Little-known, but enthusiastically embraced by their customers, a different kind of banking has risen to prominence in recent years.
During the financial crisis the steady growth and profitability of banks that base their financial decisions first and foremost on the needs of people and the environment has proved particularly resilient, a new report shows. These banks don't just avoid financing enterprises that do harm; they positively finance businesses that actively benefit wider society.
According to the report's authors the results debunk the myth that a financial trade-off for individuals, businesses and investors is an inevitable consequence of sustainable banking. Rather, they say, such banks outperform the world's biggest in a number of areas, lending proportionally much more from positions of greater capital strength, and offering comparable or better financial returns.
Co-financed by the Rockefeller Foundation and commissioned by the Global Alliance for Banking on Values (GABV), a network of 15 sustainable banks - from an SME in Bangladesh and Canada's largest community credit union to Triodos Bank, a European sustainable bank with offices in the UK - the report compares the performances of sustainable banks with 29 of the world's largest and most influential banks between 2007 and 2010.
The 29 large banks are defined as "globally systemically important financial institutions" (GSIFI) by the Financial Stability Board. Often described as "too big to fail", they include Bank of America, JP Morgan, Barclays Bank, Royal Bank of Scotland and HSBC.
The report concluded that values-based banks were twice as likely to invest their assets in loans, lending on average more than 70% of their assets during this period. Lending increased 50% between 2007 and 2010, while large banks increased their lending by just over 20%, highlighting the focus of values-based banks on expanding business in the real economy. The values-based banks also appear to be stronger financially with higher levels of, and better quality, capital. The equity to assets ratio, an important measure of a bank's capital strength, averaged 9.3% during the period studied, compared with 5.1% for the large banks. The sustainable banks analysed in the report also delivered higher financial returns than some of the world's largest financial institutions.
Return on assets, the measure increasingly considered most relevant for judging a bank's financial performance, averaged above 0.5% while the big banks earned an average of just 0.33%. Values-based banks also had returns on equity averaging 7.1%, compared to 6.6% for the GSIFI banks. The returns from the sustainable banks were also much less volatile during a well-documented period of economic stress.
Critics point to the period of the analysis. The big banks have suffered most during the financial crisis, during the years the report covers. But the question remains as to whether research over a much longer time frame would not support an even more marked difference between the relative performance and volatility of returns of these types of bank. The GABV thinks so, and is undertaking further research to cover a longer duration.
Peter Blom, GABV chair and chief executive of Triodos Bank, Europe's largest sustainable bank, believes the reports cements a compelling business case for sustainable banking. "Doing good is beneficial for banks and society not just in a theoretical and ethical sense, but also financially, when measured against conventional benchmarks such as the financial bottom line.
"The findings of this report are crucial for a global banking industry which has tremendous potential to affect positive change through its ability to lend money to finance entrepreneurs and stimulate local economies. Most importantly, it shows that a sustainable approach to banking offers all of us the prospect of a stable, prosperous future."
With policymakers, investors and the public alike looking for better ways to bank in the aftermath of the crisis, sustainable banking is enjoying greater prominence than ever before.
Tamara Vrooman, chief executive of Canadian credit union Vancity says: "There is growing demand worldwide for values-based banks that have a triple bottom line approach to banking, balancing people, planet and prosperity.
"The appeal of these banks is that they are transparent, and grounded in their communities, lending to enterprises working in the real economy. Our challenge now is to meet the growing need for lending and other bank services among people traditionally unserved or underserved by the big banks."
James Niven is programme manager for the Global Alliance for Banking on Values and head of public affairs for European's sustainable bank, Triodos Group . He has 15 years experience communicating the work of values-driven organisations, from the British Council New Zealand to Voluntary Service Overseas in the UK. Now based in the Netherlands he has worked for government, non-governmental organisations and business
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