As politicians worldwide grapple with how best to overhaul the structure and regulation of the banking system, and the banks step up their efforts to lobby against any meaningful change, it may just be that so-called sustainable banking – where procuring community and environmental benefits is every bit as important as delivering profits – could provide the solution for despairing taxpayers and frustrated bank customers.

In September the Global Alliance for Banking on Values (GABV), a new network of 10 of the leading sustainable banks, said it had attracted $400m ($150m more than anticipated) to facilitate $3bn (€2.1bn) in new loans. “Being able to deliver on a three-year commitment to raise $250m in new capital in less than a year reflects the fact that, even during a worldwide downturn, there is a growing awareness of, and interest in, sustainable banking,” says GABV programme manager James Niven. “Genuinely sustainable banks are put together differently. Our values – to deliver financial, community and environmental benefits – are at the core of our model. They are fundamental, not an add-on.”

Each member of the GABV has a different focus, where it feels it can make the biggest difference, whether it’s BRAC Bank concentrating on microfinance in Bangladesh or New Resource Bank financing renewable energy in California. As well as seeking to increase the funds available for investments, the GABV also pools the resources of its members to develop better ways to assess the impact of its investments.

“We hope to significantly increase the impact of sustainable banking by bringing like-minded banks together in the alliance,” says Niven. “Together we have a combined balance sheet of $14bn (€10bn), serving 7 million customers, and there is a strong belief that there is much more to be gained by working together.”

A large chunk of the GABV’s capital- raising was provided by Triodos Bank, a leading European social bank that lends only to enterprises that benefit society, ranging from green technology and Fairtrade businesses to community health clinics and organic farms. Known for its innovative, entrepreneurial approach, Triodos also makes a virtue out of transparency – its website allows anyone to track any of its 15,000 loan recipients.

Founded in the Netherlands in 1980, Triodos Bank now has offices in the UK, Belgium, Spain and Germany with a staff of almost 600. Its business has flourished despite the financial crisis and global downturn. Funds increased almost 11% during the first six months of 2010 and the bank’s loan portfolio grew by more than 13%; its balance sheet hit €3.3bn, up 13%; and its operating profit rose 27% compared with the first half of 2009.

Peter Blom, chief executive of Triodos Bank and chairman and co-founder of the GABV, was one of the bank’s first five employees back in 1980. For most of the time since then, he has found himself set against the prevailing winds of finance as markets became more and more estranged from the real economy, and consumers – and their governments – became ever more addicted to a model of growth and increasing material wealth. But now, after nearly three decades on the margins, he is beginning to see mainstream acceptance of his sustainable, values-driven philosophy.

“We need to find new words,” says Blom. “Perhaps quality of life is one measure. Finding the right balance between the material and non-material, and feeling happier with less. It may sound idealistic in the context of the time that we have just lived through but, in the future, we may have less but of a higher quality. Economically, to keep producing more and more stuff is not a sensible long-term strategy. We should be focusing on how to provide a higher quality of life.”

For Blom this is a step forward, not back. The financial crisis raised some fundamental questions for banks. Why are they here and who are they serving?

If the core issue in an economy is that somebody has a need and somebody else has the potential to supply an answer, then it is the business of banks to help them fulfil that need. Globalisation means that this relationship is no longer limited to local communities and banks will therefore have to learn to serve this new network economy, consisting of smaller companies that are focused on serving niche markets and communities.

At the same time, banks must change their investment criteria. Risk assessment is no longer just a question of profit and loss and balance sheets – social impact and environmental footprint are just as important. “Banks that only look at the financials are only getting a part of the story,” says Blom. “The rest is risk, whether it be social, cultural or environmental.

The big banks will follow this path, not necessarily from an ideological point of view, but because of risk and this will be a positive development. They will have to adapt. Already we are seeing some of the high-street banks communicating differently, using the same advertising text that we were using 10 years ago. It may be just words at present, but it is a start.

“But sustainability must be about more than just marketing. The danger is that if it is limited to only one product or department, this will provide an excuse not to look at the whole operation and integrate those values at every level. Now that the markets are coming back, we are already seeing the return of speculation and big bonuses.”

Triodos Bank embodies a stakeholder rather than shareholder-driven approach. The bank’s shares are issued in the form of depository receipts such that holders do not have a direct vote but rather vote for trustees to represent their views on the board. This creates an additional layer that is designed to protect the mission of the bank and to maintain a balance between the interests of shareholders, staff and the bank’s customers.

“Obviously we need to make profits but if you have very high profits then you are probably taking very high risks. And who is paying the downside?” asks Blom. “We are investing for stable returns and to maximise the social or environmental impact of our loans. There will always be speculators but banking has much more of a core utility function and there should be a clear distinction between two kinds of banking. Sustainability is about serving the planet and its people, as well as shareholders. Our annual returns are lower but stable, and our share price is growing. Institutional funds should think of us like a bond with a little bit of upside.”

The youngest bank in the Global Alliance stable is Italy’s Banca Popolare Etica, which was created in 1998 after changes to banking regulations forced the mainly northern Italian Mutue di Autogestione financial cooperatives to incorporate as a public bank. They joined forces with 21 non-governmental organisations to raise the €6.5m for a banking licence and opened a first branch in Padua the following year. The bank now has 13 branches, three in the south of Italy where many of its loans are made.

“The changes were a good impulse to the cooperatives to do something different and we looked around Europe for an alternative banking model,” says Banca Etica president Ugo Biggeri. “Our main focus is on supporting socioeconomic initiatives like housing or campaigning against the privatisation of utilities, but we are also involved in renewable energy and agricultural projects.”

As an example, Biggeri says the bank recently approved a project in Messina, Sicily, to provide sustainable work for the patients of a psychiatric hospital being closed. “We’re helping finance a foundation to ensure that former patients will be able to work installing solar panels. It therefore meets a social need, because 54 people will be working rather than just receiving grants, as well as providing a boost to renewable energy.”

Banca Etica does not pay a dividend to its 35,000 shareholders but increases the value of its shares every few years. “We are not strictly comparable with other banks because we measure our success not just in terms of money but in terms of the impact that we can have,” says Biggeri. “Our shareholders and savers share this philosophy. They generally get involved because of their ideals rather than because of our returns.”

It is a mark of the newfound confidence in sustainable banking that the GABV also pledged in September that sustainable banks would touch the lives of a billion people by 2020. “This is a major new pledge that could transform lives on a truly global scale, and make a substantial difference in our efforts to combat climate change,” says Sir Fazle Hasan Abed, co- founder of the GABV and founder and chairman of BRAC.

The GABV anticipates that this growth will come from expanding the network’s membership, from supporting other banks looking to adopt values-driven models and from the creation of new sustainable banks. To this end it has committed to training a new generation of sustainable bankers and building an effective platform for advocacy in order to influence the wider financial industry better.

With taxpayers worldwide facing years of austerity to settle the bills of irresponsible bankers and inadequate regulators, it could be that more and more of them will choose to put their money somewhere they can see it doing some good. If enough of them do so, the principles of sustainable banking may emerge from the wings and begin to occupy the centre stage.