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The Bottom Line

01-08-2008 | As the world wrestles with a banking crisis unlike any before it, Peter Blom, Chairman of the Board of Management of Triodos Bank, argues that 'maximising sustainability' should become the economy's priority.

Money Trouble

The idea that the market is the only effective way to distribute wealth and resources has become increasingly controversial, and with it the goal of creating profit at all costs. Not least because this system has singularly failed to prevent the global economy plunging into serious trouble on the back of poor lending decisions in the United States, and the credit crunch that followed it. Within a certain context the old thinking still has benefits. It's at the root of our Western thinking (if not 'the root of all evil') where the economy has increasingly become an independent force. But in the 21st century, the market is too limited to provide a regulatory principle that governs everything before it.

This market-driven approach has become the yardstick for assessing every social issue. Within it, money and banking have played a more and more significant role. While commercial organisations are to some extent incorporated within social structures, and entrepreneurs understand the importance and the desires of their various stakeholders, such limits have long since gone in the financial world. Instead, the objective is to make as much money as quickly as possible - 'maximising profits' to use financial parlance - while the source of the value creation, labour and creativity, recede to the background. But when financial products diverge from the real economy, there is a danger of complete alienation. The present crisis in the loans and mortgage market, the omnipresent credit crunch, which started in mid-2007, exemplifies this danger.  This is not a temporary phenomenon but a fundamental imbalance within our financial system, in which the monetary and the real economies become increasingly removed from each other.

When this happens the connection with the underlying market value is lost and can become a source of speculation. The complexity and scale of financial products such as some derivatives can seem to increase unhindered, until confidence suddenly collapses. This should present an unacceptable risk, particularly to banks. After all, banks are founded on trust. But the ever present reports of financial woe in the papers are proof that the banks have not heeded these dangers.

Had they been more mindful, things could have been different. The mortgage crisis that precipitated the credit crunch came from being out of touch with the real economy - portfolios containing thousands of mortgages were regrouped, derivatives developed and loans used for leveraging. This technical financial process can create significant profits. But it also increases the risk of losing money. And importantly, because financial relationships are so complex, no one knows who the actual borrowers are any more. The system only works as long as everyone believes in it; until people start to ask questions when payments stop coming in.

All Change

Anxiety about the economy, and the banks at the heart of it, is linked to wider concerns about our collective future. Together a number of factors have driven a growing interest in sustainability, the challenges we face as a people and a planet, and some of the organisations co-creating solutions to meet them.

For many, sustainability has become the issue. Not surprising perhaps given that our future survival is at stake. More than ever people want practical solutions to climate change problems, as part of genuine sustainable development. It is understandable then that Al Gore and the Intergovernmental Panel on Climate Change (IPCC) received the Nobel Peace Price for their seminal work.  They have helped to force the looming issue of irreversible climate change on the global agenda. And during the international Climate Change Conference in Bali, it was not the innovators but the inactive who felt isolated, because people want to be part of the solution.

Yet despite the importance of this shift in thinking, real change can only come from within society itself.  This involves challenging old ways of understanding and outdated mechanisms. Until recently a regulated marketplace was considered - at least in the West - to be the solution to these kinds of problems. But now people are starting to question how effective it really is. Concepts of markets and competition are part of a wider theory which claims the pursuit of short term self-interest benefits the common good. With sustainable development however, self-interest and the common good, both short and long term, form a seamless whole.  When the separation between the two is discarded, the dilemma of opting either for ecology or economy is exposed as a false one. 

The framework is changing

The climate crisis and the credit crunch signify an important call to everyone to change the prevailing frames of reference. In a sustainable world, the structures governing our economic actions should be determined by the natural basis of our existence and by human dignity, and not by maximising profit. Nature and human dignity are not for sale and should not be subjected to the vagaries of the market.

Transforming this framework is usually seen as a task for government. But individuals and the business world need to be more actively involved. Are they capable of changing and bringing about such a radical sea change?  The goal is to produce products and provide services sustainably, and to see profit as a healthy precondition instead of a goal in itself. The realisation of a sustainable society and this paradigm shift, depend on each other.

Given the green economy's growth, consumers seem willing to change their spending behaviour in line with concerns about climate change. Different patterns of consumption can help make the economy more sustainable, and certainly need not lead to a lower quality of life. Innovation can also be sustainable, as the Cradle to Cradle concept shows.  Within it, production processes, buildings and cities are designed on the basis of integrated sustainability. The consumer is no longer the object, but instead the source of a sustainable, fulfilling way of life. Cradle to Cradle is simply the next step in the development of a new way of thinking about sustainable development.

The sustainable consumer

There are two starting points to better understand an integrated approach to sustainability. Firstly, nature. Nature is not efficient, but neither does it know waste. It is cyclical. It doesn't progress in a linear fashion and is the founding source of human existence. Secondly, mankind itself. Our consciousness allows us to create, but also to destroy. We create from scratch but we can also consign something of value to oblivion.  Mankind exhibits core values such as freedom and responsibility and, despite our heavily individualised world, also the need to be part of a larger whole.

Research by American sociologist Paul Ray into Cultural Creatives (individuals who create their own culture and cannot be categorised into familiar social groups), shows that these people feel responsible for what is happening to the earth, but also want to achieve personal development and bear personal responsibility for their way of life. According to Ray, this is a group - about 15% to 20% of the European population - who initiate change and are open to a paradigm shift. They experience the earth as the ecological foundation of their existence, but also see the personal development of every person as a source of inspiration and innovation. And it is precisely this group who are reaching out to organisations like Triodos Bank, to translate their concerns into practical action.

Progressive banking

The culture creatives enthusiasm for positive change is heartening, because change is preciely what's needed. With the backing of growing numbers of people and progressive businesses to serve them, the financial system could be very different. Triodos Bank, a sustainable bank founded in The Netherlands in 1980, illustrates what's possible. It taps into this body of interest by consciously choosing to stay close to the real economy. As a result the bank, which also has offices in the UK, Belgium and Spain, is not involved in the sub-prime mortgage crisis and is continuing to grow at similar levels despite the credit crunch. The bank invests its saver's deposits directly in sustainable companies and stays in direct contact with the entrepreneurs who run them. The bank chooses not to invest in loan packages when the individual loans have been granted by another bank - an approach that also promotes sustainability. In essence, Triodos aims to maximise sustainability, embracing the need to be profitable but only as a means to a sustainable end.

Profit is not an objective in itself. It's a yardstick. It shows an organisation is working efficiently, but says nothing about the content of what it's doing. We, on the other hand, start with the content of an activity and focus on its sustainability. The first thing we consider is 'How can this contribute to sustainability?'. Then, as bankers, we ask ourselves 'Is it viable?'. If our professional judgement is correct, profit should follow almost automatically.

This approach represents a radical departure for conventional business. It means re-appraising the role of our money and its place in the economy. And it goes further, because thinking like this means looking internally to assess what's truly valuable. There are a number of positive trends emerging in this respect. There's growing awareness that we only have one earth to live on, and need to work together to secure our long term future on it. It is vital that we view the planet as our shared responsibility. If we don't, we will fail to solve our sustainability problems. Positive solutions also require authenticity - not in a vague, introspective way, but in a meaningful sense that's linked directly to our actions. True innovation, that makes a lasting sustainable difference, will come from people who combine both an inward and outward focus.

Triodos Bank is living proof that people do have the power to make change happen. The Bank's oversubscribed depository receipt issue in 2007 - an opportunity to invest in Triodos Bank much as a share issue would for a conventional bank - was the largest in our history. It forced a new experience on us, turning people away who wanted to invest in us. The issue also made it clear that people appreciate a structure which protects an organisation against hostile takeover bids. For a long time it was criticised as old-fashioned, and unsuitable for a modern, transparent bank. But views have changed. The slogan 'not for sale', which we used to promote our depository receipt campaign, resonated with large numbers of people. It was a clear statement that for us, the bank is not some tradable entity. Our values, our identity, our co-workers, our clients and our objectives are not for sale.

For Triodos Bank the starting point is a long-term relationship with our savers and borrowers. As a bank, we are responsible for the money we lend. If there is a problem, we solve it together. In essence, a bank is an organisation that brings two groups of people together. People who have money to spare and people who need it; a bank then adds its knowledge and expertise to this mix. If you move away from that basic principle, and into a more abstract world, you lose sight of what is imaginary and what is real.

In practise, Triodos Bank helps to transform abstract ideas into grounded activity. It searches for connections rather than taking things out of context. The Triodos Bank portfolio consists of tangible commodities such as food, real estate and energy. And we always maintain our sustainable perspective. We aim to work in a way that will still be going strong in a hundred years' time. It's no surprise then that we want to co-operate with nature, not manipulate it.

Whose driving the sustainable economy?

Sustainable development is expanding fast. Triodos Bank is no longer the only actor committed to it. This welcome growth is also tainted with more superficial approaches. At times, sustainability seems no more than a marketing ploy. Creating a more sophisticated approach is vital.

Not enough attention has been given to the important role of medium-sized businesses. Family businesses with 50 to 1,000 employees now have the chance to base their business operations on integrated sustainability. No longer is sustainability only promoted by multinationals bowing to public pressure and sustainable pioneers involved in small scale social entrepreneurship, but also by a new group of medium-sized businesses. These are ambitious, fast-growing businesses with healthy profitability, who also want to focus on making a sustainable impact.

They include trading companies who focus on the fast-growing organic farming and fair trade sectors, the natural health and cosmetics sector and the renewable energy industry. They epitomise integrated sustainable entrepreneurship. These medium-sized, successful sustainable businesses are looking for capital, but they also value their own identity and want to maintain and protect it. 

The forces of a new breed of medium-sized sustainable businesses and millions of mobilised individuals are gathering strength. Despite the bleak picture drawn by the credit crunch, there is a powerful new opportunity to co-create a better future. In it short-termist goals driven by the desire to make as much money as possible, as quickly as possible, is replaced by the positive impulse to maximise sustainability.