Alternative Bank Switzerland: Doughnut Design Case

01 | Brief Summary and Key Facts

The Alternative Bank Switzerland (ABS) is a Swiss financial institution that was founded to promote positive social and ecological impact rather than maximise profits.

• Location: Olten, Switzerland
• Founded: 1990
• Size: Assets of more than 2.3 billion Swiss Francs, more than 43,000 customers, more than 9000 shareholders
• Sector: Banking
• Legal form: Public limited (shareholder-owned) company 
• Website: www.abs.ch 
• Main services: Banking services including various bank accounts, savings accounts, granting of credits, loans and mortgages, and investment products

Highlight of their unique approach

ABS focuses on the real economy (the portion of the economy that produces goods and services) and in ways that contribute to the greater societal good.

Highlight of their unique design

ABS has a “profit sufficiency” ethos that is embedded in their governing documents. This means that they pursue enough profit to fulfill their mission and maintain long-term viability, but do not aim to maximize profits.

02 | Founding Story 

The Alternative Bank Switzerland (ABS) was officially founded in 1990. Unlike most companies, it wasn’t founded by one or two leaders. For a decade, individuals from a wide range of organisations had been exploring the possibilities of launching a new bank in Switzerland. These people came from social justice and environment protection organisations such as WWF, Pronatura, Public Eye, as well as social housing projects and other local community groups. 

They wanted to create a different kind of bank. Instead of maximising profits, it would support companies and organisations focused on improving social equity, protecting nature and governance. It would provide loans, for example, to initiatives that improve social housing. It wouldn’t accept money from people, organisations or regimes that had garnered income via unethical means. It would be a bank entirely transparent in its goals and processes. 

03 | Industry Context

Banks generate income through various means. They safeguard and provide access to customers' money via checking, savings, and other accounts, sometimes charging fees, though this is not their main income source. The primary revenue comes from interest on loans and returns on investments in securities, bonds, and stocks.

Interest is earned by providing loans to individuals and businesses, such as mortgages and financing for investments. Banks collect periodic interest payments until loans are repaid, using customer deposits to fund these loans. They operate under a system where they are not required to hold the full amount of deposits in reserves. Instead, they extend credit, effectively creating new money, constrained by regulatory requirements such as capital and liquidity rules. This allows banks to increase their lending capacity and potential interest income.

Additionally, banks invest in shares, bonds, hedge funds, and other vehicles, engaging in trading activities to profit from market fluctuations. While they primarily invest on behalf of customers to enhance savings, they also invest independently to grow their own funds.

Switzerland is known for its emblematic banking sector. Since the 18th century, Swiss banks have been safeguarding the riches of wealthy people around the world. Through laws that prohibit disclosure of information about the origins of wealth and the country’s official neutral status, Switzerland became a haven for those with fortunes to protect. 

Bank secrecy brought Switzerland a lot of prosperity. However, in the 1980s, questions increasingly arose about the ethics of Swiss banking. The federal law that had codified bank secrecy in 1934 allowed wealthy people to use Swiss banks to safeguard their fortune regardless of its origin. The opacity allowed people to evade taxes, dictators to hide assets and criminals to launder money. The banks benefited financially through the veil of ignorance and legally mandated secrecy regulations. 

Those ethical concerns led to the idea for an ‘alternative bank.’ The individuals and organisations who were involved wanted to establish an ethical bank that would only accept funds from verified ethical sources, would be entirely transparent, and would use funds to invest in ventures that would benefit society rather than the elite.

Today the Swiss banking industry is different than it was when ABS was founded. In the past two decades, under international pressure, the Swiss government has agreed to make their banking sector more transparent. For example, the ‘Automatic Exchange of Information’ (AEOI) agreement signed in 2017 requires banks to share information about their foreign customers residing outside of Switzerland with relevant governments and tax authorities. The banks now carry out due diligence of their customers, sometimes refuse clients, and work together with authorities when necessary. The industry is more transparent than it was in the 1980s; however, the vast majority of banks are far from adopting ethical practices to the extent ABS has done.

While ABS remains a small player within the Swiss banking world, it has become a respected bank, especially among those who care about social and environmental causes. 

04 | Regenerative & Distributive Strategies and Actions

“At the Alternative Bank Switzerland, our activities centre on the common good, people and nature, as well as a sustainable quality of life for current and future generations.”  - ABS Mission Statement

Supporting projects that benefit society

As written in its mission statement, ABS aims to support social and environmental protection initiatives. It does this by providing long-term credits to projects, companies and individuals. 

The bank has a list of ‘exclusion criteria’ which refer to either whole sectors or single companies that could harm human health (e.g., weapons, tobacco, gambling); animals (e.g., industrial fishing); the environment (e.g., fossil fuels and chemicals); or do not respect human rights. The bank also has a list of ‘encouragement criteria’ to identify companies, organisations and initiatives that are beneficial for society. Through these criteria they have identified sectors that they would like to encourage as well as the type of companies they would like to support.  

Today, at least 80% of credits are invested in sectors that benefit society. These include:

• Social ecological housing projects, such as associations that help secure affordable rents
• Renewable energy infrastructure, such as solar panels or community energy systems
• Health initiatives 
• Sustainable agriculture 
• Co-living and coworking projects

Every year, the bank publishes a list of all loan recipients to highlight the goals the money will help achieve.

Transparent investment products 

In recent years, the bank has been offering investment opportunities to its customers through its “ABS Living Values – Balanced Fund” which invests in bonds, shares and liquidities. While many banks offer customers ‘sustainable ESG portfolio’ options, ABS seeks to go further than other banks. Naturally, the regular exclusion criteria are also used for putting together the investment portfolio. Beyond that, the bank carries out in-depth analyses of companies to seek out those that have more ambitious social and environmental goals. In total, more than 200 criteria are taken into consideration when developing the portfolio. Notably, the bank provides full transparency of the investments it makes and its investment strategy. 

Innovation fund for social entrepreneurship
In 1996, ABS set up the Innovation Fund, a legally separate non-profit organisation to support start-ups working on social or environmental causes.  The Innovation Fund association promotes sustainable start-ups by providing equity in the form of investments or granting loans. Every year, ABS donates a portion of its profit to the Innovation Fund and provides resources for personnel and infrastructure. Additionally, when dividends are distributed, ABS shareholders are encouraged to reinvest part, or all, of their disbursement into this fund.

Backing the real economy
Perhaps one of the most striking differences from other banks is ABS’s policy of focusing primarily on the real economy. As mentioned previously, most banks make use of the possibility to extend significantly more credits than they have deposits. This can generate a lot of profit; however, the practice can lead to excessive debt creation, economic bubbles, inflation, and general economic instability that often impacts the most vulnerable populations first. In an effort to be a positive force for society, ABS only lends money that it has in its accounts through deposits and emitted shares.

ABS also deliberately avoids investment banking, proprietary trading, and stock market speculation. These activities also affect broader societal stability and increase inequities. Rather than contributing to the virtual financial economy, ABS has made it a policy to work mainly within the real economy. 

Communication

Beyond its ethical products and services, ABS also seeks to raise awareness about the role of money in society. Through its website and its ‘Moneta’ magazine sent to all customers, the bank shares insights into financial systems, societal issues, as well as the ways in which people can have a positive impact in the world through their financial choices. The bank also takes a transparent stance on relevant political issues. This is particularly significant in Switzerland where citizens vote in referendums about four times a year.

Employees 

ABS applies ambitious ethical standards internally too. For example, it maintains a ratio of 1:5 between the salary of the lowest and highest paid employee, and provides full internal salary transparency. The bank also differs from other banks as it does not provide bonuses to individuals, even at the highest levels of management. The company is committed to gender equality throughout the organisation including the Board.

05 | How Deep Design Enables Strategies and Actions 

Ownership
When the various parties came together to discuss the founding of an alternative bank, they considered setting up a cooperative. However, they soon realised that it would be much more difficult to get approvals from the FINMA, the Swiss Financial Market Supervisory Authority. A shareholder structure, they decided, would be less burdensome and could still allow them to pursue their purpose. 

Hence, the bank is owned by shareholders. There are two types of shares that can be purchased. The difference lies in the price and ownership criteria. Of the approximately 176,000 shares emitted, 6% are A shares. These cost much less and are available exclusively to organisations that have proven to have shared values such as NGOs that pursue social or environmental goals. The other 94% of the shares are open to anyone. Regardless of the type of share, every shareholder has the same voting rights and gets the same dividend pay-outs. No person or organisation may own more than 5% of the shares. Periodically, the bank issues new shares to raise capital. 

Importantly, ABS’s purpose and ways of working are clearly laid out in the governing documents including the ‘Directional Guidelines’ and ‘Statutes’. 

Purpose

The mission statement of the Alternative Bank Switzerland is the following (translated from French): 

Underscoring the goals, ABS has defined fundamental principles that further guide their work (translated from French):

The most important way that ABS ensures its purpose is protected, is through the Statutes document which lays out the rights and regulations for both ABS and its shareholders. This document has a legal status which means that adherence to the purpose of the company is a compliance requirement. Any changes to these documents can only be brought about by the highest governing body, the General Assembly. 

The General Assembly comes together once a year for an ordinary session. It can, however, also be called together for an extraordinary session. This session can be requested if deemed necessary by the Board of Directors, the auditors, or by the external ethics control body. It can also be called if a certain percentage of shareholders request a session. Every share comes with the right to one vote. While most decisions need an absolute majority to pass, certain decisions require at least two-thirds of the votes. This would be the case, for example, if a change was to be made to the company purpose. 

The Board of Directors consists of seven to eleven people elected by the General Assembly for a period of three years at a time. The members of the Board must have proven interest and experience working on social and environmental topics. Together, the Board members must have all the technical knowledge and experience required for the banking and financial sector, including finance, accounting and risk management. There must also be one employee representative on the board. To ensure diversity, the Board may not have more than 60% of one gender and must include people from the different regions in 

Switzerland. Once elected, the Board defines the official roles for each member. 

The external ethics organisation is another unique feature of ABS’s governing structure. The Statutes demand that every three years the bank will engage an external company to investigate whether the ABS is pursuing its course as an ethical bank and provide recommendations for improvement. The current company taking on this role is called Ethix. Their feedback and recommendations are presented to the Management Board, to the General Assembly, and published on the website. If they believe that the bank is veering off course from its mission, they may even call a General Assembly themselves. To support Ethix in carrying out its assessment and ensure recommendations are followed up on, ABS has also established an internal ethics committee. 

Finance

ABS follows a “profit sufficiency” ethos. This means that they aim to make enough profit to  grow sustainably in pursuit of its mission and to ensure long-term viability. But the objective, as also stated within Article 2 of the Statutes, is not to maximise profit. The ethos of profit sufficiency is exemplified by their exclusion criteria, which means ABS does not even consider potential returns for sectors or companies that could be harmful for society. Profit sufficiency translates in the investments the bank makes through the Living Values - Balanced Fund. It also translates in the credits and terms it provides to those seeking loans; ABS will not try to maximise returns through interest.  

The objective is to generate sufficient revenue to pay employees and cover expenses, while also earning extra profits that can be used for innovation or to build additional reserves that will ensure the longevity of the bank and its purpose. When profits exceed the sufficiency level, the General Assembly can decide to provide dividends to shareholders. The shareholders then have the option of redeeming the dividends or of donating the amount into the Innovation Fund to further support social entrepreneurs. 

Network

ABS is involved in various networks that allow the bank to increase its reach and impact. Through networks, ABS can take part in events, networking, education as well as shared projects with aligned organisations. Casafair, for example, is an association of property owners that are conscious of their responsibility to the environment and society. By working with this value-aligned organisation, ABS can reach a target audience of potential depositors and creditors. 

Internationally, ABS is part of the Global Alliance for Banking on Values that brings together similarly progressive banks around the world. Through their affiliation with this network, ABS recently partnered with Triodos Bank to jointly finance a large solar energy project in the Netherlands. 

06 | Reflections and Lessons for other Businesses

With more than 43,000 customers and assets of more than 2.3billion Swiss Francs, ABS has grown into a solid bank. Considering its ambitious purpose and strict ethical principles, it is admirable how the bank has managed to make its place, especially within the context of the competitive Swiss banking market. But it has not been easy.

ABS has a very clear purpose regarding social and environmental goals, enshrined in its governing documents. Through transparency in every facet, the stakeholders can trust that the bank is following its purpose. This attracts customers, employees, partners and shareholders who have aligned goals. However, its strict ethical principles might sometimes be a deterrent for some. 

The financial system is designed for profit maximisation. Most banks therefore have a wide variety of choices when developing investment products. With its strict standards, ABS significantly reduces the number of choices it has. For its investment fund, for example, the team analyses many companies to identify the few that meet the criteria. And even when a short-list is made, it is also not always possible to guarantee that the companies will remain good for the environment and society. The fact that the bank only issues loans using the capital on its accounts can also be difficult, limiting the investments and potential returns that they can make. During the period of negative interest rates (2015-2022), ABS struggled more than the large banks that had much more flexibility in issuing credits and possibilities to refinance themselves on the capital market. 

Shareholders and customers who choose to work with ABS do so because they have shared values. They strongly support the bank’s mission. The concept of “profit sufficiency”, however, might be a deterrent for other potential shareholders or average customers. Although the bank has solid results, they do not seek to maximise profit in the way other banks do. Likewise, customers that seek to open an investment account may not obtain the highest yields on the stock market. This reduces the number of people that are willing to engage with the ABS, especially in times of uncertainty.

Many people in Switzerland might not be aware of ABS. It is a relatively small bank and compared to the large banks, ABS cannot offer the full set of banking services. For instance, they have only four offices throughout the country, so a customer cannot easily walk into an office for advice or to deposit money. Also, the costs can be slightly higher as ABS cannot afford to undercut prices. 

It can also be difficult to find employees. While most people are eager to work for a company that has high ethical principles, there are limitations. The fact that there are salary limits and no bonuses, can make it difficult to attract more experienced talent accustomed to higher salaries in other banks. The flat organisation structure might also not suit all types of employees, particularly those that feel comfortable in a hierarchical structure where they are not required to take on personal leadership.

From its foundation, ABS sought to help bring about change in the wider Swiss banking world. This has proved to be difficult. While ABS has been able to make its place, other banks are not picking up similar solid principles. Rather than lowering their aims, however, the bank continues to seek new ways to increase their efforts, impact and reach. 

Due to the clarity of its purpose and the steadfastness in keeping to its ethical principles in all its activities, ABS has been able to build a network of value-aligned customers, employees, partners, and shareholders. Just as these stakeholders put their confidence into ABS, the bank relies on their support and commitment to pursue its purpose of contributing positively to the common good. The clear purpose, as well as the trust and collaboration with stakeholders, have enabled ABS to grow into a resilient, stable, and respected bank.

This case study was researched and written by Bryony Jansen van Tuyll in collaboration with DEAL.