P+ #3 TRANSLATION IN ENGLISH

Major banks don’t offer special financing
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Financial giants like Deutsche Bank, Citigroup and ING talk a lot about sustainable development. But do they offer special financing to businesses that need money for sustainable projects? The outcome of an investigation of P+ shows that they don’t. Sustainable projects take time and the major banks can’t resist the pressure of their shareholders who want to see positive balances every quarter. The result: only 1 percent of all financed projects can be called sustainable. Other result: small specialized banks grow and grow.

By Christel Witteveen
Translation by Mimi Visser N.Y.

Banks can play a major part in making the world more sustainable, because they decide which initiatives will get a chance by supplying the money. The past years, ASN and Triodos have grown enormously by investing only in socially responsible projects. However, their share of the overall credit market is still very small. Which is actually the attitude of the financial superpowers?
Tiny van Eerd has personally encountered the attitude of major banks. The chairman of the Board of De Vitalis Zorg Groep (De Vitalis Care Group) has great plans for the development of housing complexes for the elderly. More and more elderly people want to keep living independently, but in the vicinity of a nursing home to fall back on in case of an emergency.
The cancellation of subsidies and the increase of building costs make it impossible to finance housing like that in the private sector. Van Eerd: "I have approached a large number of banks with the question to finance these complexes. ING, Rabobank, none of them offer enough support. Banks see housing like that as commercial real estate and they want to finance only a maximum of 85 percent of the investment. We have to add the rest out of our own liquid assets. This reluctance seems strange to me, especially when you look at how much money private persons can borrow."
Rabobank’s comment is that it is a search for balance between social responsibility and profit.
Sybren de Hoo, head of the sustainability department: "Sustainable development is important in order to keep your customers. Nike has lost a lot of customers over a child labor scandal. But it is still hard to prove that sustainable development brings profit; there is still too little research done on the subject." And as long as there is no hard proof, the credit givers mainly focus on earning back their money as soon as possible. They are encouraged in this process by the shareholders who want to see ‘profit maximization’, which is still the credo of today’s world. By the way, Rabobank does actively investigate the possibilities of sustainable development. When he worked for Rabobank, economist Marcel Jeucken produced a major study with the title "Sustainable financing and banking." His conclusion was that sustainable banking is only possible if the goal of profit maximization in the short run can be left behind. Thus far, this has only been possible for a few smaller banks, among which the English Cooperative Bank, ASN and Triodos Bank. The competition jealously notices how Triodos can afford lower rates, because they can attract cheaper money. Besides, this bank from Zeist has the advantage that customers won’t run away, even if the aimed return isn’t achieved. Citigroup, ING and Deutsche Bank feel the impatient shareholders looking over their shoulders.

Quiet in Japan
Journalistic research among the world banks confirms this image. For Japanese conglomerates, the subject of sustainability seems almost non-existent. The Bank of Tokyo doesn’t even take the trouble to answer the question of how they treat sustainable development. The American Citigroup does take the trouble, though the spokesman doesn’t get much further than commonplace remarks, such as "Citigroup plays an important part in the economic development of the world and acknowledges that this comes with a substantial responsibility regarding the environment and social issues." In reality, Citigroup has a pretty passive attitude - when it gives credit, it focuses mainly on obeying legal demands.
Europe clearly has more interest in sustainability. In the top ten of most progressive major financial institutions that Jeucken has put together there are eight Europeans, among which are the Dutch Rabobank, ING Group and ABN Amro. Pieter Kroon, head of Public Affairs of ING Group: "We think sustainable development is very important, which shows in the special products that we have. For example the Postbank Groenbank (green bank), with which we finance a lot of sustainable development projects." But does the bank also give favorable conditions for sustainable projects, for example lower rates or longer terms? No. Kroon: "It would go too far to take the social desirability into account in all financial aid. The question is if that belongs to the responsibilities of a bank. I see it more as a task for the government. Besides, it is hard to define what sustainable development is, exactly."
What is the opinion of one of the biggest banks in the world? Deutsche Bank likes to stress the importance they give to sustainability. Michael Hoelz, head sustainable development, takes all the necessary time to explain the point of view of the bank: "Look, we are not going to play police and tell companies what they can or cannot do. From our point of view, sustainable development is a continuous process. The question of sustainability comes up in every decision, whether it’s about giving credit, financing projects or assets control. Whoever comes to us for financing, will get questions on marketing, expected financial results and how they deal with sustainability."

Negative application
If a company doesn’t have good answers to all of these questions, the deal with the Germans is off. This happened to a company asking for financial support for a new oil pipeline in Ecuador. The pipeline either had to go through the jungle or follow a path very close to a city. Because the project didn’t even come close to the sustainability criteria, Deutsche Bank decided not to give them a Euro. The financial world has obviously learned from the trouble of Shell in Nigeria. But if sustainability weighs so heavily in negative decisions at Deutsche Bank, can customers also count on the reverse: more accommodating criteria than with pure commercial initiatives? "We focus on the three P’s, People, Planet and Profit. This means that we won’t finance a project if it isn’t profitable. Of course, we have to keep earning money for our shareholders." Hoelz can’t really say if this will change in the near future.
Still, an entrepreneur with a great idea for a sustainable project shouldn’t give up his search for financial help too quickly. Banks sometimes have some special funds to finance special initiatives. In The Netherlands, entrepreneurs with projects for agrarian nature conservation or windmill parks do get money from most banks.
By way of Green funds, about four billion Euro is available for these projects, although most of it has already been invested. For all kinds of social projects more money is becoming available as well. Worldwide, there are seven major banks with funds for micro credit – small credit for people who would normally never get a loan.
Deutsche Bank, Citigroup and Rabobank focus with these funds especially on developing countries. Very few major banks dare to stick their necks out for innovative projects that carry great risk. Only Deutsche Bank, Rabobank and the Swiss UBS have special sustainable venture capital funds. With money from those funds, they invest in sustainable, innovative projects with a higher risk level, but only in the ones that promise higher profits as well.

In-House Knowledge
The Rabobank Venture capital fund consists of 25 million Euro and, so far, only a few million has been spent. Contrary to the belief of entrepreneurs, Rabobank is pretty flexible when it comes to financing criteria for venture projects according to sustainability manager De Hoo. As an example, he mentions a project of AVB that tries to use grass as raw material for pharmaceutical products. "We are taking a high risk with that financing, which we only do when we expect high profits."
By the way, already existing credit relationships like AVB do have preference. It also makes a big difference if the banker happens to have a lot of knowledge about the market that the entrepreneur wants to enter. De Hoo: "Assessment building is extremely important. At Rabobank, we have a lot of experience with the nutritional industry and agriculture – we will support new initiatives in those sectors sooner than other banks. They would probably say: ‘That is too risky.’ Obscurity raises the risk and reduces the interest to finance. The first windmills cost an enormous effort. We do things like that more for our image than for the profit."
All in all, one has to admit that the financing policy of major banks gives only weak support to the growth of sustainable development. As long as the focus is mainly on profit maximization, the P of Profit will rule the assessment of financial applications. The demands that banks make on sustainable projects are very high and the special funds are only a drop in the ocean. Of the many billions loaned by banks, only 1% has a sustainable destination. Meanwhile, ASN, Triodos and Cooperative Bank fortify their position in all kinds of niche markets. Triodos has announced that it will invest in housing complexes for the elderly via a creative construction. ASN Bank already supports the housing complex De Waterspin (The Water Spider), the ecological housing project De Kersetuin (The Cherry Orchard) in Leidsche Rijn and organizes (with Novib) credit for small entrepreneurs in developing countries. The major banks still have a lot to learn when it comes to this kind of creativity.

No financing for water swing
How can you convert the power of waves into sustainable energy? Dutch concern AWS built a water swing for this purpose. The underwater power station can potentially supply two megawatts of electricity and could provide for ten thousand households. But it is still not clear if the installation will start swinging at some point. It depends mainly on the willingness of financiers, to put money in the project. Hans van Breugel, co-developer of the project, became quite disappointed in his search for financial support: "These kind of projects are not interesting for banks. They only want to invest once you have a proven technology. Sustainable development is not more than a fashion for them. Actually, they finance in a very traditional way. That’s fine with me, but don’t claim that you want to invest in new technologies." The experimental phase has cost AWS sixteen million Euro, and it will cost another 2.5 million to get the installation working. Meanwhile, the water swing lies patiently awaiting its final destination – five kilometers off the coast of Portugal at the bottom of the Atlantic Ocean. Breugel: "For a project like the Archimedes water swing you need a little guts. That kind of technology doesn’t earn itself back in one or two days." On top of everything, Nuon, the biggest shareholder of the project, has announced that it wants to pull the plug. But van Breugel doesn’t give up and his company Teamwork Technology already has plans laid out for an investment fund through which private and institutional investors can invest in new technology. Thus, the banks might get some unexpected competition.

Financing for synthetic beer kegs
Entrepreneurs claim that it is very difficult to find financing for their sustainable and innovative plans. Still, Rabobank announces in its sustainability report on 2001 that it could use some more good ideas. The Rabobank Venture Capital Fund has only spent a few million Euro of the 25 million it has on innovative and sustainable projects. One of those projects is the commercialization of a new type of beer keg, made out of lightweight synthetic material. The Dutch entrepreneur behind the idea has applied a technique from the airplane industry. The first ‘disposable’ kegs have already been delivered to the brewer. Disposable? Yes, the synthetic kegs appear to be a lot more sustainable than traditional metal kegs: the latter put a heavier burden on the environment, because of the necessary transport and cleaning. Luuk Hans, board member of the Rabobank Venture Capital Fund, explains that he would never have put money in the development of the test models. "Financing these kind of projects is still hard. There is often no frame of reference, because it concerns new markets and a new product. And our criteria aren’t really flexible. A sustainable venture has to be as viable as any other plan; we are not going to subsidize. We reject most projects." Rabobank decided in favor of this project, because big brewers already stated to want to buy the disposable kegs. But the market potential still needs to be proven.