New Report: The 5th Ethical and Sustainable Finance in Europe
European ethical and value-based banks are more profitable than average and pioneers in measuring and reducing climate impacts, reveals the “Fifth report on Ethical Finance in Europe”. The report, issued by the Italian Banca Etica group in cooperation with Febea, the European Federation of Ethical and Alternative Banks and Financiers, compares key financial figures of the 24 European ethical and value-based banks with those of the aggregate of about 4,500 banks operating in the Eurozone, based on data provided by the European Central Bank.
“In the ten years to 2020, ethical and value-based banks were twice as profitable on average compared to mainstream ones in terms of ROE”, says Peru Sasia, president of Febea. “Their deposits have been affected positively by the pandemic, growing by over 15% in 2020 compared to 2019”. The 25 ethical and value-based banks analysed in the report exclusively finance social and environmental projects, and are also structurally different from mainstream banks. Ethical banks use a more traditional banking approach, that relies on relationship lending and core deposit funding, whereas mainstream banks are much more dedicated to financial activities (investments in securities, financial services, etc.) In 2020, lending represented, on average, 72.98% of total assets for ethical and value-based banks, but only 36.96% for the European banking system. As the report shows, ethical and value-based banks are also leading the way in measuring CO2 emissions indirectly generated by their loans.
“Mainstream banks have typically measured Scope 1 and 2 emissions, produced by their offices’ heating systems or electricity consumption”, states Adriana Kocornik-Mina, Metrics and Research SR Manager at GABV and PCAF steering committee. “Recently, some big banks have also started measuring and disclosing Scope 3 emissions, generated by loans to businesses and individuals. Ethical and value-based banks were among the first in the world to do this according to PCAF principles (Partnership for Carbon Accounting Financials). This is crucial to perform scenario analyses, set targets, take action and disclose progress towards decarbonisation”