Ethical banks: 98.36 per cent of lending is directed towards environmental and social causes

Financial soundness, social and environmental commitment can go hand in hand: European ethical banks, in fact, demonstrate greater capital adequacy and better credit quality than ‘significant banks’. They also allocate a higher proportion of their assets to lending, confirming a greater focus on financing the real economy. 98.36 per cent of the loans granted by ethical banks go towards activities with environmental or social objectives, compared with 18.5 per cent for the major European banks analysed. This is what emerges from the 9th report on ethical finance in Europe: the study – compiled by Fondazione Finanza Etica and the European Federation of Ethical and Alternative Banks (Febea) – was presented in Milan as part of the Festival of Critical Economics organised by Fondazione Feltrinelli. The report highlights the importance of the social economy, comprising over 4.3 million organisations and 11.5 million people in employment: however, it also points out that this economy continues to face difficulties ‘in accessing the resources needed to grow, invest and innovate’.

There are currently 26 ethical banks in Europe, managing more than 120 billion euros in assets and holding over 90 billion euros in deposits. These figures are on the rise, given that in 2018 assets totalled just over 51 billion. These banks allocate a larger proportion of their funds to lending than traditional banks (67 per cent compared with 61 per cent), with the aim of generating positive impacts on the environment and communities, whilst maintaining a high level of financial, economic and capital strength.

The aim of the study is precisely to examine in greater depth the comparison between ethical banks and major European banks: it then analyses the accessibility of financial instruments for social enterprises. The report, it explains, ‘also analyses the trend in the cost-to-income ratio (the ratio of operating costs to operating income for financial intermediaries), which has risen more sharply in ethical banks than in large banks. The rise in interest rates has, in fact, led to an increase in operating income for all banks, but what distinguishes ethical banks from larger banks is the way in which the higher profits have been used: in the larger banks, higher revenues have been channelled into profits to be distributed to shareholders or used for mergers and acquisitions’. In ethical banks, on the other hand, ‘a larger proportion of revenues has been used to strengthen the bank and its presence in local communities, to allocate more resources to staff, and to pass on a higher proportion of the added value to customers’.

The report also includes a number of proposals regarding the competitiveness of the banking sector. Specifically, Febea calls for ‘recognition and promotion of the diversity of the financial sector, in which – alongside large groups – small and medium-sized intermediaries also operate, with strong local roots and a greater focus on financing the real economy, SMEs and the social economy’.

Another key point is as follows: ‘Putting the principle of proportionality into practice means applying rules and regulatory obligations that are consistent with the size, complexity and risk profile of the various banks’. Regarding the proposals, Federica Ielasi, vice-president of Banca Etica, said: ‘We are not asking for new resources, but for greater stability, consistency and joint planning.’ Ahead of the negotiations on the 2028–2034 EU budget, it is essential to transform public guarantees – starting with the strengthening of InvestEU – into permanent and predictable instruments. We need access criteria that prioritise social and environmental impact, truly proportionate banking regulation for locally-rooted intermediaries, and the development of long-term capital instruments. Only in this way can citizens’ savings once again be channelled into financing what creates real value for communities and the protection of the planet’.