As Cogan (2008) contends, banks are “the backbone of the global economy” and thus “play an integral role in society, affecting not only spending by individual consumers, but also the growth of entire industries”. As such, financial institutions play an important role in the promotion of corporate social responsibility. The World Bank (2003) defines CSR as, “the commitment of business to contribute to sustainable economic development, working with employees, their families, the local community and society at large to improve quality of life, in ways that are both good for business and good for development”. This report will explore this role in regards to responsible behaviour, environmental issues, sustainable development and social conduct, while attempting to permeate a sense of understanding.
According to the World Bank (2013), what binds these terms together is “the expectation that corporates (private and public enterprises alike), behave ethically with regard to a broad group of stakeholders – workers and their families, communities and the wider society”. As a creator of jobs, source of national tax revenues, and the holder and distributor of funds, financial institutions play a key role in social and economic development. Their commitment to acting responsibly on economic, social, environmental and governance issues is crucial to supporting sustainable growth. CSR is being increasingly considered vital for organizational success and sustainable growth, especially in view of corporations operating in an environment with multiple stakeholder interests. Investment in CSR should not been seen as an expense, but rather the allocation of resources to reap the multifaceted benefits of such investments and financial institutions need to be seen as “leading organizations who engage in social activities that uplift society, the environment and economy” (Dorasamy, 2013, p. 777). In view of this, international lending organizations like the World Bank exert increasing pressure on banks to exercise CSR practices, as developing economies generally depend on foreign loans and aid. As widespread poverty, human rights violations, corruption, inequalities and social exploitations are common in such economies, CSR is a vital consideration of banks. As such, in 2007, the World Bank introduced its Environmental, Health, and Safety Guidelines which provide measures achievable with existing technologies and levels of performance regarding the environment, occupational and community health and safety, and construction and decommission (Matei & Voica, 2013). When host country regulations differ from the levels and measures presented in the EHS Guidelines, projects will be required to achieve whichever is more stringent. In 2006, the International Finance Corporation (IFC) introduced its Sustainability Framework, made up of eight performance standards that IFC clients must fulfil. By implementing these standards, the IFC`s clients will minimize negative effects on the environment, labour or local communities, while the fulfilment of these standards aids in competitive advantages and the discovery of new opportunities for development (Matei & Voica, 2013). These standards were developed taking into account the commitments of the IFC and are based on: assessment and management of environmental and social risks and impacts; labour and working conditions; resource efficiency and pollution prevention; community health, safety, and security; land acquisition and involuntary resettlement; biodiversity management and sustainable management of living natural resources; indigenous peoples; and cultural heritage (IFC, 2013).
Socially responsible banks provide a high level of transparency and more detailed information to their stakeholders with regard to where money has been lent. In this sense, San-Jose et al. (2011) can promote CSR in terms of: integrity (banks should not operate on exclusivity by excluding individuals or groups because of poverty, ethnicity or affiliations); responsibility (banks should be accountable for the social and economic consequences of their behaviour); and affinity (banks should adopt positive criteria in investments). In terms of CSR, ethical banking is driven by self-regulation to achieve optimum ethical outcomes. This requires transparency from banks, so that stakeholders can monitor their ethical considerations and responsible interests. As an ethical response, banks can develop alternative guarantee systems to promote investments in social projects which cannot provide traditional guarantees. Further, San-Jose et al. (2011) argue that for banks to be ethical, they ought to first place their assets in projects which have positive social added value and should be seen from a global perspective. The study by San Jose et al. (2011) highlighted that ethical banks exhaustively disclose information about the type of credit they give, the aim of the project and other features of investments by them. The study further revealed that ethical banks make every effort to invest their money in positive projects with added social value, while making this information public. In developing states especially, environmental awareness among institutions like banks is still in its infancy phase. By adopting codes, publishing sustainability reports and implementing an environmental management system, it can be asserted that a bank commits to CSR. Taking care of the environment is also shown in ways in which banks take responsibility for environmental risks. Domench (2003 in Branco and Rodrigues, 2006) argues that banks, as facilitators of primary and secondary activities which cause environmental damage, need to consider environmentally sensitive issues in their policies and practices. Therefore, banks should be obliged to ensure that their lending and investment policies do not facilitate activities which are harmful to the environment. Scholtens (2008) further illustrates that the supply and development of green or socially responsible financial products is another way in which banks can show their commitment to sustainable development. These can include financial products that aim at reducing greenhouse gases. Linked to the economic responsibility of banks is their economic role under certain laws and regulations. In moving beyond codified laws, banks need to embrace practices that do not negatively impact on society by recognizing the needs of all stakeholders in a fair, right and just way. Apart from the economic, legal and ethical responsibilities of banks, society expects them to engage in social activities not mandated by law or expected in an ethical sense. Achua (2012) argues for self- regulation at the banking level, since government regulations enforce compliance to minimum social responsibility expectations. Social self-regulation at the banking level can enforce better conduct and promote social change in desirable directions, since those responsible for enforcement would have greater power and authority, better access to information and easier interpretation of violated rules.
In attempting to contribute to the common good of society, financial institutions can play a big role in promoting CSR. This necessitates a focus on investment in CSR rather than on increasing corporate wealth. From the perspective of financial institutions, the need is for a response process where issues can be recognised and plans developed to govern action, so that the banking sector can respond to social demands and impact sustainable growth, not just organizational success.