Business and the Environment Research Report

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Sustainability Activities in the Financial Sector

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Sustainability Activities in the Financial Sector

Sustainability is just a single word, yet there are several definitions of it. Sustainability is a major challenge of our generation and experts are always asking doing research on how good fortune can be developed without compromising the well-being of the future generation. There is an increased tendency for organizations to integrate the concepts of sustainability their actions, annual reports, corporate communications, and marketing strategies. Because of this unavoidable rationale, sustainability in the sector of finance has been a subject of research in the past and still will be in the future. The idea is a very critical one for issues of business and is capable of being a major separator in the ability of an organization to produce and be shield the value of an initiative and push development and invention. Sustainability having become a dominant force in business strategy, this article will explore this notion and its utilization in the financial sector of any economy. After presenting a brief overview and background of the financial systems and examining the primary sustainability challenges of the sector, the paper will explores the influence of the internal and external business environments on sustainability of business in the financial area. The implications and the goodness of this conception in economic are examined.

From the global crises that have hit the world recently, it is possible to conclude that methods geared toward the value of shareholder are not able to live and develop anymore. There is thus a proactive and reactive ways by which organizations try to integrate the concepts of sustainability their actions, annual reports, corporate communications and marketing strategies (Epstein & Buhovac 2014; Silvius & Schipper 2010). In the circumstances surrounding sustainability, the World Commission on Environment and Development (1987) defines the concept as ways of events meeting the current basic requirements and at the same time not compromising the capacity to serve the needs in the following years. The concern for the future implies that there is a weight laid on an optimal and sustainable use of the natural resources and finance.

A brief overview of the financial sector

The financial sector is a connection of regulatory and legal framework, markets, instruments and institutions that give permission for transactions by spreading credit. Enhancement and sustenance in the financial sector entail prevailing over the incurred costs in the financial systems. The economic systems are those bodies that allow exchanging of money between borrowers, investors, and lenders. They comprise of the banks and non-bank system that operate either nationally, globally, and firm-specific level within an economy (Khan & Semlali 2000). All firms that with engagement in operations such as securities insurance, trading of securities, insurance, lending, and investments are included in the financial system. The sector plays a significant intermediary role in the global economic system by creating a channel of flow of funds from those who have a surplus to those who have a shortage (Zeller & Meyer 2002).

Varied combinations and forms of compulsion, traversable knowledge and costs of transactions together with various systems of taxation, regulation and legal systems motivates the distinction in the financial contract, market, and intermediaries across countries and throughout history.

The primary functions of the sector of finance and the financial systems in the economy are as follows:

  • Making the process of exchanging goods and services accessible

  • Mobilization and pooling of savings

  • Diversifying and managing of risk, and facilitation of trade.

  • Exertion of pooled governance after provision of finance and to monitor investments

  • Allocation of capital and production of information on possible investments

The development of the economy depends on to .a larger extent on the development of financial systems. When the regulatory and legal frameworks, markets, instruments and institutions that give permission for transactions by spreading credit make the compulsion, traversable knowledge and costs of operations easy, it constitutes the development of the financial sector. The whole activity allows for better jobs and provides primary objectives of the division of finance in any economy (Claessens et al. 2014; Burton & Brown 2014).

The sustainability of the financial sector faces significant challenges from both within the system and the surrounding environment of operations. With the continued escalation in the challenges facing the industry institutions such as the banks and insurance firms, there is a need to develop mechanisms and strategies for sustained growth in the industry (Crane & Matten 2016).

Even with the increased daily news of financial institutions and banks making profits, they still do not make enough return on equity or return on investments required by the stakeholders. That is the sector does not make enough money. Additionally, many banks do not yet deliver the demanded level of service by the customers, mostly concerning technology. It is a common phenomenon these days that every industry wants to satisfy and make the consumer experience a long lasting one and meet the clients’ expectations.

The traditional financial institutions are facing a stiff competition and a big challenge for financial technology businesses (Fin Tech) which are organizations coming up and utilizing software for their provision of financial services. The sector firms also face strict regulatory needs which have continued to escalate, making them use a significant amount of their income to be more compliant as well as establishing better processes and systems to be at par with the increasing regulatory requirements (Rey 2015; Carroll & Buchholtz 2014).

How internal and external business environments influence business sustainability in the financial sector

Business environment constitutes all the factors having an impact on the firm. The idea of business environment is that of external institutions, forces, and factors that is beyond the control of individual business companies and their executives having effect on the organization’s operations. The factors include national and international organizations, political parties, social and cultural organizations, government, competitors, creditors, and customers. The environmental factors can be classified into different types as internal and external factors depending on the extent of intimacy with the business (Eccles et al. 2014).

The internal environment constitutes the surrounding with direct influence on the organization. The internal factors can be cotrolled since the company usually has control over them. The organization is capable of altering and modifying factors such as marketing, organizational and functional means, personnel as well as its physical facilities.

The Business ownership, for instance, is an internal environment that affects the financial sector directly. The structure of the property of a firm determines the financial sector and objectives of the company significantly. The value system of any organization will also influence its financial sector because it determines the mission and the vision of the organization, the practices, and the business policies. The decisions of the firm are affected significantly by the corporate structure hence the finances.

Size and status of the business can be controlled by the enterprise depending on the goal and the financial capability of the industry. Smaller firms and start-ups incline their energy on surviving, cash flow and break-even goals whereas public companies lay focus on increasing the value of shareholders (Kolk & Perego 2010).

The external environment refers to the factors that the company has no power over yet they influence the business though indirectly. There are two categories of external environment namely: microenvironment and macro environment. The micro environmental factors having a direct effect on the activities of a business. One significant effect in this group is the team of those supply components and raw materials to a firm. The customers also have an impact on the sector of finance and every business has the task of creating and sustaining customers since there is no business operation without the customers. The financial sector is also affected by the marketing intermediaries including middlemen like merchants and agents that assist the firm in finding clients and even make the sales with the customers. Additionally, citizens and the media are collectively known as the public determine the capability of the business to meet its desired goals and objectives.

The macro environmental factors are even increasingly less controllable, and the financial success of the organizations in such surrounding depends on the way they adapt to the environment. It constitutes the economic and social environment. The sociological factors like conventions and customs, labour mobility, costs structure determine the value system of the society influencing the financial functioning of a firm in return (Wheelen & Hunger 2011).

Benefits of focusing on economic sustainability

Focusing on financial sector sustainability and its associated challenges make the financial institutions improve in the manner in which they approach the concept. The organizations can systematically manage the social and environmental risks of investment and lending operations optimizing risks due to reputation, liability and financial strengthening their portfolio in the long run.

The firms can single outtake an upper hand in the surrounding business opportunities. Financial services and products capable of blossoming in the through the challenges and obtaining benefit from the social and economic environment, hence establishing a lasting value for a business are sustainable (Hermes & Lensink 2011).

Reference List

Burton, M. and Brown, B., 2014. The financial system and the economy: Principles of money and banking. Routledge.

Carroll, A. and Buchholtz, A., 2014. Business and society: Ethics, sustainability, and stakeholder management. Nelson Education.

Claessens, S., Kose, M.M.A., Laeven, M.L. and Valencia, F., 2014. Financial crises: Causes, consequences, and policy responses. International Monetary Fund.

Crane, A. and Matten, D., 2016. Business ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.

Eccles, R.G., Ioannou, I. and Serafeim, G., 2014. The impact of corporate sustainability on organizational processes and performance. Management Science60(11), pp.2835-2857.

Epstein, M.J. and Buhovac, A.R., 2014. Making sustainability work: Best practices in managing and measuring corporate social, environmental, and economic impacts. Berrett-Koehler Publishers.

Hermes, N. and Lensink, R., 2011. Microfinance: its impact, outreach, and sustainability. World development39(6), pp.875-881.

Khan, M.M.S. and Semlali, M.A.S., 2000. Financial development and economic growth: an overview (No. 0-209). International Monetary Fund.

Kolk, A. and Perego, P., 2010. Determinants of the adoption of sustainability assurance statements: An international investigation. Business Strategy and the Environment19(3), pp.182-198.

Rey, H., 2015. Dilemma not trilemma: the global financial cycle and monetary policy independence (No. w21162). National Bureau of Economic Research.

Silvius, A.G. and Schipper, R., 2010, November. A maturity model for integrating sustainability in projects and project management. In 24th World Congress of the International Project Management Association (IPMA) Istanbul, Turkey.

Wheelen, T.L. and Hunger, J.D., 2011. Concepts in strategic management and business policy. Pearson Education India.

World Commission on Environment and Development. 1987. Our Common Future. Great Britain: Oxford University Press.

Zeller, M. and Meyer, R.L. eds., 2002. The triangle of microfinance: Financial sustainability, outreach, and impact. Intl Food Policy Res Inst.

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