Ethical Finance for a Better World

Ethical finance is about making money work for a better world. It's a way to invest and manage finances that aligns with our values and promotes positive social and environmental impact.

Research suggests that 70% of millennials are willing to pay more for sustainable products and services, showing a growing demand for ethical finance options.

Investing in companies that prioritize sustainability can lead to long-term financial growth. For example, a study found that companies with high environmental, social, and governance (ESG) ratings outperformed their peers by 4.8% per year over a 10-year period.

By choosing ethical finance options, we can create a more equitable and sustainable financial system.

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Ethical finance is rapidly gaining traction in the financial sector, with institutions prioritizing moral and social responsibility alongside traditional financial goals.

Ethical banks consistently outperform major conventional banks in profitability, with return on equity (ROE) averaging 5.23% compared to 2.21% for conventional banks.

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The financial crisis and criticism of the government's response inspired calls for reforms to the financial system, highlighting the economic and social costs of reckless financial institutions.

Investors are now driven by social, as well as financial, impact, with a growing demand for fairer finance that benefits both people and the environment.

Sustainable funds have shown that they can outperform traditional investments, filling a void in both public and private spending and having a positive impact on the economy.

Ethical investments have benefited from increased demand from investors to be in control of their finances, with greater awareness of the climate crisis challenging traditional investment portfolios.

New policy frameworks and tax incentives have enabled ethical finance to take off and achieve scale quickly, including the Enterprise Investment Scheme and the Social Investment Tax Relief.

Lower minimum investments have made it easier for a wider section of the population to participate in ethical finance, encouraging those on lower salaries, more women, and other "everyday" investors.

Over the last decade, Ethex has raised over £120M for more than 200 projects through 25,000+ investments, demonstrating the potential of direct ethical investment.

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The next five years for Ethex will focus on onboarding more investors to the platform, with a goal of raising and deploying £200M for impactful projects and organizations.

Community shares have a clear role in increasing the size of the market and retaining local wealth, with a survival rate of above 90% for community-owned businesses.

Islamic finance is a rapidly growing industry that's all about promoting ethical and sustainable financial practices. It's based on Islamic law, or Sharia, which emphasizes fairness, justice, and transparency.

In Islamic finance, banks and financial institutions avoid prohibited activities like interest and uncertainty, and instead focus on profit and loss sharing, risk sharing, and transactions based on tangible assets and real services. This approach has led to significant growth, with the global Islamic finance industry increasing its assets from $2.4 trillion in 2016 to $4.5 trillion in 2022.

The industry is expected to continue growing, with forecasts suggesting it will reach $6.7 trillion by 2027. This growth is driven by the increasing demand for ethical and sustainable financial products and services. Some commercial banks now offer Islamic banking services as a separate section or window, blending conventional and Islamic banking principles.

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Islamic finance is not just about avoiding prohibited activities, but also about promoting financial inclusion. Many Islamic financial institutions have played a significant role in financing development and promoting financial inclusion, particularly in Muslim-majority countries. This approach has helped to bring financial services to those who need it most.

Here are some key principles of Islamic finance:

Technology is also playing a key role in Islamic finance, enhancing transparency and accountability in financial transactions and facilitating the development of Islamic financial products and services.

Financial inclusion is not just about having access to financial services, but about having services that cater to one's needs. Many people, especially those in faith-based communities like Muslims, are underbanked or unbanked due to a lack of tailored solutions.

The Algbra team recognizes this issue and is dedicated to providing customized financial solutions to these communities. Islamic financial institutions have played a significant role in promoting financial inclusion, particularly in Muslim-majority countries.

These institutions marry easily with the principles of ESG finance, which prioritize environmental, social, and governance considerations. By building financial systems that are truly ethical and inclusive, we can create hyper-personalized solutions for everyone.

The distinction between having access to financial services and having meaningful access is crucial. Just because someone has a bank account, it doesn't mean it works for them, especially if they have a disability.

Algbra's partnership with Standard Chartered has created a sustainable savings platform called Shoal, which allows deposits to support causes that align with personal values or broader societal interests.

Shoal offers fixed-term savings with a strong rate of return, and the money sits with Standard Chartered while referenced against their sustainable finance portfolio, which includes initiatives like renewable energy and clean water production.

This partnership is a significant step towards promoting ethical and sustainable finance, and it has the potential to grow and expand into a fuller service financial services marketplace with sustainability at its core.

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The growth of the Islamic finance industry, driven by increased bond issuance and a recovery in financial markets, highlights its potential role in promoting ethical and sustainable finance, and Algbra is well-positioned to capitalize on this trend.

Algbra's tech and experience allow them to customize savings portfolios to depositors' preferences, including funding sustainable or religious initiatives.

Ethical banks consistently outperformed significant banks in terms of profitability, with a return on equity (ROE) of 5.23% compared to 2.21% for significant banks.

These banks prioritize traditional banking activities, such as credit, which accounts for 65.4% of their assets in 2021.

They also maintain strong capitalization, with a net equity to total liabilities ratio averaging 8.2%.

In contrast, significant banks rely more on financial activities and have a higher liquidity risk, with a loan-to-deposit ratio (LDR) of 102.5% compared to 81.5% for ethical banks.

The pandemic affected both groups in 2020, but they both recovered in 2021, highlighting the resilience of ethical banking.

Algbra's partnership with Standard Chartered creates a bright roadmap for the future of savings accounts, allowing for customization to depositors' preferences.

This partnership also highlights the potential role of Islamic finance in promoting ethical and sustainable finance.

By focusing on traditional banking activities, ethical banks can provide a stable and secure option for customers, as seen in their consistent performance over the past decade.

Merkur is a bank that targets agricultural emissions, which represent 84% of financed emissions. This focus is a significant step towards reducing the environmental impact of the bank's investments.

The bank engages with customers to develop climate action plans, promoting sustainable practices and encouraging them to adopt plant-based production over livestock farming. This collaborative approach helps customers make more eco-friendly choices.

By targeting agricultural emissions, Merkur is addressing a major contributor to greenhouse gas emissions, which is a crucial step towards a more sustainable future.

Sustainable finance is all about making money work for the planet. It's a growing trend that's gaining momentum globally.

According to a report, sustainable finance assets reached $30.7 trillion in 2020, up from $22.9 trillion in 2018. This shows that more and more people are taking action to make their investments and financial decisions environmentally friendly.

Investors are increasingly looking for ways to align their portfolios with their values, and sustainable finance offers a way to do just that.

Renewable energy is a game-changer in the sustainable finance space, with Ethex's platform leading the way. Over 90 renewable projects have raised more than £80M through the platform, saving a whopping 919,000 tonnes of CO2.

These projects have also produced 143 MW of clean energy, which can power the equivalent of 50,910 homes. This is a significant contribution to reducing our carbon footprint.

In Oxfordshire alone, over 2000 investors have raised £9.6M to support green energy projects. This is a testament to the power of collective action in driving positive change.

Umweltbank is a bank that takes a strong stance on ethics in finance. They exclude financing and investments in weapons, making a clear commitment to peace.

This decision is not taken lightly, as they also condemn Russian aggression in Ukraine, aligning themselves with other German religious banks that have made similar appeals.

Banca Etica, another example of a bank prioritizing ethics, rejects investments in weapons and promotes a more responsible approach to finance. They also engage in peace initiatives, including efforts to divest from companies that don't meet their standards.

European Ethical Banks are making a significant impact in the financial sector. They prioritize traditional banking activities, focusing on credit and lending to their customers.

These banks consistently outperform significant banks in terms of profitability, with an average Return on Equity (ROE) of 5.23% compared to 2.21% for significant banks. They also maintain strong capitalisation, with an average net equity to total liabilities ratio of 8.2%.

One key aspect of European Ethical Banks is their reliance on customer deposits, which account for 79.3% of their total liabilities. This is in contrast to significant banks, which rely on various sources of liquidity.

Here are some notable characteristics of European Ethical Banks:

These banks are also committed to social and environmental responsibility, with some notable examples including:

Major banks claim to be "sustainable", but they've funnelled $5.5 trillion to fossil fuels in the last 7 years. This highlights the need for stronger regulations to prevent greenwashing.

The EU's progress on climate change is good, but insufficient. To spur law changes, a focus on 'net zero' could be key.

A strong framework is vital to prevent greenwashing, aligning 'net zero' actions with claims. Ethical finance is more transparent, with precise emissions accounting and offsets.

Inequality plagues our social fabric, reflected in wealth disparities and limited access to financial services for vulnerable populations. The EU has objectives to address these issues.

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Introducing a 'social supporting factor' could boost the growth of the social economy sector, microfinance, and financial inclusion. This doesn't impose costs on states, considering the challenges associated with public debt.

Transparency is a defining feature of ethical banks, permeating all aspects from loans to holdings. Major financial groups exploit tax evasion and tax havens, fuelling injustice and inequality.

Country-by-country reporting has made progress, but limitations persist, especially public access to corporate data. Regulations fall short against opacity, and financial entities use conduit jurisdictions to evade taxes.

The community shares market has grown significantly, now worth more than £210M. This is a testament to the growing interest in ethical investing and community ownership.

These community shares provide patient capital for businesses and democratic ownership for investors. This allows unlisted businesses to raise finance from the public without going through a costly regulatory process.

Power to Change, an independent foundation, has played a crucial role in increasing the visibility of community business and co-operative societies. Its presence reassured investors that community shares are a credible financial product.

Over 200 projects have raised more than £120M via Ethex, a platform that supports community shares. This has enabled initiatives that take climate action, build stronger communities, and create a fairer society across the UK.

Ethex has facilitated over 25,000 investments in the last decade. This demonstrates the potential of community shares to drive positive change and support local economies.

The financial industry is facing a crisis of trust, with 71% of investors citing a lack of transparency as a major concern.

This lack of transparency is partly due to the complexity of financial products, which can be difficult for even experts to understand.

The ESG (Environmental, Social, and Governance) movement is gaining traction, with 85% of investors considering ESG factors in their investment decisions.

However, the ESG movement also presents challenges, such as the lack of standardized reporting and the risk of greenwashing.

Investors are increasingly seeking out impact investing, which aims to generate both financial returns and positive social or environmental impact.

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In fact, impact investing has grown from $120 billion in 2014 to $1.09 trillion in 2020.

The COVID-19 pandemic has accelerated the shift towards digital finance, with online banking and mobile payments becoming increasingly popular.

However, this shift also raises concerns about financial inclusion and access to banking services for marginalized communities.

Ultimately, the future of finance will depend on our ability to balance competing priorities and create a system that is both profitable and responsible.

The financial landscape is indeed contradictory, often favoring large players over unique approaches like ethical finance.

Lack of clear net zero rules lets banks make empty claims.

Social economy firms and job creators face heavier regulations than speculative market players.

Tax havens unfairly benefit exploiters.

European ethical finance has demonstrated strengths in multiple aspects, warranting acknowledgment.

Encouraging its development should be a priority for regulators, avoiding hindrances.