Corporate Social Responsibility of Banks
Banks play a huge role in our everyday lives and, like other big businesses, influence many areas of society.
Financial institutions don’t just store your money for your convenience. They put it to work to make themselves money by investing it and lending it out.
The investments and loans that banks give out can have big impacts on society, both positive and negative. That’s where corporate social responsibility comes into play in the financial sector.
Keep reading to find out everything you need to know about corporate social responsibility and why it’s so important for the banking industry.
What Do We Mean By Corporate Social Responsibility?
Corporate social responsibility, or CSR, is a term that can be applied to organizations in just about any industry. It is a type of self-regulation in which businesses hold themselves accountable for their corporate actions and try to make a positive impact on society as a whole.
There is no single way that organizations can practice social responsibility. They might choose to focus their efforts in one or several areas, which can include the environment, sustainability, the local community, or low-income communities, diversity and inclusion, to give a few examples.
It’s also important to recognize that some companies take CSR very seriously and it is incorporated throughout the practices of the business while others do the bare minimum for marketing or PR purposes.
CSR can also mean not supporting industries and initiatives that have a negative impact on society, such as the big oil and tobacco industries.
Corporate social responsibility in the banking industry
Big banks have historically not had very good corporate governance in terms of social responsibility.
Financial institutions like JPMorgan Chase, Citigroup, Wells Fargo, and Bank of America have time and time again funded fossil fuel expansion over green projects and have directly supported companies contributing to the increasing wealth gap and social inequities.
In fact, the world’s 60 largest banks invested more than $3.8 trillion in fossil fuel projects in the 5 years since the Paris Climate Accords on climate change was signed by global governments in 2015 (with Chase investing the most of any bank).
What this means is that, when you deposit your funds into any of these traditional banks, they are using your money to invest in and lend to companies that do not have a positive environmental or social impact.
That being said, not all financial institutions are irresponsible. There are increasing numbers of independent banks and credit unions that are taking their corporate social responsibility seriously and implementing business practices that have a positive impact on society, especially on local communities and the environment.
Corporate social responsibility VS socially responsible banking
As we mentioned a little earlier, corporate social responsibility is a term that can refer to businesses with socially responsible business practices in a wide variety of industries.
Financial companies practicing socially responsible banking activities are often referred to as socially responsible banks or socially conscious banks.
So, the term socially responsible banking is just a specific way to talk about CSR as it pertains to financial institutions.
A socially responsible bank or other financial institution attempts to manage its banking activities with integrity and hold itself accountable to stakeholders when it comes to issues like sustainability, environmental performance, and other ethical concerns.
Types of Corporate Responsibility Banks Can Practice
There are lots of CSR practices that banks can implement, from going paperless and issuing eco-friendly debit cards, to investing in non-profit organizations that are fighting climate change and making a difference in local communities. The 4 main types of CSR activities banks can practice are:
Environmental CSR practices
Socially responsible banks can demonstrate environmental CSR by being as environmentally friendly as possible in all aspects of their business. This is one of the biggest ways that non-traditional banks are implementing CSR practices today.
Banks can start being more environmentally friendly by reducing waste in their everyday operations. This means doing things like reducing the amount of paper wasted (i.e., offering paperless statements and bills), not using single-use plastic or other wasteful goods in their offices, and operating energy-efficient facilities.
However, operating in a more resource-efficient manner is just the tip of the iceberg.
Truly socially responsible banks also try to counter the negative impacts on the environment caused by other big businesses by investing deposited funds in green projects, such as renewable energy, sustainability research, and reforestation.
This also includes not lending to businesses that engage in business practices that is harmful to the environment.
Ethical CSR means the incorporation of ethical labor practices and the equal treatment of all stakeholders, from leadership and employees, to customers and investors.
For example, a bank practicing this type of CSR might decide to offer wages significantly higher than the minimum wage to all its employees, especially if it operates in different regions with different labor and wage laws. By doing this, the financial institution ensures that all of its employees are making a liveable wage, rather than just scraping by with the minimum.
Ethical CSR practices also take into consideration every link in the supply chain to ensure that they aren’t contributing to unethical practices. For instance, a bank might implement practices to ensure they aren’t purchasing goods or services from vendors or partnering with others that are sourced in unfair ways.
Philanthropic CSR activities
A financial business can practice philanthropic CSR by donating to charitable causes or nonprofits and giving back to communities in other meaningful ways that make society better for everyone.
For example, a bank might practice philanthropy by supporting community partners working to improve affordable housing. Or, they might offer free financial advice to educational institutions, individuals or nonprofit companies.
Another way a bank can be more philanthropic is by organizing volunteer activities for its employees. For instance, they might get together once a month to build houses for low-income families or clean up local parks.
The final type of corporate social responsibility on this list is economic CSR. This basically means that all of a bank’s financial decisions must support its commitment to positively impact society.
In other words, rather than making financial decisions to make maximum profits, the bank must ensure that it is not investing in or lending funds to initiatives that damage the environment, support unfair business practices, or hurt communities.
This might include practicing the three Ps, by trying to deliver positive return for People, Planet, and Profit.
Examples of Corporate Social Responsibility in Action
Now that you know more about the different types of CSR, let’s take a look at some real-world examples of how non-financial corporations are practicing social responsibility. You’ve probably heard of at least a couple of these companies before:
● Ben & Jerry’s
● Levi Strauss
Google is well known for its environmentally friendly practices. The company demonstrates environmental CSR by investing in renewable energy projects. Its data centers also use 50% less energy than those of other companies.
LEGO is a company starting to engage more in its CSR commitment to sustainability. For example, they have started to phase out single-use plastic packaging, with the goal of making all their packaging sustainable by 2025. LEGO is set to start testing paper bags for their bricks in 2021 and is investing in other more sustainable, carbon-neutral products and practices.
Ben & Jerry’s
Ben & Jerry’s, one of the US’s most famous ice cream companies, offers a great example of how companies can be more philanthropic. Ben & Jerry’s is a B Corp, they donate 7.5% of all pretax profits to charitable organizations and causes that benefit society, and intentionally source many of their ingredients to be fair-trade. They have even created the “Ben & Jerry’s Foundation” to help support their CSR efforts.
As a company that’s been making jeans since the 1800s, you can imagine Levi Strauss probably hasn’t historically had the most environmentally friendly business practices. However, that has changed with plenty of new efforts to go green in recent years.
The company has committed to reducing the amount of water used in their production, use recycled materials for 100% of print materials in its US and Canadian retail stores, and even make new mannequins out of 100% recycled materials.
How More Corporate Social Responsibility Can Benefit Banks and Customers
Besides the importance of generating positive social impacts, socially conscious corporate governance in banks also provides benefits for the business and its customers.
For starters, CSR can be very powerful marketing-wise. A banking business that commits to being socially responsible will have a much better brand image for certain types of people who themselves hold strong convictions when it comes to issues like the environment, sustainability, and fair business practices.
What this translates to is loyal, lifelong customers. As long as a bank keeps up its good corporate governance and continues to improve its social responsibility, customers who share similar views of what's important for society to improve will continue to sign up and stay.
This is a win-win situation because the bank gets access to funds that they can invest in socially responsible projects, and customers know that their funds are being used in ways that would make them proud. This creates a mutually beneficial partnership between banks and their customers.
It’s easy to claim corporate social responsibility with offering little back it up, so it’s important to be careful when selecting a bank if CSR is what you’re looking.
How can banks prove corporate social responsibility to their customers?
Any business committed to CSR also has a responsibility to be transparent about their business practices and measure how successful their CSR efforts are.
In order to do this, the business should look for key performance indicators (KPIs) to use for regular CSR reporting.
For example, a bank committed to reducing its carbon footprint and having a positive environmental impact should measure things like how much the company is reducing energy waste and other types of waste in their facilities.
Or, a bank committed to philanthropic CSR should measure things like how much money it donates to charitable causes like low-income housing, or how many hours of free financial advice it has donated to increase financial literacy in the local community.
These types of KPIs can be compiled into annual, bi-annual, or quarterly CSR reports that get distributed to all the bank’s customers and other stakeholders.
One way to make this whole process of measuring and reporting on CSR is to form a CSR committee. The committee can dedicate their time to improving CSR efforts and compiling CSR information for different stakeholders.
Switching to a bank with good corporate governance
So, by now you should have a pretty good understanding of the importance of corporate social responsibility in banking. Are you ready to make the switch to a bank that’s dedicated to CSR? If so, you might be wondering where to start.
Fortunately, it’s easier than ever to find a new bank that shares the same values as you when it comes to the environment, philanthropy, ethics, and economics. Depending on what you most care about, there’s likely a bank that’s perfect for you.
For example, if you care deeply about the environment and issues like climate change, a financial institution like Atmos might be just what you’re looking for.
Atmos was created with the understanding that intentional intervention today can effectively limit the negative impacts of climate change. The goal of Atmos is to effect permanent positive environmental and social impacts by shifting capital towards activities that help improve and preserve the planet.
When you deposit your funds with Atmos, the bank makes investments towards projects in renewable energy, regenerative agriculture, and electric transportation.
Do green banks offer the same services as regular banks?
Every bank may offer slightly different services from others, but in general making the switch to a bank with a high level or corporate social responsibility can provide you with the same level of banking as your old bank.
For example, Atmos offers climate-positive checking and savings accounts. You also have the option to link up to 3 external accounts with Atmos for a higher level of convenience.
You can also expect top-of-the-line online banking services and apps from green banks. In reality, they may even be better than at your old bank because of the commitment to go paperless and reduce the bank’s carbon footprint.
It might sound strange, but corporate social responsibility isn’t just the responsibility of corporations. If you care about social issues, it’s up to you to do business with companies that are committed to improving their corporate social responsibility. Without customers activity exerting their preferences towards social and environmental options, companies will not have incentives to shift away from environmentally and socially harmful business practices.
By taking actions like switching to a green bank, you’re taking away money from big banks like Chase that are supporting fossil fuel extraction and other practices that harm our planet.
You might think that your money is insignificant, but if enough people change how they do business and start paying for goods and services from companies that align with their values, we can make positive, long-lasting changes to society for everyone.
Contact Atmos today for more information about our climate-positive banking services.