Ethical Banking: Why the world needs it right now?

Summary: Ethical banking is concerned with the impact of banking practices on society and the environment as they are looking to make profits through ethical principals.

06 Aug 2022 by Team FinFIRST

Today, social consciousness is underpinning the end customer’s mindset with people analyzing their own actions as well as that of organizations they patronize and promote. The COVID-19 crisis further cemented this new financial reality that has seen an amplification of an already-growing movement —ethical banking.

Ethical banking is concerned with the impact of banking practices on society and the environment. Like any other financial institution, banks that prioritize ethical principles are looking to make a profit. However, they attempt to generate revenue without abandoning ideals or effecting harm.

As socially-aware consumers link finance with social responsibility, they are also ready to penalize institutions that don’t fall in line. For example, banks investing in fossil fuel projects have faced significant backlash the world over. Clearly, financial organizations can no longer afford to prioritize economic growth over social welfare or environmental considerations.

Why customer obsession and open banking go hand in hand?

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The rise of the ‘informed’ customer

When it comes to financial services, today’s customer is better informed, aware of their choices and even willing to pay a premium for services that benefit the environment or local communities. According to a recent survey, 50% of consumers rank sustainability among the top five value drivers, making it a vital purchase criterion and a key differentiator in the overall value proposition.

Following global financial crises and a slew of scandals, banks must include ethical aims into their corporate strategy to combat high levels of distrust among customers, people, and regulators. Transparency is instrumental to success and banks must develop an ethical approach that hinges on trust, organizational culture, and social purpose.

Real-life examples of ethical banks to take inspiration from

In practice, banking with ethics is an acquired habit. It demands a fundamental change in the way a bank functions and thinks, with an increased focus on customer and community safety as well as stability. Here are a few real-life banks to take inspiration from.

Aspiration: In an effort to balance profit and purpose, Aspiration lets customers support their reforesting efforts. How? By getting customers to use Aspiration debit and credit cards when they shop and rounding the spare change to the nearest dollar. The bank then plants a tree for the customer. The Aspiration community is known to plant more trees than there are in New York’s Central Park every day. Additionally, the bank’s card is created exclusively from plastic recycled from the ocean, making it a green card (quite literally).
IDFC FIRST Bank: At IDFC, sustainable banking takes various forms. To minimize environmental impact, the bank has undertaken the following initiatives.
- Installed solar panels at rural banking branches
- Extended corporate banking and credit facilities to projects in the renewable energy sector
- Driven digital banking solutions to enable customer convenience and reduce carbon footprint at branches and ATMs
- Contributed to resource conservation by encouraging greater use of electronic payments through e-statements and e-receipts and use of mobile banking and net banking
- Ensured responsible sourcing in supply chains for all major suppliers
Ally Bank: The bank’s Environmental, Social, and Governance (ESG) initiatives are aimed at improving economic mobility within the local communities. Many of its efforts are education-focused, including donating to advance financial education, conducting classes on managing finance, and distributing a book called Planet Zeee, which helps instill good money habits among children.

As is evident, ethical banking follows an incremental and honest approach. Finance institutions don’t need to run before they can walk; small efforts in the right direction can make all the difference and serve as a competitive advantage for banks. Clearly, ethical banking is the future, and the future is here.

Disclaimer

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