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05/20/2010

It's time for green banking, isn't it?

It was supposed to be the good news of the crisis: a short-term vision profit system turned into a socially-responsible finance sector concerned about future generations. A worldwide green revolution.

Adopting the green attitude gives banks an opportunity to set the example and to show themselves to advantage. With selective waste sorting, switch to zero-paper and optimised internal standards, banks are multiplying their measures, from small gestures to major investments, to make their environment greener. They are henceforth more attentive to the energy performance of their premises, like Société Générale, whose Tour Granite in La Défense is the first of its size to gain the HQE(high environmental quality) label. Some, like HSBC, display an ambition to achieve a neutral carbon footprint on a global scale: each subsidiary measures its CO2 emissions, and head office aggregates and offsets them by investing in renewably energy production projects. As similar system is applied by Dexia which has decided to invest in a wind far m to make up for its pollution. Then there's the partial redistribution of profits through sponsorship, an action which is nothing new. In the 19th century already, the Swiss bank Sarasin financed the upkeep of national parks. But while all these eco-friendly measures have a highly symbolic impact, it remains slight compared to the stakes involved.

To actively carry weight, banks and insurance companies must make their core business "green". "That means taking a sustainable approach to the way loans are extended, funds are invested or clients advised. How long can we accept to finance high-pollution industries without laying down conditions in return? Can we encourage a customer to buy a cleaner car when it is financed by a loan? These questions show that there is a link between credit institutions' business and sustainable development", points out Anatole de La Brosse, Associate Director, Financial Services, at Sia Conseil. And that link must be forged.

Green products

Faced with their customers' increasingly asserted aspirations, banks have been forced to adapt their products. A range of products marked "SRI" (socially responsible investments) is now available in the form of funds that can combine all classes of assets (equities, bonds, or money market). "Ethical" funds favour a sector-based ethical approach, excluding from the fund all vehicles relating to "non-green compatible" sectors such as oil, weapons, tobacco and nuclear energy, an approach that is popular in English-speaking countries. In Britain, funds based on shareholder engagement are also widespread. The idea is that of a change in internal social strategy to foster direct dialogue. France, for its part, appears more comfortable with the system of "rewards" and "best-in-class" funds. No industry is excluded, but a ranking is established for each one to detect the "best in class" in sustainable development. As for the Germans, they prefer eco-related theme funds: alternative energies, fair economy, "clean-tech" fir ms, etc. The aim is to invest in companies implementing effective environmental policies.

Eurosif, a European body promoting SRI, estimated the market at 2,665 billion euros in 2007, with growth to make the keenest profit-seeking speculators jealous, i.e. 102% over two years. But this market still only accounts for 17% of the entire asset management industry in Europe, so there's still room for significant progress.

Britain leads the way in this "green market", with over 890 billion euros- worth of assets managed, followed by the Netherlands with 366 billion Euros. Southern Europe is lagging behind, although Spain is beginning to show some interest. Italy is the black sheep and focuses on ethical exclusion funds. These products are merely the visible tip of the SRI iceberg, and the revolution it imposes on the system, particularly in terms of time, because short-term financial performance is no longer the sole criterion. Other objectives such as economic stability , social responsibility and environmental protection come into consideration. And while these aims cannot be assessed solely in dollars, they do not necessarily yield lower return.

"Sustainable is profitable."

Some banks have opted to make this "green" offering their speciality, like the Belgian bank Triodos for instance. Founded some 30 years ago, it has more than 200,000 clients in five countries (Belgium, the Netherlands, the UK, Spain and Germany) and boasts sustained growth of 20% a year (40% since the crisis!). The bank exclusively finances sustainable development related projects, specialising in loans in the cultural, social, environmental and development cooperation sectors, and of course ethical investment. Its slogan: "Sustainable is profitable." But this example is still uncommon. "The banking and finance sector is not always seen as a key player in sustainable development. Yet its central role in financing the economy gives it great leverage, thus justifying real commitment in this area. Although announced as a strategic focus a few years ago by banks, it is taking time to truly materialise," admits Anatole de La Brosse of Sia Conseil.

Sia Partners


Article EFMA Magazine April/May/June 2010

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