The organization Friends Of The Earth recently released a report called Climate: how to choose my bank. I spent time reading their document regarding French banks. The work done by the team is relatively consistent and I wanted to share two key insights related to responsible banking.

1. Dangerous investments

When you deposit your money in the bank, are you aware of what kind of purpose your savings will serve? This question seems meaningful when it comes to choosing a new bank, but unfortunately, it is not yet an obvious query for most people. Several months ago for example, I wanted to move to an online bank and started comparing the international withdrawal fees of different institutions. I never thought about researching which industries these banks support with the money they receive from their clients. After reading Friends Of The Earth’s guide, I understood that French institutions like Société Générale, BNP and Crédit Agricole should absolutely be avoided: their investments are classified as “maximal” in terms of negative impact on the planet. They support hazardous activities such as mining and coal plants, shale and liquified gas, oil platforms and refineries, tar sand businesses, etc. On a global level, three US-based banks rank first: JPMorgan Chase, Citi Bank and Bank of America, and the controversial French banks mentioned above all rank in the top 20.

We may think that the amount we have personally deposited in a bank is too small to really make an impact on the planet; however, this reasoning is wrong because with the “fractional reserve banking” system, banks only need a portion of equity to create a new loan. For example, if a customer has $1,000 in their account, the bank can create a $10,000 loan with the savings. (The remaining $9,000 are created “out of thin air” by the bank itself (it is the principle of a debt-based money creation model.) The credit will eventually be used to fund business projects. Regrettably, in most traditional banks, the project’s return on investment will be more decisive to unlock the funding than the social and environmental impacts.

Fortunately, some banks are distinguished by their ethics, including La NEF (“Nouvelle Economie Fraternelle” / New Fraternal Economy) that ranks number one in France in terms of responsible finance. This cooperative offers savings and credit solutions for social, ecological or cultural-centric projects. Their program includes several projects in the field of biodynamic agriculture, renewable energy, ecological habitats, rural tourism, fair trade and the like. It is the only French bank that publishes the whole list of all funded projects.

Here is the ranking for French banks according to their impacts on the planet. The full guide can be found in this eco-guide.

Outside of France, several banks have been recognized for their high ethical values, particularly ASN and Triodos in the Netherlands, Banca Etica in Italy, GLS in Germany and The Co-operative Bank in the United Kingdom.

2. Doubtful labels and funds

Some popular labels, such as SRI (Socially Responsible Investment) powered by Novethic, are in charge of approving funds’ environmental and social dimensions. Most French banks have at least one certified SRI investment plan. In the latest analysis done by Friends of the Earth, 80% of the funds certified by Novethic contain in their asset portfolios at least one controversial company: Total, British Petroleum, Areva, France Telecom, BNP Paribas, AXA and so on. The term “Socially Responsible Investment” is illegitimately used by most banks and their marketing message can undoubtedly be described as greenwashing practices. However, SRI represents in a country like France more than 20 billion in assets just among private investors.

The Livret Développement Durable, a sustainable development saving account whose assets rise at 102 billion of euros, is only classified in the category “partial positive impacts.” As written in this article from the newspaper Le Parisien: “Contrary to what the account’s name suggests, companies aren’t asked to work in favor of sustainable development in order to get SRI-labeled fundings.” Most of the customers with ethical values would expect much stronger commitments from their bank!

Here is the final ranking of the most popular French funds concerning their impact on the planet. (The full report can be found here.)

To overcome the lack of truly responsible funds, some specialized plans have emerged during the past decades. Energies Partagées (Shared Energies) lets individuals invest in citizen-driven projects that work for the transition from polluting to green energies. As an example, the organization pledged 500,000€ to support the first French wind farm that is democratically governed. Another fund called Terre de Liens uses its customers’ money to help farmers that practice organic and traditional farming start their activities. Bâti Cités is another investment project that connects private investors with individuals willing to start common and ecological buildings.

Were you aware of the negative impact savings can create on the planet? I sure wasn’t! But now we can all help that change. What do you think about switching to a bank or fund that has a better sense of right and wrong? Looking forward to reading your experiences or opinions.