FaithInvest has been looking into the issue of sustainable banking – what is it, who does it, how does it work and what are the benefits and/or trade-offs of working with a sustainable bank?
This issue was the subject of one of our sessions on Day One of our Inaugural Members' Conference on June 8-9, 2021 but our interest goes back several months after our members began asking us: 'What is this thing, sustainable banking?', says Mathew Jensen, FaithInvest's lead on Membership Engagement.
'Sustainable banking goes by a number of different names – for example, ethical banking, socially responsible banking', he says. 'This concept is relatively new but there is some interesting movement in this area and we think there's a real opportunity for faiths to have an impact.'
This is also, he adds, something faiths need to be thinking about if they are working to align their finances and their values. To help them do so, we have produced a report, The State of Sustainable Banking, authored by Paul Goldwhite, Head of Investments at Serenissima Financial, and Mathew. You can read the report here and also an article, prompted by the report, on faiths and sustainable finance which appeared in the Catholic newspaper, The Tablet, on June 5.
The importance of choosing the right bank
Why should we be thinking about sustainable banking? As The State of Sustainable Banking report makes clear, there are few ways a socially responsible investor can have greater impact, dollar for dollar, than through their choice of banking partner.
If the bank shares the investor’s values, every dollar the investor has on deposit can have a positive impact. If the bank does not share the investor’s values, deposits may be used to fund activities that conflict with their values.
A study by Giving USA, which tracks charitable giving in the United States, found that giving to religions increased 2.3% between 2018 and 2019 (the latest available figures), with an estimated US$128.17 billion in contributions in the US alone. 'Where is that money being held, and do your bank's policies and practices align with your faith's values?' Mathew asked.
So what is a sustainable bank?
What constitutes sustainable banking is, to a degree, in the eye of the beholder, but there are broadly accepted principles, defined by parts of the philanthropic and academic communities, that set it apart from traditional banking.
First is the concept of banking with impact. Sustainable banks often set aside part of their funding for activities with positive social and environmental impact, such as developing cleaner energy, or supporting education while also avoiding financing certain other activities. A growing number of banks are setting aside a portion of their funding for socially beneficial activities.
Because some of these banks are very large, they can commit substantial resources to this effort. However, at the same time, studies show that many of these banks continue to fund activities that some socially responsible investors find objectionable.
Sustainable banks are also expected to be transparent in their operations, particularly as regards their loan portfolio. They should provide information on the kind of projects and companies they are lending to, so clients can ensure they are adhering to their stated values.
Some banks serve specific faiths. For example, Islamic banks offer services that comply with the tenets of Islam including the prohibition on paying interest. The Vatican’s bank, The Institute of Religious Works, provides banking services for some Catholic organisations.
Sustainable banks must be economically viable but they do not generally distribute large profits to shareholders. They also tend to limit executive pay and employee pay differentials.
Why should faiths be interested?
In our Inaugural Member Conference session on sustainable banking on June 8, Mathew said it was hard to get figures for the size of the annual deposits being made by faith groups into their banks.
However, a study by Giving USA, which tracks charitable giving in the United States, found that giving to religions increased 2.3% between 2018 and 2019 (the latest available figures), with an estimated US$128.17 billion in contributions in the US alone. 'Where is that money being held, and do your bank's policies and practices align with your faith's values?' Mathew asked.
This issue was starkly highlighted by recent headlines about the extent to which the world's biggest banks are funding fossil fuels – including a number of signatories to the UN Principles for Responsible Banking. These headlines made grim reading for environmentally conscious investors.
Banking on climate chaos
They were prompted by a report by the Rainforest Action Network, Banking on Climate Chaos, which found that in the five years since the Paris Climate Change Agreement, the world’s biggest banks, including JP Morgan Chase and Barclays, have financed fossil fuels to the tune of US$3.8 trillion.
This is a critical issue for many faith groups, increasing numbers of which are adopting values-driven positions on climate change, including divesting from fossil fuels. In fact, faith-based organisations make up around one third of the 1,325 institutions that have committed to divest from fossil fuels to date – the biggest single category – according to the website Go Fossil Free.
If you are one of those faith-based institutions, are your efforts being undermined because you have not realised that your bank may be using your deposits to fund fossil fuel projects? Or to provide loans for some other activity your faith does not support?
Finding a sustainable bank
So how can a socially responsible investor find a bank that shares its values, whether on climate or other issues? Although truly sustainable banks are becoming better known, few are household names, and many operate in Europe. Networks such as the Global Alliance for Banking on Values and the European Federation of Ethical and Alternative Banks and Financiers have useful lists of banks and Ethical Consumer produces a helpful guide, although it is necessary to subscribe to access the information.
Other examples of networks that may include sustainable banks are:
Cooperative banks – owned by their customers;
Credit unions, where members are required to share a common bond such as locality, employer, religion or profession; and
Community development banks, which provide access to financially underserved communities.
And what are the trade-offs, if any, in working with a sustainable bank? Do they provide the kind of services needed by investors, for example? Read our report on the issue to delve deeper into these questions.