SUSTAINABLE BANKINGFINANCIAL TIMES SPECIAL REPORT | Thursday June 3 2010

Pushing itsway on toboardroomagendas

Sustainable forestry, sustainablefishing, sustainable farming –the idea of managing theearth’s natural resources in a

prudent way has been gaining groundrapidly in recent years, as the worldrealises that failing to do so coulddestroy us all.

Now, so the optimists of the world’sfinancial markets believe, there is aunique opportunity to make sustaina-bility an integral part of banking.

Eighteen months on from thedepths of the 2008 financial crisis –and with fears of a European sover-eign debt blow-up mounting – the con-cept of sustainable banking is movinginto the mainstream.

For decades, sustainable bankinghas been making gradual inroads –underpinning banks’ commitment toenvironmental issues, charitable giv-ing and the like. The entries for thisyear’s Sustainable Banking awards –co-sponsored by the Financial Timesand the International Finance Corpo-ration – have seen mainstream banks,such as HSBC and Brazil’s Itaú Uni-banco, shortlisted alongside estab-lished ethical brands such as the Co-operative Bank.

Lars Thunell, chief executive of theIFC, says: “Environmental and socialconcerns are being taken seriously byfinancial institutions globally, andthis year’s entries underscore howinstitutions are incorporating sustain-able financing into their operatingdecisions.”

Royal Bank of Scotland, whichrecently published what it believes isthe most detailed sustainability reportof any bank, has stepped up its focuson the area, as it retrenches fromhigh-risk activity. It recently created aboard-level sustainability committeeto push the issues at the highest level.

Andrew Cave, head of corporatesustainability at the bank, says oneearly example of progress is thatemployee diversity – with regard togender and ethnic origin – has nowmade it on to the agenda of the board.

There is also a renewed push, saysMr Cave, to extend the so-called Equa-tor Principles, which since 2003 haveprovided a global blueprint, under theauspices of the IFC, for the social andenvironmental standards required forbanks’ project finance work.

Many of the world’s biggest 15banks now want the voluntary stand-ards extended to corporate finance.

But if some mainstream banks aretaking sustainable banking in its nar-row definition seriously, that is onlypart of the story. For some at least,especially among those hardest hit bythe financial crisis, there has been a

sharpened focus on the more generalsustainability of their way of doingbusiness.

Along with many banks that blewup in the crisis – from Northern Rockin the UK to IKB in Germany to Leh-man Brothers in the US – RBS hadsought to expand at unsustainablerates.

But with 70 per cent of its shares inthe hands of the UK government aftera bail-out, RBS, under the leadershipof chief executive Stephen Hester, iswell aware that sustainablity mustbecome a broad defining principle.

Mr Cave says: “We are fullysigned-up to the goal of sustainable,long-term banking. That means pro-

viding customers with useful productsthat deliver an acceptable return forRBS, but with a view to social andeconomic responsibility, too.”

That was hardly the general atti-tude in the years running up to 2007.By investing in complex derivativesand borrowing at an unprecedentedpace in international markets, manysuccessful banks generated profits, asmeasured by return on equity, thatoutstripped nearly every other sector– to the delight of investors.

But as the crisis proved, generatingROE of 25 or 30 per cent was juststoring up trouble.

Triodos, the Dutch group that hasbeen a flagship of ethical banking for

A concept that has beenmaking gradual inroadsfor decades is now seenas a serious business,writes Patrick Jenkins

Dedicated to filling largehole left by financial crisis

As the InternationalFinance Corporationcontinues to focus onlending to and advising theprivate sector in poorcountries and emergingmarkets, the broaderdevelopment community isstarting to take onsomething of the IFCphilosophy.

“It’s a trend that’shappening now and I thinkit’s a very healthy one,”says Lars Thunell, chiefexecutive of the IFC, theWorld Bank’s privatesector finance arm.

The UK’s Department forInternational Development,for example, recentlyannounced a businessinnovation facility to fostercommercial businessmodels benefiting the poor,while the Danishgovernment wants todouble its investments inprivate sector developmentin Africa by 2014.

Such announcementshave come as music to MrThunell’s ears. “Aid fulfilsan important function butif you only have aid, it’snot sustainable,” he says.“You need the privatesector as well.”

In developing countries,Mr Thunell believes thatfinancing small andmedium sized businesses(SMEs) is vital foraccelerating growth.“That’s where you get thejob creation and that’s thebackbone of any economyin the world,” he says.

Yet, despite thesepositive developments, theglobal financial crisis hasleft a huge hole infinancing capacity, withbanks imposing constraintson lending and cuttingtrade finance lines toimporters and exporters.“It really hurts small andmedium enterprises,” saysMr Thunell.

As a result, the IFC hasbeen supplying loans tobanks and setting upsmaller equity funds andinfrastructure crisisfacilities, as well asexpanding its traditionaltrade finance programmes.

In addition, it haslaunched an initiativefocused on financing forthe supply chain. “SMEsoften work with biggercompanies, whichsometimes are the onesthat put it all together,”explains Mr Thunell. “But,unfortunately, manyinternational firms havetightened their paymentschedules.”

And if larger companiesare experiencing difficultiesobtaining credit, it is evenharder for smallerbusinesses. “So we’reworking with, not onlybanks, but alsointernational firms inhelping get out to thesuppliers,” says MrThunell.

Meanwhile, many bankshave pulled out of fundingmicrofinance institutions,so the IFC is also workingon strategies to extendfinancing and businessopportunities to theworld’s poorest people.

As well as directfinancing, this also meanshelping non-profitmicrofinance institutionsprofessionalise theiroperations and use IT andmanagement tools to raiseproductivity, cutting thecost of administeringindividual loans.

This advisory role – in

addition to providingfinancing – is one that theIFC has been increasingthroughout its operations.

“In everything we do, wetry to combine advisoryservices and the knowledgewith the money,” says MrThunell. “And in recentyears, we’ve taken a morestrategic role in the waywe add value.”

In some instances, theIFC has a more directhand in the financing sidethan in others. Theinstitution has, forexample, had difficultyfinding fund managersprepared to establishmicro-equity funds in post-conflict countries.

However, elsewhere, theinstitution might take on abroader role, acting in anadvisory capacity orhelping shape markets.

Often, this meansworking with businessassociations, stockexchanges andgovernments to improveinvestment climates,governance structures andenvironmental and socialsustainability measures.

In Brazil, for example,the IFC worked with theSão Paulo Stock Exchange(Bovespa) on asustainability index, whichencourages companies toimprove their performance

on environmental, socialand governance issues.

Meanwhile, the WorldBank’s annual DoingBusiness report provides aquantitative measure ofregulations necessary forstarting a business in 183countries with the aim ofimproving the regulatoryenvironment for theprivate sector.

Mr Thunell sees the needto make it easier to start abusiness as equallypressing in the poorestcommunities of the world.He cites city slums, suchas that of Mumbai.

“People don’t understandthat a slum is its ownsociety, with businessesfrom laundries to barbers,”he says. “The question ishow can you get thatgoing and make some ofthese firms moresustainable, so that theycan move from theinformal sector to theformal sector.”

This segment of societyhas become an increasinglyimportant focus for the IFCin recent years, throughpartnerships withcompanies that chargelower fees for services andcan reach large, low-income populations.

Increasing theavailability of small loansto these populationsthrough microfinanceinstitutions remains apriority, too. And the IFCis looking beyond access tocredit to other financialproducts.

In 2009, for example, itinvested in Protecta, aPeruvian micro-insurancecompany that offersinsurance services to low-income households andsmall businesses.

“Whether you’re a smallentrepreneur in a slum ora multinational,” arguesMr Thunell, “the bigopportunity is going to bein domestic consumptionin emerging markets.”

InterviewLars ThunellThe IFC has beenbroadening its roleas banks curblending, its chiefexecutive tellsSarah Murray

‘In recent years,we’ve taken a morestrategic role in theway we add value’

Lars ThunellChief executive, IFC

Inside this issueSmall business Lenders are beingurged to be more understanding,writes Jane Bird Page 3

Food and microfinance New waysare being found to help smallholders,writes Sarah Murray Page 3

Opinion Leo Johnson (below) onhow banks can contribute to the

climate change taskPage 3

Energy useBanks are seeingthe light on cutting

consumption,writes Rod

NewingPage 4

Page klsdf s;lslk

Business is blooming: microfinance is important for street traders in India and other developing countries Alamy

www.ft.com/sustainable­banking­2010 | twitter.com/ftreports

Continued on Page 2

Shortlist for2010 AwardsSustainable Bank of the YearCo­operative Financial Services, UKGLS Bank, GermanyHSBC, UKItau Unibanco, BrazilBanco Santander Brasil

Sustainable Emerging MarketsBank of the YearAfrica/Middle EastBMCE Bank, MoroccoEquity Bank, KenyaNedbank, South AfricaAsiaBRAC Bank, BangladeshIndustrial Bank, ChinaYES Bank, IndiaEastern EuropeRaiffeisenbank BulgariaRZB GroupIndustrial Development Bank ofTurkey (TSKB)Latin AmericaBanco do BrasilItaú Unibanco, BrazilBanco Santander Brasil

Achievement inBasic Needs FinancingAcumen Fund, USBanco de Galicia y Buenos Aires,ArgentinaMahindra & Mahindra FinancialServices, IndiaOne Acre Fund, KenyaScotiabank, Peru

Banking at the Baseof the PyramidFinancial Information Network andOperations (FINO), IndiaFive Talents, UKMAP International, USMicroEnsure, UKStandard Chartered Bank, UAE

Sustainable Investor of the YearAcumen Fund, USCalvert Foundation, USFINCA International, US andDeutsche Bank, GermanyGlobal Environment Fund, USVentureast Fund Advisors, India

Details, Page 2

30 years, thinks its 7 per cent ROEis the kind of figure that otherbanks should aim for – “our pensionfund investors are quite happy withthat, it’s like a bond with a little bitof upside”, says Peter Blom, chiefexecutive.

Mr Blom’s big beef is that bankprofits should basically grow in linewith GDP. “The world has been push-ing bank shares and expecting banksto grow far faster than the economiesthey are designed to support. That iswhat is not sustainable.”

The idea of stripping banking backto its basic role – of “serving the realeconomy rather than taking from thereal economy”, as Mr Blom puts it – is

one that has gained considerablesupport in the wake of the financialcrisis and the subsequent governmentbail-outs.

In a famous excoriation of the bank-ing sector last summer, Lord Turner,chairman of UK regulator the Finan-cial Services Authority, said the sec-tor had “swollen beyond its sociallyuseful size”.

Certain products – many deriva-tives, in particular – appeared to playno useful social role, he said.

The global debate that has ensuedis simple but profound, highlightingthe tension between the social and

2 ★ FINANCIAL TIMES THURSDAY JUNE 3 2010

Sustainable Banking

ContributorsPatrick JenkinsBanking Editor

Jane BirdSarah MurrayRod NewingMike ScottFT Contributors

Andrew BaxterCommissioning Editor

Steven BirdDesigner

Andy MearsPicture Editor

Gary NeillFront Page Illustration

For advertising details,contact: Ceri WilliamsPhone +44 020 7873 6321Fax +44 020 7873 4296E­mail: ceri.williams@ft.com

Concept pushes its way on to boardroom agenda

economic function that theworld wants banks to fulfil– whether that be in theform of microfinance inemerging markets or large-scale lending to big busi-ness – and the allure ofmore obscure, higher-profitactivity.

“The socially usefulstuff,” says Michael Raffan,partner at lawyers Fresh-fields Bruckhaus Deringer,“tends to be low-margin”.

Undeterred, regulatorsand policymakers arepoised to make deep-seatedreforms to the potentialprofit of high-risk activity –by forcing banks to holdmore capital and liquid

funds, and imposing newbank taxes – as well asoverhauling the structure ofthe sector.

In the US, PresidentBarack Obama may yetforce through a significantclampdown on the riskiestWall Street activities,despite stiff Republicanopposition.

In the UK, the coalitiongovernment led by PrimeMinister David Cameron ofthe Conservatives, and hisdeputy Nick Clegg, of theLiberal Democrats, haspromised root-and-branchreform of the structure ofbanking.

Big universal banks,embracing retail bankingand higher-risk investment

banking, could be brokenup. Some analysts have pre-dicted that if all the initia-tives under considerationwere implemented, ROEcould fall below 10 per cent.

All the while, politicianson both sides of the Atlantichave latched on to one ofthe core principles of sus-tainable banking – thatbanks should be basic pro-

viders of reasonably pricedcredit to the economy, andespecially to small busi-nesses, particularly in sec-tors such as renewableenergy and food productionthat are essential to thelong-term health of theplanet.

With governments incountries from Germanyand the UK to Irelandand the US at least part-owners of big banks, politi-cians feel they have aunique opportunity toensure the “social useful-ness” Lord Turner spoke ofis put into practice.

Over the past year, banklending targets set by gov-ernments have been missed,but bankers insist that

there are technical reasonsfor this and that theirunderlying principles havechanged.

So far, that claim hasstruck no chord with thebroader population.

“How are banks goingto respond to their pariahstatus?” asks Mr Raffan.“They’ve got a good story totell, but they haven’t beenas effective at lobbying asthey could have been.”

Quite how good the storyis, some doubt – at leastwhen it comes to hard-coresustainable values in theshort term.

For every example of for-ward thinking – witnessBank of America MerrillLynch’s new high-technol-

ogy, high-efficiency head-quarters in Manhattan –there are discouragingtrends, such as RBS’s moveaway from renewableenergy financing, as itshrinks its bloated balancesheet.

“Before the financial cri-

Continued from Page 1

Five on the shortlist for Bank of the YearThese descriptions of the five

institutions on the shortlist forthe 2010 Sustainable Bank ofthe Year are based on informa-

tion provided by them ahead oftonight’s awards dinner in London.

It is testament to Co-operativeFinancial Services’ approach to sus-tainability that, in a time of unprece-dented economic turmoil, the businesshas continued to deliver strong profit-ability, growth and ethical leadership.This performance reflects a trulyembedded approach to sustainabilityand nearly 20 years at the forefront ofthe provision of ethical finance andresponsible investment. In line withits customers’ concerns, the bank hasdeclined more than £1bn of financethat could not meet its ethical policy

criteria. At the same time, followingits merger with Britannia, it hasincreased its lending to more than£8bn, including support for renewabletechnology and the provision of socialinvestment and microfinance.

The objective of GLS Bank, estab-lished in 1974 as the first social andecological universal bank worldwide,is to invest capital in a meaningfuland profitable way. The key factorsfor the enormous growth and successof GLS Bank (33 per cent growth intotal assets in 2009) are its focus onproviding finance for the real econ-omy and a concept based on sustaina-bility, trust and transparency. GLSBank offers the broadest range of sus-tainable products in Germany, extend-ing from current accounts through

financing, investments, securities andinvestment funds to opportunities forendowment and gifting. It invests itscustomers’ money exclusively in com-mercially, ecologically, socially andeconomically meaningful companiesand projects.

As a leading international andemerging markets bank, HSBC isespecially aware of its responsibilityto manage its business across theworld for the long term by making areal contribution to social and eco-nomic development, and by protectingthe environment in which it operates.This means maintaining its financialstrength, so that it can continue todeliver value to shareholders by sup-porting its 100m customers. Thegroup’s focus is on providing financial

services that are competitive, trans-parent and responsive to customerneeds. Marking one of the largestclean technology investments in his-tory, HSBC recently put $125m intoBetter Place, a leading provider ofinfrastructure for recharging electricvehicles on a large scale.

For Brazil’s Itaú Unibanco, sustain-ability means ensuring the sustaina-ble performance of its businesses,with a principal focus on customersatisfaction and creating value in theshort, medium and long term forshareholders, clients and society. Itscommitment is strengthened throughits partnerships, including serving asglobal chair of the Equator PrinciplesSteering Committee in 2008 and 2009,and sponsoring the first Latin Amer-

ica implementation of the Carbon Dis-closure Project. Its sustainabilitystrategy criss-crosses all its businessareas and governance levels, andemploys formal sustainability man-agement instruments. Its sustainabil-ity policy has been instituted through-out the bank, allowing it to maintainan ethical and transparent interactionwith clients, employees, shareholders,investors, suppliers, business partnersand the general public.

Banco Santander Brasil underwenta huge transformation in 2009, estab-lishing sustainability as a guidelinefor business and as the driving forcefor its growth. This was the first yearthat Spain’s Banco Santander andBanco Real o p e r a t e d

Contenders in the fourother award categoriesThese descriptions are based oninformation provided by theinstitutions on the shortlist forthe 2010 Sustainable EmergingMarkets Bank of the Year,Achievement in Basic NeedsFinancing, Banking at the Baseof the Pyramid and SustainableInvestor of the Year awardsahead of tonight’s awardsdinner in London.

Sustainable EmergingMarkets Bank of the Year

Africa/Middle EastThe recent adoption byMorocco’s BMCE Bank of theEquator Principles highlightsits commitment to sustainabledevelopment. The bankrecognises that the challengesit faces are better dealt withnot only by giving back to thecommunity and environment,but by incorporating suchconsiderations into its methodsof doing business.

Equity Bank (EBL) of Kenyahas developed a successfulsustainability-focused hybrid ofa microfinance institution andcommercial bank that providesbanking services to thepreviously unbanked in Kenya.This has been achieved with atailored distribution andinnovative customer servicestrategy that empowers itscustomers both socially andeconomically.

Nedbank Group’ssustainability strategy bringstogether economic,environmental, social andcultural concerns. In 2009,Nedbank became the firstSouth African bank to commititself to carbon neutrality. As aresult of the sustainabilityinitiatives undertaken over thepast five years, Nedbank Groupfinds itself more resilient andadaptable.

AsiaBRAC Bank’s goal is to providebanking services to theunderserved population ofBangladesh by intermediatingfunds from urban to ruralareas. The majority of itsfinancing is to the SME sectorwith the aim of assistingeconomic development. In sodoing, BBL has generatedemployment for more than 1mpeople and contributed toeconomic welfare by enhancingthe standard of living.

China’s Industrial Bank,based in Fuzhou City, FujianProvince, has incorporated theconcept of sustainabity into itsstrategy and corporategovernance. The bank hasgradually evolved a sustainabledevelopment pattern with itsown characteristics, applyingsocial responsibility to theprovision of services andexpansion of its business.

YES Bank, a private sectorIndian bank, caters to the“future businesses of India”,and is an outcome of thecommitment of its founder,Rana Kapoor. Its focus ongovernance and good corporatecitizenship forms an integralpart of its strategic vision.The bank’s sustainability

strategy works on two levels –Sustainability in Thought andSustainability in Action.

Eastern EuropeRaiffeisenbank (Bulgaria)supports individuals’ efforts tocut down energy consumptionsignificantly and to improveenergy efficiency. Access tofinancing and job creationfor SMEs, farmers andentrepreneurs was providedlast year under two EuropeanBank for Reconstruction andDevelopment (EBRD) RuralCredit Lines.

The RZB Group’s central andeastern Europe (CEE)sustainability strategy is builton a long-term commitment tothe region. It has adopted astrong focus on financingrenewable energy projects.The group’s decentralisedstructure and corporateresponsibility strategy arefounded on thethree core challengesassociated with regionalsustainability in the region –environment; society; andeconomic sustainability.

Industrial Development Bankof Turkey (TSKB) is a pioneerin renewable energy corporatelending and project financing.In the areas of environmentaland renewable energy loans,TSKB has completed thelargest number of projects inTurkey. It is the first Turkishbank to be certified with theISO 14001 environmentalmanagement system standard.

Latin AmericaSocial and environmentalresponsibility has always beenpresent in Banco do Brasil’spolicies and strategies. Itmade new national andinternational commitmentsin 2009, such as membershipof Platform Business Climateand the UN Caring forClimate initiative. These areconsolidated in BB Agenda 21,which guides the actions ofthe bank in sustainablemanagement.

For Itaú Unibanco and BancoSantander Brasil, see entries inthe Bank of the Year article.

Achievement inBasic Needs FinancingAcumen Fund usesentrepreneurial approaches tohelp solve the problems ofglobal poverty. It seeks toprove that small amounts ofphilanthropic capital, combinedwith large doses of businessacumen, can build thrivingenterprises that serve vastnumbers of the poor. The fundbelieves that pioneeringentrepreneurs will ultimatelyfind the solutions to poverty.

Banco de Galicia y BuenosAires is the only financialentity in Argentina that hasadopted the Equator Principlesand is ISO 9001 and 14001certified. Financing of basicneeds accounts for more thanhalf of the total lendingportfolio. Activities haveexpanded significantly to reachunbanked segments withoutlowering risk standards.

Mahindra & MahindraFinancial Services is India’sleading non-banking financecompany (NBFC) focused onrural and semi-urban areasand is the largest rural NBFC,with a reach that extendsbeyond its 450 branches. Thebusiness model is based on thefoundations of socialinclusiveness, which serves“bottom of pyramid”customers.

One Acre Fund empowershungry farming families in eastAfrica to pull themselves out ofpoverty. Its innovativeapproach to lending andrepayment helps smallholderfarmers double their farmincome and increase their foodsecurity. The One Acre Fund“market bundle” includes seedand fertiliser on credit andmarket facilitation.

Scotiabank Peru hasstrengthened its consumer andmicrofinance presence with theacquisition of Banco de Trabajoand the launch last year of aspecialised channel formicrobusiness and consumerfinance. This reaches thelowest socio-economic groupsand those excluded from thebanking system. Corporatesocial responsibility isfundamental to ScotiabankPeru’s business.

Banking at theBase of the PyramidFinancial Information Networkand Operations (FINO)provides small loan products tothe entrepreneurial poor inIndia. These are aimed atpeople who have no access toformal financial services. Thetarget customers are mainlylocal fruit and vegetablevendors, street hawkers andsubsistence dairy farmers.

Five Talents, a UK registeredcharity, has played a key rolein delivering an innovative“holistic” microfinance pilotproject in the village ofLietnhom, southern Sudan,assisting post-conflicttransformational development.The project combines trainingin basic literacy with businessskills development, savingsmobilisation and the provisionof microcredit.

MAP International exploitsthe latest mobile technologiesto enable financial inclusion forthe unbanked and underbankedcitizens of emerging marketcountries. It enablesgovernments to deploy themost technologically advancedfinancial systems for verylimited upfront costs, andcreates biometric bank debit-IDcards for people in even themost remote areas.

MicroEnsure is an insuranceintermediary dedicated toserving the poor throughoutthe developing world. It servesaround 3.5m people with anaffordable range of productsincluding life, property, healthand weather index basedinsurance. MicroEnsure’s aimis to achieve sustainability forinsurance companies, productdistributors, and clients.

Standard Chartered’s

microfinance programmeprovides banking products andservices to microfinanceinstitutions in Asia, Africa, andthe Middle East as well associally responsible investors inthe Americas and Europe. Theobjective is to provide access tofinance to those who are eitherunserved or underserved by themainstream financial sector.

Sustainable Investorof the Year

Acumen Fund, US – see entryin the Achievement in Basic

Needs Financing shortlist(second column of this article).

Calvert Foundation hasblazed a trail that makes itpossible for ordinary people tofinance non-profits andcommunity organisations thatrevitalise communities, developaffordable housing, buildmicro- and small growingbusinesses, support Fair Tradefarming, further environmentalsustainability, and more.

On November 10, 2009, theFINCA Fund became the first

microfinance debt fund to raisemoney after the worldwidecredit crisis struck in 2008. Thetransaction provided importantsubordinated debt for seven ofFINCA International’s affiliatedmicrofinance institutions(MFIs) in the developing world.

Global Environment Fund’sportfolios delivered strongliquidity in 2009. GEFcompanies also providedgreater environmental, socialand economic developmentbenefits than ever. They

generated renewable energy,managed sustainabletimberlands, and soldenvironmental equipment andservices on five continents.

Ventureast is a commercialinvestor that attempts to makesignificant social andenvironmental impact, whilegenerating financial returnsin the top quartile or higher.Its investing approach is toenter segments where there islittle competition, which leadsit to underserved markets suchas the rural and digital-dividesegments.

Banks should bebasic providers ofreasonably pricedcredit, accordingto politicians sis,” says Triodos’s Mr

Blom, “mainstream bankingwas looking at sustainablebanking quite seriously.

“But the crisis hasbrought many banks backto existential questions andthey haven’t had time tothink about ethics.”

Peter Blom of Triodos: banks ‘not thinking about ethics’

resulted in Santander becoming thethird largest private bank in Brazil. Inthe midst of this merger and theimpact of the financial crisis, thebank invested heavily in sustainabil-ity, spreading its use to processes,products and stakeholders. One of themost noteworthy initiatives was thetraining on sustainability undertakenby almost 37,000 employees from theretail area, to ensure that all productoffers are made in a sustainable man-ner. Another important activity wasthe new stakeholders’ engagementprogramme, which trained 1,451 exec-utives from 863 client and providercompanies in sustainability, andgave 1.4m people access to contentvia the www.bancoreal.com.br/sustentabilidade website.together, after a share sale that

FINANCIAL TIMES THURSDAY JUNE 3 2010 ★ 3

Sustainable Banking

Bank regulation – don’t just rage against the machine

There is a life affirmingYouTube video clip of a mid-dle-aged man at work in hisoffice. His computer is notworking, so he smacks themonitor around a bit, just as ashot across the bows. Then –lightning fast for a big man –he slams his fists on the key-board and uses it as a cudgelto sideswipe the monitor andhard drive on to the floor. Tothe sound of the slow off-screendisintegration of the keyboard,his colleagues return to work.

Is there something of a paral-lel with our current approachto bank regulation? Are weabout to mirror the universalbut tragic three-act structure ofcomputer rage? Act 1, you real-ise the machine is not working.Act 2, you express your frustra-tion as systematically as possi-ble (windfall taxes on bonuses,

constraints on capital ade-quacy, Tobin taxes, fiscalresponsibility fees, bank break-ups etc.). Act 3, at your leisure,you realise it now really doesnot work, and you sort ofneeded it.

Not with banks, runs the cur-rent orthodoxy – after all, whatwas their social utility? Butlet’s take the challenge ofclimate change as a test case.What is the scale of the taskand is there a role for thefinancial sector?

Forget the doom-mongers. ofthe eco-death cult. If, in 2000,we had started to meet the glo-bal target of 80 per cent reduc-tion in emissions by 2050, allwe would have needed to haveachieved, even with populationand global growth projectionsfactored in, was an annualincrease in our carbon effi-ciency of 2 per cent. A piece ofcake – but what did we man-age? Just 0.8 per cent, or lessthan half.

The result is that we havegone over our carbon budget.We have accumulated a 13.4gigatonne (billion tonne) car-bon surplus. To get back ontrack China and the US wouldhave to turn off their lights fora year. On this rate of decar-bonisation we are set to runout of our 2050 budget by 2034,which means we would need 16years with the lights off.

According to the PwC Low

Carbon Economy Index, therate of decarbonisation neededto get back on track is now 3.4per cent a year, more than fourtimes current progress. But isit doable? Two cases stand out– Russia, which at a time ofrecession averaged 7 per centyear-on-year decarbonisation,and China, which at a time ofgrowth, from 1990 to 2008, aver-aged 4 per cent a year. The tar-get of 3.4 per cent, in otherwords, is doable. The technolo-gies exist, from nuclear to car-bon capture and storage (CCS)to offshore wind. The precedentexists for implementing them.But there is one critical barrier– finance.

The International EnergyAgency puts the global fundingrequirement for this transitionat around $430bn a year abovebusiness as usual from nowuntil 2020, and $1,150bn a yearfrom then until 2050. Theinvestments these funds wouldneed to finance include 18,000

additional 3MW windmills and– each year – 20 nuclear plants,300 concentrated solar powerplants and 50 hydro powerplants; also, 30 per cent of coal-fired power plants would needto be fitted with CCS technol-ogy by 2030.

Unfortunately, when con-fronted with this task at theUnited Nations climate summitin Copenhagen last December,public finance delivered only athree-year commitment foremerging markets, totallingjust under $10bn a year. About2 per cent, in other words, ofthe annual total required. It isup to the architecture of theprivate sector financial marketsto deliver the remaining 98 percent.

This, then, is one example ofthe potential social utility ofthe financial sector – drivingthe transition to the low car-bon economy. But how, in ayear in which capital has beenso visibly allocated to value

distribution not creation, do wemake it happen?

The answer is in part to dowhat the man in the YouTubevideo did not do – to lookinside the machine beforedestroying it, and diagnose andsolve the underlying problem.Banks, at one level, can beseen as morally neutral instru-ments, designed to dischargecapital as efficiently as possiblefrom point A where the returnis low, to point B where thereturn is higher. The reality isthat the current economicframework provides a triplewhammy that prevents therapid acceleration of capitalinto low carbon growth:● The fossil fuel industryreceives a direct subsidy of$340bn a year to keep energyprices low.● It receives an indirect sub-sidy through avoiding the fullcost of carbon.● It benefits from an entrench-ment effect – the first-mover

OPINIONLEO JOHNSON

Banks ‘failingto give creditwhere it’s due’

When Phillip Hofmeyr andhis colleague Alex Mooreneeded £100,000 to set upSnagsta, a social recommen-dation website, their firstthought was a bank loan.But the bank was discour-aging and wanted personalguarantees.

“We didn’t want to putour homes on the line orpay premium interest rates,so in the end we raised themoney from friends andfamily,” Mr Hofmeyr says.

That was in 2007. Sincethen, banks have receivedhuge financial support fromgovernments which, inreturn, have asked them toprovide more loans to smallbusinesses.

But this has not hap-pened, as Mr Moore’s subse-quent experience demon-strates. In 2008, he openedtwo Thai restaurants inLondon. In mid-2009, afterthe first year of trading, heapplied for a £1,000 over-draft with his bank, HSBC.“We were told we were inel-igible,” he says.

“This baffled us. The res-taurants were doing well,turning over more than£500,000 a year, and set tomake a healthy profit.”

The bank classified res-taurants as “high risk” – acustomer category to whichit heavily restricts credit. “Iwas surprised the bankadopted such a uniformapproach rather than oper-ating on a case-by casebasis,” says Mr Moore.

Mark Littlewood, founderof the Business LeadersNetwork, which connectsentrepreneurs, investorsand advisers, says it isnaive of governments tothink they can force banksto make loans. “Banksmight say they are comply-ing, but they only need tochange the terms in a smallway to make the loansunacceptable.”

One problem is banks’blanket approach and fail-ure to research the businessmodel of individual compa-nies. Banks seem unawareof the funding gap thatsmall businesses experiencebetween start-up and whenthey are ready to go to ven-ture capitalists for £2m, MrLittlewood says.

Nor do they understandthat many new ventureshave non-traditional reve-nue models. Internet busi-nesses may need hefty ini-tial investment in technol-ogy, and depend on adver-tising and co-marketingdeals for revenue ratherthan on paying customers.

Traditional bank manag-ers also struggle to appreci-ate that even small high-technology businesses mayhave staff around theworld, or assets in the formof intellectual capital.

Banks in the US are more

used to considering thesefactors, along with manage-ment expertise, when decid-ing to offer loans, says PhilCox, head of strategy forEurope and the Middle Eastat Silicon Valley Bank,which provided Twitterwith its first chequebook.

European banks havemore of a penny-pinchingattitude to small businessesand less understanding ofentrepreneurs, says Mr Cox.“Often, even when a bankhas agreed a loan, this willbe drip fed, so the companyis continuously under acloud and wondering whereits next tranche of fundingwill come from.”

Banks also often fail toaccommodate companieswith high growth plans. Asmall company might sign alucrative contract with abig customer, under whichpayment will not arrive forseveral months, says Sha-ron Vosmek, chief executiveof California-based Astia,an organisation that isfocused on women entrepre-neurs. “Meanwhile, work-ing capital is needed tomeet the payroll.”

Many rapidly expandingnew businesses are noteven given the option of anoverdraft or extended creditwith high interest rates,says Ms Vosmek. “The banksimply won’t recognise thatthere is any value in a busi-ness that hasn’t been estab-lished for a long time. Weneed more banks thatunderstand the first one ortwo years.”

The problem is thatbanks are being put underthe political spotlight andasked tough questionsabout their risk and expo-sure. This makes themdefensive and risk-averse.

Banks are being told toreveal all their secretsabout how bad things canget, says Mr Littlewood.“With credits and loans,they go through a processof box ticking, but there isvery little creativity or con-tact between people makingdecisions and managersdealing with clients.”

Lithuania is trying tosolve this problem by mak-ing available the EuropeanStructural Funds it hasreceived as a EuropeanUnion accession country foruse as preferential loans forsmall businesses.

Mykolas Majauskas, sen-ior economy adviser toLithuania’s prime minister,says: “Small businesses,which are often early stageand without a track record,pose a risk for banks buthave a greater propensity togrow.”

Under the scheme, entre-preneurs face less red tapesetting up businesses andsecuring loans, and canclose businesses down moreeasily. This makes banksmore comfortable that theywill be able to get theirmoney out before it has allbeen swallowed up bylengthy court proceedings.

Lithuania is also makingsmall businesses exemptfrom VAT and subject tocorporation tax of just 5 to 7per cent.

“Government can’t makebanks lend their money orforce them to finance acompany that doesn’t fittheir risk profile,” says MrMajauskas. “So we have tocreate an environment withincentives.”

Small businessLenders are beingurged to be moreunderstanding,writes Jane Bird

SharonVosmek ofAstia: banksneed to bemore patientin early years

Helping farmers reap rewards

In a new strategy toreduce reliance onfood aid in the fightagainst hunger, the US

Agency for InternationalDevelopment (USAid) plansto make investments todevelop agriculture.

Smallholders using micro-loans will play a role inthis. However, many micro-finance and developmentexperts argue that credit isnot the only thing thesefarmers need.

Certainly, microfinanceunderpins rural economies.“Microfinance is the lubri-cating system for small-holder farmers,” says JohnMagnay, the agriculturaladviser for OpportunityInternational, one of theworld’s largest and longestestablished microfinanceinstitutions.

“Unless they can getaccess to inputs and financethe production and market-ing cycle, they will not beable to produce at optimumlevels,” he adds.

Banks and microfinanceinstitutions are not the onlyorganisations that supportsmallholders in their effortsto become more productive.Through contract farmingarrangements, suppliershave the potential to extendcredit to the smallholdersin their supply chains.

“Large suppliers or foodprocessors can clearly linkto small farmers and pro-vide them with access toinputs through loans, as away to get the quality andstandards of produce theyneed,” says Maximo Torero,director of the markets,trade, and institutions divi-sion at the Washington-based International FoodPolicy Research Institute.

However, Mr Torero saysthat greater innovations incontract design are neededto discourage farmers frombreaking the contract.

The “group lending”microfinance model pio-

neered by Grameen Bank inBangladesh – where if oneindividual fails to repay,the others in the group areheld responsible – could beone way forward.

“Instead of lending to onesmall farmer, [the com-pany] can lend to a ruralproducer association forwhich all members areresponsible,” he says. “An-other way is for the largesupplier or food processorto give a warranty to finan-cial institutions so theytake higher risks in givingloans to smallholders.”

Mary Ellen Iskenderian,chief executive of Women’sWorld Banking and a mem-ber of the judging panel forthis year’s FT SustainableBanking Awards, sees a fargreater role for smallhold-ers in the global agricul-tural supply chain.

“One important reasonthat potential hasn’t beenfilled is that the majority ofsmallholder farmers in thedeveloping world arewomen,” she says.

For women, difficulties insecuring property title andland rights are often thebiggest obstacle to gettingfunding and being able topay for the agriculturalinputs they need.

So Women’s World Bank-ing encourages the microfi-nance institutions that areits clients to use thingssuch as household cashflow as the basis for makingloans.

Mr Torero also believeslenders need to simplifytheir processes, with simplecredit scoring systems and

risk databases to reduce thecosts of applying for a loan.“There is a clear need forfinancial institutions tosimplify their credit scoringmechanisms and to adapttheir lending plans to whatsmallholders need,” hesays.

Meanwhile, many microfi-nance institutions and non-governmental organisationsare starting to packageloans with other financialproducts, such as insuranceand savings schemes, aswell as education and train-ing programmes.

In Kenya, for example,the One Acre Fund – short-listed for the Achievementin Basic Needs Financingaward – describes its serv-ices to poor farmers as a“market bundle”.

The bundle bringstogether farmers to make iteasier to gain access to agri-cultural markets and thenprovides them with trainingand supplies of environmen-tally sustainable fertilisers.It acts as a bulk-sellingagent for the farmers andalso offers them crop insur-ance.

Meanwhile, in Malawi,Opportunity Internationalcombines microloans withsavings accounts andweather insurance prod-ucts. It also has a pro-gramme called the TotalFarm Plan, which financesthe crops produced forhousehold food, releasingland for cash crops.

“We’re also encouragingfarmers to plant trees,”says Mr Magnay. “So, inseven or eight years, they

will have household fuelwood and timber to sell.”

Risk management,through micro-insurance, isalso being seen as anincreasingly important ele-ment of what is needed bypoor farmers. Like any agri-cultural business, small-holders face risks such ascatastrophic loss fromextreme weather, as well asdamage to expensive farmequipment.

The challenge for banksor microfinance institutionsis that, when it comes tothe poorest farmers,administering weather-re-lated insurance for crops

and livestock is expensivewhen the premiums are solow and the cost of assess-ing the value of individuallosses and incidences offraud is so high.

Yet the poorest farmersare also those in greatestneed of risk managementtools. “There is a correla-tion between risk-aversionand poverty,” says JimRoth, a partner at LeapFrogInvestments, a social invest-ment fund focusing on busi-nesses that provide micro-insurance. “The poorer youare, the more risk-averseyou’ll be, because the conse-quence of getting it wrong

could be the starvation ofyou and your family.”

One solution is to bundlecrop and other agriculturalinsurance with other micro-finance products, some-thing being offered throughGlobal Index InsuranceFacility (GIIF) by the Inter-national Finance Corpora-tion and the InternationalBank for Reconstructionand Development (see box).

Mr Torero says: “Linkingfinancial services to accessto weather insurance couldhelp, as this will reducefarmers’ risks and at thesame time reduce the prob-ability of defaulting on aloan.”

Another innovative wayof offering low-cost agricul-tural insurance – also beingused by the GIIF – isthrough index-based prod-ucts. Insurers pay out – noton the basis of actual loss –but on when rainfall risesabove or falls below a cer-tain level.

In the case of livestock,the payments would be trig-gered when the averageweather-related loss of live-stock in a region risesabove a certain percentageof the overall herd.

“There are a lot of experi-ments going on in index-based insurance,” says MrRoth. “It has a hugeamount of scope because itcan hugely reduce the costof managing it, comparedwith crop and animal insur-ance.”

Some initiatives areaddressing climate change.MicroEnsure, the insuranceagency of Opportunity

International and one of theshortlisted organisations forthe Banking at the Base ofthe Pyramid award, isworking with the UnitedNations through theMunich Climate InsuranceInitiative to create a $5bnclimate change insuranceplan.

This will cover people indeveloping countries whoare facing increased inci-dences of climate-relatedflooding, drought and otherextreme weather events.

These experiments inmicro-insurance for small-holders come at a criticaltime, as the risks that farm-ers face are likely to risesharply with the effects ofclimate change.

Meanwhile, because manypoor countries – particu-larly in Africa – are still netimporters of food, the needto expand domestic foodproduction and facilitateglobal food trade is grow-ing.

Ensuring food securitymeans helping farmers indeveloping countries notonly to feed themselves andtheir communities, but tocontribute to the interna-tional supply chain.

Ms Iskenderian arguesthat, equipped with theright financial and othertools, smallholders canindeed contribute more.

Where women farmers dofinally get ownership of theland, increases in produc-tivity can exceed 25 percent, she says. “So it’s aquestion of unleashing thepotential that’s manifestlythere.”

Food & microfinance

Sarah Murray onnew ways toaddress the issuesfacing smallholders

Profile Global Index Insurance Facility

By combining financing with index­based weather insurance, apartnership of development banks isoffering financial packages to coverlow­income farmers against thecatastrophic events, such as floodsor droughts, that can wipe out theirlivelihoods.

“We’re trying to put insurancepackages together for farmers,” saysLars Thunell, chief executive of theInternational Finance Corporation,the private sector arm of the WorldBank. The IFC, along with its sisterorganisation, the International Bankfor Reconstruction and Development,

is backing the new Global IndexInsurance Facility.

“It’s too expensive to do it on acase­by­case basis,” says MrThunell. “But if you build it intoanother product and create apackage, then it works.”

The scheme has been piloted inIndia, Malawi and Mongolia. InMalawi, for example, small­scalepeanut farmers can buy droughtinsurance when they obtain loans forhigh­yield seeds. If rainfall falls belowhistoric averages, the farmersreceive pay­outs.

Similarly, in Mongolia – where

severe winters decimate animalherds – an indexed livestockinsurance product pays farmers ifthe annual mortality rate is aboveaverage.

Administering the insurance ischeaper and easier because pay­outs are not based on thedestruction of specific farm crops oranimals, which would have to bechecked individually. Policyholdersqualify for pay­outs as soon as thestatistical indexes are triggered,rather than having to wait for claimsto be settled.

Moreover, the insurance is easier

to market and administer because itis part of a broader financialpackage. Farmers gradually repaythe loan. But if their business is hitby a drought or a storm, they arecovered against the loss.

“In my world, if you have amortgage, you have built into it lifeinsurance so that if you die yourfamily can pay off the mortgage,”says Mr Thunell. “So why not usethe same principle with index­basedweather insurance and farmfinancing?”

Sarah Murray

Sowing the seeds of success: a Tanzanian woman farmer working in her cornfield David Dorey/Alamy

The poorestfarmers are alsothose in greatestneed of riskmanagement tools

advantage and economies ofscale from its distribution net-works.

These three distortions com-bined reduce the low carboneconomy’s returns and itsattractiveness to capital.

There is a politically satisfy-ing short-term policy optionavailable – to hammer thebanks. There is also a moreradical option – to address thecentral market failings thatshape banks’ decisions aboutcapital allocation. This makesit necessary to reduce the fuelsubsidy, capture the cost ofcarbon through green taxation,and plough the receipts back tocreate jobs, growth and addi-tional tax revenue in a greeneconomy that can then befinanced at scale.

Leo Johnson is a partner, PwCSustainability & ClimateChange, and technical adviserto the FT Sustainable BankingAwards.Johnson: forget doom­mongers

4 ★ FINANCIAL TIMES THURSDAY JUNE 3 2010

Sustainable Banking

Best step forward to cut carbon footprint

Aglance at the skylinesof Wall Street and theCity of London leavesgreen campaigners

fuming, as lights routinely blazethrough the night. With theirreputations already dented, thissuggests that some of theworld’s biggest financial institu-tions care little for energy effi-ciency or public opinion.

Nevertheless, the movetowards carbon reduction,which started as a complianceissue for most banks, is develop-ing into a strategic businessopportunity for some of themore enlightened ones.

Francis Sullivan, deputy headof corporate sustainability atHSBC, says: “If we can measure,manage and reduce our owndirect impact, we can help cli-ents with both the financial andenvironmental aspects of theirinvestment strategies.”

“We can position ourselves asthe bank of choice for the cli-mate change business, which isnow the same size as the globalaerospace industry. We want tobe number one in that sector –and if we don’t do it ourselves,we have no credibility.”

Banks must reduce theirenergy consumption, switch asmuch as possible to renewablesources, reduce business traveland then offset the balance.

Hugh Jones, director for solu-tions at the Carbon Trust,which works to accelerate themove to a low-carbon economy,says: “Financial institutionsestimate that data centresaccount for 40 per cent of theirenergy bill. To run an energy-ef-ficient data centre a number offactors need to be optimised,including server utilisation,hardware, utilities, supportinginfrastructure and the design ofthe building itself.”

According to Klaus Kämpf,from the sustainable researchteam at Sarasin, a Swiss privatebank, most easy-to-implementand cost-efficient measures have

been implemented. “We do notobserve many changes in‘behavioural’ aspects, such astravel policies, which are influ-enced by business developmentand cost considerations, not byawareness of carbon footprint,”he says. “The effect of videocon-ferencing for substituting travelis generally overestimated. Fur-ther steps require more invest-ment and effort.”

For instance, Deutsche Bankhas invested €200m in its Frank-furt head office, Europe’s largestbuilding renovation. “Green-towers” will become one of themost environmentally friendlyskyscrapers in the world, reduc-ing heating energy by 67 percent, electrical power by 55 percent, water use by 74 per centand carbon dioxide emissions by89 per cent.

Three years ago, Bank of

America announced its inten-tion to invest $20bn over 10years to address climate change.It had committed more than$5.9bn by the end of 2009. TheBank of America Tower in Man-hattan is the first high-rise com-mercial office building to attainplatinum rating under the Lead-ership in Energy and Environ-mental Design (Leed) certifica-tion system, developed by theUS Green Building Council.

HSBC has been carbon-neutralsince 2005. In 2009 it emitted991,000 tonnes of CO2, 3.8 percent less than the previous year.Its 10,000 buildings and 170 datacentres accounted for 87 percent of the total, with theremaining 13 per cent comingfrom business travel. The bankoffset this by buying verifiedemission reductions on theinternational market.

Bill Thomas, group head ofsustainability for HSBC Tech-nology & Services, says thatwhereas emissions from build-ings are reducing, computer useis increasing. A data centre uses40 times more energy per squaremetre than a normal officebuilding, and he expects this todouble to 80 times over the nexttwo years.

“There is no single thing thatwill make the efficiency num-bers look better, just a lot oflittle things done a lot of times,”he says. “We build new build-ings to the highest possiblestandard, but we still have towork hard to keep them tunedand efficient.”

Mr Thomas is angry when hesees other buildings lit over-night, and says another easyaction is to encourage employ-ees to turn off their desktop

computers when they go home.This brought a saving for HSBCworldwide of 7.3m kWh of elec-tricity and 3.1m kg of CO2 emis-sions in 2009. “It is almost freemoney for the taking,” he says.

Jon Williams, a partner atPwC, who heads the finance sec-tor sustainability and climatechange, points out that thebanking industry’s direct envi-ronmental impacts are modest,compared with other sectors.The problem is that they lendto, and invest in, highly energy-intensive industries.

“They are part of the financesupply chain that enablesimpactful infrastructure to bebuilt,” he says. “They can alsohelp to move capital into renew-able energy. If they don’t gettheir own house in order to‘walk the talk’, they will haveabsolutely no credibility to

influence their customers,which ultimately could meanwithdrawing a loan.”

Chris Stubbs, a director atWSP Environment & Energy, aconsultancy, says a bank’sdirect carbon footprint isdwarfed by the projects it funds.“A big trend among many banksis to require more than justfinancial viability to approve aloan,” he says.

“For example, The Co-opera-tive Bank in some casesrequires assurances that specificprojects will be energy-efficient before it will lend, par-ticularly in developing coun-tries. The World Bank requiresthat banks record the sustaina-bility parameters of the projectsthey invest in, so that bankingcan be described as sustainablethroughout.”

Banks can also influencecustomers through speciallydesigned products. For instance,HSBC conducts green equip-ment financing from HongKong. It lends to smaller compa-nies to buy low-energy equip-ment for factories in mainlandChina. Mr Williams suggeststhere could be a huge opportu-nity for banks to set up servicecompanies with energy suppli-ers to provide energy-efficientequipment for their clients.

“Increasingly investors areseeking to benefit from directinvestment opportunities intothe rapidly growing areas ofalternative energy and emis-sions trading,” says Mr Jones atthe Carbon Trust. “This growthis due to factors linked to cli-mate change policy, such assubsidies for renewable energyinvestment or generation.”

Mr Sullivan says that,although HSBC looks at theenergy intensity of largeprojects, there is currently noconsistent framework toaccount for it. The bank isworking with the Equator Prin-ciples, the “gold standard” forsustainable project finance.

“We can help our clients tostep up to the plate and partici-pate in the low carbon econ-omy,” he concludes. “We haveto demonstrate that we canmanage our environmental foot-print effectively if we are goingto have any credibility in offer-ing them sustainable financialservices.”

Energy efficiencyBanks are seeing thelight on reducingtheir consumption,writes Rod Newing

‘A big trend amongmany banks is torequire more than justfinancial viability toapprove a loan’

Who left those lights on? Office buildings left illuminated at night leave environmental campaigners fuming dreamstime

Sector seeks bonus pointsfrom increased donations

The banking industry hasnot just taken a pummel-ling financially as a resultof the events of the past fewyears, it has also lost muchof the trust and confidenceof the general public.

People perceive the indus-try to be made up of grasp-ing money-grubbers whoare paid huge bonuses thatthey do not deserve.

This has led to a situationwhere “there is a strongpublic sense that the busi-ness world and the finan-cial community in particu-lar have abandoned valuesand ethical behaviour,”says Richard Spencer, headof sustainability at theInstitute of CharteredAccountants of Englandand Wales.

One of the industry’sresponses to the wave ofopprobrium that has brokenover its head has been toboost the amount it gives tocharity, either as cashgrants from organisationsor in the form of bonusesdonated by chief executives– or in terms of manpower.

Neville White, senior ana-lyst at Ecclesiastical Invest-ment Management, notesthat “community invest-ment by the four big UKbanks increased in 2009-10when it might have beenexpected to fall, with inexcess of £210m beingreported.”

Nick Anstee, Lord Mayorof London, points out thatthe number of corporatevolunteers in the City rose24 per cent in 2009.

However, he recognisesthe sector has further to goin repairing the image ofbankers. “We have toexplain the industry can bea force for good rather thana force for evil,” he says.

There is some doubt as towhether giving more moneyto charity will help achievethis aim. “A programme ofsocial giving just treats us

like idiots,” Mr Spencersays. “Many people will seeit as guilt money.”

“Many of them are tryingto redeem their sin,” agreesRos Haniffa, professor ofaccounting at Bradford Uni-versity. “It is important todistinguish between short-term or one-off donationsand giving that is part of acorporate strategy.”

Banks need to leveragetheir expertise and capabili-ties rather than just throwmoney at an issue, saysSophie Hughes, head of sus-tainability at consultantsFleishmann Hillard. If it isdone right, communityinvesting can play a role inrebuilding trust, she says.

“It is about relationship-building, with employeesand with the wider commu-nity,” she explains.

However, ChristophAmmann, chairman ofBank Sarasin of Switzer-land, says: “We do notbelieve that charitabledonations are appropriateto rebuild trust in banks.”The bank does give to anumber of charities, includ-

ing the Roger Federer Foun-dation. However, “charita-ble donations are not thecornerstone of Sarasin’scommitment to being a sus-tainable bank. Trust cannotbe purchased, but has to begained on a day-to-day basiswhen delivering on commit-ments to clients and thepublic.”

HSBC says a thriving

society is critical to its suc-cess. “That is why we focusour community investmentactivity on education andthe environment – the fun-damental building blocksfor the development of com-munities,” it says.

One example of this is itsfunding of the HSBC Cli-mate Partnership, whichgave £100m to a group of

non-governmental organisa-tion (NGOs) – WWF, TheClimate Group, Earthwatchand the Smithsonian Tropi-cal Research Institute.

“This is a real partner-ship, not something thathas been bolted togetherhurriedly,” says Bjorn Rob-erts, corporate partnershipmanager at the ClimateGroup. “Each of the part-ners is tasked with deliver-ing aspects of the partner-ship over five years and itfits in with HSBC’s widercorporate focus on the busi-ness implications of climatechange.”

Trewin Restorick, chiefexecutive of Global ActionPlan, an environmentalcharity, says he was sur-prised to be approachedabout a partnership withBank of America based onteaching young peopleabout climate change. How-ever, “they had a clear ideaof what they wanted to doas a business and where ourwork fits in to that. Themotivation was aboutencouraging sustainablegrowth.

“If a company is going toinvest in the community,the investment needs tohave a connection to thebusiness at some level for itto be completely engaged. Itneeds to be part of a longer-term strategy,” he adds.

However, Mr White notesthat “community invest-ment reported by the twoUK banks unaffected bystate ownership (Barclaysand HSBC) represented just1.8 per cent and 0.75 percent respectively of under-lying pre-tax profits.

Some say that corporategiving is not an appropriateuse of company resources.“Directors should not begiving away their share-holders’ money,” says Pro-fessor Brian Scott-Quinn, ofthe International CapitalMarkets Association Centreat Henley Business School.

“If shareholders have aduty to make donations, itshould be funded out of div-idend income in return fora cut in taxes. It is better totake these things out of thecorporate arena and intothe employee or share-holder arena.”

Banks and charitiesMike Scott on thepros and cons ofgiving more moneyto good causes

Switzerland’s Bank Sarasin donates to the Roger FedererFoundation, but says trust cannot be purchased

‘A programme ofsocial giving justtreats us like idiots.Many will see itas guilt money’