Evaluation and Analysis of the Enterprise Umweltbank AG

Table of Contents

1. Introduction

2. Company Overview
2.1 Corporate Philosophy and Successes
2.2 Social Organization Classification of Umweltbank AG

3. Business Model Analysis
3.1 Value Proposition, Architecture and Capture
3.2 Level of Integration

4. Financial Services Analysis

5. Human Resource Management

6. Summary and Future Outlook

Reference List

1. Introduction

Enterprises nowadays face unprecedented market demands concerning social responsibility. Especially society’s environmental consciousness has increased tremendously in the past decades and particularly in recent years. Simultaneously, consumer’s willingness to pay for social and ecologically friendly products and services has increased drastically. (Jeucken, 2001; Lee, 2015, Nielsen, 2013). On the one hand, these changes in perception of environmental issues lead to challenges for businesses as they have to adapt their business model to trends in society. On the other hand, these changes provide opportunities for businesses.

In several industries, ecological products and services have been established by many businesses. Sustainability in the western world is omnipresent. Supermarkets for example offer a wide range of biological, sustainable products. Gas stations offer bio fuel. And fair trade green fashion has developed to an integral part of the fashion industry. At first sight, bank’s products and services themselves do not pollute. Banks do not seem to cause any direct ecologically harmful emissions. However, on closer inspection, through their financing function banks play a key role in the protection of the environment. By financing certain projects, banks indirectly influence pollution (Jeucken 2001; Pinski 2007). To minimize the environmental footprint, banks would need to interfere with the activities of their clients. That would mean declining credit requests from clients who want to carry out projects which are not sustainable. This approach is diametrically opposed to traditional bank’s primary goal of profit maximization. Also, money cannot be qualified as either good or bad. It depends on what people invest in. As shown, neither banks nor their clients are solely responsible for the pollution of our environment. Both players must take action to contribute to the protection of the environment.

Umweltbank AG, as a player acting within the banking sector, addresses this problem from one side and provides society opportunities to tackle the problem from the other side as well by financing environmentally friendly projects. The bank tries to translate the problem of pollution into an opportunity by raising and exploiting societies consciousness regarding this topic. Due to the loss of confidence in the financial sector as a result of the global economic crisis, this approach of ethical banking appears to be very promising.

To analyze how Umweltbank structures its business and how its business objectives differ from traditional banks, the paper provides an outline of the bank’s history, its philosophy including vision and mission and classifies the bank within the social forms of organizations developed in literature in the first chapter. The next chapter critically evaluates the business model and explains how the bank copes with the tension between its environmental and commercial objectives. Chapter four aims at answering the question whether the bank’s success derives from its ecological focus or from its financial services. Therefore, Umweltbank’s financial services are compared to those of other traditional banks. In chapter five it will be examined how the externally communicated values are internally implemented with regards to human resource management. Finally, the conclusion summarizes the critical success factors and provides an outlook on future challenges and opportunities for Umweltbank AG.

2. Company Overview

The German bank Umweltbank AG (stock company) is an online bank which finances solely ecological projects. The bank’s founding process began in April 1994 with the establishment of the D.U.T. UmweltTreuhand GmbH (limited liability company) and was initiated by Horst P. Popp who had been a board member of the Ökobank eG for 18 months prior to the foundation and his wife Sabine Popp. One of the main incentives for Horst Popp to found the Umweltbank AG was to successfully combine economic and ecological interests which were traditionally regarded as contradicting interests (Bundesdeutscher Arbeitskreis für Umweltbewusstes Management [BAUM], 2010). The newly founded bank was supposed to close the gap in the market between the booming environmental market and the expanding banking sector (Umweltbank, 1995).

2.1 Corporate Philosophy and Successes

In its year of foundation in 1995, Umweltbank stated in its company journal that their vision is to combine ecology and economy and thereby support the protection of the environment (Umweltbank, 1995). Simultaneously, a fundamental transformation of the banking sector with regards to sustainability was and is still targeted. With its corporate philosophy Umweltbank AG tries to stop the trend towards a society, which focuses solely on short term benefits (Umweltbank, n.d). In 2009, founder and former CEO of Umweltbank AG, Horst Popp, stated that he wants to bring the world closer to paradise (Zerbel, 2009). To achieve this social vision, Umweltbank aims at being financially sustainable.

A special characteristic, which distinguishes UmweltBank from other tradition banks is that it anchored its goal to proactively protect the environment in the preamble to the articles of association. To realize its vision, Umweltbank AG defined clear positive criteria for their financing priorities such as energy saving measures, renewable power generation or elimination/reduction of pollution and exclusion criteria such as large power stations, socially intolerable projects or weapons and other military equipment (Umweltbank, n.d.). Thereby, the bank can guarantee its customers that every single Euro invested is used to finance environmental projects such as ecological building or projects concerning renewable energy sources using wind, sun, water or biomass (Umweltbank, n.d.). Since its existence until the year 2015, Umweltbank supported more than 21,500 environmental loan projects. According to the environmental report (2015), the resulting CO2 savings during this time period amount to 3.1 million tons. That is nearly equivalent to the CO2 emissions in whole Germany from 2012 till 2015 (Umweltbundesamt, 2017). Overall, the volume of the lending business in 2015 accounts for 2.246 billion Euro. Accumulated profits in 2015 increased up to 8.1 million Euro (Annual Report 2015).

The idea of the protection of the environment is not only externally communicated and reflected in the core business of the bank, but can also be seen in the internal operating policy. The bureaus of Umweltbank are equipped with sustainable and environmentally friendly products: The carpet consists of new wool, goat hair and jute, the office furniture is made from sustainable, easily recyclable materials such as wood, leather or textiles, the pens which are used in the bank are produced from corn and the bank uses exclusively recycled papers (Umweltbank, 1995). Additionally, Umweltbank follows a sustainable approach for other required resources. For example, the bank produces its own electricity with its photovoltaic system, it stores and reuses rain water, it hast got a solar filling station for their electric vehicles and it provides tickets for public transportation to its employees (BAUM, 2010).

The recent success of Umweltbank AG is reflected in several awards and is thereby also confirmed from authentic external organizations: Already in 2002 Umweltbank was ranked with a triple A from the Zurich Kantonalbank in its sustainability ranking. In the years 2005 and 2006, the bank was ranked among the top 20 sustainable stocks worldwide and was included in the sustainability index nx-25, an index which consists of 25 stocks from different branches and countries, chosen with regards to ethical and ecological criteria (Annual Report, 2015). Furthermore, the bank received the German CSR price in 2013 for their business and got recognized as a sustainable company by the 6th Sustainability Congress in Bonn in 2010 (Umweltbank, n.d.). Besides, founder and former CEO of UmweltBank AG, Horst Popp, was awarded by the B.A.U.M. e.V. for his environmental commitment (BAUM, 2010).

2.2 Social Organization Classification of Umweltbank AG

Especially since the global economic crisis, the financial system and its players have been harshly criticized. Banks did not only endanger their own institution by taking inappropriate risks, but also endangered the whole financial and economic system through snowball effects. Consequently, bank’s reputation suffered worldwide and the impression arose that banks would even harm third parties to reach their primary goal of profit maximization. Thus, several banks tried to strengthen their images by applying ethical values in different forms. Even though the phenomenon of banks following ethical values to enhance their public image became rather normality than the exception, the degree to which banks run their core business operations according to their values differs essentially. The extent to which a bank’s social motives are in the foreground, helps to classify a company within the different forms of social organizations. To further evaluate the form of social organization a certain bank belongs to, the framework introduced by Jäger (2010) with its two dimensions of the organization’s attachment to civil society and to the market can serve as a guidance.

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Figure 1: Distinguishing between different forms of social organizations

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From Jäger, 2010

Although Umweltbank’s vision and mission are driven by environmental values, the bank aims at being financially sustainable to achieve their social goals. Thus, Umweltbank pursues a dual mission approach. The bank does not depend on any donations or other grants. It competes with other purely market oriented banks and its business is closely coupled to the market. However, Umweltbank AG distinguishes from other non-ethical conventional banks with regards to its strong ecological focus, thus, making the bank more socially orientated compared to other banks which incorporated solely CSR-principles in their businesses but are mainly driven by profit maximization. In contrast to social businesses, which reinvest their generated profits in their business in order to increase their social impact, Umweltbank pays a yearly dividend to its shareholders and does not reinvest greatest parts of their income (Sustainability and Annual Report, 2016). That, however, demonstrates that Umweltbank differs also from social businesses and cannot be classified as such. The example of Umweltbank illustrates that different theoretical classifications for socially oriented business such as social entrepreneurship and civil society organizations which are both only loosely coupled to the market or socially responsible enterprises (e.g. CSR) and social businesses which are tightly coupled to the market (see Figure 1), provide only a framework for orientation but do not reflect complexity and diversity of existing businesses. The above standing has shown that Umweltbank AG can be placed somewhere between socially responsible enterprises and social businesses by being closely coupled to the market and still strongly focusing on its social goals.

3. Business Model Analysis

To critically analyze Umweltbank’s business model it is essential to first define what the term business model means. Although in literature there exist uncountable diverse approaches of defining a business model (Morris, Schindehutte & Allen, 2005; Volkmann, Tokarski & Ernst, 2012; Zott, Amit & Massa, 2011), most commonly considered as the most important aspect underlying the definition of the term business model is the general logic how companies propose (value proposition), create and deliver (value architecture) and capture (revenue model) value. The business model of a company explains how these components are interlinked (Magretta, 2002; Osterwalder & Pigneur, 2010; Volkmann, Tokarski & Ernst, 2012).

3.1 Value Proposition, Architecture and Capture

Umweltbank AG creates ecological and financial values by financing environmentally friendly projects on the one side (ecological value creation) and paying interest rates and dividends to its customers who place their money with Umweltbank or buy shares of Umweltbank AG on the other side (financial value creation). Even though the investments of Umweltbank’s customers are free of charge (Umweltbank, n.d), the bank still captures parts of the created financial value by granting credits to third parties and receiving interest payments in return. Besides efficient value capture and delivery, Umweltbank communicates a clear sustainable value proposition to its customers. It differentiates itself from other banks with a high environmental compatibility and its positive and negative criteria for granting credits. To build trust and ensure compliance with its environmental principles, Umweltbank AG established an environmental advisory board in 1997 consisting of 19 independent experts from the areas of environment such as the founder of Umweltakademie Prof. Häberle, project manager of the Ethical Ecological Rating project (Ethisch-ökologisches Rating) of Frankfurt University Prof. Hoffmann and university professor from University Linz for solar research Prof. Meissner (Umweltbank, n.d.). According to Umweltbank’s statement, the advisory board can be regarded as an equivalent to the supervisory board, which controls Umweltbank’s compliance with its environmental standards (Umweltbank, 2016). However, the advisory board, in contrast to the supervisory, does not have any power to issue legally binding decisions. According to Section 19 of the statues of association, the advisory board plays solely a consultative role. Thus, it is not transparent what the advisory board effectively does and whether there have been business activities in the past, where the advisory board intervened. Due to the lack of information regarding the advisory board, it seems that Umweltbank merely tries to create the impression of an external, independent corporate body, which in fact does not have any specific rights nor does it intervene.

Umweltbank’s business model allows the bank to differentiate from competitors in an industry, in which differentiation from competitors has not been taken into consideration for a long time. In a highly competitive market such as the banking sector (Tischer, 2013), it is crucial for new entrants to differentiate themselves from its competitors. One possible method of differentiation is to offer certain products or services which are tailored to a specific niche market which is not served by the conventional players competing in the industry (Osterwalder & Pigneur, 2010; Tischer, 2013). By focusing on the emerging, nowadays omnipresent topic of environmental sustainability, Umweltbank successfully entered the niche market of ethical banking. Compared to other ethical banks, which for example focus on Christian values such as the catholic Steyler Bank, Umweltbank has the competitive advantage of being active in an ethical field which has been established in society and recently rose interests of many people. Thus, it is possible for the bank to approach many customers, which have a high distrust towards traditional banks since their economic behavior became public after the global financial crisis.

3.2 Level of Integration

The success of Umweltbank’s business model leads to the question how Umweltbank manages to simultaneously follow a social goal while being financially sustainable. In the eyes of Umweltbank, the relationship between ethics and profitability does not seem as tense as one might expect (Herzog, Lenz & Hirschmann, 2015). The bank’s own journal Bank & Umwelt in 2002 concentrated on exactly this relationship between ethical values and overall success of the bank. The title of the cover story reads “Ethics as a critical success factor of success (“Ethik als Schlüssel zum Erfolg”). Founder and former CEO of Umweltbank Mr. Popp stated in an interview published in this journal that ethics is a prerequisite for successful economic activity. Josef Wieland, professor for business ethics at Zeppelin University, Friedrichshafen, states in the same interview that ethically responsible companies also have a competitive advantage over their competitors when it comes to the competition for highly qualified potential employees (Umweltbank, 2002).

The reasons for the relatively low tension between the, at first glance contradicting goals of following environmental values on the one hand and being financially successful on the other hand, might be that Umweltbank managed to fully integrate their business model. In a fully integrated business model, the social and commercial values are non-divisible (Alter, 2006; Grassl, 2012). Applied to Umweltbank AG, this means that the bank’s activities simultaneously create both environmental and economic value. Each deposited Euro from a customer of Umweltbank is further invested by Umweltbank in ecologically friendly and carefully chosen projects. Thereby, environmental value is created because green projects are financed. At the same time, Umweltbank receives interest payments from their borrowers which leads to economic value creation. Thus, the same pool of resources (deposited money from the bank’s customers) and the same set of activities (investment in ecological projects) lead to both environmental and economic value creation.

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