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CAB CALLING October-December, 2008

Sustainable
‘Green’
Banking:
The Story of
Triodos Bank The world has seen much focus on economic progress and mankind
R.N. Dash* has made giant steps in its journey through time. The side effects of the
development process have, however, also been equally enormous – loss of bio-
diversity, climatic change, environmental damage, etc. Social issues such as, poverty
alleviation have also become more important as the world has progressed economically. We
have realized, although a bit late, that development needs to be sustainable and equitable.

Sustainable development denotes development that does not reduce the possibilities and choices for the future
generations, at the same time ensuring continuity of economic progress for the present generation. It requires that
decisions taken today do not compromise options for the future - this issue is central to any serious commitment to
sustainability. It also involves balancing economic interests with the communities’ social aspirations and minimizing
environmental impacts.

Sustainable development transcends matters of ethics, corporate social responsibility and the environment although they
are all related. For business as a whole, how these factors are linked differs according to sectors, regulatory regimes, and
how the policies relating to these areas are implemented.

Banking and Sustainability

The process of sustainable development involves all sectors in the economy – Government, NGOs, corporates, citizens and,
of course, the financial sector. Banking is often associated with formal and rigid approaches and the sector generally
perceives itself as environmentally neutral. The context in which banking operates is, however, continuously changing.
Although banks themselves are generally environment friendly and do not impact the environment much through their own
‘internal’ operations, in view of the relationship between the banking sector and the firms who are users of banks’ products,
the ‘external’ impact on the environment through these entities is substantial.

Banks that are serious about sustainable development put principles at the heart of decision-making. This includes
fundamental issues, such as, how deals are done and loans are made, in searching proactively for opportunities and even in
establishing and adhering to policy frameworks that deliberately preclude involvement in certain investments. For example,
an investment in a factory that pollutes heavily (and passes on the costs to the society at large) will generally have a higher
financial rate of return than a factory that invests in expensive pollution control technology, as a result showing a lower rate of
return. How will banks assess the two and which one of the two will be considered first for lending, although everyone knows
that the second case will clearly be a better investment option in the long run?

*Member of Faculty, College of Agricultural Banking, Reserve Bank of India, Pune

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Environmental issues highlight both risks as well as
opportunities. While on the risk side there is pollution, soil
degradation, etc. on the opportunity side, there are
investment possibilities through highly successful
‘sustainability funds’ or ‘green funds’ in which there is
apparently no dearth of investors. Banks, as financial
intermediaries, are seen as efficient assessors of risk. The
investors who themselves do not have the wherewithal to
assess the risk in projects or companies, prefer to invest in
the banks offering environment or sustainability linked
products. Sustainability Indices (such as the Dow Jones
Sustainability Index - DJSI) are now used to track the
performance of leading sustainability-driven companies. A
different positioning of environmental issues is also
happening through the Kyoto Protocol in the form of carbon
emission targets which may provide long term benchmarks
in corporate planning.
Driving forces for sustainability come from all the
stakeholders of a company – the investors, shareholders,
employees, board of directors, customers, etc. With the
market for investment in sustainable investment funds
growing, a win-win situation has been created both for a
bank and an investor. It is true that a bank in such case does
not aim for the highest financial return, but the highest
sustainable return and being profitable in the long run. Can
such a bank exist in practice?
Triodos Bank: A Bank with a Difference
One example of such a bank which has adopted sustainable
banking as its core model ever since its inception and is
today looking forward to substantial expansion and a sound
future is Triodos Bank, headquartered in a town called Zeist
in the Netherlands and having offices in the UK, Belgium and
Spain and a representative office in Germany. With a
balance sheet size of 1.9 billion euros and a net profit of 9
million euros in 2007 and 1,53,000 customers in the
Netherlands, Belgium, England and Spain, Triodos Bank
doesn’t limit its financial support only to sustainable projects,
but also has a highly successful basket of products for
general banking as well.
Triodos Bank, also known as “Green Bank”, is a bank with a
difference. The bank finances only enterprises which add
social, environmental and
culture value – in fields
such as, renewable energy,
social housing,
complementary health
care, fair trade, organic
food and farming and social
business. Not only in the
CAB CALLING October-December, 2008
Netherlands, but worldwide, it is
among the best examples of
financial institutions that have
put finance in a revolutionary
new light, using money as an
instrument of social change.
Tr i o d o s B a n k ’s u n u s u a l
approach of funding social
reforms, which was earlier not easily accepted in financial
circles, is now widely admired. The bank’s ambition has
been to promote human dignity, environmental conservation
and focus on people’s quality of life in general. Describing
the bank’s pioneering role, a World Bank study points out
that "worldwide, there aren’t many privately owned banks
with a strong double bottom line that have been around for a
long time, that are not small and that have maintained a level
of profitability that’s acceptable to its shareholders".
Things were, however, different when the foundation of the
institution was laid way back in 1971. The four persons who
set up the Triodos Foundation in the Netherlands - Adriaan
Deking Dura (an economist), Dieter Brull (a professor in tax
law), Lex Bos (an organizational consultant) and Rudolf
Mees (a banker) - knew that there was no dearth of funds
with banks, which invested it in big companies and in
projects they believed would make profits. This was,
however, almost never known to the people who provided
the banks with their funds. Investors in a bank might be
vouching for non-violence, but their bank might even invest
in a weapons manufacturer that would have entered into
deals with certain governments and would have actually
facilitated a war! They figured that many people didn’t know
and probably wouldn’t approve of where their banks
invested their money.
This led them to set up the Triodos Foundation for
prosperous people who wanted to invest their money in good
causes. Triodos’ founders banked on the idea that people
with their hearts in the right place would rather invest their
savings in nature farms, health-food stores, passionately
idealistic art organisations or companies that tried to “make a
difference” than in large corporations with no vision of a
better society.
Setting up the Bank
In the year 1980, the Triodos Foundation launched the
Triodos Bank in the small town of Zeist near Utrecht with
start-up capital of 5,40,000 euros jointly raised by a group of
300 private and institutional investors and a full banking
licence from the Dutch Central Bank. Because many of the
first savings account holders renounced their interest
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CAB CALLING October-December, 2008
earnings, the bank turned a profit in the first year itself. The
founders of Triodos Bank, in fact, revised a few unwritten
rules of banking. For instance, customers were given the
opportunity to target a cause that would receive a portion of
the interest from their savings accounts. The wealthiest
borrowers also paid the highest interest rate!! After all, if they
are charged the lowest rate as many banks do, we are
making the rich richer and businesses that are having a
tough time already would be even closer to bankruptcy if
they weren’t charged a lower rate.
Triodos also introduced the principle of “personal security”. A
lot of good ideas are lost because banks ask borrowers to
produce capital or collateral. That is why the bank introduced
a system whereby a larger group of people could act as
guarantors for a new initiative. This has the added benefit of
stimulating involvement and creativity in a new venture. The
similarities in this to the principles of micro credit cannot be
lost sight of, although these loans are nowhere near the
small loans typical of micro finance programmes.
Investment Funds
In 1990, Triodos Bank launched the first “green fund” for
funding environment friendly projects. Other funds followed
later. In the Netherlands, the Triodos Added Value Fund,
Triodos Green Fund, Triodos Sustainable Real Estate Fund
and Triodos Culture Fund are at present distributed to the
general public via several other banks which ensures a
larger outreach. The bank also initiated the first life and
pension insurance schemes in the Netherlands together
with insurer Delta Lloyd Asset Management that included
social and ecological criteria in the investment guidelines.
In the late 1980s the bank was also one of the first in Europe
to become deeply involved in micro finance. It made an
important contribution in expanding the role of micro finance
from an aid instrument used by several donor organizations
to a business activity that spread across developing
countries, even without donor funding. At present, it provides
loans and equity investments to microfinance institutions
worldwide through specialized funds.
Triodos Bank has shown that sustainability isn’t just a fad or
an idea for the fringes of the financial world. For customers
who want to use their money in a responsible manner, there
are funds available now even with the bigger banks who
have their own sustainable funds. Companies too take pride
in presenting to shareholders extensive reports on their
environmental activities. According to the bank’s CEO,
“transparency is increasingly becoming a key concept in the
financial world. Nowadays businesses are more
emphatically taking account of people and nature, including
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when they are making financial decisions”. Triodos is
perhaps the only commercial bank to provide an annual list
of all the loans the bank has made; thus, savers can see
exactly how their money is used.
Expanding Activities
When the nuclear disaster occurred in Chernobyl in April
1986 and within a week, the toxic cloud had reached the
Dutch border, leading to contamination of vegetables and
dairy products, the bank used this disaster as an opportunity
to develop its own initiatives to start investing in wind parks
and promoting alternatives to the potentially dangerous
nuclear energy, in partnership with the government sector in
the Netherlands as well as the corporate world. The
emerging field of sustainable and renewable energy
received an enormous boost and the Netherlands became
one of the international leaders in this area.
Triodos Bank has profited from the changing spirit of the
times in other ways too. Increasingly concerned about the
quality of their food, increasing numbers of consumers in
Europe as elsewhere in the world have started switching
over to organic and health food products. The bank has
systematically financed several supply chains involving
organic farming. Further, several theatre groups and film
companies as well as artists in need of financial help have
approached and got assistance from Triodos Bank when not
many banks anywhere in the world would find them
bankable in the conventional sense.
Triodos Bank tries to help bridge the gap between economic
development and the interests of people and the
environment in three different ways – by providing
sustainable services, by developing new and innovative
products and by engaging in public debate about the benefits
and challenges of socially responsible business and
sustainable banking. In fact, the name Triodos is translated
from the Greek and means “three-way approach”.
Principal Lending Areas
At present, the bank’s lending portfolio comprises the
following three major segments:
Segment What it includes Share in
total lending
(2007)
Nature and Projects in the field of 40 per cent
Environment renewable energy (wind
energy & hydro-electric
projects), organic agriculture
 total lending
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Nature and Projects in the field of 40 per cent

Environment renewable energy (wind
energy & hydro-electric
CAB CALLING October-December, 2008
projects), organic agriculture
across the entire value chain development has been the Bank’s core principle. This
including health food shops creates expectations, and obligations. There is a great need
and environment technology for integrated sustainable concepts. Wanting to do well is not
such as recycling companies enough, as the issue of bio-fuel has shown. Instead, a new
and nature conservation foundation, a paradigm shift is thinking, is needed.”
projects
Triodos’s unique paradigm has kept it out of the current
Culture and financial crisis sweeping the world. According to its annual
Small loans to artists and 35 per cent
report, the bank is not involved in the sub-prime mortgage
Welfare organizations actively
crisis affecting the market for insecure mortgages in the
involved in education,
United States. It invests its customers’ savings directly in
healthcare or providing aid to
sustainable companies and stays in direct contact with the
people with physical and
entrepreneurs who run them and chooses not to invest in
learning disabilities. All these structured products, such as mortgage or other asset
enterprises have a clear, backed securities, or complex financial constructions based
people-centred policy. on derivatives. The bank has always considered those
products too abstract and far away from the real economy
Social Loans to traditional 23 per cent and from its own mission.
Business businesses and innovative
enterprises and service Financial soundness of the bank is also evident from its
providers with clear social capital adequacy ratio which stood at 17.8 per cent in 2007.
goals, including financing of The bank was Basel I compliant and did not foresee any
start-up enterprises, fair trade notable impact on its lending capacity, when Basel II norms
businesses and micro finance were to be notified in 2008. According to Peter Blom, “the
institutions providing basic strength of a bank can be determined by three key
financial services for people indicators: solvency, liquidity and the quality of assets. When
in the developing world. all three are applied to Triodos Bank, they show there’s no
doubt that we are a healthy bank, able to serve our
In fact, before selecting companies to invest in, Triodos customers properly and well prepared for growth”. True, the
gathers information from the company itself, as also from bank’s case has been one of “profits linked to ideals”. In
human rights organizations, environmental organizations order to increase its customer contacts, the bank has also
and Sustainable Research International (SiRi), which is an introduced other regular banking services alongside its
organization co-founded by Triodos Bank having a special savings and investment products.
worldwide network of research institutions that monitor the
behaviour of a large number of public companies. The bank Future Outlook
wants to know who the industry leaders are and who
is lagging behind in terms of sustainability performance The model that the bank uses is different from other banks.
and, it conducts detailed sustainability analyses and ranks Will the model itself be a limiting factor on the ambitious
companies within a sector or an industry. These growth and development plans of the bank? Will the day-to-
standardised sector studies provide an overview of the day business of being a bank dominate over the desire to be
industry and the main sustainability trends, and serve as a an instrument of social change? How does the future look for
basis for defining the bank’s investment portfolio. Triodos Bank now that other banks are also increasingly
positioning themselves as players in the sustainable
Interacting with a group of senior bankers from India who economy sector? Can the bank still continue to fulfill its
visited the bank’s headquarters in Zeist during a study tour mandate to strive for social objectives?
organized by the College of Agricultural Banking (CAB),
Pune in October 2008, CEO Peter Blom said, “Given the Peter Blom is convinced it can. According to him, many other
growth the green economy is experiencing, consumers banks entering the sustainability space also invest billions in
seem willing to change their spending behavior in line with companies that don’t in any way contribute to a better world.
the latest research on climate change. Different patterns of And there are issues of transparency too. He believes that
consumption can help make the economy more sustainable, the bank can profit from economies of scale. As of now,
and certainly need not lead to a lower quality of life. Triodos continues with its strong belief that it is the individual
Innovation can also be sustainable. The consumer is no who can bring about real change in the society and hopes to
longer the object, but instead the source of a sustainable, remain a platform for people who want to ‘make a difference’
fulfilling way of life. . . For more than 25 years, sustainable in the world.

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