The world depends on global finance that works towards a fairer financial system for people, environment and culture, with a focus on sustainability, climate change and social justice. This month of July Fintech time we have emphasized ethical finance/ethical banking, including environmentally and socially responsible practices.

As we come to the end of July on Ethical Banking and Sustainable Finance, it seems only fitting to uncover the top industry concerns for the future of the sector.

Although ethical banking presents a huge business opportunity for banks, there are a few hurdles that the financial industry as a whole must overcome for ethical banking to be effective.

Education and transparency

Anna Krotova, who directs the execution of Mambu’s sustainability and ESG strategy, says: “While there is a higher global demand for green banking products and an ethical banking philosophy in general, there is still a lack of consumer understanding of all that green banking includes. If banks want to facilitate the transition to ethical banking and take advantage of the opportunities it can potentially provide, they must be willing to invest in consumer education.

“Furthermore, greenwashing remains a major concern, with high levels of mistrust among consumers. Banks and financial institutions need to reassess how they communicate their sustainability practices to their customers and ensure they are clear and honest about their progress.

“The EU Sustainable Finance Disclosure and the EU Taxonomy are key pieces of legislation which, in principle, should guarantee consumers and other stakeholders greater transparency of the ethical practices of banks. We must now watch closely and hold the financial sector accountable for any shortcomings and adapt to tougher legislative measures, if necessary. »

Better data

Bertrand GaconCEO and co-founder of Impaakta fintech company that uses a collaborative approach to measuring business impact on the world, makes it simple.

He gives three main concerns.

  • Lack of standardized and reliable impact data
  • The correlation between financial performance and impact performance is not yet established
  • Regulations are changing rapidly but not always in the most appropriate direction
Regulatory awareness and culture change

There are several challenges that need to be overcome for banks to adapt to this shift in industry, says Jay Nair, SVP, Head of Industry, Financial Services and Public Sector at Infosys.

“First, new regulations are continually emerging, impacting both traditional and ethical banks. Keeping up with regulators is certainly a big challenge for banks operating in this space. Data will undoubtedly play an important role in helping banks stay compliant, but many businesses face challenges with data.

“For example, new types of data will need to be defined, captured, processed and reported.
In addition, banks will need to invest in staff training and development. There is a need to move away from seeing ethical banking as a ticked box and ensure that staff are trained and can actually demonstrate this commitment through their daily conduct.

“This requires special attention to culture transformation. To that end, greenwashing has emerged as another major challenge for banks and their customers to overcome, often leading companies to want to opportunistically take advantage of ethical banking as a trend.

“Finally, banks face the challenge of achieving industry coordination. Many issues span entire supply chains and cross the banking ecosystem, such as rating agencies, investment funds, etc. It is imperative to develop common standards, operating models and shared infrastructure.


Reporting standards

Despite the growing demand for ethical banking and sustainable products, the sector faces many challenges, such as disparity in reporting, according to Krzysztof Grzeszczuksenior innovation consultant at Netguru.

“Apart from transformation costs, there is currently no common standard for ESG reporting, which sometimes makes it difficult to validate a company’s impact on its stakeholders,” he says.

“However, this should not be an excuse for companies not to focus on their purpose and sustainability. Ultimately, investors, banks and customers will redirect their money to those who know how to run their business responsibly. »

Responsible lending

Finally, the industry must make responsible lending decisions.

“Ensuring customers are aware of their level of affordability is even more important during this current cost of living crisis,” advises James Wilkinson, co-founder of the automotive financing marketplace Zuto. “The industry must also go beyond finance and address the impact we have on people and the planet.