Many people value sustainability – even with their bank account – or want to rule out that certain companies are supported with their money. “Green banks” are a contact point for this because they focus on promoting sustainable or social projects. But what exactly does that mean? And how reliable are the information about supposedly green systems?
More and more people value investing their money in sustainable and social projects. However, as in many other areas, the market for sustainable investments is often affected by Greenwashing. An example of this is the Deutsche Bank subsidiary DWS, against which the Frankfurt public prosecutor has already imposed a fine of 25 million euros-because of Greenwashings. Because the financial service provider had offered a equity fund that was supposed to benefit the sea protection – the “DWS Concept ESG Blue Economy”. But research had shown that a cruise company, Coca-Cola and an operator of fossil power plants were also one of the fund’s profiteers.
What does “sustainable system” mean?
The basic idea of sustainable banking is to actively decide which projects are invested in and who receives loans. The correct selection of projects and companies can be promoted responsible and ecological management. As a rule, these forms of investment are based on the fact that certain projects or companies are granted loans from banks – for example, in order to promote the construction of systems into renewable energy generation. When these systems run, they bring in money and investors also hold parts of the profit in addition to the money invested – according to the ideal case.
Since summer 2022, financial advisors in Germany have also been obliged to question their customers specifically about their preferences in relation to sustainable systems. You can then only recommend the banks, funds and forms of investment that meet these preferences.
Exclusion of environmental and health-damaging companies
But how is the selection of suitable investment objects through the banks? This is done in three types: through exclusion criteria, positive criteria or best-in-class selection. In the former, lending to companies from certain industries is severely restricted or even completely excluded. This includes above all companies from the armaments industry, fossil energies or tobacco manufacturers that are considered to be particularly harmful to the environment and our society. Companies from genetic engineering or industrial animal husbandry are often excluded, since their practices are often not sustainable and ethical concerns.
Social aspects can also play a crucial role. Some banks also exclude companies from lending that have made negative headlines for child labor or unethical working conditions in the past. Such social criteria are important if investments should not only be financially profitable, but also morally justifiable. This approach ensures that only companies that actively work for social responsibility and ecological sustainability are supported.
Promotion of sustainable companies
Sustainable forms of investment with positive criteria go the opposite path: Here, companies from industries with clear sustainability goals, such as the area of renewable energies or social housing projects, receive loans. These companies are specifically promoted because they actively contribute to solving environmental and social problems. Some of them also get the loans on cheaper conditions – an additional incentive for investments in sustainable projects. Each bank itself defines its funding criteria. These requirements can vary from bank to bank – some banks, for example, focus more on environmental aspects, others on social justice.
Banks go a different way in the best-in-class selection: Here the companies or projects are preferred that are more committed than others in their industry for environmentally friendly and socially responsible measures-and to a certain extent supports the respective pioneers in terms of sustainability. This means that both the most social solar energy company and the most ecological tobacco group can be considered. The idea behind this is that the promotion of the best actors within an area stimulates a positive competition that accelerates the change in the entire industry.
“Greenest banks” according to Stiftung Warentest
But how “green” are such sustainable systems really? To check this, the Stiftung Warentest recently tested and evaluated 15 credit institutions. The banks had to meet at least five specific criteria: a criterion was the clear role of sustainability, and the preferred award of loans to social and ecological projects. In addition, it was checked whether the banks exclude loans to companies and plants in companies that earn their money with coal, nuclear power, tobacco or “conventional outlawed weapons of mass destruction”.
A tolerance limit of ten percent for the turnover of the bank in fossil energies has been accepted. In addition, the companies could not have been negatively noticed by criticism in the field of human and labor rights. According to the analysis of Stiftung Warentest, the top three credit institutions were GLS Bank, KD-Bank and the Environmental Bank. However: “The institutes with ethical-ecological claims have few or no branches. Savers are therefore usually dependent on the Internet, telephone or post,” says the Stiftung Warentest.
Are banks monitored in terms of greenwashing?
The German Federal Financial Service Supervision (BaFin) monitors banks whether they operate mere greenwashing. For good reason: “Greenwashing is dangerous,” emphasizes Bafin Executive Director Rupert Schaefer. Because it destroys confidence in the market for sustainable investments and a shame investors. “Investors must be able to make investment decisions that meet their sustainability preferences. They need complete and understandable information. They have to be protected and fairly advised from misleading,” continued Schaefer.
For this reason, the financial supervision, for example, monitors whether supervised institutes meet their disclosure obligations in accordance with the EU regulations and whether their marketing and advertising messages contradict this information. This is intended to prevent full -bodied advertising promising by the investors.