ETHICAL MANAGEMNT

IN BANKING

What Is Ethical banking?

It is the objective of this paper to give an introduction to the notion of what is often
described as “ethical, sustainable, social, alternative, development or solidarity”
banking and finance. The common bond and specificity of this type of financial
institutions is that they are characterized by values driven impulses and practices at the
core of their business while values are poorly developed in the field of mainstream
commercial banking and finance.
This paper is giving an overview of the principal modern pioneers in this field and is
putting them in a historical context, describing the nature of their initiatives and as an
example going deeper into the case of Triodos Bank from an ethical point of view.

HISTORY
Historically banks have been viewed solely as financial institutions, which should
concern themselves with all things financial. Morality has not entered the equation.
This public view has allowed banks significant leeway with concern to ethical
standards. This is because they have not been associated with the actions taken by
the businesses they lend to. Banks have also stated that a reason for not mounting
the new challenges that sustainability presents is that such inspection would require
interference in the activities of clients. Jeucken 2002 However with changing social
demands, and as more is known about the effects that banks can have through their
lending policies, banks have begun to feel pressure from the general public,
NGOs, government's, and the like to go beyond conventional business
management. For example in the mid 1990s the Cooperative Bank asked 6,000
customers what their thoughts were on ethical banking; 84% responded that it was
a good idea.Harvey 1995 In fact the cooperative bank was formed in response to the
growing consumer base looking for ethically oriented banks.
INTRODUCTION
An ethical bank, also known as social, alternative, civic, or sustainable bank, is
a bank concerned with the social and environmental impacts of its investments and
loans. Ethical banks are part of a larger societal movement toward more social
and environmental responsibility in the financial sector. This movement includes:
ethical investment, socially responsible investment, corporate social responsibility,
and is also related to such movements as the fair trade movement, ethical
consumerism, boycotting, etc. Ethical banking is a juvenile sector within this
movement. Other areas, such as fair trade, have comprehensive codes and
regulations to which all industries that wish to be certified as fair trade must
adhere. Ethical banking has not developed to this point; because of this it is
difficult to create a concrete definition distinguishing exactly what it is that sets an
ethical bank apart from conventional banks. Ethical banks are regulated by the
same authorities as traditional banks and have to abide by the same rules. While
there are differences between ethical banks, they do share a common set of
principles, the most prominent being transparency and social and/or environmental
aim of the projects they finance. Ethical banks sometimes work with narrower
profit margins than traditional ones, and therefore they may have few offices and
operate mostly by phone, Internet, or mail.

Ethical banks cannot solely rely upon the legal system to determine whether or
not a potential client has acted unethically or whether or not their future plans are
unethical. This is because of the wide range of laws throughout the world. While a
business may be lawful in the international setting, this does not mean that the laws
were up to the moral standards in which the bank originates. For example,
extensive pollution and labor laws that would not be considered lawful in many
developed countries are allowed in many lesser-developed countries.

Ethical banking
Ethical banking provides direct finance through lending and risk capital to fulfill the
financial needs of selected entrepreneurs, organisations and businesses. The cooperative
movement from the beginning of the 20th Century is an example of how essential needs
can be fulfilled through forms of collaboration and mutuality in membership
organisations. Modern forms of cooperation beyond focusing on membership needs such
as the fair trade and microfinance movements, combining economic with social values,
are a step forward in the understanding and practice of brotherhood and solidarity in a
global economical context. Both the cooperative movement and the new social
movements from the 1960’s have developed a practice of ethical banking. Cooperative
banks and new social banks co-exist, while some mainstream banks have become aware
of business opportunities in this sector. Microfinance institutions focus their effort in
parts of the world where there is a high need for poverty alleviation. For a better
understanding it is useful to distinguish these tendencies:

a. Cooperative banks and credit unions

Cooperative banks and credit unions have substantially contributed to the provision of
finance to their members, which at the beginning of the 20th Century was a social task.
This changed when commercial and savings banks started offering banking services on a
broader scale. Many cooperative banks expanded their activities into the mainstream and
lost their special social mission. Some of them have recently rediscovered their roots and
are redirecting some of their activities. Driven by a need to build a specific brand identity
in a financial world where there is much of the same, these banks manage to successfully
combine usual banking business (the bulk of their financial operations) with support to
specific areas such as community development, the not-for-profit sector and/or
environmental development. Examples of such banks include Rabobank in The
Netherlands (having a major green fund), Vancity in Canada (giving low-income and
marginalised members access to necessary financial services), Cooperative Bank in the
United Kingdom (taking a stand against the finance of armaments), and Crédit Coopératif
in France (developing solidarity products).

b. New social banks or private development banks

In the last 40 years, new social banks or private development banks have been created
and new banks are still being constituted. Impulses for their mission come from the
recognition of social and human development needs and of a need for quality of life
including care for the environment. They look to the processes of dealing with money,
not only at the outcome. They see cooperation not as a mutual aid process between
members but as a shift of interest towards the needs of other human beings in a local or
global context. They want to stay true to their values even as they grow and change,
while growth is not a target on its own and financial profitability is seen as a condition
for further development.
These impulses are connected to those driving non-governmental organisations such as
Amnesty International, Greenpeace and Friends of the Earth, and they appeal to those
citizens or cultural creatives who are convinced that they can play an active role in this
global and personal development process.
The founders of GLS Bank in Germany, constituted in 1974, were the first to concentrate
on the qualities of loan money (to potentially stimulate human interest) and gift money
(the most productive seed capital). They also focused on the capacity building force of
bringing savers and borrowers, consumers and entrepreneurs together for investment, for
example in organic agriculture, school education and care for handicapped people. GLS
sees banking as a continuous and conscious process of directing the money flow to where
it is needed in societal and human development perspective. Individual responsibility and
care for the other human beings are seen as core drivers of these processes. Community
building through participation in these processes is stimulated through the creation of
borrowing and guarantor communities, dedicated savings instruments, and a choice for
clients of the bank to determine for themselves the height of interest rates on their
deposits. This ethical approach to banking, has been an inspiration for many of the
European social banks which have gradually developed over the last few decades.
Notwithstanding cultural differences, variety in size, accents (social, environmental),
products and services, and stage of development, all of them have ethical and sustainable
development elements at the core of their mission, ambitions and practices. All of them
are making a good case for human and social development while offering both generally
and specifically designed products and services to their respective markets. Whilst a few
have failed, most of them have found their way of continuity, with different models of
functioning, whilst being in conformity with general banking regulations. An overview of
those successful institutions that have a banking statute are:

ShoreBank, (1973), USA

GLS Bank, (1974), Germany
Triodos Bank, (1980), The Netherlands with branches in Belgium, United
Kingdom, Spain and Germany
Freie Gemeinschaftsbank in der Schweiz, (1984), Switzerland
Merkur Bank, (1985), Denmark
Wainwright Bank and Trust Cy, (1987), USA
Alternative Bank Schweiz, (1990), Switzerland
Cultura Sparebank, (1997), Norway
Ekobanken, (1998), Sweden
Banca Popolare Etica, (1998), Italy
Charity Bank, (2002), United Kingdom.

Some social banks have been constituted by trade unions and have developed based on

social and ethical criteria:

ASN Bank (1960), The Netherlands
Caisse d´Economie solidaire Desjardins (1971), Canada
Unity Trust Bank (1984), United Kingdom.
Other social banks are focusing on some specific market segments:
Health and social economy – Bank für Sozialwirtschaft, created in 1923 on behalf
of the UN High Commissioner for Refugees and originally serving as the central
administration for UN funding in Germany
Environment – Umweltbank (1995) in Germany, and the New Resource Bank
(2006) in the USA

These banks are quite different as to the volume of their operations – balance sheet totals
vary from EUR 30 million to several billions, and their financing capacity from EUR
50,000 to EUR 25 million per project. All together they are currently financing tens of
thousands of projects with added social value mobilising the savings of more than one
million people and institutions. Being still relatively small, these banking on values
institutions, have substantial growth rates, are professionalising and consider themselves
to be catalysts for social change. With these banks also succeeding in applying
outstanding internal organisation and staffing practices, and in developing specific
methodologies to properly deal with the ethical aspects of this type, they have a potential
for further qualitative development.

C. Microfinance banks
Microfinance is a methodology of banking for the unbankables (people without access to
finance), contributing to poverty alleviation through micro lending for income generating
activities of the poor themselves. Although this methodology is not new nor comparable
to the movement that was launched in Germany by Friedrich Wilhelm Raiffeisen at the
end of the 19th Century (and later developed by credit unions), microfinance in its present
form received a tremendous boost from the Grameen approach in Bangladesh, designed
by the 2006 Nobel Price winner Professor Muhammad Yunus.
In 2007 there are approximately 10,000 microfinance institutions worldwide. Apart from
their contribution to economic development of millions of poor entrepreneurs, their
families and their communities, they are often providing basic education and methods of
community building. Some of these institutions have the potential to develop into full
social banks and are helped with support structures from the north such as Oikocredit,
launched in 1975 by the World Council of Churches, the Triodos Microfinance Funds
(1994 and 2002), ShoreBank and Shorecap International (1988 and 2003) and many other
institutions. Apart from Grameen Bank some of the most advanced microfinance
institutions are Brac Bank (Bangladesh and Afghanistan), Basix (India), Acleda Bank
(Cambodia), Mibanco (Peru), Findesa (Nicaragua), Compartamos (Mexico), Equity Bank
and K-Rep Bank (Kenya) and Centenary Bank (Uganda).
The financing of poor people’s entrepreneurship in the north requires different methods
compared to traditional banking due to the different social structures and the
predominance of individualism. Adie (Association pour le droit à l´initiative
économique) created in 1989 by Maria Nowak in France, is a good example of
collaboration between mainstream banks, government and non-governmental
organisations.
So long as microfinance institutions are able to integrate basic ethical values, going
beyond the mission of fighting poverty, and are able to connect local savings to local
borrowing and continue to get the support from northern development money, they have
potential for high quality development. New challenges however, such as the effects of
climate change, especially in the south, will require huge investments from the world
community pointing at the necessity of further social and environmental globalisation on
the planet.

4. Innovative practices case study: Triodos Bank Group

The paradigm shift of people using banks to take their money out of the anonymity of
markets and to give it a human sense needs drastically innovative banking practices. The
Triodos Bank Group is interesting because of its constant transformation, growth,
diversification and integration while keeping its mission and ambitions alive. This is why
today it is a reference for the social, ethical and sustainable banking industry.
Using money as an instrument for social change can bring a breath of fresh air to the
banking sector. This is what the founders of Triodos Bank in the 1970’s had in mind.
After more than 25 years of social banking activities, and with more than EUR 3 billion
assets under management with profits linked to ideals, the Triodos Bank Group has
widely diversified its activities beyond taking in savings and lending to sustainable
projects and social entrepreneurs. Apart from traditional payment services, the bank’s
core activities include lending to sustainable projects and social entrepreneurs, taking in
savings from committed depositors, special purpose fund management, ethical screening
services, and sustainable private banking. Some of these and the innovative processes of
human resource management and internal organisation are described in more detail below
in order to demonstrate how an ethical approach to banking can be integrated in business
and organizational processes.

a. Lending and investment

The Triodos Bank, apart from the funds under management, currently lends more than
EUR 850 million to about 4000 projects, organisations and businesses in four key areas
and 16 sub-sectors in five European countries. The key areas are nature and environment,
social business and culture and society and sub-sectors include organic food, renewable
energy, social entrepreneurship, housing associations, education, art and culture. Through
investment and lending to approximately 60 microfinance institutions in 30 countries
(Asia, Africa and South-America) and financing fair trade and development cooperation,
the Triodos Bank Group is contributing globally. The Group also manages
environmental, social and ethical investment funds.
The lending policy integrates both positive criteria (projects that combine added cultural,
social or environmental value with financial credibility and that clearly benefit the wider
community) and negative criteria (clearly defined non-sustainable products and services,
for example, nuclear energy, environmentally hazardous substances and the weapons
industry plus non-sustainable work processes, such as intensive agricultural production,
genetic engineering, breach of fundamental labor rights).
The following elements of policy and practice concerning lending are innovations with
ethical considerations and demonstrate the quality of internal ethical and social standards:
the Bank’s loan book is 100% mission based (ethical, social and development
aspects in the mission) which is high compared to lending by other social banks
and exceptional compared to mainstream banking practices where lending is
ethically neutral
choices of lending are clearly defined and are only in selected key areas and subsectors.
The lending process ensures that each selected project meets absolute
criteria which measure the potential negative impact of a borrower’s activity on
people and the environment
lending criteria are strict, publicly available and in accordance with the Bank’s
other activities such as risk capital investments, investment funds under
management and other asset management activities. The criteria are regularly
reviewed and refined as changes in the market and trends develop
the degree of transparency on lending activities is very high due to systematic
publications on the lending activities
the bank closely considers the motivations of the people involved in a loan
application as much as their trustworthiness.

b. Savings, advice and screening criteria

By practicing a high degree of transparency – savers are told what the Bank is financing
with their money – clients are stimulated to develop their interest and participation in
positive action deployed by social entrepreneurs and other borrowers at the bank.
Donations in the cultural and development sphere are systematically stimulated and
Private Banking clients receive personal advice on the ethical aspects of their
investments. The screening criteria used by the Triodos Bank Group’s ethical funds are
among the most strict and severe in the ethical funds sector. Ethical screening services
and advice are also made available to other banks, pension funds and institutional
investors.

c. Human resource management

The Triodos Bank pays special attention to the social and ethical motivation of coworkers
throughout recruitment, evaluation procedures, internal training programmes and
debate and exchange sessions. Co-workers are stimulated to take initiatives out of their
personal conviction and ethical understanding as far as these are in line with the Bank’s
mission. Co-workers are encouraged to actively participate in the decision making
process. Therefore information, discussion, reflection, and creative inputs at weekly coworkers
meetings are a tradition that keeps the attention, also on ethical questions, alive.
The salary system employed by Triodos Bank is based on the principle that income is
12
generated by the joint efforts of all co-workers. Salaries are set based on a system of job
evaluation, and on a self-imposed restriction of the difference between the lowest and the
highest salaries at the bank.

d. Internal organization
The main objective of Triodos Bank is of an ethical nature – ‘With the exercising of
banking business, the company aims to contribute to social renewal, based on the
principle that every human being should be able to develop in freedom, has equal rights
and is responsible for the consequences of his economic actions for fellow human beings
and for the earth’5.
The voting rights at the Triodos Bank annual general meeting are exercised by the
Foundation for the Administration of Triodos Bank Shares (SAAT), and are guided by
the ethical goals of the bank thus preserving its identity.
Triodos Bank’s annual report6 has been formulated according to the Global Reporting
Initiative (GRI) guidelines since 2001 when it was the first bank worldwide to publish an
integrated annual report (social, environmental and economic). Since then, more than 50
banks worldwide have used the GRI guidelines7 for their sustainability reporting.
For reasons of principle, no share option scheme is offered to members of the Board of
Management, Supervisory Board members or members of SAAT´s Board of Trustees.
The Group is structured in an integrated way, both locally and internationally, with
business units covering specific activities. This helps the Group to consider the ethical
aspects of the business at each level of business and globally.

ETHICAL INITIATIVES
Numerous ethical banks (as well as some conventional banks) create initiates that
allow the banker to contribute to organizations that have positive
societal/environmental impacts either in the local community or in developing
countries. For example the Cooperative Bank (UK) offers customers "a free Home
Energy Rating on all house purchases, enabling them to better understand how
energy efficient a property is and how to make improvements. Additionally, all of
the bank's mortgages include carbon-offset features. Every year that a customer
holds a mortgage the bank offsets a fifth of the carbon dioxide emissions arising
from a typical household's energy consumption. Following customer consultation,
2003 offset monies were used for reforestation in Uganda, a Bangladesh project
which trains local people to build energy efficient stoves and a Bulgaria project
supporting micro-hydro electricity generation."Coro Strandberg 2005 Whereas the Citizens
Bank (Canada) allows its’ customers to choose between a variety of VISA cards
that benefit Oxfam Canada, Amnesty International or their philanthropic Shared
Interest program by donating $0.10 to not-for-profit initiatives worldwide every
time their VISA card is used. This enabled Citizens Bank to donate $24,800 to
Doctors Without Borders/ Médecins Sans Frontières in 2007. These are only a few
of the wide range of services available at different ethical banks. Many also have
lower interest rate loans for low emission cars (ex. of low emission car initiative
put forth by Citizens Bank).

Environmental standards for lending

Environment is a key focus amongst ethical banks (in this field specially called
sustainability or green banks) as well as amongst many conventional banks that
wish to appear more ethically oriented or that see switching to more environmental
practices to be to their advantage. Some view this move as green washing. In
general bankers "consider themselves to be in a relatively environmentally friendly
industry (in terms of emissions and pollution). However, given their potential
exposure to risk, they have been surprisingly slow to examine the environmental
performance of their clients. A stated reason for this is that such an examination
would ‘require interference’ with a client's activities." Jeucken 2002 While the desire to
not meddle in the business of the client is valid, one could also note that banks are
required to interfere in the business of their clients regularly to ensure that the
clients’ business plan is viable before issuing them a loan. The kind of analysis that
all banks partake in is termed a single bottom line analysis (this analysis only
considers financial performance). It is arguable whether or not performing a triple
bottom line analysis (an analysis that takes into account environmental, social, and
financial performance) would be any more intrusive.

Internal vs. external banking ethics

Conventional banks deal with mostly internal ethics, ethical banks add to internal
concerns by applying external ethics.

Internal ethics: processes in banks

Internal ethics are concerned with the well being of employees, employee and
customer satisfaction, benefits, wages, unionization, fair sex and race
representation, and the banks environmental standing. Environmentally the
potential combined effect of banks switching to more environmentally friendly
practices (i.e. less paper use, less electrical use, solar power, energy efficient light
bulbs, more conscientious employee travel policies with concern to commuting and
air travel) is huge. However when compared with many other sectors of the
economy banks do not incur the same burden of energy, water and paper use. Jeucken
& Bouma 1999
Many times such energy efficient changes are not based on moral
concern but on cost efficiency.

External ethics: products of the banks’ relationships/products

External ethics are concerned with the wider ramifications of banks actions.
External ethics looks at the impacts that their business practices, such as who they
loan to or invest in, will have on society and the environment. In applying external
ethics, one looks at how the products of banks can be used unethically, for
example how borrowers use the money that is lent out by the bank.
Emergence of ethical banking and finance

Quite early in history gold, reflecting the spiritual world, served artistic, religious and
economic goals, and was directly linked with the gods and their servants, the priests, who
organised its flow. Throughout medieval times Christianity set its laws on usury, Islam
set its rules on interest, and monasteries organised economic life in their surroundings,
working with investments and charitable actions in a moral and religious perspective. In
these times humanity was strongly organised around three realities: the spiritual world,
the world of nature, and local social entities.
Since the beginning of the 15th Century, natural sciences and later enlightenment,
gradually emancipated people from the world of the gods, nature and their local social
environment. The relationship between human beings changed with the growing
predominance of individualism.
This context and background of modern society are fruitful to the emergence of modern
ethical banking concepts and practices.

Essential characteristics of banking on values

Social, ethical, alternative, sustainable, development and solidarity banking and finance
are denominations that are currently used to express particular ways of working with
money, based on non-financial deliberations. A precise and unified definition of these
types of finance as such is not available and perhaps not possible because of the different
traditions from which ethical finance actors have emerged. While individual motivations
from founders, investors, savers, borrowers, social entrepreneurs, managers and coworkers
of these institutions vary greatly, there are some universal human values,
practices and needs that motivate all of them to develop positive action. Conscious
handling of money is considered to be an additional value in itself. Many of these values
are part of internationally recognised declarations or principles, such as the United
Nations Universal Declaration of Human Rights (1948) and the International Labour
Organization’s Declaration on Fundamental Principles and Rights at Work (1998), that
identify basic rights such as:

Freedom of thought, opinion and expression using reason and conscience are
leading to financing art and culture, education and research

Equal rights at a political and juridical level, the freedom and right of association
in a democratic society and the right to work are a basis for financing civil society
projects and for participating in the public debate about the benefits and
challenges of shared social responsibility

A spirit of brotherhood, based on understanding, tolerance and cooperation in

economic life leads to financing social entrepreneurs especially in the areas of
high urgency like poverty alleviation, fair trade, environmental production and
preservation.
To practitioners of ethical banking, raising consciousness and responsibility are essential
in their missions and ambitions. They make the choice to only finance projects and
organisations that contribute to a more sustainable society and they define absolute
criteria about who they will not lend money to, for example non-sustainable products
and/or services and those involving unsustainable working or production processes. Their
specific products and services reflect these values and intentions.
While money is a catch-word of our age, to ethical banking institutions and their
shareholders, savers, investors and borrowers money and ethical banking practices are
instruments for human development. These characteristics differ with those of
mainstream finance, mainly driven by market forces, shareholder value and financial
return.

Socially responsible investment

In the 18th Century, the Quakers in the United Kingdom refrained from investing in
industries they were morally opposed such as tobacco, alcohol, gambling and the slave
trade. This was the first negative ethical screening of investments, later to become known
as Social Responsible Investment (SRI). It continued into the 1920’s with the Methodist
Church of North America screening out negative activities, or ‘sin stocks’ from their
investment portfolios. In the 1960’s and 70’s the conviction that investment funds could
be used to achieve social change give rise to the public demand for ethical investment
vehicles such as the Pax World Fund4. In the 1980’s investments supporting the South
African apartheid regime were avoided, and Friends Provident (UK) was the first
financial institution to launch an SRI fund. With its help, the Ethical Investment Research
Service (EIRIS) was established to provide critical research and information on stocklisted
companies social, environmental and ethical performance. In the United States,
Amy Domini developed her ethical screening advice services and the first ethical stock
market index.
At the beginning of the 1990’s, a first attempt was made in The Netherlands to develop a
positive ethical screening to be used alongside the original negative ones. This positive
screening involves a best-in-class method, where company performances were compared
with those of competitors. This type of screening has since further been developed and
several ethical screening organisations have been established. Standards of screening
have been developed and screening services are now being widely provided to banks,
insurance companies, asset managers, private bankers, institutions and high net-worth
individuals. Most stock-listed companies have had some form of ethical screening of
their social and ecological behaviour so that ethical funds or asset managers can
constitute diversified portfolios primarily based on combined negative and positive
ethical criteria. Some of these funds, such as those of the Triodos Bank Group are also
actively involved in (proxy) voting at shareholder meetings. The ethical investment fund
market is developing quickly and many mainstream banks are offering such products.
Today there are more than 600 ethical investment funds worldwide and their number is
constantly increasing. However the ethical quality of these products differs significantly
in terms of quantity and content of positive and negative criteria applied. As a quality
label the generic denomination ethical fund, indicating that some sort of ethical screening
has been applied, is not appropriate.
As corporations have a tremendous impact on both people and planet, and as they are
operating more globally than ever, their corporate responsibility needs to be engaged. Its
making its way to the boardroom table as well as that of management and has begun to
become integrated into internal structures. However high-quality corporate responsibility
is still an exception. Whether responding to customers needs, preparing and positioning
for the future, or as a result of enlightened leadership, this development is likely to grow
and so will the number of ethical questions and dilemmas. By applying ethical screening
to their investments, ethical funds, institutional investors, and pension funds are
exercising influence on management, and gradually corporations are responding with
improved transparency, reporting and accountability.
In the best circumstances ethical screening and investor pressure is contributing to a
process of intensified observation, questioning, reflection, measurement, ethically
amended business principles and consequently adapted decision-making.
Better reporting, external social and environmental auditing, the elaboration of social and
environmental guidelines in corporate governance codes, feedback by the screening
analysts and regulations could lead to a system of permanent upgrading of ethical
conduct by corporations.
Socially responsible investment is of a totally different nature than ethical banking since
it relates to the ability to influence company behaviour through the provision of capital to
stock-listed companies. Ethical banking, as described below essentially relates to direct
financing and loans.

Ethics in banking
Banking and finance as a profession have an intrinsic value chain which is interwoven
with the cycle of providing adequate financial products and services. As long as there are
no bank guidelines or criteria on ethical, social and sustainability aspects, the individual
co-worker or the lending committee are generally applying the ‘neutrality rule’,
excluding ethical, social and environmental considerations from the bankers´ decision
making. In reality however, money is not neutral and it involves responsibilities from its
inception and along the distribution chain where it has to do with value creation, not only
pure financial value but also human, social and environmental added values.
Money, capital, intelligently and wisely invested as an instrument for improving quality
of life, can have a major impact on human development. Because of this impact, a neutral
attitude to investment and lending is irresponsible. In the financial markets, money and
money systems become mechanical and develop uncontrollable dynamics. Financial
regulators and authorities are only concerned with the mechanics of the system in order to
prevent major breakdowns. Is there an organisational design for money as an instrument
subservient to human development? What are ethical impulses and human qualities that
can be found in modern societies in both developed and developing countries and that can
be brought into the banking and finance process? Three possible impulses are described
below.

a. The impulse of brotherhood and sisterhood at interpersonal, local and global level:

Are we interested in each other’s physical existence and well-being? Do we feel

responsible for each other? How do we deal with this question on a planetary level? In
which way do we experience and organise a global co-existence at a time of different
development patterns in different cultures and in different natural environments around
the globe? Are we ready for such a scope of social cohesion while self-interest and pure
consumer orientation are taking the lead in modern economy? Can a transparent money
stream serve social cohesion and stimulate the interest in each other by making money
become available to those who are talented to use it in value creation activities for the
common good?

b. The impulse of recognition of human dignity as a precondition for human

development:

The impulse of recognition of human dignity as a precondition for human development

demonstrates a deep interest in the personality and the capacities of other human being(s),
including respect for a person’s inner life and active tolerance. How can the availability
of money, in its respective qualities through lending, investment or donation, contribute
to a valuable use of human capacities?

c. The impulse of searching for ‘meaning’ and ‘quality’ in life:

‘Meaning’ refers to a constant quest for understanding, including the spiritual level.
‘Quality’ has to do with the added value that is the outcome of a search process where
choices are being made in life. How can investment and lending be directed to
meaningful positive action and be diverted from financing negative developments or
negative aspects of an undertaking? Can ethical banking be a method of constant search
and reflection on the meaning of human and economic value creation while putting its
findings into practice?
Standing in the middle of social and economic developments, bankers are well positioned
to have an overview and a feeling for what matters, although they assess risk versus
opportunities without considering social and environmental development. They generally
use this position to grow their business. They do not take this opportunity to transform
the knowledge they have acquired into wisdom that they could apply in developing
ethical banking policies and making fundamental choices.
Bankers’ observations of the needs of their clients and of society in general can lead to
inner reflection and understanding of the degree of importance of some development
questions. Conscious bankers can transform feelings of powerlessness into an
understanding that something can be done. Transparency of ethical banking operations –
showing what is financed – is a prerequisite for open dialogue with clients and civil
society. This dialogue can lead to a deepening of understanding of the phenomena and to
inspiration for adequate action to be deployed. When this perpetual process of
observation, reflection, mutual exchange, taking responsibility, action and reporting is
included in specific organisational forms, ethically working bankers will have developed
a valuable instrument that is not only serving the needs of their clients but will also help
to fulfill the needs of society as a whole. This description of ethical banking does not
refer to charitable action. It starts from the observation that altruism, or looking after
someone else, is part of economic life where division of labor and interdependency of
people are a basic principle of efficiency. Human needs are an expression of a healthy
egoism in an economic process dealing with the fulfillment of needs. Altruism in an
economic sense is not in contradiction with egoism but tends to equilibrate the economic
process.

Conclusions
Although private community and development banks, microfinance banks, ethical,
environmental and social banks and ethical funds differ in terms of focus, accents, clients,
products and business culture, they have in common to practice banking and investment
with a human development mission. The differences tend to be rather complementary
qualities that can be fertile in combination with each other. They are all delivering an
innovative and human value contribution to the value-neutral financial system.
Ethical banking as it has been described above stands in a historical line of continuous
search for the application of ethical principles in banking and is in line with broader
trends in the 20th and 21st centuries such as the emergence of civil society and the new
social class of cultural creatives, growing consumer awareness, social justice and
environmental movements and the growing recognition of social entrepreneurship, to
name a few.
Some questions require continuous attention:
Will this emerging financial business sector be able to achieve the relative scale and the
professionalism to challenge the dominance of mainstream finance? Will the exceptions
of the financial industry become the exceptional and a factor in modern society? Will a
profound way of dealing with ethical choices be overruled by the superficiality of
business development – also in ethical banking? Can ethical banking as a process with an
instrumental character avoid becoming institutionalised? Can ethical banking be a portal
for trust forces, morality and responsibility to feed money processes and the financial
system with basic values and practices that can be a counter power to uncontrollable
morbid growth?
Ethics are now more than ever a subject of personal choice, behaviour and responsibility.
At the same time, more and more people are individually looking for values to
incorporate in daily life. As contemporaries on their way, they are part of an ongoing
process of search and practice linking up and networking with other people, creating new
forms of social cohesion. Instruments such as ethical banking processes, products and
services and money as a subservient tool can be helpful.
It was not the intention of this paper to provide an in depth analysis and screening of

ethical banking practices but rather to describe the state of the art of an emerging
financial sector with the conviction that it could become a significant factor in society,
not so much in terms of volume but in terms human added value.
Frans de Clerck
Inspired by insights and publications from Wilhelm-Ernst Barkhoff, Rolf Kerler, Paul
Mackay, Peter Blom, Lex Bos, Henri Nouyrit, Christine Gruwez and collegues from the
ethical banking scene.
Frans de Clerck is senior advisor to the Executive Board of Triodos Bank Group, cofounder
of Triodos Bank Belgium and co-founder of the Global Alliance for Banking on
Values.