirected to social initiatives. Then, starting for the Mid-90s, several traditional banks launched open common investment Funds named “Ethic Funds”.
Also traditional finance took advantages from such an increased ethic sensibility – a dozen of common Funds defined ethic are the evidence of it. Some of them merely allow to redirect gains to associations (Gestiras Cedola; Roma Caput Mundi; Azimut Solidity). Others keep a traditional structure, but follow precise developing lines (Gestnord ambiente and Euromobiliare Green Equity mainly invest in companies dealing with environmental items). Yet others enjoy an ethic management control policy (Sistema etico San Paolo, based on catholic-inspired criteria). Still, information about these products is poor, and this makes the use of the term “ethic” scarcely clear.
On the other hand, Ethic Bank launched rigorously ethic funds - “Valori Responsabili” by Etica Sgr. These funds, according to the research published in Rome on January 22, 2003 during the Convention “Etica senza retorica” (unrhetorical Ethics), have been ranked the best Italian Funds for chosen responsibility criteria, information width, and asset monitoring.

5) Italy’s regulation of ethic finance. No specific indication by law. Status and perspectives

Presently, there is no regulation in Italy regarding ethic finance.
Italy’s law sees no diference between traditional and ethnic finance, as well as between Ethic Funds and Charity Funds.
A short step was taken thanks to d.lgs. 460/97, promoted by professor Stefano Zamagni. This legislative decree, disciplining ONLUS (Organizzazioni Non Lucrative di Utilità Sociale = Non-profit organisations of social utility) lays fiscal advantages for promoting and financing social utilities. As for ethic finance, the only specific reference thereto is in art. 29 – this reads that the gap between market rates and real ones can be saved in taxes, provided collected funds are directed to ONLUS through solidarity products.
More, an Act draft has been presented to the Senate (# 2588), regarding bank foundations and ethic finance, its definition, its sector of intervention, the juridical form of its operators, their transparency, the creation of a public Observatory for it.
Recently, a motion about Ethic Finance was passed by the Forth Commission of Italy’s lower House of Parliament. This motion purposes to the Cabinet:
- to aid the diffusion of ethic finance, as a possible further development tool;
- to acknowledge the importance of the initiatives in ethic finance for economic and social inclusion policies;
- to encourage similarly the action of the operators of ethic finance;
- to cultivate public opinion about experiences in ethic finance, as a means for struggle against poverty;
The importance of this parliamentary initiative is clear – for the first time, the social value of policies conciliating finance and human development is acknowledged, as well as a need for clarifying what is meant by ethic finance.
A wide-ranged legislative intervention is needed, such as a sector act to define goals, sectors of interventions, transparency obligations, mixed management, ethic and economic supervision for strategic choices, a specific section of the National Bank, a favourable fiscal policy.
More, we believe that the only way to acknowledge the public role played by ethic finance is to put it in actual conditions to compete with traditional finance, by filling the actual fiscal and legislative gaps between the two spheres, aiding the territorial presence and pushing traditional banks to investments in tangible goods.