Solidarity in Investment?
In this time of pandemic, when situations of great health, social and economic difficulties are emerging, we will have a better chance of escaping collectively by showing solidarity.
But what is solidarity really all about?
The Larousse dictionary tells us that it is "a relationship that exists between people who, having a community of interests, are linked to each other" or that it is "a feeling of moral duty towards other members of a group". This second precision probably corresponds best to our current experiences of solidarity: with the caregivers when we applaud them every evening at our windows and balconies, with our farmers when we prefer to buy their produce, with our elders when we stop to stay hello and check if they need something, or when we press « YES » on the debit/credit card terminal, when we are offered to round the price we pay and make a microdonation to an association.
With regard to investments, where the relationship is based above all on profit and return, how then can solidarity be integrated?
For more than 10 years now, solidarity finance has been developed in France, comprising two main product families.
The first includes investments that integrates a mechanism for sharing part or all of the return with a general interest organisation such as an association or a foundation. Some savings products provide for the donation to be made solely by the subscriber, while others provide for a symmetrical donation between the saver and the financial institution. The number of products in the latter category has grown significantly in recent years.
The other category of solidarity investments is that which invests in securities issued by players in the social and solidarity economy (SSE) in order to finance them. These are companies, cooperatives or associations whose activity pursues a dual objective of social or environmental performance on the one hand and financial performance on the other: for example, social land holdings managed by associations such as the Habitat & Humanisme movement or the Abbé Pierre foundation, or micro-credit organisations such as France Active. It is possible for an individual to subscribe directly to the financial securities issued by these companies. But be careful, these securities are illiquid, without any guarantee of capital or return. Moreover, these securities must correspond to the investor's profile, objectives and needs, while being aware of the risk of total or partial capital loss.
To reduce the risk of non-liquidity, while diversifying the players in the social and solidarity economy that one finances, one can invest in "90/10" solidarity UCIs (Undertakings for Collective Investment) offered by many institutions. They are named like that because 10% of the outstanding amount is invested in SSE players. The other 90 percent is invested in more liquid listed financial securities with varying levels of risk. It will be necessary to inquire about the overall risk level of the support to verify again that it corresponds to the investor's profile and objectives and its capacity to incur losses. The possibility of investing in solidarity-based UCIs is also offered in employee savings plans(1).
What is the link between solidarity investments and socially responsible investments?
Let us recall that socially responsible investment aims, by taking into account extra-financial criteria, to promote a more sustainable economy and development.
Solidarity-based investments belong to the category of responsible investments in two ways: firstly, because the integration of a donation, even if it is small in relation to the amount invested, or the fact of financing solidarity-based companies, contributes precisely to building a more sustainable society. And on the other hand because the management processes of sharing UCIs or 90/10 funds take into account extra-financial criteria specific to responsible management.
As you can see, solidarity is compatible with socially responsible investments! So when we have to make our next investment choice, why not discuss this possibility with our private banker?
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(1) Since 1 January 2010, in France, pursuant to the Law on modernisation of the economy (« Loi de modernisaton de l’économie » - LME), any company with an employee savings scheme must offer a solidarity company mutual fund (« Fonds Commun de placement d’entreprise solidaire » - FCPES) to its employees. The FCPES offer the possibility to invest in job creation, construction of social housing, environmental protection, while offering a certain profitability.