Ethical Banking
- Why do we need ethical banks?
- What is an ethical bank?
- How do they stack up with traditional banks?
Why do we need ethical banks?
As recent events in Texas and other parts of the world have shown us, the Earth’s climate is becoming more extreme than ever. In order to reach climate targets, businesses and homeowners will need capital — and a lot of it. Ethical banks are here to solve that problem visit bad credit installment loans, and help entrepreneurs address the issues they see in their own communities and beyond.
What is an ethical bank?
Ethical banking, or “Values-based Banking” has five core principles according to the Global Alliance for Banking on Values:
- Social and environmental impact are at the heart of the business model
- Enabling new business models to meet the needs of communities in the real economy
- A long-term relationship with clients and a direct understanding of their economic activities and the associated risks
- Self-sustaining, long-term, and resilient financial practices
- Transparent and inclusive governance
While many banks incorporate some of these principles into their mission statements, to claim the “ethical” title a bank has to be certified by an outside organization such as the GABV or B Lab in order to ensure sustainability is a truly key aspect of its business practices. Ethical banks thoroughly research their clients and evaluate how their actions will contribute to society in both the short and long term. Unlike many banks, which heavily weigh short term returns when deciding clients, ethical banks evaluate the long term potential of a loan, including business practices that could hurt future generations. Ethical banks also often offer products such as green loans, green mortgages, and green bonds. By attaching lower interest rates or other demand-side friendly incentives to the condition of sustainable business practices or large purchases, these banks can push the borrower into environmentally-friendly spending decisions.
How do they stack up with traditional banks?
Ethical banking has shown to be not only morally beneficial, but economically sound. In recent years, some studies have shown that ethical banks in Europe have actually significantly outperformed their more traditional counterparts over the past decade. These banks were far less affected by the financial crisis of 2008 and enjoyed an average return nearly 3 times higher. However, others show that while ethical banking is growing, it is not more (or less) profitable than traditional banking as of yet. According to this study, the main advantages of ethical banking are increased liquidity and solvency. However, both studies show encouraging signs of the long term staying power of this financial model. As the world grows to understand the importance of sustainability, sustainable banking will be needed to finance the projects that will build humanity’s future.
Sources: