tag:theconversation.com,2011:/ca/topics/financial-institutions-22524/articlesFinancial institutions – The Conversation2023-12-11T10:21:53Ztag:theconversation.com,2011:article/2173842023-12-11T10:21:53Z2023-12-11T10:21:53ZNeeding to borrow money? Four tips on what’s okay and what’s not<p>It’s a financially challenging time for most households. With interest rates rising, many are spending even more money on debt repayments or taking out loans to help make ends meet. </p>
<p>A <a href="https://api.moneyedge.co.za/uploads/JOB_027311_Nedbank_NEDFIN_Health_Monitor_Report_V5i_Interactive_ae1185bd97.pdf">report</a> released recently in South Africa, compiled by one of the country’s biggest banks, found that <a href="https://api.moneyedge.co.za/uploads/JOB_027311_Nedbank_NEDFIN_Health_Monitor_Report_V5i_Interactive_ae1185bd97.pdf#page=12">42% of South Africans</a>, across various income levels, cannot manage their debt. This indebtedness has caused 67% of the respondents to worry about their debt to the point that it negatively affects their mental health.</p>
<p>As a new year gets underway, it’s a good time to reflect on your financial portfolio.</p>
<p>My research as a finance and financial planning <a href="https://researchprofiles.canberra.edu.au/en/persons/bomikazi-zeka/publications/">academic</a> seeks to understand the pathways that lead to economic empowerment and improve financial security, including the role of debt and other financial products. </p>
<p>There may be instances where the use of a credit card might be absolutely necessary (for example if you are making travel bookings). But for the most part if you are borrowing to pay regular expenses, increasing your credit limit, or using a credit card (or borrowing money from family) to pay off existing debt, then it may be worthwhile to consider these four tips on borrowing money.</p>
<h2>Four tips</h2>
<p><strong>Firstly</strong>, it’s good to know what amount of debt is okay to hold.</p>
<p>There is no easy answer to this because everyone’s financial situation is unique – and this will determine how much debt each person should draw on. Making this assessment requires knowing your ability to service debt. In other words, the amount of debt you take on should be guided by your ability to comfortably repay it. </p>
<p>The debt service ratio is a useful tool to determine this. It’s calculated by dividing your monthly debt by your monthly income. Say for example your monthly debt repayment is R6,000 and you earn a monthly salary of R30,000. You’d have a debt service ratio of 20%. As a general rule of thumb, a debt service ratio of 25% or less is considered acceptable. </p>
<p>Calculating this ratio will help you set a limit for how much income you are prepared to commit to your debt repayments. </p>
<p><strong>Secondly</strong>, be picky about who you borrow money from. </p>
<p>Financial institutions, such as banks or other formal money lenders, are the most popular sources for borrowing because the terms of borrowing, fees and interest rates can be determined in advance. More than that, borrowing from a regulated and recognised financial institution helps build a credit score, and, as counter-intuitive as it may seem, you need debt to take out debt. If you need to take out a more substantial loan in future, such as a mortgage or vehicle financing, then having a loan from a regulated financial institution helps to determine your credit score. Your payment history, account information, amounts owed and how long the account has been active are on record. This can give a good indication of your ability to service a future debt commitment.</p>
<p><strong>Thirdly</strong>, there are sources of borrowing you should avoid.</p>
<p>There are many ways and places to borrow money from – but not all of them are advisable.</p>
<p>It is common (and sometimes culturally accepted) to borrow from friends or family. But almost everyone who has gone down the route of borrowing from loved ones knows that it has the potential to ruin relationships when the terms of the repayment have not been honoured. Friends and family may not charge interest and tend to be more flexible than formal financial institutions. But borrowing from those close to you can cause a significant strain on a relationship – and even end it. </p>
<p>Then there are the loan sharks who charge exorbitant interest rates on their loans and get away with it because they are unregistered and unregulated. They also prey on the vulnerability of consumers who need a loan and resort to unscrupulous tactics when the loans aren’t repaid on time. Being in debt is stressful enough and borrowing from an informal moneylender can only do more harm than good. </p>
<p><strong>Fourthly</strong>, be scrupulous about what you’re borrowing money for.</p>
<p>Debt can be used to buy almost anything, from a cup of coffee to big ticket items such as a car or a house. However, anything that does not have a significant monetary value or is consumption-driven – clothing accounts, entertainment, or appliances – should not be financed through debt. That’s because the interest or fees of the credit used to buy consumable goods is often greater than the value of the consumable itself. </p>
<p>When you buy anything through debt, it’s worthwhile to ask yourself whether the purchase is worth the interest that is attached to it, and the future income you will need to commit to repaying the debt. </p>
<p>Knowing how much debt you should have, where to acquire it and what to use it for can make a huge difference to your financial wellbeing. Even though it has its uses, debt can quickly become a slippery slope when it’s not properly and consistently managed. If you are unsure about how to use debt, it’s always better to seek the help of a professional financial adviser.</p><img src="https://counter.theconversation.com/content/217384/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bomikazi Zeka does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Avoid borrowing to pay regular expenses or to pay off existing debtBomikazi Zeka, Assistant Professor in Finance and Financial Planning, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2049572023-05-18T16:49:26Z2023-05-18T16:49:26ZCanadian financial institutions are fuelling the climate change crisis<figure><img src="https://images.theconversation.com/files/526818/original/file-20230517-11772-oau96k.JPG?ixlib=rb-1.1.0&rect=0%2C0%2C3840%2C2552&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Wearing a protective mask, a dog walker ventures out as heavy smoke from northern Alberta forest fires blankets downtown Calgary on May 16, 2023. </span> <span class="attribution"><span class="source">THE CANADIAN PRESS/Larry MacDougal</span></span></figcaption></figure><iframe style="width: 100%; height: 100px; border: none; position: relative; z-index: 1;" allowtransparency="" allow="clipboard-read; clipboard-write" src="https://narrations.ad-auris.com/widget/the-conversation-canada/canadian-financial-institutions-are-fuelling-the-climate-change-crisis" width="100%" height="400"></iframe>
<p>Once again, Canada will almost certainly fail to meet its target to <a href="https://www.canada.ca/en/services/environment/weather/climatechange/climate-plan/climate-plan-overview.html">reduce greenhouse gas emissions by 40 to 45 per cent by 2030</a> in accordance with the most recent <a href="https://www.ipcc.ch/report/ar6/syr/">Intergovernmental Panel on Climate Change (IPCC)</a> recommendations.</p>
<p>This is despite the <a href="https://www.canada.ca/en/environment-climate-change/news/2023/04/minister-guilbeault-marks-climate-progress-with-the-release-of-canadas-2023-national-inventory-report.html">government’s optimistic</a> spin on the release of its latest <a href="https://unfccc.int/documents/627833">emissions inventory report</a>. Jerry DeMarco, <a href="https://www.oag-bvg.gc.ca/internet/English/parl_cesd_202304_e_44238.html">the environment commissioner in the Auditor General’s office</a>, <a href="https://www.lakelandtoday.ca/national-news/the-federal-government-promised-to-plant-2-billion-trees-by-2030-its-nowhere-close-6881921">has criticized the government’s record</a> as a litany of broken promises: </p>
<blockquote>
<p>“We have been repeatedly ringing the alarm bells. Now, these bells are almost deafening.”</p>
</blockquote>
<p>Canada is the only G7 nation with 2022 <a href="https://www.nationalobserver.com/2023/05/12/analysis/are-canada-emissions-finally-heading-down?nih=1efe3f93c5946a59edbdb0444bc4a463&utm_source=National+Observer&utm_campaign=c7596e081e-EMAIL_CAMPAIGN_2023_05_12_01_54&utm_medium=email&utm_term=0_cacd0f141f-c7596e081e-%5BLIST_EMAIL_ID%5D">carbon emissions levels that are above its 1990 levels.</a><a href="https://www.cbc.ca/news/science/how-canadians-can-cut-carbon-footprints-1.6202194"> It has among the highest greenhouse gas emissions per capita in the world</a>, and its <a href="https://www.cer-rec.gc.ca/en/about/publications-reports/annual-report/2018/energy-in-canada.html#:%7E:text=Canada%20is%20currently%20ranked%20the,gas%20producer%20in%20the%20world.">fossil fuel industry is also among the world’s largest.</a></p>
<p>And its financial institutions — banks, pension funds and private equity firms — fund the industry and are therefore helping fuel the climate crisis. </p>
<p>As a result, financial institutions’ assets are at risk. So too are the economy, people’s lives and ultimately the survival of the planet due to catastrophic fires, floods and droughts.</p>
<p>The federal government has so far been unable to effectively regulate financial institutions’ investments in the fossil fuels industry in accordance with its climate commitments.</p>
<figure class="align-center ">
<img alt="A man carries an orange sign that reads BMC what about your $100 billion in fossil fuels in front of a man standing behind a podium." src="https://images.theconversation.com/files/526322/original/file-20230515-29595-cy6vhx.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/526322/original/file-20230515-29595-cy6vhx.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=408&fit=crop&dpr=1 600w, https://images.theconversation.com/files/526322/original/file-20230515-29595-cy6vhx.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=408&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/526322/original/file-20230515-29595-cy6vhx.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=408&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/526322/original/file-20230515-29595-cy6vhx.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=513&fit=crop&dpr=1 754w, https://images.theconversation.com/files/526322/original/file-20230515-29595-cy6vhx.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=513&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/526322/original/file-20230515-29595-cy6vhx.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=513&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Protesters from Greenpeace interrupt as a Québec BMO executive addresses the Montréal Chamber of Commerce in Montréal in May 2023.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Christinne Muschi</span></span>
</figcaption>
</figure>
<h2>Regulatory agency</h2>
<p>DeMarco recently examined reports by the federal bank regulator, the <a href="https://www.osfi-bsif.gc.ca/Documents/WET5/ARO/eng/2023/aro.html#climate-risk">Office of the Superintendent of Financial Institutions (OSFI)</a> that oversees climate risks and sets risk guidance priorities for financial institutions. </p>
<p>The environment commissioner noted that while OSFI has belatedly designated climate change as a top priority, full implementation is years away. OSFI’s plan to improve banks’ resilience to climate change also fails to specifically encourage their transition to net-zero carbon emissions.</p>
<p>Sen. Rosa Galvez <a href="https://www.ipolitics.ca/news/senate-environment-committee-chair-hopes-her-bill-will-make-financial-sector-more-climate-conscious">recently argued</a> that OSFI should ensure financial institutions have <a href="https://www.osfi-bsif.gc.ca/Eng/fi-if/rg-ro/gdn-ort/gl-ld/Pages/CAR22_index.aspx">capital adequacy requirements</a> to protect against the eventuality of <a href="https://www.pembina.org/blog/climate-change-and-financial-risk-of-stranded-assets">climate-related stranded assets.</a> </p>
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<p>Financial institutions need to adopt the standard of putting aside <a href="https://doi.org/10.1038/s41558-022-01356-y">one dollar for every dollar of their fossil fuels assets so that if they can’t sell them due to shrinking demand</a>, they’ll have enough money to compensate depositors, workers and shareholders and avoid declaring bankruptcy. </p>
<p>In April 2023, the Bank of Canada released its <a href="https://www.bankofcanada.ca/2023/04/bank-of-canada-disclosure-of-climate-related-risks-2022/">first annual climate risk disclosure report</a> to provide guidance on the climate change risks facing the Canadian economy and financial system.</p>
<p>Like OSFI, the Bank of Canada report is a start but has a long way to go to make up for lost ground. And ironically, any positive effects could be offset by the bank’s high interest rate monetary policy. Critics of these central bank policies credibly argue that they hinder the transition away from fossil fuels.</p>
<p>Economic experts argue that <a href="https://www.theguardian.com/commentisfree/2023/may/06/central-banks-interest-rate-hike-climate-crisis">high interest rates discourage investments in renewables, keep economies locked into fossil-fuel dependence and slow down decarbonization</a>.</p>
<figure class="align-center ">
<img alt="A grey-haired man is seen from behind as he looks at the burnt remains of a house." src="https://images.theconversation.com/files/526334/original/file-20230515-24710-8v1xwo.JPG?ixlib=rb-1.1.0&rect=0%2C0%2C6000%2C4041&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/526334/original/file-20230515-24710-8v1xwo.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=408&fit=crop&dpr=1 600w, https://images.theconversation.com/files/526334/original/file-20230515-24710-8v1xwo.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=408&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/526334/original/file-20230515-24710-8v1xwo.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=408&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/526334/original/file-20230515-24710-8v1xwo.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=512&fit=crop&dpr=1 754w, https://images.theconversation.com/files/526334/original/file-20230515-24710-8v1xwo.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=512&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/526334/original/file-20230515-24710-8v1xwo.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=512&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A man looks over the remains of his onetime house after it was destroyed by the White Rock Lake wildfire in Monte Lake, east of Kamloops, B.C., in August 2021. He sold the house a few years earlier and its new occupants escaped the fire.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Darryl Dyck</span></span>
</figcaption>
</figure>
<h2>Current reality</h2>
<p>The latest fossil fuels report by the non-governmental organization <a href="https://www.bankingonclimatechaos.org/">Banking on Climate Chaos</a> found that the world’s 60 largest banks invested more than US$5.5 trillion into the fossil fuel industry since the <a href="https://unfccc.int/process-and-meetings/the-paris-agreement">2015 Paris agreement was signed</a>.</p>
<p>The Big Five Canadian banks all made the list of Top 20 funders globally after investing more than $1 trillion in fossil fuel companies since 2016.</p>
<p>The Royal Bank of Canada ranked as the world’s largest financier of fossil fuels in 2022, providing fossil fuel companies with US$42.1 billion with a total investment of US$253 billion since 2016 — the fourth highest on the globe.</p>
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<p>An article in the journal <a href="https://www.nature.com/articles/s41558-022-01356-y"><em>Nature Climate Change</em></a>
estimated that global stranded investor assets — namely, the present value of future lost profits in exploration, production and related services in the fossil fuel sector — exceeds US$1 trillion. The Canadian loss risk is more than US$100 billion, disproportionately in employee savings locked up in Canadian pension funds.</p>
<p>Canada’s largest banks have committed to voluntarily align their investments and lending with the United Nations target of net zero emissions by 2050 as part of the <a href="https://www.unepfi.org/net-zero-banking/">Net-Zero Banking Alliance</a>. They have also committed to cut emissions financing in half by 2030. </p>
<p>However, these banks haven’t made any commitments to jettison their fossil fuel clients. That makes their net-zero pledges highly suspect, bordering <a href="https://www.theglobeandmail.com/business/commentary/article-companies-need-to-stop-greenwashing-and-get-serious-with-net-zero/">on greenwashing</a>.</p>
<figure class="align-center ">
<img alt="A bearded man in a suit sits next to a sign that reads Net-Zero Leadership Summit." src="https://images.theconversation.com/files/526333/original/file-20230515-20488-2cm6t6.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/526333/original/file-20230515-20488-2cm6t6.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=447&fit=crop&dpr=1 600w, https://images.theconversation.com/files/526333/original/file-20230515-20488-2cm6t6.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=447&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/526333/original/file-20230515-20488-2cm6t6.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=447&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/526333/original/file-20230515-20488-2cm6t6.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=562&fit=crop&dpr=1 754w, https://images.theconversation.com/files/526333/original/file-20230515-20488-2cm6t6.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=562&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/526333/original/file-20230515-20488-2cm6t6.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=562&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Steven Guilbeault, Canada’s environment and climate change minister, speaks during the Canada 2020 Net-Zero Leadership Summit in Ottawa in April 2023.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Sean Kilpatrick</span></span>
</figcaption>
</figure>
<h2>Conflicts of interest</h2>
<p>None of their publicly available plans measure up, according to Matt Price, co-founder of <a href="https://www.corporateknights.com/climate-and-carbon/are-canadas-banks-serious-about-reaching-net-zero/">Investors for Paris Compliance</a>, a shareholder advocacy organization.</p>
<p>Although the International Energy Agency has stated that there’s no need for additional fossil fuel infrastructure, Canadian banks continue to fund expansion activities. Multiple proposals put forward by <a href="https://www.theglobeandmail.com/business/article-shareholders-rebuff-climate-proposals-at-canadian-energy-giants-but/">shareholder activists at 2023 bank meetings</a> to give them a say on climate plans have been rejected. </p>
<p>A study by the organization <a href="https://www.shiftaction.ca/climateconflicted">Shift: Action for Pension Wealth and Planet Health</a> has concluded that Canadian pension funds have generally failed to align their investment strategies with the Paris Agreement goals and neglected to develop a credible pathway to transition out of fossil fuels. </p>
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<p>Pension funds are also rife with conflicts of interest. The report found that seven of Canada’s 10 largest public pension funds have at least one director who also sits on the board of a fossil fuel company. </p>
<p>Overall, 80 different directors, trustees, executives and senior staff currently hold or previously held 124 different roles with 76 different fossil fuel companies.</p>
<p><a href="https://www.theguardian.com/business/2022/sep/14/private-equity-dirty-energy-carlyle-warburg-pincus-kkr-climate-risks-scorecard">Private equity firms,</a> which manage funds beneath the radar for wealthy individuals and institutional investors, have invested an estimated US$1 trillion in the energy sector since 2010 — the vast majority in fossil fuels.</p>
<figure class="align-center ">
<img alt="Destroyed buildings in the water in a seaside village." src="https://images.theconversation.com/files/526856/original/file-20230517-17-snz3n9.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/526856/original/file-20230517-17-snz3n9.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=403&fit=crop&dpr=1 600w, https://images.theconversation.com/files/526856/original/file-20230517-17-snz3n9.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=403&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/526856/original/file-20230517-17-snz3n9.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=403&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/526856/original/file-20230517-17-snz3n9.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=507&fit=crop&dpr=1 754w, https://images.theconversation.com/files/526856/original/file-20230517-17-snz3n9.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=507&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/526856/original/file-20230517-17-snz3n9.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=507&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Buildings sit in the water along the shore following hurricane Fiona in Rose Blanche-Harbour le Cou, N.L. in September 2022.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Frank Gunn</span></span>
</figcaption>
</figure>
<h2>Where to go from here</h2>
<p>Introduced more than a year ago, Galvez’s <a href="https://www.parl.ca/legisinfo/en/bill/44-1/s-243">Climate Aligned Finance Act</a> — which seeks to hold financial institutions accountable for investments that increase climate risk — has passed second reading but is still waiting to go to committee and hear from witnesses.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/a-canadian-senator-aims-to-end-the-widespread-financial-backing-of-fossil-fuels-192827">A Canadian senator aims to end the widespread financial backing of fossil fuels</a>
</strong>
</em>
</p>
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<p>Calling it the gold standard in legislation, 58 academics, myself included, have written a letter urging senators to move the bill forward by referring it to committee for testimony.</p>
<p>The close ties between the federal government and corporations largely explain Ottawa’s failure to effectively regulate banks and pension fund investments. </p>
<p>The corporate government power relationship — known as <a href="https://doi.org/10.1007/s12115-009-9228-3">regulatory capture</a> — largely explains the government’s failure to effectively regulate banks and pension fund investments. </p>
<p>Regulations benefit the industry at the expense of the public interest. In this case, the fossil fuel industry and financial institution enablers are able to shape the regulations governing their operations, block or delay new regulations and remove or dilute existing regulations deemed a threat to their interests.</p>
<p>Countervailing measures must be urgently implemented to <a href="https://lorimer.ca/adults/product/corporate-rules-the-real-world-of-business-regulation-in-canada/">combat regulatory capture</a> and ensure the public interest takes precedence over profit.</p><img src="https://counter.theconversation.com/content/204957/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bruce Campbell is affiliated with the Canadian Centre for Policy Alternatives, Group of 78, Rideau Institute for International Affairs, Polaris institute</span></em></p>Canadian financial institutions — banks, pension funds and private equity firms — fund the fossil fuel industry and are therefore helping fuel the climate crisis. Why won’t Ottawa hold them to account?Bruce Campbell, Adjunct Professor, Faculty of Environmental and Urban Change, York University, CanadaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2016312023-03-21T20:49:57Z2023-03-21T20:49:57ZOSFI’s new guidelines: A step toward making banks and insurers more conscious of their climate impacts<figure><img src="https://images.theconversation.com/files/516492/original/file-20230320-1510-qx10gt.JPG?ixlib=rb-1.1.0&rect=7%2C7%2C4778%2C3312&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Office of the Superintendent of Financial Institutions has released guidelines for financial institutions to address climate change risks. </span> <span class="attribution"><span class="source">THE CANADIAN PRESS/Nathan Denette</span></span></figcaption></figure><p>After an extensive consultation process, the organization that supervises banks and large insurance companies in Canada — the Office of the Superintendent of Financial Institutions (OSFI) — has <a href="https://www.osfi-bsif.gc.ca/Eng/fi-if/rg-ro/gdn-ort/gl-ld/Pages/b15-dft.aspx">released guidelines for financial institutions</a> to address climate change. This is timely, considering banks and insurers are <a href="https://www.ran.org/wp-content/uploads/2022/03/BOCC_2022_vSPREAD-1.pdf">massive funders of the fossil fuel industry</a>. </p>
<p>The release of the guidelines, called the B-15, comes more than a year after a <a href="https://www.osfi-bsif.gc.ca/eng/fi-if/in-ai/Pages/clrsk-mgm_let.aspx">January 2022 pilot study</a> by Canada’s central bank and OSFI on how resilient financial institutions would be <a href="https://theconversation.com/alberta-oilpatch-may-face-lending-crunch-as-financial-regulators-worry-about-the-risks-of-climate-change-175988">under new climate policies</a>. </p>
<p>The study found that the creditworthiness of oilsands producers is expected to fall over the next few decades. B-15 appears to address this concern by accommodating the needs of all stakeholders, including oilsands producers. </p>
<p>The <a href="https://www.osfi-bsif.gc.ca/Eng/osfi-bsif/med/Pages/b15-nr.aspx">development of B-15</a> is the result of one of the most ambitious consultations in OSFI history. It received nearly 4,400 submissions from financial institutions, non-regulated entities and other organizations and over 4,300 individuals.</p>
<p>But do the guidelines succeed in addressing the concerns of all stakeholders? And what, if anything, is missing?</p>
<p>Over the past 40 years, I have been involved in the formulation of financial sector policy, worked in a provincial financial institution and been a student of financial institution policy development. I have an appreciation for the role financial institutions play in modern economies and the importance of up-to-date policy frameworks and vigilant supervision.</p>
<h2>Sustainability reporting</h2>
<p>Sustainability reporting and <a href="https://www.businessinsider.com/sustainable-investing-esg-under-scrutiny-2022-7">environmental, social and governance investing</a> have come under scrutiny recently, creating a surge in reporting standards ranging from industry-supported standards to third-party independent ones. These variations have made it difficult for analysts to understand how financial institutions are contributing to climate change.</p>
<p>The proliferation of reporting standards are making it virtually impossible for international bodies, like the United Nations or the Financial Stability Board, to meet public expectations about risks caused by greenhouse gas-emitting corporations.</p>
<p>To address this issue, international banks joined the <a href="https://www.unepfi.org/net-zero-banking/commitment/frequently-asked-questions/">UN-sponsored Net-Zero Banking Alliance</a> in 2021. Members of the alliance have committed to aligning their loaning and investment activities with net-zero emissions by 2050.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1384734905511383040"}"></div></p>
<p>This has led to the creation of rating agencies that inform investors about climate risks and the performance of financial institutions. A November 2022 report <a href="https://www.morningstar.ca/ca/news/229362/canadian-banks-score-poorly-on-net-zero-transition.aspx">shed light on how poorly Canadian banks were progressing</a> on their net-zero strategies.</p>
<h2>Key takeaways from B-15</h2>
<p>The OSFI wants more detailed summary information about financial markets and the governance of federally regulated financial institutions. The guidelines, which are quite general, emphasize objectivity, reliability and consistency of data reported. Here are the main takeaways:</p>
<p><strong>1. Common definitions.</strong> Since federally regulated financial institutions are expected to understand climate-related risks and how to mitigate them, a common definition of climate risks is essential. The OSFI categorizes climate-related into two types of risks. </p>
<p>First, physical or operating risks include climate-related extremes and events, including mortality risks and physical risks. Second are transition risks, which include uncertainties about how climate-adjustment policies will unfold via government policies, legislation, greenhouse gas regulation, technological change and varying energy demands.</p>
<p><strong>2. Climate-related disclosures.</strong> The guidelines outline principles for federally regulated financial institutions to disclose climate-related risks and opportunities. These principles include relevance, specificity, comprehensiveness, understandability, balance, reliability, consistency and verification. Companies should ensure disclosures meet certain principles and expectations without overwhelming users with unnecessary information.</p>
<p><strong>3. Proportionality and materiality considerations.</strong> These terms refer to the fact that the guidelines are not one size fits all and largely depend on the size of financial institutions and their exposure to climate-related risks. Proportionality and materiality are necessary to understand the impact of catastrophic events, like a major breach from an oilsands tailings pond.</p>
<p><strong>4. Adequate climate-related capital and liquidity requirements.</strong> Regulators believe climate-related risks have the potential to cause financial risk within institutions. Because of this, federally regulated financial institutions are expected to incorporate climate-related risks into <a href="https://www.investopedia.com/terms/c/capitaladequacyratio.asp">capital adequacy</a> and <a href="https://www.investopedia.com/terms/s/solvency.asp">solvency assessments</a> to prevent bank runs and insolvency.</p>
<h2>Gaps in the guidelines</h2>
<p>One of the gaps in the B-15 guidelines is that it fails to provide guidance on assessing pre-existing and future environmental liabilities.</p>
<p>For example, one of the most vexing issues for lenders to oilsands producers is assessing the longevity of reserves and whether <a href="https://www.lse.ac.uk/granthaminstitute/explainers/what-are-stranded-assets/">borrowers’ assets will eventually become stranded</a>, potentially forcing creditors to pay for environmental cleanups. </p>
<p>In the <a href="https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/17474/index.do">ground-breaking Redwater case</a>, the Supreme Court of Canada ruled that, when oil companies go bankrupt, creditors are required to step in and clean up old oil and gas wells before any lenders are paid back. This is why Canadian lending institutions are so against putting these companies into bankruptcy.</p>
<p>At present, security posted by oilsands producers for future mine cleanup depends on how close oilsands mines are to the end of their reserve life. This determination is not as simple as it might appear.</p>
<figure class="align-center ">
<img alt="A pumpjack sitting in a wheal field" src="https://images.theconversation.com/files/516494/original/file-20230320-2935-cr0ayg.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/516494/original/file-20230320-2935-cr0ayg.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/516494/original/file-20230320-2935-cr0ayg.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/516494/original/file-20230320-2935-cr0ayg.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/516494/original/file-20230320-2935-cr0ayg.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/516494/original/file-20230320-2935-cr0ayg.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/516494/original/file-20230320-2935-cr0ayg.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A de-commissioned pumpjack is shown at a well head on an oil and gas installation near Cremona, Alta., in October 2016.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Jeff McIntosh</span></span>
</figcaption>
</figure>
<p>Under the Alberta <a href="https://www.aer.ca/regulating-development/project-closure/liability-management-programs-and-processes/mine-financial-security-program">Mine Financial Security program</a>, financial deposits are required to ensure any financial burden from abandonment and reclamation remains with the energy companies that own them.</p>
<p>At present, there is <a href="https://static.aer.ca/prd/documents/liability/MFSP_Liability.pdf">$1.55 billion in security held for liabilities</a> estimated by the Alberta Energy Regulator to total $33.7 billion, a number that <a href="https://www.pembina.org/blog/alberta-government-has-transparency-problem-when-it-comes-oil-and-gas-liabilities">critics believe is seriously underestimated</a>. </p>
<p>However, under the regulator’s rules, an oilsands producer is only required to post an operating deposit when there are less than 15 years of reserves remaining. So long as the reserves are provable, climate change policies, environmental liabilities and economic viability appear irrelevant to the Alberta Energy Regulator.</p>
<p>This is highly problematic in the current climate of mistrust that has arisen from the <a href="https://financialpost.com/commodities/energy/oil-gas/ottawa-orders-imperial-oil-stop-tailings-leak-kearl-oilsands">behaviour of the Alberta Energy Regulator</a> concerning a large toxic spill at the Imperial Kearl Lake tailings ponds. The provincial regulator waited months to publicly disclose that waste was escaping from the pond and seeping into groundwater.</p>
<p>A second gap is the issue of third-party verification of institutions’ reporting. The current guideline does not require this, leaving it up to the institutions to handle themselves.</p>
<h2>A step in the right direction</h2>
<p>The total credit exposure of Canadian banks <a href="https://www.investorsforparis.com/wp-content/uploads/2022/11/Full-Report-Card-1.pdf">is estimated to be $164 billion</a> — less than 15 per cent of <a href="https://www.investopedia.com/terms/b/bigfivebanks.asp">Canada’s five biggest banks’ capital</a>.</p>
<p>That said, the <a href="https://research-information.bris.ac.uk/en/publications/black-box-accounting-discounting-and-disclosure-practices-of-deco">disclosure practices of fossil fuel producers on decommissioning environmental liabilities</a> is opaque and inconsistent.</p>
<p>Should the banks inherit stranded assets, not only will they have to write off their investments, but depending on the legal regime, they may be exposed to enormous additional costs of cleaning up tailings ponds. Otherwise, this bill may fall to taxpaying Canadians.</p>
<p>OSFI’s guidelines are a small step towards making financial decision-makers more conscious of the influence they have on climate outcomes, but there is still work to be done when it comes to climate-risk policies.</p><img src="https://counter.theconversation.com/content/201631/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Robert L. Ascah is a member of the Alberta NDP.</span></em></p>OSFI’s guidelines are a small step towards making financial decision-makers more conscious of their influence on climate outcomes, but there is still work to be done.Robert L. Ascah, Research Fellow, The Parkland Institute, University of AlbertaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1527292021-01-25T17:51:53Z2021-01-25T17:51:53ZFinancial professions must pivot to stave off technological extinction<figure><img src="https://images.theconversation.com/files/380334/original/file-20210124-23-1475qga.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4928%2C3260&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The accounting profession and others in the financial services industry are at risk of extinction due to technological advances. </span> <span class="attribution"><span class="source">(Adeolu Eletu/Unsplash)</span></span></figcaption></figure><p><a href="https://hbr.org/2017/03/how-blockchain-is-changing-finance">Blockchain technology threatens</a> to upend the financial sector. While this presents an opportunity to reduce costs for businesses and consumers alike, it may also make some professions, like accounting, obsolete. </p>
<p>What can financial professionals do to reposition and rebrand themselves in the face of potential extinction?</p>
<p>They’re not the first to be replaced by technology, after all. Over the past two decades, travel agents have been <a href="https://www.expedia.ca/">replaced by sites like Expedia</a> <a href="https://www.priceline.com/?vrid=5dacfeb1b7a72633bf47e0412cbb04ec">and Priceline</a>, while taxi drivers are being supplanted <a href="https://www.uber.com/ca/en/">by Uber</a>. </p>
<p>What’s different here is that accounting and finance are considered <a href="https://doi.org/10.1177%2F0950017015621480">elite professions</a>. These vocations are highly paid and require high levels of education and training, raising questions about how other professions might fare in the face of technological disruption.</p>
<p>How do professions at risk of extinction reassert their value in order to stand a chance at survival?</p>
<h2>What do they do best?</h2>
<p>The first thing professions need to do is reassess their value proposition. What does their profession do better than anyone else? How can this expertise be repackaged in order to appeal to new clients or customers, or develop new service lines?</p>
<p>As an example, accountants have long been aware that technology has the potential to disrupt their profession. Some are suggesting that blockchain <a href="https://www.aicpa.org/content/dam/aicpa/interestareas/frc/assuranceadvisoryservices/downloadabledocuments/blockchain-technology-and-its-potential-impact-on-the-audit-and-assurance-profession.pdf">may replace</a> auditing altogether. However, auditors have been able to successfully repackage their expertise to expand into new areas like <a href="https://www.emerald.com/insight/content/doi/10.1108/AAAJ-03-2013-1252/full/html">awards ceremonies</a>, <a href="https://doi.org/10.1016/j.aos.2008.02.003">business school rankings</a> or even <a href="https://doi.org/10.1111/j.1911-3846.2011.01108.x">sustainability reports</a>. </p>
<p>To do this, the accounting profession had to figure out where its strengths lie and how these might be combined with other forms of expertise to create something new.</p>
<p>One place auditors are doing so is in the area of <a href="https://doi.org/10.1016/S0361-3682(96)00037-2">sustainability assurance</a>, which <a href="https://www.icaew.com/-/media/corporate/files/technical/audit-and-assurance/assurance/sustainability-assurance-your-choice.ashx?la=en">involves auditing</a> a client’s social, economic and environmental performance. This could mean, for instance, assessing and verifying an industrial client’s reported greenhouse gas emissions. </p>
<figure class="align-center ">
<img alt="Four smokestacks against a blue sky." src="https://images.theconversation.com/files/380446/original/file-20210125-21-yplnvd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/380446/original/file-20210125-21-yplnvd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/380446/original/file-20210125-21-yplnvd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/380446/original/file-20210125-21-yplnvd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/380446/original/file-20210125-21-yplnvd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/380446/original/file-20210125-21-yplnvd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/380446/original/file-20210125-21-yplnvd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">One area of promise for accountants is sustainability assurance that involves auditing a company’s sustainability claims. An example is ensuring a business is truly cutting back its greenhouse gas emissions.</span>
<span class="attribution"><span class="source">(Leon Gao/Unsplash)</span></span>
</figcaption>
</figure>
<p>Some auditors are recognizing that while they don’t possess the scientific know-how to validate the science behind sustainability reports, they are able to engage experts from those areas so that, together, they can create a new business line.</p>
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Read more:
<a href="https://theconversation.com/how-blockchain-can-democratize-green-power-87861">How blockchain can democratize green power</a>
</strong>
</em>
</p>
<hr>
<p>While accountants have been unable to entirely eliminate the threat of technological extinction, some have been able to revive their position in the market by finding new buyers for their services. </p>
<h2>If you can’t beat ’em, join ’em</h2>
<p>Blockchain technology poses a unique challenge because it was designed to upend the traditional financial order. The cryptocurrency <a href="https://link.springer.com/chapter/10.1007/978-3-030-17740-9_3">Bitcoin is created, distributed, traded and stored with the use of blockchain, essentially a decentralized, peer-to-peer ledger system</a> that is changing the way money is exchanged.</p>
<p>More recently, a new blockchain use called <a href="https://academy.binance.com/en/articles/the-complete-beginners-guide-to-decentralized-finance-defi">decentralized finance</a> (also referred to as “DeFi”) has introduced financial applications that aim to <a href="https://www.coindesk.com/what-is-defi">eliminate traditional financial intermediaries</a> like banks. </p>
<p>Although the probability of banks being replaced by blockchain-based applications is unlikely in the short term, the trend could take hold in the long run. As a result, <a href="https://www.coindesk.com/the-big-banks-riding-bitcoins-bull-run">several banks</a> have developed platforms that allow their clients to trade cryptocurrencies like Bitcoin, Ether or Ripple.</p>
<p>Global financial services company <a href="https://www.jpmorgan.com/solutions/cib/news/digital-coin-payments">J.P. Morgan</a> has developed a digital coin that provides instantaneous payments between institutional clients. The high-profile financial institution’s embrace of blockchain-based products represents an abrupt departure from comments made by the company’s CEO in 2017, when he called Bitcoin <a href="https://money.cnn.com/2017/09/12/investing/jamie-dimon-bitcoin/index.html">a fraud</a>. </p>
<p>This <a href="https://cryptonews.com/news/us-banks-offering-crypto-custody-is-insanely-bullish-and-ris-7205.htm">change in sentiment</a> reflects a broader shift in regulators’ and bankers’ attitudes towards cryptocurrencies — and blockchain, more broadly. </p>
<figure class="align-center ">
<img alt="A sign advertises a Bitcoin ATM." src="https://images.theconversation.com/files/380329/original/file-20210124-15-180x2dz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/380329/original/file-20210124-15-180x2dz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=440&fit=crop&dpr=1 600w, https://images.theconversation.com/files/380329/original/file-20210124-15-180x2dz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=440&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/380329/original/file-20210124-15-180x2dz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=440&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/380329/original/file-20210124-15-180x2dz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=553&fit=crop&dpr=1 754w, https://images.theconversation.com/files/380329/original/file-20210124-15-180x2dz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=553&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/380329/original/file-20210124-15-180x2dz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=553&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A sign advertises a Bitcoin ATM in Halifax in February 2020.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Andrew Vaughan</span></span>
</figcaption>
</figure>
<p>Recognizing that blockchain technology isn’t going away, bankers are instead looking for ways to leverage their status as trusted financial brokers to provide confidence to customers wishing to experiment with cryptocurrencies. Like the accountants expanding into sustainability assurance, bankers are leveraging their strongest advantage — their reputation as trusted intermediaries — to create a new product for the digital age. </p>
<h2>Upskilling needed</h2>
<p>However, the shift to providing services in the blockchain sector requires a high degree of upskilling in the area of information technology. <a href="https://doi.org/10.2308/ISYS-19-007">My research</a> on auditing suggests that many accountants are refraining from taking on clients in the blockchain sector because they feel they lack the technological competence to do so.</p>
<figure class="align-left zoomable">
<a href="https://images.theconversation.com/files/380331/original/file-20210124-17-1ae2o5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A person works on their laptop." src="https://images.theconversation.com/files/380331/original/file-20210124-17-1ae2o5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/380331/original/file-20210124-17-1ae2o5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=434&fit=crop&dpr=1 600w, https://images.theconversation.com/files/380331/original/file-20210124-17-1ae2o5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=434&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/380331/original/file-20210124-17-1ae2o5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=434&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/380331/original/file-20210124-17-1ae2o5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=546&fit=crop&dpr=1 754w, https://images.theconversation.com/files/380331/original/file-20210124-17-1ae2o5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=546&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/380331/original/file-20210124-17-1ae2o5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=546&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Some accountants feel unprepared to take on blockchain clients.</span>
<span class="attribution"><span class="source">(Unsplash)</span></span>
</figcaption>
</figure>
<p>Professional groups like <a href="https://www.cpacanada.ca/en">Chartered Professional Accountants (CPA) Canada</a> (the national organization representing the Canadian accounting profession) have called on the next generation of CPAs to become <a href="https://www.cpacanada.ca/foresight-report/en/index.html#page=1">data masters</a>. This may not be realistic. Becoming data experts while maintaining an accountant’s foundational knowledge in tax, financial reporting and auditing may end up producing a generation of jacks-(and janes)-of-all trades who are masters of none. </p>
<p>The reality is that technological disruption threatens all professions and the prospect of extinction is real. The best way to fight back is to focus on what a profession does best — and get even better at it. </p>
<p>While it may be tempting to try to turn finance professionals into data scientists, this could do more harm than good by detracting from what profession’s key areas of expertise, making it even more likely that a profession will become an endangered species. Instead, financial professionals need to focus on finding new uses for their skills.</p><img src="https://counter.theconversation.com/content/152729/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Erica Pimentel receives funding from the Social Science and Humanities Research Council of Canada (SSHRC) and the CPA Québec Foundation. </span></em></p>In the face of technological threats, it may be tempting to turn finance professionals into data scientists. This isn’t the way forward. Instead, they need to find new uses for their expertise.Erica Pimentel, PhD Candidate in Accounting, Concordia Public Scholar, Concordia UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1319602020-03-09T19:01:02Z2020-03-09T19:01:02ZA plea to businesses: Don’t take away our paper bills!<figure><img src="https://images.theconversation.com/files/319343/original/file-20200309-118951-as2bu0.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C5382%2C3577&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">In an era of data breaches and privacy intrusions, the majority of Canadians want paper bills. So why aren't organizations listening to them?</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>Once again a telecommunications company is telling its customers that they will no longer receive a paper bill. This time <a href="https://communityforums.rogers.com/t5/Account-Support/Paper-Billings-to-Disappear-as-of-March-26-2020-Available-only/td-p/455505">it’s Rogers</a>. </p>
<p>What seems to some to be a non-issue evokes a strong reaction in others. <a href="https://www.cbc.ca/news/canada/british-columbia/telus-paperless-bills-1.4874865">When Telus eliminated paper bills,</a> customers who prefer paper bills were shamed online. Others expressed solidarity with digitally disadvantaged groups or listed reasons why some consumers need paper bills. </p>
<p>But why do banks and billing organizations feel it necessary to stop sending paper bills and statements? </p>
<p>One reason is the cost to print and mail paper. Strangely, most of these organizations are highly profitable, generating <a href="https://www.bnnbloomberg.ca/royal-bank-raises-dividend-as-it-reports-3-5b-first-quarter-profit-1.1393548">healthy returns</a> to shareholders. </p>
<p>The cost to send paper bills is negligible as a percentage of the service cost and the advertising and promotional budgets of banks and most billing organizations. Telecoms are not only profitable, but since they provide Canadians with internet services, they earn revenue from consumers using the web to access, pay their bills and download their billing information. </p>
<h2>People like paper bills</h2>
<p>Paper bills and statements have value to most consumers, especially those who bank and pay online. Research <a href="https://www.emerald.com/insight/content/doi/10.1108/IJBM-08-2013-0088/full/html">that I have been conducting since 2010</a> indicates that almost 90 per cent of online Canadians aged 18 to 90 continue to receive paper bills. </p>
<p>When I ask why, they indicate wanting control over their own behaviour, and some semblance of control over the organization. </p>
<p>They also want the paper bill as a <a href="https://www.pitneybowes.com/us/shipping-and-mailing/case-studies/4-reasons-consumers-prefer-paper-bills-statements.html">reminder to pay</a>. They say that e-reminders get lost in their digital in-boxes because they are busy people. This is also due to the lack of any clear indication on e-bills that differentiates them from other email correspondence or spam. </p>
<p>They worry that if the bill is only in digital form, they won’t review it, or they won’t notice errors. This <a href="https://www.fdic.gov/news/conferences/consumersymposium/2018/documents/jorring-paper.pdf">could cost</a> them due to mistakes made by organizations, overcharging for services that the consumers did not understand, charges for products or services they didn’t authorize, inappropriately high interest charges for late payment and other billing charges. </p>
<h2>Memory is better with paper</h2>
<p>Consumers also worry about their ability to understand complex financial information in digital form. Research studies done by financial and consumer lobby groups show <a href="https://www.nclc.org/images/pdf/banking_and_payment_systems/paper-statements-banking-protections.pdf">that comprehension</a> and memory are better when reading information on paper than digitally. </p>
<p>The levels of bankruptcy, <a href="https://business.financialpost.com/personal-finance/debt/canada-q3-household-debt-to-income-ratio-rises">household debt</a> and outstanding credit card balances have never been higher in Canada. </p>
<p>The increase of online and mobile banking adoption by Canadians, and the pressure by billing organizations and banks to discontinue paper bills and statements, seems to me an important element of increasingly poor financial management by Canadians. In 2015, the Canadian government was so concerned that they introduced <a href="https://www.canada.ca/en/financial-consumer-agency/programs/financial-literacy/financial-literacy-strategy.html">a financial literacy strategy.</a> </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/318063/original/file-20200302-18262-1mqiaix.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C7200%2C4796&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/318063/original/file-20200302-18262-1mqiaix.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/318063/original/file-20200302-18262-1mqiaix.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/318063/original/file-20200302-18262-1mqiaix.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/318063/original/file-20200302-18262-1mqiaix.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/318063/original/file-20200302-18262-1mqiaix.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/318063/original/file-20200302-18262-1mqiaix.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Paper bills could assist financial literacy efforts.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<p>Finally, and regardless of whether they are pro-paper bills or not, my research indicates that 57 per cent of Canadians who pay their bills online worry about their increasing dependence on large organizations if their information is only in digital form. </p>
<p>The <a href="https://www.nytimes.com/2018/04/04/us/politics/cambridge-analytica-scandal-fallout.html">Cambridge Analytica</a> scandal, along with the increasing number of hacks, digital fraud and ransomware events, has taught consumers that no one is entirely safe online. </p>
<h2>No proof?</h2>
<p>Could one of the reasons be that banks and billing organizations don’t want external proof of transactions so they can reduce the ability of their customers to demand action from them? </p>
<p>Some of their <a href="https://www.bmo.com/home/popups/global/firstbank-service-agreement">service agreements</a> make clear that customer information produced by the bank is the only authentic evidence of a transaction. Unlike the paper bill, which is produced by the bank, a digital bill on a consumer’s computer or phone, or printed from a PDF file, is not considered proof unless the bank or billing organization decides it is. </p>
<p>Paper bills and statements can also be shared openly and easily. Those who share a household and have responsibility for its financial well-being, and who receive paper bills and statements, can all share access to the information. </p>
<p>The information isn’t hidden away in the digital account of one person; it’s not restricted to the account holder. Sharing access by using paper also helps avoid the risk of being accused of participating <a href="https://www.cbc.ca/news/business/banks-deny-compensation-online-fraud-security-1.5322982">in a fraudulent</a> transaction that could ensue if someone shares the password to an online account.</p>
<p>Paper bill shamers say that it is easy to review financial information online, but they overlook the time and effort it takes to access online accounts, <a href="https://www.consumer-action.org/news/articles/paper-or-digital-winter-2018-2019">in part because consumers must remember various usernames and passwords</a>. Two-factor authentication <a href="https://www.rbcroyalbank.com/caribbean/digital-hub/security-two-factor.html">that some organizations</a> are beginning to push offers another level of security against fraud, but also, more complexity for those accessing online accounts. </p>
<h2>Trees at risk?</h2>
<p>The virtual digital world is firmly planted in the real world of servers that require a tremendous amount of energy consumed in terms of running and cooling these machines. Paper producers <a href="https://twosidesna.org/paper-production-supports-sustainable-forest-management/">plant more trees than they harvest</a>. If the end game is no more paper documents, then the <a href="https://www.twosides.info/myths-and-facts">land used to grow trees</a> could conceivably be sold off for use to create more and more server farms. In a time when solving the climate crisis is critical, this is not a satisfactory trade-off for me. </p>
<p>The war on paper bills and statements could be thought of as a war on personal financial identity. </p>
<p>Just as Facebook disrupted social interactions, consumers are realizing that their financial identity is at risk. Their identity is being subsumed in a world of software and algorithms. </p>
<p><a href="https://www.ctvnews.ca/business/cra-puts-focus-on-paper-returns-as-tax-filing-season-opens-1.4824545">If governments</a> wish to protect their citizens financially, they should enshrine in law a requirement for companies and banks to send paper bills and statements. I encourage the <a href="https://nationalpost.com/pmn/news-pmn/canada-news-pmn/regulator-to-clarify-whether-wireless-providers-must-offer-paper-bills">CRTC to stop listening to the big voices of telecoms</a> and starting listening to Canadians.</p><img src="https://counter.theconversation.com/content/131960/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Joanne E. McNeish does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In an era of data breaches and data privacy concerns, governments should enshrine in law a requirement for companies and banks to send paper bills and statements in order to protect consumers.Joanne E. McNeish, Associate Professor, Marketing, Toronto Metropolitan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/914422018-02-09T17:03:31Z2018-02-09T17:03:31ZThe EU wants to fight climate change – so why is it spending billions on a gas pipeline?<figure><img src="https://images.theconversation.com/files/205470/original/file-20180208-180813-ifievy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:TAP_in_Albania.jpg">Albinfo/Wikipedia</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Over the past few years there has been <a href="https://www.enelgreenpower.com/media/news/d/2017/12/renewables-exponential-growth">exponential growth</a> in clean energy investment – while fossil fuel assets are increasingly considered to be <a href="https://www.fsb-tcfd.org/wp-content/uploads/2017/06/FINAL-TCFD-Annex-062817.pdf">risky</a>. Yet, on February 6, the European Investment Bank, the EU’s long-term lending institution, voted to provide a <a href="http://www.eib.org/infocentre/press/releases/all/2018/2018-030-eib-backs-eur-6-5-billion-energy-sme-transport-and-urban-investment">€1.5 billion loan</a> to the controversial Trans Adriatic Pipeline (TAP).</p>
<p>The TAP is the Western part of a larger Southern Gas Corridor proposal that would ultimately connect a large gas field in the Caspian Sea to Italy, crossing through Azerbaijan, Turkey, Greece and Albania. And while gas might be cleaner than coal, it’s still a fossil fuel. </p>
<p>So how does the EU’s support for this major project fit in with its supposed goal of addressing climate change?</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/205365/original/file-20180207-74487-1cg5u8d.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/205365/original/file-20180207-74487-1cg5u8d.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/205365/original/file-20180207-74487-1cg5u8d.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/205365/original/file-20180207-74487-1cg5u8d.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/205365/original/file-20180207-74487-1cg5u8d.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/205365/original/file-20180207-74487-1cg5u8d.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/205365/original/file-20180207-74487-1cg5u8d.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/205365/original/file-20180207-74487-1cg5u8d.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The proposed Trans Adriatic Pipeline will run nearly 900km from Greece to Italy.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Trans_Adriatic_Pipeline.png">Genti77 / wiki</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<h2>Influencing investors</h2>
<p>A key problem is the message this sends to the private sector, where renewable energy is increasingly seen as a good investment. Technologies once perceived as too risky and too expensive are now delivering worthwhile returns thanks to reduced costs and breakthroughs in energy storage. The price of electricity generated by solar, wind or hydro is now comparable with the national grid. Over the past decade, investor meetings have shifted from discussing whether the transition to a low carbon economy will start before 2050, to whether it will be completed in the same period. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"949194987337650176"}"></div></p>
<p>But there is still not enough money being spent on renewables. While clean energy investment in 2017 <a href="https://about.bnef.com/blog/runaway-53gw-solar-boom-in-china-pushed-global-clean-energy-investment-ahead-in-2017/">topped US$300 billion for the fourth year in a row</a>, this is far short of what is needed to unlock the technology revolution necessary to tackle climate change. There is clearly a gap between what is required and what is being delivered. </p>
<p>The private sector will continue to invest significant capital into energy projects over the next few decades, so one issue facing policy makers is how to influence investors away from fossil fuels and <a href="https://www.sciencedirect.com/science/article/pii/S0301421511005064">towards renewable projects</a>. To really scale up investment into renewable infrastructure, <a href="http://www.unepfi.org/fileadmin/documents/Investment-GradeClimateChangePolicy.pdf">long-term and stable policy is required</a> – which investors <a href="https://www.sciencedirect.com/science/article/pii/S0959652615006277">see as clearly lacking</a>. </p>
<p>By funding the Trans Adriatic Pipeline, the EU’s investment bank is hardly signalling to the private sector that governments are committed to a green energy transition. </p>
<h2>Risky business</h2>
<p>If Europe really was to follow through and successfully switch to green energy – and such a transition is partially underway – then the pipeline project may even represent a risk to public finances.</p>
<p>Studies on climate change point to the need for a greater sense of urgency and ambition and, to stay within its “carbon budget” under current agreed emissions targets, the EU needs to be <a href="http://www.foeeurope.org/sites/default/files/extractive_industries/2017/can_the_climate_afford_europes_gas_addiction_report_november2017.pdf">fossil fuel free by 2030</a>. </p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/HSKcvoBKYxc?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
</figure>
<p>So any large oil and gas infrastructure projects with investment returns beyond 2030 are saddled with risk. In just a decade or two, super-cheap solar and wind power could mean that gas pipelines such as TAP would no longer make financial sense and would become worthless “<a href="https://www.carbontracker.org/terms/stranded-assets/">stranded assets</a>”. Yet TAP backers are touting economic benefits for countries such as <a href="http://www.oxfordeconomics.com/Media/Default/economic-impact/economic-impact-home/Economic-Impact-trans-Adriatic-Pipeline.pdf">Albania</a> extending to 2068 – well beyond the date when Europe must entirely ditch fossil fuels.</p>
<p>The EU’s official stance is to hail natural gas as a cleaner “bridge fuel” between coal and renewables. But <a href="http://science.sciencemag.org/content/343/6172/733.summary">high leakage rates</a> and the <a href="http://www.climatechange2013.org/images/uploads/WGIAR5_WGI-12Doc2b_FinalDraft_All.pdf">potent warming impact</a> of methane (the primary constituent of natural gas) means that the Southern Gas Corridor’s climate footprint may be <a href="https://bankwatch.org/publication/smoke-and-mirrors-why-the-climate-promises-of-the-southern-gas-corridor-don-t-add-up">as large, or larger, than equivalent coal</a>. Abundant natural gas is also highly likely to <a href="http://iopscience.iop.org/article/10.1088/1748-9326/9/9/094008/meta">delay the deployment of renewable technologies</a>. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"952216497123835906"}"></div></p>
<p>For the first decade of this century Europe prided itself on leading the political debate on tackling climate change. Now, it appears to be losing its boldness. To drive through a new technology revolution, the public sector needs to lead from the front and take bold decisions about its energy strategy.</p>
<p>A gas pipeline is not a technology of the future. If California can release <a href="https://www.youtube.com/watch?v=HSKcvoBKYxc">YouTube videos</a> describing the importance of considering stranded assets during this energy transition, and New York City can announce plans to <a href="https://twitter.com/NYCMayor/status/952216497123835906">divest from fossil fuels</a>, then maybe it is time for the EU to turn off the TAP.</p><img src="https://counter.theconversation.com/content/91442/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Aled Jones does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The European Investment Bank’s funding of the Trans Adriatic Pipeline will harm the climate and makes little financial sense.Aled Jones, Professor & Director, Global Sustainability Institute, Anglia Ruskin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/842292017-09-20T14:17:17Z2017-09-20T14:17:17ZBRICS needs a new approach if it’s going to foster a more equitable global order<figure><img src="https://images.theconversation.com/files/186830/original/file-20170920-16391-6hkn42.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Brazilian President Temer, Russian President Putin, Chinese President Xi Jinping, South Africa's President Zuma and Indian Prime Minister Modi.
</span> <span class="attribution"><span class="source">Reuters/Kenzaburo Fukuhara</span></span></figcaption></figure><p>The formation of the <a href="http://economictimes.indiatimes.com/articles/brics-and-the-new-emerging-economic-order/brics_show/53946132.cms">BRICS</a> – the bloc made of Brazil, Russia, India, China and South Africa – was supposed to be the harbinger for a new approach to global economic governance. The leading emerging markets and developing countries were becoming major players in the global economy. And they expected to play a commensurate governance role. </p>
<p>BRICS leaders have now been meeting annually for nine years. They recently met for the <a href="https://brics2017.org/English/">ninth BRICS Summit</a> in Xiamen, China. They have positioned themselves as a force for <a href="https://brics2017.org/English/Documents/Summit/201709/t20170908_2021.html">transforming</a> global economic governance so that it’s more responsive to the concerns of developing economies. They are seeking a more just and equitable global economy. </p>
<p>The question is: how effective have they been in reforming global economic governance and the fairness of the global economy? </p>
<p>The honest answer is that as a group, BRICS hasn’t been an effective force at all. This is for a number of reasons.</p>
<h2>What’s not happened</h2>
<p>The following examples illustrate the point. </p>
<p>At least formally the G20, which consists of 20 major economies including the five in BRICs, has supplanted the G7, made up of Canada, France, Germany, Italy, Japan, the UK and the US, as the premier forum for global economic governance. But the agenda in these meetings is still largely set by the most powerful countries which now include China but not the other BRICS. </p>
<p>The IMF and World Bank have both changed their voting arrangements to give a louder voice to developing economies and emerging economies. This has particularly benefited China, India and Brazil. But BRICS hasn’t supported South Africa’s call for a third African seat on the board of the IMF. This has left Africa as the most underrepresented region on the board.</p>
<p>BRICS countries, together with other G20 developing countries, have become more active participants in organisations responsible for developing international financial regulatory standards. This means that they now can participate in the writing of standards that guide the international financial system. But the system continues to be more responsive to the interests of the rich and powerful than those of the developing world. </p>
<p><a href="http://www.saiia.org.za/opinion-analysis/the-brics-new-development-bank-and-contingent-reserve-arrangement-at-a-glance">New international financial institutions</a> have been created, including the BRICS’ New Development Bank and the Contingent Reserve Arrangement, which provides financial support for BRICS countries experiencing balance of payments problems. Unfortunately, the New Development Bank operates in a less transparent and less accountable way than other multilateral development banks. For example, it’s harder for outsiders to access information on the operational policies and practices of the bank than those of the World Bank or the African Development Bank. Unlike those other banks, there isn’t yet a mechanism to hold the New Development Bank accountable if it causes harm. </p>
<p>The New Development Bank also risks repeating the tragic mistakes of these other institutions, which for many years concentrated only on economic issues in their operational decision making. Following a number of scandals they began to pay more attention to the social, human rights and environmental impact of their operations.</p>
<p>Members of the New Development Bank seem to share this concern. The BRICS leaders have reiterated their commitment to achieving</p>
<blockquote>
<p>sustainable development in its three dimensions - economic, social and environmental- in a balanced and integrated manner.</p>
</blockquote>
<p>But it’s hard to see how they expect the bank to meet this commitment if it continues to place more emphasis on speed in project implementation than on identifying and managing the adverse environmental, human rights and social effects of its projects. To fulfil their commitment to promote a more just and equitable global economy the BRICS will need to up their game. </p>
<h2>How to fix the problem</h2>
<p>Achieving a just and equitable international economic order requires governments to take seriously their commitment to protect and promote human rights as set out in the UN Charter and other human rights treaties. </p>
<p>The starting point is a commitment to respect and promote the rights of each individual affected by each project, programme or policy that governments undertake or support. This requires developing a good system to forecast the impact of a project on the environment, society as well as human rights. And to have a plan to manage them.</p>
<p>Another element is accountability. Any person adversely affected by a project should have access to a mechanism that can provide them with an effective remedy. </p>
<p>Finally, the relevant decision makers must be able to show how their proposed activity is using the maximum available human and financial resources to fulfil the human rights of all the people affected by their decisions. This suggests that the relevant decision makers bear the burden of explaining why the proposed allocations are the most feasible. This includes governments, international organisations as well as private parties. </p>
<p>There are reasons to think the BRICS leaders could be persuaded to adopt a human rights based approach to making global economic governance more democratic and responsive to the needs of developing countries and for a more just, equitable and sustainable global economy. They, and their colleagues in other developing countries, are governing societies with continuing, and some cases worsening poverty, inequality, unemployment and environmental degradation levels. And they don’t seem to have an effective strategy for meeting this challenge.</p><img src="https://counter.theconversation.com/content/84229/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Danny Bradlow receives funding from the National Research Foundation, which funds his SARCHI chair. </span></em></p>The promise of BRICS was that it would usher in a new approach to development. But after meeting annually for the last nine years there’s no sign that the old order has been challenged.Danny Bradlow, SARCHI Professor of International Development Law and African Economic Relations, University of PretoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/534222016-02-18T03:58:35Z2016-02-18T03:58:35ZHow South Africa’s financial sector handles risks linked to social media<figure><img src="https://images.theconversation.com/files/111640/original/image-20160216-19245-1rlw1h0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Organisations increasingly need to put procedures and practices in place to manage their reputation in the social media age.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The main focus of debates about social media is increasingly about the risks involved with its use. This is particularly true when it comes to large companies. Combined with the use of smartphones, social media is, for many, blurring the lines between work and private life in ways that are legally complex and <a href="http://www.emeraldinsight.com/doi/full/10.1108/09670731211270301">difficult to control</a>.</p>
<p>The social media transformation has accelerated to the point where companies need to find the balance between allowing freedom of expression on one hand, and exercising some control <a href="wwww.sabpp.co.za/wp-content/uploads/2012/social%20-media-policy-article.pdf">on the other</a>. </p>
<p>Organisations increasingly need to put procedures and practices in place to manage their reputation. There are risks involved as they and their stakeholders set out to engage with the wider <a href="http://jel.sagepub.com/content/16/1/56.abstract">community in the social web</a>.</p>
<p>As part of our research, we contacted 14 financial institutions in South Africa to find out how they manage social media. The financial institutions included banks, investment banks and insurance companies. Nine agreed to take part in the survey. We have not disclosed their identities as some of the information we were given was confidential. </p>
<p>The financial sector manifests the following distinguishing characteristics that warrant their investigation. It:</p>
<ul>
<li><p>is services industry orientated; </p></li>
<li><p>involves high risk management;</p></li>
<li><p>operates in a competitive market;</p></li>
<li><p>is considered a highly people-driven industry;</p></li>
<li><p>values client retention and attraction; and </p></li>
<li><p>relies on building and maintaining client trust. </p></li>
</ul>
<h2>High levels of engagement</h2>
<p>The financial institutions involved in the survey confirmed that they manage their social media exposure through formal internal social media policies. Six institutions shared their employee social media policies with us. </p>
<p>We read these in conjunction with the employee social media guidelines where these were provided. Guidelines were designed to provide additional assistance to staff. This helps them understand their role and responsibilities to the organisations when using social media and social networks.</p>
<p>The financial services sector has been <a href="http://www.sablog.kpmg.co.za/2014/02/role-social-media-banking-industry/">under pressure</a> to engage actively with social media and keep up with the times. The emphasis is not only on communication and networking, but also on making sure that social media is part of daily internal and external communications.</p>
<h2>Managing risk is the biggest focus</h2>
<p>Where the policy is located in an organisation is a clear indicator of which department has the strongest strategic interest in developing social media policy. It is also a sign that these departments have a larger stake in actively engaging and enhancing a company’s <a href="http://www.researchinlearningtechnology.net/index.php/rlt/article/view/19194">reputation</a>.</p>
<p>The majority of the social media policies (50%) were under the risk section of the financial institution. Only 33% were in the marketing and public relations sections. For financial institutions managing risk is clearly the biggest priority. </p>
<p>A detailed analysis of the social media documents identified the following themes:</p>
<ul>
<li><p>the majority (83%) focus on both risk and relationship building while 17% focus on risk only. Not one institution’s social media policy focus on relationship building only;</p></li>
<li><p>half (50%) made reference to brand, image and reputation while 17% focus on brand and image only;</p></li>
<li><p>all the documents (100%) directly refer to disciplinary action which enforces compliance; and</p></li>
<li><p>the majority (67%) offer both professional and personal guidelines in the use of social media.</p></li>
</ul>
<p>The results show that the majority of financial institutions appreciate the value and opportunities provided by social media. It helps to establish and build a positive profile by engaging with external and internal stakeholders. At the same time, mitigating possible risks is equally important.</p>
<h2>Compliance is taken seriously</h2>
<p>The financial institutions ensure strict compliance with their policies.</p>
<p>Some organisations give staff detailed social media guidelines in addition to the formally approved policies. But staff do not always read the guidelines. To counteract this, some organisations provide staff with social media training. This is one way of ensuring compliance.</p>
<p>Financial institutions are clearly compliance driven and disciplinary actions were in place at all of those surveyed.</p>
<p>The emphasis on compliance is not only on communication and networking. It extends to daily operations with both internal and external communication. Thus the risks associated with social media are carefully managed at all levels in the organisation.</p>
<p>Financial institutions are taking the issue of managing social media seriously. In many respects they can be an example to other organisations. This is no guarantee that it will protect them from adverse commentary. But it is a necessary first step in risk and reputation management.</p><img src="https://counter.theconversation.com/content/53422/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Amanda van den Berg receives funding from the NRF and NMMU. </span></em></p><p class="fine-print"><em><span>Miemie Struwig does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The increasing use of social media in the financial sector has made it difficult for companies to exercise control, while at the same time allow employees freedom of expression in the workplace.Amanda van den Berg, Lecturer in Development Studies, Nelson Mandela UniversityMiemie Struwig, Professor, Department of Business Management, Nelson Mandela UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/502632015-11-12T03:31:13Z2015-11-12T03:31:13ZWhy lending through community-based organisations makes sense<figure><img src="https://images.theconversation.com/files/101579/original/image-20151111-9381-meay0k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Small business owners, such as this vendor in Cape Town, need access to affordable micro loans.</span> <span class="attribution"><span class="source">Reuters/Mike Hutchings</span></span></figcaption></figure><p><em>This is part of <a href="https://theconversation.com/africa/topics/financial-inclusion">a series</a> of articles The Conversation Africa is running on financial inclusion and micro credit and their role in economic development.</em></p>
<p>Over the past half a century lending to the poor has taken on many different forms. The microfinance movement began in earnest when <a href="http://www.nytimes.com/2006/10/14/world/asia/14nobel.html?pagewanted=all&_r=0">Muhammad Yunus</a>, the then-economics professor at Bangladesh University, came up with the idea of providing small loans using his personal funds to local villages in the 1970s. </p>
<p>Today the path of credit-flow to the world of the poor is practised in five different continents with some heavily contested evidence of success. This is particularly true in the area of how effective micro finance is in <a href="https://mitpress.mit.edu/books/economics-microfinance">alleviating poverty</a>.</p>
<p>Several models of micro finance have sprung up. They include micro-credit, micro-savings, micro-insurance, and money transfer services. So what are group lending schemes, and why is there tension between them and community-based financial organisations?</p>
<h2>Group lending</h2>
<p>The group-lending model of micro-credit has been <a href="http://www.res.org.uk/details/mediabrief/4382511/Closer-Social-Connections-Make-Microfinance-More-Effective.html">efficacious</a>. Its approach draws a lot from community-based financial organisations.</p>
<p>Community-based financial organisations vary in size and role. They are normally a rotating savings and credit association or a burial society. They are typically made of friends, relatives, community members or workmates who group to mobilise funds for a common purpose.</p>
<p>Their main advantage is that they are formed by individuals who know each other. This arguably circumvents default issues.</p>
<p>Learning from this, the microfinance movement has copied and used the idea of groups with members who know each other to deliver lending to the poor. Yet they typically charge higher <a href="https://www.cgap.org/sites/default/files/CGAP-Occasional-Paper-The-New-Moneylenders-Are-the-Poor-Being-Exploited-by-High-Microcredit-Interest-Rates-Feb-2009.pdf">interest rates</a> compared to mostly interest-free loans from community-based financial organisations. </p>
<p>In India, for example, micro-credit businesses are by and large for profit organisations. They have been heavily criticised for charging exorbitant interest rates without regard to the poors’ ability to <a href="http://www.nytimes.com/2010/11/18/world/asia/18micro.html">repay</a>.</p>
<p>But taking the not-for-profit route is itself fraught with difficulty. Microfinance institutions in this category are under pressure to reduce their dependence on donors and to work on operational and financial self sufficiency. This is the case, for instance, with the <a href="http://www.sef.co.za/statistics">Small Enterprise Foundation</a> in South Africa. Its approach is to charge interest rates that cover operational expenses only. </p>
<p>The question is: are community-based financial organisations being undermined by microfinance organisations that replicate their group lending models while at the same time trying to achieve self sufficiency?</p>
<h2>The pros</h2>
<p>The fact that there are so few banks in rural, and some urban, areas of developing countries has led many to conclude that the poor are unable to save, borrow or repay without default. This is not true.</p>
<p>The poor save and access credit in a myriad of ways. These include rotating savings and credit associations, burial societies, stokvels, relatives, friends and workmates. They also get credit from moneylenders, but this comes at a huge cost as they are expected to pay exorbitant interest <a href="https://books.google.co.za/books?id=qCN9dpLIrfEC&printsec=frontcover#v=onepage&q&f=false">rates</a>. </p>
<p>Micro finance certainly offers a more advantageous access to credit than moneylenders because they offer lower interest rates.</p>
<p>There are other potential advantages. Conventional microfinance organisations can form alliances, enabling community-based financial organisations a safe place to store their money. For example, <a href="http://siteresources.worldbank.org/INTARD/Resources/combasedfinance.pdf">Gemiridiya in Sri Lanka</a> is a community-based financial organisation that saves with a microfinance institution.</p>
<p>This is advantageous for both institutions. It becomes an inexpensive source of funds for microfinance institutions. It also generates interest for community-based financial organisations and brings more security to their savings.</p>
<p>Partnerships can also help community-based financial organisations:</p>
<ul>
<li><p>overcome their financial constraints given that contributions from members are limited;</p></li>
<li><p>bring in resources that can be channelled as loans where community-based organisation members become delegated monitors to promote repayment; and</p></li>
<li><p>foster the adoption of new practices. </p></li>
</ul>
<h2>The cons</h2>
<p>Micro finance and community-based financial organisations engage in the same activities. They can therefore be seen as rivals, especially for donor funding. </p>
<p>Microfinance organisations mainly issue productive loans. Borrowers are expected to buy assets to start small businesses. Some community savings organisations or stokvels do something similar by saving throughout the year to buy productive assets or to raise capital for businesses.</p>
<p>Also, micro finance, just like community-based financial organisations, face limited resources. Microfinance organisations may charge high interest rates to cover their administrative costs. This means that borrowers need to make huge profits to cover the loan costs as well as their operating expenses.</p>
<p>Loans from community-based financial organisations are usually interest free. Viewed this way, it makes sense for the poor to borrow free of interest from their organisations to start a small business. And it also makes sense for donor support to be directed to them.</p>
<p>Yet hundreds of millions of dollars from donors subsidise the micro finance <a href="http://www.nyu.edu/projects/morduch/documents/microfinance/Role_of_Subsidies.pdf">movement</a>. No <a href="http://www.worldscientific.com/doi/abs/10.1142/S021849581250015X">subsidies</a> are directed to most community-based financial organisations. Why?</p>
<p>One reason could be that community-based organisations were once thought of as fragile and economically <a href="http://onlinelibrary.wiley.com/doi/10.1111/1467-7679.00148/abstract">damaging</a>. Consequently microfinance organisations appeared more competitive and sustainable than community-based financial organisations. </p>
<p>There is a strong case to be made about the survival of community-based financial organisations. While not perfect, the sense of ownership is high. This, I think, is their main advantage over the microfinance movement.</p><img src="https://counter.theconversation.com/content/50263/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gift Dafuleya is affiliated with Southern African Social Protection Expert Network, a not-for-profit loose alliance of stakeholders, scholars and consultants who engage with social protection in the SADC region.. </span></em></p>A strong case needs to be made for the survival of community-based financial organisations. While not perfect, the sense of ownership is high.Gift Dafuleya, Senior Lecturer in Economics, University of VendaLicensed as Creative Commons – attribution, no derivatives.