Should Banks be Ethical, Sustainable and Boring?

15 january 2013

In this week’s announcement that the Co-op Bank would being taking over 632 branches of Lloyds Banking Group in the UK, Co-op’s CEO, Peter Marks made clear that he wants his bank to be boring. As reported in the London Evening Standard, he explained that the aim is to develop a “boring, utilitarian kind of bank, we are not at the racy end. We don’t support profits by taking risks in the market… We are not looking over our shoulder at the share price. We have social goals, social responsibility.”

Is ethical, sustainable and boring the way forward for the troubled banking sector?  Co-op seems to think so. Regarding ethics, Co-op explains: “As a Co-operative business, we believe in ethical values and in putting our money where our mouth is. We have worked on numerous campaigns and projects all over the world as we put our ethics into action to make a difference.” Regarding sustainability, the bank publishes a Sustainability Report annually which “presents an open and honest account of the social, ethical and environmental performance of The Co-operative Banking Group… The Report focuses on the issues that are most material to the business and its stakeholders, ranging from ethical finance to combating climate change.”

Ethical Banking

Ethical banking is a hot topic and a recent collection of essays on “Trust and Ethics in Finance” published by and available for free from Globethics.net provides a fresh view from a worldwide group of young researchers. In the preface, John Plender sets out the business case for ethical banking:

“A reading of the essays that follow encourages the view that trust in business and finance is vital. It creates social capital that facilitates cooperative behaviour both in society and in organisations. Bad behaviour erodes trust and forces people to place heavier reliance on the law and regulation. And the more transactions have to be governed by contract, the more cumbersome and expensive business and finance become, as everything has to be negotiated, agreed, litigated and enforced.”

One of the young researchers, Felippe Araujo argues that: “ethical professional behaviour is not only a virtue in itself, but also provides a way to restore society’s faith in financial institutions and trust within the sector itself.” In another essay, David Sifah concludes that “an ethical basis to the operation of finance is not a constraint or a limitation placed on financial agents, but rather the prerequisite condition that will allow the financial system to continue to exist.” Whether you have an account at a bank, work at a bank or even own a bank and are interested in ethical banking, this collection of new essays would be well worth reading.

Sustainable Banking

Sustainable banking or sustainable finance is another hot topic these days as evidenced by Co-op’s sustainability reporting. In a new collection of essays on “The Business Case for Sustainable Finance” published by Rutledge, the editor, Iveta Cherneva explores the challenges of establishing the business case for sustainable finance. She explains that:

“While academic and non-profit circles present various arguments as to why finance should look into ways of improving the impact and sustainability of the industry, it should also be noted that unless an entity realizes and internalizes on micro-level the business benefits for an approach, rarely does outside rhetoric result in genuine and meaningful change… Therefore, it is legitimate and necessary to ask if sustainable finance makes commercial sense for the industry.”

One of the contributing authors, Richard Burrett of Earth Capital Partners, explores the biodiversity or ‘natural capital’ dimension of sustainable finance. He explains that “What the finance industry is beginning to learn is that the rapid decline and loss of biodiversity… will impact economic growth and business profitability if the industry continues to operate in a business-as-usual mode.” Nick Robbins of HSBC explores the evolution of the carbon markets “away from a narrow climate agenda focused solely on carbon costs to a development strategy designed to deliver a package of economic, industrial and environmental outcomes.” Other contributions address human rights, labour standards, and poverty reduction – key social aspects of sustainable banking.

Boring Banking

These two new collections of essays establish a strong business case for ethical banking and an emerging business case for sustainable banking. Co-op’s CEO, Peter Marks clearly also wants his bank to be boring. Ensuring that banks are boring may prove to be a key element of a new business model for the banking sector, enabling the sector to re-establish its ethical framework and focus financing on sustainability.