Potential For Banks To Create Environmentally and Socially Conscious Business Practices
In general all banks play an intermediary role in the economy; because of this the possibility for banks to contribute to sustainable development is potentially profound. Jeucken 2002 Banks have extensive and efficient credit approval systems, which gives them a comparative advantage in knowledge (regarding sector-specific information, legislation and market developments).Jeucken & Bouma 1999 Banks are well seasoned and well equipped to weigh risks and attach a price to these risks; because of this banks can fulfill an important role in reducing the information asymmetry between market parties, for example between the business and consumers. This is important not just to consumers but also to depositors. When depositors allow a bank to invest for them they are able to assume that the bank will know which investments will maximize their returns. Conventional banks are legally bound to maximize return for their clients. If clients are concerned with more than simple return (i.e. the costs of the return on other areas such as society and the environment) then they may need to turn to an ethical bank to find ways in which they can garner return while keeping to their own moral concerns.
Some businesses externalize costs onto the environment and society. An example of this would be water pollution. A wood mill, for example, could dump its waste into a local river instead of paying to dispose of it properly. This cost is then put onto to the public who uses this water; the costs could come in the form of poor health or as a cost to the local water treatment plant. In order to create more equitable distribution of costs amongst consumers, the environment, and businesses, banks can raise interest rates or apply tariffs on loans given to clients with high environmental risks. This tariff differentiation by banks will stimulate the internalization of environmental costs in market prices.Jeucken & Bouma 1999 Meaning that companies would pay more if their business caused extensive environmental damage; taking some of the cost off of society as a whole and putting it on the company. Through such price differentiation, banks have the potential to foster sustainability.Jeucken & Bouma 1999 This potential would be determined by the extent to which all banks worked in unison to create similar regulations that would result in the loss of access loans that treat the environment and/or society as an externality.
Through their intermediary role, banks may be able to support progress toward sustainability by society as a whole—for example, by adopting a ‘carrot-and-stick’ approach, where environmental and social front-runners would pay less interest than the market price for borrowing capital, while environmental laggards would pay a much higher interest rate.Jeucken & Bouma 1999 Banks can also develop more sustainable products, such as environmental, social, or ethical investment funds. In addition, there is great scope for banks to improve their internal environmental performance.Jeucken & Bouma 1999 In creating environmental and social screens, banks can promote socially/environmentally geared companies and penalize those who do not conform to these standards. However it is important that these different possibilities (i.e. social/environmental screens, ethical products, and internal environmental practices) be used as a package. If not, there is a danger that banks could simply do the things that make them look the most ethical (i.e. advertise their recycling program) while not changing other areas that would have a larger impact. If the changes are solely driven by customers, the bank will be pressured to offer preferential treatment to what depositors deem as desirable, but will have limited ability to punish undesirable action. Governmental regulation, initiated by an informed and involved public would be an effective way to ensure that all banks follow socially accepted morals and ethics.
Read more about this topic: Ethical Banking
Famous quotes containing the words potential for, potential, banks, create, socially, conscious, business and/or practices:
“The traditional American husband and father had the responsibilities—and the privileges—of playing the role of primary provider. Sharing that role is not easy. To yield exclusive access to the role is to surrender some of the potential for fulfilling the hero fantasy—a fantasy that appeals to us all. The loss is far from trivial.”
—Faye J. Crosby (20th century)
“And what is the potential man, after all? Is he not the sum of all that is human? Divine, in other words?”
—Henry Miller (1891–1980)
“Civilization is a stream with banks. The stream is sometimes filled with blood from people killing, stealing, shouting and doing the things historians usually record, while on the banks, unnoticed, people build homes, make love, raise children, sing songs, write poetry and even whittle statues. The story of civilization is the story of what happened on the banks. Historians are pessimists because they ignore the banks for the river.”
—Will Durant (1885–1981)
“... the mass migrations now habitual in our nation are disastrous to the family and to the formation of individual character. It is impossible to create a stable society if something like a third of our people are constantly moving about. We cannot grow fine human beings, any more than we can grow fine trees, if they are constantly torn up by the roots and transplanted ...”
—Agnes E. Meyer (1887–1970)
“What I wanted was to create thoughtful citizens—people who believed they could live interesting lives and be productive and socially useful. So I tried to create a community of children and adults where the adults shared and respected the children’s lives.”
—Deborah Meier (b. 1931)
“One of the proud joys of the man of letters—if that man of letters is an artist—is to feel within himself the power to immortalize at will anything he chooses to immortalize. Insignificant though he may be, he is conscious of possessing a creative divinity. God creates lives; the man of imagination creates fictional lives which may make a profound and as it were more living impression on the world’s memory.”
—Edmond De Goncourt (1822–1896)
“The sun was shining on the sea,
Shining with all his might:
He did his very best to make
The billows smooth and bright—
And this was odd, because it was
The middle of the night.
The moon was shining sulkily,
Because she thought the sun
Had got no business to be there
After the day was done—
“It’s very rude of him,” she said,
“To come and spoil the fun!””
—Lewis Carroll [Charles Lutwidge Dodgson] (1832–1898)
“They that have grown old in a single state are generally found to be morose, fretful and captious; tenacious of their own practices and maxims; soon offended by contradiction or negligence; and impatient of any association but with those that will watch their nod, and submit themselves to unlimited authority.”
—Samuel Johnson (1709–1784)