Corporate Social Responsibility in Banks – What Does It Mean?

Over the past few years, a rising emphasis has been placed on companies and financial institutions’ Corporate Social Responsibility. But what does Corporate Social Responsibility (CSR)” mean anyway? This is indeed one of the most frequently asked questions for all those dealing with CSR matters.

CSR is also known as corporate responsibility, corporate citizenship, responsible business, sustainable responsible business (SRB), or corporate social performance. Different organizations have developed different definitions and there is large common ground between them.

A simple definition refers to CSR as how companies and financial institutions take into consideration the impact on society of their operational activities. Consequently, it requires a built-in, self-regulating mechanism whereby businesses would monitor and ensure their adherence to law, ethical standards, and international norms to produce an overall positive impact on society.

It is not surprising to see that CSR is subject to considerable amount of debate and criticism. Advocates argue that businesses benefit in many ways by operating with a perception broader and longer than their own immediate, short-term profits. Opponents argue that CSR diverts from the basic economic role of business; others argue that it is nothing more than superficial window-dressing;

Largely, the banking industry in the Middle East does not realize the central importance of having a defined CSR policy. Many banks do not fully understand the worth of CSR.

There are obvious and real gains on hand for banks which have well-designed and successful CSR strategies. They can promote their profile in the community they serve, enhance local, and cross-border economic performance, and enable community development, at the same time strengthening their profitability.

CSR focuses more on how companies and financial institutions can contribute through their core business, in addition to traditional charitable donations.

CSR and Project Finance

CSR practices are often implemented in banks’ core business, which are credit and investments. Project finance is one of the methods to get capital for investment opportunities.

Banks consider how to fairly balance the risk and interests of the various participating parties, including protecting the interest of those who are directly and indirectly affected – specifically the local community that reside within or close to the area impacted by the project.

It is recommended that banks recognize their responsibility to prevent or limit social and environmental harm that may have been caused by activities financed by them; they need to adopt appropriate analysis and verification procedures.

Banks have impact on the environment directly and indirectly. Lending and investments activities have an indirect impact on the environment. Therefore, banks should be encouraged to consider environmentally-friendly purposes in their credit decisions. To this end, banks may offer incentives to credit facilities for “green” investments such as improving a buildings’ insulation or more efficient lighting systems which use alternative energy sources. The bank may apply less stringent rules in relation to collaterals or offer discounted loans to such clients for these types of investments.

There are approaches that explore how banks are linking the traditional credit risk assessment with the borrower’s environmental risk assessment. In other words a bank can assess the environmental credit risk of the borrowing customer and then factor in the results of this assessment at some stage of the creditworthy assessment process.

Community involvement

Community involvement is the basis of all accomplished CSR policy initiatives and extends far beyond the standard charitable measures. Banks should introduce innovative schemes such as:

- permanent learning programs for disadvantaged sectors of society;

- sponsorship of young entrepreneurs;

- provision of academic scholarships and research proposals;

- support environmental issues such as recycling and waste management;

- community support programs;

- health support programs;

- financial support for art and culture;

Banks may also support non-governmental organizations engaged in drug prevention measures for the youth with a mentorship and parental training programmes. Bank employees can be mentors for pupils at the senior level of the compulsory school during one school year.

Awareness and Transparency

It is essential that there should be a transparent and strong commitment to adoption of CSR practices. This can be reached through explicit reference to CSR activities adopted by banks through the following means:

- dedicating sections of Annual Reports to CSR matters;

- publishing of Sustainability Reports and/or policy statements on CSR; and web-based information.

It should be noted that corporate sustainability for banks is much more than mere charity. In this context, banks are encouraged to improve the future of the people in all communities they operate through CSR programmes, which in turn will sustain their business in the future.

In Europe, a dramatic change has been in the type of CSR reporting which has changed from simply environmental reporting to sustainability (social, environmental and economic reporting which has now become typical among top listed companies). There has been an increase in the number of companies publishing CSR information as part of their annual reports.

Banks and the Environment

Just like other business sectors, the business of banking has a direct impact on the environment through consumption of paper, energy, waste management and means of transport used. Direct environmental impact can be reduced by keeping environmental order in banks themselves, through limiting the consumption of energy and paper, ensuring good waste management and requiring suppliers’ to conform to environmental standards. A bank can minimize the impact in a systematic manner through implementing an environmental policy; it can even go further and apply for environmental certification in accordance with ISO 14001.

The ISO 14001 is a standard for environmental management systems that is applicable to any business. It aims to reduce the environmental footprint of a business and to decrease the pollution and waste a business produces.

Good examples from the banking sector include Deutsche Bank, Barclays Bank and Alpine Bank of Colorado. They have constructed a comprehensive Sustainability Management System in accordance with ISO 14001 and permitted an independent certification agency to monitor their commitment in the field of sustainability by making sure they comply with the requirements of ISO 14001 standard.

Financial Inclusion

The market in which banks operate today requires new range of products targeting new customer segments including groups who are not yet fully integrated in society, and not dealing with banks such as temporary workers, low-income families, and micro businesses operating in poor areas of the country.

This situation represents for banks a challenge in terms of designing suitable products for these distinct segments, and the opportunity to develop a new type of business beneficial to all. Some good examples of responding to the challenge would be microfinance and financial education.

Banks are encouraged to promote financial education projects involving different target groups. This is achieved in two ways. Firstly, by concluding agreements with strategic partners which are recognized by the target groups in order to inform them better on financial services and products which they will use in their daily life. Secondly, by developing contacts with the local authorities towards certain target groups. These target groups include primary schools, secondary schools, higher education, universities, and the general public world.

Some initiatives involve surveys which provide insight into the challenges and opportunities related to financial literacy in the target groups of children, teens, students and young adults. Another consists of developing new products, educational materials and events intended to stimulate financial skills and knowledge. Perhaps the best example is an educational website with fun, online exercises for children, tips and advice for parents on how to educate children financially.

Conclusion

The key factors for a successful CSR policy can be summarized as follows:

- Continuous support of senior management and all staff

- Reporting CSR – internally and externally, on a long-term basis, with regular reviews

- Include CSR as integral part of corporate strategy of the bank

The advantages for banks in adopting well-designed CSR initiatives lie in the following areas:

- Encourages sustainable behavior by customers;

- Supports development of separate business models for various segments;

- Provides real benefits for the society as a whole;

- creates higher employee motivation, and superior performance levels;

- Makes banks more aware of their potential role in society;

- Creates positive publicity and/or increased brand recognition.

Are Brick And Mortar Banks on Their Way Out As Online Banking Has Increased in Popularity?

Electronic (e-banking) or online banking is the way to go in financial institutions which has replaced the brick and mortar banking. It is a channel that banks are exploiting profitably. Financial institutions have to be alert and aware of new developments that affect e-banking and they have to be on the forefront pushing for the countries to develop the networks and internet connectivity. Staff and customer training is an urgent agenda item to make sure that the channels are used effectively and economically. E-banking products are mobile, short message (SMS) and telephone banking, Electronic funds transfers and Internet, ATM and POS banking, self-service (PC) and interactive TV banking and virtual or branchless banking.

The benefits listed below have made brick and mortar banking give way to online banking.

  • You are able to transact twenty fours a day every day. For account holders who have accounts in other countries, this e-banking product offering is a very good solution. The customer can check their account information and transactions from anywhere in the world at any time of day or night.
  • The customer is able to transfer funds from their account to someone else or another bank. You, the customer are able to transfer funds between your own accounts in the same bank. This is a solution for enabling savings and funds transfer occurs from transaction account to the savings account when required. Repeat transactions that run on the same dates are set to automatically run on online system platform.
  • You are able to view your account balances, download and print statements. This makes reconciliation of your accounts faster and more convenient. You are able to tell when a fraud has affected your account and report the deed faster than having to wait for the monthly or quarterly statement.
  • You are able to view your banks’ daily exchange rates. You are able to make informed choices on the exchange rates especially for customers who do international trade. The bank advertises new products on the e-banking channel. The loan repayment accounts and mortgage interest calculations are also arrayed in e-banking channel.
  • E-banking is very easy to set up. Since you already have an account with the financial institution, you just have to complete forms to ask for this product. In some banks the e-banking account is offered as a bonus depending on the account held by the customer. You will find online or e-banking user-friendly and secure. A personal identification number (PIN) is used. You have user support from highly trained and experienced service teams in case of any challenges in using the service.

It is true to say that brick and mortar banks are on their way out as e-banking or online banking has increased in popularity.

Why You Should Use Online Banking

These days, people no longer have to go to actual bank branches in order to transact their banking needs. Instead, they just turn on their computers and log on to their online banking accounts. After a few minutes, they complete a number of transactions such as paying bills and transferring money.

It is a great experience to visit a bank branch. The staff and the tellers are friendly, most of the time. Nothing could also replace the warmth of other human beings. However, a lot of smaller branches of banks have closed. That means that going to the bank may involve a trip to a bigger town or to the city.

Interestingly, online banking is much more convenient. And that is why a lot of people are starting to prefer this over other means of banking.

If you’re not yet convinced of the power and utility of online banking, here are the advantages of online banking:

You don’t need to leave your home! Imagine yourself sitting in your favorite couch at home. Your laptop is open and you are connected to the Internet. When you go to the website of your bank, you can take care of almost all of your banking needs! That is comfort and convenience! You do not even have to rush to the bank before its closing time. Even at night, when you remember that you have a past due bill payment, you can manage it! If you have other concerns about your account, you can even call your bank’s customer service while looking at your account! You can look at your account details and talk to a phone banking officer at the same time!

You can also go online to check your account statements. No need to wait for the paper statement to arrive each month. You can check the transactions on your savings account and even credit cards back to a couple of years. Of course, different banks provide different amount of information. Unlike a stack of paper statements, you can use the search tool of your bank’s website to check any previous transaction you made. If you need to have a paper statement, you can easily print what is online and you don’t even have to wait or pay for it.

At the click of your mouse, you can easily transfer funds to an account held in your bank. It is also possible to transfer to an account held in another bank as long as you enroll that account. In case a family member calls you asking for financial help, you can easily help them out! This feature is also handy in case you need to transfer funds to a credit card, a debit card or another account that you use regularly.

In emergency situations and you need to apply for a loan, most online banking systems now allow you to apply for one online. Some banks can provide you with a decision right away, depending on the credit criteria set in their system. You can also pay that loan easily through the same online banking facility. If you go to the bank for such a loan, it may take you an hour or so to go the branch, a couple of minutes to fill out a form, and perhaps days before getting feedback on the approval of your loan.

Online banking really makes things easier for you and your banking needs.

In the days before online banking, you need to wait for your bank statement to arrive in the mail before you can ascertain the transactions you’ve made. Those days are over. You can monitor your account daily! If you want total control over your financial transactions, you can easily do that. In case your credit card got lost, or somebody hacked into it, you can easily check transactions that were not made by you! Another important implication of checking your account online, is that you do not go overdrawn in your checking accounts. You can save money from financial charges and you can even monitor your spending always!

If you’re not yet using online banking, it is past time you should try it!