AGEFI Luxembourg – Le 16 juin 2019 :
When are banks socially responsible?
A socially responsible and sustainable bank is aware of the impact of its activities on society and acts accordingly. The impact of the banks on the stability of the economy requires integrity and due diligence including:
• Managing activity-based risks and setting up mitigation actions;
• Promoting transparency towards customers and stakeholders about its operational management and the products offered;
• Acting as engine of the economy, by e.g. providing loans and giving advice to new start-ups.
Within corporate social responsibility, 4 types can be distinguished: direct philanthropic giving such as donation; environmentally sustainable initiatives such as reducing carbon footprint; and the last 2 such as ethical business practices and focus on economical responsibility which will be described more into detail in this article.
Indirectly, banking activities stimulate a sustainable society by offering of sustainable products such as sustainable saving products, ethical funds and green loans. Banking policies including Corporate or Social Responsibility or CSR criteria in the funding of governmental bodies, companies and private persons, borrowers encourage to take sustainability into account in projects. Moreover, the financial sector, being a large-scale employer, also has social responsibility: attractive and challenging long-term employment, as well as a fair and balanced remuneration policy. Finally, banks also have direct ecological impact due to power and paper consumption in the many branches and the mobility of the employees.
Why is Corporate Social Responsibility in Banking so important?
CSR enhances eminent business insight. For instance, banks exist in a symbiotic relationship with their external environments where their exchange with the larger environment determines to a large extent how well they do in their profit generation. Socially responsible business practices are indeed in the interest of the firm and disapprove of imposing hidden social taxes on the firms by undertaking socially responsible business practices which entails that it is all about how well the firm exists in harmony with its external environment and how this exchange of inputs and outputs with the environment determines the quality of its operations.
CSR goes a long way in creating a positive image for the organization on the whole. Doing something for society, stakeholders, customers would not only take your business to a higher level but also ensure long term growth and success. CSR plays a key role in making a brand popular among competitors, media, other organizations and last but not least direct customers. Brands promoting initiatives of educating poor children, planting more trees for a greener environment, bringing electricity to a village, providing employment to people have a positive impact.
Corporate social responsibility also gives employees a feeling of belonging together, employees take pride in educating poor people or children who cannot afford to go to regular schools and receive formal education. CSR activities magnify the bond among employees. These employees develop a habit of working together as a real team and try to help others. Actually they start enjoying working together and also create a real bond in due course of time and at the same time they also feel this bond in a sense of loyalty and attachment towards their organization. Corporate social responsibility also goes a long way in building a positive image of the brand; the brand becomes a “commoner’s brand”. People start believing in and trusting the brand, hence positive feedback eventually helps to generate more revenues for the organization.
How can Corporate Social Responsibility in Banking be achieved?
Firstly, CSR as a concept need to be woven into the DNA of the banks enabling the realisation of the goals of conscious capitalism and compassionate corporations. Although it would be naïve to assume that since the concept of CSR has been mainstreamed, banks can relax residing by the fact that the rest will follow automatically as still a way has to be crossed before the goals of the idea of CSR are achieved. Although, it would not be ideal to end up in a situation where the imperatives of the 21st century force banks and corporations to change their behaviour. Corporatizing the idea of CSR will only have the intended outcome, when the media, the businesses, and the citizens themselves understand what is at stake and behave accordingly and initiate a change in the mindset and attitude is to be borne in mind when they push for socially responsible practices.
Secondly, a good corporate governance is a prerequisite to CSR, otherwise there would be issues of credibility and trust. Banking leaders ought to concentrate first on providing sound governance and fair business practices. Then they should look towards practicing CSR. The point here is that banks must first be internally and externally conscionable. This can be achieved by following transparent accounting, oversight over business practices and regular auditing of the company’s procedures and processes. Only when protagonists of fair business practices take the lead and mechanisms for complaints are set up, there can be good corporate governance. And only when there is good corporate governance can there be effective interest for society.
Banks must accomplish their vision for society by following sound business practices which would go a long way in ensuring reputational benefits. For example, large banks are known for their good corporate governance and hence society looks up to them for guidance and direction whenever ethical and social concerns are discussed. Further, these banks set standards for others to follow and are therefore considered benchmarks on which corporate governance ought to be measured.
Consequently, a good corporate governance is the first step towards keeping employees, shareholders and other stakeholders happy and hence is the first step towards practicing CSR. When banks function with integrity and trust they induce confidence among the stakeholders which fosters socially responsible business practices.
Current example of CSR in Banking – Know Your Customer Due Diligence
Know Your Customer is a single, central source of collecting primary customer information to support the conduct of due diligence checks on your correspondent counterparties. It is required to take a proactive approach to maintaining relationships with submitting banks. The accurate and timely collection of the data and documents needed to comply with KYC due diligence requirements can be achieved by maintaining regular contact with touchpoints.
Points to remember about KYC and Customer Due Diligence are:
Important data quality checks to meet KYC needs:
• Reduce the number of manual and repetitive tasks in order to avoid mistakes as much as possible
• Streamline the collection of KYC data and due diligence documentation and implement a target automated process
• Identify the Ultimate Beneficial Owner of a corporate or financial institution to correctly asses the risk
• Evaluate the customer’s behavior in terms of transactions, political relationships and trade from and to foreign countries
• Maintain and adjust the list of risky countries and businesses that are suffering embargoes and sanctions, and implement it in each KYC and Due Diligence process performed
The most important advantages of customer due diligence are:
• Diminish compliance burden with quick and easy access to the required documentation
• Supervise changes to correspondent banking portfolio’s documents
• Minimize on-boarding time of new bank counterparties
• Upgrade the efficiency of counterparty reviews
The key take-away is that banks do gain tangible and intangible benefits by practising CSR and by projecting an image of good governance and social responsibility to the external world. Sometimes, banks resort to “Green Washing” which is a form of spin in which green PR or green marketing is deceptively used to promote the perception that an organization’s products, aims or policies are environmentally friendly. The point about this example is that these banks not only pursue socially and environmentally responsible strategies but also make it a point to be on cordial terms with all the stakeholders such as the suppliers, governmental agencies, employees, consumers and society at large which translates into measurable and immeasurable benefits to these companies. As a consequence, good corporate behaviour is rewarded and banks must seek to do well by for instance helping new start-ups in actualizing their visions for society and by being transformational change agents as well as catalysts for CSR.
Par Annemie Achten et Sandy Everaerts, consultantes du Groupe Square
Sandy Everaerts has 20 years of experience, and worked for leading companies in the Banking sector. She has a background in both Business and IT as project manager, Product Owner & SCRUM Master, 4-lingual NL/ENG/FR/GER with a Master’s degree & relevant project management certifications. Sandy joined Initio in 2017 as Senior Manager in charge of the Business Line Governance & Projects.
Annemie Achten has been working in the Banking industry since more than 15 years. She has always been at the operational side: organizing, improving and implementing end-2-end processes and has a particular expertise in change management. Annemie has joined Initio in 2019.