What Is Ethical Finance & Its Categories?

Ethical finance has critical importance in protecting honesty and maintaining justice in the finance sector, where people make all kinds of financial transactions with each other. Since societies share different ethical values, ethical finance is shaped according to ESG factors and divided into three categories. This article will explain ethical finance and its categories.

About Ethical Finance

Ethics is based on standards of right and wrong that determine what people should do, often in terms of rights, obligations, justice, or specific moral codes. This concept, which plays an increasingly essential role in our daily lives, is also crucial for the financial sector, where people interact most actively. Ethical finance doesn’t only consider a financial return but also ESG factors to focus on accuracy, honesty, and justice in every financial transaction. ESG factors are defined as follows in Scottish Business Insider’s publication in the second quarter of 2021:

  • Environmental Factors: These factors affect the natural world, including climate change, energy efficiency, and waste processing.
  • Social Factors: It is the concern of local and global communities and includes working conditions, health and insurance, and diversity.
  • Management Factors: Management factors concern the borrower’s internal workings and decision-making processes. These include board independence and transparency and its relationships with stakeholders, including shareholder rights, anti-bribery and corruption, and political lobbying.

Ethical Finance Categories

The finance sector is in close interaction with every other industry. Creating a list of ethical concerns would be challenging. Categorizing ethical finance makes it easier for financial institutions and allows individuals or businesses to choose a finance process according to their values. The four main categories are:

1) Green Finance

Green finance refers to financing or providing eco-friendly products or projects by finance institutions with ideal opportunities. Here, low-interest rates and donations to green organizations help encourage people to use eco-friendly products. In addition, green finance is seen as an essential step in sustainable global development.

2) Social Finance

Social finance is one category that responds to the earnings-only approach of finance by evaluating people, the planet, and profits together. Additionally, it creates economic value while trying to solve social problems. The research has shown that the rapid development of social finance will reveal the need to strengthen self-regulatory capacity and governance mechanisms and develop complex intermediaries to link capital and opportunities.

3) Sustainable Finance

Sustainable finance covers the financial and regulatory risks in business and investment decisions and environmental and social elements in financial procedures. According to the definition of the European Union, sustainable finance refers to the process that considers ESG factors during investment decisions and supports long-term investments in sustainable economic activities and projects. In addition, European Union also predicts that sustainable finance will be a key to reaching sustainable development goals.

As a result, ethics is among the most crucial factors in the finance world. Individuals or institutions share different ethical values, categorizing ethical finance into three. These categories help individuals or businesses follow their ethical values regarding accuracy, honesty, and justice in their financial processes.

Virtual i Technologies Awarded by Wealth & Finance International

Virtual i Technologies is awarded as the Most Innovative Insurtech Company at Ethical Finance Awards 2022 by Wealth & Finance International. From the day-1, Virtual i Technologies always gives importance to ethical finance as well as business returns. Experiencing a skyrocketing growth has always been hand-in-hand with social and environmental contribution. By focusing on these values, Virtual i Technologies is deemed worthy to such prestigious awards all around the world.

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