Sustainable banking starts with determining human needs

"Sustainable banks start by determining basic human needs to be met and then deliver financial services which meet those needs," said David Korslund, senior advisor to the Global Alliance for Banking on Values (GABV). "In contrast", he suggests, "most banks start by asking: 'How can we make as much money as possible?'"

Korslund has had plenty of experience to draw on in making this distinction. His 30 plus year banking career began at the South Shore Bank in Chicago, one of the early innovators in sustainable finance. He moved on to mainstream banking to get exposure to the broader banking world becoming executive vice president at a large international bank with responsibility for running global planning and performance management.

A life-changing event in the form of personal loss in 2005 made him start questioning the bigger purpose. A few years later, in 2009, he finished up with ABN AMRO on a Friday with the following Monday clear to attend the inaugural meeting to set up the GABV.

The GABV is a network of sustainable banks including credit unions, community banks and microfinance banks from around the world, with the goal of touching one billion lives by 2020 through sustainable banking. It has set out to prove that sustainable banking provides an important alternative model for financial services.

Since it started in 2009, the GABV has grown from nine to 25 members and from $9bn in balance sheet assets between them to $70bn. Other successes include the CEO network for sharing information and seeking advice, the "Berlin Declaration" and work on establishing new sources of capital to support sustainable banking.

The Berlin Declaration includes three fundamental principles which GABV member banks believe are required for a paradigm shift in banking. Transparency through allowing customers to understand how their funds are used, sustainability through recognising that social and ecological criteria must play a critical role in the creation and use of financial products, and diversity through regulations that facilitate the growth of small banks, embedded in communities that address social inclusiveness and serve the real economy.

Research undertaken by Korslund for the GABV and funded in part by the Rockefeller Foundation has addressed the myth that being a sustainable bank will lead to lower returns. Korslund stresses that GABV members are not sacrificing financial return for social return. To the contrary, he argues that since the financial crisis became evident in 2008, sustainable banks show significantly higher levels of finance for the real economy (as opposed to financial markets), stronger levels of equity capital, better levels of return on assets and stronger growth.

"Not everyone is concerned with the needs of others", said Korslund, "many individuals think more about how they can make money for themselves and the culture of many banks reflects this. Often costs associated with financial profits come later ... Profits booked by large banks active in the financial markets prior to 2008 may not have been real."

Korslund pointed to the JP Morgan Chase fine of $13bn related to bonds backed by faulty residential mortgages. "Costs of big bank products can be difficult to estimate and the financial results are often influenced by individuals paid a bonus based on up-front results. Sustainable banks face these issues, but because of their greater focus on the real economy rather than the financial economy, the complexity of accounting issues is much less. Furthermore sustainable banks do not build their human resources strategies on individual bonus payments."

GABV members focus on the long term, their definition of value creation is broad and they recognise that stakeholder relationships are critical to their long term success – three key features of integrated reporting. But Korslund fears integrated reporting may be captured by accountants and marketing specialists and he is cynical about this group using it in the way that it is intended. Much of the work in improved reporting, he feels, is too complex and misses the point for the sector – where, he argues, publishing every loan you make is a better measure of accountability.

Korslund is working with GABV members and external experts to develop a scorecard to assess banking sustainability. It will address material financial, social and environmental performance issues including return on assets, equity to total assets, client deposits to total assets, investments in and revenues from the real economy (ie economic activities that generate goods and services) rather than financial markets and loans that meet the needs of people, planet and/or prosperity.

Such loans might involve, for example, education and healthcare, energy efficiency and sustainable agriculture or financial inclusion. This scorecard is set to be reviewed and refined at the next GABV annual gathering of its member bank CEOs in March 2014.

Korslund remains critical of mainstream banking, and of himself, but he believes that it is never too late to focus on a more sustainable banking future.

Carol Adams writes on Towards Sustainable Business. She is a Director of Integrated Horizons and a part time research Professor.

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