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To Meet Global Green Finance Needs, the EU and China Must Cooperate

By Christoph Nedopil and Mathias Lund Larsen

The green transition of energy, transport, industry, urbanisation and agriculture requires a massive acceleration of global green investments across the world to meet the Paris agreement and reverse the loss of biodiversity. Yet so far, green finance lacks harmonised definitions regarding types of underlying assets, disclosure requirements, impact thresholds and applicable instruments. This makes international green finance flows, disclosure, and risk management incomplete, while providing fertile ground for “greenwashing”.

As two of the major markets for green finance, China and the European Union have been cooperating to develop shared standards, most recently by launching a comparison and roadmap for compatibility. The cooperation is based on the 2005 EU-China Partnership on Climate Change, which has provided a high-level political framework for cooperation and dialogue. This commitment has been confirmed and enhanced on several occasions (e.g., 2010 Joint Statement, 2015 Joint Statement, 2018 Leaders’ Statement)1. In 2020, Chinese President Xi, European Council President Michel, European Commission President van der Leyen, and European Council President German Chancellor Merkel discussed shared ambitions for cooperation on increasing climate ambitions and established a High-Level Environmental and Climate Dialogue during the EU-China Leaders Meeting. Yet, with global political tensions rising, progress on green finance cooperation between China and the EU has hit a roadblock.

As the most active on green finance policy making, the EU and China must cooperate in particular on taxonomies, emissions trading, and their global engagements.

The importance of green finance harmonisation for the EU and China

Green finance is considered a key element in tackling the dual challenges of climate change and biodiversity loss. It aims to provide relevant incentives to accelerate investments in green economic activities and, ideally, accompanying disincentives to reduce and phase out harmful investments. Harmonisation of green finance is accordingly relevant for two reasons. First, environmental risks, particularly climate risks, are global and therefore need to be tackled on a level playing field. Second, harmonised standards allow accelerating capital flows and, in particular, cross-border capital flows. As the majority of global capital is owned by western organisations, facilitating the flow to the global South is critical.

Besides the harmonisation of Chinese and European green finance standards, both countries are also cooperating in supporting green finance development globally.

This need to mobilise capital for a green transition makes EU-China cooperation on green finance particularly important. China considers itself the largest developing country, and the EU as a single market is the largest green finance market in terms of bond issuance and ESG funds. China, through its green credit system, bond markets, and related taxonomies, its emissions trading system (ETS), and similarly the European Union through its Sustainable Finance Taxonomy and Sustainable Finance Disclosure Regulation, as well as its ETS, have set global standards and developed the largest green finance markets in the world. For future alignment with its green growth goals, the EU also launched public consultations for a carbon border adjustment mechanism (CBAM) in July 2020, with continued progress on its design.

Despite important milestones, such as the Common Ground Taxonomy introduced in November 2021 under the leadership of China and the EU, frictions still exist. For example, international investors still face challenges accessing China’s green financial markets. Principally, China still has capital market restrictions through investment approval systems, no direct access to the bond market, but the requirement to go through the bond and stock exchange connects.
This has also led to outflows of international funds from China in the early months of 2022, keeping the already low share of foreign holdings of Chinese bonds at a low 3.2 per cent in China’s bond market and 4.2 per cent in the stock market (see figure 1)2,3.

figure 1
Figure 1. Foreign holdings of the Chinese Bond Market. (Source: Deutsche Bank)

Challenges also persist in cooperating in international financing due to strategically non-aligned interests between China’s Belt and Road Initiative (BRI) and the EU’s Global Gateway strategy. To overcome frictions between green financial systems and allow for more green finance flows, China and the European Union have particularly worked on harmonising their green finance taxonomies, with some success, and on cooperation with regard to carbon pricing through emissions trading systems4.

EU-China green financial markets integration through green taxonomies

Since its initial publication in 2015, China’s green bond catalogue has encouraged “green” investments in “clean coal” – undermining the EU green finance taxonomy goal to reduce greenhouse gas emissions. To coordinate their green financial systems, the PBoC published an updated green bond catalogue in April 2021 that removed the construction of new “clean coal”power plants, but kept upgrading different types of coal usage. The catalogue also adjusted the categorisation system to match the EU Taxonomy, and the adoption of the EU “Do No Significant Harm” principle to avoid investing in climate-friendly but biodiversity-destroying assets was discussed. Yet, gaps still exist.

The EU Taxonomy focuses on the environmental impacts of activities through the provision of specific thresholds for climate mitigation, compared to a project list in the Chinese green bond catalogue5. The EU Taxonomy’s agriculture-related criteria focus more on greenhouse gas reduction and less on broader sustainable farming aspects that may be relevant in other markets, including China’s. This includes reduced use of pesticides, the adoption of biodiversity-friendly techniques, and water conservation. The EU Taxonomy includes six environmental objectives, which are interlinked through the multidimensional ‘Do No Significant Harm’ requirement. In comparison, China’s green bond catalogue does not explicitly define any environmental objectives 6. The EU Taxonomy also recognises three different types of environmentally sustainable economic activities: sustainable, transition, and enabling activities 7. By contrast, the green bond catalogue does not include transition and enabling activities8.

The EU and China could strengthen cooperation in providing macro- and micro-prudential risk frameworks, such as for biodiversity loss stress testing, as well as common taxonomies and reporting standards.

To overcome the difference, China and the EU have led the development of the “common ground taxonomy” (CGT), which was introduced at COP 26 in November 20219. However, the CGT currently provides a comparison of the taxonomies and not a common ground taxonomy, despite the name. As such, the CGT does not address the concerns of European investors who will have to disclose their Chinese investments in accordance with the EU’s regulation on sustainability-related disclosures in the financial services sector (the Sustainable Finance Disclosure Regulation – SFDR). Nor does it present proposals to increase compatibility or expand interoperability. Rather, the CGT simply provides a comparison between the green part of the EU taxonomy and the Chinese green bond taxonomy. Furthermore, the two taxonomies compared in the CGT are only two of numerous current and forthcoming taxonomies. In the EU, the current taxonomy only covers green aspects, with social and broader sustainability aspects to be added over the coming years. In China, taxonomies differ by the regulator, economic sector, financial instrument, and sustainability focus. For example, China has launched a climate taxonomy and social taxonomy with overlaps and differences compared to the green bond taxonomy. This myriad of taxonomies means that the CGT is only a narrow comparison of the two most prominent taxonomies, with limited consideration of the broader context.

Emissions Trading

A focus of EU-China cooperation has been emissions trading mechanisms. From 2014 to 2017, the EU supported the design and implementation of emissions trading in China (based on the 2015 Joint Statement). The EU provided technical assistance for capacity building and supported the seven regional pilot systems, as well as the establishment of the national emissions trading system. The project has been extended into the “Platform for Policy Dialogue and Cooperation between EU and China on Emissions Trading” (2017-20), which supports the Ministry of Ecology and Environment (MEE) in its efforts to implement and further develop China’s national ETS and established a policy dialogue between the MEE and the European Commission. China and the EU signed an MoU to enhance cooperation on emissions trading at the 2018 EU-China Summit10.

In 2021, China’s national ETS was launched, coinciding with the EU’s announcement of its carbon border adjustment mechanism (CBAM) that would price the import of carbon emissions into the EU. While the launch of the China ETS was welcomed by the EU, the mechanisms of the Chinese and the EU ETS are not aligned. The Chinese ETS continues to be “intensity-based”, with fewer sectors, high allowances, and no communicated pathway to emission reduction, while the EU ETS is a cap-and-trade system with a clearly communicated emission reduction of emissions allowances. Also, the price of allowances varies widely by a factor of 10, making Chinese emissions much cheaper compared to EU emissions, even in the few sectors included in China’s ETS. This, potentially, has also led to China’s resistance to the carbon border adjustment mechanism (CBAM) work to price the import of carbon emissions into the EU.

Figure 2
Figure 2: Prices per allowance of the EU and Chinese Emission trading systems (ETS) (Source: ICAP)

The global importance of EU-China coordination

Besides the harmonisation of Chinese and European green finance standards, both countries are also cooperating in supporting green finance development globally. China and the EU, together with relevant authorities from Argentina, Canada, Chile, India, Kenya, and Morocco, had also launched the International Platform for Sustainable Finance (IPSF) in October 2019 11. The IPSF aims to scale up the mobilisation of private capital towards environmentally sustainable investments and to offer a multilateral forum of dialogue between policymakers who are in charge of developing sustainable finance regulatory measures to help investors identify and seize sustainable investment opportunities that truly contribute to climate and environmental objectives. The IPSF now includes 18 members11. Besides the IPSF, the PBoC and the EU Commission were founding members of the Network for Greening the Financial System (NGFS) 12. The NGFS’s goal is to contribute to the development of environment and climate risk management in the financial sector.
With strong green finance track records, Chinese and EU institutions are also working together to share green finance experiences learnt across Asia. For example, in 2019, Tsinghua University supported the development of the Mongolia Green Taxonomy, while the European Bank for Reconstruction and Development supported Mongolia’s green capital market development in 202113.

Climate Change

A call to action – climate change will not wait

With China and the EU firmly committed to building a green economy, the cooperation on green finance should be further strengthened. Against the backdrop of continuing economic challenges after the COVID-19 pandemic, increased uncertainty of international trade and other political challenges, combating climate change and accelerating green finance is a strategic and shared interest of all countries. Stepping up Sino-EU cooperation and action will provide both sides with significant opportunities for modernising their economies, enhancing competitiveness, and ensuring socio-economic benefits of increased clean energy access.

With the goal to accelerate the international flow and use of green finance, the EU and China could, therefore, particularly work on green policy harmonisation to define the regulatory scope of climate action and send clear signals to investors about political ambitions. This should also include green finance standard harmonisation, particularly for common definitions of green products and services, common procedures for verification of green finance products, common standards for reporting (e.g., TCFD) and possibly a standard for “dirty finance”. As China’s capital markets are still “opening up”, harmonisation could improve the attractiveness of markets through easier access, particularly for European investors, to the Chinese market in addition to the Bond Connect programme and increase the liquidity of Chinese bond markets. To reduce non-green finance, the EU and China, as two of the largest global emitters, should further cooperate on utilising emissions trading systems and other carbon markets. This could also include collaboration on avoiding carbon leakage, possibly through a “just” EU carbon border adjustment mechanism that provides development finance for carbon reduction, and through participation in multinational carbon markets.

The EU and China should further strengthen collaboration on biodiversity finance as one area where global green finance standards are just starting to evolve. The EU and China could strengthen cooperation in providing macro- and micro-prudential risk frameworks, such as for biodiversity loss stress testing, as well as common taxonomies and reporting standards. While challenges in cooperation might continue, policymakers and financial institutions should welcome and support China-EU green finance harmonisation. Meanwhile, investors should not use a lack of harmonisation as an excuse for a lack of green finance action. Climate change will not wait.

This article was originally published on 16 August, 2022.

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About the Authors

NedopilChristoph Nedopil is Professor at Fudan University Fanhai International School of Finance and Director of the Green Finance & Development Center. He is the lead author of the UNDP SDG Finance Taxonomy, the Green Development Guidance of the BRI Green Development Coalition under the Chinese Ministry of Ecology and
Environment and regularly advises governments, financial institutions, enterprises and civil society on green and sustainable finance.

Mathias Lund LarsenMathias Lund Larsen is a dual PhD Fellow at Copenhagen Business School and the University of the Chinese Academy of Sciences (Sino-Danish Center for Education and Research). His research focuses on the political economy of green finance in China from theory to practice, intention to impact, and domestic to overseas.
References

How Sales Teams Can Develop a Seamless Account Management Strategy

No matter what type of industry your business is operating in, it must prioritize streamlining its sales operations. The responsibility to do so, of course, falls on your sales team. 

To ensure such seamless sales operations, sales teams need to put a lot of effort into developing a proper account management strategy. Unless they do this, it’s very easy to lose track of their objectives and miss out on a lot of sales opportunities. 

That being said, let’s look at a few ways you or your sales team can develop an effective and seamless account management strategy. 

Understand Your Customers Inside and Out

A foundational principle of seamless account management is to truly understand your customers. This involves going beyond surface-level knowledge and diving deep into their needs, preferences, pain points, and long-term goals. 

When your sales team has a comprehensive understanding of your customers, it becomes easier to tailor your approach and anticipate customers’ future needs. To achieve this, consider conducting regular customer interviews or surveys to gather feedback and insights.

Engage in active listening when speaking with clients to uncover unmet needs or concerns. Use customer relationship management (CRM) software to centralize customer data and track their interactions with your organization. This information can help your sales team offer more personalized recommendations and stay ahead of the competition.

Foster Strong Communication Channels

There’s no doubt that effective communication is the backbone of any successful account management strategy. Hence, sales teams must establish strong and open channels of communication with their customers. 

Indeed suggests that these teams must ensure that clients feel heard, valued, and well-informed. Regular check-ins, whether through phone calls, emails, or face-to-face meetings, are essential to maintain these lines of communication.

Moreover, you should understand that a seamless account management strategy includes cross-functional collaboration within your organization. For that, your sales teams should work closely with other departments, like customer support, marketing, and product development. That way, it will be easy to ensure consistent and cohesive interactions with clients. 

Create Personalized Customer Journeys

Every customer is unique, and their journey with your organization should reflect that. According to Forbes, a one-size-fits-all approach to account management is no longer effective. Sales teams must develop personalized customer journeys that cater to the specific needs and preferences of each client. This involves segmenting your customer base and tailoring your interactions and offers accordingly.

Personalization can be achieved by utilizing data-driven insights and leveraging technology. For that, you need to properly study customer behavior, preferences, and purchase history. This will make it easier for you to recommend relevant products or services. 

Automate personalized email marketing campaigns to keep customers engaged and informed. By offering a tailored experience, your sales team can build stronger, long-lasting relationships with clients and increase customer loyalty.

Implement an Account Planning Process

To maintain a seamless account management strategy, sales teams need a structured approach. Account planning is a crucial step in this process. Using the right account management software is also a must, especially if you’re trying to make the most of technology at work. 

The planning also involves setting clear objectives for each account, identifying key stakeholders, and outlining strategies to achieve the desired outcomes. According to Prolifiq, an effective account planning process also involves setting realistic and measurable goals for each customer. 

With well-defined account plans in place, your sales team can track progress, make data-driven decisions, and adapt strategies as needed. This proactive approach ensures that your account management remains on track and aligned with your customer’s evolving needs.

Leverage Technology and Data Analytics

Technology plays a pivotal role in account management. Sales teams can benefit greatly from leveraging the power of data analytics and modern software tools. CRM systems are a fundamental component of managing customer relationships effectively. They allow your sales team to store, organize, and analyze customer data, as well as track customer interactions. 

Furthermore, as told by TechTarget, data analytics is a must if you want to uncover valuable insights about your customers. By analyzing patterns and trends in customer behavior, you can predict their future needs and tailor your offerings accordingly.

Machine learning and artificial intelligence can also be harnessed to automate routine tasks, personalize recommendations, and enhance the efficiency of your account management efforts.

Conclusion

It goes without saying that a seamless account management strategy is a must-have to streamline your sales operations. Thus, there’s no alternative to equipping your sales team with such a strategy.

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Five Financial Advice for Startups

As a newbie entrepreneur, you might be overwhelmed with the daunting tasks of developing the financial projections for your business startup along with licenses, permits, and cta regulations to ensure that you are doing everything right to kickstart your business venture.

Regarding the business framework, license, and permits, you will want to get in touch with a lawyer who can help with establishing the right legal foundation and ensuring that you are complying with the law. However, regarding the finances, you will want to assess the potential financial projections and include them in your business plan before presenting them to the funders.

However, you might feel uncertain about the financial projection, which is why you will want to go through the following list of advice to get the much-needed roadmap.

Assess Your Financial Goals

Naturally, as a startup owner, you will want to make as much money as possible, but how much money do you need to initiate your startup? You will want to write down the financial goals that you want to achieve with your business.

You will want to include all the financial goals and objectives in your financial projection.

Plan for Income Tax

Sometimes, business owners tend to forget the importance of income tax planning when creating financial projections. However, it is important to mention here that income tax planning isn’t an optional aspect of your finances.

You will want to get a professional onboard who will help you through the ongoing process that helps business startups review their gross income and manage their expenses on a monthly basis.

Manage Your Balance Sheet

You will want to manage your balance sheet religiously because the balance sheet declares where your business stands at any given moment in time. A financially learned reader can learn from the balance sheet loads of valuable things about a business and its viability.

This aspect perfectly explains why potential investors and lenders always ask potential entrepreneurs for a copy of their financial statements and their balance sheets. Potential lenders also ask for copies of the following:

Risk Management

Irrespective of the size and nature of your business, you will need to opt for business insurance. There are several aspects of your business that you want to consider when looking for new business insurance. Regarding risk management, you will use it as a tool to identify potential risks that could develop during the different stages of your business.

Risk management can help you make better and essentially informed decisions, which can further help with avoiding costly future mistakes.

Establish Cash Flow Statement

When it comes to financial projections of a business, the statement of cash flow refers to the financial statement that indicates a business’s incoming and outgoing finances during a period. These statements are arranged from the same accounting information, but each statement serves its separate function.

Cash flow statements function as a way to report the movements of cash into and out of your business in any given year.

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Financial Well-Being for Single Mothers: Tips and Strategies

Being a mom comes with its share of obstacles, and one of those challenges revolves around effectively managing finances. With the entire responsibility of providing for their children on their own, single moms often find themselves juggling work, parenting, and financial obligations all at once. However, with planning and strategies in place, it is possible for single moms to achieve well-being and stability. In this blog, we will explore some tips and strategies to assist moms in navigating their financial journey.

Establishing a Budget

One step towards attaining well-being as a single mom is creating a budget. A budget helps you keep track of your income and expenses while enabling you to allocate your money. The Invest Diva course recommends you start by listing all sources of income, including your salary, child support payments, or any other additional income you may receive. Afterward, document all your expenses, such as bills, groceries, childcare costs, and any other necessary expenditures.

Once you have an understanding of the breakdown of your income and expenses, you can identify areas where adjustments or cutbacks can be made. Look for opportunities to save money on items like groceries, utility bills, or transportation costs. Consider exploring discount stores, utilizing coupons, or carpooling as ways to save on gas expenses, and take a long look at your budget to make choices on how to spend and save your money wisely.

Emergency Fund

For single mothers, having an emergency fund is absolutely crucial. Unexpected expenses can crop up at any moment, and having some form of financial security can bring much-needed peace of mind. Aim to set aside a minimum of three to six months’ worth of living expenses in your emergency fund. Begin by saving an amount each month and gradually increase your contributions over time. Remember that every little bit adds up, and consistency is key.

Savings Goals

Besides having an emergency fund, it’s important to establish savings goals. Whether it’s saving for your child’s education or making a payment on a house, having targets keeps you motivated and focused. Courses by Invest Diva help you determine the amount you need to save and the timeframe in which you want to achieve it. Then, break down your goal into milestones that are more manageable. By adding to your savings and monitoring your progress, you’ll be one step closer to realizing your aspirations.

Seeking Financial Assistance

Single mothers often confront difficult financial challenges; however, it’s essential to remember that help is available when needed. There are government programs to offer financial assistance and resources to single mothers. Programs like Temporary Assistance for Needy Families (TANF), Supplemental Nutrition Assistance Program (SNAP), and childcare subsidies can provide support for living expenses and childcare costs. It’s important to research and determine which programs you qualify for so you can take advantage of the support.

Skill Development

Investing in yourself is also crucial for your well-being as a mother. Consider furthering your education or gaining skills that can help advance your career. Higher education or vocational training can open doors to job opportunities and potentially increase your earning potential. Keep an eye out for scholarships, grants, or tuition assistance programs specifically tailored for mothers.

Insurance Coverage

Having the right insurance coverage is another aspect of financial wellness as a single mom. You want to ensure that you and your children are protected in case of events. Health insurance, life insurance, and disability insurance are all parts of a financial plan. Take the time to compare coverage options to find the most suitable ones for you and your family.

Managing Debt Effectively

It’s crucial to address high-interest debt, like credit card debt, as quickly as possible. Begin by prioritizing your debt payments and focus on paying off the balances with the interest rates. Explore options such as consolidating your debts or negotiating interest rates with your creditors. Taking steps to manage your debt will enable you to free up money for savings and other financial goals.

Seek Professional Guidance

If you feel overwhelmed or unsure about managing your finances, don’t hesitate to seek guidance. Financial advisors who specialize in assisting parents can provide advice and help you create a personalized financial plan. They can assist you in assessing your situation, setting realistic goals, and devising strategies to achieve them.

Achieving wellness is possible for moms through careful planning and the right strategies. By creating a budget, establishing an emergency fund, setting savings objectives, exploring financial assistance options, investing in courses like Invest Diva, obtaining insurance coverage, managing debt effectively, and seeking guidance when needed, single moms can attain financial stability and secure their children’s future. Keep in mind that with determination and perseverance, you can overcome any challenges and create a future for yourself and your family.

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Best Trading Platforms in the UK

What are the best trading platforms in the UK? Whether you are new to trading in the UK or a veteran in the industry, the trading platform you choose will make or mar your trading experience. 

The UK is home to several trading platforms. However, our aim in this article is to isolate a handful of them that we’ve come to recognize as the best trading platforms in the UK. 

Approach to Trading Stocks in the UK

There are several ways to trade the stock market in the UK. However, we’ll review two basic approaches beginners can use to get into stock trading in the UK. It includes direct investing and indirect investing. Before getting into the details, how you trade stocks in the UK depends on the type of trading account you set up. There are Spread betting accounts and CFD accounts. Hence, it’s best to decide your trading approach before setting up an account. 

Direct Investment

Traders can buy shares individually from the market by setting up their personal accounts, funding, and purchasing the shares of their company of choice. 

Indirect Investment 

In this type of investment, traders’ funds form a part of a fund pool managed by professionals or institutional fund managers. The pool is diversified into a range of investments. The basket of assets could include bonds, stocks, and forex. The advantage of this type of investing is that it minimizes the risk of losses, especially for beginners. 

Best Trading Platform for Beginners in the UK

Traders in the UK have access to a range of options regarding trading platforms. Nonetheless, below is a quick highlight of some of the best beginner-friendly trading platforms in the UK. 

TradingView 

Newbie traders in the UK will derive some of the best experience from the Tradingview platform. One of its strengths is its flexibility, versatility, and resourcefulness. Tradingview is one of the most used trading systems worldwide due to the vast charting tools it provides. 

Moreover, it provides free training resources that can help new traders in the UK get up to speed within a short period. Besides, it also features an online community of users where traders exchange ideas and review trends in the market. 

However, to get the best of the Tradingview platform, beginners should opt for the Tradingview Pro or Tradingview Pro+ versions. With that, they can access several tools and resources that help them stay ahead of the curve and maximize their profits. 

Interactive Investors 

Interactive investors have been around since the mid-90s. It is primarily an online trading platform in the UK and has a presence in other countries worldwide. Interactive Investors uses a subscription-based model that allows users to pay as they go, providing trading information and investment tools to users. Some of its strengths include its fast execution and wide selection of payment options. It is regarded as one of the most reputable trading platforms in the UK, with over 400 thousand users. 

eToro 

eToro has a reputation as the best beginner-friendly trading platform in the UK. Besides the UK, it is also recognized as one of the best platforms in the world, with a presence in over 140 countries and over 30 million users. Along with access to several trading instruments, eToro features novel automated trading options, including its proprietary copy trading for day and Algo traders. Overall, beginners can access proven trading strategies to start the market without mastering the basics. Regarding charges, eToro charges 0% commissions and zero annual fees.

Webull

Webull Securities (UK) is a relatively new trading platform founded in 2021 as a member of the Webull Group. The platform has earned a reputation as one of the best trading platforms for beginners in the UK. It offers seamless account setup and free stock and ETF trading. It is also known for its fast trade execution speed, which places it in the class of platforms like Pepperstone. It keeps its platforms cheap for beginners by charging 0% commission and a negligible percentage on other fees. 

FAQS 

How Can I Start Trading in the UK?

To start trading in the UK, you must create a trading account with a reputable platform. After setting up an account, traders must fund their account. Finally, it’s time to study and decide whether to day trade or settle for a medium-term or long-term strategy. Analyze the market and place trades that align with your strategies and goals.  

Is Trading Legal in the UK?

Yes, trading is legal in the UK. The Financial Conduct Authority (FCA) provides the framework that guides brokers and other players in the financial sector. Hence, it’s best to understand the rules and regulations of the industry before getting involved.

What Platforms in the UK Offer the Best Trading Experience?

eToro, Webull, Pepperstone, Interactive Investors, and IG, among others, are some of the trading platforms in the UK that offer the best trading experience. However, eToro still holds the highest rating as the most beginner-friendly and user-friendly trading platform in the UK and most countries worldwide.

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Investing for impact: Interview with Prof. Durreen Shahnaz, CEO and Founder of Impact Investment Exchange (IIX) and Founder of the Orange Movement™

Taking social and environmental impact into account in investment decisions is clearly ethically sound. But, as Professor Durreen Shahnaz explains, it makes mathematical sense, too, promising a more prosperous and sustainable future for the whole planet.  

Could you share the inspiration behind founding Impact Investment Exchange (IIX) and the Women’s Livelihood Bond and how they have evolved since their inception?  

Impact Investment Exchange (IIX) and the Women’s Livelihood Bond™ (WLB™) Series, a flagship financial product of the company, were born from my unwavering commitment to making the financial system equitable by uplifting gender minorities and empowering the 99 per cent and the Global South. 

Throughout my life, I have been a tireless advocate for gender equality and sustainable development. My quest to make women, underserved communities, and climate front and centre of the financial market shaped my life journey.  

My experiences range from growing up as a young girl in Bangladesh, where girls had limited opportunities, to becoming the first Bangladeshi woman to break barriers on Wall Street. My journey continued with founding my start-up, OneNest, and eventually establishing IIX, where I conceptualised the world’s first social stock exchange. My book, The Defiant Optimist™: Daring to Fight Global Inequality, Reinvent Finance, and Invest in Women, details this remarkable journey. 

One of our greatest innovations is the Women’s Livelihood Bond™ (WLB), an innovative gender-lens bond that brings together the importance of gender equality and climate action. The bond series empowers women, girls, and gender minorities across a multi-country and multi-sector portfolio while enabling climate action. Over the past few years, we have launched five WLB Series issuances, putting over $128 million in the market. We are now working towards our sixth issuance of $100 million that will come to the market next month. The WLB Series has empowered millions of women and their families across Asia and Africa. 

The bond series empowers women, girls, and gender minorities across a multi-country and multi-sector portfolio while enabling climate action.

We have also focused our efforts on building the sustainable finance ecosystem with the world’s first asset class for gender-lens investing (Orange Bond Initiative™), two funds focusing on women (Women’s Catalyst Fund™ and Growth Fund™), a proprietary impact assessment tool that verifies impact in the last mile and give women’s voice a value (IIX Values™), and a fintech platform (social stock exchange) to connect social enterprises with impact investors (Impact Partners™). 

The Women’s Livelihood Bond is a pioneering financial instrument designed to empower women and create a positive social impact. Can you elaborate on its effect on marginalised communities and women entrepreneurs? 

So far, the Women’s Livelihood Bond™ (WLB) Series has successfully raised over $128 million through five issuances, positively impacting the lives of over 1.3 million women and girls throughout Asia and Africa. 

Excitingly, this year marks the launch of our sixth issuance, WLB6, with a bond size of $100 million to empower 500,000 women and girls in Asia and Africa. 

The capital raised through the WLB Series has gone towards women-led or focused businesses or those dedicated to creating products and services that significantly improve women’s lives and climate action across Asia and Africa. We firmly believe that, with women and gender minorities making up more than half of the global population, unlocking their potential holds the key to driving transformative change and accelerating efforts towards addressing sustainable climate solutions. 

Bridging the gender gap is a central theme in your work. How does IIX contribute to reducing gender inequality, and what are some key achievements? 

At IIX, we do not view gender inequality as an isolated issue but as a complex and interconnected problem closely intertwined with other pressing global challenges, such as climate change. Here’s why. Women make up half of the world’s population, yet they disproportionately bear the adverse impacts of climate change and are often excluded from participating as solution-makers. 

In terms of global inequality, the statistics are stark. The Global North, representing only about 25 per cent of the world’s population, commands a staggering 80 per cent of the world’s wealth. In 2019, the combined wealth of the world’s billionaires exceeded that of 4.6 billion people. The current global financial system caters primarily to the interests of the top 1 per cent in the Global North.  

For the past 14 years, IIX has pursued a more equitable world. We’ve focused on building an inclusive financial system that empowers underserved women, gender minorities, and the 99 per cent in the Global South. 

Our efforts have reached 57 countries, unlocking an impressive US$288 million in private-sector capital. Importantly, our work has made a tangible positive impact on the lives of over 159 million people, and we’ve played a significant role in mitigating the emission of over 1.83 million tons of carbon. Our work actively contributes to a more just and sustainable world. 

Can you tell us about the challenges you’ve faced in promoting impact investing, particularly in the context of gender equality, and how you’ve overcome them? 
 
Throughout my life, I’ve confronted and battled against deeply ingrained, often unconscious biases. My journey has shown me that the success of a business and the strength of its financial instruments sometimes take a back seat when investors see a woman, particularly a woman of colour, at the helm of a company. It’s disheartening to witness how bias can introduce an element of perceived risk into the equation.  

The reality is that overt and subtle bias permeates our surroundings. Rather than succumbing to frustration and going against the system, I’ve chosen a different path: working to change the system from within and finding ways to make it work in our favour. 

One notable example of this approach was when I was raising funds for the first Women’s Livelihood Bond. I had to be pragmatic and enlist individuals that investors would be “familiar” and “comfortable” with – typically men with similar demographic profiles to most of our investors. This strategic move paid off, even if I had to step aside to allow these individuals to take the lead. I took a bullet for feminism to win the war of gender equality and create a financial system that works for the 99 per cent.  

The Orange Bond Initiative is dedicated to mobilising capital for social and environmental good. How do you measure the success of this movement, and what are your long-term goals for it? 

The Orange Bond Initiative™ is a visionary financial endeavour aimed at channelling resources toward social and environmental betterment, particularly addressing gender inequality through innovative financial mechanisms. Our assessment of success is deeply rooted in concrete and tangible outcomes that directly benefit the communities we are committed to serving. To measure our impact, we rely on a range of critical metrics, including the amount of capital we have successfully mobilised, the number of livelihoods we have positively influenced, the strategic alliances we have forged, and the reductions in carbon emissions we have achieved. 

Our long-term vision is to enable lasting change in financial investments and societal and environmental progress, marking a monumental step toward a brighter and more sustainable future.

It’s worth noting that the landscape of environmentally and socially responsible investing has evolved significantly, with a notable surge in ESG-linked bonds promoting gender equality, which recorded a remarkable $33 billion in issuances in 2022. The dedicated team at IIX is working diligently to amplify the reach and impact of Orange-labelled bonds, building on this momentum. 

Our overarching goal is ambitious: by 2030, we aim to unlock a substantial $10 billion in capital. We will direct this capital towards empowering over 100 million women, girls, and gender minorities across the globe. 

Through these concerted efforts, we aspire to create a transformative impact on gender equality and related Sustainable Development Goals (SDGs), fostering a more inclusive and equitable world for all. Our long-term vision is to enable lasting change in financial investments and societal and environmental progress, marking a monumental step toward a brighter and more sustainable future.  

Sustainable development is a global priority. How can impact investing be a catalyst for achieving the UN’s Sustainable Development Goals? 

Sustainable development is a paramount global priority, and impact investing is pivotal in catalysing progress towards the United Nations SDGs. At IIX, we are committed to leveraging impact investing as a catalyst for transformative change, focusing on SDG 5, which underscores the importance of gender equality for women, girls, and gender minorities.  

We have been channelling catalytic capital towards women-led and women-focused SMEs in the Global South for the last 14 years to advance these goals. We enable private and institutional investors to align their financial objectives with sustainable development, thus catalysing the achievement of the SDGs. This approach fosters innovation, encourages responsible business practices, and contributes to a more equitable and sustainable world. 

Empowering marginalised communities is a core objective of your work. Could you share some success stories or impactful projects that exemplify the positive change your initiatives have brought to these communities?

Our WLB™ Series has supported and enabled women and gender minorities around the globe to increase income and achieve financial independence and climate resilience. 

To give you some examples, amid the COVID-19 pandemic, the WLB™ Series supported and enabled about 12,000 women smallholder farmers to increase income and climate resilience in India and Cambodia. In addition, almost 100,000 women in Indonesia have enhanced their businesses and improved income generation ability. Capital mobilised from WLB4ClimateTM has supported 300 Indian women who have achieved financial independence and experienced increased ownership of assets. Moreover, the WLB3 proceeds have supported 16,000 Filipino women to be financially stable and resilient, allowing women entrepreneurs to grow their businesses and support their families. This is simply the tip of the iceberg; the list of women and communities we have impacted goes on.  

In the world of finance, profit often takes precedence. How do you ensure that IIX’s investments prioritise positive impacts on people and the environment over short-term gains? 

Doing good through finance is not easy but, over the past 14 years, IIX has proven that it is not just altruism but intelligent business and financial prowess that are needed to grow the impact investing space.  

We have effectively shown the “maths” of bringing social and environmental equity into investment. While investors will say they care about doing good, don’t be fooled. They care about doing good only when they know they will get their financial return.  

Thus, the onus was on us to prove that in the financial world of “risk-return”, there is a new element: impact. We educate investors on “risk-return-impact” (RRI) and how the right RRI creates a fresh, vibrant portfolio theory. If you create deep impact, measure it, verify it, then that will reduce the business’s operational risk. We have proven this over and over again with our investments, resulting in zero credit default for our investments.  

Our commitment extends beyond impact measurement; we rigorously verify it to the last mile. This unwavering dedication to due diligence ensures not only the authenticity of our impact claims but also serves as a robust risk mitigation strategy, safeguarding the interests of our investors. 

Investments guided by the risk-return-impact framework have emerged as exemplars of resilience and sustainability. What was once considered a buzzword in the financial world is rapidly transitioning into a cornerstone of every astute investor’s portfolio. This transformation underscores the growing recognition that finance can be a force for positive change, driving us toward a more prosperous and sustainable future.  

Gender equality has wide-reaching effects on economies. Could you elaborate on the ripple effect of gender equality in the context of the global economy? 

Women account for half the world’s population, and their potential to impact the global economy is tremendous. Currently, 56 per cent of all unbanked adults are women. This gap in bank account ownership between men and women persists globally, especially in developing markets. 

In addition, globally, women represent only about 40 per cent of the total workforce in the formal sectors, such as finance, manufacturing, and government. Suppose we were to build a truly inclusive economy that advances gender equality and increases women’s participation in the labour force. In that case, $13 trillion could be added to the global GDP by 2030.  

Finally, what advice would you give to individuals and organisations looking to make a meaningful impact through impact investing and promoting gender equality in their work?  

Anyone can be a defiant optimist and an agent of change. For me, it has always been about making the financial system, a big, complex, scary system, work for all. You may have a different and equally important goal, but one thing is for sure: you will face challenges that may seem impossible.  

But defiant optimism means sticking to your belief that your work is essential. It means banging on door after door until one opens. So always remember your North Star and stay resilient. We hold more power than we think! 

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Executive Profile 

Durreen Shahnaz

Prof. Durreen Shahnaz is the CEO and founder of Impact Investment Exchange (IIX) and author of The Defiant Optimist: Daring to Fight Global Inequality, Reinvent Finance, and Invest in Women. She was named a financial rainmaker in Forbes 50 Over 50 and focuses on women’s empowerment, environmentalism, and sustainability. 

How Generative AI is Revolutionising Marketing Efficiency

By Dr. Gleb Tsipursky

The marketing world is being transformed by the rise of generative AI. As this technology improves, it allows marketers to be more efficient, creative and data-driven. I recently spoke with Ben Dutter, Senior Vice President of Strategy at Power Digital, to get insight into how generative AI is impacting marketing. 

Generative AI Boosts Paid Ad Efficiency 

One major area where AI shines is in managing digital advertising campaigns. Dutter explained that machine learning algorithms have been optimising paid ads for around a decade now. But generative AI takes efficiency to the next level. 

In the past, marketers had to manually adjust bids and target keywords. Now campaigns can be automated thanks to AI and cloud infrastructure. As Dutter noted, this allows experts to focus on deep strategy rather than tedious optimisations. 

The time savings are massive. Tasks that took hours or days can now be accomplished in minutes or seconds. This efficiency boost allows for faster testing and iteration as well. 

AI Copywriting Expands Creative Possibilities 

Generative AI is also revolutionising marketing copy. Dutter gave the example of AI generating thousands of ad headlines or email subject line variations. This volume of content would be impossible for a human to produce manually.  

Not only does this allow for more rapid testing, it also unlocks creativity. Brands can explore a wider range of ideas without worrying about production timelines. The human creator simply prompts the AI and edits the output. 

This demonstrates how AI acts as a multiplier rather than a replacement for human skills. The unique value marketers provide is evaluating ideas and guiding strategy rather than repetitive content production.  

Fast and Deep Data Analysis Democratises Insights 

In the past, advanced data analysis required specialised expertise. Techniques like Bayesian modelling might take a data scientist hours to execute. But now, AI systems can provide these insights almost instantly.  

Techniques like Bayesian modelling might take a data scientist hours to execute. But now, AI systems can provide these insights almost instantly.

As Dutter explained, even tools like the free version of ChatGPT can run causal impact analysis on structured data with a simple prompt. This level of speed and depth democratises data science for marketers. Powerful analytics become accessible without high consulting fees.  

AI can rapidly process many possible scenarios as well. Dutter gave the example of predicting the most valuable target audience or product recommendations. This allows brands to maximise ROI through data-driven decisions. 

Overcoming Biases Is Key to Using AI Well 

However, it’s important to be aware of potential cognitive biases when using AI in marketing. Confirmation bias means we tend to seek out and interpret information in ways that confirm our existing beliefs. With generative AI, marketers may unconsciously prompt tools in ways that validate their assumptions rather than challenge them. 

Marketers also face the risk of anchoring bias. If they anchor on initial AI-generated ideas, they may fail to consider other creative directions. An over-reliance on data analytics can fall victim to this bias as well.  

Another bias to be aware of is the empathy gap. This refers to the inability to understand another perspective, especially relating to experiences we haven’t personally gone through. For example, AI might generate ad headlines that sound logical but fail to resonate emotionally with the target audience. Or data analytics could miss important human factors that numbers alone can’t reveal. 

Closing this empathy gap takes conscious effort. Marketing leaders need to continually engage with and gather insights from customers and frontline staff. This helps ensure AI is prompted with strategic empathy rather than cold logic.  

Being aware of these mental blindspots is key. Generative AI provides incredible leverage, but only if used wisely. Marketers who acknowledge their own biases will get the most value from this transformative technology.  

The Future of AI in Marketing 

Generative AI provides incredible leverage, but only if used wisely. Marketers who acknowledge their own biases will get the most value from this transformative technology.

To wrap up our discussion, I asked Dutter where he sees marketing AI heading in the near future. He predicted that within a year, performance advertising channels like Google Ads could be largely commoditised. The focus will shift from execution to strategy, creative, and testing.  

Dutter also foresees synthetic AI-generated influencers becoming more prevalent. Brands can create endless customised video content through virtual avatars. This reduces reliance on individual content creators.  

Additionally, new possibilities for applying generative AI in marketing are emerging rapidly. For example: 

  • Personalised video ads tailored to specific viewer interests and preferences 
  • Automated translation of marketing assets into dozens of languages 
  • AI-generated market research reports that synthesise surveys, interviews, and digital conversations 
  • Predictive analytics identifying which customers are likely to churn and how to re-engage them 

These innovations demonstrate how versatile and expansive AI’s potential is for transforming marketing.  

The Takeaway: Experiment Boldly, but Use AI Thoughtfully 

Generative AI holds incredible potential to enhance human creativity and efficiency. As Dutter observed, embracing this technology allows for bolder experimentation and faster iteration. Data-driven insights become more accessible as well.  

However, blindly following AI guidance can lead marketers astray. By acknowledging inherent biases, testing rigorously, and guiding AI tools strategically, brands can maximise value. With the right mindset, generative AI can revolutionise marketing effectiveness. But the human must remain in the driver’s seat. 

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About the Author

Dr. Gleb Tsipursky

Dr. Gleb Tsipursky helps leaders use hybrid work to improve retention and productivity while cutting costs. He serves as the CEO of the boutique future-of-work consultancy Disaster Avoidance Experts. He is the best-selling author of 7 books, including the global best-sellers Never Go With Your Gut: How Pioneering Leaders Make the Best Decisions and Avoid Business Disasters and The Blindspots Between Us: How to Overcome Unconscious Cognitive Bias and Build Better Relationships. His newest book is Leading Hybrid and Remote Teams: A Manual on Benchmarking to Best Practices for Competitive Advantage. His cutting-edge thought leadership was featured in over 650 articles and 550 interviews in Harvard Business Review, Forbes, Inc. Magazine, USA Today, CBS News, Fox News, Time, Business Insider, Fortune, and elsewhere. His writing was translated into Chinese, Korean, German, Russian, Polish, Spanish, French, and other languages. His expertise comes from over 20 years of consulting, coaching, and speaking and training for Fortune 500 companies from Aflac to Xerox, and over 15 years in academia as a behavioural scientist at UNC-Chapel Hill and Ohio State. A proud Ukrainian American, Dr Gleb lives in Columbus, Ohio.

How to Build a Chatbot: A Step-by-Step Development Guide

Searching for a quick and easy chatbot tutorial? You’re in for a treat. Chatbot creation is a superb idea, especially when you have multiple customers that you need to respond to. Nowadays, anyone can use visual drag-and-drop bot editors to create bots, making the process simpler. So, you don’t require coding skills and a mastery of computer software. We’ve composed an expert guide on how to build a chatbot from scratch easily.

Identify the Bot’s Purpose

The first step in making a bot is determining its purpose. Consider the purpose for which you are developing the chatbot. The possible answers to why you are building a chatbot include boosting customer experience, creating a client support automation system, or even all the stated options. Also, determine the features of a chatbot you feel will be most helpful. The answers to these questions will act as a roadmap for your chatbot building. Even if you decide to get Python assignment help for creating the bot, you’ll be able to know the areas that the helper should focus on to develop a perfect bot for its purpose.

Determine Where the Bot Should Appear

The next crucial procedure on how to build a chatbot is to establish the company’s primary communication medium with its customers. After selecting the communication medium, consider whether the bot platform you pick blends with the organization’s tools to ensure clients get served well. First, consider the company website. Many chatbot-making platforms integrate with well-known website hosts like Shopify. The second channel to consider is social media. Finally, consider other messaging services like Slack. You can use a bot across numerous channels thanks to the multiple integrations that various providers of bot development services offer.

Pick a Platform

Selecting a provider is an essential step in creating a bot. There are two options to choose from: the framework and the platform. The most popular AI frameworks include Microsoft Bot and IBM Watson. When using this option, you must know how to code a chatbot. These options are like libraries for programmers, and they use them to make bots through coding. The second way is to use chatbot platforms. Bot platforms provide builders that are simple to use, enabling you to develop chatbots using building blocks. These platforms’ popularity is surging because making bots with builders is simpler, takes less time, and produces effective results. After picking the provider that best suits you, proceed to register and start working.

Develop Chatbot Conversion

Build a conversion flow by dragging and dropping the building blocks to make a sequence. Consider a situation where you intend to offer a discount on a yoga item to people who visit a particular page of your e-commerce shop. The initial step is to log in and head to the bot builder. Begin with a trigger or a circumstance that prompts the bot to greet visitors. Write a note of the message, then add a decision node with short replies. Create a message for customers who desire the product discount you are offering and a different message for customers who are not interested.

Test the Bot

After the design, test the bot to ensure everything is working as it should. Starting to use a chatbot that is not tested will make all the effort you put into the chatbot creation go into vain if the bot fails to impress customers. You need to click a test it out button, and a window will appear, highlighting the chatbot’s appearance to the end user. The preview of what the customer will see enables you to return at any time, make adjustments, and edit the flow.

Train the Bot

You can move on to the next step and skip this if you want to use a straightforward chatbot built on decision tree flows. However, an NPL trigger needs to be added if you want the bot to recognize the users’ intentions. Train the bot by analyzing the conversations between the bot and users. The analysis will help pinpoint the most prevalent problems and the most frequently asked questions. You have the option of doing it manually or using a word cloud maker. Add more words and phrases to the discussed topic to feed the NLP engine, which will aid the bot in recognizing questions that are similar to the one being discussed.

Gather User Feedback

The best audience to evaluate the bot is customers and general visitors. Allow the bot to send a client satisfaction survey to gather feedback automatically. Questions in the survey that measure respondents’ satisfaction with the bot should be included. Using these results, you can identify what functions best and areas that require improvement.

Keep Track of Chatbot Analytics to Make Improvements

Keep Track of Chatbot Analytics to Make Improvements
Photo by Christina Morillo on Pexels

Ensure that you constantly monitor your bot activity. Monitoring will help you establish whether the bot doesn’t offer a desirable customer experience or if it meets the visitors’ needs. A quick tip is to use applications that help analyze the drop-off rates of particular message nodes.

Closing Remarks

Knowing how to create a chatbot is essential to boosting client experience. Fortunately, making a bot is an easy process that doesn’t require sophisticated coding knowledge. All you require is to understand why you are making the bot and the primary channels your firm uses when communicating with clients. Doing so will ensure you build a bot that best serves clients’ needs. With this knowledge, you can pick a chatbot platform and design a bot conversation in the editor.

After creating the conversation, test the bot before using it with customers. Also, consider training the bot to improve its functionality. Moreover, pay attention to client feedback as it will help to notice areas that require improvement. Wondering, “How long does it take to create a chatbot?” The duration depends on your expertise, the platform used, and the goals and needs of the business. But generally, the bot would be ready in 2 to 6 months.

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GameStop’s (NYSE:GME) Market Odyssey in a Nutshell

GameStop (NYSE:GME) is an American company specializing in retailing video games, consoles, accessories, and computer software. Established in 2000 in Dallas, Texas, the company has emerged as a significant player in the video game market. The “Reddit revolt” orchestrated by small investors led to a short-squeeze, propelling the stock price to unprecedented heights. This incident has drawn attention to the potential influence that an increasing group of retail investors can exert in stock markets when empowered by social media.

Before embracing social media and mobile applications to engage customers and market products, GameStop faced challenges. The shift from physical to virtual game distribution, coupled with the impact of the Covid-19 pandemic, presented hurdles for the company. Collaborations with major video game developers such as Electronic Arts, Activision Blizzard, and Ubisoft, however, enabled GameStop to diversify its product offerings, navigate these challenges, and stay afloat.

Examining the company’s past successes sheds light on its current predicament. While GameStop attracted a diverse customer base through its wide array of video games, consoles, accessories, and software, it now finds itself grappling against virtual marketplaces. Online trading, once a novel approach pioneered by the company, has become commonplace, making it harder to stand out. And against the background of large retailers, it is almost impossible to withstand competition.

Despite these challenges, strategic advertising efforts provide a glimmer of hope. GameStop actively utilizes social media, engages in advertising campaigns, and participates in events and contests to maintain visibility. Partnerships with leading game developers contribute to the availability of new and popular games, fostering sales growth and increased market share.

The company’s pivot towards expanding its product range, offering clothing, accessories featuring popular game symbols, as well as computer components, seeks to attract new customers. However, financial reports reveal the limitations of this strategy — the profits from souvenir sales primarily benefit game makers, leaving the store with a modest share. It’s important to note that despite the sustained interest in the video game sector, its growth is constrained by the inflation rate.

Financial reports signal a disconnect between positive reports and stock price growth. Despite three consecutive positive reports, there is no evident upward movement in the stock price. Notably, the surge in trading volume occurs primarily during the reporting periods, with the last instance being an exception. This suggests a gradual withdrawal of support from bullish investors and a waning interest from small traders. Looking ahead, the forecast for upcoming earnings is bleak, with expected -0.083, signaling a continuation of the downward trend.

downward trend

From a technical perspective, the historical support level of $10 serves as the last stronghold for the bulls. A breach of this level could spell trouble for recovery. While challenges loom, cautious optimism prevails as market participants await developments, acknowledging that hope is the last thing to resort to in trading.

in trading

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Affective Polarization is the Path to Toxic Political Polarization: A Growing Trend Which Potentially Undermines Democratic Accountability

By Marcelina Horrillo Husillos, Journalist and Correspondent 

A research team from New York University found that Twitter messages that include moral or emotional words are shared about 20 percent more, but only within polarized political camps, not between opposing parties.

Also, according to a new Yale University study published in the journal ‘Science Advances,’ online networks encourage us to express more outrage because doing so online gets more likes and shares than in other interactions. In addition, these rewards had the greatest effect on users linked to politically moderate networks.

The cocktail of anger and rage is quickly becoming the holy grail of political polarization, as individuals have extreme reactions against views that differ from their own. While political differences are a function of any healthy democracy, toxic polarization occurs when those differences begin to pull citizens apart from each other and the societal bonds they share. It can undermine faith in democratic institutions and the freedom of speech.

Easy-to-access digital platforms generally promote the most emotionally attention-grabbing content, which produces a cacophony of politically extreme opinions around us.

As the philosopher Eric Hoffer published in his famous essay “The True Believer,” “All movements, however different in doctrine and aspiration, draw their early adherents from the same types of humanity; they all appeal to the same types of minds.”

Affective polarization

Affective polarization often prones strong negative feelings toward other groups, which may lead to hate speech. Audiences are often captured by the emotional tone of speeches, which are strategically pronounced with the aim of grouping individuals towards an ideology dangerously perceived as an identity.

This is also the main cause of the spread of fake news and various types of misinformation. It is a ‘tactic’ used to attack and undermine their opponents with disinformation—whether they truly believe it or not—to create a “sense of identity” and of belonging to their own group, and to be liked by their own “kind.”

Users in social media networks can easily select, edit, and share information with like-minded people. he aim of this interaction is to create ideological trends which will potentially create a large number of followers. As such, polarization is a serious threat to democracy, as it spoils the health of the information ecosystem with fake news and hate speech and causes political turmoil and violence. If left untreated, it may lead to social disintegration and general social instability.

Affective polarization has been described by scholars as the emotional dislike and disgust between members of opposing parties based not on policies but on identity. Whenever something happens, we decide very quickly whether it’s good or bad, if it is blameworthy or punishable, or overall, how bad it is. We form quick and strong opinions which seek to reaffirm the strength of our own identities. Then, we publish our strong opinions in digital networks, which creates certain feedback that we use to reaffirm our identity.

Political polarization

Political polarization is the result of intense affective biased polarization undergone. Groups with specific aims of creating controversy manipulate audiences by spreading strong emotional hate content in order to reinforce division among individuals. Often, these radical views are without adequate evidence. Significant division can undermine confidence in democracy or democratic institutions and lead to toxic political polarization, which occurs when citizens begin to view each other more as enemies than legitimate opposition.

The 6 January 2021 Capitol ‘insurrection’ was the culmination of a political polarization process driven by an enraged media culture and out-of-control social media algorithms that reward extreme emotional responses. This process leads to political trends engaged in emotional responses and a political culture that becomes increasingly divergent between metropolitan voters in urban economic hubs and everyone else—bringing together two contrastive storylines with a common response.

One set of researchers also found that people who hold radical political views on both the left and the right of the political spectrum have less insight into their own performance on a simple unrelated perception task and were slower to learn from their own mistakes. One takeaway from this research is that polarized individuals may simply be worse  at considering evidence contrary to their own views, and are more apt to swiftly disregard the opinions of their opponents. Therefore, political polarization may well be the result of an intricate interaction between a person’s own cognitive makeup and environmental influences.

With the increase in toxic polarization comes the decrease in social identity complexity. Our different group memberships and identities—whether political, racial, or religious—are much more likely to line up and, in the process, we become less tolerant of members of outgroups. Bridging the divide calls us to acknowledge the complexity of our own belief systems and complicate our understandings of other people.

Conclusion

When ideology becomes identity, polarization also becomes toxic which can prevent us from breaking down barriers and humanizing each other. It can also uphold siloes, keeping existing members of movements from voicing different views given the pressure to adhere to group expectations.

An important review of academic research by journalist Thomas Edsall last year highlighted the degree to which the political polarization has increasingly taken on an emotionally negative tone. As Edsall notes, “Hostility to the opposition party and its candidates has now reached a level where loathing motivates voters more than loyalty” and “The building strength of partisan antipathy—‘negative partisanship’—has radically altered politics. Anger has become the primary tool for motivating voters.”

Patterns of toxic polarization are difficult to break. They resist change and cannot be solved by dialogue alone. Creating community-based structures to work together to complement bridge-building efforts is an essential measure that should be implemented.

Toxic polarization is not sustainable, but more importantly, it is the symptom of large-scale, structural problems. Toxic polarization worsens fears and undermines the hope in human rights and in free dialogue, therefore gradually erasing the foundations of any attempt to democracy.

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