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Sustainable values-based banks outperform traditional mainstream banks

I'm putting this on the blog, because we have a meeting planned for March 26th that will talk all about sustainable banking:

A new study shows that sustainable values-based banks, which base their decisions first and foremost on the needs of people and the environment, are outperforming traditional mainstream banks in many areas, including financial indicators such as return on assets, growth in loans and deposits, and capital strength, making a compelling case for values-based banking.

Commissioned by the Global Alliance for Banking on Values (GABV), a network of 15 of the world’s leading sustainable banks, the report compared the performance of 17 values-based banks with 29 of the world’s largest and most influential banks between 2007 and 2010.

These 29 banks are defined as Globally Systemically Important Financial Institutions (GSIFI) by the Financial Stability Board. Often referred to as ‘too big to fail’, they include Bank of America, JP Morgan, Barclays, Citicorp and Deutsche Bank.

The report concluded that values-based banks were twice as likely to invest their assets in loans, lending more than 70% of their assets during this period on average.

Lending increased 80% between 2007 and 2010, while mainstream banks increased their lending by just over 20%. Significantly, this growth highlights the focus of values-based banks on expanding business in the real economy.

The values-based banks also appear to be stronger financially with both higher levels of, and better quality, capital.

The BIS 1 Ratio, an important measure of a bank’s solvency, averaged over 14% during the period studied, compared with under 10% for the mainstream banks.

The sustainable banks also had an average Equity/Asset ratio of over 9%, while the GSIFI banks averaged just over 5% during the period covered.

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 0.50% 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.

Lovely … but not the whole picture.

First, comparing with GSIFI's since 2007 is an easy target to show non-performing American and European banks are weak right now.

Second, what's the consumer view?

Mintel have some thoughts on this, finding that UK consumers generally do not buy the sustainable banking story.

According to a report released by Mintel in November 2011, people generally fall into one of three mutually exclusive consumer groups: the Idealists, the Uninterested and the Cynics.

The Idealists account for 28% of the population.

It is the only group to show an active – and positive – engagement with the idea of green or ethical financial services products.

Half would pay extra for a product from an ethical firm, and three in five disagree with the idea that a firm’s responsibility is purely to maximise its profits.

Among these consumers however, there are some major barriers that firms must overcome.

Three in ten say that it is performance that matters when choosing a financial services product.

Perhaps more of a barrier, though, is that while these people tend to believe that firms should be thinking beyond their profit margin, they have no faith that this will actually happen.

Nine in ten believe that when financial services firms talk about being green or ethical, it’s usually just a PR stunt.

The Uninterested (39%) aren’t as positive as the Idealists.

Where they do express an opinion on ethical financial services, it is unlikely to be a major factor when deciding what kind of products they’ll buy.

The overriding impression given is one of apathy.

At best, a firm’s ethical policies are likely to be a background concern – a solid (and trustworthy) commitment to green or ethical causes will be a ‘niceto- have’, rather than an essential.

The Cynics (33%) have very little faith in the financial services industry’s efforts to ‘go green’ – 19 out of 20 say that they believe that when firms talk about ethics, it’s just a PR stunt.

This, though, isn’t necessarily a major issue for them.

The same proportion says that when they’re arranging a financial services product, they only really care about the way in which that product will perform.

Reinforcing this viewpoint, seven in ten think that firms should stick to making money, rather than worrying about saving the world.

Mintel also put together a nice little infographic to portray the whole thing (doubleclick chart for larger version): 


Download the infographic if you prefer

Meanwhile, for more on our event on March 26th, details below:

Sustainable banking: what is it, and why does it matter so much?  with Charles Middleton, Managing Director, Triodos Bank UK, and Laurie Spengler, President and CEO of ShoreBank International

As the banking sector endures yet more criticism, one emerging sector of the industry appears to be enjoying considerable success. Advocates of sustainable banking claim it combines growth, capital strength, and increasingly attractive financial returns to investors. So how does it do it, and what does its emergence mean for the wider financial industry? Find out how sustainable banking is applied by Triodos Bank – one of the industry’s best known names and earliest pioneers – in the UK, how its impact is building momentum globally, and the case for adopting the principles that underpin it in the wider financial industry.  

Charles Middleton joined Triodos Bank in 2003 as Managing Director of the UK business, bringing with him 21 years’ banking experience.  Since joining Triodos Charles’ leadership has helped generate significant growth in the core business of mobilising depositors’savings to support a range of social and environmental projects, growing lending from around £60m to more than £250m. Charles has also helped Triodos to bring other types of finance to the UK market, such as capital raising for fair trade coffee brand, Cafedirect, and launching Triodos Renewables, which has pioneered an increasing number of investment opportunities in the growing UK renewable energy sector.

Laurie Spengler has over 20 years of experience as a strategy and transaction services professional. Her interests are focused on supply and demand-side solutions to extend access to capital to individuals, small businesses and low income households through the delivery of financial resources, business solutions and professional support.

If you want to attend, then register here.


About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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