Banks: If They Can't Be Responsible, They Should at Least Fund Businesses That Are

Once again British banks are in the bad books, with the recent antics at Barclays prompting the.

Once again British banks are in the bad books, with the recent antics at Barclays prompting the Prime Minister to announce a review of the entire industry.

The recent furore has unsurprisingly reinvigorated the nation's cynicism for the financial sector. It takes the idea of irresponsibility to the absolute extreme, but to what extent can banks ever be truly responsible?

Just take a look at the finance sector's record on investing in entrepreneurs.

Gaining investment from a bank is one of the biggest hurdles a small business will face, particularly in the tough economic times we live in.

This challenge has led to the likes of pseudo-banks like Wonga setting up their own business arms, well aware of the swath of entrepreneurs across the land desperate for an initial injection of lucre to set their company on its way to fame and fortune.

The recent announcement of this new offering was met with both praise and consternation. On the one hand, Wonga are giving entrepreneurs the essential foot-up to help them get their business moving. And surely this is no bad thing.

But on the other hand is it responsible to lend money in the knowledge that many of these businesses will fail? Rather than setting interest rates based on the relative risk of a specific business, this model assumes all business plans are super-risky, therefore necessitating very high interest rates.

Ultimately, many of these businesses will fold, but by applying this failsafe method to all investments, Wonga will still see a good return when looking across their whole portfolio.

It makes good business sense for Wonga, but is hardly a responsible stance considering how many businesses will fail. The burden of responsibility is shifted away from the banks and on to the individual. Although in the grown-up society we live in this really shouldn't really be a big problem, should it?

And what other options do entrepreneurs have anyway? Despite pledges made through Project Merlin agreements, high street banks are not lending as much to SMEs as promised.

And this isn't just due to increased nervousness by the banks. It is also because banks are looking at the wrong criteria when deciding which companies to lend to.

While the methodical interrogation of a business plan by a high street bank to reveal serious flaws is a welcome level of responsibility, traditional banks don't take the idea of "responsibility" far enough.

On the whole, most entrepreneurs and banks are primarily concerned with making a profit, rather than sustainability or "responsibility".

And so I was initially heartened to see that the government's new White Paper on banking proposes to make the sector more sustainable.

But what does this really mean and how can sustainability be achieved? And why will any of this make a difference to SMEs anyway?

To become truly sustainable, the banking sector needs to review its own understanding of what responsible business is all about.

In the past, some banks ringfenced funds for "ethical" companies such as those in the greentech sector. But in general this has been to give them a warm, fuzzy feeling as they tick their CSR boxes, or target a niche market of investors, rather than because they value them as a profit-making investment.

But banks really should be putting more emphasis on responsibility when considering which companies are worthy of investment, because ultimately responsible businesses generate more sustainable profits (in both the environmental and financial sense) and so carry less risk for that bank.

A responsible approach to business should be the principle on which a business is founded, not just an add-on for marketing or CSR purposes. This is a safer, more secure way to generate long-term gain.

Marks and Spencer is a fine example of a business which, unlike many of its former competitors, has been fantastically successful throughout its history thanks to the responsible approach it takes to customers, partners, suppliers and the community.

When I established my own company - the Clean Space Partnership - I knew that embracing the same values of responsibility would make my business more robust. And it has. The business has not only survived the recession - it has doubled in size over the past three years.

There is also a clear appetite from the public for money to be invested into socially responsible causes - the Move Your Money campaign is gathering pace, with even the Minister for Civil Society recently giving it his backing.

Investing in responsible business is a win-win situation, for banks, customers and SMEs. It is time the banking sector fully embraced the concept of responsibility once and for all. Only then will true sustainability be achieved.

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