Sustainability and main stream banks: an expectation paradox?
10 maart 2008
Yet, I think banks have to be careful with what I would call an “expectation paradox”.
This is being driven by two elements.
On the one hand the material sustainability issue for banks is their client portfolio. Not their own direct impact, but the indirect impact of their clients determines the true sustainability impact. This, combined with their vulnerability for exposure by NGO’s makes them extremely sensitive to all kinds of claims about what banks can, should or must do according to a wide range of (self proclaimed) stakeholders.
Partly this situation is a consequence of the fact that financial institutions can act as “a driver for change”. By using the levers of their credit or investment processes they can guide their (potential) clients towards more sustainable pathways. On various occasions major financial institutions have proclaimed that they embrace this role as driver for change, although they emphasise that the bounds of their responsibilities have yet to be defined. For their own sake, for the sake of business in general and also for society’s sake the bounds of their responsibility should not be over stretched. Banks should not accept the responsibility for all the actions of their clients. Their main responsibility is in what clients they accept or decline. Business in general should take its own responsibility. And democratic society should not allow banks to write the book of law on what is and what isn’t acceptable in international business. Governments should take the lead in that.
The other part of the expectation paradox is determined by the downsides that come with the position of banks in the economy. Failing banks that go bankrupt are an exception. When the going gets really tough they are often rescued. You don’t think that Northern Rock in England or IKB in Germany would still exist if they had been shoe factories? Martin Wolf, the FT economist, has stated that banks are irresponsible partly because they know they are necessary. Investment bankers are tempted to take high risks that generate huge bonuses. There doesn’t seem to be a downside to the equation. The US credit crisis and the fall out in the international financial community clearly shows the irresponsible behaviour of the banking sector. And they get away with it. No better way of summarising this position than in the words of the same Martin Wolf: “no industry has a comparable talent for privatising gains and socialising losses.”
In sum: some expect banks to be sustainable “drivers for change”, others think of banks as irresponsible monsters that socialise losses. What do you think of this expectation paradox?
In a next blog I will comment on how I believe banks should deal with it.
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