May 23, 2017

Corporates & Venture Philanthropy : A Discussion with Steven Serneels

Discussion with Steven Serneels,  Impact Investor SI2 Fund, EVPA board member, and Chairman of the EVPA Corporate Task Group

Picture Steven Serneels 2

As the initiator of the EVPA Corporate Initiative, why do you believe that corporates should pursue venture philanthropy and social investment? 

I will make, arguably, a controversial statement to start with: I am not convinced the corporation itself should pursue venture philanthropy or social investment. At EVPA, we define Venture philanthropy (VP) as taking a hands-on and long term approach to supporting social purpose organisations through tailored financing (grant, debt, equity), non-financial support and impact management. Social investment is when this approach creates financial returns alongside societal impact. With regard to corporates, I therefore make a distinction between the corporation and what we call ‘corporate social impact vehicles’. The latter being corporate-related entities having a clear social mission such as corporate foundations, corporate social impact funds and corporate social incubators/accelerators. Those vehicles are about ‘social impact first’, or even ‘social impact only’. In my opinion, for-profit corporations should remain ‘finance-first’. Which is not to say that corporations cannot improve in terms of responsible business practices. 

I think corporate social impact vehicles do have a unique role to play in today’s corporate landscape, where ‘sustainability’ becomes more then ever a ‘must-have’. Reality, however, often proves difficult. When dealing with board members and executives, I notice that as fathers, sons or citizens, they all want to create value for society. They are genuinely concerned about the future of their children, their parents growing older, etc. But something strange happens when they step back into their office as executive or shareholder—they suddenly have a different, often commercial-and finance-only view. Turning societal challenges into business opportunities is still a novel and risky idea. Most corporations are still dealing with company-centric structures, classic ‘finance-only’ KPIs, short term incentives, etc. Furthermore, competition sometimes hijacks the sustainability debate, pushing the early adopters back to finance-only shortermism. In this tough environment only few companies, often led by enlighted leaders that have already embraced this new paradigm and who have engrained this thinking into their DNA, are succeeding in adopting strategies where both economic and societal value are created simultaneously.

I believe that this is where dedicated corporate social impact vehicles, such as foundations, accelerators, incubators or corporate impact venturing funds can play a role. Such vehicles, practicing venture philanthropy and social investment, can create a credible, and rather ‘safe’ in-between zone that is close to the corporation and its business, yet unaffected by its daily operations and short term profit motive. In other words, it allows them to pursue and experiment societal value creation without necessarily getting disconnected from long term business objectives. Another consideration is that corporations will never understand the social challenges as well as social players, nor have the patience or seed money to address them. They are very familiar with the societal megatrends, but often cannot make the long term effort, nor are they close enough to the beneficiaries to really understand the stakes at a micro level. They need the knowledge of social purpose organisations on the ground and the capacity-building power of venture philanthropy players to co-create relevant societal solutions. The failures I’ve seen often happen when corporations try to address societal challenges just by themselves. The reverse is true as well, social players must recognise corporations as key partners and not only funders in order to achieve societal impact at scale. Corporate social impact vehicles are in that unique spot to bridge the gap between the corporate, for-profit world, and the social impact world, acting as intermediary vehicles exploring social-business innovations, relevant for both business and society.

Are you optimistic about the way corporations are currently approaching societal issues? And are corporate social impact vehicles ready to play that bridging role you’re referring to?

I see myself as a realist, which means that I don’t see corporations moving there just by themselves. But I am optimistic because there is a window of opportunity.  

I often tell executives they should understand the benefits of ‘self- interested altruism’. Corporates are an integral part of society. It has been proven, even highlithed by the IMF, that when the divide between people who feel left behind and those who benefit from economic development becomes too big, economies are hampered. It’s a fallacy to think that the trickle-down economy—Reagan- and Thatcher-style economics—works. If society crumbles, economic prosperity declines and business outlook deteriorates. But it is not only because citizens become more vocal and consumers more critical, that corporations should step forward and engage. More and more companies moving from a risk mitigation position to a value-creation strategy show that societal challenges truly provide business opportunities: inclusive finance, affordable housing, access to healthcare, renewable energy and many more. Over the next five years, if corporations don’t fundamentally rethink—not just tweak—their business models in light of current societal challenges, they will miss the boat. Or even disappear. 

I think it will take 10 more years before it becomes mainstream. But more and more corporations are leaving the ‘why should we do this’ question behind, and focusing on ‘how should we do it’. They start to be aware that they can’t realise the full benefit just from within. Some of them are actively exploring and testing a whole portfolio of complementary strategies where internal sustainability efforts are considered next to the benefits of setting up corporate impact funds or linked with the activities of the corporate foundation. It is very hopeful to see how an increasing number of corporate foundations, a market estimated in Europe between 15 and 20 billion euros of assets under management and investing yearly 3 to 4 billion euros, are moving away from traditional grant making to exploring the benefits of the VP toolkit, sometimes even testing the waters of impact investing and hybrid finance. This again narrows the gap between the business and social world, fostering this much needed collaboration. Strategies and speed will vary according to industry, region and other factors, but each company will find it’s own way to get there and put together the right building blocks.

What is your ambition for the EVPA Corporate Initiative?

Providing scalable solutions to societal challenges is ‘the name of the game’. Collaboration between the corporate, for-profit world, and the social world is one of the crucial levers. Much more hybrid capital and joined capacity of both worlds need to be unlocked to successfully address the SDGs. As a neutral convener and expert in venture philanthropy and social investment, EVPA gathers more than 220 venture philanthropy organisations in Europe, of which about 40 are ‘corporate-related’. This puts EVPA in a unique position to address this challenge and take the lead as there is no concerted effort yet in this space. 

We are bringing together our corporate-related members in search of the most effective ways to maximise societal impact with the aim to share best practices, learn from failures, and get inspired by advanced practitioners. We’ll explore how they can better unlock and leverage corporate assets such as staff, technology, etc. to deliver even greater societal impact. But we will also link them actively with other EVPA members, sharing experience and offering opportunities for collaboration. As representatives of the VP/SI space, we will also reach out to like-minded, corporate networks that further the corporate sustainability agenda from a corporate ‘finance-first’ perspective. Personally, I would be delighted if we can turn this initiative into a thriving community of ‘bridge-builders’, leveraging the power of corporates, VP/SI players and social purpose organsiations, thus enabling the development of societal solutions at scale.

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