What is Sustainable Banking and How to Find Genuinely Sustainable Banks
Your bank is probably slowly implementing sustainable measures. However, to find truly sustainable banks, it is necessary to investigate which industries a bank is lending to, and the type of projects that it is financing through cash deposits.
Banks play a crucial role in financing economic activity and facilitating investment flows. However, most banks do not consider the impact they have on society and the environment when making strategic decisions. Profit is king in the banking industry. To be considered sustainable, a bank needs to look beyond its balance sheet and be more critical when issuing loans and financing sectors of the economy.
The banking industry has a long history of regulation and deregulation efforts with the intent to find the optimal balance between financial stability and economic freedom. Governments push for more regulation, demanding new industry standards such as minimum capital reserves, financial reporting and disclosure, credit ratings, and loan conditions. On the other side, banks push for less regulation arguing that it hinders innovation and competition in the banking industry.
From 1980 to 2000, several deregulation measures were implemented in the United States, allowing banks to expand their offerings, combining commercial banking, securities, and insurance services under the same company. This led to the increased complexity of financial services and products, including the creation of derivatives and the growth of hedge funds.
From 2000 to 2007 a large market consolidation and conglomeration took place, where large banks started acquiring smaller banks, combining financial services and products. The historical consequence of those overly complex financial products and large industry consolidation is well-known – the sub-prime mortgage crisis of 2007 and the consequent global financial crisis. This financial crisis was a clear indication of the lack of long-term sustainability in the banking industry and its direct impact on society.
After 2008 several regulatory initiatives took place at the regional level, with the US and the EU implementing new laws and establishing new regulatory bodies. However, only more than a decade after the crisis a global framework was launched. On 22 September 2019, the Principles for Responsible Banking (PRB) was launched at the UN General Assembly as part of the United Nations Environmental Programme.
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What is responsible or sustainable banking?
Principles for Responsible Banking is a framework for banks and it aims to help the banking industry to demonstrate if and how banks are making a positive contribution to society. The framework goals is to align banking practices with the UN Sustainable Development Goals.
The initiative attracted 197 signatories with total combined assets of USD 90 trillion. The framework is based on six principles that embed sustainability at the strategic, portfolio, and transactional levels, and across all business areas:
- Alignment: We will align our business strategy to be consistent with and contribute to individuals’ needs and society’s goals, as expressed in the Sustainable Development Goals, the Paris Climate Agreement, and relevant national and regional frameworks.
- Impact & Target Setting: We will continuously increase our positive impacts while reducing the negative impacts on, and managing the risks to, people and the environment resulting from our activities, products, and services. To this end, we will set and publish targets where we can have the most significant impacts.
- Clients & Customers: We will work responsibly with our clients and our customers to encourage sustainable practices and enable economic activities that create shared prosperity for current and future generations.
- Stakeholders: We will proactively and responsibly consult, engage and partner with relevant stakeholders to achieve society’s goals.
- Governance & Culture: We will implement our commitment to these Principles through effective governance and a culture of responsible banking.
- Transparency & Accountability: We will periodically review our individual and collective implementation of these Principles and be transparent about and accountable for our positive and negative impacts and our contribution to society’s goals.
However, critics argue that due to its voluntary nature and long timeframe for implementation of commitments, the Principle for Responsible Banking does not put enough pressure on the signatories to create real change in the banking industry.
The World Resource Institute has a good tool to track sustainable finance commitments that were made by banks as part of the Principles for Responsible Banking. According to WRI, banks are not doing well on their sustainable finance commitments.
Out of the 50 largest banks that have made commitments on targets amount to finance sustainable activities, only 50% of the banks have made specific, accountable, and sizeable commitments. And out of those, only seven have annualized sustainable commitments larger than their respective average annual fossil fuel finance. Those banks are Bank of Montreal, Barclays, Société Générale, Banco Bilbao Vizcaya Argentina, Standard Chartered, National Australian Bank, and Westpac Banking.
The Principles for Responsible Banking are a valid initiative to push banks to adapt their strategy and operational practices towards the Sustainable Development Goals. However, it focuses on banks that seek to transition into sustainable banking, a transition that, if depended on the goodwill of bankers, might be excessively long. PRB does not stop banks from financing fossil fuels and other activities that negatively impact society, nor the creation of complex financial products detached from the real economy.
Which banks are genuinely sustainable?
Founded in 2009, the Global Alliance for Banking on Values (GABV) is a network of 62 banks with a shared mission:
“to use finance to deliver sustainable economic, social, and environmental development, with a focus on helping individuals fulfill their potential and build stronger communities.”Global Alliance for Banking on Values
The Global Alliance for Banking on Values (GABV) acknowledges the Principles for Responsible Banking (PBR) and its relevance for the industry. However, GABV goes one step further into sustainability by utilizing a Scorecard to access and monitor the banks’ progress on delivering value-based banking. The Scorecard focuses on the positive contribution that the banks can make when being active in the real economy and providing a triple-bottom-line of positive social, environmental, and economic impact.
There are 5+1 principles behind the GABV:
- Triple bottom line approach: Values-based banks integrate this approach by focusing simultaneously on people, planet, and prosperity. Products and services are designed and developed to meet the needs of people and safeguard the environment. Generating a reasonable profit is recognized as an essential requirement of values-based banking but is not a stand-alone objective. Importantly, values-based banks embrace an intentional approach to triple-bottom-line business – they don’t just avoid harming, they actively use finance to do good.
- Real economy: Grounded in communities, serving the real economy, and enabling new business models to meet the needs of both. Values-based banks serve the communities in which they work. They meet the financial needs of these geographic and sector-based communities by financing enterprises and individuals in productive and sustainable economies.
- Client-centered: Long-term relationships with clients and a direct understanding of their economic activities and the risks involved. Values-based banks establish strong relationships with their clients and are directly involved in understanding and analyzing their economic activities and assisting them to become more values-based themselves. Proper risk analysis is used at product origination so that indirect risk management tools are neither adopted as a substitute for fundamental analysis nor traded for their own sake.
- Long Term Resiliency: Long-term, self-sustaining, and resilient to outside disruptions. Values-based banks adopt a long-term perspective to make sure they can maintain their operations and be resilient in the face of external disruptions. At the same time, they recognize that no bank, or its clients, is entirely immune to such disruptions.
- Transparency: Transparent and inclusive governance. Values-based banks maintain a high degree of transparency and inclusiveness in governance and reporting. In this context, inclusiveness means an active relationship with a bank’s extended stakeholder community, and not only its shareholders or management.
- Culture: All of these principles are embedded in the culture of the bank. Values-based banks seek to embed these principles in the culture of their institutions so that they are routinely used in decision-making at all levels. Recognizing that the process of embedding these values requires deliberate effort, these banks develop human resources policies that reflect their values-based approach (including innovative incentive and evaluation systems for staff) and develop stakeholder-oriented practices to encourage values-based business models. These banks also have specific reporting frameworks to demonstrate their financial and non- financial impact.
List of sustainable banks members of GABV
The Global Alliance for Banking on Values has 62 members from 38 countries, which have total combined assets of USD 155 billion.
|Bank||Country||Total Assets (million USD)|
|Teachers Mutual Bank||Australia||5,500|
|Bank of Palestine||Palestine||4,657|
|DAI-ICHI KANGYO Credit Cooperative||Japan||3,668|
|National Cooperative Bank||USA||2,379|
|Alternative Bank Switzerland||Switzerland||1,830|
|Beneficial State Bank||USA||1,013|
|NMB Bank Limited||Nepal||945|
|Kindred Credit Union||Canada||914|
|Caissed’ économiesolidaire Desjardins||Canada||780|
|VSECU (Vermont State Employees Credit Union)||USA||778|
|ESAF Small Finance Bank||India||635|
|Merkur Resource Bank||Denmark||554|
|Banco Mundo Mujer||Colombia||538|
|Clearwater Credit Union||USA||524|
|Decorah Bank and Trust Co.||USA||500|
|Muktinath Bikas Bank Ltd.||Nepal||418|
|City First Bank of DC||USA||366|
|Freie Gemeinschaftsbank Genossenschaft||Switzerland||289|
|CARD Bank, Inc.||Philippines||288|
|Charity Bank||United Kingdom||247|
|Ecology Building Society||United Kingdom||226|
|LAPO Microfinance Bank||Nigeria||189|
|The First Microfinance Bank Afghanistan||Afghanistan||167|
|North East Small Finance Bank||India||165|
|Grooming Microfinance Bank||Nigeria||152|
|SAC Apoyo Integral, S.A.||El Salvador||143|
|Cooperative Bank of Karditsa (CBK)||Greece||120|
|The First Microfinance Bank Tajikistan||Tajikistan||75|
|Opportunity Savings and Loans||Ghana||48|
|Banco Ademi||Dominican Republic||NA|
|Banco de Antigua||Guatemala||NA|
A brief review of selected sustainable banks
Below we have a summary of the largest 6 sustainable banks that are part of the Global Alliance for Banking on Values:
Background: the oldest on the list, Crédit Coopératif was founded in the 19th century by a group of co-operators. Since then it has been focusing on providing banking services for co-operatives, mutual organizations, small businesses, trade associations, and work committees.
Offerings: accounts, methods of payment, cash-flow management, processing of international transactions, insurance, savings, and investments.
Impact: socially responsible financial products aim to facilitate access to credit and finance to individuals, SMEs, and NGOs.
Background: Vancity was founded in 1946 by 14 people in Vancouver, who were willing to create an open credit union, allowing any resident of the city to join. It was the first financial institution to offer mortgages on properties for the working-class in East End Vancouver and to women without a male co-signor.
Offerings: flexible accounts, deposits, lending products, and investments.
Impact: Vancity bank is committed to the triple bottom line, basing its principles on a balance of economic, social, and environmental success.
Residents of British Columbia who are not members of a credit union will get $200 when opening a new account at Vancity and setting up a recurring payment within 12 weeks of registering.
Background: Triodos Bank was launched in 1980 in The Netherlands, as the results of the “positive direct investment” concept, created by a small group of professionals in 1968. Focusing on the green, ethical, social, and cultural oriented investment funds, it later expanded operations to Spain, Belgium, United Kingdom, and Germany.
Offerings: payment services, debit and credit cards, internet banking, investment and private banking services as well as mortgages.
Impact: on the business lending sidei, Triodos focuses in the environment sectors (e.g. organic agriculture, wholesale, health food stores, and renewable energy), social business (e.g. housing associations to social economy projects), culture and society (e.g. arts and education), fair trade, and microfinance. Triodos missions is not only to be a sustainable service provider and a product innovator but also to be an opinion leader and to change finance by influencing the banking sector at a national and global level. Triodos’ CEO, Peter Blom is Chair of the Global Alliance for Banking on Values.
When Triodos’ customers recommend friends, Triodos will donate £25 to a charity on behalf of the account holder and send a £60 voucher to the referred friend when they open a current account.
Background: the first social and ecological bank in Germany, GLS Bank was founded in 1974. Its initial focus was on ecologic, social, and cultural projects, including education and organic farming.
Offerings: current accounts and financial investments to asset management, financings, shareholdings, and foundation consultancy services.
Impact: GLS Bank offers loans to independent schools and kindergartens, organic farms, organic food-stores, institutions using therapeutic pedagogy, and others.
Background: a leading Australian mutual fund, Teachers Mutual Fund was founded in 1966 by teachers, originally as a teacher’s credit union. In 2012 it became a mutual fund, allowing the creation of better products and services, becoming an industry leader in customer service and ethical banking.
Offerings: traditional retail products, including transaction accounts, savings accounts, term deposits, home loans, personal loans, personal overdrafts, credit cards.
Impact: as a customer-owned bank, Teachers Mutual Fund is recognized as one of the world’s most ethical companies. It is carbon neutral, do not issue loans to the fossil fuel industry and reinvest profits into the education.
When Teachers Mutual Fund’s customers recommend friends, both parties will get $50 when the referred friend opens an account and deposit at least $250.
Background: founded in 1923 by Amalgamated Clothing Workers of America to provide financial services to the excluded working class. Its free savings and checking accounts and unsecured credit products led Amalgamated to become the preferred option for progressive companies and individuals. Highly active in the social area, the bank advocated for paid sick leave and a higher minimum wage. It also uses its branches to register people to vote. Amalgamated Bank is now the largest union-owned bank in the United States.
Offerings: offers mission drive-products and services, including no-fee checking accounts; checking and savings accounts for customers that have had financial challenges in the past; a donation program to progressive causes; a special mortgage program with low down payments, adjustable rates, and lower costs; special financial solutions for unions, political campaigns, and NGOs; investment and retirement services that are carbon-free, tobacco-free, and environmentally responsible.
Impact: main issues addressed by the bank are climate change and sustainability, immigrant rights, LGBTQ rights, criminal justice policing and prisons, workers’ rights, gun safety, and reproductive rights.
Should you open an account with sustainable banks?
Along with the increased global awareness about the climate crisis and the more recent trend towards ESG and sustainable investing, individuals should consider moving their cash accounts into banks that have sustainability as their core mission. The short but diverse list from the Global Alliance for Banking on Values has enough global presence for customers – at least in the 38 listed countries – to find a regional alternative to traditional banks.
The banks’ part of GABV offer mainly basic financial products and services, such as checking and savings accounts, personal loans, and credit cards. They should not be used as a primary source for investments. The sustainable banks that are part of GABV have relatively high investment management fees (>1.0%) and limited investing options.
Vancity, Triodos, and Amalgamated are an exception to this rule, bring a variety of investment products. Customers of Vancity and Amalgamated can invest in stocks, mutual funds, and other fixed-income financial products. Triodos offers comprehensive investment options, adding impact investing, crowdfunding, microfinance, and green bonds to the list.
The 197 banks that signed the Principles of Responsible Banking have total combined assets of USD 90 trillion, while the 62 banks members of the Global Alliance for Banking on Value amount to only USD 155 billion in assets. This is roughly 580 times smaller, or only 0.13% of the total banking industry.
This indicates that despite continuous efforts to make banking a more sustainable business, there is still a long way to go. The largest banks are still to join a truly sustainable agenda, with effective and short-term measures to change the future of banking.
For individual customers with basic banking needs, there are good options among the sustainable banks that are part of the Global Alliance for Banking on Values.
Individual bank customers that prefer to keep their accounts with larger banks, should keep an eye on which type of businesses are being financed through the customer’s deposits. Monitoring the updates on the Green Targets list from the World Resource Institute is a good way to start.
Not an investment advice: The information provided on this website is intended for general information purposes only and does not constitute investment advice, financial advice, trading advice, or any other sort of advice. You should conduct your due diligence and, if necessary, consult a qualified independent financial advisor before making any investment decisions.
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