CORPORATE SOCIAL RESPONSIBILITY (CSR) &

SUSTAINABILITY WITHIN BANKING

Executive Summary earn returns for its shareholders and other

investors, and to make a positive contribution to
According to the Economist newspaper, Corporate
the social and physical environment in which it
Social Responsibility (CSR) and Sustainability have
operates3.
become mainstream in business activity 1. In recent
years, we have seen a rise in businesses investing in
social and ethical initiatives. But what is the
fundamental reason for the increased adoption of
CSR within business? Is the growth in CSR merely a
case of firms jumping onto the bandwagon and
using CSR as a way of building a stronger brand
image? Or is it because firms have an honest
concern for the environment in which they
operate?

In this article, we will propose a new way to look at

the relationship between banking and CSR,
exploring the benefits and challenges that a bank
may face when implementing CSR practices, new
processes and associated data.
Before we explore the issues that surround the
implementation of CSR within banks, it is important
that we first develop an understanding of the
sustainability and CSR approach.
Corporate Social Responsibility
The United Nations defines CSR as a management
concept whereby companies integrate social and
environmental concerns within their business
operations and interactions with their
stakeholders. Known as the Triple Bottom Line
Framework (see figure 1), CSR is generally
understood as being the method through which a
company achieves a balance of economic,
environmental and social practices whilst
simultaneously fulfilling the expectations of both its
shareholders and various other stakeholders 2. The
purpose of a corporation is to produce goods and
services to meet economic and social needs, to
create satisfying and rewarding employment, to
Figure 1: Triple Bottom Line
As a form of voluntary self-regulation, CSR has
become a new method by which firms manage their
engagement with society.
Traditionally, for the shareholder, the primary goal
has been economical – focused on the
maximisation of shareholder return. However, we
have seen an evolution in shareholder attitudes
towards a threefold approach that encompasses
the economic, social and environmental aspects of
business.
Social Responsible Investment
The rise in businesses implementing CSR practices
has been mirrored by a rise in social responsible
investments (SRI). SRI is an investment discipline
that considers environmental, social and corporate
governance (ESG) criteria to generate long-term
competitive financial returns and positive societal
impact. In relation to banking3, SRI is based upon
the premise that banks adopt new environmental,
social and corporate governance practices in order
to meet the expectations of potential investors and
as a result attract new investments.
SRI investors are comprised of various individuals,
from average retail investors to high net worth
individuals as well as institutions, such as
universities, foundations, pension funds, non-profit
organisations and religious institutions. As shown
(see figure 2), SRI can be divided into two streams4.
1. Retail Investor (approximately 10% of
SRI’s)
2. Corporate investor (approximately 90% of
SRI’s)
Figure 2: Types of SRI
Whilst retail investors are defined as individuals
who invest for his or her own personal account
rather than for an organisation, corporate investors
are large institutions (asset management firms,
pension funds etc.), that purchase securities for
their investment portfolios.
CSR is focused on companies implementing CSR
policies throughout the organisation, whilst SRI is
focused upon companies adopting new products
and services in order to meet the expectations of
investors and attract new investment.
The rise in socially conscious investors has
corresponded with a rise in public calls for
transparency within business. Many people now
consider corporate social performance (CSP) to be
of equal importance to corporate financial
performance.
CSR within the banking industry
According to the Financial Times, UK and US Global
Fortune 500 companies spend $15.2bn a year on
Corporate Social Responsibility (CSR) activities5. In
the wake of the 2008 global credit crisis, the
banking industry has faced intensified regulatory
pressures and public scrutiny. The record level of
regulatory fines and penalties as a result of banking
malpractice has presented banks with the challenge
of needing to restore public trust and establish clear
and transparent business models.
With banking malpractice having a significant
impact on a bank’s reputation and financial
performance, banks have invested resources in risk
management and compliance measures in addition
to revising their internal codes of conduct.
Many leading banks have begun to integrate
environmental and social factors into their long-
term investment strategy. This has served as a
foundation not only for developing new products
and opening new opportunities for growth, but has
also ensured better management of risk in the
banks’ overall investment strategies. For a bank,
the integration of ESG is costly, both in terms of
financial investment and in relation to
organisational practices. From a financial
perspective, the costs of implementing CSR and
sustainability within a bank may include:
1. Capital costs of CSR initiative – cost of new
equipment, infrastructure changes,
introduction of new products etc.
2. Recurrent cost: Continuous monitoring and
recording of compliance and CSR practices
3. Communication costs: Communication of
ethical codes and conducts to individual
investors, media and employees
4. Staff costs: Costs for recruitment of skilled
employees, financial cost of training staff
and increases in employee wages
From a strategic perspective banks will have to
adopt new policies and practices within their
organisational structure. This may include
retraining staff, adopting new risk management
practices and being highly selective with their
investment portfolios.
In recent years, we have seen a rise in financial
rating agencies and indices that have examined
the CSR performance of banks including SAM
Robeco, Dow Jones Sustainability Index,
Bloomberg’s Worlds Greenest Banks’, FTSE4Good
Index Series, STOXX Global ESG Leasers and the
United Nations Global Compact 100.
Within the Dow Jones Sustainability Index, We can identify 4 benefits of implementing CSR, as
financial institutions made up 20.2% of the ethical illustrated in Figure 3:
companies that are ranked within the 2014 index.
The success of financial institutions in CSR ratings
and indices can be attributed to the increasing
interest of investors in bond issues to finance
sustainable, green and/or socially responsible
projects. For example, as a result of the growth in
green bonds, in early 2014 BNP Paribas created a
new Sustainable Capital Markets team which took
a decisive step in advising customers and designing
a diverse and innovative range of green bonds.

The World Bank’s first structured green bond was

launched to support programmes which combat
climate change. In 2014, green bond issues were
also completed by the French Development
Agency (1 billion euros over 10 years), GDF Suez
(2.5 billion over 6.5 years) and Hera (500 million
euros over 10 years and the first Italian green
bond issue). These bond issues all aim to combat
climate change by financing renewable energy,
Figure 3: Benefits of CSR implementation
energy efficiency or urban transport programmes.

CSR has existed throughout history but the demand

Benefits of implementing CSR
Although the implementation of CSR is at a high
cost to banks as they are faced with the challenge
of creating dedicated teams and managing the
evolution of processes (e.g. setting up of CSR
criteria in credit workflow, deployment of group’s
policies), the financial performances of companies
that have implemented CSR practices has
historically been high.
Launched in May 1990, the MSCI KLD 400 Social
Index was one of the first Socially Responsible
Investment (SRI) indexes. The index is made up of
400 firms that have been selected based on their
high Environmental, Social and Governance (ESG)
and avoids companies that fail to meet a specific
value-based criteria. This index has outperformed
the S&P 500 PR index since its creation.
has risen sharply over the last decade.
The appetite of Social Responsible Investors (SRI) is
growing at a strong pace hence asset managers are
now promoting a large range of SRI funds.
According to a survey released by the Global
Sustainable Investment Alliance, SRI assets under
management reached a total of $21.4 trillion at the
start of 2014 of which 63.7% was in Europe.
The presence of SRI assets in portfolio management
has increased across all regions. Europe is becoming
a mature and highly competitive market for SRI
funds whilst in Asia there is still the need for
improvement as the proportion of SRI’s is much
lower compared to the others regions as shown
below.

The high performance of ethical firms can be

explained by two logical reasons:

1. Companies that are ahead in implementing

CSR are healthy firms that are striving to
shape the future in light of new social and
environmental challenges.
2. CSR is a way to create new businesses, and
has allowed firms to attract new investors
and new growth opportunities. Figure 4: Proportion of SRI relative to total managed assets (2014
- GSIA review)
 Threats from CSR development
Nevertheless we can identify two main threats from
a further development of SRI and CSR.
1. CSR and SRI may not always be aligned and
some companies may set-up CSR in order
to meet Social Responsible Investor
requirements instead of implementing
CSR due to a genuine belief in its
principles. If an investment is based on a
company’s ESG rating, more companies
will be willing to improve their
sustainability performance to keep or
increase investor confidence.
But CSR and SRI must not only be driven by
investors. CSR and SRI are strongly
interconnected and should mutually
influence each other.
2. Regulation is supporting the growth. Some
governments have passed a series of
regulations on social and environmental
investments and savings such as new
reporting guidance to disclose ESG data.
Nevertheless for new arising regulations,
cost/benefit impact studies and in-depth
assessment will have to be performed in
order to ensure regulations will not harm
business with a constraining regulation
framework otherwise companies might
turn away from CSR/SRI.
1http://www.economist.com/node/10491077?zid=294&a
h=71830d634a0d9558fe97d778d723011d
2 http://www.unido.org/en/what-we-do/trade/csr/what-
is-csr.html
3 http://www.ft.com/cms/s/0/06f681ca-f887-11e4-be00-
00144feab7de.html#axzz3boMWQAp8
Conclusion
Although in the short term, an initial
investment in CSR may impact the current
organisational practices within a bank, in the
long term, well implemented CSR policies and
practices can bring along a variety of
competitive advantages such as enhanced
access to capital and new business markets,
increased sales and profits, operational cost
savings, improved productivity, greater skilled
employees, an improved public reputation
and enhanced customer loyalty.
In conclusion, regardless of whether banks
have an honest ‘green’ strategy or are merely
adopting ethical practices with the underlying
goal of maximising profit, it is evident that
within banking we are entering a highly
demanding new environment where banks are
faced with the challenge of trying to gain a
competitive advantage within a highly
regulated industry. This evolution has been
countered by the growth in social and
sustainable behaviour within business and as a
result, has provided banks with new
opportunities to remain competitive and
attract new ethical investors.
4 http://www.gsi-alliance.org/wp-
content/uploads/2015/02/GSIA_Review_download.pdf
5 http://www.ft.com/cms/s/0/95239a6e-4fe0-11e4-a0a4-
00144feab7de.html?siteedition=uk#axzz3boMWQAp8