John Cassidy wrote in a recent article in the New Yorker, “When the banking system behaves the way it is supposed to…it is akin to a power utility, distributing money (power) to where it is needed and keeping an account of how it is used.” Ideally, banks provide financial services to citizens and organizations “to finance the growth of vital industries” Cassidy says. Ideally when people put money in banks the money goes to financing productivity such as a new enterprise, community development, infrastructure, or education. The bank moves money to create value to society. That’s sustainable banking.
Unfortunately, very few banks focus on distributing money to where society needs it. Banking, in the years leading up to the financial crisis, has not been sustainable. Instead, as society became consumed by consumption, the banks made money through credit to consumers for current debt and paper investments that had not benefit to suciety. Economist David Korten explains, “Borrowing for current consumption is bad because it creates no new value and creates debts that can only be rolled over into ever greater debt.” Korten defines real wealth in his book, Agenda for a New Economy, as wealth that “has intrinsic value, as contrasted to exchange value. Life, not money, is the measure of real-wealth value.” With the help of the banks’ interest in interest, we have consumed ourselves into a world with less and less real-wealth value and more and more debt.
Sustainable banking would serve a future where wealth is determined by how much real-wealth value something has. Banks would invest in the things we hold most dear, our families, our health, our education, our resources, our earth, rather than the current iteration of banking where what matters most is how much paper value they can create through the exchange of speculative derivatives and dicey debt.
“The financial crisis”, as Lionel Barber, Editor of the Financial Times (FT) commented, “has necessitated a re-assessment of the way in which banks and investment houses operate.” In FT’s special report on sustainable banking, published in June 2010, journalist Peter Jenkins wrote, “The idea of stripping banking back to its basic role – of ‘serving the real economy rather than taking from the real economy’, …is one that has gained considerable support in the wake of the financial crisis and the subsequent government bail-outs.” The trend toward sustainable banking may indeed be the silver lining on the cloud of the financial crisis.
Since the onset of the crisis, small banks, community banks and for-profit micro banks have been flourishing. Triodos Bank is an exemplar in the world of sustainable banking. This Dutch bank has offices in five countries and a balance sheet total of EUR 3.3 billion. Its mission is “to make money work for positive social, environmental and cultural change.” Triodos has been around for almost thirty years. In the wake of the financial crisis its customer base expanded by more than 25%.
Triodos is a founding member of a new network of sustainable banks, the Global Alliance for Banking on Values (GABV). GABV, has set a goal that sustainable banks will touch the lives of a billion people by 2020. Already they have exceeded their feed funding goals by more than 35%.
Sustainable banking is by no means a get-rich-quick scheme. Banks, like the rest of society, need to look at investment from the point of view of real wealth. They need to be targeting investment that will benefit the triple bottom line: people, planet and profit. Return on investment and growth have been driving banking and investment decisions for decades. Shifting thinking to more modest returns and longer term investments will not be easy, even for the most enlightened.
While a number of smaller sustainable banks have been flourishing, today’s financial crisis has forced even global banks to look beyond business-as-usual of the past several decades, to more long-term sustainability. One big bank working to make the transition to sustainability is Citi. Designated as “too big to fail” Citi was a recipient of 45 billion dollars in the bank bailout in the United States.
Citi demonstrated its commitment to sustainability by becoming the first major U.S. bank to sign on to the United Nations Global Compact, a set of ten principles for business in the areas of human rights, labor, the environment and anti corruption. Citi CEO, Vikram Pandit said, “Citi is striving hard to be a force for positive change, because it is intrinsically the right thing to do, and frankly, because we know that if we do not interact intelligently and constructively with the world around us, we put our businesses and shareholder value at risk.”
Our global world will continue to require global institutions of finance. Seeing the moves by Citi, HSBC, RBS and others in the direction of sustainability is encouraging and shows the depth and breadth of the call for sustainability from people the world over.
And more needs to be done, for many institutions world-wide, the economic bottom line is still the leading factor; they continue to invest in assets with harmful environmental and social practices. People everywhere should move their money into sustainable banks which invest in real wealth and support enterprise and projects which enhance our lives and our earth.
Christopher Owen concludes his story “Bank Goodness” in CNBC Business Magazine, “With taxpayers worldwide facing years of austerity to settle the bills of irresponsible bankers and inadequate regulators, it could be that more and more of them will choose to put their money somewhere they can see it doing some good. If enough of them do so, the principles of sustainable banking may emerge from the wings and begin to occupy centre stage.” May it be so.
- Cassidy, J. (2010, November 29) What Good is Wall Street? The New Yorker, 49-57.
- Jenkins, P. (2010, June 3) Pushing its way on to boardroom agendas. Sustainable Banking: Financial Times Special Report. Financial Times.
- Jones, R. (2009, October 3) Triodos bank: Where transparency is the best policy. Guardian. Retrieved from guardian.co.uk.
- Korten, D. C. (2010) Agenda for a New Economy: From Phantom Wealth to Real Wealth. (2nd ed.) San Francisco: Berrett-Koehler Publishers, Inc.
- Laugel, J., & Laszlo, C. (2009). Financial Crisis: The Opportunity for Sustainable Value Creation in Banking and Insurance. Journal of Corporate Citizenship, (35), 24-38. Retrieved from Business Source Complete database.
- Owen, C. (2010, December) Bank Goodness. CNBC Business Magazine. Retrieved from http://www.cnbcmagazine.com/story/bank-goodness/1277/1/ December 3, 2010.
- Triodos Bank. (2010) Triodos Bank NV 2009 Annual Report. Utrecht.
- Citigroup Inc. (2009) Citizenship, Global Citizenship Report 2009. New York.