ETHICAL FINANCE

Ethical FInance organisations have the objective of achieving a positive impact on the collection and use of money. They invest in new activities such as organic farming, renewable energies, the Third sector (or nonprofit sector), Fair Trade. They respond more and more to the needs of those who are excluded from the banking system, and to the needs of savers and investors who are increasingly interested in the way they use their savings. Thanks to ethical finance institutions, the “banking institution” returns to a path interrupted at the beginning of the twentieth century, and it becomes again an instrument of development for the territory and for new social and environmental initiatives.

Since 1930 the banking business, which originally had a social involvement (pawn broking, Savings Banks, Cooperative or Mutual Banks, etc.), has been losing its original ethical features. This made necessary the birth (through a bottom-up process) of a new generation of social banks, the so-called “ethical banks”. These have the objective of achieving a positive impact on the collection and use of money. They invest in new activities such as organic farming, renewable energies, the Third sector (or nonprofit sector), Fair Trade. They respond more and more to the needs of those who are excluded from the banking system, and to the needs of savers and investors who are increasingly interested in the way they use their savings. Thanks to ethical finance institutions, the “banking institution” returns to a path interrupted at the beginning of the twentieth century, and it becomes again an instrument of development for the territory and for new social and environmental initiatives. This path goes in the opposite direction with respect to the one chosen by commercial banks, increasingly oriented to use the financial leverage just to accumulate  profits. contributing to the financialization of the economy and creating the conditions for a series of financial crises that continue even today to impact the lives of millions of citizens.

The role of an ethical bank is to work for the common good and ensure the right to receive credit through a banking activity consisting in raising funds and reallocating them in the form of credits for cultural, social and environmental projects. Through their activity, ethical banks promote social inclusion, sustainable development, development of social economy and social entrepreneurship. Ethical banks also help raising public awareness on the role of money and the failure of the economy based on short-term approaches and profit as the only objective.

An ethical bank is deeply rooted in the territory in which it operates, and in its socio-economic networks. This allows the bank to have full knowledge of its clients and their funded projects. An ethical bank is always established in a form that allows for a broad participation from its employees and shareholders or members. Beyond the value of participation, transparency is a fundamental value for an ethical bank: transparency in the origin and in the use of money, in credit and business management. Transparency must be ensured especially towards customers.

Ethical finance is based on citizens’ savings, which it turns into solidarity-based and transparent financial products. It allows investors who wish to make their money count to finance companies and organizations with high social and environmental value.
The market offers different forms of solidarity investments: cooperative shares, savings, supportive shareholder, life insurance, etc. In solidarity, all or part of the money invested must fund projects that help build a fairer, more inclusive and sustainable society. Money placed with a social finance organization is not placed in speculative activity but in projects in the real economy that have a direct impact on the society from which it emanates.
Investment tools or solidarity sharing take various forms, depending on the institution: microcredit to individuals, professional microcredit, credit to associations, guarantees, equity investments, etc. Often, ethical finance institutions are also developing, in addition to financing, ancillary activities to the projects in order to give them the greatest chance of success.

The purpose of an ethical bank’s credit activity is to have at the same time a positive impact at a social, environmental and economical level. For this reason an ethical bank channels the collected money to socio-economic activities aimed at social, environmental and cultural profit.
Social finance is thus active in all sectors of civil society and works where there are citizens committed to improving the world in which they live. Thanks to common people’s savings, social finance supports:

• associations and social economy enterprises;
• social entrepreneurship projects seeking to develop an economic activity;
• people or groups of people who were victims of social or professional exclusion or are unbanked;
• international solidarity.

YES! And it works better than mainstream financial institutions: after the 2008 financial crisis, no ethical bank had to be saved with public money. Ethical banks did actually manage to grow thanks to their close links with the territory and their clients.

> READ THE THIRD REPORT ON ETHICAL FINANCE IN EUROPE