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Ethical banks take into account, together with the economic ones, the non-economic consequences and impacts of all their activities. Namely, they provide credit to companies and activities that have positive social and environmental impacts, and that contribute to the overall well-being of society as a whole. As the financial crisis has shown, this means, as a first step, to work in the "real economy" only, thus avoiding speculative activities, the use of tax-havens, the "shadow banking system" and those speculative instruments created by the modern financial markets.
Secondly, the ethical banks apply some exclusion criteria, and avoid any relationship with clients or sectors linked to arms producing and trading, pornography, polluting activities and others whilst prioritising activities that have a positive impact (such as renewable energies, organic and small sized agriculture, fair trade, international cooperation and others).
Special attention is given to those people and actors that are normally excluded from any banking activities (non-bankable actors). Therefore, access to credit as a fundamental tool of self-development, both in the South and in the North.
Although many models of social-ethical banks exists, the most notable difference with traditional banks is transparency. Some ethical banks publish, for instance on their websites, the complete list of their financing, thus giving the chance to their clients and shareholders to verify their overall behavior.
The transparency brings forward another critical aspect of social-ethical banking: the participation of the clients and of the shareholders to the decisions and the life of the bank. The issue of the governance inside the bank is crucial as well, and is linked to the necessity of having a coherent overall behavior of the company. Not many people would define a bank that finances renewable energy as ethical, if at the same time another sector of the bank would be involved in financing arms.
Why ethical banks are important
- regarding the financed activities: they have shown that it is possible to give credit to actors that, until a few years ago, were considered as "non-bankable" for the lack of financial guarantees. Microcredit in several countries in the global South is a case in point, but the same is true for NGOs, small cooperatives, associations, and small companies that benefited from the existence of ethical banks to develop their activities;
- for the clients and people who hold a bank-account, the ethical banks do represent a concrete alternative to the lack of transparency and the behavior of the "traditional" banks. Many people would not lend their money to see it used for speculative reasons, arms trading on polluting activities. ‘When I put my money in a bank account, there's no reason why I should not act accordingly':
- for the other banks and the financial community, the ethical banks may be an example of how it is possible to do banking and credit activities in a different manner, without hiding behind the "banking secret" or the "commercial confidentiality", without playing in the casino finance, without financing damaging projects and companies
- for the campaigners, the ethical banks may as well serve as an example of how a bank could work, thus raising the bar in the requests and advocacy towards the other banks.
Social Responsible Investments: a critical option
Even within this category, different approaches and definition may be found. For instance, the "social responsible funds" range from those that apply some exclusion criteria (avoid investing in arms producer, alcohol, gambling, and others) to those that screen every company (and State) against strict human rights, social and environmental criteria, to those that engage in the company they invest in (active shareholding or critical shareholding). A combination of these approaches may be considered as well.
This lack of a proper and strict definition has brought more and more financial actors to pretend to be part of the ethical finance community in order to gain a stronger reputation. A sort of "ethical greenwashing" that rose up in parallel with the emerging of global indexes specialized in rating the "sustainable companies". The Dow Jones Sustainability Index - DJSI, or the FTSE4Good are among the most known and influential. Several of these indexes have been criticized for their approach, allowing companies that are accused of social and environmental violations to be included.