Sustainable Banks Outperform World's Big Banks
New report creates hope of different financial future
09 FEBRUARY 2012, VANCOUVER, CANADA
SummaryThe Rockefeller-Foundation funded research compares the performance of a group of sustainable banks, with a representative selection of the world’s largest and most influential banks, from 2007 to 2010. This report offers evidence that values-based banks lend more, enjoy a stronger capital position, and offer better returns to investors than their mainstream contemporaries.
VANCOUVER, BC (March 8 , 2012) - A new study shows that sustainable values-based banks, which base their decisions first and foremost on the needs of people and the environment, are outperforming traditional mainstream banks in many areas, including financial indicators such as return on assets, growth in loans and deposits, and capital strength, making a compelling case for values-based banking.
Commissioned by the Global Alliance for Banking on Values (GABV), a network of 15 of the world’s leading sustainable banks, and funded by the Rockefeller Foundation and GABV, the report compared the performance of 17 values-based banks with 29 of the world’s largest and most influential banks between 2007 and 2010 in an effort to show the benefit that sustainable banks can have on underserved people.
These 29 banks are defined as Globally Systemically Important Financial Institutions (GSIFI) by the Financial Stability Board. Often referred to as ‘too big to fail’, they include Bank of America, JP Morgan, Barclays, Citicorp and Deutsche Bank.
The report concluded that values-based banks were twice as likely to invest their assets in loans, lending more than 70% of their assets during this period on average. The values-based banks also appear to be stronger financially with both higher levels of, and better quality, capital. The BIS 1 Ratio, an important measure of a bank’s solvency, averaged over 14% during the period studied, compared with under 10% for the mainstream banks. The sustainable banks also had an average Equity/Asset ratio of over 9% while the GSIFI banks averaged just over 5% during the period covered.
The sustainable banks analysed in the report also delivered higher financial returns than some of the world’s largest financial institutions. Return on Assets, the measure increasingly considered most relevant for judging a bank’s financial performance, averaged above 0.50% while the big banks earned an average of just 0.33%. Values-based banks also had returns on equity averaging 7.1%, compared to 6.6% for the GSIFI banks.
“Our banking industry has an unprecedented opportunity to change, to help meet some of the greatest social and environmental issues of our time,” says Peter Blom, GABV Chair and CEO of Triodos Bank, Europe’s largest sustainable bank. “This report shows that doing good is beneficial for banks not just in a theoretical and ethical sense, but also financially, when measured against conventional benchmarks such as the financial bottom line.
“The findings are crucial for a global banking industry which has tremendous potential to affect positive change through its ability to lend money to finance entrepreneurs and stimulate local economies. And, most importantly, it shows that a sustainable approach to banking offers all of us the prospect of a stable, prosperous future.”
Blom was commenting from the GABV annual conference in Vancouver, British Columbia, (March 8-10), hosted by GABV member Vancity, Canada’s largest community credit union.
His sentiments are echoed by the report’s co-funder, The Rockefeller Foundation, who supported the study to help advance an understanding of how values-based banks can be better enabled to provide needed financial services to vulnerable communities in an environmentally sustainably way.
“The new findings demonstrate that a different approach to banking – one in which the focus is on social and environmental benefit for vulnerable people – can bring comparable financial returns to the traditional banking model,” said Heather Grady, Vice President of Foundation Initiatives at The Rockefeller Foundation. “The Rockefeller Foundation is thrilled to support GABV in their work to encourage mainstream banks to embrace a progressive approach to finance, thereby improving access to needed financial services for poor and vulnerable populations.”
One important measure of the growth of the values-based banking sector over the past four years is in the amount they lend, financing their clients. This increased 80% between 2007 and 2010, while mainstream banks increased their lending by just over 20%. Significantly, this growth highlights the focus of values-based banks on expanding business in the real economy.
While the worldwide economic downturn accounts for a portion of that disparity in lending growth, it also indicates how increasingly, people around the world are turning to banks that put the interests of people and the environment alongside financial returns.
“Clearly, there is growing demand worldwide for values-based banks that have a triple bottom line approach to banking, balancing people, the planet and prosperity,” says Tamara Vrooman, CEO of Vancity. “The appeal of GABV members is that their banks are transparent, they regularly share details of how they invest the money entrusted to them, and, importantly, they are grounded in their communities, lending only to enterprises working in the real economy.
“Our challenge now is to meet this growing need for lending and other bank services among people traditionally unserved or underserved by the big banks.”
To that end, the Global Alliance for Banking on Values intends to create a new financial vehicle in 2012 to raise capital required to do just that. In 2009, when GABV committed to raising $250 million in capital over three years to support expansion of lending to unserved communities and individuals, and green projects, it ended up raising US $400 million in just one year.
Another indication of the growing popularity of sustainable vales-based banking is the growth in the number of banks that are turning to this community-based approach. This week Canada-based Assiniboine Credit Union was accepted as the 15th member of GABV, with more banks expected to join the GABV this summer.
To view a summary of the report, the full report, photography, quotes and additional information, visit our press room here. For more information on the Global Alliance for Banking on Values, visit www.gabv.org. For more information on Vancity, visit www.vancity.com.
James Niven Lorraine Wilson
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Backgrounder: Global Alliance for Banking on Values
- The Global Alliance for Banking on Values (GABV) is a membership organization, made up of fifteen of the world's leading sustainable banks, from Asia and Latin America, to the US and Europe.
- The organization began when ten of the world’s banks came together in 2009 to commit to supporting the growth of sustainable banking and its impact worldwide.
- Members believe that we must improve the quality of life for everyone on the planet, recognizing that we are economically interdependent and responsible to current and future generations.
- Across the world, GABV members play a crucial role in providing the money entrepreneurs and their enterprises need to transform lives and deliver sustainable development for unserved people, communities and the environment.
- Members are bound by a shared commitment to find global solutions to international problems, and to promote a positive, viable alternative to the current financial system and mainstream banking business models.
- Most banking institutions base their business decisions primarily or exclusively on profitability. GABV banks start by identifying a human need to be met and then determine how to meet that need on a financially sustainable basis.
- GABV banks have combined assets of over $26 billion, and operate in 24 countries.
- To qualify for membership, each institution must: be an independent and licensed bank with a focus on retail customers; have a minimum balance sheet of $50 million; and be committed to responsible financing and the triple bottom line of people, planet and prosperity.
- In 2009: GABV committed to raising $250 million (USD) in capital over three years to support expansion of nearly $2 billion in lending to unserved communities and individuals, and green projects, at the Clinton Global Initiative. They raised $400 million in just one year.
- In 2010, Global Alliance for Banking on Values pledged to touch the lives of a billion people by 2020 by expanding its network of banks, further increasing the capital it raises and training a new generation of sustainable bankers to use that money to make a lasting difference, and help meet the biggest challenges of our time.
Backgrounder: Global Alliance for Banking on Values Members
- BRAC Bank and BRAC Microfinance Programme
- Vancity Credit Union
- Assiniboine Credit Union
- Merkur Bank
- El Salvador
- SAC Apoyo Integral
- GLS Bank
- Banca Popolare Etica
- The Netherlands
- Triodos Bank
- Cultura Bank
- Mibanco, Banco de la Microempresa
- Alternative Bank ABS
- United States
- New Resource Bank
- United States
- OnePacificCoast Bank
"The more we lean into our mission and the faster change takes place, the better we do." Tamara Vrooman, CEO, Vancity
"The GABV has been an important catalyst to accelerate our transformation and journey towards impact." Tamara Vrooman, CEO, Vancity
"It’s not easy for a single bank to have a large voice within a nation. The GABV makes it easier to be heard." Lars Hektoen, CEO, Cultura Bank
"If we want to change the financial system, it has to be done at an international level." Ugo Biggeri, CEO, Banca Popolare Etica
"We are clear about what we want to achieve, but it is time for action to create benefits for the GABV banks." Peter Blom, CEO, Triodos Bank
"We have a global network, and we are connected to activity that is locally grounded. This will create huge opportunities." Peter Blom, CEO, Triodos Bank
"There is a tremendous opportunity and responsibility for banks like ABS to show that banking can be done differently." Martin Rohner, CEO, ABS
"These new findings demonstrate that a different approach to banking – one in which the focus is on social and environmental benefit for vulnerable people – can bring higher financial returns than the traditional banking model. The Rockefeller Foundation is thrilled to support GABV in their work to encourage mainstream banks to embrace a progressive approach to finance, thereby improving access to needed financial services for poor and vulnerable populations." Heather Grady, Vice President of Foundation Initiatives at The Rockefeller Foundation.
About Global Alliance For Banking on Values
The Global Alliance for Banking on Values is an independent network of banks using finance to deliver sustainable development for unserved people, communities and the environment.