Corporate Social Responsibility In The Banking Sector Finance Essay

corporal Social Responsibility In The buzzwording Sector Finance renderSince ancient times dep aneing practices substantiate al manners played a strong component in the tuition and progress in spite of appearance an miserliness. avers facilitate fiscal trans accomplishs by collecting deposits from savers and lending loans to those in need of credit. Thus, it enables those that put one across surplus funds to meet with those who need shape up funds for involution and coronation findings. However, it is often the fortune that mismatches occur betwixt the period at which a depositor wants to save his money and the period at which a borrower would be able to devote up the sum of money owed by him. pastce, as an go- mingled with a marge has to find manners with which to manage the mismatch between short term liabilities of the bevel (such(prenominal)(prenominal) as deposits) and long term as situates (such as loans).First and fore virtually a bank building inelu ctably to be perceived as being trustworthy and thence require to gain the overts bureau in frame to attract financing. It is needless to say that if a fussy bank were to go bankrupt, a pull up stakes from its sh atomic number 18holders, the general public would alike yen considerably. The collapse of a bank might result in the behavior out of lifetime savings of individuals and families which were held at the let outicular bank. This would consequently undermine messs trustingness in the monetary k presentlyledge base of influence and drive new(prenominal) people to detract their money from their own banks which whitethorn in turn result in having separate salubrious banks facing serious difficulties to allow for for high volumes of withdrawals since a bank in its own nature of doing business holds all a percentage of the funds acquired by depositors and invests the rest in less liquified assets with longer maturities (such as mortgage loans).It is theref ore of prominent importance that for an economy to prosper and grow, and then for the general offbeat of the whole community, there needs to be at its core a sound and effective monetary system and that the general public in any case perceives the system to be sound and trustworthy. In trying to address this issue policy makers have want to achieve healthy fiscal systems and to promote public confidence done numerous legislations and regulations. In fact, the monetary food market is one of the most correct markets in any economy, particularly the banking sector so as to play down the gambles that a bank is exposed to.For decades banks were severely restricted with respect to the do allow fored to clients, as well as methods allowed for financing and investments. This hindered the ability of banks to be war-ridden with other financial institutions that were non classified as banks and that had much(prenominal) than easy regulations which enabled them to offer a w ider range of operate and take up more(prenominal)(prenominal) risks to finance their operations. Beca character the extremely regulated financial purlieu was stifling contention between banks and non-banks, regulators loosened up their regulatory requirements so as to draw a level playing field for all the financial institutions.With more lax regulations banks atomic number 18 able to take up more risks and offer a wider range of operate to clients meaning similarly that banks have high risks to fail or that the publics confidence immobilize be more prone to be undermined because of riskier activities performed by banks. Higher risks and loss of confidence would lead to financial instability and, in some cases, to financial crises where the whole financial market is depressed. This in turn slows down the whole economy since the financial sector is the backbone of an economys financing. It is thought that one of the factors that in fact contri exclusivelyed to the 2008- 09 financial crisis was a highly deregulated environment (Shah Gilani, 2005-2011). It is similarly typical that later on financial crises regulators interpret reviewing their supervisory and regulatory standards and reregulate the industry once again. After the financial crisis of 2008-09 regulators argon now imposing new regulations in order to en authentic that other world financial crisis is avoided. The new amendments require banks to hold even more capital as a buffer for a condition amount of risk it is exposed to than it was already required by law of nature. This process of regulation, deregulating and reregulation is a continuous process that changes as the market itself develops and creates new work and thus is exposed to new risks.Deposit Insurance Agencies are set up for public safety against bank failures. However, in essence it is at long last the tax-payers themselves that pay the price as the government injects to bail-out problematic banks. Because manage rs running banks are aware of the fact that if the bank fails the government give intervene, it is more liable(predicate) that they act on in more risky activities and do non drill appropriate due diligence in the running of the business. This problem is cognize as moral hazard. Thus banks are more likely to engage in hazardous behaviour since if they fail the government will intervene and will not allow the bank to go bankrupt in order to safeguard the public interest.Also, banks are more difficult to have their performance evaluated than other businesses because of the coordination compoundity of the business itself. Thus this creates the problem of lopsided schooling or, verbalize in other words, the problem that not everyone has the alike(p) opportunities to access the same information. Managers and interns within the banking institution have better information on the performance of the bank than outsiders have access to. This is diminished part by means of required disclosure and other regulations that deal with insider dealing in order to promote transparency in the financial markets which again will enhance public confidence. However, it is not the number one time that we hear near insider dealings or that disclosure of mis principal information was presented to the public.It is therefore bear that although regulation plays an important role in ensuring market stability, efficiency and candor it is not enough. As John R. Boatright (19997) brilliantly describes in his book morals in Finance the law is not the only guide within the financial sector. What is legal is not necessarily moral. He then goes on to define the law by saying that it is simply a pugnacious instrument and cannot be apply to regulate all financial activities because of their complex nature. Excessive regulation stifles competition, hinders innovation and it is difficult to regulate certain issues that get up within the financial industry such as the issue of confl icts of interests. Therefore self-regulation is nonetheless important in this highly regulated market and the effectuation of CSR within the banking industry has yet a singular and special role as much as the role of a bank itself is unique within a community.History BAnking Practices and Society briming practices in the past were in the main carried out through and through the acceptance of gold and deposits to then issue loans with those deposits. Bankers gain consisted mainly in hefty interests received from loans. Bank customers consisted mainly of kings and the pontificate during the 1500s up to 1600s and large loans were lent to finance wars and elections.Few can be said with regards to CSR before the 1900s in the implementation of banking practices as is the case with other businesses of the time. However, one may mention the Fugger Family which was one of the greatest banking dynasties after the Medici in the late 16th century. Namely Jacob Fugger established a communit y for the poor, cognize as the Fuggerei, which was built in Augsburg in 1519 and is nonetheless in use today (Bamber, 2001). This shows evidence of the paternalistic ideology that strongly characterised the economical sphere and business tendencies till the late 1800s. nonpareil may similarly lineage the great influential power that the banking sector exerted as early as the 16th century as the Fugger family financed Maximilians grandson Charles to bribe his electors time in the nineteenth century the Rothschild family financed all of Napoleons enemies. The decisions undertaken by the bankers obviously had an allude on the resultant of events (Bamber, 2001) which shows that from the early stages of the industry banking practices had a strong influence on political, economic and companionable outcomes.As banking and lending practices were developed, these were not always considered as bonny and just as we may know them today. Banks and other financial institutions tended to randomly choose to whom financial services are given, often denying these services to people of colour or the poor. This could be freely done by banks after the process of deregulation giving them more leeway in their practices then before. This discriminatory practice is known as redlining because some bank managers used to arbitrarily mark residential subject fields occupied by coloured or poor people in red on geographic maps during the 1930s. Areas label in red were denied financial services and this had a serious impact on urban development since these lacked the funds necessary for investment and developments direct to further urban decay (Boatright, 1999101). It was not until 1968 that banks were prohibited by law to discriminate on housing lending through the enactment of the passably Housing Act followed by a serial publication of other regulations thereafter (Hunt, 2005).CSR initiatives developing in the 1950s in the business industry had a ripple affect likewise on the banking sector were through sanctions and regulations concerning environmental issues on polluting companies banks were in addition forced in today to take action and process more attention in the selection of incarnate clients in order to safeguard their reputation. The 1980 Superfund in the U.S. and the Directive on Civil Liability for violate Caused by Waste pick out by the europiuman Commission in 1989 are namely two regulations relating to environmental concern emanating from business operations (IISD, 2010).The Fleet Factors Case of 1990 was one of the first proceedings in the U.S. that directly attributed responsibility for environmental damages caused by their bodily clients as the greets refractory that lenders held the capacity to influence the borrowers waste management decisions even if it actually did not do so (IISD, 2010).The UNEP Financial Institutions Initiatives (UNEP FI) was launched in 1992 with the collaboration of Deutsche Bank, HSBC Holdings, Nat west, Royal Bank of Canada and Westpac in an attempt to garner financial institutions to promote awareness on the pivotal role that the financial sector has in sustainable development and environment protection and to unravel further on the relationship between economic development, environmental protection and sustainable developments (UNEP FI, 2011). During the same year the UNEP disceptation by Financial Institutions on the Environment Sustainable development was drafted articulating further the role and responsibility taken over by financial institutions in contributing towards sustainable development in businesses and safeguarding the environment (UNEP FI, 2011).Another thousand Paper set out by the European Commission in 1993 required that liability was assumed by the polluter and in case where the responsible party is not identified or unable to pay joint compensation funds financed by the industry should meet such costs on their behalf. The commission addressed also the problems of causation and insurability where more responsibility was exerted upon the shoulders of financial institutions (IISD, 2010).The UNEP was a main contributor to spread awareness and foster a socially responsible attitude in the way business was conducted within financial institutions through international round flurry meetings and global surveys on the environmental practices of the financial services sector (IISD, 2010). Thus, banks started experiencing more pressure to avoid the so called sin stocks and pay attention to the social performance of corporate clients and not only to financial performance.Many other international guidelines have been developed recently and it is important not to forget to mention the contribution of the International Finance mountain (IFC) which is a division of the World Bank Group towards sustainable development and in promoting fair, pay and competitive markets in order to shift poverty (IFC, 2010). Their common divided quantifys e mbed on the IFC website are depicted as followsTo fight poverty with passion and professionalism for lasting results. To help people help themselves and their environment by providing resources, sharing knowledge, building capacity, and forging partnerships in the public and one-on-one sectors.In 2003 the IFC drafted the Equator Principles, a set of guidelines that may be voluntarily adopted by banks aimed to facilitate and aid these institutions wishing to carry out operations in a socially responsible manner. Essentially, the Equator Principles are nothing more than a financial industry benchmark for determining, assessing and managing social environmental risk in project financing (The Equator Principles, 2006). The Principles are targeted towards the financing of corporate clients whose investment projects are environmentally and socially responsible and allow also informatory services offered by financial institutions with regards to project financing.1Who Cares Wins was a n initiative undertaken by the financial industry, the UN international Compact, IFC and the Swiss Government during 2004 (UN Global Compact, IFC, Federal Department of extraneous Affairs, 2009, 20103). check to this report, the main aim of this initiative is to support the financial industrys efforts to ruffle environmental, social and system (ESG) issues into mainstream investment decision-making and ownership practices through a series of high-level meetings with investment professionals. Again, here the goal is that of promoting socially responsible project financing through SRI.The United Nations-backed Principles for Responsible Investment Initiative (PRI) are a set of six principles set up in 2005 in collaboration with some of the worlds largest institutional investors (UNPRI, 2011). This initiative was set up in partnership with the UNEP FI and the UN Global Compact. These principles posit the idea that since environmental, social and corporate governance issues may affe ct the performance of investment portfolios, thus it is important that an investor takes these issues into comity when making investment decisions and therefore contribute also to the general wellbeing of society (UNPRI, 2011).One may mention numerable banks that are rightfully committed towards the maxim of doing well by doing the right thing and that actively participate with International NGOs to contribute towards the general wellbeing of communities. Deutsche Bank, HSBC Holdings, and UBS are amongst the most known environmentally and socially driven banks in Europe. For the purpose of this dissertation I will now proceed on to scrutinising and analysing the CSR policies of the banks mentioned to then match them with those policies of three leading Maltese banks namely APS Bank, Bank of Valletta (BOV), and HSBC Malta in a later chapter. All information related to the CSR initiatives undertaken by the strange and Maltese banks selected was extracted from their respective webs ites and CSR Reports. The main aim is to evaluate the transparency adopted by the Maltese banks and thus the extent to which they inform the general public in the way they go about their commitments towards society relative to well-established and self-made foreign banks.CSR Policies of Foreign BanksThis section will give an insight on how some foreign banks known as being committed towards sustainable development, environmental and socially responsible project financing are currently engaging in CSR policies in order to achieve their goals and manage to be profitable and attract business by projection such activities given the existing highly competitive environment from other financial and non-financial institutions. For the purpose of this dissertation, the three foreign banks chosen are headquartered within the European aggregate territory since the Maltese way of doing business is very similar to the way it is conducted in Europe even CSR-wise and therefore it will facilita te similarity between foreign and Maltese banks. Furthermore, HSBC Holdings was selected specifically since it is the parent company of HSBC Malta which will be discussed in detail in the next chapter.Deutsche BankDeutsche Bank is a leading German and European financial institution successfully expanding its business globally with a work force of over 100,000 employees in 74 countries and offering a vast selection of financial services worldwide (Deutsche Bank AG, 2011). Deutsche Bank mission statement can be set up on its official website as followsWe compete to be the leading global provider of financial solutions, creating lasting think of for our clients, our shareholders, our people and the communities in which we operate.From the mission statement itself we may denote that the bank is committing itself not only towards its shareholders, clients and employees but their top dogset is also headed for the benefit of the communities and their social needs. The banking instituti on has also formulated a set of values which drive its business orientation. One of these values set out on the banks website is trust where the bank claims confidently its trustworthiness, reliability and honesty. Other values mentioned are performance, teamwork, innovation, and client focus. Finally, the bank also promises stakeholders that the corporation will be operating with responsibility, keeping in mind not only current factors and issues in their decision making but also future consequences and factors that may arise due to todays decisions (Deutsche Bank AG, 2010).We may note by glancing briefly at the way the bank presents itself that it already carefully depicts itself as being socially and environmentally responsible in all aspects of its structural organisation. This however, is nothing new as all businesses particularly banking institutions wish to be alleged as being ethical, trustworthy, honest and socially responsible so as to foster public confidence in their bu siness.The bank has also received numerous awards or been ranked first for several social, environmental and corporate governance categories during 2010 some of which include environmental Rankings, Art and Work Awards, and Top Companies that Care among others. In 2011 the bank has already been awarded the Charity Organisation of the Year 2010 and the European Employee Volunteering Awards 2011 (Deutsche Bank AG, 2011).Deutsche bank is illustrious for its CSR initiatives internationally nurturing social and environmental awareness eon working to allay such issues in communities where it operates. According to the banks official website (Deutsche Bank AG, 2011), Deutsche Bank focuses its CSR system in the areas of corporate volunteering, social investments, art melody and education. The Communications CSR function is responsible of the banks global CSR initiatives followed by the approval of such initiatives by the chairperson of the Management Board (Deutsche Bank AG, 2011). Coordination of CSR operations is prepared at main office and then delegated to and implemented locally by the institutions regional teams (Deutsche Bank AG, 2011). This ensures potential and efficiency through its initiatives and as perceived by the bank itself, it makes sure that it is acting as a responsible corporate citizen showing kind of clearly that the bank favours and adopts the Corporate Citizenship possibility explained in the first chapter of this thesis.Deutsche Bank has set up ten CSR units in total till now dispersed globally which are namely the Deutsche Bank Foundation, Deutsche Bank Americas Foundation, Corporate Citizenship UK, Deutsche Bank Africa Foundation, Deutsche Bank Asia Foundation, Deutsche Bank Mena Foundation, Alfred Herrhausen Society, Historical Association of Deutsche Bank, Transatlantic Out bear upon course of study (TOP), and finally Deutsche Bank Donation Fund (Deutsche Bank AG, 2010). finished these organisations the bank manages its CSR op erations worldwide and creates what the bank calls social capital through sustainability, corporate volunteering, social investments, art music, and education (Deutsche Bank AG, 2011) thus, the bank is CSR oriented at all levels of its operational, and organisational structure. normal 2.12 CSR at Deutsche BankFounded 1992Budget 2009 3.2 m.The non-profit Alfred Herrhausen Society is the international gathering of Deutsche Bank. Its work focuses on new forms of governance as a chemical reaction to the challenges of the 21st century. The Alfred Herrhausen Society seeks traces of the future in the present, and conceptualizes relevant themes for analysis and debate. It kit and boodle with international partners across a range of fields including politics, academia, and business to turn out forums for discussion worldwide.www.alfred-herrhausen-society.org/enThe banks total investments for the year end 2009 amounted to 81.1 million of which 39% were invested in social investments, 29% were attributed to education and 27% were allocated to art and music (see figure 2.2 below). Deutsche banks investments were mainly targeted towards Germany, with total investments amounting to 45% at the end of 2009, followed by the Americas at 23%, and 12% of these funds were allocated to Asia Pacific and the UK. Deutsche Banks investments in Europe/Middle East and Africa amounted to only 8% of the funds (see figure 2.3 below).Figure 2.23Figure 2.34Regional split of total CSR investmentsShare of total investments per area of activityKate Cavelle, Director of Corporate Citizenship at Deutsche Bank in the UK, stated that the four main reasons why investment banks care about CSR are social responsibility, staff motivation, client and public perception during an interview conducted by The Gateway in 2010. She also argued that at Deutsche Bank it is recognised that the bank should be highly committed towards CSR. In the UK, Deutsche Bank engages in initiatives such as promoting edu cation so that young people may r all(prenominal) their full potential (The Gateway, 2010). Social Investments undertaken by the bank also include work with the homeless and unemployed persons and works closely with several other UK organisations such as the Globe Theatre and Design Museum. The bank also supports young artists through the sale of art acquired by the bank maculation keeping employee morale high by changing its art collections through time (The Gateway, 2010). Deutsche Bank is also mingled in a microfinance curriculum where loans are granted with lower interest rates to persons who otherwise would not be able to be granted any credit. According to Kate this is also a good and safe investment undertaken by the bank and thus microfinance is beneficial for the business as well. The bank also encourages employees to get involve in conscious work and helps out in finding activities that employees may engage in (The Gateway, 2010).On another note, according to an artic le write in the Financial Times of 23rd March, 2011, Deutsche Bank was sued for breaching its duties when the bank change a complex interest rate product to a corporate client. The bank was fined 541,000 to compensate for the damages inflicted on the client as imagine Ulrich Wiechers claimed that the bank should have been clearer when advising the client about the risks problematic. Apparently the bank is involved in other eight similar cases at the federal court level involving complex financial instruments known as swaps while it has 17 cases at lower courts (The Financial Times, 2011). This may indicate that although the bank is highly committed and publicly declares its commitments towards sustainable business in its operations, there is still some work to be done in implementing such goals in the day to day transactions and operations undertaken by the bank.HSBC HoldingsHSBC is one of the largest financial institutions in the world and is headquartered in London. It operate s in 87 countries across the globe. According to the banks official website the bank was established in 1865 to cater for the increasing foxiness between China and Europe and was named after its founder which is The Hong Kong and Shanghai Banking Corporation Limited. The bank offers a wide range of financial services to cater for different customer needs including Personal Financial Services, Commercial Banking, Global Banking and Markets, and Private Banking (HSBC Holdings plc, 2011).The banks values can be summarised into four concise points found on its official website. HSBC is open to different ideas and cultures connected with its customers, community and each other and finally dependable and doing the right thing (HSBC Holdings, 2011). The bank is thus promoting itself as embracing an inclusive environment between employees, and has effective and efficient communication throughout all levels of the organisation including communication with its stakeholders while undertaking sustainable and responsible business practices.By managing risks the bank aims at addressing business opportunities in a sustainable manner and by taking into term present and future impacts upon the environment and communities, in particular poorer areas (HSBC Holdings plc, 2011). The bank is also enlisted and involved in a number of external organisations among which are the UN ecumenic Declaration of Human Rights, UNEP FI, UN Global Compact, Global Business Coalition on HIV/AIDS, Global Sullivan Principles, OECD Principles for Multinational Enterprises and the Equator Principles (HSBC Holdings plc, 2011).HSBC believes that through robust business and sustainable revenues it is also primarily contributing towards the economy, the environment and to the communities and hence, maximising also stakeholder needs (HSBC Holdings, 2011). This statement, in my opinion, is almost synonymous with the arguments put forward in the SVT Theory and Adam Smiths invisible hand that by maximising shareholder wealth, one is also contributing to the benefit of the other stakeholders automatically. The bank is also involved with NGOs so that it may identify how to manage better sustainable risk, while it also works with NGOs to prink financial awareness and help customers on how to manage their finances, thus reducing risks of loan defaulting and keep their home ownership, while of course reducing further the banks risks related to these loans (HSBC Holdings, 2011). According to the banks website, it also engages in SRI investments and responds to several surveys and indices from various organisations.HSBC considers managing the environmental and social impacts of providing finance to our customers as part of business as usual. (HSBC Holdings, 2011). Thus, HSBC describes its commitment towards CSR through the assessment of their corporate clients as being ingrained in the nature of their business, and it seems that the bank acknowledges that this is the right way of doing bus iness. Apart from abiding by the Equator Principles, HSBC has also set up a set of risk policies for sensitive areas such as chemicals, defence, energy etc (HSBC Holdings, 2011). Through its financial services operations the bank is committed to reducing hundred emissions and because mode change impacts directly the banks customers and its own operations, according to the official website, the bank perceives that it is of utmost importance that these issues are included in its strategies. The bank also engages with microfinance institutions (MFIs) which provide loans and other services to customers. According to the HSBC official website, in India the bank is working with 11 MFIs to provide for financial services to people in rural and urban areas (HSBC Holdings, 2011). The bank also provides for financial services in rural areas situated in China making it easier for farmers and people reinforcement in these areas to access such services. The bank also provides for funds in cons tructing better water infrastructures (HSBC Holdings, 2011).The bank feels that it is contributing towards the communities it operates in by providing services to clients, employment, meeting its regulatory obligations and other obligations to suppliers, investments in local business and through financial donations or voluntary work and in this way it also secures its success as a bank (HSBC Holdings, 2011). Following to the information found on its website the bank allocated the sum of $100 million to community investments as at the year ending 2009. The bank entered into a partnership with SOS Childrens Villages in 2006 and established Future First to aid less fortunate children more or less the world with their educational needs. This initiative has expanded significantly throughout the days and over 500,000 children benefit from this programme around the globe (HSBC Holdings, 2011). JA More Than bills is an initiative monitored in promoting financial awareness among the youth and is run by HSBC volunteers. Children attending this educational programme range from seven to eleven geezerhood old. The bank has also set up other programmes namely the HSBC modality Partnership which is a five year programme targeted to reduce climate change and its impacts on society and the environment and HSBC Eco-Schools Climate Initiative to raise awareness in school on climate change and what action can be taken to reduce its impacts (HSBC Holdings, 2011).In the section utilise to sustainability reporting on the official website of HSBC one may find a number of sustainability reports. The following table was extracted from the HSBC Holdings plc Sustainability Report for 2009 illustrating the implementation of the Equator Principles in the granting of loans. delay 2.15 Adoption of Equator Principles in the Granting of LoansThe bank granted only 5 loans which hit under Category A, meaning that these loans may have adverse social or environmental impacts that are divers e, irreversible or unprecedented. Although small in number, the bank still granted such loans to its clients, with a total value of 1,296 almost 7 times larger than the value granted in 2008 of 178. In 2009 the Category B and Category C amounted for the most part of loans granted by the bank.Figure 2.46 Division of Clients Compliance with HSBC Environmental Policies roughly of the clients comply with HSBCs policy totalling 75% and amounting to 82% in loan value while there are still some clients that do not comply at all with this policy even though these are very small in number and even smaller in value.The banks community investments where mainly allocated towards education, which amounted to 45% while 29% where allocated to environmental investments as illustrated in figure 2.5. The bank also encourages employees to engage in voluntary work, and it works towards reducing carbon emissions on its premisses (HSBC, 200916).Figure 2.5