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The role of charitable bonds in good corporate social responsibility

Corporate responsibility can mean many things to many people. For me, it covers the entire gamut from satisfying basic legal requirements today, to investing in long-term strategies that will protect the planet for future generations.

It becomes something more in a family concern like the one I work for, so I am really pleased to have found a business that has for many years worked on the idea of creating a long-term legacy in the areas in which it operates. We are giving something back, thinking deeper and wider about our contribution to society and the environment. It has really sunk deep into our culture and helped define how we are different as an organisation.

As FD, it was great to play a central part in the business’ decision to support two East London charities, Bromley-by-Bow Centre and Community Links, by investing £1m in a charitable bond as part of our corporate responsibility strategy.

Charitable bonds, issued in our case by the charity Citylife, seemed to me a unique and clever way of applying cash on deposit to release funds for social causes. About 20 percent of the bond value goes out immediately as grant funding and the rest is loaned to develop affordable housing. It is the repayment of this loan, plus interest over five years, that enables investors to receive their money back in full.

Citylife has a 10-year track record of successfully issuing and repaying such bonds, which help inject much-needed capital into the social and economic regeneration of places like Sheffield, Newcastle and now, in its latest campaign, East London. The opportunity cost to the company of investing in a zero-interest bond will be met annually from our corporate responsibility budget, while the value the charities receive will be much greater than the cost to us.

The decision to make an investment for charity, rather than going down the standard route of a cash donation, required some new thinking from us all. But we recognised that the charitable bond mechanism was an opportunity to maximise the social impact of our money. Citylife, as a lender, gains an arbitrage on the money loaned for social housing – and as a charity it can release the entire grant funding up front, receive interest on the loan and redeem the principle to the bondholder, all without any tax liability. The risk profile is good too – the borrower is Moody’s Aa rated – and the whole facility is held under trust for the recourse of bondholders.

Through the East London Bond and the support it provides for organisations working to make a difference in some of the most deprived communities in England, we can support those hit hardest by the tough economic conditions. And I like the fact that the investment will help to underpin a lasting social legacy from regeneration activity coming from the Olympic Games and other efforts in the area.

Along the way, there are important choices we continue to make to ensure we get the right balance between financial sensibility and philanthropy. We helped more than 200 people back into work as part of our Building Futures programme, connecting our skills to those who need to boost theirs, helping communities to develop their own innovative solutions to tackle local issues and contributing to a low-carbon Britain. All these initiatives bear a cost, but these commitments have helped to boost staff morale, strengthen our brand reputation and made it an easier choice for clients and stakeholders to partner with us. It makes business sense.

Organising the bond was a novel way of living our corporate responsibility. It has made it easy for us to invest in an excellent cause by way of a proven, effective mechanism. As Citylife rolls out bonds for a wider array of charities, I expect we will see more corporates, big and small, recognising the benefits of giving back to the community in this way.

Huw Davies is CFO of Wates Group, the privately-owned building group

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