Why it matters at which bank you are
To have ethical principles is a good thing and one of the most important tasks of education. Ethical or moral action is partly anchored in us since our childhood and can cover quite different aspects in our daily life. The topic of sustainability, which has become an essential topic for younger generations, also plays an important role. In everyday life you can act quite well in terms of sustainability, you can use reusable bottles, less plastic, try to pay attention to production, origin and packaging material when shopping, compensate for CO2 emissions etc.
These are all extremely important decisions that have to be made in an everyday life. Let’s take the subject of banking and the decision you have made at some point or make when you choose a particular bank. Because in fact everyone who has anything to do with this industry knows that when choosing a bank one might support, and this even unintentionally, not the best lines of business and industries with less ethical backgrounds. But from the beginning: Why are some banks ethical and others not? Conventional retail banks not only store and manage your money, they also take it and invest it in various industries. So, your money works while you think that it’s just lying around in the bank for you, how it works, that is not up to you, it’s up to your bank, and in most cases it passes us by.
There are many things in the portfolio of one or the other bank that one would probably not find so great due to ethical principles and general consensus. From the arms industry to animal experiments, genetic engineering or the gambling industry to nuclear or coal power, the food industry or business relations with corrupt regimes, all these are areas that can profit from the money of the respective banks.
In return, an alternative or ethical bank has certain exclusion criteria in its statutes that only allow transactions and investments with ethical and environmentally companies. The decision to grant credit is also based on ecological, social and ethical criteria, i.e. only companies that comply with these ethical principles receive credit from the bank. Investments are also subject to qualitative and ethical controls.
How do I know if a bank is ethical?
There are of course various reasons why banks act alternatively. There are some banks that base their business model on purely Christian values. Especially many alternative banks in Austria are of Christian origin. Whether this is the better approach remains to be seen. Some banks focus on anthroposophical approaches. With German “ethics banks” the environmental aspect is above all in the foreground.
How do I know if a bank is ethical? Unfortunately, answering this question is not as easy as it should be. Here it is very similarly as to the not protected and very inflationary used term: bio! Especially when it comes to the fact that ethical banks based in Germany pursue a sustainability aspect, but this term is not protected and can be used as a label by anyone without following actual standards, qualitative security is difficult to prove. Also, many financial products or Fintech/Start-ups now advertise or flirt with the label “Sustainable”, but when you look closer there are not at all sustainable. In Germany alone, these are not few.
As a consumer you are stuck, because even if you think to have made a good and right decision with the choice of the bank or the product in order to have your own money managed or invested ethically and sustainably, you first have to be aware of a number of criteria to check. But which criteria does a bank, or a financial institution have to fulfill in order to be stated as clearly sustainable or ethical? If there is something to hide, they will hide it either in the bottom corner or the small print.
The own sustainability report is then usually hidden somewhere at the bottom or can only be found via the search function. After all, every bank regularly produces a sustainability report, also known as a “non-financial report”. The Sustainability Report is a further development of the Environmental Report published in the 1990s by companies, but also by public institutions, and presents the activities and achievements of organizations with regard to sustainable development. It addresses the most important sustainability issues: economics, ecology and social issues (triple bottom line).
Part of the information policy
In the case of economics, for example, this is the company’s orientation towards the future. In ecology – primarily in the manufacturing and processing industries – the sustainable orientation towards resource efficiency and environmental protection is emphasized. With regard to social issues, the focus is on, for example, the company’s orientation towards a family-friendly business, the support of employees in difficult personal situations and social criteria in procurement (e.g. fair trade, measures against child labor in the upstream chain).
In addition to the annual report, the sustainability report is an important component of the company’s information policy. In the meantime, major companies in all sectors, especially large corporations, publish such reports annually, in some cases in accordance with the guidelines of the Global Reporting Initiative (GRI). In addition to the GRI guidelines, there are now numerous other standards, such as the ten principles of the UN Global Compact. Some of these standards overlap in content but have different focuses on the various aspects of sustainability.
First of all it is the company’s own definition which they describe as sustainable and this can be a lot and does not have to have a particularly strict award. One should look as a consumer whether the bank or the enterprise has a “negative catalog”, that shows which industries clearly fall out in supporting, however which not only sorts out the bad things but actively endeavors to direct your money into positive contexts.
“The Consumer should consider whether the company is trying to channel the money actively into positive contexts.”
If an enterprise communicates this with open sight, then this is already a plus point. Ethical or clearly sustainable banks are better at this and naturally make it their goal to disclose the process, according to which criteria sustainable banking is defined for them and in which industries they invest. In the best-case scenario, there is even an external committee or advisory board that helps the bank to comply with all defined standards.
Paradigm shift in progress
Then why don´t all banks act equally? Because no bank wants to write on their flag financing wars with your money. Here it becomes a little more complicated and here we must certainly speak of a transition from the old to the new world – a paradigm shift which is taking place in the generation X,Y,Z and which demands a new ecological, social and more responsible consciousness. But a few years ago, it was simply not that important for the majority of customers or consumers to take a closer look or the necessity was just not seen. Also, sustainable alternatives are often still represented in the minority.
From an economic point of view, it was also easier, for the respective bank, more profitably and certainly much more efficiently to skim the value chain than to redirect it to a sustainable aspect and at the same time comply with all important criteria, since costs could simply be externalized. Negative footprints could and still can be pushed away from you, whether you redirect the contaminated wastewater somewhere or employees get a starvation wage via subcontractors, as long as nobody looks closely, you can earn good money without it falling back on to you and though your own value chain looks rather scary.
So, if you leave the ethos aside, you can still make a lot of money. The best example is the Cum-Ex affair, which cost tax authorities over 30 billion euros and where major European banks stole these billions from the German taxpayer. One or the other has earned quite well with it
In this example you can see very well that the financial sector has a lot of power, you can transfer billions in seconds from A to B and if you do not question where some money is directed to or which values the driving mechanism, others can really earn a lot of money with it.
These mechanisms still drive this whole industry too far and there are few exceptions in this system that see finance as an opportunity to embrace positive change and see money as part of the solution. In recent decades, however, some companies have decided to go down this road, but they are still the exception and are trying to move this industry in the right direction.
Challenge for the customer
The problem is that many big banks, for example, allow such empty purchases as where the case with Cum-Ex, i.e. conventional banks not only invest in often questionable businesses and industries, they also allow tax tricks, which move in a more or less legal grey area. So, if conventional banks draw some of their returns from this, how can ethical banks survive and how do they finance themselves? Party, of course, through fees for the management of the accounts and also with investments, but they use their ethical principle as a filter to exclude certain industries and direct the money into good and sustainable industries and investments.
Clients of an ethical bank can invest their money in sustainable funds, for example, which in turn also invest according to certain ethical criteria and often have a certified label. It is not always easy for the layman and the average consumer to recognize such investments. In Germany, for example, there is the FNG label, the EcoReporter seal or the climate rating from Climatrix, all of which are so-called ESG labels which stands for Environmental Social Governance and describes the extent to which ethical, social and economic criteria are observed. These ESG standards, however, provide only a rough orientation so far. In Germany, investments in nuclear power are considered unsustainable; in France, on the other hand, they are considered sustainable because technically they produce very little CO2. This means that each country has established its own labels and standards, and there is no uniform certification for sustainable capital investments. However, the EU Commission is already keeping this in mind and wants to introduce a European standard for “green bonds”.
Can you earn money with it?
Yes, you can. Even with sustainable and strict ethical criteria you can earn money as a consumer and don’t even have to fear for less interest. Because it’s not about either or: either doing something good or earning money, both are now possible. In addition, it does not even have to be more expensive to go to a sustainable or alternative bank. Even ethical banks have a cost that is usually even greater than that of a conventional bank.
Processes such as the exclusion of negative industries (weapons, mass animal husbandry, coal and nuclear power) or, for example, the review of the STC alignment, i.e. whether a company or financial product really makes a positive contribution to the Sustainable Development Goals of the United Nations, the introduction of an ESG screening to see what ethical, ecological and social balance a company has plus the review of outsiders are all processes that are time-consuming and costly. This effort does not necessarily have to be reflected in the costs passed on to the customer, it only shows that the people that chose an ethical bank may have spent 2-3 more thoughts on what will happen with their money. Studies also show that investing in sustainable funds must not necessarily lead to less return. One the contrary, in most cases it is even better or at least equally good.
The past has made it clear that listed companies such as Bayer, VW or RWE, in particular, which exhibit a clear lack of ethics and values, have shown that many of their business areas have clearly gone up against the wall. Because it is the consumer, the public and ultimately the financial market who punish, when Bayer incorporates someone like Monsanto or when VW cheats on its customers for years, this is little ethical and harms the company.
Slimmer branch network
Trust, good values, open and positive sustainable goals with foresight, result in a positive return. In addition, alternative and sustainable banks have a much thinner branch network, with up to no branch, no bank advisors and only online advice to save costs. Opening an account is also easy online. And of course, there are those, the exceptions and the banks that do this perhaps not exemplarily but already very, very well.
“Trust, good values, open and positive sustainable goals with foresight, result in a positive return.”
To finish up: You can indeed do something good with your money without really having to do anything, you can even improve the common good with your money. Money has meanwhile become a means and an end, we take money into our hands to earn even more money, but if my money is the means and the common good the end, then my money can work for me and I even have a good feeling about it. Money is nothing bad, no matter how much of it you have, we just have to learn to deal with it – and invest in good, sustainable and meaningful projects.
You can find more information here: https://www.fairfinanceguide.de/