Whether a person has billions to invest, such as the Vatican itself, is responsible for small church budgets or is looking after personal finances, the choice of bank matters. There are few ways savers and investors can have greater impact on the world around them than through their choice of banking partner.
For those who care about issues like climate change, nature and health and have found a bank that shares their values, every pound they have on deposit can have a positive impact on the world around them. If a bank does not share these values, investors’ money may be used to fund activities that they find objectionable, such as fossil fuel extraction or factory farming.
With climate change, ecological destruction and the economic impact of the pandemic causing increased poverty and suffering, thinking carefully about savings and investments has never been so important.
Rainforest Action Network’s report, Banking on Climate Chaos, finds 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 $3.8 trillion. Several of these banks are also signatories to the UN Principles for Responsible Banking, designed to help banks have a positive impact on society, in direct contradiction to their support for industries like coal, oil and gas.
Findings like these are a huge concern and no wonder many faith groups are keen to ensure their investments, and increasingly their banking relationships, reflect their values.
Last year, 47 faith institutions from 21 countries announced they were divesting – withdrawing all their money – from fossil fuels. This was the biggest ever joint divestment by religious leaders in history, but it’s only the latest expression of the growing movement of faith-based climate action. In fact, 190 Catholic institutions worldwide have divested from fossil fuels, according to the Global Catholic Climate Covenant (GCCM).
Last June, the Vatican issued its first-ever set of comprehensive environmental guidelines which frame investing in fossil fuels as an ethical choice. The guidelines suggest that Catholic institutions’ ethical commitments should lead to avoiding supporting companies that harm human or social ecology (for example, abortion and weapons) and environmental ecology (for example, fossil fuels).
What constitutes sustainable banking is, to a degree, in the eye of the beholder, but there are broadly accepted principles 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 activities, such as questionable mining businesses.
Sustainable banks are also transparent in their operations – they provide information on the kind of projects and companies they are lending to, so clients can ensure they are adhering to their stated values. Something else to look for is the scale of the bank’s profits. Truly sustainable banks do not generally distribute large profits to shareholders. They also tend to limit executive pay and employee pay differentials.
Although truly sustainable banks are becoming better known, few are household names, and many operate in Europe. Networks like 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 need 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.
One of the best-known sustainable banks is Triodos, a Certified B Corp, which means it wants to make positive impact on the environment, and a bank that publishes all its investments on its website.
Although sustainable banks are becoming better known, many are privately owned and therefore have limited disclosures, so it tends to be harder to find independent reviews and analysis from recognised organisations that assess their specific values or solvency.
Sustainable banks also tend to be smaller, regionally focused and less diversified than their traditional counterparts. They are also often less complex and know their customers better. On the flip side, some offer below-market interest rates on deposits. This may not matter much at a time when interest rates are quite low, but that will not always be the case.
A concern we sometimes hear about sustainable finance is that it provides lower returns on investments. However, Triodos Bank's Adam Robbins disputes this:
“Very often people assume you have to give up decent returns to do good with your money,” he says. “But this isn’t philanthropy, it’s about people, planet and profit. The research bears that out, showing that sustainable funds are often generating better returns than more traditional funds.”
Last year the financial services business Morningstar compared more than 4,900 investment funds, looking at average returns, success rates and “survivorships” over a 10-year period to 2019. It found that nearly 60 per cent of sustainable funds had beaten their average surviving traditional peer.
With COP26 described as the ‘last best chance' to address the climate crisis, our choice of bank is more critical than ever before. Sustainable banking enables us to align our finances with our values in a way that traditional banking, the evidence shows, simply cannot. In time, this might change, but for now aligning your faith with your finances is likely to mean finding a sustainable bank.
FaithInvest’s new report, The State of Sustainable Banking, goes into more detail on what to look for in a sustainable bank, and how to encourage more banks, to operate in a more sustainable fashion. Any institutional asset owners looking to learn more are also welcome to come to our June event.