What does 2015 hold for ethical finance?

As we enter 2015, we speak to a number of experts from within the ethical finance sector to find out what’s important this year and how these issues will affect co-operatives …

Ian Rothwell, development manager, Co-operative and Community Finance:

Many of the social lenders and ethical banks are having to scale up their operations for reasons of sustainability. Their capital and operational costs, together with the risk of capital loss, means the due process and administration for loans below a certain level is not commercially viable.

This level will vary from lender to lender, but in 2015 the choice of lender to a co-op will be very limited. Any co-op or social enterprise looking for a loan below £75,000 to £100,000 will face a challenge – not having a track record or sufficient security will add to that challenge. Co-operative and Community Finance is bucking the trend – we cover the whole of mainland UK and NI and offer flexible loans from £10,000 to £200,000.

In addition, very few lenders will consider lending to start-ups. The Co-operative Loan Fund, financed by the retail societies, can provide loan finance from £10,000–£85,000 to both new and existing co-ops without the need for personal security. 2014 was a busy year for the fund and demand will continue.Community shares are becoming more popular as a way to finance individual projects, such as saving the local pub or developing a renewable energy scheme.

We have seen a considerable growth in the demand from our Community Shares Fund in 2014 and we expect this to continue into next year. We will be looking at raising further finance for the fund and considering other innovative ways that we can support societies undertaking a community share issue.

Peter Kelly, business development and marketing director at Unity Trust Bank:

Promoting and protecting the diversity of the social economy must become a key focus for our sector in 2015. The more diverse the economy, the more it will be geared up to delivering positive benefits for those who contribute to it.

That’s why Unity supports a portfolio of innovative and perhaps ‘unconventional’ social businesses, all part of a powerful ecosystem that is driven and measured by values other than just profit. In an era in which businesses are increasingly judged on their values, co-ops – with their participatory frameworks in place – have great potential to secure a competitive advantage within the social economy.

As we look to the future and work towards becoming an independent bank, our co-operative values remain as strong as ever. Our close affiliation with the co-operative movement – sharing its values of working for the benefit of communities – is why we’re keen to support their development with sustainable banking services and finance that meets local needs and enables social change.

We offer finance in three main areas: community finance, community living and community cohesion. Our co-operative customers include credit unions, housing providers such as Bomarsund Co-operative Housing Association, and community development co-operatives such as Norton Community Pub and the supporters trust that owns FC United of Manchester. All these are examples of an ecosystem that continues to innovate, develop, grow and support itself.

It is this values-led ecosystem that sees Unity pay its staff the living wage and why we urge the banking industry to do more to provide affordable finance to businesses and individuals in underserved areas. We will continue to build on this in 2015.

However, the more we demonstrate our collective impact, the more we will all thrive. That’s why we need more co-ops following the lead of Midcounties Co-operative and the Phone Co-op, who alongside us became pioneers of the Fair Tax Mark.

Participation is crucial for any organisation looking to build shared value with its stakeholders, be they members, customers, staff or investors. The more we work together, the more the social economy – with co-ops at its core – can not only survive but flourish.

Anna Laycock, ethics and external affairs Manager, Ecology Building Society:

A disinterested observer might have called 2014 another interesting year for mutual and ethical finance. Those of us working at the heart of the movement would be more likely to say an emotional roller coaster. As the difficulties of the Co-operative Bank continue to hit the headlines – most recently failing the Bank of England’s test of its ability withstand another crisis – we’ve seen both vehement criticism of the concept of ethical finance and an upsurge in support for the organisations that put it into practice.

That bumpy ride is likely to continue this year, as the battle for the economic narrative intensifies around the general election.

Increasing public unrest over the apparent impunity of large corporations, including the big banks, may create space for the co-operative movement to promote the alternative: democratically owned businesses financed by socially driven investment. The two are more powerful together, creating a cycle of positive impact.

Whatever political and economic change 2015 brings, the regulatory environment is sure to play a major part in shaping ethical and co-operative finance over the year. We await the result of the Financial Conduct Authority’s consultation on the registration of co-operative and community benefit societies, while its consultation on the issuance of building society capital instruments to retail (i.e. ordinary) investors closes at the end of January. For Ecology, the latter is hugely important: the principles of democracy and fairness require that our own members should be able to invest in the capital of their society.

Both of these consultations hinge on a critical issue for the future of finance. Can our regulators acknowledge that people may invest in a co-operative society, building society or any other project on the basis of non-financial motivations? Can the rulebook reflect the fact that some people care about long-term social and environmental impact more than short-term profit? Without this, how can we regulate for a financial system that works for people and planet? 2015 may be the year we discover the answer.