This report provides several insights on ethical banking. The first one is that it dares to compare big banks to smaller ethical banks in terms of profitability. It analyses two categories of banks: 23 ethical and sustainable banks in Europe compared to 15 SIBs headquartered in Europe. The aim is to examine if ethical and sustainable banks are “also solid in economic and financial terms and whether they are able to stand up to the other banks”. And the answer is yes!
The report scrutinises these ethical banks to measure their resilience to the crisis, with a comprehensive methodology backed by a study of the Global Alliance of Banking on Values. For instance, if mainstream banks performed better (in terms of Return On Equity) before the crisis, ethical banks were 3 times more profitable than SIBs from 2007 to 2017: 3,98% against 1,23%. This is due to a long-term vision and an aversion for exotic products and services. Their assets increased by almost 10% (against -1% for SIBs). Further, ethical banks continue to finance the real economy: they lent out 77% of their total assets (against 40,52% for SIBs, which focus on various other products, mainly investments in bonds or shareholding in companies).
This many-sided report also gives several other useful insights:
- An analysis of SRIs, based on the last EUROSIF Survey. SRIs are booming and show an annual growth of 6%.
- A description of new, interesting shareholder engagement, such as Shareholders for Change, which intervenes at the meetings of large European multinational companies. This pressure and dialogue within corporations is meant to promote sustainable business management.
- A reflection on ten wasted years: ten years after the collapse of Lehman Brothers, there is a real need for a regulation that recognises and rewards the model of ethical banking. Lessons are not been learnt. “The crisis has brought out the regulatory authority’s disinterest and collusion with the banking system.”
- An analysis of the popularity of divestment of company stocks in the fossil fuels sector. Over 1,000 institutions in the world have divested a total of $7.200 trillion. But these divestments also challenge the definition of “ethical” and “sustainable” investment strategies. What is a sustainable portfolio? And what is not? We still lack a common definition.
In a nutshell, this study will be useful for numbers of pioneers in sustainable finance (sustainable banks, SRI fund managers, solidarity finance). Most of these pioneers have a real understanding of good practices, but lack concrete data or counter-arguments against powerful, mainstream financial institutions.
Finance Watch experts promote alternative bank models as a response to “too big to fail” financial institutions: they regularly build partnerships with pioneers to join forces and change finance.