The world is dependent on global finance working towards a fairer financial system for people, the environment and culture with a focus on sustainability, climate change and social justice. This July at The Fintech Times we are putting the spotlight on ethical finance/ethical banking, including environmentally and socially-conscious practices.
People are choosing to manage their finances in accordance with their values in greater numbers than ever before. They care about who their financial institutions accept money from and how they use those funds.
But why is there growing interest in sustainable finance? In today’s topic, we ask industry experts: what is driving the surge in ethical banking?
Fujitsu UK & Ireland
Krista Griggs, head of financial services and insurance at Fujitsu UK & Ireland, is passionate about creating a better and more sustainable future through the use of technology and the collective expertise of individual people.
She sees the surge in ethical banking as largely driven by consumers, in the Millennial and Gen Z generation, who are “making more purposeful decisions in their buying behaviour”.
Griggs says: “With access to a wealth of information online, more so than any other generation, they have become a part of not only understanding but also actively participating in environmental and societal change.
“With alternative transactions in the financial services sector becoming mainstream, such as cryptocurrency, ‘buy now and pay later’ models and even crowd-sourcing, banks are looking for other ways to create customer loyalty. This was amplified by the pandemic, with more people questioning their choices and looking for more ethical and sustainable options.
Events like climate change and natural disasters, as well as the Black Lives Matter movement, are bringing societal topics into the spotlight, as people look for human connection. Players in the financial services sector are aware of this and know if they want to gain customer loyalty, they must spotlight ethical initiatives to drive a human connection.”
In agreement is Clare Reilly, chief engagement officer at PensionBee, who also sees younger consumers as an influential force.
She comments: “The surge in ethical banking is primarily driven by increasing consumer demand for transparency over where and how their savings are invested, and the realisation that their money can be used as a force for good.
“It’s becoming increasingly popular with younger generations who are choosing only the companies and products that align with their values. This is indicated in our own customer base where we’ve seen that younger savers are more likely to be invested in one of our responsible plans.
“The rise of ethical banking is heavily reflected in the pensions industry, with many savers choosing to invest their retirement savings in ‘green’ or ‘responsible’ pension funds. Whilst the term for such investments is interchangeable, the overarching objective of these funds is to achieve positive returns for investors, while prioritising environmental, social and governance considerations within the investment decisions.
Digital pensions provider Penfold offers a sustainable plan designed to help people practice socially responsible investing. Its co-founder and co-CEO Chris Eastwood suggests savers are increasingly more aware of the connection between finance and global issues. Again… it’s the younger generation that is ready for action.
Eastwood says: “We’re seeing demand for ethical banking grow, particularly among younger savers who want to ensure their money is going towards businesses that align with their values.
“The turbulent political and economic climate following the pandemic has left savers feeling powerless to impact global affairs via traditional means.
“This is fertile ground for savers to grab hold of financial assets, like their pension, to influence the issues they care about like climate change or conflict in Ukraine.”
Financial comparison website Finance.co.uk’s editor-in-chief and personal finance broadcaster, Laura Rettie says consumers want more ethical choices in all aspects of their lives.
“Big banks have been in the press frequently about their ‘dirty investments’,” says Rettie. “People are genuinely interested in the positivity they can spread with their investments.
“High-profile people like David Attenborough and Greta Thunberg have eloquently put the case across that we all need to be thinking about our environment more and how our everyday activities are having a knock-on effect on our planet.
“The ‘Greta effect’ has seen the trend surge in all retail areas – customers are voting with their feet and choosing organisations they trust, aligning with their values.”
Leaf Global Fintech
Tori Samples is the co-founder and CTO of Leaf Global Fintech, a provider of digital wallet services in emerging markets currently serving unbanked customers in Rwanda, Uganda, and Kenya.
She suggests ethical banking is part of a larger global trend for companies across all industries to adopt a broader role in addressing social and environmental concerns around the world.
She says: “The traditional profit-maximisation focus has landed many large banks (Wells Fargo, HSBC, Bank of America, Barclays) with substantial fines and tarnished reputations. Balancing consumer protection and transparency with pressures to meet quarterly earnings targets (and staff incentive programs) are at the heart of many of these issues. However, at Leaf, we see an even bigger problem: financial inclusion.
“We believe that banks and financial institutions can be doing more to broaden their customer base and provide financial services to low-income and financially excluded people like refugees and migrants. Leaf is developing the technical solutions to deliver financial services – in a responsible and cost-effective way – to the stateless and excluded.”