Banks are finding that refusing to provide finance and other banking service on the basis of unacceptable environmental risks, poor human rights and labor practices is actually increasing their profit margins.
While there are clear losses associated with turning away this business, it appears that this is being more than compensated for by the increasing numbers of customers that are moving their loans and savings accounts for ethical reasons.
For example, the Co-operative Bank lost £8.7M worth of business based on ethical considerations, yet 34 percent of the bank’s £132M profits in 2004 were attributed to the bank’s ethical and sustainablity practices, according to the annual customer-value analysis.
It is important to recognise that refusing to finance business should not be seen as the only option. Project sponsors and users of other banking services can be given guidance on how to improve their practices and reduce their environmental and social risks. There is clearly a risk that if banks are placed under too much pressure they may turn away worthwhile projects because they are perceived as being too risky.