The message was clear: “greed kills.” These were the words emblazoned on the placard worn by a masked protester, one of many gathered in front of the New York Stock Exchange in 2008. It was October, and the demonstrators were outraged at a proposed government bailout of Wall Street banks. The following year, in the heart of London’s financial district, violence broke out as protesters fought with riot police on the streets around the Bank of England and the Royal Bank of Scotland headquarters. Effigies of bankers hung with ropes around their necks amid cries of “Kill the bankers!”
The 2008-2009 global banking crisis and the Great Recession that followed was a watershed moment for the sector. Some of the world’s biggest financial institutions were on the brink of collapse. Regulators and journalists were revealing just how much illegal and unethical behavior had been going on in the banking sector. And aside from the demonstrations, broader confidence in the financial system was declining rapidly.
The crisis brought reforms in its wake. Not only did governments pass regulatory measures to prevent a recurrence, but the banking sector itself started to shift. These reforms were driven not by regulators but by clients—asset owners such as pension funds, sovereign wealth funds, foundations, family offices, and high net worth individuals—all of whom were starting to demand investment products that not only generated a financial return but also created a positive impact on society and the environment.
As a result, roughly a decade on from the financial crisis, staggering sums of money were being put into sustainable and impact investing portfolios that were made up of stocks for which ESG (environmental, social, and governance) factors—from climate mitigation and water conservation to social inclusion, gender equality, and ethics—guided investment decisions. In the United States alone, socially responsible funds attracted a record $21 billion from investors in 2019, almost four times the figure from 2018, according to financial research firm Morningstar.
Of course, although sustainable finance grew rapidly in this period, it fell short of bringing about a complete market transformation. While almost $31 trillion of assets under professional management globally in 2018 were sustainable investments—which consider ESG factors in portfolio selection and management—this was still tiny considering the $300 trillion in the global financial system. And as of July 2019, only 23 major banks had a sustainable finance target (public, time-bound commitments to make capital available for climate and sustainability solutions), according to the Green Targets Tool, developed by the World Resources Institute (WRI) to analyze the world’s 50 largest private-sector banks.
Meanwhile, in their commercial or retail banking operations, which offer deposit accounts to individuals and small businesses, large banks continued to provide the same services they had always offered with little attempt to use social or environmental performance to attract new account holders or differentiate themselves from their competitors. And while over the decade more and more “conscious consumers” were starting to demand that their coffee, seafood, apparel, and other products come from ethical and sustainable sources, few consumers questioned what kinds of projects were being financed by the loans that banks made with their deposits.
Nevertheless, the decade ushered in tangible signs of change in the sector. Sustainable retail banking pioneers expanded steadily. During the financial crisis, Triodos, the Dutch ethical bank established in the 1960s, demonstrated how sustainable banking could prove more resilient to financial shocks. During the crisis, while mainstream banks struggled to survive, Triodos posted results that were equal to or exceeded its precrisis performance, with its assets under management rising by 13 percent in 2008 and by 30 percent in 2009. The bank had more than €12 billion ($13 billion) on its balance sheet in 2019, up 11 percent from the previous year. By 2019, the 62 financial member institutions of the Global Alliance for Banking on Values (GABV)—a network of financial institutions and nonbanking partners created in 2009 by a group of sustainable banking leaders that included Triodos CEO Peter Blom—were collectively serving more than 67 million customers and held more than $200 billion in assets under management.
Meanwhile, new types of banks—ones that put the principles of ethical and sustainable development at the heart of their operations—were also growing in scale. By 2018, California-based Beneficial State Bank—created in 2007 by Kat Taylor and her husband, billionaire philanthropist and former US presidential candidate Tom Steyer—had 27,600 deposit accounts, $806 million in deposits, and $1 billion in total assets. In 2019, Aspiration, an online values-driven consumer bank launched in November 2014, tripled its number of customers and by early 2020 had about 1.5 million account holders. And while institutions such as Aspiration and those in the GABV collectively represented assets in the billions of dollars, rather than the trillions in big mainstream banks, their voices were growing louder. “We’re small but mighty,” says Taylor.
What was clear by early 2020, as the COVID-19 pandemic shook the world and promised an economic downturn worse than any seen in decades, was that a significant mood shift had been working its way through investment banking and was beginning to influence retail banking. The question was whether the sustainable finance momentum could be maintained—and even whether an environmentally conscious stakeholder approach to finance and banking might allow capital markets to weather the storm and help the global economy recover more quickly.
Moves in the World of Big Money
In January 2020, Larry Fink, the CEO of BlackRock, wrote in his annual letter to CEOs that the firm would henceforth apply the same analytical rigor to ESG factors as it did to traditional metrics such as liquidity risk and creditworthiness. As leader of the world’s largest asset manager, holding almost $7 trillion of the world’s investment dollars, Fink made waves in the business and investment community with his missive. This commitment followed another by the CEO of one of the world’s biggest banks, David Solomon of Goldman Sachs, announcing a decade-long goal of directing $750 billion of its financing, investing, and advisory work to nine areas focused on climate transition and inclusive growth.
Banks that shifted more of their activities into sustainable development were responding to a number of powerful forces. Awareness of the climate crisis and its potential economic losses was growing. (In the United States alone, some researchers pegged this at hundreds of billions of dollars a year by 2090.) And international accords such as the 2016 Paris Agreement on climate change and the United Nations’ Sustainable Development Goals (SDGs)—commitments made by UN member states in 2015 to eliminate poverty and inequality and take dramatic steps to address climate change and protect natural resources by 2030—provided a rallying point for many in the financial sector.
“The adoption of the SDGs and the Paris Agreement created a boost in thinking in the financial industry about social alignment, the purpose of a company, and how to connect with the real economy,” says Kees Vendrik, chief economist at Triodos. “I see a lot of things happening in the mainstream financial industry in the Netherlands on the climate issue, for instance, with really impressive steps taken recently to understand the CO2 footprint of all their portfolios and to figure out how to be a financial institution with portfolios that have a low carbon intensity.”
Bank clients were another force driving change in the financial sector. Starting in the 1970s, investors began asking their asset managers to remove “sin stocks” such as tobacco producers and gun manufacturers from their portfolios and to select investment targets from among companies rated for their performance in areas such as energy efficiency, human rights, and labor rights. This demand took on a new form in 2007, when the Rockefeller Foundation convened leaders in finance, philanthropy, and development to figure out how to “build a worldwide industry for investing for social and environmental impact.” They coined the term impact investing—the practice of investing in companies established with the primary purpose of solving a social or environmental problem while also generating revenue or making a profit—and in the following year, as the global financial crisis peaked, Rockefeller committed $38 million to its new Impact Investing Initiative.
By the end of the next decade, demand from clients to invest for impact had ramped up significantly. In 2018, for example, a UBS survey of more than 5,300 wealthy investors found that 39 percent currently had sustainable investments in their portfolios and 48 percent said they would in five years’ time. Some 81 percent said they aligned their spending decisions with their values. The same year, 84 percent of asset owners surveyed by Morgan Stanley said they were “actively considering” integrating ESG criteria into their investment processes, and almost half said they were doing this across all their investment decisions. “It’s now almost impossible to compete for an asset management mandate if you don’t have strong ESG or sustainable solutions to offer,” says Martin Whittaker, founding CEO of JUST Capital, which ranks companies by how they treat stakeholders.
For banks, these numbers point to one thing: an attractive market opportunity—something that has not gone unnoticed. To capitalize on the demand, institutions started appointing heads of sustainability and setting up units dedicated to sustainable and impact investing. In 2017, for example, Credit Suisse established an Impact Advisory and Finance department to bring all the bank’s activities in sustainable and impact investing under the same umbrella. And in July 2019, Goldman Sachs created a Sustainable Finance Group within the bank to focus on impact investing and the financing of sustainable commercial projects. “We were getting deeper, more fundamental questions on ESG and sustainable finance, from the senior-most decision-makers at many of our largest clients and from senior colleagues around the firm,” wrote John Goldstein, head of the new division, in a LinkedIn post at the time of the launch.
To meet client demand, these units started developing a wide range of sustainable and impact investing products—from green bonds to investments that fund affordable housing—in a number of asset classes, from equity to fixed income. And while the banks often talk about these investment products as part of their commitment to protecting the environment and society, they also represent a significant new revenue stream, which some suggest could spark a backlash. “Big banks see sustainability through a customer proposition lens as another business opportunity,” says Martin Rohner, the incoming executive director of GABV. “And as soon as you look at it like that and you’re not switching your entire business model to something more sustainable, there’s a risk of greenwashing.”
Research from the WRI suggests that this may be the case in many banks. Not only did its Green Targets Tool find that about half of major banks lacked a sustainable finance target; it also found that, between 2016 and 2018, even those that had set targets were still making investments in fossil fuels at an average of almost double what they were targeting in sustainable investments. Only seven banks had annualized sustainable finance targets that were larger than the amount of finance they were making available each year for fossil-fuel-related transactions.
Another study found that between 2016 and 2018, 35 major banks from Canada, China, Europe, Japan, and the United States had collectively poured $2.7 trillion into fossil fuels in the two years since the Paris Agreement was adopted. To put it into perspective, Taylor cites the billion-dollar sustainability commitments that the banks made in Paris. “If you’re a $2 trillion institution, $2 billion is an error term,” she says. “These are consequential institutions in a massive industry that’s very powerful in driving societal outcomes, and we need to get it right.”
Of course, a full turnaround of the juggernaut that is the financial system—with its short-term thinking and focus on shareholders rather than stakeholders—was still some way off. Nor would transforming the asset management side of the business ever be easy, given that institutions invest on behalf of their clients and must meet their needs, even when those clients continue to want to put their money into fossil fuels. Another obstacle was impact measurement, which remained highly fragmented with few agreeing on standards or metrics. Nevertheless, in the way that financial services providers put together their investment portfolios and loan strategies, new ways of thinking were starting to take hold.
The Power of Collective Clout
In 2009, representatives from 10 banks met in the Dutch town of Zeist to launch an organization with a mission to promote alternatives to what was then a failing banking system. Hosted by Triodos, the meeting marked the launch of GABV. “At the time, the banking sector was being hammered by the general public about its performance and its behavior in terms of ethics,” Rohner says. “So a series of banks came together to show that not all banks are the same, and there are actually banks that have clear values.” The idea, he says, was to create an organization that could make the case for values-based banking, that could provide a role model for other banks, and that could give the responsible finance movement a bigger voice than its members could have individually.
GABV grew out of a series of conversations between Peter Blom, Triodos CEO, and sustainable banking leaders such as Mary Houghton, then the head of Chicago-based ShoreBank, the largest certified Community Development Financial Institution (CDFI) in the United States and an institution that, until it closed in 2010, made more than $4 billion in mission investments (which prioritize social impact) and financed more than 59,000 units of affordable housing. Also participating in the discussions were the late Fazle Hasan Abed, founder of BRAC, the Bangladesh-based microfinance social enterprise, and Thomas Jorberg, CEO of Germany’s GLS, a bank founded in 1974 that uses customers’ money to support projects and businesses making a positive social or environmental impact. “They felt it was time to create a network of the frontrunners that place purpose before profit,” Rohner says.
Now made up of 62 financial institutions and 16 strategic partners, GABV has member banks in Asia, Africa, Australia, Latin America, North America, and Europe, with members ranging from Amalgamated Bank, which is labor-owned and serves local unions and their pensions in the United States, and Vancouver-based Vancity, a member-owned financial co-operative, to Bank Muamalat, a socially responsible Malaysian bank, and Banco FIE, Bolivia’s largest microfinance institution.
GABV has strict membership criteria. Banks that do not meet GABV’s standards cannot fully join the network. If a bank is working toward meeting its standards, it can become an associate until GABV determines it has met them. “We had a situation where a bank was bought by another bank,” Rohner says. “The new owners were no longer in line with our mission, so we decided we had to go separate ways.”
To assess banks on their positive contribution to society, it uses a scorecard that tracks how they are providing money to clients active in the real economy (the nonfinancial elements of the economy) and generating positive social, environmental, and economic benefits. While this process is not verified through a third party, members are asked to report to GABV using the scorecard, along with all information sources needed to back up the statements submitted.
As advocates for values-based banking, GABV representatives from member banks speak at global institutions such as the European Parliament and the World Bank. GABV also makes the case for values-based banking by conducting research. For example, it produces regular data on how ethical and sustainable banks that are closely linked to the real economy are potentially more resilient than the world’s largest banks.
Its 2018 annual report makes for compelling reading. Comparing the performance of the world’s largest banks—which GABV refers to as “global systemically important banks,” or GSIBs—with that of values-based banks and banking cooperatives (VBBs), it found that from 2008 to 2017, VBBs grew faster than GSIBs in activities such as loans (by more than 13 percent versus 4.3 percent), deposits (by more than 12 percent versus 5.6 percent), assets (by almost 12 percent versus just under 3 percent), equity (almost 13 percent versus just over 8 percent), and overall income (by more than 7 percent versus less than 2 percent). It also found that in relative returns on equity (a measure of volatility), VBBs were more stable over the 10-year period. “The traditional banks have more volatility,” Kat Taylor says. “At certain times they earn much more money, but sometimes they crash. That’s a statement of value to society that it would be better to bank with GABV banks, because there’s an inherent value to stability.”
GABV is not alone in recognizing the power of collective action. In September 2019, the United Nations launched the UN Principles for Responsible Banking; 170 banks are members, representing more than $47 trillion collectively in assets. Signatories are required to “publish and work towards ambitious targets” on six principles. These include alignment with the United Nations Sustainable Development Goals, the setting of targets for positive impact, engaging with stakeholders, and promoting transparency and accountability. “We have one-on-ones with banks every year to make sure they are making progress and are in line with their commitments,” says Simone Dettling, banking team lead for the United Nations Environment Programme Finance Initiative, which works with global financial institutions to fund sustainable development and which developed the principles. “And banks can be removed from the list of signatories if they are not delivering on those commitments.”
While Dettling argues that banks can make the biggest impact on problems such as climate change through the large corporate clients they serve, she also sees opportunities in retail banking. She cites the design of mortgage and loan products that help make housing more affordable and enable homeowners to invest in sustainable products and services such as solar panels and home insulation. “That has a significant impact on climate through increased energy efficiency as well as a positive social impact by providing affordable housing,” she says.
Investment banks have also seen the value in joining forces. For example, the United Nations Principles for Responsible Investment (UNPRI) helps its network of investor signatories to incorporate ESG factors into their investment decisions. The UNPRI has been attracting new members since it launched in 2006, with a more than 20 percent rise in numbers in 2018-2019 to almost 2,500 signatories in 2019. In Europe, meanwhile, the Institutional Investors Group on Climate Change is a network of more than 230 members in 16 countries (mainly pension funds and asset managers with more than €30 trillion in assets under management) that focuses on harnessing private capital to accelerate the transition to a low-carbon economy.
In advancing sustainable finance, Taylor argues, the collective approach can be effective (Beneficial State Bank is a GABV member), particularly given the smaller size of the world’s sustainable and ethical banks. “As an example, at our bank we’re a billion dollars in assets. But the biggest banks in the system are $2 trillion—and there’s a lot of zeros between a billion and a trillion,” she says. “Some of the banks in GABV are €20 billion ($22 billion) in assets, so we’re still not going to equal even one of the biggest banks. But we get to the tens of billions of dollars, which is important. So we have more influence by banding together.”
She also points to work being done by NGOs and activist groups to scrutinize bank behavior. For example, Netherlands-based campaign group BankTrack uses detailed annual reports to document the activities of banks and what they finance to prevent them from funding harmful business activities and evaluate their performance in areas such as climate action and human rights. “There’s a lot of rhetoric around banks cleaning up their act around fossil fuels and being nicer to their employees,” Taylor says. “But we have to hold them to account—because they don’t have a strong record of adhering to it.”
New Models for the Conscious Consumer
Given the relatively small number and size of responsible financial institutions, coalitions and collaborations remain critical. Also small is the number of retail banking consumers pushing for more ethical and sustainable banking through their choice of deposit and savings products. While consumers could drive change, their understanding of the role their money can play in tackling social and environmental problems is not yet widespread. But the seeds of a conscious consumer-banking revolution also started to sprout in the wake of the 2008-2009 global banking crisis and Great Recession.
In late 2011, a group of activists came up with an idea. To protest rising bank fees, they would designate November 5 as Bank Transfer Day and use social media to encourage Americans to move their money from traditional banks to nonprofit credit unions. The movement achieved some momentum, with 650,000 consumers shifting their accounts to credit unions by the start of the month, according to some estimates. However, those funds represented a tiny fraction of overall banking assets, given the tens of millions of checking accounts held in mainstream banks across the United States, as the Christian Science Monitor pointed out. And while similar campaigns were launched in the years following the financial meltdown—such as the Move Your Money campaign, an outgrowth of the Occupy Wall Street movement—a wholesale rejection of the big banks did not materialize.
Part of the reason might have been inertia. It is often said, for example, that people are more likely to divorce than to change their bank accounts. And, in their current form, banks do not make it easy to form a personal connection with them. “When people are shopping for seafood, they want to buy from a certain type of vendor because they want a clear conscience, and there’s a health component to it,” says JUST Capital’s Whittaker. “When you’re shopping for banking services, I’m not sure that connection is as immediate or as obvious or as emotional.”
This is not the case for many other consumer products. In fact, conscious consumerism has a long history, with examples emerging as early as the 18th century, when Quakers in the United States organized boycotts of products made by slaves. In the 1970s, conscious consumerism took a step forward when a group of companies—brands such as Ben & Jerry’s, The Body Shop, Tom’s of Maine, and Stonyfield Farm—grew in popularity by being explicit about their commitment to being socially responsible businesses. “They had a very small cadre of conscious consumers, but they were the early adopters,” says Carol Cone, whose 1993 “Cone/Roper Report,” the first comprehensive study of consumer attitudes toward companies supporting causes, indicated that if price and quality were equal, two-thirds of consumers would “likely” switch to a brand or company that supported a social issue.
However, most mainstream banks did not respond to the rise of the conscious consumer. “If you walk into almost any coffee shop, there are always signs about how sustainably they harvest their coffee, presumably because it works and consumers like it,” says Bruce Usher, faculty director of the Tamer Center for Social Enterprise at Columbia Business School, where he teaches on the intersection of financial, social, and environmental issues. “Yet you walk into a bank and there’s no sign telling you that they’re doing sustainable things with your money.” Whittaker agrees: “As a bank, right now all you have to do is avoid doing bad things. But at what point do you begin to outcompete your High Street banking competitors because you’re offering an experience that’s more sustainable? We’re not there yet.”
Meanwhile, banks have not generally operated in the best interests of their retail customers. In 2016, for example, it emerged that Wells Fargo had for years been creating millions of fake accounts and charging customers fees for them. And in 2016, Pew Charitable Trusts found that more than 40 percent of the biggest US banks processed their customers’ transactions in order from the largest to the smallest by dollar amount, which can lower the account holder’s balance faster—leading to more overdrafts and overdraft fees—than processing transactions chronologically. “The lower your balance is, the more fees you’re charged,” says Joe Sanberg, cofounder of Aspiration, part of whose mission is to counter such practices. “The model of consumer banking has devolved to one where the worse you do as a customer, the better the bank does.”
Despite this, Taylor admits that getting consumers to think about banking in a different way is not easy. “Unfortunately, banking is the invisible part of our personal supply chain,” she says. “We pay more attention to the toothpaste we use, the yogurt we eat, and the coffee we drink than the money we spend and what kind of institution it’s going through. So it’s an uphill battle to get people to pay attention to banking.”
To try to change this, a cohort of banks with alternative business models and values—many of them GABV members—started working to prove that it was possible to provide customers with better services; act in a responsible, ethical way; and guarantee that loans being made with account holders’ deposits only supported environmentally and socially sustainable companies and projects. A few such institutions existed before the financial crisis. For example, Amalgamated Bank, which uses deposits to support “sustainable organizations, progressive causes, and social justice” and powers all its operations with renewable energy, was formed in 1923. And in the United Kingdom, Charity Bank, which offers a savings account whose funds are used to make loans to charities and social enterprises, was formed in 2002. However, the financial crisis was the catalyst for the creation of newcomers, such as Beneficial State Bank and Aspiration—banks that not only embedded ethics and environmental sustainability into their operations, but also saw themselves as role models and advocates for broader change in the financial sector.
The ability to play this advocacy role was among the motivations for Taylor and Steyer when they created Beneficial State Bank. “We had a hunch that something was wrong in the banking system,” Taylor says. “And it was a necessary thing to get right. Martin Luther King in his last speech to the striking sanitation workers said, if we don’t control the power of our spending, the civil rights we’ve fought so long and hard for will come to nothing. And it turns out he was quite accurate in that forecast—because of rampant economic and now environmental injustice, we’re not fulfilling the civil rights agenda.”
The bank—a for-profit business owned by a foundation—uses its deposits to make loans to community-based businesses and projects such as affordable housing schemes and renewable energy infrastructure that support local economies and protect the environment. As a deposit-taking, regulated institution insured by the Federal Deposit Insurance Corporation (FDIC), the bank needs to be financially sustainable and turn a profit. “But our shareholder is not banging on the door for returns,” Taylor says.
To help advance the responsible banking movement, Beneficial State Bank works with organizations such as Green America, a nonprofit that promotes environmentally aware, ethical consumerism, and the Committee for Better Banks, a coalition of bank workers, community and consumer advocacy groups, and labor organizations. “We’re not a movement maker ourselves, but we try to work in collaboration with the real movement makers,” Taylor says. Nevertheless, she believes the bank can show the way for others. “In developing a triple-bottom-line bank model,” she says, referring to the bank’s commitment to weighing social and environmental concerns on a par with profits, “we were trying to suggest how banks could observe their obligations to a broader set of stakeholders—not just the equity shareholders but also the customers, the colleagues, the communities in which they operate, the planet on which we all depend, and the broader public interest.”
The specter of a failing financial sector was also among the reasons for the creation of Aspiration. Its founders had some radical ideas about how banking should operate. The bank was the brainchild of Sanberg—an entrepreneur and investor who founded organizations such as the California-based antipoverty nonprofit Golden State Opportunity and Working Hero PAC, a political organization supporting politicians and candidates championing antipoverty policies—and Andrei Cherny, a fellow graduate of Harvard University and friend. Cherny, the bank’s CEO, had seen another side of the banking sector when, as the editor of the journal Democracy, he worked with US Sen. Elizabeth Warren, D-Mass., then a law professor, on launching the idea for the Consumer Financial Protection Bureau. And before cofounding Aspiration, he worked as a financial fraud prosecutor and consultant for corporations. “I had worked with some of the largest banks in the country around their challenges,” he says. “And I saw that you had these large institutions with many customers, but they were fundamentally misaligned when it came to customers’ incentives and best interests, but also customers’ values.”
With this in mind, Sanberg and Cherny created a bank that allows account holders to choose what fees they pay (they can even choose to pay nothing), rewards them for socially conscious spending, and promises that their deposits are fossil-fuel-free. As a broker dealer registered with the Securities and Exchange Commission, it deposits the cash balances in the Aspiration Spend & Save Accounts into deposit accounts at one or more FDIC-insured depository institutions.
Beyond deposit accounts, Aspiration expanded access to sustainable investment products, which until then had largely been available only to wealthy individuals or institutional investors such as pension funds. The minimum investment required for its Redwood Fund is $10, enabling a new generation of consumers to become investors. More than two-thirds of the customers of the Redwood Fund have never opened an investment account before, says Nate Redmond, managing partner at Alpha Edison, the largest institutional investor in Aspiration. He argues that while financial inclusion—or banking the unbanked—is important, so is enabling people who already have a bank account to do more with it. “What has an even bigger impact is if you can help billions of people who may have an account but don’t really participate in the financial system in the way they could or should,” he says.
The bank—which remains privately held, so it does not disclose its financials—has been growing rapidly. By 2017, its customers were transacting more than $2 billion a year. But for Cherny, the imperative behind the bank’s ability to grow goes beyond the success of Aspiration itself. “It’s important that we are a very successful for-profit company,” he says. “That’s not just about our own ambitions as a company but also about the statement it will make, because we believe this is the way every financial institution should be acting.”
In fact, both Aspiration and Beneficial State Bank have made it part of their mission to educate consumers about the impact they can make in their choice of where to deposit their money. “It’s more important than their coffee beans, because finance is more important than what it finances,” Taylor says. “Think about the energy industry—coal is nothing without coal finance, so we should be stopping the finance piece. That’s the bigger, more influential thing, and part of our mandate is bringing to light these connections.”
For Aspiration, helping consumers make the connection between their banking and their social and environmental impact is also a critical part of the mission. Through its blog, the bank not only announces new products and services but also shows consumers how they can make an impact. In 2017, for example, it encouraged them to join the divestment movement by taking their money out of unethical or unsustainable investments. On Earth Day in 2019, Aspiration launched its Move to Green campaign, challenging one million Americans to commit to moving their money out of banks that fund fossil-fuel projects and companies. “Most people who care about environmental issues aren’t even aware that if their money is at any of the biggest banks, it’s being used to make loans to fossil-fuel companies,” Sanberg says. “It begins by knowing what your money is doing while you’re asleep.”
The Future of Responsible Finance
In early 2020, just over a decade after the financial meltdown, a new crisis—the COVID-19 pandemic—presented a moment of reckoning for the financial sector. It differed from the 2008-2009 financial meltdown in that it was not a crisis of the banks’ own making. And the financial reforms put in place post-crisis had left most in a stronger position to survive this new calamity, at least from a financial standpoint. What was uncertain was whether or not their sustainability commitments would survive the pandemic.
Initial speculation from the business press and financial analysts was that sustainable investments might weather the storm more successfully than traditional portfolios. This was because of the additional due diligence conducted before deciding if an asset meets ESG criteria. Moreover, evidence was mounting that companies’ bottom lines could benefit from aligning their activities with ESG principles, making them better investments. For example, shifting to renewables helps meet tighter clean-energy regulation, while studies have shown that promoting gender equity enhances financial performance. By March, some evidence was emerging to support this. “While ESG equity funds have taken big hits this month, their losses have been less severe than those of conventional peers” was the assessment from Jon Hale, Morningstar’s head of sustainability research.
Meanwhile, commentators were watching to see which banks stepped up to support communities and which did not. One response was to offer personal assistance to customers in financial difficulties. For example, Beneficial State Bank offered deposit holders loan payment deferment programs, waived many transaction and processing fees, accommodated requests for increased credit card limits, and increased limits on mobile deposits to make online transactions easier. Similarly, Triodos Bank could respond to requests to review charges and extend overdrafts. Meanwhile, GABV created an online resource where it shared and updated the responses and best practices of its member banks.
The responses of some of the mainstream banks were tracked through the Moral Money newsletter of the Financial Times. In early April, it reported that Goldman Sachs was providing $250 million in emergency loans to small businesses, $25 million in grants to Community Development Financial Institutions, and $25 million in assistance for hard-hit communities. Standard Chartered had offered $25 million in support of emergency relief and $25 million to help communities to rebuild their economies.
However, Paul Polman, the former Unilever CEO and corporate sustainability champion, called for banks and investors to do more. Most of them, he told Moral Money, were focused on capitalizing on short-term opportunities and relying on government to back them up and to repair the economic damage caused by the crisis. “The most useful question to ask at this moment is, what collective action are the banks taking to protect society?” he said. “ lots of other examples in other industries; e.g., health and beauty, pharma, and manufacturing … where is the financial sector?”
Others saw the pandemic as a wake-up call. “Hopefully this crisis is a sign that we need to transition to a more sustainable, more resilient, and inclusive economy, and this should change the portfolio of the banking industry as well,” said Triodos’s Vendrik. “I hope we come out of this crisis with the banking industry financing the green resilient economy we need in the future.”
What seemed certain was that the world that emerged from the crisis would look very different. And the question being asked by governments, the business community, and the social sector was how this would alter the financial sector. Given the catastrophic impact of the pandemic on global and local economies, it was clear that banks should play a central role in helping communities to survive and recover from its effects and, through their asset management activities, influence the flow of investment capital into companies that were taking care of their employees and other stakeholders. Like few other crises, COVID-19 exposed the yawning gaps in health and social safety nets, as well as the need to build resilience ahead of another impending crisis: climate change. The question in early 2020 was whether or not the financial sector would step up.