Tuesday, April 17th, 2012
What really differentiates ethical banks from traditional banks?
Preamble Since the 30s of the twentieth century the banking business, which originally had social connotations (pawn broking, Savings Banks, Cooperative or Mutual Banks, etc.) has been losing its original ethical features. This has made necessary the birth (through a bottom-up process) of a new generation of social banks, the so-called ethical banks. These have the objective of achieving a positive impact in the collection and in the use of money. They invest in new activities such as organic farming, renewable energies, the Third sector (or not-for-profit sector), Fair Trade. They respond more and more to the needs of those who are excluded from the banking system, and to the needs of savers and investors who are increasingly interested in the way their savings are used. Thanks to ethical banks, the bank institution returns to a path stopped at the beginning of the twentieth century, and it returns to be an instrument of development for the territory and for new social and environmental initiatives. This path goes in the opposite direction respect to the one of commercial banks, which are increasingly oriented to use the financial leverage to build more and more profits, contributing to the financiarisation of the economy and creating the conditions for a series of financial crises that continue even today to weigh on the lives of millions of citizens.
What distinguishes an ethical bank from an ordinary bank?1 ROLE OF AN ETHICAL BANK The role of an ethical bank is to work for the common good and ensure the right to receive credit through a bank activity consisting in raising funds and reallocating them in the form of credits for cultural, social and environmental projects. Through their activity, ethical banks promote social inclusion, sustainable development, development of social economy and social entrepreneurship. Ethical banks also have a role to raise public awareness on the role of money and the failure of the economy based on short-term and profit as the only objective. The money on which an ethical bank bases its collection and its capital comes from savings of its customers, which are created through activities in real economy. An ethical bank does not accept "dirty" money, that is money that comes from illegal activities, from criminal groups or mafia, armament industry, highly polluting industries, or non-declared money.
ORIGIN OF MONEY
Comment to the definition: the ambitious attempt of the document is that of giving a definition of "Ethical Bank" that does not follow only minimal or "negative" criteria, (that is to say: the only definition of activities that ethical banks do not do, or characteristics that they cannot have). On the contrary we propose concrete and "positive criteria, which can describe some specificities and the basic values of a banking institution who wants to be defined ethical. Such criteria are here defined on the base of the experience and characteristics of ethical banks members of FEBEA (the European Federation of Ethical and Alternative Banks). Despite these banks and financial institutions have great differences among them (for dimensions, type of management, etc..), we sought a common definition, in order to detach from the vagueness, confusion, and sometimes the inaccuracy that often arise with the concepts of "ethical bank" or "ethical finance".
Tuesday, April 17th, 2012
DESTINATION OF MONEY
The purpose of an ethical banks credit activity is to have at the same time a positive impact at a social, environmental and economical level. For this reason an ethical bank addresses its collection/saving of money to socioeconomic activities aimed at social, environmental and cultural profit. This objective is achieved through the support in particular through not-forprofit organizations to activities for human, social and economical promotion, also dedicated to the weaker sections of the population and to the most deprived areas, favoring social integration and employment. In an ethical bank the relationship with customers is often under the form of partnership. For an ethical bank the values of social and environmental impact are essential and inseparable from the value of economic impact. In an ethical bank therefore the economic assessment of projects is accompanied by social and environmental assessment based on a detailed list of criteria. In an ethical bank at least 90% of financing distributed to companies / institutions / organizations meets both economic and socio-environmental criteria. An ethical bank systematically evaluates the social and environmental impact of its activities and of projects or institutions it finances. The thorough assessment of multiple aspects of each funded project enables ethical banks to have a very low risk level. An ethical bank never finances any project or activity developed in "controversial" sectors (tobacco, alcohol, gambling, GMOs, weapons, nuclear energy, pornographic productions or productions that exploit violence, exploitation of animals, collaboration with oppressive governments, human rights violations, etc..). An ethical bank pays special attention to the support of initiatives for selfemployment and / or entrepreneurship of women and youth, often through microcredit and microfinance. An ethical bank endorses all these values both to support its local/national territory, and to operate abroad under the principle of international solidarity. The investments of an ethical bank are managed transparently (some ethical banks give customers the opportunity to decide the destination of part of their savings). The bank's business model is steered predominantly by traditional banking activities (collecting savings and granting of loans) and the majority of
CRITERIA AND VALUES FOR THE USE OF MONEY -
Tuesday, April 17th, 2012
collected money must be used for credit activities. The amount of funding distributed by an ethical bank can be max. 15% of the regulatory capital. In order to grant a loan an ethical bank does not consider only collaterals/real guarantees, but it also values personal or social guarantees provided by the local networks in which the funding is allocated. An ethical bank does not set up subsidiaries with financial or fiscal goals in countries with a high level of financial discretion. On the contrary the presence of an ethical bank in these countries is fundamental to the dissemination and support of transparent financial practices and processes. An ethical bank does not accept undeclared money and it does not help customers reduce their taxes by exploiting tax havens. An ethical bank does not speculate (for clients nor for itself) in short term operations, but it favors the long term and the real economy. Furthermore it does not use derivatives and trading activities for credit purposes, but its profit comes mainly from interests charged on loaned money. An ethical bank can be committed to apply autonomously the tax on financial transactions, on financial products located to its customers. An ethical bank puts credit at the service of people and the exclusive research for profit is not its objective. A fair profit is necessary to ensure the economic viability and sustainability of the bank. An ethical bank may set a limit to the remuneration of its capital. The profits of an ethical bank are mostly reinvested in the social objectives of the bank itself. An ethical bank is deeply rooted in the territory in which it operates, and in its socio-economic networks. This allows the bank to have full knowledge of its clients and their funded projects. An ethical bank is always established in a form that allows broad participation from its employees and shareholders or members. An ethical bank assures this core value of participation through well codified procedures and statutory instruments that enable members and employees (or their delegates) to influence directly on the management strategies of the bank. Beyond the value of participation, transparency is a fundamental value for an ethical bank: transparency in the origin and in the use of money, in credit and business management. Transparency must be ensured specially towards customers. 3
CONDITIONS FOR BANK MANAGEMENT -
Tuesday, April 17th, 2012
An ethical bank works in a sustainable development perspective, and to do so it may take as reference the principles of Corporate Social Responsibility (CSR). An ethical bank has a maximum ratio between the highest and lowest salary in the company of 7 to 1, and it ensures transparency in salaries management: an ethical bank annually publishes the salaries of its employees. A bank that wants to be defined ethical must meet the criteria listed above, and it can not have a traditional banking group as controlling shareholder.
