Business Strategy and the Environment

Bus. Strat. Env. 9, 186195 (2000)

THE BANKS IMPACT ON THE

NATURAL ENVIRONMENT
ON THE SPACE BETWEEN
WHAT IS AND WHAT IF
Maths Lundgren* and Bino Catasus
School of Business, Stockholm University, S-106 91 Stockholm, Sweden
By exploring the greening potentiality
(i.e. the what if question) for the bank
sector, this paper aims to go beyond the
current situation of the banks (i.e. the
what is question). The paper begins
with a section on what banks currently
do in their ambition to enhance
environmental efficiency and awareness
in their activities. This empirically based
investigation draws a picture of the
banks attending to the environmental
issue in three dimensions (i.e. financial,
physical and immaterial). In the second
part of the paper the three dimensions
are scrutinized in order to open up a
discussion of the potentiality for the
ambitious bank. It is suggested that the
direct impacts (i.e. the physical flows) of
the banks activities have already been
explored, but there are areas in both the
financial and immaterial dimensions that
could be further investigated. Copyright
2000 John Wiley & Sons, Ltd and ERP
Environment.
Received 5 January 2000
Accepted 26 January 2000
* Correspondence to: Maths Lundgren, School of Business,
Stockholm University, S-106 91 Stockholm, Sweden. E-mail:
maths.lundgren@fek.su.se

Copyright 2000 John Wiley & Sons, Ltd and ERP Environment.

INTRODUCTION, AIM AND

METHOD

uring the past few years, banks and

other financial institutions have begun
to acknowledge the natural environment as an important area of concern
(Thompson, 1996; Schmidheiny and Zorraqun, 1996; Coulson, 1997). This has been
shown in terms such as policy declarations,
marketing of products with a green edge and
staff training in the basics of environmental
matters. Clearly, in the eyes of the common
customer it appears that banks have taken a
number of steps, which, taken together, emphasize a responsibility towards the natural
environment. The level of ambition can, however, be questioned. What would the critical
stakeholder with an interest in and knowledge of scientific facts and connections think
about the steps that have been taken?
This paper subscribes to the idea that there
is a difference between direct and indirect
impact of the actions undertaken by the
banks. Although this distinction is far from
clear-cut it serves as a means to understand
the role of the banks in the greening of society. This paper poses a second proposition,
namely that the banks play a part both in the
direct sense (i.e. by the physical flows passing
through the bank) and in the indirect sense
(i.e. by the financial and immaterial flows).
Under these assumptions, the paper discusses
the space between what is and what if.
More specifically, bearing in mind what is
perceived to be beneficial to the environment,

BANKS IMPACT ON NATURAL ENVIRONMENT

the paper discusses steps to bridge the gap
between the present state of affairs in the
banking industry and a more beneficial situation. In pursuing this we will attend to, but
not confine ourselves with, given restrictions.
That is, we will not solely take the part of the
advocates of nature (i.e. focusing on the
what must imperatives) or only reiterate the
current situation of the banks (i.e. the what
is statements). Rather, we take the current
situation as a starting point of the potential
actions that the banks could take (i.e. the what
if question). The aim of the paper is to provoke the taken for granted picture of today
by envisioning it in a different light and, at
best, to present an alternative outlook of the
future.
The empirical corpus of the paper originates primarily from Lundgrens (1999) study
of the greening of the Swedish bank sector. In
that study 30 interviews were made with personnel at different levels of the organization
(i.e. from the cashier to the managing director). Further insight into how the bank attends to the environmental issue was gained
from participating in meetings and studying
annual reports and policy documents as well
as interviewing persons in similar industries
(e.g. managers in the insurance industry). The
empirical research was done in a Scandinavian context.
In order to analyse the empirical data some
theoretical considerations were made. In the
analysis of the current situation, we emphasize the institutional aspects of the bank sector, i.e. we do not see the banks acting
according to a utility schedule or within a set
of choices in a well defined area with well
defined constraints. Rather, the backdrop of
this paper is that the banks attend to values,
norms, rules, competitors and organizational
fashions in a way that forms much of the
banks behaviour (Meyer and Rowan, 1977;
Hoffman, 1997). Still, in order to fulfil the aim,
it is not fruitful to view the banks actions as
deterministic. Rather, we subscribe to the idea
that institutions are continuously in the making and, thus, change. Throughout the paper,
we will speak of the banks as actors for the
purpose of convenience.
Copyright 2000 John Wiley & Sons, Ltd and ERP Environment

In order to sketch a framework to address

the what is and what if questions, we have
considered the various flows within the organization. To find a relevant set of classifications of flows, we have turned to accounting
research. In the accounting realm the focus
has, until recently, been on the financial flows.
The financial flows are viewed as the flows
that are accounted for in traditional doubleentry bookkeeping. The accounting borders
have, however, expanded and new accounts
have been suggested that include physical
flows (see e.g. Epstein, 1996; Gray et al., 1995,
1997) and immaterial flows (see e.g. Edvinsson and Malone, 1997; Sveiby, 1997).
Thus, by exploring more than the financial
flows of the bank, we expose an analysis that
includes the physical flows (i.e. the direct
impact of the banks operations on the environment) and the immaterial flows (i.e. the
indirect impact that information, knowledge,
culture, policies etc have on the environment).
Typically, the physical flows refer to the relatively close and understandable relation
between action taken and the plausible difference in terms of decrease of harm towards the
natural environment. In contrast to the direct
impact of the physical flows, the financial and
immaterial flows are harder to connect to the
world out there.
The immaterial flows of e.g. policy writing
and environmental training of bank personnel
only hint at a vague relation between actions
taken and the effects in nature. Actually, the
relationships between actions taken and effects in the natural environment have to be
intellectually constructed and understood to
become plausible and real. That is, the differences regarding the extent to which indirect
effects are or will become harmful become
real enacted through language and
sense-making processes (Weick, 1995).
The financial flows are, probably, the main
attribute of the financial sector; the banks are
institutions that match the supply flow with
the demand flow of financial resources. In our
view, capital flows are not unsustainable as
such. It is what happens with the money at
the end of the day that counts. Here we
acknowledge that the financial flows emanating from the banks spur action. This action
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M. LUNDGREN AND B. CATASU
has, in the end, an impact on the natural
environment.
The paper is divided into three parts.
Firstly, we present the current efforts made by
the banks (based heavily on Lundgren, 1999).
These are categorized under the headings of
physical, immaterial and financial flows. Secondly, we use the same categories when
exploring the potentiality of future environmental actions. Lastly, we will present some
concluding remarks.

WHAT ARE THE BANKS

CURRENTLY DOING (WHAT IS)?
Banks cannot do whatever they might want to
do. That is, banks and other financial institutions are restricted in the sense that they have
to follow a vast number of intricate regulations and expectations by different stakeholders. Very few businesses are as highly
governed by strict codes of practice as banks.
In a broader sense, financial institutions are
expected to fulfil their specific role in society.
Their primary role is to provide service to
their customers and to increase their owners
shareholder value. Thus, their role is not to
take charge of the environmental protection
that we normally associate with the Environmental Protection Agency or environmental
pressure groups such as the Swedish Society
for Conservation of Nature. By combining
what different stakeholders demand from
banks and the banks perception of their role
we largely arrive at what banks currently
consider is the right thing to do.
Physical throughput
Just as for any service sector industry or private household, a bank requires a throughput
of energy and materials to function. The environmental impact of this throughput is likely
to differ depending on how the bank carries
out its procurement and other choices in its
office work in terms of communication (e.g.
physical transportation versus use of information technology). The outcome of systematic
choice of less harmful materials and a better
Copyright 2000 John Wiley & Sons, Ltd and ERP Environment

188

thrift ratio (in, for example, their energy use)

are likely to decrease the direct environmental
effects of the bank. However, this is just the
homework to be done, as one bank environmental manager put it. To date, the banks,
which pursue environmental stewardships,
are primarily doing so in attending to the
physical flows, i.e. they are trying to decrease
their direct environmental impact. The reason
appears to be that the direct measures come
first to mind and are relatively simple to carry
out. Typical measures taken by the banks are
using ISO14001-certified suppliers, recycling
paper, using paper pens, introducing lowenergy lighting, attending to waste in a responsible manner etc. Because the direct measures regard the reduction of energy and
material consumption, the steps taken often
have the dual benefit of reducing costs as
well. These kinds of action do not interfere
with the core business and are easy to exhibit
to various stakeholders. Consequently, these
matters are often characterized and legitimized as win/win, no-regret or all gain/no
pain situations by the banks themselves.
Immaterial throughput
Today, many banks in different parts of the
world promote green values to their employees and customers. They do so by signing
policy documents such as Statement on Banking and the Environment, which the United
Nations Environmental Program (UNEP) supports. They also do so by presenting policy
declarations and advertisements stating the
importance of environmental awareness.
Quite often, the top managers promote the
values of environmental awareness in staff
magazines and employees participate in
courses dealing with basic environmental
knowledge. Furthermore, a bank that works
with keeping track and reducing the physical
flows will communicate this to their stakeholders. This information flow is particularly
directed towards their employees and
suppliers.
Some banks engage in worthy causes, such
as the sponsoring of the Wetland preservation
project and the WWF. These projects are
somewhat remote relative to the banks core
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BANKS IMPACT ON NATURAL ENVIRONMENT

activities but they do have a signalling effect
as to which values the bank stands for. Furthermore, and yet even more important, is the
fact that the last years emphasis on environmental awareness has created permission to
talk about the environment permission that
did not exist some ten years ago. For example,
we asked a stockbroker at a bank if he considered it legitimate to talk about environmental
issues. The answer that he gave is revealing,
Today, you may not only talk about the environment, you are supposed to do so.
When it comes to a banks communicative
role, different views on the importance of
environmental responsibility towards the natural environment can be expressed. Banks
have large contact nets on all levels of society.
They are represented in practically every
town throughout the country and in great
many situations where important investment
decisions are made. Thus, banks may intentionally, or unintentionally, affect other actors
(ranging through employees, suppliers and
customers as well as other firms outside the
supply chain) in terms of attitudes toward the
environment and environmentally responsible
management. Furthermore, when a respected
actor in the business community expresses
support for such values, other members of the
community are likely to take heed and become receptive. The indirect measure of communicating the importance of environmentally aware management may influence
the banks employees and business partners.
It is reasonable to believe that small and new
organizations inherit and imitate large and
old organizations (Starbuck, 1983, p 93). The
communication of the green value affecting
the receiving party at the cognitive level is
therefore to be regarded as an indirect effect.
However, a change in actual behaviour may
follow from the change in attitude that, in
turn, may cause changes for the better in the
natural environment. Over time, this kind of
influence should not be underestimated
(March and Olsen, 1979; Scott, 1995). It is
likely that a banks most profound environmental effects are the indirect ones by way of
implicitly sanctioning numerous businesses
and different commercial activities. A bank
that asks questions and scrutinizes a cusCopyright 2000 John Wiley & Sons, Ltd and ERP Environment

tomers environmental management will (intentionally or unintentionally) communicate

the importance of sustainable development.
The environmental manager at a Swedish
bank expressed this position in the following
way: After asking ourselves what our environmental impacts were we soon understood
that we have our impact in the business we
are engaged in. Of course, you can affect a lot
in your lending process. We understood that
our business is more important than our own
economizing with resources.
Financial throughput
The role of a bank relates to its core business,
i.e. to mediate transactions and to channel
capital between suppliers of capital (depositors as well as institutional investors) and
those in need of capital (ranging from households to business ventures and governments).
Today, all the major banks in Sweden have
incorporated checkpoints regarding environmental risk in their general checklists by
which they review potential and present borrowers with the general motive that they
want to protect their own profitability.
Among the large Swedish commercial banks
there is only one example of lending specifically directed at green projects. One of the
banks has established a small limited fund to
small firms that want to perform an environmental improvement of some kind. Through
its programme Growth and the Environment the
European Union sponsors the initiative by
sharing the potential loss of a loan given.
Some products with a green edge have been
introduced. Two of the big banks sell shares
in environmental mutual funds and one offers a green charge card in collaboration with
the World Wildlife Fund (where 0.5% of the
purchased sum goes to the organizations
projects in Sweden). When it comes to receiving on deposits, the banks have not taken any
measures.
The funds supplied by a bank have a history in terms of environmental degradation as
well as in other respects and the capital lent
does cause environmental effects (albeit often
hard to determine). Accordingly, by sanctioning the history of the money (by accepting
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M. LUNDGREN AND B. CATASU
responsibility to deal with it) as well as the
future use of capital, the bank has an indirect
impact on the environment. Today, the banks
have an obligation according to the law not to
accept money laundering and they are supposed not to facilitate illegal business in any
other respect. We mention this because we
want to point out that banks have a tradition
of scrutinizing the source of the money as
well as its future use in some respects (besides
its potentiality in terms of profitability). However, the dominating rationality in this respect
is what Bergstrom (1994, p 27) calls the indulgence principle. According to the principle,
each actor in a chain of sellers and buyers
does not take responsibility for a products
earlier history, or for what happens later. It
thus becomes impossible to attribute responsibility for the whole. From the banks point of
view the following tacit reasoning approves
the financing of different projects: as long as it
is sanctioned by relevant authorities and as
long as the lenders customers demand it
(which is shown through their willingness to
pay) the project is deemed a good investment.
Thus, the profitability argument silently states
the grounds for the bank to regard the project
as legitimate and the bank adds itself to the
row of parties sanctioning the project in accordance with the indulgence principle.
The following line could be read in an
advertisement placed by a bank in a Norwegian business paper: Money has one purpose
to multiply (Dagens Naeringsliv, 1998). This
statement, which can hardly be considered as
controversial, implies that the understanding
of the role of the bank is deeply rooted in our
capitalist society. It is self-evident that it
should be that way and it is almost a banks
moral obligation to increase an assets value
over time. More specifically, fund managers
are, often by law, obliged to exclude soft or
non-financial factors, such as the environment
or social goals, in investments decisions according to the fiduciary duty (see e.g.
Schmidheiny and Zorraqun, 1996, p 82). This
view excludes the possibility of considering
the quality of money, e.g. what effects it has
on the environment.
Some proponents of the environment suggest that the banks could (or should) differenCopyright 2000 John Wiley & Sons, Ltd and ERP Environment

190

tiate the interest rate charged depending on

the environmental performance of the lender.
The idea is that the bank could support the
good-doers and offset the wrongdoers. However, it seems as if this idea is quite remote
and controversial in the banking community
at large. As a matter of fact, when we ask
credit managers whether they are inclined to
avoid certain businesses and provide environmental leaders with better rates of interest
they all react strongly against such a proposition. The standard answer is that it is not our
role to promote certain values in the lending
process. There are exceptions, however, such
as the Ekobank in Sweden and the Cooperative Bank in England. These banks proclaim that they prefer to lend money to companies they find acceptable in a narrower
sense than just being profitable for the bank
itself.
The banks claim that they do consider environmental aspects in their lending procedures. This is likely true although it ought to
be emphasized that, in practice, this is applied
only to a small proportion of the total borrowers and a small proportion of the lending
volumes. The banks take these assessments
seriously only if the lenders environmental
performance is likely to affect their profitability and thus, in the further perspective, the
banks profitability. In other words, if the
lender represents a chemical industry the
environmental assessment is of fundamental
importance; if the lender represents a management-consulting firm such an assessment
is either not performed at all or not taken very
seriously. Concern for the nature per se is not
a factor of consideration in the lending process. One of the managers at a bank remarked
We are not there yet.

WHAT MORE COULD BANKS DO

(WHAT IF . . . )?
By now we have drawn a picture of the banks
being present in a wider society where physical flows, immaterial flows and financial
flows pass through the bank. Also, we have
sketched the present situation wherein the
banks are attending, as far as the institutional
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BANKS IMPACT ON NATURAL ENVIRONMENT

setting allows, to the environmental issue in
all these three dimensions. Let us now scrutinize the possibilities by de-emphasizing the
restrictions and, maybe naively, pose yet another question: What can the banks do in
order to slow environmental degradation
down? That is, what if. . . ?.
Before we go on with this analysis we will
present possible points of enhancement. In
Figure 1 we have plotted out nine potential
areas of analysis. That is, we see the bank as a
part of a larger network of actors where the
input of flows (1, 4 and 7), the process of
flows (2, 5 and 8) and the output of flows (3,
6 and 9) affect and are affected by other
actors.
By attending to the what if question, we
want to envision the possibilities for the
banks environmental concern in the future.
This is by no means a complete or comprehensive list. Rather, the brief reasoning is
merely to be seen as a point of departure for
a further discussion. As before, we will use
the idea of the physical, immaterial and financial flows.
Potentiality of the physical flows
As described above, the banks have started
off with great enthusiasm when it comes to
choosing and evaluating suppliers of physical
resources (1) and increasing the efficiency of
the usage of environmental resources in operations (2), as well as attending to waste management (3). Needless to say, this work can be
improved. This is not, however, different
from any other efficiency measure taken in
the organization; housekeeping is what organizations need to do. However, the banks
indirect environmental impact is likely to be a

Figure 1. The three flows of the organization.

Copyright 2000 John Wiley & Sons, Ltd and ERP Environment

great deal more significant than its direct

physical impact. From this perspective, a bank
achieves considerably more in terms of decreasing modern societys impact on the
natural environment when attending the immaterial and financial flows than with the
physical flows. This does not imply that the
steps taken by the banks should be disparaged. On the contrary, if the bank does not
put its own house in order, the environmental
concern will not appear trustworthy. Whereas
these efforts are important in themselves, they
serve as a prerequisite for the banks role in
the flow of finance and of the flow of immaterial resources.
Potentiality of immaterial throughput
Todays society is characterized by an increasingly globalized economy (Korten, 1998;
Useem, 1998). This largely unregulated economy is an unpredictable one where huge
amounts of money are moved between accounts in milliseconds (Kurtzman, 1993). This
megabyte economy is adding to instability
not just in the economic sphere but in the
social sphere as well (Kurtzman, 1993). Also,
contingent factors such as the technological
development, the changing political arena,
and the increased flow of information makes
it possible for the banks to further process the
immaterial input into the organization (4).
Accordingly, financial institutions could expand their knowledge regarding todays economy and ecological situation. Instead of the ad
hoc surveys of today, the banks could pursue
a more systematic and challenging search for
relevant knowledge.
Communicating includes listening and it is
just as important to consider what others are
thinking, particularly existing and potential
customers. Such exercises are carried out today, but it is also a matter of drawing appropriate conclusions of those findings in terms
of being able to mirror the customers values
in the banks value statement. The views of
shareholders cannot be taken for granted. Institutional shareholders may well be interested in issues of social responsibility
(Financial Times, 1998). When it comes to asset
management this could be expressed in terms
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M. LUNDGREN AND B. CATASU
of applying a more flexible interpretation of
the fiduciary principle. Reich (1998, p 11)
argues that executives do not lack social responsibility but a lack of foresight of public
opinion; the failure is one of public relations
rather than ethics. Banks could go further in
listening to their stakeholders and their future
customers, employees and shareholders. For
example, it has been reported that female
shareholders pay more attention to the social
and ethical conduct of a company in which
they invest than male shareholders (Wall
Street Journal, 1998). As a result, a pension
fund manager in Sweden recently decided,
based on a customer survey, to evaluate all
the funds investments by ethical standards.
This case clearly demonstrates how many
anonymous owners can be provided with a
voice. Schmidheiny and Zorraqun (1996, p
82) express this thought by saying that it is
not unthinkable that pensioners, if suitably
motivated and made aware, could pressure
their fund managers into investment decisions
intended to bring about positive social and
environmental consequences.
In reference to the processing of information, the use of knowledge, the acknowledgement of culture etc (5), we want to emphasize
the banks own core values. What if the
banks values included a strong green standpoint? For example, instead of solely defining
the mission as we are in the business of
filling the profit bucket it could be supplemented with the vision we are in the business of building a sustainable and fair
society. Actually, in a society where environmental values have become a permanent feature of society at large it is, to a great extent,
a matter of the individual bringing values
from home and allowing them to be expressed at work (Anderson, 1997). The societal context, the institutionalized modes of
thinking and behaviour in the western society
(Gladwin et al., 1996), the overall corporate
culture and the top management of the bank
all have to allow individuals to think, communicate and act in accordance with their values
and beliefs. This is particularly important for
top management. Such an allowance may
abolish statements like the following made by
the CEO of a bank: Environmental values are
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192

important and central in my life as a private

person but not as a professional. Another
bank manager commented on this widespread
apprehension by saying I know that many
top-managers are aware of the environment,
but why do so many stop being aware at 9
oclock in the morning? It seems like the
higher you are in the hierarchy, the harder it
is to express values in favour of the
environment.
Top managements explicit value statements are crucial because their voices do
carry. Consequently, several respondents
have pointed out the importance of having
the CEO not only use the word environment
but also state it in a way that signals it is a
sincere belief rather than a mere intellectual
exercise. This is in line with Welfords (1995, p
114) statement: Culture change within the
organization will require everybody within
that organization to reconsider their own
roles, perceptions and values. Moreover, explicit value statements by the banks would
allow customers to choose a bank on grounds
other than interest rates and the colour of the
logotype. Banks (and other organizations) that
take a leading role in these respects need the
support of the public and customers to conduct business reasonably.
Large institutions do not have to limit
themselves to play by the rules they can
change the rules as well. The recognition of
corporate social responsibility is crucial. A
bank, like any corporation, can use its influence to promote values linked to sustainable
development. A step could be for the fund
manager to express green values at the shareholders meeting and, when possible, take a
more active role in the management of the
company. That is, the banks can communicate
the green values to the stakeholders and, in
that, more carefully attend to the output of
the immateriality (6). Overall, a bank could be
more open to experimenting at all levels
(March, 1995). Hart (1997, p 75) claims that an
environmental strategy not only should include competence development, it should also
shape the companys relationship to customers, suppliers, other companies, policymakers and all its stakeholders. Hart (1997)
continues: Companies can and must change
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the way customers think by creating preferences for products and services consistent with
sustainability. Companies must become educators rather than mere marketers of products.
The spreading of risks among those who
provide the bank with money is one of the
fundamental principles of banking. This is also
one of the largest drawbacks in terms of transparency towards external stakeholders. The
parties who provide banks with capital do not
know where their money is destined. All they
know is the principal focus of the banks
business (such as consumer credits, mortgage
loans, industry financing, export credits etc). In
addition, the annual report may reveal the
proportion among different categories of customers such as government, business or household lending. Consequently, the information is
limited. The lack of information brings with it
limited responsibility (Kurtzman, 1993). The
interest rate given depositors and the interest
charged to lenders do not include any information in this sense. In order to increase transparency, the banks could strive to provide their
stakeholders with more detailed information
regarding where the money comes from as well
for what purposes it is lent. This kind of
earmarking is made easier with todays information technology. By providing such information the depositors and the lenders would
obtain some rough idea of where their money
goes as well as where it comes from. This
principle could also apply to large bulks of
loans that are increasingly common today. In
practice, this kind of locality does already exist
in some small banks (often in rural areas)
where the volume of the depositors equals the
volumes lent by a certain bank. Here, it is
interesting to note that one Swedish bank tried
this kind of information provision during the
1980s. The bank supplied the depositors with
guarantees that their money went to causes that
were sanctioned by the depositor. On a regular
basis, the depositors were given information on
where their money was used together with the
ordinary statement of account.
This transparency is especially important
with regard to asset management. For example,
the owners of shares in mutual funds should
be provided with more detailed information
regarding their investments. In addition, the
Copyright 2000 John Wiley & Sons, Ltd and ERP Environment

shareholders in mutual funds could request

their fund-managers to take a more active role
in the management of the companies rather
than solely vote with their feet when they are
not satisfied with the increase of shareholder
value. This reasoning brings the American
social investment movement to mind. One
way in which actors of this movement are
working is by screening companies (as potential investment objects) along different ethical
lines. Just by mentioning the title of one exhaustive guide (from the Council on Economic
Priorities) it will become more clear what it is
about: The Better World Investment Guide One
Hundred Companies whose Policies You Should
Know About Before You Invest Your Money
(Alperson et al., 1991). The basic idea of increased transparency in both ordinary banking
and in asset management is that more information allows for increased responsibility as well
as a sense of locality. In that way, money would
become less abstract. Furthermore, by providing information and thus increasing the transparency of its business the bank would open up
for criticism by stakeholders, thus opening up
for discussions of values and practices.
Potentiality of financial throughput
The in-flow of financial resources is the backbone of banking (7). The selection of suppliers
is, however, rare. What if the banks screened
and evaluated the suppliers of financial resources in the same manner as with suppliers
of physical resources? The extension of this
implies a possibility for the banks to reject
certain suppliers in reference to their environmental status and performance, or to support
the good money with higher interest rates.
Banks praise profitability. Accordingly, the
financial flows (measured in terms of incomes
and expenditure) should show a profit (8).
Banks regularly claim that the environmental
steps they take are beneficial both to the bottom-line of the company and to the environment, i.e. win/win situations, but this, in fact,
only implies that there is some low-hanging
fruit to be picked (Walley and Whitehead,
1994). As long as the environmental steps taken
are deemed profitable there is no reason not to
undertake them (i.e. there is no reason not to
pick that fruit). Following this line of thought
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M. LUNDGREN AND B. CATASU
the what if question relates to the possibilities
of undertaking unprofitable measures. Banks
could go beyond this optimum point and
undertake environmental measures that are not
profitable but are beneficial to the natural
environment. Actually, it is a matter of sometimes regarding a decision as good for the
environment and, eventually, good for the
bank as opposed to the common way of seeing
things, namely good for the bank and, eventually, good for the environment.
Another typical characteristic of banks is that
they have an outflow of financial resources by
lending and asset management (9). The granting of credits involves a screening process and,
today, the borrower is confronted with questions regarding environmental matters. This
opens up for banks to consider environmental
aspects in their lending procedures by avoiding
or excluding certain businesses and by providing environmental leaders with better rates of
interest. Moreover, to carry out a screening
procedure of the lender, it is essential that the
bank obtain information that can either be
asked for on each occasion or could be always
available to all banks (as well as to other
parties). The idea of supplying the market with
raw data regarding a firms environmental
impact and management is being promoted in
Sweden by different parties (Miljoinformationsutredningen, Dagens Nyheter, 1998, p A16).
Moreover, the banks can, in line with the value
statements expressed, provide environmental
leaders with better rates of interest. That is, the
banks can make explicit that they prefer certain
businesses on these grounds.
Lenders can also exert pressure on borrowers by urging or even requiring them to adopt
the banks policies and practices to take account
of environmental considerations (Thompson,
1996, p 32). Actually, if the banks requirements
are demanding, an accepted loan could help the
borrower to make known that he/she has
passed the test of being scrutinized by the bank.
Thus, the bank becomes an attractive choice for
customers who want to communicate that they
have reached a certain level of excellence. This
power to influence is applicable in a variety of
situations, not only in lending procedures.
For the organization in need of financial
resources, the pressure emanating for the banks
Copyright 2000 John Wiley & Sons, Ltd and ERP Environment

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and other financial suppliers may highlight the

environmental issue. Accordingly, an environmental manager at a large Swedish company
said when an environmental analyst at a banks
pension fund raised questions regarding the
firms environmental performance, the environmental issues immediately reached a higher
level in the firms hierarchy. This could be
further exemplified by the words of an environmental fund analyst who said when we meet
with environmental managers they are often
taken more seriously by their peers in the
management team.
Regarding placements and asset management, the bulk part of investments are currently
made at the secondary market that means that
the attractiveness of a stock primarily benefits
the owner, not the company itself. Therefore,
investors could aim at directing more money to
the primary market which green companies
and start-up firms would benefit from. If more
money was directed towards such companies
they would not only be funded in the first place;
they would probably also be funded with less
expensive capital (due to the increase in supply). It should also be noted that the extra
demand created by green funds on what is
perceived as green shares has an effect on the
price of the share. Thus, it is likely to bring with
it a communicating effect towards those who
are responsible for the shareholder value of the
companies.

CONCLUDING REMARKS
This paper has been concerned with presenting
possible directions for the environmentally concerned banks. The analysis can be characterized
as explorative since the aim was to go beyond
the current situation. It has also explored potentialities emanating from viewing the bank as
one actor in a larger network and by classifying
the banks actions as concerned with physical,
immaterial and financial flows. This division
into three is, of course, contestable. Still, classifications of this kind can be regarded as a
heuristic device (Grojer, 1999), and as such, the
division has served its purpose.
In our view, the banks have a number of
areas of possible improvement relating to
Bus. Strat. Env. 9, 186 195 (2000)

BANKS IMPACT ON NATURAL ENVIRONMENT

environmental concern. The most crucial are
not, however, the concerns for the physical
flows. Rather, it is in the banks core activity (the
financial flows) and in the input and output of
information, knowledge and values (the immaterial flows) that the bank can make a difference.
These indirect effects of the banks are still to be
considered by the banking industry.

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BIOGRAPHY
Maths Lundgren is a researcher and senior
lecturer at the School of Business, Stockholm
University. He is also teaching the B.Sc. and
M.Sc. programmes at the Market Academy at
Stockholm University. His current research is
on environmental management in the financial
sector.
Bino Catasus is a researcher and senior lecturer
at the School of Business, Stockholm University.
His current research is on accounting for the
environment and accounting for the intangibles.
His publications include books and articles on
environmental management and environmental accounting. He works part-time as a consultant at the Swedish Institute of Management.
Bus. Strat. Env. 9, 186 195 (2000)

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