Finance 4 Good Mini-Series: Episode 1 - Introducing Ethical Finance

This podcast is brought to you by Feb. and Social Economy Europe. Welcome to this new mini-series on sustainable and ethical finance, called Finance for Good. Brought to you by Feb. the European Federation of Ethical and Alternative Banks and Finance Seas. In coordination with Social Economy Europe and its podcast series, Social Economy Talks. In this mini-series, we will help explain what ethical banks and finance seas can do for us and why they represent a safer, fairer and more responsible place that we can invest our money, where we can know exactly what our money will be used for. As we will learn, this is not the case for traditional or mainstream banks. We will show you how you can get involved, the services that these ethical banks and finance seas can offer you as potential clients and the importance of values. We will discuss the risks and safety of investing your money in ethical banks and understand how they monitor the projects they invest in to ensure the environmental, social and cultural impacts of their investments. In future episodes in the mini-series, we will focus on incredible stories of impactful projects financed by ethical banks. We will deep dive into the meaning of the terms green and social and the current fight for an understanding of these terms as well as the infamous phrase greenwashing and the less known social washing. We will discuss the important challenges that ethical banks and finance seas face and what needs to be done to overcome these challenges. In today's episode, we will hear from Aurora Prospero, Network Manager at Feb. Daniel Saurosal, Secretary General from Feb. We will also hear from several members of Feb and Nicholas Schmitt, Commissioner for Jobs and Social Rights from when they spoke at the recent Feb. 20th anniversary conference on 10 June 2021. So let's jump into this episode and try to paint a picture of what ethical finance actually is. The best place to begin this journey is to ask ourselves some questions. You have to think to ourselves, what do banks do? What do businesses, companies and organisations do? And what is the impact? And do we care about the impact? Well, along with the money that citizens or organisations save and invest in banks, banks provide customers with services, including giving credit and loans to individuals or organizations in order to buy something, start a business or expand their business. For businesses, especially large ones can have hugely negative impacts on the environment, society and even on peace. If our banks are investing in these negative businesses, are we also responsible for this impact? Aurora explains. I think there's one previous step, which is that not all people know that putting their savings in a mainstream bank has an impact. For example, I would never finance a weapon industry or a weapon factory, you know. I would never do it with my money. And I didn't know that when I had my savings in a mainstream bank, I was doing that indirectly. So when I discovered that I could do other things with my money, the choice was really simple and I had to do it. I think this first step is the first communication. Your money is doing things whether you know it or not, so you have to choose how to use it. But we all have complaints about banks. They undergo speculative trading, which refers to the act of making a financial transaction that has a substantial risk of losing value, but also holds expectation of significant gain or other major value. Speculative trades are vulnerable to both the downside and upside of the market. Therefore, speculation can be extremely risky and are often not linked to any activity in the real economy. Traditional banks can be corrupt with a lack of transparency in who they are financing, often financing the fossil fuel industry, industries with human rights abuses, not to mention the huge salaries and bonuses, which are given as rewards for a very short term investment strategy, which might be detrimental to a large part of society and even the bank's own clients. Let's take a look at the 2008 financial crisis. André Barones, vice chairman of Banker Etica, explains how nowadays having a current account in a bank can actually cost us money. An incredible paradox that we are witnessing in Italy, but it's not just the case of Italy so far. What we witness is at the same time in the same place an excess of money and a lack of money. Some markets hit new records every day. Currently, government and Italian bonds have a negative yield. This means that there's so much money flowing around that save us and people who has money struggle to find some place to invest their money in and they have to accept negative or zero years of return because there's no more investment up to the financial markets. And at the same time, each and every day, we've been repeated that there's no money. There's no money for geological transition. There's no money for public services. Even more than that, more and more people and the weakest people, the social enterprises struggle to try and get access to credit. They are excluded from financial services. What we witness is that the weakest subjects and the social economy is more and more excluded from access to credit in a moment where there's never been so much liquidity going around. So with all these negatives, is there actually an alternative? Is there a place we can put our savings where we know our money will be used for a good cause, where we can see where our money goes, or that we can participate in the governing processes of the banks of financiers? Well, the answer is yes. And its name is ethical finance. I asked Aurora to explain to me precisely how ethical banks and financiers work. Ethical banks collect savings from citizens. They want to use responsibly their money. And ethical banks transform their savings in loans and credit for the real economy. The real economy means projects that are actually carried out in the community. So not a financial speculation, but real projects carried out by real people on the territory. And in addition to this, ethical finance supports the real economy and the particular projects that provide a 90 value in terms of social inclusion or environmental impact on the local community. So that's it in a nutshell. But let's begin this journey by finding out what ethical banking really means. We first hear from Aurora and then from Daniel. So for me, ethical finance is the power of choosing. It means knowing that the choices that we make as citizens in terms of managing our savings or our current accounts can have a concrete impact on the community and on the economy around us. And so ethical finance means having the power to choose how your money is used and having the opportunity to use it to actively contribute to an inclusive and fair economy. For us, ethical banks sustainable finance is a lot more than green. We think that finance, if it's sustainable, it's because it's contributing to create a better society. And that better society, it's basically building a future, the future where society will agenda will leave. And that will include trees for certain, but it will also include jobs for them, opportunities to develop. It will include eradicating conditions. It will include cultural activities. It will include, let's say, a holistic view of sustainability. So we look at it rounder and for us, the social is equally important to the sustainable. In the midst of the COVID-19 crisis, society has begun to care more and understand the importance of social and environmental and cultural values. Nicolas Schmidt explains what this means for the financial sector in general. That would mean the sector adopting investment strategies based on sustainability, proving requirements. That is taking into account of the social impacts of the operations. Ethical finance can be expected to accompany and contribute to this major shifts and transitions. The confidants makes particular sense to people that want to be aware of the social impacts of their savings. For an example from within Fabea's membership, we hear from panagiotis turnavitis, CEO at the Corp. Bank of Cardiza in Greece. We have all these years a totally different banking perspective. That generate not only profit, but also social prosperity and cohesion. Through our action as a bank, we support local economy and leverage local financial capacity that indeed serves people. All these years we have managed to be successful because we support a local community. We contribute to their development we care for them. All these years we are focused on purpose rather than profit. And this is in my opinion what ethical banking is all about. So ethical banks and finance years put people at the heart of their investments. Ensuring your savings helped the finance only projects with a positive green and social impact. In fact, Danielle from Fabia tells us how they are the pioneers of sustainable business solutions and approaches. We were the pioneers of financing green 20 years ago when nobody was doing it. What we started doing back then was basically supporting collective efforts by citizens to create their own energy. They would build their own windmills, they would set up solar panels, mostly for self-consumption. Typically they would do it through some sort of cooperative form. We were supporting that from the beginning. In a way for us green has been energy, yes. But it has also been a culture. We were also pioneers in financing organic agriculture in Europe when it was still relatively new 20 years ago. We have been supporting all kinds of value chains linked to organic agriculture from the production to the distribution to bring it to consumers in different ways. That has become relatively an important sector these days that has almost been absorbed in mainstream. Green for energy has been a culture. It is also basically supporting any organization that wants to reduce its ecological footprint as well. It is not only about what we produce, it is also what we reduce in terms of harm. A great example is from Lars Pearson, the former CEO and founder of Mirkelbank in Denmark. It seems to be very common and natural today such as organic farming and food. We were the first bank in Denmark really to place trust in that new way of producing. No other banks dared to finance in this area. We did and today it is the only part of Danish farming that is also running financially well. Wind energy was something that we were pioneering in. Equal construction is another. So where does the money come from for an ethical bank to finance these positively impactful projects? And how can we as citizens get involved and become a part of an ethical bank? In ethical bank money comes from citizens, from people like us who decide to put their savings in these organizations because they want to have a positive impact with their money. A resources comes from citizens, individuals and from organizations working in the real economy. So basically resources do not come, for example from financial speculation activities but from real engaged projects. I think there are several ways in which a citizen can use a corporate with an ethical bank. First, obviously you can open an account and put your savings in there. But also and it's very important to remind it most ethical banks are actually cooperative organizations and it's hard. So it means that you can also become a member of the cooperative, which means you are one of the multiple owners of the bank. And therefore there you are not just placing your savings and you are actually buying a share apart of the cooperative. And it's sort of expected that it remains over time. It is important that ethical banks can count on the resources for a certain period of time because it's already allowed us to transform into loans, into products that can benefit the social economy or micro entrepreneurs or whoever they are supporting. These credits go exclusively to projects with an environmental, social or culturally positive impact or all are continuous. In addition to this, ethical banks have decided not to finance certain type of activities or certain sectors such as the weapon industry, fostered fuels or industries that do not respect workers' rights or human rights. Daliel explains what kinds of organizations fit the criteria for receiving credit or loans from ethical banks and financiers. So they are not necessarily focused on classic savings or industry or any kind of sector of the economy. They are mostly focused on the third sector as a whole. So all the organizations that they are associations and geos, foundations etc. Let's say what is for the common good in general. Then you have a specific activity which is related to what's today called the green economy which we started to do for the years ago, which was actually organic farming, renewable, renewable, and all kinds of activities related to the circular economy, etc. And then we have a third subset of activities that is much more to the culture, industries, creativity, etc. And maybe a more emerging one these days, the sort of new type of social enterprise is particularly led by younger people, fresh ideas and fresh ethics on solutions to many of the products that we have, on how to reduce waste or how to include people differently, how to use technology and so on, so on. So this is great. I myself can save in an ethical banking institution. But what can I do with my money? Can I have access to the same services that other banks can offer me? And one more thing that we always tend to forget. Some of our members also develop services for their own, let's say, savers. You can place your savings in the past, but it can be that if you did a mortgage, your mortgage is for a greenhouse or passive house, we will be very happy to give your mortgage as well, or we will be very happy to support you when you do something public, then the thing in pre-advancing as absolutely respecting later. So I think our role is in two fronts. One is certainly supporting the economy, the pre-advance economy, but specifically the social economy in our case. Generally we try to care for the needs of our savers, so we need a credit card, we need a credit card, we need a debit card, we need an advanced set for some sort of loan. Okay, so although each ethical bank may offer a different set of services, it is clear that so long as you have the right cause, a wide range of important services are available to members or users of ethical banks. Again, let's hear from Panagiotis Ternavitis of the Cooperative Bank of Cardieta. All our loans are targeted in real economy, supporting very small, family-owned businesses, farmers and startups. We are considered key stakeholders in Greece in supporting social economy initiatives and other cooperatives. And through our cooperation with the development agents of Cardieta and Women's Center of Cardieta, we participate in specialized programs that provide support to disadvantaged groups such as Roma people and victims of domestic violence. So let's hear some examples of what this really looks like. Who is actually receiving these loans? So in terms of what we do, let's say if we start from the simple, we are not microfinals, especially if we provide some small loans to people who want to create their own job. Let me tie this with a story. So some years ago, a lady Belgium came to our offices and to the offices of one of our members and said she wanted to set up a company working on the idea of clothes, not being a product. But being a service that you could buy. So basically she wanted to set up a box full of clothes for babies. So when you have a baby, you order a box for the first month, after a month you send it back and you get a box for the second month. So you basically don't have any more clothes that you buy and you don't know what to do with after what you send it back. You're buying a service. We started with a micro loan for this day. And I remember she came with her baby and to the interview with the banker, so imagine how tolerant we are. And that grew. After a while, she needed a second loan, a third loan and that became a company. And it became a kind of new type of company for us even. Let's say, a purpose of a company where we had to help her find other investors, for example, because it grew a bit too big for us. And this is what we do in, let's say, helping individuals. Of course, let's say this could have been a cooperative or a person. This could have been a group of people that maybe wanting to do the same thing. And we would have helped them the same. But it could have been a group of citizens that wanted to build their own little turbine in their village or two or three turbines. And typically they would organize themselves collectively as a cooperative. And sometimes they would have put together themselves with a loan that allows them to basically turn that into reality. It could have been a group of farmers that have switched to organic and want to set up a system to distribute the products directly to consumers in the cities we have known that before. It could have been a group of people that have set up a cooperative that has a deal to use existing land. This happened in Barcelona. But they don't own the land, the land is owned by the city council, which will basically provide the land for free or very long term lease. The cooperative they set up will build a house on this land and each of them as members of the cooperative will have access to specific flats. Depending on how many members of the family they have, it will be bigger or smaller, etc. It might be intergenerational, it might be that there is a certain amount of inclusion in it. Some people have less financial means, some people will have other, this is a certain amount of mutual effort in allowing everyone to access. But there we tackle a problem like social housing, which is social or not necessarily social even, it's just housing, it's a big problem. So we tend to direct our actions in a way that in the end they are tackling larger societal problems, be housing, be responsible food, be enterprise in a different way, be just creating your own job, be you know, have one. This is the way in which we can think we can contribute. A more classical way would be supporting, let's say, a well-established organization who wants to buy some building, who needs to basically improve its finances with additional treasury or cash or whatever it is. So we tend to offer a specialized range of lending products that cater for the needs of an individual up to an organization and everything in between, as long as what they do contributes to a vision of society that we share. Now we know that ethical banks are rooted in communities, but what are the main values that ethical banks must adhere to? How do ethical banks differ from the horrible list of flaws and ethical pitfalls that traditional or mainstream banks suffer from? I would say transparency is the first one because ethical finance organization publish the full list of the projects they finance, so you can go on the website and actually see what is being financed using your money. Also participation because there are participatory processes put in place so that members, clients, employees and stakeholders can take an active part in the decision-making process of the bank, cooperation among members, clients and with a local community and solidarity. It is very encouraged to have participation in the governance of members and stakeholders. This means also a willingness to be rooted in the community, participating in generally broader social economy or civil society networks. So ethical banks are not necessarily defining themselves as purely financiers, they are more like one more stakeholder in the third sector in the social sector. But also, and it is quite an important value to highlight, it is an option of austerity, comparison to other banks on financier, ethical banks define themselves only beginning as relatively austerity organizations. And this is reflected in the fact that typically the exclude bonuses in the remuneration policies and they have very clear rules in terms of the ratios that have to be applied between the state and the highest paid employee and the lowest paid employee. And this vision is usually up to seven. It means that the person that gets paid the most is paid maximum seven times more than the person that is paid less in the organization. You can imagine the impact of this if you think that in mainstream banks this ratio is easily up to 40 and can reach 150 if you count bonuses and additional benefits for managers. And this is a way to link the performance of the bank or the performance of the employees of the bank to the mission and not necessarily to the financial incentive that might come out of that mission, which probably allows them to feel narratively safe position in terms of potential mismanagement, corruption. A spin of this state is also the fact that ethical banks have a very clear policy in regards to how the bank operates as an organization. So there is an absolute ban on using fiscal havens or all kinds of speculative tools in stock market. Now let's hear once more from Panagiotis of the Bank of Cardiza as an example of this. I would dare to say that we have managed well. For us all our operations is around value-based and responsible banking. And not profit is the center of our operations. We never tend our back to the one in need during crisis. We offer to our clients a wide range of product and services and we work for the good of our members and community and not vice versa. We never give bonuses to staff or executives for achieving sales goals and we have an open doors policy. For us ethics and not metrics is what matters first. And by saying ethics is simply knowing the difference between what you have a right to do and what is right to do. This leads us to an important question. Is your money going to be safe if you save in an ethical rather than a mainstream bank? Now this question might be more important to many savers than the ethical matter itself. So we hear from Aurora, Danielle and Panagiotis to answer this important question. Well actually ethical banks are safer than mainstream banks. For example during the financial crisis no ethical bank needed recapitalization for the crisis. Ethical banks even managed to grow during the financial crisis because more citizens decided to place their savings in ethical banks rather than in mainstream banks. And also the percentage of non-performing loans which are loans that are, let's say, bad loans that are not performing well. This percentage is much lower in ethical banks than in mainstream banks. This is due to how ethical banks bet their loans and how they monitor the loans over time and due to the closed relations that this bank has with the clients and with the projects that which they know money. An ethical bank that is licensed as a bank is basically responding to the exact same regulation as a new approach. So in terms of safety we are safe as a new approach. I think the distinguished factor is that typically we tend to have, I would say, a more long-term look at the economy, with under speculation. So the fact that we're not doing speculation has actually acted as a bit of a safeguard. And many of the excesses that we could see in the financial crisis, the post-financial crisis, were typically untouched by them. So if you take the period, let's say, between 2008 and 2020, the whole post-financial crisis period, most of our members not only grew, not only were more profitable, in that period the mainstream banks, they gained market share, they increased the volume of loans to the real economy in that period. And they generally are attracted more citizens than before. So safety shouldn't be a concern. Some important key facts about our bank is that firstly, in all these years of prolonged financial crisis in Greece, we have never received state aid in any form. Our bank, despite what have happened to the vast majority of the bank, never needed or was forced to recapitalize and never needed or receive liquidity from the ELA-Mecans. Apart from being members of the Bayer, we are also members of the Global Alliance for Biking on Piles and the European Microfinance Network. Through all these collaboration, we not only have a final new partners, but we have discovered the best practices to improve and promote the way we do business. And we constantly are the highest ranked Greek bank under the annual supervisory review. Also, today our bank holds one of the highest capital and liquidity adeguations in Greece. This is clearly an interesting model for citizens who want their money to be used sustainably. But the last question I have is how can we be sure that the projects invested in by ethical banks are genuinely sustainable? And how can we be sure that the financial processes or monitoring takes place to make sure projects are truly having the positive impact expected of them? Again, we hear from Aurora, Daniel and Panagiotis. The way this is reflected, let's say, in operations, is by having a parallel evaluation of every organization such as our ops fund would need a loan to finance and move its activities. The bank would carry out a parallel evaluation of the environmental and social impact of providing that loan as much as an evaluation on the economical, like, say, feasibility of the loan request. We couldn't explain how these loans would contribute in any way to improve society. It would also not be grand. By doing its systematic in every operation, ethical banks or financiers make sure that each euro is going to the right place. We have a third dimension, which is impact, which actually comes first and it's a blocking, determined in fact, if there is no clear impact, then there is no loan. So thanks to these close relations with the social economy sector and with the local communities, ethical finance organization can know better the activities. We, our bank, works beyond economic growth. Of course, we are concerned about it and it's not, but it's not only our sole interest. In most business cases, we also assess the non-economic impacts alongside with the consequences of each economic action, because we want to have a spherical view of total impact. Also, during design phase of financial instruments, we consult with various stakeholders in both local and national level, so as to examine the different views and needs of various target groups. This approach reflects a transition from the traditional share of further interest to stakeholders' interests, in its broadest sense. To conclude this first episode, an introduction to ethical finance, we can see that there are ample opportunities for us as citizens to get involved, and for our money to be used in a truly sustainable way. In future episodes in this mini-series, we will be sharing good practice examples and finding out exactly what the challenges are for us to spread the word and increase citizen engagement in ethical banking. We will learn about how banks and businesses try to use the idea of green or sustainable to persuade the public that they are environmentally or socially responsible, all the while continuing to finance dangerous, unsustainable practices. To finish, I want to answer the question, why this mini-series? Well, at Faber's 20th Anniversary Conference, Commissioner for Jobs and Social Rights, Nicholas Schmidt issued Faber a challenge. This is part of how we wish to answer that challenge. The hearing from the commissioner, Aurora and Danielle issued their hopes for the mini-series as well. My third point is about the traditional role of Faber advocating for ethical finance and putting forward success stories, promoting good practice, in reporting requirements, remains and this remains essential for strengthening ethical finance avenues in Europe. Participatory events both for ethical finance practitioners and would be investors and customers are important to consolidate a critical mass. Ethical finance institutions are unequally developed across member states, expanding the practices and having partnerships with organizations in the last developed ones is also crucial for achieving a truly European dimension. Well, I would say nowadays as consumers, we are very careful with our choices. We can choose to eat organic food or to buy products of the third trade or we are careful with fast fashion products. My aim with this series would be to let people know that they have this kind of choice also in terms of financial services. They can choose how their choice can have an impact around them. I think that if a thousand people eat organic bananas, it's good for the planet. But if a thousand people force their bank to change its policies and to sustain the right industries or the right sectors of the economy, the impact as a whole is very big. They are just not aware of the power they have when they choose the right financial operator or when they ask their existing financial operator to change. Thank you very much for listening and stay tuned for more episodes of Finance for Good and Social Economy Talks. (upbeat music)