# How the values that underpin financial institutions impact wider society
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-06-15
Category: FINANCE
Category URL: https://financedigest.com/category/finance
Meta Title: How Financial Institutions Impact Society and How to Make a
Meta Description: Learn how financial institutions shape society and the environment, and how you can make a difference through ethical investing, spending, and saving. Make your
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# **How the values that underpin financial institutions impact wider society**

![](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/marten-moller-1736813879568-compressed.jpg)

_By_ **_Marten Moller,_** _ESG Lead at Algbra_

To have a better impact on society, many of us are switching to more ethical and sustainable options wherever possible. According to PWC, 76% of us are ready to ditch “companies that treat the environment, employees or the community in which they operate poorly.”

While it’s important to nurture sustainable habits, like going vegetarian, stopping flying and switching to [renewable energy](https://www.financedigest.com/renewable-energy-monitoring-and-control-system-market-to-witness-an-outstanding-growth-by-2030.html "Renewable Energy Monitoring and Control System Market to Witness an Outstanding Growth by 2030"), we often overlook one of the most impactful options – making our money more ethical. Research by Make My Money Matter shows that greening your pension could be 21x more impactful than all three combined.

[Money really](https://www.financedigest.com/who-really-controls-your-money.html "Who Really Controls Your Money?") does help to make the world go round. How we choose to save, spend and invest today shapes the society of tomorrow. That’s why, in addition to prioritizing their fiduciary obligations, financial institutions must imbue their operations with values that protect and positively impact society and the environment.

## **Spending**

A staggering [72% of global greenhouse gas emissions are caused by household consumption](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3785931#:~:text=Abstract,goal%20under%20the%20Paris%20Agreement). Thanks to [technological advancements](https://www.financedigest.com/the-tahini-market-to-prove-its-servility-to-technological-advancements.html "The Tahini Market To Prove Its Servility To Technological Advancements"), financial institutions can now reduce the impact consumption has on society. This can include enriching a customer’s transaction details by providing them with information about their carbon footprint, or incentivizing their customers’ behavior to choose more eco-friendly and ethical alternatives. In effect, it turns people’s phones into an everyday climate action tool.

## **Investing**

How we [invest also impacts](https://www.financedigest.com/impact-com-announces-huge-investment-in-workforce-with-raft-of-new-hires-globally.html "impact.com announces huge investment in workforce with raft of new hires globally") broader society. It’s important that financial institutions diversify their portfolios to offer and invest in projects that have a positive triple [bottom line](https://www.financedigest.com/how-high-performers-can-increase-a-bottom-line.html "How high performers can increase a bottom line") – profit, people and planet. After all, [demand creates](https://www.financedigest.com/growth-of-mineral-processing-and-mining-industrie-is-creating-demand-for-rotary-trommel-market.html "Growth Of Mineral Processing And Mining Industrie Is Creating Demand For Rotary Trommel Market") supply. And there’s no shortage in demand. Investors are missing attractive and adequate [ESG investment](https://www.financedigest.com/esg-investing-what-is-the-regulatory-position-in-2022.html "ESG investing – what is the regulatory position in 2022?") opportunities, and 88% of institutional investors believe asset managers should be proactively developing new ESG products, according to research by PWC.

In short, much more investment in a green transition is needed and in demand.

Luckily, ESG assets are growing more quickly than their non-ESG equivalents. With a projected [compound annual growth rate](https://www.financedigest.com/aerospace-bearings-market-to-register-stellar-compound-annual-growth-rate-through-2026.html "Aerospace Bearings Market to Register Stellar Compound Annual Growth Rate Through 2026") (CAGR) of 12.9%, ESG assets will make up over 21.5% of global AUM (and over 50% in Europe) in under five years. Crucially, ESG assets tend to outperform their non-ESG counterparts.

## **Saving**

How we [save money](https://www.financedigest.com/the-top-strategies-for-saving-money-on-energy-costs.html "The Top Strategies for Saving Money on Energy Costs") is equally as important. The money in your bank account doesn’t sit there idly, waiting for you to spend it. Banks actively invest your money – and you usually don’t get a say over what they invest it in.

They could be using your money to fund industries that directly oppose your values, like tobacco, arms, and environmentally harmful practices – like deforestation.

In the five years following the [signing of the Paris Climate Agreement](https://www.financedigest.com/french-unions-unanimously-sign-wage-agreement-with-edf-company-says.html "French unions unanimously sign wage agreement with EDF, company says"), financial institutions made an estimated $1.74 billion in deforestation-adjusted proceeds. [Global Witness estimates the total value](https://www.financedigest.com/global-grass-fed-beef-market-value-is-forecast-to-total-us-17-9-bn-by-2031.html "Global Grass Fed Beef Market value is forecast to total US$ 17.9 Bn by 2031") of deals signed with some of the world’s most harmful deforesters could be worth $157 billion.

Your financial decisions, active and inactive, impact the society we live in. Money is one of the most powerful tools we have at our disposal and provides us with multiple [opportunities to vote on the future](https://www.financedigest.com/title-homeopathic-veterinary-medicines-market-growing-at-a-cagr-of-5-business-and-future-opportunity-2031.html "Title: Homeopathic Veterinary Medicines Market Growing at a CAGR of ~5% | Business and Future Opportunity – 2031") we would like to see, every day.

## **Inclusion**

Worldwide, 1.4 billion people are unbanked and lack access to basic and essential services. Moreover, when you expand the definition of access (usually associated with poverty) to include the financially ‘overlooked’, this figure shoots up.

Because access is a quantified term, devoid of qualitative value; it must be meaningful to the customer, otherwise it’s a gimmick. Millions of people lack meaningful access, and not just in developing countries – there [could be around 9 million financially overlooked people in the UK](https://www.algbra.com/static/3238707753769a460f4c97c92c838b4e/EPA_Lifestyle_Values_Banking_Report_f98913fa53.pdf). Characteristics like race, disability, religion, gender, and sexuality impact an individual’s experience with financial services. Not catering to requirements [around people’s values](https://www.financedigest.com/industrial-flooring-market-is-anticipated-to-expand-at-a-cagr-of-over-4-during-the-forecast-period-of-2020-2030-to-be-valued-around-us-12-4-bn-by-2030.html "Industrial Flooring Market is anticipated to expand at a CAGR of over 4% during the forecast period of 2020-2030, to be valued around US$ 12.4 Bn by 2030"), identities and lifestyles can exacerbate social inequalities.

Even the most basic financial technologies can have huge impacts in increasing financial inclusion, [especially among](https://www.financedigest.com/bone-densitometers-market-to-gain-momentum-owing-to-increasing-cases-of-bone-disorders-especially-among-geriatric-population.html "Bone Densitometers Market To Gain Momentum Owing To Increasing Cases Of Bone Disorders Especially Among Geriatric Population") disproportionately impacted demographics (like women) and developing economies. MPesa, for example, is said to have conservatively lifted 2% of the Kenyan population out of poverty and increased gender equality.

They can also help emerging economies leapfrog their Western counterparts and catalyze major social impacts, by serving as stepping stones to providing access to more traditional and impactful financial services, like loans, which can help people build businesses and get on the property market.

Financial inclusion has been identified as an enabler for 7 of the 17 [Sustainable](https://www.financedigest.com/sustainable-finance-the-wave-of-the-future.html "Sustainable Finance: The Wave of the Future") Development Goals.

While the [fintech revolution](https://www.financedigest.com/the-fintech-digital-revolution-will-continue-in-2022.html "The Fintech Digital Revolution Will Continue in 2022") has made dents in the financial access issue (with 1.2 billion adults worldwide getting access to an account between 2011 and 2017), it still hasn’t reached its potential. Like their brick-and-mortar predecessors, fintechs generally offer standardized solutions for assumed homogeneous populations.

Combining financial technology and AI opens up the ability to greatly improve financial literacy and well-being among customers. It provides them with insightful analytics about their spending and recommendations on how to improve their situation based on personalized data and metrics.

## **The Intersection of the Environment and Society**

Marginalized communities, both within borders and internationally, are the most impacted by the climate crisis despite contributing the least to it. As we [address the climate crisis](https://www.financedigest.com/flying-high-could-drones-help-address-the-delivery-crisis.html "Flying High: Could Drones Help Address the Delivery Crisis? "), it must be done in a manner that enables developing economies to develop simultaneously, a process referred to as a Just Transition. To achieve this, we will need to leapfrog traditional processes of industrialization. That’s why it’s essential for financial institutions to scale and accelerate investment in green projects, such as [infrastructural developments like renewable energies](https://www.financedigest.com/russian-missiles-hit-30-of-ukraines-energy-infrastructure-in-two-days-minister.html "Russian missiles hit 30% of Ukraine’s energy infrastructure in two days – minister") in developing economies.

Not doing so will only exacerbate existing inequalities. Without a green transition, the World Bank believes [climate change](https://www.financedigest.com/u-n-climate-change-report-sounds-code-red-for-humanity.html "U.N. climate change report sounds ‘code red for humanity’") could push 100 million people back into poverty by 2030. That’s only 7 years away. It could [drive 216 million](https://www.financedigest.com/britain-sets-up-125-million-taskforce-to-drive-ai.html "Britain sets up 5 million taskforce to drive AI") people to migrate within their own country by 2050 and create hotspots of internal migration as soon as 2030. Things will only get worse from there. Over 1.3 billion people (mostly in developing countries) are trapped on agricultural land that’s degrading. This increases their vulnerability to slow-onset disasters, like drought, desertification, food insecurity, and famine. This is scary when you consider that 70% of the world’s poorest depend on natural resources for all (or part) of their livelihoods. [Climate change](https://www.financedigest.com/exclusive-hsbc-fund-arm-toughens-thermal-coal-policy-to-curb-climate-change.html "Exclusive-HSBC fund arm toughens thermal coal policy to curb climate change") impacts could cause 600 million more people to face food insecurity and malnutrition as agricultural systems collapse.

As if the human cost wasn’t enough, the monetary impact of climate change is staggering. Global [natural disaster losses in 2022 alone totaled $270 billion](https://www.financedigest.com/bankers-bet-billions-on-new-wave-of-debt-for-nature-deals.html "Bankers bet billions on new wave of debt-for-nature deals"). If financial institutions continue their business-as-usual approach and ignore the implications of their investments, it’ll end up costing the [world’s economy](https://www.financedigest.com/gas-price-surge-just-one-more-headwind-for-world-economy.html "Gas price surge, just one more headwind for world economy") $178 trillion by 2070.

By 2100, global GDP could be 37% lower than it would be without the impact of global warming (when accounting for the effects of climate change on [economic growth)](https://www.financedigest.com/german-economic-growth-to-remain-muted-in-near-term-imf.html "German economic growth to remain muted in near term – IMF").

## **Opportunity**

To make the global green transition, [spending on physical assets would amount to about $275 trillion between 2021 and 2050](https://www.mckinsey.com/capabilities/sustainability/our-insights/the-net-zero-transition-what-it-would-cost-what-it-could-bring). That’s about 7.5% of annual GDP (on average), with the vast majority coming from the private sector.

Investing in a green and equitable society is never money down the drain. A [$1 investment in a green economy returns, on average, $4 in benefits](https://www.un.org/en/climatechange/raising-ambition/climate-finance). So in addition to developing societies, improving the environment and creating jobs, it offers a good return. Put simply; green banking pays back in more ways than one.

Creating a more financially inclusive society could also have a major impact on global GDP. A study by EY showed that increasing financial inclusion can drive economic development, and possibly increase GDP by up to 14% in [emerging markets like India and a staggering 30% in frontier economies](https://www.financedigest.com/global-fuel-injector-cleaner-market-emerging-economies-expected-to-influence-growth-until-2031.html "Global Fuel Injector Cleaner Market: Emerging Economies Expected to Influence Growth until 2031") like Kenya.

Increasing financial literacy will also help empower individuals and communities. It’s a mammoth task with lots of opportunities when you consider only 33% of the global population can be considered financially literate.

## **The structure of financial products and services**

Even the very nature of how a financial institution’s [products](https://www.financedigest.com/open-banking-the-game-changer-in-digital-finance-products.html "Open Banking: The Game-Changer in Digital Finance Products") are structured and sold can have a big impact on the lives of individuals, and consequently, society. For example, opting for fixed [rates as an alternative to interest rates can help individuals plan better and avoid nasty surprises when economic factors outside of their control ramp](https://www.financedigest.com/hungary-ramps-up-rate-hikes-as-war-stokes-inflation-risks.html "Hungary ramps up rate hikes as war stokes inflation risks") up their debt.

Risk/reward sharing on loan products, like mortgages, can also have a big impact. If [banks know they have something to lose by providing loans](https://www.financedigest.com/u-s-european-banks-could-lose-over-5-billion-from-risky-buyout-loans.html "U.S., European banks could lose over  billion from risky buyout loans") to individuals they expect to default on, they would stop, as it would be bad for business. This sort of structuring may have prevented the global 2008 financial [crisis](https://www.financedigest.com/six-ways-to-prepare-for-a-personal-finance-crisis.html "Six ways to prepare for a personal finance crisis"), which was heavily linked to predatory lending that targeted low-income homebuyers.

Ultimately, a lot of this is at the discretion of institutions. They have the possibility to provide fairer, more transparent, and responsible products and services. But only if they’re willing to forego exploitative practices in the hopes of achieving excessive profits at the expense of their customers.

## **Conclusion**

Finance is the engine of society and at the heart of [every individual’s](https://www.financedigest.com/insurance-that-every-individual-needs.html "Insurance that every individual needs…") life experience. A more equitable, empowered, and sustainable society starts by imbuing these values at the root of everything; money.

Financial institutions have a unique position and [opportunity to help address some of the world’s most pressing humanitarian and environmental challenges and to create a better future](https://www.financedigest.com/blood-thawing-systems-market-analysis-growth-opportunities-future-demand-and-leading-players-updates-by-forecast-2030.html "Blood Thawing Systems Market Analysis, Growth Opportunities, Future Demand and Leading Players Updates by Forecast 2030") for all. The ways in which this can be achieved are extensive and go beyond the confines of this article.

And it can all start with you. Go and green your finances and campaign to get others and financial institutions themselves to do the same.


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