Embedded Files
Helpful prior knowledge and learning objectives
Helpful prior knowledge and learning objectives
Helpful prior learning:
Section 1.1.1 The economy and you, which explains what an economy is and how it is relevant to students’ lives
Section 1.1.2 The embedded economy, which explains the relationship between the economy and society and Earth’s systems
Section 6.1.1 Money systems, which describes the parts, relationships and functions of money systems
Section 6.1.2 History of money systems, which outlines the historical origins of different money systems and their functions
Section 6.1.3 Modern money creation, which explains how forms of money are created in modern money systems
Section S.1 What are systems?, which explains what a system is, the importance of systems boundaries, the difference between open and closed systems and the importance of systems thinking
Section S.2 Systems thinking patterns, which outlines the core components of systems thinking: distinctions (thing/other), systems (part/whole), relationships (action/reaction), and perspectives (point/view)
Section S.5 Causal loops, feedback and tipping points, which explains the feedback loops that can stabilise or destabilise systems.
Section S.9 System traps, which explains how system structures, like reinforcing feedback, too weak or late balancing feedback, and/or pursuing flawed goals, can create persistent problems.
Learning objectives:
define financial power and identify key actors and factors that influence where money flows
explain how financial systems can create reinforcing feedback loops that concentrate power and exclude certain people or places
In the United States in the 1930s, a government agency called the Home Owners’ Loan Corporation (HOLC) created colour-coded maps of cities. Areas marked in green were considered safe for banks to lend to. Neighbourhoods marked in red were labelled high-risk, often because they had large Black or immigrant populations. Even when people in redlined areas had steady jobs, banks refused to give them home loans. The red lines were based on racism and prejudice rather than real financial risk.
Most American families built wealth by buying homes. Redlining meant families in green areas could get home loans and pass wealth on to their children. Families in redlined areas were locked out. Its impact is still visible today in patterns of poverty, segregation, and unequal opportunity.
Redlining is a clear example of how financial power shapes who gets access to money, and who does not.
Figure 1. A 1937 HOLC map of Philadelphia (USA), classifying neighbourhoods by estimated risk of home loans.
(Credit: University of Pennsylvania, public domain)
What is financial power?
What is financial power?
Power in economics means the ability to shape how resources are used (Section 1.3.9). This includes the power to set rules, control information, and influence what is seen as normal or fair. Financial power is not shared equally. It is shaped by history, politics, and privilege.
Financial power is the ability to influence where money goes and who gets to use it. People and institutions with financial power decide who receives credit, insurance, or investment. These choices affect individuals, communities, and even whole countries.
Sometimes this power is visible, such as a bank employee rejecting a loan application. Other times, it is hidden, such as a computer algorithm making the decision with no human contact. Both visible and invisible power can change the course of someone’s life.
Who decides where money flows?
Who decides where money flows?
While people in households may save in banks, buy insurance, or invest in pensions and shares, major financial decisions are usually made by institutions managing money for them. These actors have different tools, but all influence which people, places, and activities receive funding.
Students have already met some of these actors in Section 6.2.2:
commercial banks: decide who can borrow to buy a home, start a business, or fund an emergency. These decisions shape access to economic opportunities;
institutional investors and asset managers: pension funds, insurance companies, and private equity and venture capital firms manage large pools of money. Their investment choices direct billions towards both positive and negative economic activities.
Other important actors include:
investment banks: help large companies and states raise funds by selling bonds and shares. They also arrange mergers between companies and move investment money across borders, shaping the direction of entire global industries.
credit rating agencies: assign scores to companies, cities, and countries that signal how risky they are as borrowers. A low score raises borrowing costs, affecting state budgets and people’s investment choices;
central banks: manage a country’s money supply. By setting interest rates and providing emergency support to banks in crises, they influence inflation, employment, and overall economic stability.
Table 1. Where financial power lies with examples of very large firms and institutions
These decisions are rarely neutral. They reflect the incentives, values, and constraints faced by each institution. Because many of the largest financial firms are based in the United States, the rules and norms that develop there often shape practices across the global financial system. We can see this clearly in the development of Environmental, Social and Governance (ESG) goals, and the rules of fiduciary duty.
Power, politics, and retreat from long-term goals
Power, politics, and retreat from long-term goals
In Section 6.2.2 we looked at ESG investing as one way finance can reflect shared values. Here, we see how political and financial power interact.
In recent years, some large financial institutions joined alliances to support ESG goals. Yet in the United States, political backlash against climate action has led many to weaken or drop these commitments. Some financial and corporate actors opposed these regulations, seeing them as a threat to short-term profits. Their influence contributed to political resistance that, in turn, made it easier for firms to step back from long-term ESG commitments.
This backlash against ESG in the United States has global impacts because of American financial firms’ size and reach. It also reveals the limits of relying on voluntary market action to solve large-scale systemic problems like ecological breakdown.
Fiduciary duty and short-term profit
Fiduciary duty and short-term profit
Many institutional investors have a legal responsibility called fiduciary duty. This means they must act in the financial interests of the people whose money they manage. In some countries, especially in the United States, this is interpreted as the need to maximise short-term profit. Even if a fund manager cares about climate change or equity, they may feel required to ignore these concerns if they do not produce quick profits (Section 3.4.5).
These short-term priorities are often reinforced by the way financial and corporate systems are organised. Many companies report profits every three months, and managers’ monetary bonuses may depend on those results. Politicians often work within short election cycles. These structures reward quick wins, even when longer-term investments in people or nature would bring greater benefits over time.
Many experts argue that this view of fiduciary duty is too narrow. Long-term wellbeing, including healthy ecosystems and communities, is part of protecting people’s financial interests. But as long as rules favour short-term profit, many investment decisions will continue to harm society and the planet.
Figure 2. Fiduciary duty can be interpreted that a fiduciary has to maximise short-term profits, even when their activities harm society and the environment, but this very narrow interpretation isn’t accepted by everyone.
(Credit: licensed from Adobe Stock)
How does financial power become concentrated?
How does financial power become concentrated?
Financial power concentrates when a small number of actors control large amounts of money and benefit from systems that reinforce their position. This is an example of the success-to-the-successful system trap (Section S.9).
Some banks and firms are so large that states are unwilling to let them fail. This security encourages them to take greater risks, which can lead to higher profits and even more dominance. Large firms also sit at the centre of financial networks, giving them better access to information, clients, and deals. The more people rely on them, the stronger they become, a network effect (Section S.6 and Section 3.2.4).
Powerful financial firms can influence the rules through lobbying and close relationships with policymakers. This state capture (Section 5.2.3) can result in weaker state regulations, making it easier for these large financial firms to take risks that increase their profits, but also make the whole financial system riskier.
Technology also plays a role. Powerful firms use high-frequency trading and complex algorithms to make profits by buying and selling thousands of times per second. These systems are expensive to build and operate. Smaller firms cannot compete.
All these factors create a system where wealth and control keep growing in the same hands.
Why are some people and places excluded?
Why are some people and places excluded?
Because financial systems are designed to generate profits, they often direct money to those who already have resources that can generate profits. Others are left out, the other side of the success-to-the-successful system trap.
In many countries, women are less likely to have bank accounts, credit, or insurance. Legal or cultural barriers may prevent them from owning land or property, making it harder to access loans because they do not have collateral, an asset that can guarantee the loan. Racial and ethnic discrimination also shapes outcomes. In the US, Black and Latino borrowers are more likely to be denied loans or offered worse terms. Indigenous communities and migrants in many regions face similar obstacles.
People in rural areas may lack nearby banks or affordable credit, relying on informal lenders who charge high interest. Low-income households face bank fees, minimum balance requirements, or digital tools they cannot easily use.
These patterns feed reinforcing feedback loops of exclusion: those with wealth and stability are judged safe bets and receive more money, while those without assets are excluded, widening economic inequality over time.
Can financial power be more distributed?
Can financial power be more distributed?
Financial systems are human-made and can be redesigned. Some countries have created public development banks to fund clean energy, housing, and education. Credit unions and cooperatives, owned by their members, reinvest profits locally. Mobile banking helps people in areas without physical banks gain access to financial services. Participatory budgeting gives communities a direct say in how public money is spent.
While these examples remain small in scale, they show that financial power does not have to remain in the same hands. Subtopic 6.3 (coming soon!) will explore more strategies for creating systems that share power and support both people and the planet.
Activity 6.2.3
Activity 6.2.3
Concept: Power, Systems
Skills: Thinking skills (transfer, critical thinking)
Time: varies, depending on option
Type: Individual, pairs, or small group?
Option 1: Understanding financial power and its impacts
Time: 35-40 minutes
Note: the time for the activity could be reduced by dividing up the five scenarios among groups, having them look at one, and then share ideas with another group
Alone, in pairs or small groups, read each short scenario below, which is based on a real type of financial decision.
Who made the decision (e.g. bank, investor, credit agency) and what is their role in the financial system?
What system rules or tools were involved? (e.g. interest rates, credit scoring, fiduciary duty)
Who benefits from the decision? Why?
Who may be excluded or harmed? Why?
Was the decision visible or hidden? Explain briefly.
Based on your answers, write one suggestion for how the decision-making system could be changed to reduce exclusion.
Share your reflections with another pair to see if there were differences in your interpretations or understandings.
Scenario 1: A commercial bank denies a mortgage to someone in a historically redlined area.
Scenario 2: A pension fund invests in an oil company that has recently abandoned its commitment to move to renewable energies.
Scenario 3: A country’s credit rating is downgraded, so that borrowing is more expensive and it has to cut spending on public services.
Scenario 4: A private equity firm buys a care home and reduces staffing (costs) to increase profits.
Scenario 5: A woman in a rural area cannot get a small business loan because she lacks property for collateral.
Click on the arrow for sample answers, but give it a go yourself first!
Scenario 1: A commercial bank denies a mortgage to someone in a historically redlined area
Decision-maker and role: Commercial bank; decides who can access loans for housing or other purposes.
Rules/tools involved: Credit scoring; historical bias in lending; possibly automated risk models.
Who benefits: The bank may believe it avoids financial risk; current property owners in other areas may see their property values maintained.
Who is excluded/harmed: Residents in redlined areas lose opportunities to build wealth through home ownership; inequality is reinforced.
Visible or hidden: Can be partly visible (loan denial letter), but underlying algorithms and historical bias are often hidden.
Possible change: Reform lending criteria to consider broader measures of creditworthiness and address historical discrimination.
Scenario 2: A pension fund invests in an oil company that has recently abandoned its commitment to renewable energy
Decision-maker and role: Pension fund; invests retirement savings of workers.
Rules/tools involved: Fiduciary duty interpreted as maximising short-term returns; investment policy decisions.
Who benefits: Pension fund managers (short-term profits) and oil company shareholders.
Who is excluded/harmed: Communities affected by climate change; future retirees if environmental harm undermines long-term stability.
Visible or hidden: Often hidden; beneficiaries may not know the details of fund investments.
Possible change: Redefine fiduciary duty to include environmental and social wellbeing alongside financial returns.
Scenario 3: A country’s credit rating is downgraded, so borrowing is more expensive and it has to cut spending on public services
Decision-maker and role: Credit rating agency; assesses perceived risk of lending to a country.
Rules/tools involved: Credit rating criteria and scoring models.
Who benefits: Investors who may gain higher interest rates for lending; agencies that maintain influence over global finance.
Who is excluded/harmed: Citizens relying on public services; the national government’s ability to invest in infrastructure or social programmes.
Visible or hidden: Public announcement of downgrade is visible; methods and weightings used are often hidden.
Possible change: Make rating methodologies transparent and include indicators of social and environmental stability.
Scenario 4: A private equity firm buys a care home and reduces staffing to increase profits
Decision-maker and role: Private equity firm; buys companies and seeks to increase profitability.
Rules/tools involved: Ownership rights; cost-cutting strategies to raise return on investment.
Who benefits: Private equity investors; firm partners receiving profits.
Who is excluded/harmed: Residents (reduced quality of care); staff (job losses or worse conditions).
Visible or hidden: Partly visible to staff and residents; ownership changes may not be widely publicised.
Possible change: Require care home owners to meet minimum quality standards regardless of ownership model.
Scenario 5: A woman in a rural area cannot get a small business loan because she lacks property for collateral
Decision-maker and role: Commercial bank or microfinance institution; decides on small business lending.
Rules/tools involved: Collateral requirements; creditworthiness assessment; possibly gender bias.
Who benefits: The lender avoids perceived risk; competitors with better access to finance may gain advantage.
Who is excluded/harmed: The woman and her community (missed business opportunities, reduced local economic activity).
Visible or hidden: The loan refusal is visible; the systemic bias in collateral rules is hidden.
Possible change: Allow alternative forms of collateral or use character-based lending for small enterprises.
Option 2: Practice causal loop diagrams
Time: 30 minutes
Note: to complete this activity, students should have learned about causal loop diagrams (Section S.5) and system traps (Section S.9)
Work in pairs or small groups. Use what you have learned about causal loop diagrams (Section S.5) and system traps (Section S.9) to show how financial power can become concentrated or how people can be excluded from it. These are two sides of the success-to-the-successful system trap.
Choose either:
Concentration of financial power (success-to-the-successful trap), or
Exclusion from financial power (e.g., barriers based on assets, income, or discrimination).
Identify at least four key parts of the system. Try to do this yourself, but if you need help you can click on the arrow to get some ideas.
Some possible parts for your diagram
Wealth held by an individual or institution – total value of money and assets owned.
Access to loans or investment – how easy it is to get credit or funding.
Collateral/assets available – property or resources used to secure a loan.
Credit score or perceived risk – rating that affects borrowing terms.
Favourable loan terms – low interest rates, long repayment periods, flexible conditions.
Size of financial network – number and strength of connections with other financial actors.
Access to information and opportunities – quality and timeliness of market or investment knowledge.
Investment returns – profit made from money already invested.
Market share or influence – proportion of a market or sector controlled.
Political or regulatory influence – ability to shape laws, rules, or enforcement.
Profit focus (short-term) – priority given to immediate financial returns.
Public trust or reputation – perception of fairness, responsibility, or reliability.
Participation in decision-making – how much say communities or individuals have in how money is used.
Exclusion from finance – barriers that stop people or places from accessing financial services.
Show how these parts connect by drawing arrows between them.
Use a (+) sign for a direct relationship (both parts move in the same direction) and a (–) sign for an inverse relationship (one part increases while the other decreases).
Mark whether your loop is reinforcing (R) or balancing (B).
Write a short paragraph explaining your loop and what it shows about financial power.
You can check your work with an example by clicking on the arrow. Note: your diagram may not be exactly the same as the one described here, and that’s OK. If you are unsure, discuss with others in your class and your teacher.
Click on the arrow to show a sample answer and explanation, but give it a go yourself first!
Concentration of financial power
Wealth/financial resources held by an institution (+) → Access to information and opportunities (+) → Investment returns (+) → Market share or influence (+) → Access to loans or investment (+) → back to Wealth/financial resources held by an institution.
Exclusion from finance
Exclusion from finance (–) → Business or income opportunities (+) → Wealth held by individuals or communities (+) → Collateral/assets available (+) → Access to loans or investment (–) → back to Exclusion from finance.
Explanation:
A negative (–) means the two parts move in opposite directions. More exclusion leads to fewer opportunities
Positive (+) means both move in the same direction — for example, less wealth leads to less collateral.
Both of these are reinforcing feedback loops (R)
Ideas for longer activities and projects are listed in Subtopic 6.5
Checking for understanding
Checking for understanding
Further exploration
Further exploration
Note: these exploration pieces focus on the United States because of its huge influence and power in the global financial system. Many of the points made are relevant in other countries too.
How the right is waging war on climate-conscious investing – Journalists Steven Mufson and Tom Hamburger examine the rise and retreat of ESG investing in the United States. They trace how political opposition, legal challenges, and pressure from powerful interest groups have led major financial firms to scale back climate commitments, and explore the implications for sustainable investment globally. Difficulty level: medium.
The Shareholder Value Myth - Legal expert Lynn Stout discusses how the focus on maximising profits for shareholders can be harmful for businesses and even for shareholders themselves and how it is more valuable to spread the focus over several objectives. The focus of the talk is on the United States, but the broader points reflect general trends in the way businesses have been managing stakeholder interests. Difficulty level: medium
Is there really a fiduciary duty to destroy the climate? - An article by Wharton Business School Professor Eric Orts discussing the impact of profit-maximising fiduciary duty models on the ability of businesses to make environmentally-responsible decisions. He notes positive changes in some jurisdictions, but also highlights the role of political capture by powerful businesses in preventing needed change to corporate governance. Difficulty level: medium.
The Business Roundtable’s stakeholder pledge, five years later – Harvard Business School professor Lynn Paine reviews the 2019 pledge by major U.S. CEOs to serve all stakeholders, not only shareholders. She examines what has and has not changed in corporate governance since then, and the challenges of aligning business practice with social and environmental goals. Difficulty level: medium.
Sources
Sources
Demirgüç-Kunt, A., Klapper, L., Singer, D. and Ansar, S. (2022.) The Global Findex Database 2021: Financial Inclusion, Digital Payments, and Resilience in the Age of COVID-19. Washington, DC: World Bank. https://www.worldbank.org/en/publication/globalfindex/Report
The Editors of Encyclopaedia Britannica (2025, June 4). redlining. Encyclopedia Britannica. https://www.britannica.com/topic/redlining
Legal Information Institute. (2022, December). Fiduciary duty. Cornell Law School. https://www.law.cornell.edu/wex/fiduciary_duty
Meadows, D. H. (2008). Thinking in systems: A primer. White River Junction, VT: Chelsea Green Publishing.
Mufson, S., & Hamburger, T. (2025, July 18). How the right is waging war on climate-conscious investing: A Leonard Leo–funded effort to destroy ESG has scared off much of corporate America. The Atlantic. https://www.theatlantic.com/politics/archive/2025/07/leonard-leo-consumers-research-esg-climate/683581/
Paine, L. S. (2024, August 19). The Business Roundtable’s stakeholder pledge, five years later. Harvard Business Review. https://hbr.org/2024/08/the-business-roundtables-stakeholder-pledge-five-years-later
Posner, M. (2024, September 4). How BlackRock abandoned social and environmental engagement. Forbes. https://www.forbes.com/sites/michaelposner/2024/09/04/how-blackrock-abandoned-social-and-environmental-engagement/
World Bank. (2025, January 27). Financial inclusion overview. World Bank. https://www.worldbank.org/en/topic/financialinclusion/overview
Terminology (in order of appearance)
Terminology (in order of appearance)
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