Stockholm (Ekonamik) – Danish cooperative bank Merkur Andelskasse is a different type of financial institution: it makes a difference. Combining traditional banking operations with an objective to influence society through sustainable banking, the bank’s stated central ambition is to promote economic, social and cultural sustainability. For example, the bank lends only to ecologically sustainable companies, to cultural and social projects, and to institutions of social importance such as free schools and kindergartens. Its corporate lending policy, therefore, is based on thorough assessments of social and ecological aspects as well as financial ones. Merkur Andelskasse was founded in 1982 as a private savings and loan association based in the Danish city of Aalborg, where members could deposit money and the association would fund small sustainable projects decided upon by its members. From 1985, the association was transformed into a cooperative fund and was opened to the public and made subject to general supervision by the Danish Financial Supervisory Authority. Merkur today is a fully-fledged banking institution with presence in Aalborg, Aarhus and Copenhagen, approximately 30,000 customers and a balance of roughly DKK 3.5bn.
Democratic Banking, Sustainable Investing
Merkur Andelskasse has been a frontrunner both in Denmark and abroad for sustainable development, being committed to CSR (Corporate Social Responsibility) as far back as its inception in 1982, which is quite a bit earlier than most banks and financial institutions started paying attention to either category, and also quite far ahead of the ineluctable scientific consensus on climate change that hardened from the late eighties onwards. In order to find out more about this visionary approach, Ekonamik spoke with Merkur CEO Lars Pehrson, who co-founded the bank. “From the very beginning, the idea behind our bank is, through lending and investing, to impact the development of society in a long term, sustainable direction. By lending and investing, you aim to create future value, and this value has to be visible, also ‘on the ground’ and not just as numbers in the accounts,” Mr Pehrson explains. “It does not make sense to create a financial return if you, in the same period, devastate for instance the environment through the activities you invest in.”
The bank is run in a fundamentally democratic way: as a cooperative bank, Merkur Andelskasse is decentralised and is primarily owned by its customers. Irrespective of how many shares they hold, all shareholders have the right to vote at the bank’s general meetings, which consider issues of importance for the bank’s fund activities and elects the cabinet of representatives that in turn elects, together with employees, the members of the bank’s board of directors. The emphasis on sustainability initially came from the group’s founding members, Mr Pehrson says, and was born with its strong environmentally and socially responsible profile, “but through the years, the members who joined always supported the bank’s strong profile. It was the reason for them to join.”
In addition to the more traditional banking products it offers, Merkur’s customers are given the opportunity to choose inclination-based ways of saving. For example, they can opt to earmark savings so that money is loaned to finance fair trade with third-world vendors, or to support various humanitarian and environmental organisations (Merkur became the first bank in Denmark to offer Equity Crowdfunding in 2017). Customers can invest both in sustainable projects directly, or in sustainable Nordic “Swan-marked” Ecolabelled funds, who then make their own pool of investments whose sustainably is guaranteed by the Swan Label (the official sustainability ecolabel for the Nordic countries, introduced by the Nordic Council of Ministers in 1989). In addition, the bank offers two main categories of investment products: SRI (Socially Responsible Investments) Funds and Impact First Funds. “SRI funds consist of screened, listed securities (shares and bonds), screened after the market’s highest standards. This is why these funds were the first on the Danish market to receive the Nordic Swan label, which is a well-esteemed environmental label in all the Nordic countries,” Mr Pehrson explains, continuing: “The Impact First funds are pools of loans and investments directly to a certain category of investees, for instance renewable energy and micro finance. These innovative funds give you a financial return but also a measurable impact, which is reported annually.”
“We are still the only bank on the Danish market to offer impact funds to retail clients,” Mr Pehrson underlines. “Impact funds are very popular, because of the clear story and the stable return. Many clients put high emphasis on the impact – they want their money to create a positive difference. The Cooperative Bank’s own shares [are] also an efficient impact investment, since an investment of, say, DKK 1,000 enables us to lend out DKK 6,000 to sustainable companies, as we already have the funding available from deposits.”
Transparency and Accountability
Customers can ensure that the bank truly is investing in sustainable initiatives and projects because of the bank’s transparency and thoroughness. “On our website, every financial company or institution [the bank invests in] can be found with a description, Mr Pehrson says. “In practical terms, we rely on third party certifications (for instance for organic food) and do an overall assessment by visiting the project of the borrower.” In addition, Merkur is a member of the Global Alliance for Banking on Values, an independent network of banks which use finance to deliver sustainable economic, social and environmental development. It is also a member of the International Association of Investors in the Social Economy and the European Federation of Ethical and Alternative Banks. Its membership of the Global Alliance, for example, entails a pledge to measure and report on the CO2 effects of its members’ collective activities and investments.
But is it not extremely difficult to streamline assessments for each sector and activity in such a manner, Ekonamik asks? “A bank’s main climate impact comes from its loan portfolio and not from the bank’s own limited office and travelling activities,” clarifies Mr Pehrson. “Therefore, it is important to develop methods to measure the climate effect coming from different loan and investment decisions. This is not easy,” he acknowledges, “which makes it meaningful to develop such methods in a joint, international effort. In the beginning, the measuring will be on an average portfolio level from different types of loan, for instance loans to real estate, farming, energy production, etc. Emission of CO2 equivalents, as well as CO2 equivalents saved, will be reported as two different categories. As the project develops, the measuring will be more detailed – but we need to start from somewhere.”
The Need for Realistic Expectations
Finally, I ask, how does Mr Pehrson see the future development of the market for sustainable investments, given the fair amount of current defeatism regarding the climate crisis globally, and eternal handwringing over the notion that sustainable investing means sacrificing returns? “I am convinced that the investment market will change a lot in the near future,” he says. “I do not think that investing sustainably in itself will mean less return, since the long-term value creation or value destruction need to be reflected also in the financial return. But I also think that investors generally will need to be more realistic about their future return expectations. For two reasons: first, because some returns have been earned at the cost of the environment and because of unjust conditions for workers, avoidance of taxes, etc. Such returns will not be tolerated in the future by the countries where companies operate, nor by the public in general. Second, a long-term sustainable society will necessarily need to address growing inequality, meaning that the profits of the companies to a high extent than today must be shared among the shareholders, other stakeholders, and society more broadly.”
“The era where shareholders exclusively got the main part of the profits will come to an end,” Mr Pehrson predicts.
Image: (c) Merkur Andelskasse