Karl Harder, Abundance Investment
It is a measure of the strangeness of the times we are in that when the ex-Governor of the Bank of England, Dr Mark Carney, poses the question in his BBC Reith Lectures “how do we get what we value?” it provokes merely a ripple of surprise.
Carney, in his lectures, questioned the whole purpose and structure of the financial system, a system for which he was one of the senior governors and architects for the last 15 years. He posed the question in the context of the three big crises – Credit (the Great financial crisis), Covid (our current crisis) and Climate (the coming crisis). He is asking whether we have a financial system which is fit for purpose, one which is built to support and strengthen our society not be seen as its nemesis. His conclusion was that it was too focused on measures of success that were narrowly defined in terms of money and too short term in its horizon to be of any use against these existential challenges. Finance needs to change was his conclusion.
What Carney was seeing at the macro level, we have all experienced at the micro level in our own communities. Local Government has been on the front line of the current Covid crisis. Communities have been stretched and strained by the demands of lockdown and the very real impact of the virus on lives and well-being. It has stretched local and national finances too and required new thinking about how finance works to support society.
If the crises have demonstrated one positive thing, however, something which Carney himself realised during the pandemic, as a nation for a while we were able to produce a huge surge of social capital alongside the financial support from government: a measure of our capacity for altruism not just economic calculation.
Which raises the question: can we create forms of finance which restore and create social value rather than undermine it? The answer from history, ancient and modern is clearly yes. At times of crises past, it has been innovations in finance that have helped rebuild society from versions of peer – to – peer lending in Ancient Athens, to the expansion of Building Societies at the start of the 20th Century, to the modern innovations of democratic finance such as crowdfunding and community shares and bonds in the 21st Century. Finance has constantly been reinvented to support and bind communities together in common purpose, rather than simply reduce us to anonymous individuals transacting and competing in markets.
The development of Community Municipal Investments, a platform created by Abundance Investment, in conjunction with the University of Leeds and with funding from the UK government’s Inclusive Economy Unit (Financing for Society), provides clear evidence of the potential for our current situation.
A Community Municipal Investment is a municipal bond issued by a council via a crowdfunding platform direct to its residents. Using the innovation of crowdfunding the issuance and administration of a municipal bond is simple and aims to emulate the ease of use and cost of traditional borrowing sources such as the Public Works Loan Board. The two £1m pilot bonds issued by West Berkshire and Warrington councils have successfully demonstrated the demand, but also highlighted how such investments can form a platform for engaging and encouraging residents to invest not just financial capital but social capital to speed up the recovery and increase the resilience of their community.
In the extensive research PCAN carried out with residents in both regions (and Leeds City) ahead of launching the bonds, it became clear that investors were prepared to go further than simply invest in green and socially useful projects backed by their council, they were willing to ‘give back’ some or all of their financial return on the bond to maximise the social value of their investment. Therefore, in the pilot bonds we have include an interest donation mechanism which enables people to donate their interest back to the council to further accelerate action on climate change within their communities.
Local Government was created to give communities control over how their infrastructure was built and to have a say in the decision making. It was local governments that invested in and built the things we take for granted in the modern world such as water supply, energy, health and even transport. Now we need to come together as communities and rebuild our worlds for the challenges of the present and the future. Finance innovations can play an important role in changing the nature of the political debate locally and encourage greater altruism, and thereby social resilience at the same time as promoting greater economic resilience.
If finance can be localised over the coming decade to better enable resident lenders – who value the social service it provides as well as financial return – councils and local communities might be more resilient when the next crisis hits.
This article is from our Local Path to Net Zero series.