Ethical, Sustainable and Values-Based Banks

Existing Financial Alternatives (2 of 4)

In parallel to the adoption of SRI by commercial banks and wealth managers, another phenomenon took place: the emergence of alternative financial institutions such as ethical banks (EBs). Differing from mainstream banks, which are investing in ethical funds whilst keeping their traditional banking purpose and practices, EBs have “ethical and sustainable developments at the core of their mission, ambitions and practices” (De Clerck, 2009:209). Whilst a number of authors, and mainly the media, often refer to them as a response to the 2008 financial crisis, others define EBs as a “countermovement” to the financialization of the economy, emerging as early as the 1970s and 1980s. The grounds for such argument are EBs’ orientation towards creating and sustaining social value, therefore seeking to re-root economic activity as part of the Social. Research conducted for this paper has found, however, great ambiguity in terminology. In this sense, players formerly identified with the term ethical bank have now started to call themselves ‘sustainable banks’ or ‘values-based banks’ instead. Hence, I believe it is widely accepted to use these terms interchangeably.

Founded in 1980, Triodos Bank is one of the first and the largest ethical banks in the world, with offices in the Netherlands, Brussels, England, Spain and Germany. Totalling EUR 15.5 billion in assets under management in 2018, it has over 700,000 customers across Europe and has supported more than 5,700 businesses in the real economy, benefiting people and the environment through renewable energy, organic farming, social housing, education, and more. From offering dedicated savings products and a few specific investment funds, Triodos is now slowly integrating other products and services such as debit and credit cards, Internet banking, and residential sustainable mortgages. As an illustration of ethical principles applied inside the organisation itself, the ratio between the highest full-time salary to the lowest must be lower than 10.

Despite its impressive expansion, Triodos is not yet able to compete with the big banks. Facing challenges and limitations imposed by governments and regulators, Triodos and sustainable banks alike are constantly joining forces to increase advocacy and peer-collaboration through the creation of networks. The Global Alliance for Banking on Values (GABV) is the most recent one of these and, since 2009, has been gathering banking leaders from around the world committed to advancing positive change in the banking sector. Their shared mission is:

“To use finance to deliver sustainable economic, social and environmental development, with a focus on helping individuals fulfil their potential and build stronger communities. We deliver our work by upholding to the 6 Principles of Values-based Banking: Triple Bottom Line Approach, Real Economy, Client-Centred, Long Term Resiliency, Transparency, and Culture”.

As of May this year, GABV is comprised of 55 financial institutions across the world, collectively serving more than 50 million customers and holding up to USD 197.6 billion of combined assets under management. Not exclusive to banks, membership is open to all regulated financial institutions that have business models consistent with GABV principles. Hence, members of the network also include credit unions, community banks, sustainable banks and microfinance banks in emerging markets, all of which support social, environmental and cultural enterprises.

The growth in numbers and reputation of GABV mirrors the increase of awareness and relevance around the theme of banking on values. On top of inspiring trust, cultivating transparency and putting finance in service of people and planet, sustainable banks are making sure to explain that banking responsibly does not mean compromising returns, after all, sustainable profitability is imbued in their principles. In fact, a 2012 study commissioned by GABV and the Rockefeller Foundation revealed that sustainable banks have comparable or even better Returns on Assets and Returns on Equity than some of the world’s largest and most influential banks. Moreover, the returns were also found less volatile.

In summary, ethical, sustainable and values-based banking constitute a flagship movement for alternative forms of banking and investing. By fighting the idea of financialization of banks, they propose the allocation of money in the real economy, guaranteeing that it helps individuals fulfil their potential, building stronger communities. Moreover, they propose a shift from maximising shareholder profits — the main driver of commercial banks — to first and foremost guaranteeing stakeholder value. Joan Antoni Melé (2017:123) concludes that, by using such institutions, “we turn our savings into instruments of social transformation”.

References used for this article:

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