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Untapped Upside: FSG to Release Shared Value in Banking Research

Planet Money, a show dedicated to economics on National Public Radio (in the U.S.) is often informative and entertaining – but rarely is it shocking. 

And yet one of the latest episodes was seemingly outrageous: Episode 543, A World Without Banks. A news show called Planet Money was interviewing serious economists about the possibility of a world without banks – and doing it with enthusiasm. Something that would have been considered laughable ten years ago has all of a sudden entered the mainstream. Somewhere between the disappointment towards banks in the wake of the financial crisis and the emergence of alternatives, the perceived value of banks is eroding. Fast.

It is clear that the banking industry needs a new approach. As we emerge from the global financial crisis, the time is ripe to for banks to reimagine their role in society and to recognize their immense potential to create shared value – to generate business value by creating social value. We know that banks can play a pivotal role in driving social and environmental progress. They are essential to fostering the growth of every business, to financing housing and education, and to enabling the development of tomorrow’s clean energy infrastructure.

Yet these roles have largely been forgotten or shoved aside over the past decade, as banks raced towards solutions to generate short-term profits through ever more complex – and risky – financial structures. While there has been some growth in areas like financial inclusion and impact investing, banks have rarely pursued opportunities to create shared value through their core businesses. They have instead relied on peripheral CSR or sustainability programs. But in doing so, they are leaving tremendous value on the table – both for themselves and for society.

For the past six months, FSG has focused on exactly this issue: why haven’t more banks pursued shared value opportunities more aggressively and how can they improve their ability to capitalize on them. In partnership with the Inter-American Development Bank, Itaú Unibanco, and the National Bank of Australia, FSG will publish the complete findings of its research on banks in “Untapped Upside: Shared Value in Banking” to be released later this month. The paper identifies three major areas of shared value opportunity for banks:

  • Furthering client prosperity by improving the financial health of individual and business clients and extending banking services to the unbanked. By strengthening the financial health of clients through core business activities, banks not only save by avoiding defaults and foreclosures, but they also actively expand their customer base, add larger accounts, and grow their businesses.
  • Fueling the growth of regional economies by moving beyond individual transactions to proactively finance and strengthen entire ecosystems of players within an industry or community. The success of banks largely depends on the economic strengths of the communities where they (and their clients) operate. A more prosperous community means more and healthier business clients.
  • Financing solutions to global challenges by mainstreaming socially or environmentally-beneficial client segments and impact investments. While these markets are traditionally perceived as immature or subscale, there is growing commercial opportunity in delivering financial returns alongside environmental and social ones.  

But why haven’t banks scaled their activities in these areas when they can deliver business benefits? And how have some banks innovated to embed shared value in their core businesses?

To learn more about the barriers to scale and how leading banks are overcoming them, stay tuned for the full report, to be published on June 23.

 

This post originally appeared on the Shared Value Initiative's blog