top of page

ethical finance

The financial community has a pivotal role to play in addressing global social, environmental and governance challenges.

Financial institutions are critical to the adoption of more responsible business practices, in their own internal operations and in applying similar practices in their investments and services to their clients. This statement describes the multiple facets of ethical finance, the principle actors involved and the drive to engage financial institutions and corporations in more responsible practices through a combination of socially responsible investment, sustainability reporting, pressures from international institutions and microcredit operations.


ETHICAL FINANCE Compiled by Irene Tosti and George Starcher “Be generous in prosperity, and thankful in adversity. Be worthy of the trust of thy neighbor, and look upon him with a bright and friendly face. Be a treasure to the poor, a admonisher to the rich, an answerer to the cry of the needy, a preserver of the sanctity of thy pledge. Be fair in thy judgment, and guarded in thy speech. Be unjust to no man, and show all meekness to all men. Be as a lamp unto them that walk in darkness, a joy to the sorrowful, a sea for the thirst, a haven for the distressed, an upholder and defender of the victim of oppression. Let integrity and uprightness distinguisheth all thine acts…” Baha’i Writings “The current financial turbulence is systemic in nature. It is a symptom of steadily increasing pressure that is undermining the material, social, and intellectual aspects and ethics of the liberal socio-economic system. … More emphasis will deflect the market economy from its principle vocation, that of promoting the dignity and well-being of humankind.” Observatoire de la Finance, A Manifesto “For finance that serves the common good” In this knowledge centre we provide information on eight areas of ethical finance:

  • Introduction

  • Ethical Finance: Some Definitions

  • Major Investors in Ethical Finance

  • Significant Ethical Finance Initiatives

  • Solidarity and Community Based Finance

  • Environment and Energy Focused Finance

  • Faith Inspired Finance

  • In Conclusion

  • Bibliography, Downloads and Links

  • A Manifesto of the Observatoire de la Finance

We would be glad to start a conversation, receive your comments, suggestions and questions: Click for a conversation with the authors of this knowledge centre and others interested in this topic. You can view below a selection of ebbf publications – click here to view more 1. Introduction For many, the expression “ethical finance” is an oxymoron. The media have had a great deal to say about corporate misconduct (Enron, Tyco, World Com, Ahold, ABB, Parmalat); about recent financial scandals: ponzi schemes (Bernard Madoff is serving a 150 year jail sentence for the largest investor fraud ever committed); about weak corporate governance; and about exorbitant bonuses paid to executives and traders in financial institutions. One might ask, “Are there really any ethics in finance?” In part the answer lies hidden in the complexity of the world of finance – a vast subject made even more complex by such forces as globalization, consolidation, deregulation, disintermediation1 and diversification. Historians may well determine that the turning point from traditional banking to disintermediation and innovative finance may have occurred in 1971 with the end of the dollar’s convertibility into gold. In the following years corporations expanded their businesses internationally and looked for new ways of funding, including the issuance of bonds sold on the capital markets to individuals and institutional investors. With disintermediation banks have transferred some of their traditional risks – such as credit and market risks – to other economic agents and have engaged in a fierce competition for the development of innovative products that generate new sources of non-interest income to offset the declining intermediation margin from traditional lending activities. Ordinary investors may well feel lost in the labyrinth of financial institutions: commercial banks, investment banks, asset management firms, hedge funds, mutual funds, savings banks, insurance companies, to name a few. Other elements of complexity exist in the customers (private, corporate, public entities) in the markets (money, stock exchange, commodity, debt, derivative, foreign exchange), in the instruments (equity, bonds, derivatives), as well as in the services rendered (insurance, underwriting, leasing). These and other ways to segment financial markets illustrate the complexity of the arcane world of finance. According to the McKinsey Global Institute 3rd Annual Report, the world’s financial assets were about $140 trillion at the end of 2005 and this was then expected to exceed $228 trillion by 2010. Out of this labyrinth have emerged two very different trends among financial institutions. One is the search for ever-increasing size, diversification, and especially profitability – characterized by an increasing focus on immediate or short term profits, egregious levels of executive compensation, blind acceptance of higher risks, and a parallel erosion in trust and confidence in the institutions, in the products and services, and in the individuals involved. The other trend, and an encouraging one, shows that finance is on its way to re-discover its instrumental function in support of the economy with an increasing consideration of environmental, social and governance issues in investment decisions and services being offered. These values-based decision criteria, services and institutions are the subject of this knowledge center. For the past twenty years, the European Baha’i Business Forum (EBBF) has been offering publications and conferences on the very values that are essential to building confidence and trust in the firms and financial systems. Among these core values of EBBF which are very relevant to finance are ethical business practices, corporate responsibility, sustainability, values based leadership, gender balance, and consultative decision-making. In addition to these values, several EBBF publications address the fundamental question, “What is the purpose of the enterprise?” A new “work ethic” based on a spirit of service to humanity, is essential. To quote from one of these EBBF publications, “The ideology of purpose that will dominate the future is one that finds acceptance and participation by society at large, unleashes human potential, draws individuals and organizations towards ethical behavior, and makes it possible for every human being to make a difference. Only the purpose of ‘serving the real needs of humanity’ is likely to meet these requirements.” (Purpose beyond Profit, by Marjo Lips-Wiersma, EBBF, 2008, p.26) This same question needs to be addressed by and for financial institutions. The financial crisis of 2008-2009 has seen a pervasive collapse of trust. Banks no longer trust other lenders. Investors no longer trust banks. Lenders no longer trust borrowers. At the same time a large number of what may be termed “ethical finance” initiatives have grown. It is this field of activity which is addressed in this knowledge center. 2. Ethical Finance: Some Definitions “Commerce is as a heaven, whose sun is trustworthiness and whose moon is truthfulness. The most precious of all things … is trustworthiness.” Baha’i Writings “…without commonly shared and widely entrenched moral values and obligations, neither the law, nor democratic government, nor even the market economy will function properly.” Václav Havel, Politics, Morality & Civility, 1991 “Don’t judge each day by the harvest you reap, but by the seeds you plant.” Robert Louis Stevenson Ethical finance is a difficult term to define. A very restrictive way to describe it would be as an “umbrella concept” for a philosophy of investing based on a combination of financial, social, environmental and sustainability criteria. Eurosif ( defines this philosophy with the term of Sustainable and Responsible Investment (SRI): “This is a concept that continues to evolve. Nevertheless, the constant within this area is that sustainable and responsible investors are concerned with long-term investment; and environmental, social and governance (ESG) issues are important criteria to determining long-term investment performance.” (2) Eurosif estimated that total SRI assets under management in Europe were €2.7 trillion in 2007, or 17.5% of total assets under management. There are three main categories of Sustainable and Responsible Investment as follows: Responsible Investment (RI) applies mainly to institutional investors. This is an area developing particularly among institutional investors and remains most connected to the mainstream financial community. Responsible investors take into considerations the long-term influence of extra-financial factors such as environmental, social and governance (ESG) issues in their investment decision-making. They integrate ESG factors into their stock portfolio analysis and management, bringing together social and sustainability indicators with traditional financial analysis. Socially Responsible Investment (SRI) applies to individuals who entrust their money to collective funds. The element of social responsibility tends to focus on human-related aspects. This is an important area for the retail financial sector and may incorporate ESG issues as well as criteria more closely linked to values-based approach. For example, it can involve the application of pre-determined social or environmental values to investment selection. Investors choose to exclude or select particular companies or sectors because of their impact on the environment or stakeholders. Sustainable Investment (SI) applies to individuals with higher investment potential. The concept of sustainability tends to focus on the environment. This is a growing area where investors align their investments with emerging environmental and social realities. This area brings together those in the financial sector committed to the sustainability imperative along with those interested by the investment opportunities that the ongoing shift in regulations and market practices are creating. A good example of this would be High Net Worth Individuals (HNWIs) choosing to invest in thematic funds (clean energy, water, etc.) because of their financial and sustainable returns prospects. However, the world of finance is immense and is made up of other large blocks of services including, for example, commercial banking, pensions, insurance, hedge funds, and mutual funds. Are services such as deposits, loans, checking accounts, and credit cards not also “ethical” inasmuch as they serve and meet real needs of customers? Similarly should we not consider other financial institutions and services to be ‘ethical finance’, such as mortgage lending, charities, microfinance for the poorest of the poor, the 800,000 cooperative banks in the world, social lending, life and health insurance, and pension funds, as ethical financial services? They too strive to serve and meet the real needs of customers at reasonable charges. At the same time, the tremendous increase in proprietary trading on the part of investment houses, hedge funds, and others is anything but “ethical”. They are sources of great profit and personal wealth for traders and firms that are active in it. Yet these activities serve little if any socially useful purpose or function. The do not contribute to the betterment of society or the world, and are part of a widening gap between the wealthy and the poor. Let’s look first at the relative significance of some of the institutions which are sources of ethical finance, both as investors and as service providers. Approximately 50% of conventional investment management assets were domestically sourced (wherever managed) in the United States, followed by 9% UK, 6% Japan, and 6% France. 3. Major Investors in Ethical Finance Central to the task of reconceptualizing the system of human relationships is the process that Baha’u’llah refers to as consultation. “In all things it is necessary to consult, … the maturity of the gift of understanding is made manifest through consultation. No power can exist except through unity. No welfare and no well-being can be attained except through consultation.” “The happiness of mankind will be realized when women and men coordinate and advance equally, for each is the complement and helpmeet of the other. … The world of humanity has two wings – one is women and the other men. Not until both wings are equally developed can the bird fly. Should one wing remain weak, flight is impossible. Not until the world of women becomes equal to the world of men in the acquisition of virtues and perfections, can success and prosperity be attained as they ought to be.” Baha’i Writings This chapter summarizes the main categories of investors, which include banks and institutional investors, financial and insurance entities, private equity funds, high new worth individuals, institutional donors, private equity funds, responsible offshore financial centres, community development financial institutions, and business angels. 3.1 BANKS AND FINANCIAL INSTITUTIONS This diverse world of finance and banking is in mutation as banks continually diversify, merge, acquire and disinvest. This chapter summarizes the main categories of banks, a rich variety of financial institutions, investors and asset managers. Banks range from small savings banks to large diversified financial conglomerates which many only recently discovered may be “too big to let fail”. The top 1,000 banks total assets are said to be nearly $75 trillion. (3) There is presently a great deal of debate following the severe economic crisis about the eventual need to restructure the huge diversified banks. European Union authorities and in particular Ms. Neelie Kroes, the EU competition commissioner, have already acted to force the large ING Bank to sell its insurance business and its US direct savings operation. Arguments for moving toward more “narrow banking,” either by breaking up financial conglomerates or by creating fire walls between the various banking activities, seem compelling. In addition to the EU authorities, a number of central bankers , including Mervyn King of the Bank of England, Paul Volcker, and Alan Greenspan, and even John Reed, an architect of Citibank, support the need to break up the banks that are “too big to fail.” Their proposals as well as those of Financial Times columnists John Kay and John Gapper (4) are to split these large conglomerate banks into two pieces: retail banks on the one hand, and investment or corporate banks on the other hand. They also propose to eventually halt pure proprietary trading as well as to divest their asset management arms, mutual and hedge funds, and private equity. The following paragraphs explore the particularity of these diverse financial businesses. Retail banking is, according to many, similar to a utility in that they provide an essential service which is to simply gather deposits and use them to lend to individuals and small and medium size enterprises. By definition retail banks provide socially useful services to the public. In the event of separation of retail and investment banking activities, retail deposits would no longer be used to finance higher risk activities. They should be regulated and bailed out if necessary. Some retail banks have been termed “ethical banks” because of their socially responsible investments and activities. Two examples include the Yes Bank in India5 and the Triodos Bank6 in the Netherlands. The Global Alliance for Banking on Values ( is a recent independent network of banks using finance to deliver sustainable development for un(der)served people, communities and the environment.The partnership will develop new ways of working, build organizations better suited to long-term sustainable thinking, and new forms of ownership and economic cooperation. The founding members of the Alliance range from ShoreBank Corporation, the first community development and environmental bank holding company in the U.S., based in Chicago; BRAC Bank – part of the BRAC Group, the world’s largest microfinance institution; and Triodos Bank, Europe’s leading sustainable bank and this year’s winner of the Financial Times Sustainable Bank of the Year Award. Members are all banks whose central mission is investment in a society that values human development, social cohesion and responsibility for our natural environment. Their assets are over $10 billion and they serve over seven million customers in 20 countries Their activities include supporting the expansion of sustainable finance products and services, partnering selectively with key organisations, and advocacy and targeted research to materially influence the mainstream financial system. Their core values include using money as a tool for enhancing the quality of life through human, social, cultural and environmental development, responsibility for the long term impact of its efforts on interdependent environment and communities, and transparency, trust, clarity, and inclusiveness in delivering our products and services. Corporate banking offers advisory, capital-raising and underwriting services to large companies and investors. If separated from retail banking, they would fund themselves independently without the backstop of a retail balance sheet to finance high risk activities. This would require for example spinning off the investment banking activities of such banks as Barclays Capital, UBS, Deutsche Bank and JPMorganChase. If they failed, they would not be bailed out. They would also have to reduce greatly the huge amount of embedded leverage in the investment banking activities of European banks. Asset management activities such as proprietary trading, management of mutual and hedge funds and private equity would be carried out by separate independent institutions. This would considerably reduce the risk profile of investment banks by removing proprietary trading. Some have challenged the ethics or morality of high risk proprietary trading and such practices as “high-octane computerized trading”, on the grounds that they lack any social usefulness or contribution, they incur high risks, offer high potential profits, are accompanied by egregious compensation and benefits of traders, and develop infectious short-term mentalities. Insurance is a huge business, with total global assets estimated to be abut $19 trillion. This activity would also be separated from retail or corporate banking, as the EU insisted upon in carving up the ING bank. The “bankassurance” business model, with banking and insurance activities managed under the same roof, quite common in France, is being questioned elsewhere as well. The application of Environmental, Social, and Governance (ESG) criteria to investments is of enormous importance to society. This subject of ESG is developed further in a later section. The design and marketing of insurance policies that meet the real needs of various customer groups is also an issue in developing more responsible practices. Pension funds are, like insurance, a huge business, with global assets estimated at around $24 trillion. Their size merits some attention. Of overwhelming importance is their contribution through the socially and environmentally responsible investment of these enormous assets with a long term focus. 3.2 INSTITUTIONAL INVESTORS SOVEREIGNS: GOVERNMENTS THAT ACCOUNT FOR SOVEREIGN INTERNATIONAL DEBT ISSUANCE. Sovereign Wealth Funds SWFs: are state-owned investment funds. They were estimated to be $3.3 trillion in 2007. According to Yoichi Funabashi in his recent article in “Foreign Affairs”, the collective value of SWFs is predicted to be USD 12 trillion by 2015. They have heavily invested in infrastructure, corporate and financial assets and, during the financial crisis, have taken over large chunks of distressed / collapsed global banking operations, very often according to rescue plans formally submitted by Western Treasuries. SWFs are supposed to be as many as forty, with the largest in Abu Dhabi, Norway and Singapore. Sovereign Wealth Fund of Abu Dhabi: Abu Dhabi Investment Authority Sovereign Wealth Fund of Norway: Norwegian Government Pension Fund-Global Sovereign Wealth Funds of Singapore: GIC and Temasek Holding and Sub-nationals: Governmental agencies, municipal and other public finance entities. Supra-nationals: institutions established and controlled by sovereign government shareholders and include some of the largest issuers in international capital markets, such as, as an example: ADB Asian Development Bank: was established in 1966 and follows three complimentary agendas: inclusive growth, environmentally sustainable growth, and regional integration. In April 2009 the Board of Governors agreed to triple ADB capital base from USD 55 billion to USD 165 billion (is this figure really important?!) to better respond to the economic crisis and to the longer-term development needs of Asia and the Pacific Region ( EBRD European Bank for Reconstruction and Development: was created in 1991 to assist the transition of former communist nations to market economies. It operates in countries in central and eastern Europe and central Asia. The areas of intervention include energy efficiency and climate change, as well as environmental infrastructure, and micro / small / medium businesses ( IFC International Finance Corporation: was established in 1956 as an entity of the World Bank group. It lends money to the private sector in the developing world and has recently updated its ‘Performance Standards’ in the area of social and environmental sustainability ( 3.3 Private Equity Funds A private equity fund is a pooled investment vehicle used for making investments in various equity (and to a lesser extent debt) securities. Private equity funds are typically limited partnerships with a fixed term of 10 years and at inception, institutional investors make an unfunded commitment to the limited partnership, which is then drawn over the term of the fund. A private equity fund is raised and managed by investment professionals of a specific private equity firm (the general partner and investment advisor). Typically, a single private equity firm will manage a series of distinct private equity funds and will attempt to raise a new fund every 3 to 5 years as the previous fund is fully invested ( According to some professionls, the industry is poised for a significant contraction. Analysts at JPMorgan estimate that the number of firms will shrink by 30%; others estimate the figurer closer to 70%. (The Economist, 31 October 2009, p.84) Private equity often is confused with hedge funds. But the two forms of investment differ in important ways. Private equity funds invest in companies with the intent of owning and operating them for several years or more. The goal is to grow them and turn them around, or otherwise strengthen their performance. Private equity firms typically create value by improving the operations, governance, capital structure, and strategic position of the companies in which they invest. In contrast, hedge funds are a loosely defined category of investment pools that, like a retail mutual fund, principally invest in publicly traded securities, currencies or commodities. While most mutual funds typically own “long” positions in securities, (that is, they own the security with the hope it will rise in value), a hedge fund may take “short” positions (betting that a company’s stock price will fall), and engage in many more complex trading strategies, including futures trading, swaps and derivative contracts. 3.4 Hedge Funds Hedge funds offer an alternative approach to investments. It is estimated that the total hedge fund industry is about $1.3 trillion, following a decline of nearly 30% in 2008. They can seem relatively complex and are therefore not always well understood. Hedge funds generally can be classified according to the following criteria: 1. They usually emphasize absolute returns. 2. Hedge funds use a wide variety of tools and strategies including leverage, derivatives and short-selling. 3. Hedge funds have traditionally only been available to wealthy individuals and certain institutions. Some hedge funds and funds of hedge funds are emerging which include responsible investment criteria. The ever-increasing focus on social and environmental causes is attracting a segment of the hedge fund industry to a movement that is considered by some to be the ultimate test of socially conscious investing. The exact size of the socially conscious movement within the $1.3 trillion (hedge fund) industry is difficult to gauge. But according to some estimates, there are at least three dozen individual hedge funds already applying environmental and social screens to the investment process. These types of hedge funds offer SRI investors the opportunity to do well by investing in companies that have positive financials and strong environmental/social performance. “The idea is to marry the ecology with the economics, and we’re seeing more and more people looking at this space,” said Braxton Glasgow, executive vice president of Kenmar Global Investment Management LLC in Rye Brook, N.Y. Kenmar, which already manages multiple funds of hedge funds and has $3.6 billion under management, will launch a fund of funds comprising socially conscious and eco-friendly underlying hedge funds. The strategy, which will allocate assets to about 30 hedge funds, is targeting the growing appetite of institutional investors that have mandates requiring them to consider environmental and other social causes, Mr. Glasgow said. “To put socially responsible investing strategies inside a hedge fund is the highest-octane socially responsible investment out there,” said John DeSantis, president of Civic Capital Group LLC, a Boston-based firm that has managed a socially conscious hedge fund for four years. “For those true believers, such investing is the ultimate opportunity.” In his socially conscious long-short Civic Capital Fund, Mr. DeSantis begins by identifying social and environmental issues, and then finds companies that are making progress at addressing them. “All of my examples start with a problem in society,” he said. (see: Even as some investors and hedge fund managers acknowledge the perception that social and environmental screens can place a drag on performance, the investor appetite for such strategies is growing, according to Bill Mills, managing partner at Highland Associates Inc. in Birmingham, AL, USA. ( Responding to investor demand, Highland in September is converting its three-year-old Good Steward Fund, a fund of hedge funds allocated in accordance with traditional Catholic values, into a portfolio that will include socially and environmentally conscious hedge funds. “We’re hearing from investors and following the direction toward more socially responsible investing,” Mr. Mills said. “I believe this movement is only going to grow, and we’ll see some very unique products and applications, especially in the alternatives space.” A Catholic and another Islamic hedge fund of funds have each recently been created by Catholic Institutional Investors and Shariah Funds respectively. (Investment News 17 Nov 2009) (7) 3.5 High Net Worth Individuals (HNWI) High net worth individuals (HNWI) are typically considered to have investable assets (financial assets not including primary residence) in excess of US$1 million. 3.6 Institutional Donors A donor in general is a person that gives something voluntarily. It is usually considered to be a form of pure altruism but is sometimes used when the payment for a service is recognised by all parties as representing less than the value of the donation and that the motivation is altruistic. In business law, a donor is someone who is giving the gift, and a donee the person receiving the gift. Institutional donors are institutional investors, including foundations, which sponsor and provide funds to socially, environmentally, and progress-driven causes. For further details on donors’ activities see 4.3 Philanthropy. 3.7 Community Development Financial Institutions (CDFIs) A Community Development Financial Institution, according to Wikipedia (, is a unique entity established to provide credit, financial services, and other services to underserved markets or populations. Under the general definition of a CDFI, its primary mission of community development serves a target market, is a financing entity, also provides development services, remains accountable to its community, and is a non-Governmental entity. While there are numerous organizations certified as CDFIs, it is believed that there are thousands of financial institutions serving the needs of low-income people or communities in the U.S., but either they have not applied for CDFI status or have otherwise not been able to fulfil all of the requirements for formal CDFI certification. 3.8 Business Angels or Angel Investors An angel investor (also known as a business angel or informal investor) is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. A small but increasing number of angel investors organise themselves into angel groups or angel networks to share research and pool their investment capital. Angel investments bear extremely high risk and are usually subject to dilution from future investment rounds. As such, they require a very high return on investment. 4. Significant Ethical Finance Initiatives “Trustworthiness is the greatest portal leading unto the tranquility and security of the people. In truth the stability of every affair hath depended and doth depend upon it. All the domains of power, of grandeur and of wealth are illumined by its light.” “… is there any deed in the world that would be nobler than service to the common good? Is there any greater blessing conceivable for a man, than that he should become the cause of the education, the development, the prosperity and honor of his fellow-creatures?” “Every individual, no matter how handicapped and limited he may be, is under the obligation of engaging in some work or profession, for work, especially when performed in the spirit of service, …is a form of worship.” Baha’i Writings There are a number of initiatives that are contributing significantly to a more ethical global financial world. 4.1 Global Compact: A voluntary international corporate citizenship network initiated by the United Nations in 1999 to advance responsible corporate citizenship and universal social and environmental principles to meet the challenges of globalization ( and 4.2 Principles for Responsible Investment (PRI) A set of voluntary principles incorporating Environmental, Social, and Governance (ESG) issues into institutional investment decision-making ( The six principles are: Incorporate environmental, social and governance issues into investment analysis Be “active owners”, integrating the issues into their ownership policies and practice Seek “appropriate disclosure” Encourage other investors to adopt the principles Work together to put the principles into practice Report on what they are doing to implement the principles PRI signatories represent about $19 trillion pension fund assets worldwide as at December 2009 ( An important issue for institutional investors is their fiduciary duties with respect to environmental, social and governance (ESG) issues. The Asset Management Working Group of UNEP Finance Initiative asked a large law firm to assess if the integration of ESG issues into investment policy is permitted, required or hampered by law and regulation. The reply was that: “far from preventing the integration of ESG considerations, the law clearly permits and in certain circumstances, requires that this be done… Ultimately, the findings of this report should encourage fiduciary duty to shift its responsibility [away] from the idea of maximizing profits …duty to shareholders should instead consider an investor’s wider legal obligations to weigh ESG considerations into each investment and subsequently provide reasonable returns for their shareholders.” KPMG recently published a comprehensive survey on the state-of-the-art of Corporate Responsibility in 2008 worldwide. The survey shows that almost 80% of the largest 250 companies worldwide issues the relevant reporting documentation. A report published in April 2009 by EIRIS ( shows that companies have improved ESG risk management between 2005 2008 by an average score of 7.4% and that the financial sector is the poorest performer of all sectors in 2008 with 24.2% of companies without any evidence of ESG risk management. 4.3 Private Equity Council In February 2009 the members of the Private Equity Council adopted the Principles for Responsible Investment Guidelines that they will apply prior to investing in companies and during their period of ownership. These guidelines cover environmental, health, safety, labour, governance and social issues. Also the Council website ( offers a comprehensive “Fact and Fiction” section, which includes the main differences between private equity funds and hedge funds: 4.4 United Nations Environment Program Finance Initiative (UNEP FI) It was established in 1991 as a global partnership between UNEP and the private financial sector. UNEP FI works closely with over 170 institutions, including banks, insurers and fund managers to understand the impacts of environmental and social issues on financial performances ( 4.5 Earth Charter It is an international declaration of fundamental values and principles, launched in 2000. It aims to promote the transition to sustainable ways of living ( 4.6 European Sustainable Investment Forum (Eurosif) Launched in 2001 as a pan-European association; its member affiliates include pension funds, financial service providers, academic institutes, research associations and NGO’s with total amount of assets of over Euro 1 trillion ( 4.7 Global Reporting Initiative (GRI) It is based on the Sustainability Reporting Guidelines, launched in 2003. GRI provides guidance for organisations to disclose their sustainability performance. It facilitates transparency and accountability and provides stakeholders a universally applicable, comparable framework from which to understand disclosed information relating to Environmental, Social and Governance (ESG) aspects. ( Also see: the Earth Charter, GRI, and the Global Compact: Guidance to users on the synergies in application and reporting ( /ReseaarchPublications/Tools.htm) 4.8 Equator Principle An international financial industry benchmark launched in 2003 for assessing and managing social and environmental risk in project financing. ( 4.9 PRIME Toolkit It was launched in 2006 with the objective of helping foundation trustees better understand and integrate Responsible Investment (RI) practices and Social/Environmental/Ethical (SEE) issues into the long-term management of their endowments. It combines background information with case studies and includes a Glossary that explains commonly used terms and references for further reading. 4.10 KLD Indexes A set of benchmark, strategy and custom indexes, which investment managers have used to integrate ESG criteria into their investment decisions since 1990. 4.11 FTSE4Good Index Series A set of indexes measuring the performance of companies that meet globally recognised corporate responsibility standards with the objective of facilitating investment in those companies. 4.12 FTSE KLD Index Series By combining KLD’s research leadership with FTSE’s indexing expertise, the new series provides a cutting-edge range of index solutions across a variety of ESG themes.(FT 29.10.09, p.13) were launched in 1999 as the first global indexes tracking the financial performance of sustainability-driven companies worldwide. The indexes measure the performances of assets of several billion dollars. 5. Solidarity and Community Based Finance “Wealth is praiseworthy in the highest degree, if it is acquired by an individual’s own efforts and the grace of God, in commerce, agriculture, art and industry, and if it be expended for philanthropic purposes. Above all, if a judicious and resourceful individual should initiate measures which would universally enrich the masses of the people, there could be no undertaking greater than this, and it would rank in the sight of God as the supreme achievement, for such a benefactor would supply the needs and insure the comfort and well-being of a great multitude. Wealth is most commendable … if it is dedicated to the welfare of society…” “Man reacheth perfection through good deeds, voluntarily performed, not through good deeds the doing of which was forced upon him. And sharing is a personally chosen righteous act: that is, the rich should extend assistance to the poor, they should expend their substance for the poor, but of their own free will, and not because the poor have gained this by force. For the harvest of force is turmoil and the ruin of the social order. On the other hand voluntary sharing, the freely-chosen expending of one’s substance, leadeth to society’s comfort and peace. it lighteth up the world, it bestoweth honour upon humankind.” Baha’i Writings “It is incumbent upon them who are in authority to exercise moderation in all things. Whatsoever passeth beyond the limits of moderation will cease to exert a beneficial influence. …. Consider for instance such things as liberty, civilization and the like. However much men of understanding may favorably regard them they will, if carried to excess, exercise a pernicious influence upon men…” Baha’i Writings When considering the new socio-economic paradigm of 21st century that aims at producing a sustainable framework for human prosperity, ethical principles and values are fundamental drivers to this transformation. In the following section we wish to explore the principles and the diverse tools of Solidarity and Community based finance. 5.1 Microfinance The most popular tool in the field of Solidarity and Community based finance is without any doubt Microfinance, which is the provision of a range of financial services to very poor people, including consumers and the self-employed, allowing them to care for themselves and their families. In his book “The Poor and Their Money”, Stuart Rutherford offers a reasonable classification of the most relevant types of needs of poor people: Lifecycle Needs: such as weddings, funerals, childbirth, education, homebuilding, widowhood, old age. Personal Emergencies: such as sickness, injury, unemployment, theft, harassment or death. Disasters: such as fires, floods, cyclones and man-made events like war or bulldozing of dwellings. Investment Opportunities: expanding a business, buying land or equipment, improving housing, securing a job (which often requires paying a large bribe), etc. Poor people find creative and often collaborative ways to meet these needs, primarily through creating and exchanging different forms of non-cash value. Common substitutes for cash vary from country to country but typically include livestock, grains, jewellery and precious metals. The tables below shows the household financial goals of poor people that can be achieved with help of Microfinance. Microcredit is an integral part of Microfinance and consists in microlending activities to poor people. In 1974, Professor Muhammad Yunus (2006 Nobel Peace Prize Laureate) invented Microcredit. As a Bangladeshi economist from Chittagong University, during a field trip to a poor village with his students, he interviewed a woman who made bamboo stools, and learned that she had to borrow the equivalent of 15p to buy raw bamboo for each stool made. After repaying the middleman, sometimes at rates as high as 10% a week, she was left with a penny profit margin. Had she been able to borrow at more advantageous rates, she would have been able to amass an economic cushion and raise herself above subsistence level. Realizing that there must be something terribly wrong with the economics he was teaching, Mr Yunus took matters into his own hands and found that it was possible with tiny amounts not only to help the poorest of the poor survive, but also to create the spark of personal initiative and enterprise necessary to pull themselves out of poverty. Against the advice of banks and government, Mr Yunus carried on giving out ‘microloans’, and in 1983 formed the Grameen Bank, meaning ‘village bank’ founded on principles of trust and solidarity. Today, Grameen methods are applied in projects in 58 countries. According to the “State of the Microcredit Summit Campaign Report 2009”, at the end of 2007 there were 3.552 micro-credit institutions providing loans to 106.6 million poorest clients worldwide, affecting a total of 533 million people and including both clients and their family members. The 533 million people affected nearly equals the total population of Latin America. Analysts estimate that the microfinance industry has lent anywhere between $25 to $60 billion, a very modest amount. The Campaign has set two ambitious goals for 2015: first, to ensure that 175 million of the world’s poorest families, especially women of these families, are receiving credit for self-employment and other financial and business services and second, to help 100 million families rise above the US$ 1 per day threshold. Some people question these figures since little research has been carried out on the ‘durability’ of microfinance enterprises, that is, what percentage of start-ups actually remain active after a given period of time. In addition to this “poverty alleviation microfinance”, aimed at the poor and the poorest of the poor, most of whom are women, there is another field of “enterprise development microfinance.” Targets tend to be men rather than women, loans tend to be larger and for investment in physical assets to expand a business. Usually collateral or guarantees are required and the lending institutions operate more or less according to conventional bank standards. EBBF’s contribution to Microfinance The interest of EBBF in microcredit dates from its participation at the United Nations Conference on Social and Economic Development in Copenhagen in 1994. As members of EBBF became acquainted with the importance of microcredit to development, it subsequently sent delegates (Diane Starcher, Eric and Annette Zahrai, Barbara Rodey, and Ruhi Huddleston) to the Microcredit Summit in Washington, D.C. in 1997. The leader of this EBBF delegation, Diane Starcher, was invited to be a panelist in one of the sessions. Since that time EBBF has remained member of the Council of Advocates of the Microcredit Summit. In April 1996 EBBF organized a very successful Global Dialogue on Microfinance and Human Development as part of the 1st UNESCO Business Forum in Stockholm. Nearly 100 participants exchanged views with such leading practitioners as Muhammad Yunus, founder and General Manager of the Grameen Bank ; John Hatch, founder of FINCA International ; Christopher Dunford, President of Freedom from Hunger; Rosalind Copisarow, now Senior Vice President of Accion, and others. 5.2 Cooperative Banking The United Nations estimated in 1994 that the livelihood of nearly 3 billion people, or half of the world’s population, could be made secure by cooperative enterprise. The entire cooperative movement brings together over 800 million people, according to the International Co-operative Alliance (, Friedrich Wilhelm Raiffeisen is the inventor of cooperative banking. He founded the first cooperative lending bank in 1864, inspired by observing how farmers were often in extreme financial need. According to the International Cooperative Alliance Statement of cooperative identity, a cooperative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly owned and democratically controlled enterprise. Cooperatives are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity. In the tradition of their founders, cooperative members believe in the ethical values of honesty, openness, social responsibility and caring for others. A cooperative bank is a financial entity belonging to its members, who are at the same time the owners and the customers of their bank. An estimated 130 million customers are members of cooperative banks; total assets of cooperative banks are said to be over $3 trillion. Cooperative banks are deeply rooted inside local areas and communities. They are involved in local development and contribute to the sustainable development of their communities. Their specific form of enterprise, relying on the above-mentioned principles of organization, has proven successful both in developed and developing countries. Cooperative banks differ from stockholder banks by their organization, their goals, their values and their governance. In most countries, they are supervised and controlled by banking authorities and have to respect prudent banking regulations, which put them on a level playing field with stockholder banks. Even if their organizational rules can vary according to their respective national legislations, cooperative banks share common features: Customer owned entities: in a cooperative bank, the needs of the customers meet the needs of the owners, as cooperative bank members are both. As a consequence, the first aim of a cooperative bank is not to maximise profit but to provide the best possible products and services to its members. Some cooperative banks only operate with their members but most of them also admit non-member clients to benefit from their banking and financial services. Democratic member control: cooperative banks are owned and controlled by their members, who democratically elect the board of directors. Members usually have equal voting rights, according to the cooperative principle of “one person, one vote”. Profit allocation: in a cooperative bank, a significant part of the yearly profit, benefits or surplus is usually allocated to constitute reserves. A part of this profit can also be distributed to the cooperative members, with legal or statutory limitations in most cases. Profit is usually allocated to members either through a patronage dividend, which is related to the use of the cooperative’s products and services by each member, or through an interest or a dividend, which is related to the number of shares subscribed by each member. 5.3 Philanthropy Philanthropy derives from the Ancient Greek term for “loving people”; today it is used to identify the provision of finance to any organisation for predominantly social benefit. It can be in the form of grants, returnable grants, loans, and equity where the primary purpose is creating social value, not personal gain. Philanthropy can be either corporate or individual giving; it can be both, for example in the case of corporate matching of contributions of employees to certain causes. In the case of corporate philanthropy, it can be simply direct financial contributions to social organizations or it can be strategic contributions closely tied to corporate strategy and operations, as is the case in cause-related marketing. According to the 2008 Community Foundation Global Status Report, published by the philanthropic community network WINGS Worldwide Initiatives for Grantmaker Support, the number of community foundations globally has grown by 21% since 2005 with 1441 community foundations in 51 countries. The report also outlines that 54% of the total number of community foundations is in the USA and that Germany has surpassed Canada to have the second largest number of community foundations after the USA. The global assets endowment reached in 2007 $ 54 billion in 51 countries, most of it in the USA (see table attached Endowment Assets of CFs by the end of 2007.pdf (3 pages). The Bill & Melinda Gates Foundation (B&MGF) is the largest transparently operated private foundation in the world; it aims at enhancing healthcare and reduce extreme poverty worldwide, and in the USA, at expanding educational opportunities and access to information technology. As of 1 October 2008, the foundation had an endowment of US$35.1 billion. This represents nearly 70 percent of the total registered endowments. Venture Philanthropy is a field of philanthropic activity where private equity / venture capital models are applied in the non-profit and charitable sectors. There are many different forms of venture philanthropy. According to the European Venture Philanthropy Association (EVPA), Venture Philanthropy is based on six characteristics:

  • High engagement

  • Multi-year support

  • Tailored financing

  • Organisational capacity building

  • Non-financial support

  • Performance measurement.

Venture philanthropy is clearly different from venture capital in that it is based on non-returnable grants. 5.4 Fraternal or Relational Economy The Fraternal or Relational Economy has a spiritual insight and is based on five principles that are exercised by the Franciscan communities, as outlined by David B. Couturier, OFM. Cap. in the following way: Transparency: Mutuality in all things – all the goods, economic activities, and ministerial decisions of members are at the service of the whole. There are no hidden schemes by leadership or membership. Equity: Individuals and communities get what they need and contribute what they have for the common good and the building up of communion. Service replaces entitlement. Participation: Build mechanisms of cooperation and a communion of persons without domination or deprivation. Solidarity: Those who have more give more to those deprived. All work to undo structures of sin that serve as obstacles to communion. Austerity: The minimum necessary not the maximum allowed. Live and work simply, so others can simply live and work. 5.5 Time Banking Time banking is a tool to stimulate co-production. Co-production is a theory based on the premise that people and societies flourish more readily where relationships are built on reciprocity and equity: enabling people to give freely, yet also facilitating the give-and-take of time, knowledge, skills, compassion and other assets. These are not commodified through allocating them a ‘price’. They are abundant, not scarce, in our communities. This is not to say such activities don’t have value, however: back in 1998, the total household work done in the USA was valued at $1.9 trillion, whilst in 2002, the informal care that keeps the elderly out of nursing or retirement homes was given a replacement price of $253 billion. Unlike the money economy, time banking values all hours equally: 1 hour of time = 1 time credit, whether you are a surgeon or an unemployed single mother. Time banking recognises that everyone, even those defined as disadvantaged or vulnerable; has something worthwhile to contribute. Time banking values relationships that are forged through giving and receiving. As such it adds a new dimension to what Richard Titmuss called the ‘gift relationship’. Time banking can help give people more control over their lives, prevent needs arising and grow what we call the ‘care economy’ – our ability to care for and support each other and to engage in mutual and non- materialistic exchanges and civic activity. Much in the same way that the market economy, unless appropriately regulated, neglects and erodes the ecosystem, so it can also undermine and weaken this time banking economy. In the same way that the market fails to incorporate the cost of environmental damage caused by production into the cost of goods and services, it also fails to value the contribution of unpaid labour. 5.6 Social Return On Investment (SROI) The UK Cabinet Office for the Third Sector published in May 2009 “A Guide to Social Return on Investment” as a brand-new tool to assess the social value of investing. Social Return on Investment (SROI) is a framework for measuring and accounting for this much broader concept of value; it seeks to reduce inequality and environmental degradation and improve wellbeing by incorporating social, environmental and economic costs and benefits. SROI measures change in ways that are relevant to the people or organisations that experience or contribute to it. This enables a ratio of benefits to costs to be calculated. For example, a ratio of 3:1 indicates that an investment of £1 delivers £3 of social value. SROI is about value, rather than money. Money is simply a common unit and as such is a useful and widely accepted way of conveying value. SROI was developed from social accounting and cost-benefit analysis and is based on seven principles, as follows:

  • Involve stakeholders

  • Understand what changes

  • Value the things that matter

  • Only include what is material

  • Do not over-claim

  • Be transparent

  • Verify the result

5.7 Solidarity Finance Certifications and Labelling Traditional financial systems attempt to reconcile financing offers to requests. Solidarity finance endeavours to ensure that such linking is done fairly and that the financing of economic activities contributes beneficially to the society, the environment and the territory creating a more sustainable and socially just economy. It takes into account human factors as well as economical ones. The key players are the following: Finansol: their label is the reference tool, which allows savers to distinguish social and solidarity funds from traditional financial products. The label assures the savers of the transparency, the ethics and the solidarity aspect of the saving product they choose, moreover, it ensures the savers of the destination of the investment into Social and Solidarity products. To strengthen the sector and reinforce its recognition, Finansol and a few of its European and International partners invented the construction of a “Global Solidarity Finance System” (GSFS). INAISE: The International Association of Investors in the Social Economy is a global network of socially and environmentally oriented financial institutions. Ethibel: This is an independent advisory and research organisation for SRI (Socially Responsible Investments) and CSR (Corporate Social Responsibility). The Ethibel Label for SRI funds guarantees the quality of socially responsible and ethically sound investments. Oikocredit acquired the Ethibel quality label in 2004. 6. Environment and Energy Focused Finance “Let your vision be world-embracing, rather than confined to your own self. … It is not his to boast who loveth his country, but it is his who loveth the world.” “It is in the hunger for something more, something beyond ourselves, that the reality of the human spirit can be properly understood. Although the spiritual side of our nature is obscured by the day-to-day struggle for material attainment, our need for the transcendent cannot long be disregarded. Thus a sustainable development paradigm must address both the spiritual aspirations of human beings and their material needs and desires.” Turning Point for All Nations, Baha’i International Community. Green banking, climate change economy, carbon finance, the economics of biodiversity: these are the main elements of what we can define today as Environmental Finance. It is also about externalising costs that have not been taken into account, and investing in low carbon energy. Economists call externalities some assets like a species of bee in India, or a particular ecosystem like the oceans, which do not enter into the economic system. Because they are outside of it we do not take them into account in any economic decision making process. Environmental Finance is ethically valuable and demonstrates business acumen; according to the report of the Environmental Agency “Environmental Disclosures”, companies that manage environmental risks and reduce their consumption of natural resources can save significant sums of money, which benefits their profitability and public reputation. 6.1 Carbon Finance The new commodity Green House Gas GHG emission came to life following the Kyoto Protocol of 1997. According to the Protocol, countries committed to targets for limiting or reducing GHG emissions may buy and sell amounts of emission units. Countries that have emission units to spare – emissions permitted them but not “used” – may sell this excess capacity to countries that are over their targets. Since carbon dioxide is the principal Green House Gas, people speak simply of trading in carbon and this is known as the Carbon Market. The main type of emission reduction unit is called Certified Emission Reduction (CER), each equivalent to one tonne of CO2. CERs are used for emission-reduction projects implemented on the territory of developing countries by countries that are committed to targets for limiting or reducing GHG emissions. These projects are set up within the Clean Development Mechanism CDM, which is the first environmental investment and credit scheme of its kind. Such projects can also earn saleable CER credits, each equivalent to one tonne of CO2, which can be counted towards meeting the Kyoto Protocol targets. A CDM project activity might involve, for example, a rural electrification project using solar panels or the installation of more energy-efficient boilers. The mechanism stimulates sustainable development and emission reductions, while giving industrialized countries some flexibility in how they meet their emission reduction or limitation targets. The selling of emission reduction units – or Carbon Finance – has enhanced the bankability of projects, reducing the risks of commercial lending or grant finance. At the end of 2008 the carbon market reached $ 126 billion, doubling its value compared to 2007. Carbon finance can be also split according to scope, so that we can distinguish between “mitigation finance” dealing with emission reduction, and “adaptation finance” focusing on the impact of climate change. Under the Kyoto Protocol emissions trading schemes may be established as climate policy instruments at national level and regional level. The European Union Emissions Trading Scheme (EU ETS) is the largest in operation. It covers energy-intensive installations across the EU; these installations include combustion plants, oil refineries, coke ovens, iron and steel plants, and factories making cement, glass, lime, brick, ceramics, pulp and paper. The aim of the EU ETS is to help EU member states achieve compliance with their commitments under the Kyoto Protocol. 6.2 Clean Tech Investing: Renewable Energy and Beyond The term “Clean Tech Investment” is about the provision of capital and finance to a broad range of technologies, such as solar PV and wind to bio-fuels, as well as Carbon Capture Sequestration (CCS) and the infrastructure to power next-gen vehicles. Renewable Energy represents a large area of Clean Tech with wind power, solar PV, and bio-fuels among others. According to the Renewables Global Status Report 2009, published by REN21, ( an estimated $120 billion was invested in renewable energy worldwide in 2008. This is double the equivalent 2006 investment figure of $63 billion. Almost all of the increase was due to greater investment in wind power, solar PV, and bio-fuels. Approximate technology shares of 2008 investment were wind power (42 percent), solar PV (32 percent), bio-fuels (13 percent), biomass and geothermal power and heat (6 percent), solar hot water (6 percent), and small hydropower (5 percent). An additional $40–45 billion was invested in large hydropower.The largest single lender for renewables in 2008 was the European Investment Bank, which provided more than €2 billion ($3.0 billion) for renewable energy projects in the EU and worldwide. Investments in Clean Tech by Venture Capital (VC) and Private Equity (PE) is reported to have been $32.4 in 2008 billion, an increase of 21% on 2007, according to the Cleaning Up 2009 Report, published in April 2009 by New Energy Finance ( The glut of clean tech investment in 2007 from venture capital firms raised the question of whether the pace of clean energy technological developments could keep up. Nevertheless, venture capital investment increased from $3.5 billion to $4.5 billion in 2008. Their forecast for 2009 is that investment will fall back towards the total volume of 2007 at $27.9 billion with capital scarcity in the industry being short lived and investment levels to continue on previous trajectory in 2010 totalling $36.9 billion. From 2008, their forecast shows an average 13.5% compound annual growth path to $42.6 billion in equity and $69.31 billion in total investment in 2014. 6.3 Biodiversity finance As Ricardo Bayon so nicely says in his article “Banking on Biodiversity”, published by The Worldwatch Institute in the 2008 The State of the World – Innovations for a Sustainable Economy: “Protecting the world’s biodiversity requires answers to a few not entirely thetorical questions: Assuming agreement of the need to protect the earth’s biological wealth, how much would you be prepared to pay to protect an endangered fly? Would you spend $1.50, $15, $150,000, or more? … The questions may seem crass and materialistic – and in some ways they are – but they are essential if the world is to conserve the species and ecosystems that sustain humankind. The reason is simple: like many other important matters, the staggering loss of biodiversity is really a matter of values – and not just the principles that allow people to distinguish right from wrong, but also the more mundane concept of economic values. In a way, the issue boils down to the fact that the world is losing species and ecosystems because the economic system has a blind spot.” The definition of a value proposition based on ethical values and good business acumen seems to make the real difference. According to the European Centre for Nature Conservation (ECNC), companies that have taken a more responsible approach to biodiversity management in their business operations – going beyond compliance and philanthropy and by proactively managing their impacts on biodiversity – have generally done so by adopting different responsibility schemes, as shown in the chart below by IUCN:

  • The ECNC also reports that there are a number of emerging biodiversity related business opportunities that both contribute to biodiversity protection and provide business opportunities, but have not yet been sufficiently explored, such as:

  • Markets for watershed protection, carbon sequestration and biodiversity services offer additional financial opportunities for landowners and local communities.

  • Provision of debt or equity to businesses with a positive (direct or indirect) influence on biodiversity.

  • Biodiversity-related due diligence and advisory services.

  • Biodiversity-related insurance cover (environmental insurance covers).

  • Government-induced opportunities: examples can include fiscal advantages for biodiversity-related investments or a guarantee fund whereby investors are given certain guarantees on their investment that are backed by the government.

  • The main financiers of biodiversity today are the World Bank with $ 4.7 billion between 1998 and 2004 and the EBRD European Bank for Reconstruction and Development with $ 4.3 billion in 2005.

6.4 Gender financing in the climate change regime The Heinrich Böll Stiftung published in May 2009 the extensive report “Gender and Climate Finance: double mainstreaming for sustainable development”. The report highlights that so far environmental financing mechanisms have provided only limited benefits for the Least Developed Countries (LDCs) and the poorest and most disadvantaged within those countries. Women as a group are generally least considered by modern environmental financing mechanisms. The reasons are manifold and can be found among those impeding women’s development all over the world. They range from a lack of access to capital and markets, to women’s unrecognized and uncompensated care contributions, to lacking legal protection and ownership rights to cultural and societal biases against women’s engagement in learning, political participation and decision‐making processes. A positive example of gender financing for women comes from the Grameen Shakti (a spin-off of the Grameen Bank) in Bangladesh where they have set up a number of projects to bridge the gap to and build synergies between technology and women. One of such projects is about building 30,000 units of 65 watt capacity Solar Home Systems (SHS) in off-grid rural households as a small scale CDM project. The solar home systems, built in the country and installed and maintained by female engineers that Grameen Shakti trains as part of the project, are to replace kerosene and diesel generators for lighting and electricity in a country where only 32 percent of the population have access to the electricity grid, where 36 percent of the population live below the poverty line and where approx. 20 percent of household consumption is spent on fuel. Women are traditionally responsible for household energy needs and one of the great outcomes of this project is that in thousands of rural homes women no longer need to clean kerosene lamps every evening and can finish their household activities more easily and in less time. They feel more secure after dusk and can be more mobile. In particular, they are protected from indoor air- pollution, which is one of the main reasons for women suffering from diseases such as asthma, cancer, pregnancy related problems, still births, etc. Grameen Shakti has made women the cornerstone in the success of its renewable energy technology program. On the one hand, women as satisfied customers are promoting and implementing renewable energy technologies in their households. On the other hand, women as trained technicians in the field of solar home systems are active players in this growing market. Instead of passive victims, women in such projects are becoming active implementers to bring socio-economic improvement in their lives as well as the lives of others. In the context of socio-economic development, the World Bank has proved that mainstreaming gender into development projects improves development effectiveness and has dedicated part of its development strategy to “Gender Equity as Smart Economics”, setting up an action plan with four action areas as shown in the diagramme below. Four Action Areas to Address the Plan’s Objective – Source: World Bank Group 7. Faith Inspired Finance “Be united in counsel, be one in thought. Let each morn be better than its eve and each morrow richer than its yesterday. Man’s merit lieth in service and virtue and not in the pageantry of wealth and riches. Take heed that your words be purged from idle fancies and worldly desires and your deeds be cleansed from craftiness and suspicion. Dissipate not the wealth of your precious lives in the pursuit of evil and corrupt affection, nor let your endeavours be spent in promoting your personal interest. Be generous in your days of plenty, and be patient in the hour of loss. Adversity is followed by success and rejoicings follow woe. Guard against idleness and sloth, and cling unto that which profiteth mankind, whether young or old, whether high or low. Beware lest ye sow tares of dissension among men or plant thorns of doubt in pure and radiant hearts.” “… By the statement ‘the economic solution is divine in nature’ is meant that religion alone can, in the last resort, bring in man’s nature such a fundamental change as to enable him to adjust the economic relationships of society. It is only in this way that man can control the economic forces that threaten to disrupt the foundations of his existence, and thus assert his mastery over the forces of nature.” Baha’i Writings Faith investors aim at aligning their financial investments with their religious and ethical beliefs. This link is put in place in different ways according to the relevant faith with some having extensive literature and legal frameworks and others relying on moral principles and religious ethics. A successful example of religious inspired finance is Islamic Finance, which is strictly regulated by the Shariah rulings. We will attempt to offer you a brief overview of Islamic Finance in the next pages. We will also briefly explore the prerequisites of Jewish-based finance and see how the first Jewish-based ethical fund was performing in 2006. Looking at Christianity: ( Religious views on business ethics) Max Weber, a German economist and sociologist, in his book “the Protestant Ethic and the Spirit of Capitalism” (1904 and 1905) felt that Protestants were more prone to individualism and had been active supporters of capitalism. More recently, researchers in the theory of religious-inspired economy have found insight in the 1985 paper Market Economy and Ethics by then Cardinal Joseph Ratzinger, which attempts to demonstrate the relationship between trust-based economies and faith-based morality. Press articles have argued that Ratzinger’s paper was the first to predict the 2008-2009 economic crisis. Buddhist texts emphasise the role that work can take in gaining enlightenment – one of the elements of the Noble Eightfold Path set out by the Buddha is ‘Right Livelihood’ which prohibits occupations associated with violence (such as arms dealing), but all the elements (conduct, speech etc.) will apply to the daily conduct of any person in their work. The most recent of the world religions, the Baha’i Faith, also offers guidelines on management of its own funds and more general teachings on the meaning of wealth and social justice. This chapter outlines briefly the main international interfaith organisations that exercise shareholder activism in order to make business pursue ethical values and religious inspired principles. 7.1 Islamic Finance According to the Bank Negara, Islamic banks or sharia-banking arms of conventional banks represent about $750 billion and are forecast to increase at 15 to 20 per cent a year. (FT 4.11.09, p.31) The bank said there are presently about 680 sharia-compiant funds globally and $107 billion of outstanding sukuk. “There was a time two or three years ago that Islamic finance was considered simply too conservative,” said Professor Ibrahim Warde, author of “Islamic Finance in the Global Economy” and an adjunct professor at the Fletcher School of Law and Diplomacy at Tufts University in MA, USA. “Right now, many people are recognizing that maybe it wasn’t such a bad thing.” Warde and other Islamic finance experts and investors caution that the crisis doesn’t mean that Islamic finance is a better model than Western capitalism. They say Islamic finance, a system of ethical finance supported on an institutional level, provides unique insight into an economic meltdown created in part by financial practices forbidden by strict observance of Islam. Dow Jones Islamic Market Indexes, which represent benchmarks for Islamically correct investment categories, have been outperforming their non-Islamically compliant counterparts by 3 to 4 percent annually in key indexes.8 The Institute of Islamic Banking and Insurance provides over its website ( a well-structured overview also for non-Islamic finance experts of Shariah rulings, as well as a comprehensive glossary of Islamic financial term. The main characteristic of Islamic Banking is that interest is banned and the section of The Institute of Islamic Banking and Insurance website on Shariah Rulings in Islamic Banking and Insurance offers a good explanation for that. Allah says in Surah al-baqarah (2), verse 275: “Those who devour usury will not stand except as stands one whom the Evil one by his touch has driven to madness. That is because they say: ‘Trade is like usury’. But Allah hath permitted trade and forbidden usury”. There are at least five reasons why interest is considered undesirable by Islamic authorities: Transactions based on interest violate the equity of a business. In business the outcome of any enterprise is always uncertain. Yet the borrower is obliged to pay the agreed rate of interest, even if he makes a loss on his enterprise. Even if he makes a profit, the interest he has to pay may amount to more than the profit and this clearly militates against the Islamic norm of justice. The inflexibility of an interest-based system leads to a number of bankruptcies and this results in loss of productive potential for the whole society as well as unemployment for many people. A bank’s commitment to keeping its depositors’ money safe as well as paying them a fixed amount of interest makes banks anxious to recover their principal as well as the interest. Thus more loans are provided for those who are already successful, while potential entrepreneurs are prevented from starting up. The interest-based system discourages innovation by small businesses. Big businesses can risk trying out new techniques and products because they have reserves of funds to fall back on if the new idea does not succeed. Small businesses cannot try new things because they would need to borrow money on interest from banks to do so and if their ideas failed, they would have no way of paying back the loan or the interest and would be bankrupt. With the interest system, banks have no interest in a venture except in so far as there are possibilities of recovering their capital and earning interest. Any business plan put to them is judged only on this criterion. Murabaha is the most popular and most common mode of Islamic financing and is also known as Mark up or Cost plus financing; the word Murabaha is derived from the Arabic word Ribh that means profit. Originally, this was a contract of sale in which a commodity is sold on profit. The seller is obliged to tell the buyer his price and the profit he is making. This contract has been modified a little for application in the financial sector. In its modern form Murabaha has become the single most popular technique of financing amongst the Islamic banks all over the world. It has been estimated that 80 to 90 percent of financial operations of some Islamic banks belong to this category. The Murabaha mode of finance operates in the following way: The client approaches an Islamic bank to get finance in order to purchase a specific commodity. An interest-based bank would lend the money with interest to this customer. The customer would then buy the required commodity from the market. This option is not available to an Islamic bank, as it does not operate on the basis of interest. It cannot lend the money on interest. It cannot lend money with zero interest rate, as it has to make some money to stay in the business. Some portion of total finance may be offered as an interest free loan, however, the banking institutions have to make profit in order to stay in business. Hence, what course of action is open to the bank? The Murabaha model offers a solution. The bank purchases the commodity on cash and sells it to the customer with a markup to include profit. Since the client has no money, he buys the commodity on deferred payment basis. Thus, the client got the commodity for which he wanted the finance and the Islamic bank made some profit on the amount it had spent in acquiring the commodity. There are a number of requirements for this transaction to be a real transaction to meet the Islamic standards of a legal sale. The whole of Murabaha transaction is to be completed in two stages. In the first stage, the client requests the bank to undertake a Murabaha transaction and promises to buy the commodity specified by him, if the bank acquires the same commodity. Of course, the promise is not a legal binding. The client may go back on his promise and the bank risks the loss of the amount it has spent. In the second stage, the client purchases the good acquired by the bank on a deferred payments basis and agrees to a payment schedule.Another important requirement of Murabaha sale is that two sale contracts, one through which the bank acquires the commodity and the other through which it sells it to the client should be separate and real transactions. The Murabaha form of financing is being widely used by the Islamic banks to satisfy various kinds of financing requirements. It is used to provide finance in various and diverse sectors e. g. in consumer finance for purchase of consumer durable such as cars and household appliances, in real estate to provide housing finance, in the production sector to finance the purchase of machinery, equipment and raw material etc. However, probably the most common and the most popular application of Murabaha is in financing the short-term trade for which it is eminently suitable. Murabaha contracts are also used to issue letters of credit and to provide financing to import trade. 7.2 Jewish-based Finance In their extensive paper “Ethical Investing from a Jewish Perspective” Mark S. Schwartz, Meir Tamari and Daniel Schwab state that in order to understand where a Jewish-based ethical fund would fit into the world of ethical funds, it is important to review the Orthodox Judaism’s perspective on general ethics. Judaism provides the three main views regarding an ethical lifestyle:

  • Court-enforced legal ethics

  • Divinely enforced legal ethics

  • The pursuit of a moral life

Jewish ethical principles have not yet been transferred into a proper Jewish-based financial market and the only known Jewish-based ethical fund so far is managed by Hilat Shoham. Yaacov Moreshet, owner and managing director, interviewed by the newspaper haaretz in 2006, feels that as a religious Jew it is not enough to say “with God’s help,” and pray; one must also manage one’s money according to halakha – Jewish law.”According to halakha, if someone lends money, he must not charge interest if he is not assuming any risk,” explains Moreshet. “Thus, in order to purchase a bond I must first check whether the company is worthwhile. Then I need to sign a special halakhically recognized loan permit with the company, such that the loan becomes a kind of business partnership, assuming a level of risk.” Considering the restrictions with which Moreshet is coping, Hilat’s yields have been excellent (at least up to 2006): the Shoham Gmisha mutual fund recorded a yield of 34 percent in the past year and 108 percent over the past three years. 7.3 Baha’i Finance There is no such thing (today at least) as “Baha’i Finance”. There are many Baha’is, however, who work in various fields of finance: bank presidents and officers, corporate treasurers, finance professors, fund managers and the like. These “Baha’i financiers” keep up to date with cutting edge knowledge in the field of finance and at the same time conduct themselves in accordance with relevant Baha’i Writings. Baha’is as well as Baha’i institutions manage their funds ethically in much the same way as other religious and ethical groups. Investments are screened for example based upon social as well as environmental and governance criteria. In applying an ethical screen, such industries as alcohol, gambling, tobacco, adult industries, and armaments manufacture would be excluded. As we have seen in previous sections, both Jewish and Islamic institutions do not charge interest on loans. They have found other ways to earn a profit on money loaned out. One significant difference in the Baha’i Faith is that interest on money is treated like other business transactions. It is both lawful and proper to charge interest on money if practiced with moderation and wisdom. Baha’i Writings also address the issues of wealth and poverty. Wealth is condoned if shared voluntarily and used to contribute to the betterment of mankind, for example to permit the education of needy children. “Wealth is praiseworthy in the highest degree if it is acquired by an individual’s own efforts and the grace of God, in commerce, agriculture and industry, and if it be expended for philanthropic purposes… if it is expended for the promotion of knowledge, the founding of schools, the encouragement of art and industry… in brief, if it is dedicated to the welfare of society.” Also, it is clear that absolute equality is neither desirable nor possible, for industry, agriculture and commerce would end in chaos. It is therefore prescribed that laws and regulations are needed to avoid the constitution of the excessive fortunes and to meet the essential needs of the poor. A graduated income tax is one means mentioned to reduce extremes. These principles of moderation and of avoiding the extremes of wealth and poverty are quite explicit in Baha’i Writings. Voluntary sharing for example is considered to be more worthy than the equalization of wealth since equalization must be imposed from without, while sharing is a matter of free choice. Likewise, companies are encouraged to give workers a significant share of the profits each year. 7.4 Interfaith shareholder activism For thirty-seven years the Interfaith Center on Corporate Responsibility (ICCR) ( has been a leader of the corporate social responsibility movement. ICCR’s membership is an association of 275 faith- based institutional investors, including national denominations, religious communities, pension funds, foundations, hospital corporations, economic development funds, asset management companies, colleges, and unions. ICCR and its members press companies to be socially and environmentally responsible. Each year ICCR-member religious institutional investors sponsor over 200 shareholder resolutions on major social and environmental issues. The International Interfaith Investment Group 3iG ( was formally launched in April 2005 and an interim steering committee was created comprised of representatives of the Buddhist, Christian, Hindu, Islamic, Jain, Jewish, Muslim, Sikh and Zoroastrian faiths. Seeking a way for each faith to assess its portfolios with “due regard to the faith’s beliefs, values, the environment and human rights so that all life on Earth can benefit,” the group created the term “faith-consistent investment” as a form of socially responsible investment (SRI).An advisory group of investors from secular groups, including philanthropies, who found their values and ethics aligned with those of 3iG, became involved. As it looks to the future, 3iG plans to make an impact by: Helping faith investors to more effectively invest their assets in ways that are consistent with the values of the faith and that bring fiscally responsible returns. 3iG is thus building on and expanding the faiths’ experience and determination for advancing a more just and environmentally friendly society. Providing access to a wide range of advisory and investment services related to faith consistent investing. In Conclusion “Where there is no vision, the people perish.” King James Bible, Proverbs “Let your vision be world-embracing, rather than confined to your own selves. Do not busy yourselves in your own concerns; let your thoughts be fixed upon that which will rehabilitate the fortunes of mankind and sanctify the hearts and souls of men… It is not his to boast who loveth his country, but it is his who loveth the world.” Baha’i International Community “Above all else, leaders for the next generation must be motivated by a sincere desire to serve the entire community and must understand that leadership is a responsibility, not a path to privilege. For too long, leadership has been understood, by both leaders and followers, as the assertion of control over others. Indeed, this age demands a new definition of leadership and a new tipe of leader.” Baha’i Writings “Society is looking for meaning as yesterday’s values and lighthouses seem to have been submerged into the wild globalization tempest. … We cannot escape globalization any more than we can escape gravity. Globalization, beyond being our current dominant paradigm, is the train we, willingly or not, boarded. … The problem is that it has no driver. Unregulated globalization, characterized by the lack of cooperation within the so-called “international community” … has little chance of producing the sustainable world future generations would have the right to expect. … we will need to develop a new generation of leaders aware of the interdependence between the way we run financial resources on this planet and its impact on sustainable development.” Henri-Claude de Bettignies, Finance for a Better World, p.2. One would like very much to conclude this journey into the world of finance on a positive note. After all, it is basically a service-oriented profession. Banks, insurance companies, pension fund etc. are focused on meeting real social as well as economic needs whether they be safekeeping, loans, retirement, education, or insurance. At the same time, many innovations such a microfinance have contributed significantly to poverty alleviation, the creation of employment and helping the poorest of the poor. The initiatives and guidelines of UN agencies such as the Global Compact, the United Nations Environmental Programme Finance Initiative, and the Principles for Responsible Investing, have stimulated financial firms, corporations and others to be more socially and environmentally responsible in their investments. All of these and other initiatives make it clear that ethical finance is NOT an oxymoron. Nevertheless, widespread unethical finance has caught the eyes and ears of the public. A few bad eggs are spoiling the eggnog as they act to satisfy their own greed and short-termism. Whether increased governmental regulation will bring about a sounder financial systems remains to be seen; whether reporting can be made more transparent is also far from certain; whether top executive compensation can be made more equitable seems increasingly doubtful. The answer to these dilemmas will require a revolution in the values driving our societies and institutions to reduce inequalities, to increase global consciousness of the oneness of mankind, to act before it is too late to reverse environmental degradation, to overcome short-termism and self-centeredness, and to better balance female qualities and those of men. We, the members of EBBF, are convinced that a dramatic renewal of values must be the underpinning of any significant shift toward more ethical finance. In June 2009, on the occasion of the first Global Ethics Forum in Geneva, the Governing Board of the European Baha’i Business Forum (EBBF) issued a statement on “An Ethical Perspective on Today’s Economic Crisis.” In closing, we quote from that document: “The world is passing through an economic and financial crisis unprecedented in modern times. Its global scope transcends the cyclical adjustments of national economies and the corrective instruments usually used by business and national governments. The general malaise and loss of confidence point to deeper issues and more fundamental flaws in the economic system, extending to a crisis of leadership and values. This unprecedented crisis, together with its accompanying social breakdown, reflects a profound error of conception about human nature itself. We are being shown that, unless the development of society finds a purpose beyond the mere amelioration of material conditions, it will fail to attain even this goal. That purpose must be sought in spiritual dimensions of life and motivation that transcend a constantly changing economic landscape and an artificially imposed division of human societies into “developed” and “developing”. The European Baha’i Business Forum recognizes in this situation an opportunity to reshape the fundamental concepts and structures that will not only lift us from this crisis but set us on a road towards a new set of institutions and behaviours which will enable humankind to prosper. As the present crisis is fundamentally one of trust and integrity, and therefore ethical in its foundation, its solution cannot be a mere institutional reorganization or some additional regulatory measures. It needs an ethical response at all levels: the individual, the corporation and the government and regulatory entities. There is no quick fix to this situation. Several principles must be considered while reshaping our thinking on institutions and the individuals that compose them. We need to replace the concept of self-centred materialism with that of service to humanity, competition with cooperation, corruption with ethical behaviour, sexism with gender balance, greed with personal ethics, national sovereignty with international collaboration, protectionism with world unity, and injustice with justice.” Bibliography, Downloads and Links Introduction – deBettignies, Henri-Claude and François Lépineux. (eds) (2009) “Finance for a Better World: The Shift toward Sustainability”. Palgrave Macmillan, London. – “A short history of modern finance”, The Economist, 16 October 2008 Chapter 1 KLD Blog New Economics Foundation (NEF) Investing for the Soul Responsible Investor (RI) Centre Tricontinental (CETR) Ethics Newsline World Business Council for Sustainable Development (WBCSD) Ethical Corporation Institute -“European SRI Study 2008” -Responsible Investment: public lecture by Joseph Stiglitz “Responsible Investment in a Global, Long-term Perspective” on 25 August 2008, Oslo, Norway. -“The semantics of RI: what are we talking about?”, Steve Viederman, Responsible Investor, 6 July 2009 Chapter 2 – “Keeping Up With Asia”, Yoichi Funabashi. Essay, September/October 2008, Foreign Affairs – “The investment strategies of Sovereign Wealth Funds”, Shai Bernstein, Josh Lerner, Antoinette Schoar. Working paper 2009 “Harvard Business School – “Sovereign Wealth Funds and Norway’s Government Pension Fund” presentation by Tore Eriksen, Secretary General to the Norwegian Ministry of Finance, 25 September 2008 – “Recommendation of February 15, 2008, on exclusion of companies Rio Tinto Plc and Rio Tinto Ltd.”, Council of Ethics, The Government Pension Fund – Global to the Norwegian Ministry of Finance – “Earnings Quality and Ownership Structure: the Role of Private Equity Sponsors”, Sharon P. Katz, Harvard Business School Working Paper 09-104 – “High Net Worth Individuals and Sustainable Investment”, Eurosif 2008 – “World Wealth Report 2008”, Capgemini, Merrill Lynch – “An economist’s defense of responsible off-shore financial centres in small States”, Avinash D. Persaud, a member of the Commission of Experts of the President of the UN General Assembly on Reforms of the International Monetary and Financial System International Association for Community Development Social Funds Community Development Financial Institutions Fund NEF – Community Development Finance Social Investment Forum Shareholder Association for Research & Education Canada (SHARE) Chapter 3 – “A legal framework for the integration of environmental, social and governance issues into institutional investment”, produced by the Asset Management Working Group of the UNEP FI in October 2005 – “Mainstreaming Responsible Investment”, World Economic Forum, January 2006 – “Show me the money: Linking Environmental, Social and Governance Issues to Company Value”- produced by the Asset Management Working Group of the UNEP FI in 2006 – “Gaining ground – integrating environmental, social and governance (ESG) factors into investment processes in emerging markets”, IFC International Finance Corporation, Mercer, March 2009 – “KPMG International Survey of Corporate Responsibility Reporting 2008” – “At risk? – How companies manage ESG issues at board level”, EIRIS April 09 – “Financial institutions fail to manage their environmental, social and governance risks, global survey finds”, EIRIS April 09 – “Financial Exclusion and Strategic Corporate Social Responsibility: A missing link in sustainable finance discouse?”, Kennet M. Amaeshi, Abel E. Ezeoha, Bongo C. Adi, Manson Nwafor, Nottingham University Business School -“PRIME Toolkit” Bellagio Forum for Sustainable Development, Eurodif – “Values and Money – A Research Practitioner’s Perspective on Value for Money”, Peter K. Kinder, KLD Research & Analytics, Inc. -“Vice versus Virtue Investing- Abstract”, Sebastian Lobe and Stefan Roithmeier – Ed Rory Sullivan and Craig Mackenzie, “Responsible Investment”, Greenleaf Publishing Sheffield UK 2006 -EIRIS Experts in Responsible Investment Solutions Chicago Booth /Kellogg School: Financial Trust Index Working Paper Series Chapter 4 Microfinance – Yunus, Muhammed. And Jolis, Alan, “Banker to the Poor”, 2003 – Stuart Rutherford. “The Poor and Their Money”. Oxford University Press, New Delhi, 2000, p. 4. isbn =019565790X – C.K. Prahalad “The Fortune at the Bottom of the Pyramid: Eradicatig Poverty Through Profits”. Wharton School Publishing, 2005 – Sachs, Jeffrey, “The End of Poverty”, The Penguin Press, 2005 – Rodey, Barbara. “A Global Dialogue on Microfinance and Human Deveopment”: Final Report. EBBF, 1998 – Roday, Barbara. “The Spiritual Dimensions of Microfinance: Toward a Just Civilization and Sustainable Economy”. EBBF, 1996 – Zahrai, Michel. “The Spiritual Dimensions of Microfinance”. EBBF, 1998 – “State of the Microcredit Summit Campaign Report 2009”, published by The Microcredit Summit Campaign Wikipedia The Microcredit Summit Campaign Grameen Bank Women’s Wold Banking WWB Planet Finance Accion FINCA International Global Development Research Center Pride Africa Self Employed Women’s Association Washington CASH Cooperative Banking International Co-operative banking Association World Council of Credit Unions Co-operative Financial Services Philanthropy – “Venture Philanthropy: The Evolution of High Engagement Philanthropy in Europe”, Rob John, Oxford said business, June 2006 – “Demonstrating Social Venture Partners’ Impact: 2007 Philanthropy Development Report”, Erin Hemmings Kahn, Social Venture Partners, September 2007 European Foundation Centre WINGS Worldwide Initiatives for Grantmaker Support The Bill & Melinda Gates Foundation European Venture Philanthropy Association Social Venture Partner Association Skoll World Forum on Social Entepreneurship Fraternal or Relational Economy – David B. Couturier, OFM. Cap. “A Capuchin’s Perspective on Poverty and Fraternity – The Rise of the Fraternal Economy in the Capuchin Franciscan Order”, published in “World Poverty – Franciscan Perspectives”, by Franciscan International – David B. Couturier, OFM. Cap.: “Franciscans and the Financial Crisis”, February 2009 and “Franciscans and Revenue Generation” March 6, 2009 Time-banking – “The new wealth of time: How timebanking helps people build better public services” The Rushey Green Time Bank Social Return on Investment (SROI) – “A Guide to Social Return on Investment”, published by the UK Cabinet Office for the Third Sector The SROI Network Solidarity Finance certifications and labelling Finasol – Finance et solidarité International Association of Investors in the Social Economy ETHIBEL Oikocredit Chapter 5 – “Handbook on Climate-Related Investing across Asset Classes”, Institute for Responsible Investment, Boston College, Carroll School of Management, Center for Corporate Citizenship – “Environmental disclosures – The second major review of environmental reporting in the annual report & accounts of the FTSE All-Share”, Environmental Agency, October 2007 – “Key elements of a Global Deal on Climate Change”, LSE the London School of Economics and Political Science, Nicolas Stern Carbon Finance – “State and trend of the Carbon market 2009”, World Bank, May 2009 – “Climate Changes – Your business – KPMG’s review of the business risks and economic impacts at sector level” – “Fairness in Global Climate Change Finance”, Andrew Pendleton and Simon Retallack, Institute for Public Policy Research, IPPR, March 2009 -“ The ADVANCE Guide to Sustainable Value Calculations – A practitioner handbook on the application of the Sustainable Value approach” United Nations Framework Convention on Climate Change Emission Trading System (EU ETS) Environmental Agency UK, Environmental Finance Sustainable Development International SDI Clean Tech Investing: Renewable Energy and beyond – “Renewables Global Status Report 2009” – “Cleaning Up 2009 Report”, Executive Summary, NEF – “Financial Time Special Report Green Giants” – Renewable Energy Policy Network for the 21st Century -New Energy finance desktop 3.0 Joel Makower CleanTech Summit CleanTech Law and Business Biodiversity finance – ”2008 The State of the World – Innovations for a sustainable economy”, The Worldwatch Institute – ”The European Biodiversity Finance Compendium”, ECNC – European Centre for Nature Conservation, February 2008 – ”The economics of ecosystems and biodiversity – An interim report”, European Communities 2008 European Centre for Nature Conservation EU, Directive 2004/35/EC: Environmental Liability Gender financing in the climate change regime – ”Gender and Climate Finance: double mainstreaming for sustainable development”, The Heinrich Böll Stiftung, May 2009 – ”Grameen Shakti: Pioneering and expanding Green Energy Revolution to Rural Bangladesh – Greening the Business and making the Environment a Business Opportunity”, 5 – 7 June 2007, Bangkok, Thailand – ”Gender Equality as Smart Economics: A World Bank Group Gender Action Plan (Fiscal years 2007-10)”, September 2006 Women’s Environment & Development Organization WEDO Chapter 6 Islamic Finance Islamic Banking Portal World Islamic Economic Forum Foundation Jewish-based Finance – Hagai Amit,“Turning a profit with halakhic investments”, 20 November 2006. – Mark S. Schwartz, Meir Tamari and Daniel Schwab “Ethical Investing from a Jewish Perspective”, Business and Society Review 112:1 137-161 Jewish Association for Business Ethics The Business Ethics Center of Jerusalem Interfaith shareholder activism “Shareholder Activism In Canada”, presentation by Francois Meloche Groupe investissement responsable, inc. Interfaith Center on Corporate Responsibility The International Interfaith Investment Group Center of Concern Annex A Observatoire de la Finance A Manifesto – For finance that serves the common good The current financial turbulence is systemic in nature. It is a symptom of steadily increasing pressure that is undermining the material, social, and intellectual aspects and ethics of the liberal socio-economic system. In a recent report, the Observatoire de la Finance carried out an extensive analysis of this transformation. More emphasis will deflect the market economy from its principle vocation, that of promoting the dignity and well-being of humankind. THE DIAGNOSIS Society is never set in stone; it is characterised by an on-going quest for the arrangements best adapted to a given time. Today is no exception. During the last thirty years, finance has constantly increased not only its share of economic activity but also of people’s world view and aspirations. We call the greater practical and conceptual role of finance “financialisation”. The Observatoire de la Finance dedicated its last report1 to the analysis of the multiple dimensions of financialisation. The report shows how financialisation has transformed both our economy and our society by increasingly organising it around the search for financial efficiency. Today, pushed to its extremes, this tendency is coming close to its breaking point. By the mid 70s, most Western countries had linked their promises of pensions and retirement benefits to investments that depended on sustainable liquidity. The long-term viability of this model is dependent on the profitability of financial instruments. At the same time, other savings instruments were developed. This progressively exposed the rest of the productive economy to the vagaries of finance, thereby producing an increasing need to devote more and more of the added value to the remuneration of the savings thus invested and more and more self-nourishing complexity. Pressures on the companies from stock exchange and from private equity fund have been translated into other pressures in three complementary directions: on their staff to achieve ever-increasingly improved performance; on consumers, who came under increased pressure from sophisticated marketing techniques; and on the companies’ suppliers and larger distributors as well as on many SMEs (small and medium-sized enterprises) in both the North and the South to achieve increasingly unsustainable results. Though initially financial, the demand for financial results has trickled down through the entire economic system and become an omnipresent part of the culture of everyday life. This evolution has now resulted in a paradoxical situation for Western societies. The system of capitalisation and shareholder value, by imposing demands for the future, has compromised the present. This “radiant future” is proving to be as much of an illusion as the communist utopia. This process of “financialisation” has been facilitated by the political appeal of deregulation, as well as by “laws” and other “theorems” postulated by Nobel prize- winners. The “ethos of efficiency” has also been allegedly validated by “scientific” truths, and has progressively overcome moral and ethical resistance. After over thirty years of “financialisation”, the state of the economic and social system is worrying on more than one count: “Financialisation” has led to the almost total triumph of transactions over relationships. Contemporary finance has prevailed because it has carried to its ultimate the search for capital gains and instant results. At the same time, patience, loyalty, enduring relationships, and trust have been undermined leading to increased distrust. The liquidity of financial markets is nothing more than a mechanical substitute for interpersonal trust. The ethos of efficiency has become the ultimate criterion of judgement. If pushed to the extreme, the preoccupation with efficiency leads to internal procedures that distribute tasks and responsibilities in an increasingly strict manner, until the point of “ethical alienation” has been reached. Employees lose their sense of meaningful employment and replace it by gainful employment. The ethos of efficiency, when disassociated from moral considerations, has led to the increasingly brutal expression of greed. This is obvious in the subservience of trust to transactions. Repeated acts of self-interest can push any society to the breaking point. The free market, based on a sense of responsibility of its actors, is about to be replaced by a “greed” market – which will require escalating controls and costs, in both public and private spheres. This, in turn, will breed the unwillingness of the actors themselves to take responsibility for their actions. POSSIBLE LINES OF ACTION This analysis suggests that the fundamental values of free judgement, responsibility and solidarity – which form part of the common good, and without which a free and humane society cannot exist – are under threat. The Observatoire de la Finance proposes three lines of action: Carry out a critique – in the positive sense of the term – of the world vision underlying contemporary economic and financial theories. This critique would include both their relation to social and economic realities and the conceptual and ethical dimensions of their underlying assumptions. This should lead to a challenge to the dogmatic pre-eminence of the preoccupation with economic and financial efficiency as well as to the reinstatement of ethical concerns and of the primacy of common good. Encourage the development of long-term commitments in all aspects of financial life. Such commitments would slow or even reverse the destruction of relationships due to the current focus on extracting surplus through ill-considered transactions. This would be a huge undertaking with implications in several different fields: finance, taxation, salaried work, local development, etc. Loosen the stranglehold which the unrealistic promise of retirement benefits currently brings to bear on productive activity. This will require great political courage, since the professional interests of financial intermediaries could be at stake. However, it is crucial since it is increasingly obvious that pension promises will prove unrealistic, and that the pursuit of strategies to earn the returns demanded are undermining the ethical basis of capitalism. But the work must be undertaken before the threatened breakdown of the current saving and pensions system becomes a reality. APPEAL The above text aims to alert men and women of goodwill to a serious threat to the economic and political freedom we treasure. This threat is the result of having succumbed to the illusion that private greed could contribute to the common good. While private greed may give the impression of increasing economic efficiency, this is at the cost of the very basis of society: trust, respect and solidarity. It has now become indispensable to take our future in hand – to walk out, to slam the door of the apparently golden prison of financial promises, to free humankind from the illusions of “financialisation”, and to set it to work for the betterment and dignity of all. To Contact the Observatoire de la Finance: Phone: +41 22 346 30 35 Fax: +41 22 789 14 60 E-mail:

175 views0 comments


bottom of page