​​​​​​​Sustainable Finance

Moving t​​owards sustainable finance: a ​perspective of local banks 

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>> Read .pdf version of this position paper​​

Sustainable finance supports economic growth while reducing pressures on the environment. It tackles pollution and focuses on green-house gas emissions by minimising waste and improving efficiency in the use of natural resources. It is the provision of finance to investments taking into account environmental, social and governance (ESG) considerations.

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  • ​​The savings and retail banking model creates growth and jobs as it finances SMEs, which are the engine of growth in the EU.

The focus, both at international and European levels, is currently on how to foster growth and jobs. It is vital for the European Union to relaunch growth of its firms in order to strenghten growth. SMEs are key as the main providers of jobs: in 2014, SMEs accounted for 99.8% of all enterprises in the non-financial EU business sector. SMEs largely prefer bank loans for funding (77% of outstanding SME funding in Europe comes from banks), and evidence shows that bank lending remains the favourite sources of SME financing for 50% of SMEs. Savings and retail banks are crucial in providing SME financing: ESBG members have an SME lending volume (stock at the end of 2014) which equals €500 billion representing 35% of EU market share and around 15% of ESBG lending portfolio. The role of SMEs in a sustainable EU environment should also be highlighted and has had more attention paid by the institutions in recent years (e.g. EC Green Action Plan for SMEs). In a context of rapid expansion of the green sector internationally, estimated at 5% per year, SMEs should be considered as a changing force with the capacity of transmitting innovative solutions to the EU economy. The opportunities offered by green growth can be of interest to a large number of SMEs, as an estimated 40-45% of them are companies with high environmental impact. Other studies at national levels demonstrate the significant role of SMEs in the green growth. 92% of green projects are carried on by SMEs according to a Banque Populaire study on green growth. In this context, savings and retail banks are key actors in financing SMEs' green projects and the cooperation of local banks/local public authorities/SMEs, via the issuance of loans stemming from local savings, appears critical to allow the green economy to grow sustainably and to provide jobs. Savings and retail banks play a key role in financing the improvements in energy efficiency, both in residential and commercial buildings, as well as in equipment used by SMEs. Some ESBG members are already in the process of offering sustainable-specific loans which combine returns with respect for the environment.

  • Savings banks play a role in opening their network to everyone, and help to educate citizens in the region in which they operate

The European Stock Market Learning (ESML) initiative is an online competition run by European savings banks, giving students the opportunity to invest virtual capital on the stock market. Trading is based on share prices on real stock exchanges. The ESML provides an opportunity for young European citizens in business and financial affairs to learn about the stock market and gives them a chance to better understand the fundamentals and rationale of the economy and return and risk concepts. In addition, it is the opportunity to understand the wider issues which have a knock-on effect on stock markets, not only to speculate. Financial literacy levels in young European citizens is crucial, in order to allow them to make informed choices about their financial options in the future. As part of the ESML, there is a prize given to the group which carries out the most successful sustainable investment.

Financial inclusion and financial education are two further initiatives in which Europe's savings banks are heavily involved. Savings banks have financially-inclusive business models, and provide low-cost services to everyone. Local banks also work within their regions, talking at schools and local events in order to give information on the kinds of products available and the importance of saving money for the future.


  • The role of local retail banking is essential and should not be neglected by decision-makers.

In the financial area, focus has been put on an approach based on products, inspired by financial markets (in particular third-party investment as private/public partnerships did, private equity, stock exchange introduction, more recently bonds). These options presented in the Lisbon Strategy 2000-2020 are not sufficient and did not prove successful and did not fulfil the objectives. One reason is that local financing has been put aside and was not involved in this investment strategy. International activities target investment banking and project infrastructure; they unfortunately forget about the local banks.

A bottom-up approach which focuses more on the energy market, where households and SMEs are key players, would have advantages. This is why, due to the role described above, local banks have an indispensable role in financing the economy, and specifically green economy. Giving access to credit is the daily business of local banks - financial markets being a useful complement, for instance, in the case of large SMEs.


  • With whom can local banks work? What can be done by others?

Huge and long-term investments are needed in renewable energy, transport and energy infrastructure, buildings, industrial processes and new technologies. Given the constraints on public finance in many countries in the world, the largest part of these investments will have to be financed by the private sector: most of the investment will have to come from private households and SMEs. The public sector has also its role to play and can help via selective fiscal incentives and public guarantees (for instance, in Europe, the Juncker Plan in the EU will make at least 30% of its commitment in the “green sector"). This challenging goal, as stated by Governor Carney in his speech “Breaking the Tragedy of the Horizon - climate change and stability" on 29 September 2015, could maybe be achieved through the cooperation of the public/private sector under the impetus of the G20. Much could be achieved through the cooperation between different actors who invest in order to make real the transition to a low-carbon economy.

Besides, local banks should increasingly cooperate with municipalities in order to organise the financing of new markets in particular on green economy (in particular one on energy efficiency). The European Commission has promoted such cooperation through the programme KfW-ELENA which should be widely spread out (ESBG members BPCE and Erste Group already benefit from such funding).


>> Read .pdf version of this position paper​​