European ethical banks strengthen the social economy, maintain high credit quality and support social and community projects, a conference in the EU parliament (1 December) has been told.
The meeting discussed the findings of the 8th Report on Ethical Finance in Europe, “Capital for Common Good”.
The event, attended by MEPs and others, was organised by the Ethical Finance Foundation, Banca Etica and the European Federation of Ethical and Alternative Banks (Febea).
The report says that more than 70% of ethnical banks’ loans went to the social economy. This illustrates how ethical finance can combine financial stability with social impact, it was said.
The social economy in Europe is significant and includes 4.3 million organizations with a turnover of €913 billion and 11.5 million employees, about 6.3% of the workforce.
These organizations range from cooperatives and mutuals to associations and foundations that follow democratic governance models and reinvest profits into their communities.
The meeting heard that ethical banks managed €79 billion in assets in 2023, maintaining a loan-to-asset ratio of 67.91%,
compared with 60.9% for large European banks.
Nonperforming loans were 1.61%, lower than 1.89% for traditional banks. Return on assets reached 0.75%, higher than 0.64% for large banks. These figures, it was also said, demonstrate that ethical finance is “not only socially responsible but also financially robust.”
“Ethical impact can align with economic sustainability,” the report notes.
Ethical banks are, the event was also told, key financiers of the social economy. They direct more than 70% of their loans to cooperatives, mutuals, associations, and foundations, compared with just 19% for large banks. In some cases, up to 93% of loans go to micro-enterprises, which are often excluded from traditional credit.
The social economy is increasingly recognized for its contribution to social inclusion, employment, and regional development, the report states, adding that ethical banks help to generate jobs, promote local investment, and strengthen social cohesion across Europe.
The report offers a set of recommendations for EU and national policymakers, aiming to foster ethical finance and support the social economy.
Proposals include developing capital instruments (equity and quasi-equity) suitable for micro-enterprises and cooperatives instead of solely relying on credit.
Commenting at the event, Italian Socialist MEP Irene Tinagli, Co-Chair of the Intergroup on Social Economy, pointed to the challenges in today’s world “such as green economy, energy transition, housing, inclusion, progress of social economy”, adding that “ethical finance has a crucial role to play” notwithstanding the changing EU priorities, such as competitiveness and defence.
Also speaking, Teresa Masciopinto, President of Fondazione Finanza Etica, added: “When capital supports people, communities and sustainable enterprises, it shapes essential conditions of our lives, such as work, inclusion, and access to essential services.
“Finance becomes a driver of equality, participation, and democracy, contributing to Europe’s resilience”.
Further comment came from Mauro Meggiolaro, author of the report, who underlined that 93% of loans by ethical banks go to micro-enterprises, which are often excluded from traditional credit for being risky or less reliable, adding that ethical banks apply stricter criteria concerning investments in armaments, fossil fuels, or companies that violate human rights.
Highlighting that 70 percent of the loans by ethical banks are directed to the social economy, Federica Ielasi, Vice President Banca Etica, explained that ethical banking and social economy are not two separate worlds but the two sides of the same European architecture”.
Referring to the lack of connection among EU policies and implementation tools, she added “They are not designed around the size or the needs of social enterprises or smaller mission-driven banks”.
“Public instruments such as Invest EU are essential but often too regionally centralised”, she added while stressing the need for guarantees, such as the Social Economy Guarantee Fund in Italy and Spain, as well as capital instruments, including patient capital, to advance the social economy.
