International banks use the money from their clients for various purposes. While there are some banks that commit to ethical values when it comes to investments, others use their capital to support arms trade, the clearing of rainforests, the violation of human rights, the production and use of fossil fuels, and other now-controversial practices. The Fair Finance Guide, an initiative brought to life by a coalition of international NGOs, evaluates banks based on their investment policies, and then publishes the ratings.
Ranking Banks According to their Ethical Standards
The first Fair Finance Guide was installed in The Netherlands in 2009, with many more countries to follow. “Banks are an instrument to influence a much broader part of finance and economy through their financing and investments. Our idea was to create a direct tool for clients to have an impact on the development of important issues such as human rights, child labour, and coal mining,” says Ted van Hees, one of the founders of the Fair Finance Guide International. Besides banks, the Fair Finance Guide also covers assurance companies and pension funds. Through transparency, it gives clients a chance to find out where their bank claims to invest their money – and guides them to get the bank to change questionable policies.
“Basically, the bank guide is a benchmark tool, it analyzes banks’ scores with a very elaborate methodology,” van Hees explains. However, the rankings are based on banks’ policies rather than their practices: “So far, we see a lot of improvements of policies, but compliance with these policies is still another story. That’s the challenge after banks make certain statements and they improve their policies – then it comes to compliance and to commitment in practice.”
In The Netherlands, the Fair Finance Guide is commissioned by several cooperating NGOs, including Oxfam Novib, Amnesty International Netherlands and the Dutch Labour Federation FNV among others. In other countries, there are different NGOs involved. Organizations are usually either contacted by the Fair Finance Guide network and asked to install a Fair Finance Guide in their country, or in some cases they request to be a part of the international network by themselves starting a Fair Finance initiative in their country. This, however, comes with certain requirements such as underwriting the principles of Fair Finance Guide International, adopting its methodology, and doing research on a minimal number of topics like arms trade and human rights.
Changing Big Banks’ Policies Through Public Pressure
When banks refuse to reveal their policies, their ranks in the guide drop: “Banks are very image sensitive. They don’t like a bad ranking, and that appeared to be a major pressure tool. So, they started immediately to complain when we published the first ranking,” van Hees explains. Giving in to the public pressure and claiming to do better in the next ranking, the banks agree to cooperate transparently.
Public pressure rises not only through the media, but also directly through clients who call or email their banks demanding information or policy changes. “The main ways of pressure we use is pressure by clients, media and through politics – we have meetings with parliamentarians, which leads to parliamentary inquiries or questions directly to a minister. We also have policy debates with the banks themselves,” says van Hees.
Setting Up Fair Finance Guides in More Countries Proved to Be a Challenge
Today, there are Fair Finance Guides active in nine countries – among them Brazil, France, Japan and Sweden. There are a couple of other countries, like India and Thailand, where Fair Finance Guides are about to be installed – sometimes under challenging conditions: “For Singapore, the problem was that they didn’t want to do research on arms trade and on weapons, which is a requirement to be part of the Fair Finance Guide network,” van Hees explains. Similar problems appeared in China, where NGOs are hesitant to do research on human rights and labour rights – topics that are highly sensitive there.
Additionally, in some countries NGOs have very sensitive relationships with governments and companies and do not want to put those at risk. “They don’t want to destroy their relationships to governments by initiatives coming from outside, intervening in the relationship they have,” says van Hees. Thus, in some countries it is difficult to find organizations that are willing to set up Fair Finance Guides.
The Challenge of Bringing the Fair Finance Guide to the US and UK
Van Hees clarifies, however, that in other places, those are not the main issues in trying to set up Fair Finance Guides. In the UK and US, as well as in some other European countries, a major problem is the lack of a social base: “You need social organizations, students, young people, environmental activists, human rights activists, a number of labor unions. You need a social base to be able to put pressure on the banks, and finally also on governments.”
For most countries, though, several of these reasons come together: “It has to do with a complex of reasons why it still has not taken off in the US and UK. It takes a lot of investment financially, but also in terms of research. And you really need the commitment of a lead organization – people in that organization that dedicate a lot of their time to such an initiative.” Van Hees says that even though there were organizations interested in setting up a Fair Finance Guide in the US and UK, there was hesitation: “They were getting cold feet from interacting with the big financial sector.”