Financial services companies wanting to capitalise on opportunities in emerging economies often claim to be driving financial inclusion in underserved markets. But are their commitments genuine, or modern-day greenwashing? How can firms truly committed to inclusion stand out from the noise?
The term “greenwashing” was coined in 1986 by the environmentalist Jay Westerveld to describe companies that commit to some sustainable practices, either as public relations exercises or to help their own bottom line, while continuing to engage in other practices that more greatly harm the environment. Westerveld specifically criticized hotels in Fiji which had begun encouraging guests to reuse towels under the guise of reducing water and energy consumption while simultaneously destroying natural habitats through expansion and development projects.
Since businesses were first called out for insincere environmentalism, regulatory requirements, consumer pressure, and the real threat of climate change impacting future economies have made ESG a necessary feature of any corporate strategy. Perhaps greenwashing has become more sophisticated, but many corporate initiatives are making real impact. Patagonia, for example, has been fighting fast fashion and reducing waste for many years through programmes that allow customers to repair damaged goods on their own or trade in and buy used products.
At Eterna, we support clients across the financial services sector. In our landscape reviews, we frequently come across companies that position financial inclusion as part of their social impact work. Some – neobanks in emerging markets, microlenders, remittance service providers – have a clear value proposition and measurable impact on the communities they serve. Others have identified financial inclusion as a trendy buzzword and leveraged it for low-effort ESG messaging. These firms claim to be improving financial access, but they don’t explain how their products serve underbanked populations or contribute to long-term economic empowerment. Appeals such as this can look like empty pandering at best – at worst, they seem like an attempt to distract from the real economic impact of their products.
Take Tether, a leading global stablecoin provider, who recently revealed a “10-year roadmap to boost financial inclusion”. Calls for financial inclusion are not unique to the crypto industry, but they are common, likely due in part to the industry’s original ethos of decentralized finance. In a nearly hour-long Youtube documentary released by the company, Tether positions USD₮ – its USD-backed stablecoin – as a solution to inflation and currency volatility for businesses in emerging and developing markets (EMDEs).
On its website, Tether explains that it is a “driver of global financial inclusion” in a section titled “Financial Inclusion and U.S. Dollar Dominance”. The company claims to provide a stable alternative to unstable local currencies, enabling individuals to safely store and transfer value, helping them integrate into the global economy. It also claims to be the 18th largest holder of U.S. debt globally, explaining that by “driving demand for USD through its USD₮/USD peg and offering customers access to digital dollars on the blockchain, Tether reinforces the US dollar’s position as the dominant global reserve currency.”
While Tether presents driving demand for USD and driving financial inclusion as mutually reinforcing, this is not necessarily the case. Given Tether’s ongoing legal battles with US financial regulators, the company has a strategic reason to present itself as supporting the economic strength of the US. While promoting the dollar’s use as a reserve currency and providing demand for US treasury debt is good for the US, it can have negative impacts on emerging economies as outlined in a recent report by the Financial Stability Board.
Stablecoins may pose risks to EMDEs and present an interesting conundrum for governments and central banks: bypassing existing market structure, stablecoins can challenge the effectiveness of monetary policies set by local governments. This can contribute to price volatility and inflation of the local currency. Although they provide access to US Dollar transfers to those who may otherwise be restricted from accessing them, people storing their savings with an overseas company diverts deposits that could have been stored in national and local banks. A lack of deposits constrains the financial resources of these institutions, leading to reduced services, less financing for local businesses, and branch closures – exacerbating the problem of financial services access for locals.
Financial markets, while often characterized as something business can ‘win’ in, are the fabric of economies and we must recognize that what has an upside for one person often has a downside for another. Still, this doesn’t mean that companies can’t have positive impacts. Fintechs like Egypt’s first unicorn company MNT-Halan, which are locally regulated and provide a range of financial services to unbanked and underbanked populations, can drive financial inclusion especially when targeting specific underserved groups. In the last three years, the percentage of adults with bank accounts has more than doubled in Egypt, driven largely by an increase in women opening accounts with non-traditional providers like MNT-Halan, which now has a quarterly active client base of over two million users.
Financial inclusion is more than just evocative messaging; companies that appeal to it should do so explicitly and critically, or else risk appearing disingenuous. Companies should explain to customers and investors exactly how their services are helping different communities by analysing the full economic impact of their products and making this information publicly available. Firms can also develop robust KPIs for financial inclusion and report on them annually to track their impact.
While some companies may fear that being explicit about their efforts will leave them vulnerable to critique, an insincere approach leaves firms doubly exposed. Firms that claim to have positive impacts while hiding what’s really going on under the hood are not remembered kindly by history – or regulators. Recall Volkswagen’s 2015 emissions scandal where it was revealed the company had been intentionally programming some of their engines to cheat laboratory emissions testing for seven years, making it seem like they emitted far less pollutants than they really did. The scandal resulted in billions of dollars in fines, settlements, and recall costs, ultimately tarnishing the company’s sustainable image.
Financial inclusion is critical to eradicating poverty, improving living standards for millions globally, and sustainably growing developing economies. Service providers that make cynical claims for inclusion practices undermine progress and risk diverting resources away from programmes that actually work. Just as our scrutiny of greenwashing has intensified, the ‘inclusion illusion’ is a trick audiences will see through.
