As Investing for Good merges with Charity Bank, Caroline Mason describes her conversion from career banker to champion of social investment
Superheroes sparked Caroline Mason’s conversion from career banker to champion of social investment. As the chief operating officer of Charity Bank, she now spends her time convincing people to put their money to good use, whether it is investing in Latin American farm co-operatives or funding vaccines in developing countries.
But five years ago, she was sitting in the flashy New York office of the managing director of a global finance company, 18 years into her life in banking, having an all too familiar meeting about making rich people richer.
As they talked, Mason’s attention turned to the collection of superhero figures displayed around the MD’s room, and the uncomfortable thought that she was stuck in an industry gripped by a “masters of the universe” complex.
“It was all symptomatic of someone who was paid obscene amounts of money for doing something really quite basic, which was pretty useless in terms of the general lives of most people. He was just an average guy. He was probably in the top 0.1% of earners globally and I remember thinking: ‘This is out of control’,” she says.
It was two years before the credit crunch would lay bare the failings of a sector increasingly oblivious to risk. Yet Mason says it was already apparent that banking was headed for disaster. After all, it had mutated from the simple purpose of supplying funding to businesses – what she likes to call a “utility” – to an industry obsessed with profit maximisation.
“It was really clear at the time how being in finance had changed. All the stories you hear about the excesses and the culture are actually true,” she says.
“The rest of my life was pretty much aligned with my values and I realised what I spent a large number of hours doing was disconnected [from them]. All the time I was thinking, how do I extricate myself?”
When Mason realised her friend and fellow banker Geoff Burnand was feeling the same unease, they got together to found Investing for Good in 2005. It has gone from a backroom business to advising on £25m of investments, sealing partnerships with the likes of Standard Chartered, and this year merging with Charity Bank, which has pioneered lending to charities and social enterprises.
Beyond philanthropy
The venture started out with the basic premise that “ordinary people generally would like to see their money put to good use”.
It was a time when figures such as Scottish tycoon Tom Hunter were hitting the headlines by giving away millions, and so the Investing for Good founders first looked into offering their financial know-how to philanthropists. But they soon realised philanthropy did not fit with their fundamental goal of helping social and environmental causes along the way.
“This concept of making as much as you possibly can, irrespective of what it does, and then giving it away to try and give something back was a two-dimensional view of the world,” says Mason.
And so Investing for Good turned its attention to a new philosophy of building social and environmental benefits into investment. “Broadly, it’s about positive use of money as an investment rather than as a gift,” she explains.
The founders went about persuading banks and wealthy individuals to let them build up portfolios based around causes investors wanted to help. It was a decisive change from the “ethical” portfolios that many financial institutions were already offering.
“‘Ethical’ is a negative screen. So someone may not do arms but they may do child labour. They may not do child labour but they may be ripping up the planet. Whereas this is flipping that around and saying: ‘What is it that an organisation does?’” says Mason.
It is a “positive story”, she insists, but it was certainly not an easy one to tell in the early days. “Before the credit crunch it was a really hard slog.
“We are both very well connected. Opening doors wasn’t hard. But explaining there is an alternative is quite hard, especially for an industry that is totally processed and geared down one path, and that is profit-maximisation irrespective of the consequences. We had lots of conversations like ‘Well done, you. That sounds incredibly interesting. Do let us know how you get on.’”
After the crunch
The credit crunch changed everything. People were suddenly more open to social investments. It was a culture change that saw institutions take up Investing for Good’s services and bankers flood Mason’s inbox with requests to do pro bono work.
Her main business is helping big financial names offer social investment products to their clients, usually with returns between 3% and 5%.
Investing for Good is currently talking to Coutts and already has partnerships with Kleinwort Benson and the Rockefeller Foundation. It also advises high net worth investors directly, typically senior City people.
Along the way, the group has developed a complex model for rating the impacts of various investments. “If you are saying to an investor you are investing on the basis of impact, this is a differentiator,” Mason points out, “you’ve got to have a way of showing that that is what is being delivered.”
So the traditional benchmarks of risk and return are expanded to take in “impact”, which Investing for Good rates using 120 criteria. It helps Mason and her colleagues pick who to go with and lets investors choose between recipients. One of the personal favourites for Brazil-born Mason is an organisation called Root Capital that works in Latin America funding sustainable agriculture – something she says has both social and environmental benefits. It gives communities alternatives to illegal logging, helps people start paying taxes, and funds hospitals and schools.
Merger with Charity Bank
As the merger with Charity Bank is completed this month, Investing for Good is looking to devise sector funds for investors who would like to put money into one area, such as healthcare, for example. It also wants to use its improved clout to create products such as charity bonds to help organisations develop new ways of tapping into financial markets.
The tie-up, says Mason, came after several years working together and at a point when both groups were ready to grow. Market conditions felt right, too. She is confident that demand will grow and make a difference.
“In the UK alone you have about £3.5 trillion invested and almost £3tn more in deposits, cash. Broadly, all of that money is invested without any consideration of what it is actually doing when it hits the ground, what it is actually financing and the consequences of that,” she says. “If we are talking about just 1% of that, can you imagine?”
Ultimately, she wants Investing for Good to become redundant. Rather than have a separate institution that offers “impact” as an investment criteria, Mason wants impact to be a core measure alongside risk and return in every investment case.
“Surely the function of finance and banking is to finance things for the benefit of society. It’s not a thing in itself. When did money become a thing in itself? Surely, it’s just a mechanism and that’s what banking and finance used to be about,” she says.
But with mega-bonuses returning, a new wave of merger mania and signs of a fresh appetite for risk, will banking ever really change? Mason is optimistic: “I have to believe that it will. I think we all have to believe that it will.”
