Peter Blom, GABV (The Netherlands): Future of Finance…
Sustainable Banking and the pace of change. First published in February 2012, in Pengevirke, Merkur Cooperative Bank, Denmark and Cultura Bank, Norway’s regular magazine.
In recent years the world has been caught in a storm of accelerating, far-reaching change, and a seemingly perpetual state of crisis. In recent years banks have been seen to be at the heart of much of what’s bad about this change, and the crises that have sprung from it. They have become the focus for popular discontent, not least because many mainstream banks have required tax-payer bail-outs to survive, or they have collapsed entirely. Ultimately, they have suffered because of leverage; they have chosen to borrow too much from the future in an extremely irresponsible way.
Banks are too important to leave to the bankers. Rather, it’s vital that the notion that ‘everyone is a banker’ becomes more widely recognised; because we all have responsibilities and the capacity to influence the impact of our money on the people and environment around us. Sustainable banks have the power to be effective catalysts for change.
As individuals, we can choose. And thanks to profound shifts internationally, articulated by the growing voice of civic society, many of us are choosing to change the way we act as individuals, and bankers.
At the same time a movement of values-based banks – financial institutions that are connected with these broader issues but who balance people, planet and prosperity in their banking activity – have become more successful. They have grown, sometimes at record pace. As lending from high-street banks has dried up, theirs has expanded, serving sustainable entrepreneurs working in the real economy.
While there has been a consistent decline in trust of big business and big banks alike in recent years, we are now witnessing a more profound awakening of civic action. More than ever people, rather than government and business, are taking the lead in determining our collective future.
From the pressure exerted by huge online communities, able to respond rapidly to changing circumstances, to the much publicized actions of the Occupy movement, disparate voices are raising fundamental questions about the way we live and the systems we have come to depend on. Values-based banks can help answer them.
From the Greek bail-out to the fate of the euro, all the global financial system’s warning lights are red. But while politicians and press focus on the euro, the real crisis is one of debt.
We are heavily over-indebted; as countries, businesses and individuals. Banks have created colossal debt and leveraged their capital base far too much, exposing them to unreasonable levels of risk. Central banks have lowered interest rates so even more debt can be created. This has enabled people to consume more, maintaining the holy grail of economic growth and relying on the market to solve the problem.
In recent times Governments have used trillions of euros to save the ailing financial system. But there has been less money than ever to combat poverty, to transition to a low carbon economy, and to finance small businesses; all the things we really need. The necessary resources are available. The required political will is not.
Credible new approaches, and new ways of thinking, are needed more urgently now than ever. All of which means sustainable banks, and their customers and partners, have an important role to play. We won’t achieve this on the basis of how big we become, but as an inspiration and reference point for others, because successful sustainable banks prove that things can be done in a different way.
How Things Changed
To understand where the financial industry should go next, it’s worth addressing when and why things have become so different. 30 years ago the banking sector was richly diverse. Banks focused on the agricultural sector or on small businesses, for example. They had a clear function that their customers understood and valued.
The early 1980s marked the start of a period of profound change. The ‘static’ thinking that business is business and banking is banking – the paradigm of the preceding years – transformed to more linear thinking championed by the new financial liberalism of the UK and United States, and echoed by much of mainland Europe.
Banks became businesses, and started to grow. As they did, they started to trade on their own account, producing unprecedented profits at break-neck speed. The link with the real economy started to unravel, to the extent that some bankers truly believed that innovative financial markets, in themselves, could produce real value.
At the same time, businesses became banks. General Electric in the US, for example, decided to pursue leasing financial services because that was more profitable than manufacturing refrigerators. This pattern proved popular, but meant more and more banks and these hybrid businesses were increasingly separated from the real economy; from people making and selling thing or services people needed, and wanted, to buy.
This ‘linear’ thinking, that turns almost everything into a marketable product, is one of the root causes of our current troubles. It is the paradigm that’s taught at influential business schools such as Harvard and the London School of Economics; and it is deeply ingrained in our financial system as a result.
This thinking has to change. If it doesn’t, we will not get the bankers we need to build a more equitable, environmentally responsible and prosperous future.
To break free of this cycle, we must re-think. We need systems thinking that recognises and embraces how interconnected we have become.
We should realise and embrace the fact that banks have a vital, positive role to play in society. Not by pursuing ever greater profits in the fastest possible time, but by taking a longer-term view. Banks should serve the real economy, finding out what the people they serve need rather than maximising shareholder returns regardless of their true costs.
Re-thinking And Doing
Values-based banks are at the heart of efforts to rethink the system in this way. Not just by what they do as part of their core work, but by developing initiatives. For example, the Sustainable Finance Lab – a Dutch ‘think and do’ tank of leading academics and practitioners, aims to identify grounded ways to change the financial system for the better.
Triodos Bank and a handful of other sustainable banking pioneers, including BRAC Bank in Bangladesh and Mibanco in Peru, co-founded the Global Alliance for Banking on Values. This network of the world’s front-running values-based banks aims to increase the impact of sustainable banking around the world.
We intend to help drive growth to 30 members, from its current 14, by 2015; explore a collective financial vehicle to meet the need for equity in this fast-growing banking sector and impact measures to bolster the sustainable banking industry; and developing an active human capital programme to train and equip a next generation of sustainable bankers.
The importance of these initiatives, and their collective impact, should not be underestimated. The social and environmental issues that the sustainable banking movement is wrestling with are more urgent than ever. They are interconnected, as are the economic forces that have the power to be the productive, positive catalyst for sustainable change, or the potential to promote more and deeper crises in the future. And they are evident in the voices of increasingly disaffected civil society.
Values-based banks alone cannot solve these issues, but they have a crucial role to play, offering a credible, positive response to some of the greatest challenges of our time.
Opinion Piece courtesy of Triodos Bank.