Financial institutions can play a pivotal role in creating a more sustainable world through financial services and business practices. They can make a positive impact on society by doing no harm at the individual level, scaling up their social impact with the virtuous circular model, and monitoring and reporting progress on their social impact efforts.

Achieving positive social impact

Achieving positive social impact through financial institutions requires a clear and integrated approach. This research paper provides a unique and systematic perspective on how the banking sector is advancing towards positive social impact. The findings may help practitioners design effective frameworks and social impact practices.

The Global Alliance for Banking on Values (GABV) is a group of frontrunner banks that have demonstrated an integrated approach to social impact. GABV members have embedded the Principles of Values-Based Banking in their operations.

To investigate the effectiveness of this approach, researchers explored the practices of a representative sample of values-based financial institutions. Their findings reveal a great diversity of approaches to social impact.

An analysis of the responses indicates that the practices of values-based financial institutions are more advanced than mainstream banks. In addition to providing a holistic approach to social impact, the institutions also have good performance and risk profile. However, they face growing regulatory requirements and additional reporting.

Scaling-up social impact virtuous circular model

Developing a sustainable banking industry requires achieving positive social impact. This is not only a matter of public policy, but also a matter of moral responsibility. Banks work with other people’s money, and must ensure that it is not used to harm society.

A virtuous circular model can be used as a model to scale up social impact. It shows that integrating social impact into business practices makes good sense. The circular model consists of two stages, each accompanied by a set of indicators.

The first stage involves an enhanced partnership between governments and sustainability champions. As a result, more actors participate. Using the circular model, this will result in the reduction of primary material consumption by up to 32% by 2030.

The second stage includes an improved virtuous circle by enabling greater accountability and boosting the number of actions taken. This is accomplished through the use of a blockchain. An incorruptible tool that ensures effectiveness of partnerships.

Monitoring progress on social impact

Increasingly, financial institutions are being seen as a source of social challenges. However, they also have the capacity to contribute directly to sustainable impact, as well as enhancing the performance of their businesses. Banks can therefore help to develop and implement a blueprint for action, which includes assessing the impact created by their employees and customers. In this way, they can strengthen their performance by making social impact an integral part of their strategy.

Using a systematic approach, this paper presents an extensive review of best practices in values-based banking. It is intended to provide practitioners with a more comprehensive picture of this practice.

A number of value-based financial institutions were represented in the study. These include BCorp, Triodos Investment Management, and Merkur Bank in Denmark. Their approaches to impact are outlined in Appendix B.

The study found that two-thirds of respondents monitor the social impact of their institutions. The indicators tracked by these institutions vary, depending on the specific institution and the definition of the impact. They include the number of clients and the share of portfolio that is lent to clients. Some banks focus on monitoring economic sectors, while others measure the number of loan committees that assess the social impact of their lending decisions.

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