Ethical banking

Ethical banking makes slow but steady progress in Latin America.

In Latin America, the implementation of ethical banking, a term that encompasses socially conscious and environmentally responsible practices, remains weak compared to Europe and the US. Globally, there are around 60 such institutions.

Since 2018, a number of financial institutions in Chile started offering specialised banking services specifically devoted to financing education, culture, development and environmental initiatives. By the end of 2020, Chile’s banking system had provided ethical banking loans amounting to CLP 24.77 billion (GBP 23.48 million).

Sebastián Cantuarias Bottero, CFO of one such ethical lender in Chile, told us his company’s story, “In 2017, we created an investment platform, Doble Impacto, combining a public investment fund and a fintech. Today we have more than 3,000 investors and have financed more than USD 50 million.”

The outbreak of the COVID-19 pandemic has led to a rise of 40% in the demand for social banking in Chile. The Fundación Dinero and Conciencia, which lobbies for the implementation of ethical banking in the country, claims that the change from an investor perspective is real, but still very slow.

The Chilean ethical bank plans to capitalise on this growing trend, “We have two plans,” continues Sebastián Cantuarias, “Firstly to become a regulated bank in Chile but only work with ethical clients, secondly to scale up our fintech activities across Latin America.”

Banks are still exploring strategies to offer a wider range of services involving ethical and social solutions beyond the already existing microfinance and financial inclusion programmes. In Chile, as in the wider Latin American market, an ambitious ethical banking offering should combine diverse financial vehicles with the aim that companies and public institutions could better collaborate to offer efficient social initiatives. From a regulatory perspective, the main challenge to set up an ethical bank in Chile is the high threshold to reach the volume necessary to create a regulated bank.

“The problem is that sustainable investment has been linked to poverty or microfinance. We have expanded our offering to work with any company that can prove a positive impact.”

CFO, ethical bank, Chile

The CFO explained the challenges facing ethical banking, “The problem is that sustainable investment has been linked to poverty or microfinance. We have expanded our offering to work with any company that can prove a positive impact and we’re seeing good results. The challenge is not so much finding investors, the challenge is finding good companies that the investors want to support.”

“There are companies that destroy the environment but they still get financed, they will only stop when their lines of credit are removed.”

CFO, ethical bank, Chile

The executive was adamant that any real positive change in sustainability must involve the financial system, “You cannot promote sustainability and ethics while you are financing everything. There are companies that destroy the environment but they still get financed, they will only stop when their lines of credit are removed.”

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