Edited by Luigino Bruni and Stefano Zamagni
Chapter 13: Ethical finance: an introduction
The term ethical finance is used to define a new vintage of financial intermediation pioneers whose activity is oriented toward the pursuit of some variously defined common goods and not toward the unique goal of profit maximization. It is seen by some as a provocation and by others as an oxymoron. A provocation because it seems to imply that all the finance which is outside the newly defined ‘ethical’ one is non ethical. An oxymoron because, for some, finance and ethics are two terms which are incompatible. A third preferred interpretation is that the traditional financial system pursues fundamental social and ethical goals in a market economy but the new ‘ethical finance’ actors (ethical investment funds, ethical banks, social microfinance institutions) have shifted further the frontier by discovering new ways to pursue the goal of creating economic value in a socially and environmentally sustainable way. With regard to the traditional financial system what has to be acknowledged is the importance of the role of traditional financial intermediaries for the economic system. Insurance companies pool resources and diversify risk thereby increasing the wellbeing of risk averse individuals. Banks pool savings and allocate them to the most profitable destinations, provide liquidity services by assuming liquid liabilities against (partially) illiquid assets. Non banking financial intermediaries transform asset duration and diversify risk cross-sectionally and intertemporally (Bhattacharya and Takor, 1993).
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