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Ethical Versus Conventional Banking: A Case Study

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  • Francisco Climent

    (Department of Financial and Actuarial Economics, University of Valencia, Avenida de los Naranjos s/n, 46022 Valencia, Spain)

Abstract

The 2008 financial crisis has changed the structure of banking, generating public distrust in the conventional financial system. An alternative has emerged as a result of this lack of confidence. This alternative is known as ethical banking. A growing number of investors, asset managers, and financial intermediaries have incorporated sustainability considerations into their business practices. This paper discusses the origins of ethical banking and describes its primary characteristics. The goal is to determine whether ethical banking can be as profitable as conventional banking despite only investing in projects based on social values. A comparative analysis is performed to identify differences between an ethical bank (Triodos Bank) and a conventional bank (Banco Santander). The analysis was conducted to study the financial activity of both banks over a four-year period (2012–2015). The balance sheets, profit and loss accounts, liquidity ratios, indebtedness, and returns provided by both banks were analyzed. The results indicate that ethical banking is less profitable than conventional banking. Nevertheless, customers are attracted to the social investments and financial transparency that characterize ethical banking. Over the study period, Triodos Bank experienced a greater increase in the number of employees and the volume of loans and deposits than did Banco Santander. Triodos Bank invests in social and environmental projects. This investment approach makes it less profitable than Banco Santander.

Suggested Citation

  • Francisco Climent, 2018. "Ethical Versus Conventional Banking: A Case Study," Sustainability, MDPI, vol. 10(7), pages 1-13, June.
    • Handle: RePEc:gam:jsusta:v:10:y:2018:i:7:p:2152-:d:154205
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    References listed on IDEAS

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    6. Drago, Carlo & Gatto, Andrea, 2022. "Policy, regulation effectiveness, and sustainability in the energy sector: A worldwide interval-based composite indicator," Energy Policy, Elsevier, vol. 167(C).
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    8. Marta Idasz-Balina & Rafał Balina & Noer Azam Achsani & Iwona Błaszczak & Grażyna Chrostowska-Juszczyk, 2020. "The Determinants of Cooperative Banks’ Community Service—Empirical Study from Poland," Sustainability, MDPI, vol. 12(5), pages 1-12, March.
    9. María del Carmen Valls Martínez & Salvador Cruz Rambaud & Isabel María Parra Oller, 2020. "Sustainable and conventional banking in Europe," PLOS ONE, Public Library of Science, vol. 15(2), pages 1-23, February.
    10. María del Carmen Valls Martínez & Pedro Antonio Martín-Cervantes & Sandra Peña Rodríguez, 2021. "Ethical Banking and Poverty Alleviation Banking: The Two Sides of the Same Solidary Coin," Sustainability, MDPI, vol. 13(21), pages 1-22, October.
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