ethical banking
Editor's Choice Ethical Banking Fintech Insights

What is Ethical Banking? Insight from Infosys, Impaakt, KogoPAY & EthicsGrade

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.

One of the lessons learnt from the financial crisis more than a decade ago is that businesses will be judged not only in terms of the products and services they offer, but also by the way in which they are provided. This is especially true for banks and financial institutions.

Increasingly people are more aware about investing money with companies that have an ethics-based culture and a focus on an environmental and social impact.

Following on from yesterday’s insight, we share the thoughts of more industry leaders to the question: what is ethical banking? 

Impaakt
Bertrand Gacon
Bertrand Gacon

Swiss fintech Impaakt uses a collaborative approach to measure the impact businesses have on the world. Its CEO and co-founder Bertrand Gacon was previously chairman of Sustainable Finance Geneva and has been at the heart of the discourse surrounding ESG standards; specifically how the financial industry plays a central role in advancing sustainable development goals (SDGs).

For Gacon, ethical finance can mean very different things to different people but has evolved in three distinct ‘waves’ – each with a new set of terminology.

“Ethical investing emerged in the 19th century, driven by moral or religious concerns,” says Gacon. “Investors with particular faiths wanted to make sure that their investments did not support activities that contradicted their values. Typically, this involved excluding particular sectors (e.g. alcohol or weapons) from a portfolio. This approach persists today and is also known more broadly as ‘negative screening’.

“From the 1980s, attention started to turn to individual companies rather than just sectors. Negative screening had so far been fairly inefficient, both at changing the world and at generating financial returns. Now, investors wanted to identify the ‘good guys’ and ‘bad guys’, not just remove whole sectors from their portfolios. What is sometimes termed ‘responsible investing’ was born. The purpose was to find and support businesses that were run in a responsible way, irrespective of the industry they belonged to. This was the start of approaches like ‘best-in-class’ and ‘positive screening’. Company ratings started to appear and, with them, lists of environmental, social and governance factors (ESG) on which each company was scored.

“Since then, many of us in finance have come to realise that being responsible is not enough. You can run an oil business responsibly, treat your employees well and fight corruption, but this doesn’t mean that your company is sustainable. If its core business model relies on finite resources or generates massive negative impacts, it will not sustain in the long run.

“This is what sustainable investing is about: determining how sustainable a business is, considering both internal and external factors. In some ways, this brings together the two previous approaches, recognising that what a business does and how it is run are both important.”

“Finally, at the beginning of the 2000s, the term ‘impact’ was coined. Increasingly, investors look not only for the most sustainable businesses but for those that have the most positive impacts on the planet and society. And, because all businesses have positive and negative impacts, it is key to measure all of these impacts and weigh them each against the other to determine a company’s net impact contribution. With proper impact assessments, investors can finally integrate impact as the third dimension of investment, alongside returns and risks.”

Infosys
Jay Nair
Jay Nair

Ethical banking is the adoption of banking practices which positively impact society and the environment, explains Jay Nair, SVP, industry head, financial services and public sector at Infosys, a provider of technology and consulting services to the financial services industry.

“While continuing to seek profit, banks operate in ways that emphasise ethical practices, encouraging staff to generate earnings through positive and ethical principles. Many of these banks will set policies or initiatives that reflect their community’s needs or values.

“These include establishing criteria, or set of practices, which must be maintained both in-house at the bank and by the clients it works with. This could involve inclusive hiring practices, or commitments to lowering carbon emissions, for example.

“Because each community is different and will have a different set of values, banks will often have a degree of open-mindedness and flexibility when it comes to the exact approach they take.”

KogoPAY
Dr Narisa Chauvidul-Aw
Dr Narisa Chauvidul-Aw

Dr Narisa Chauvidul-Aw is the CEO & founder of KogoPAY Group, a socially conscious fintech startup providing banking services IBANs accounts for B2B and mobile e-wallet and c-wallet for P2P customers. She has set KogoPAY up to be inclusive, support the unbanked, underserved and create an ecosystem that is more than just a conventional business turning profits.

“Ethical banking for us means being conscious of the impact of banking practices on the environment and society as a whole and working to funnel investment into businesses which do not have a negative for people, such as an direct or indirect involvement or association with weapons, alcohol, tobacco, terrorism, money laundering etc,” says Chauvidul-Aw.

“Financial institutions like ourselves focus on ethical practices to seek profit just like any other, but also work to positively impact society by operating on a set of principles and pledges for the good of society and not just ourselves.

EthicsGrade
Charles Radclyffe, CEO of EthicsGrade
Charles Radclyffe

Ethical banking isn’t about banks treating their customers right, it’s about banks investing the funds you deposit with them in opportunities that align to the values of their stakeholders, suggests Charles Radclyffe, CEO of EthicsGrade, an ESG ratings agency specialising in understanding the risks stemming from digitalisation, notably AI ethics.

“The recent surge in Islamic fintechs is one example of ethical banking: banks which operate by the norms and ethics of the community that they serve,” says Radclyffe.

“Secular banks are fast followers though, and while there are some big names like Triodos who have been operating in this space for some time, it’s now recognised by many more customers that ensuring fully end-to-end business operations that are values aligned is important. “Ethical banks are thus winning capital, and customers – it’s proving to be a virtuous cycle! (pun intended).”

 

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