Can Corporate Social Responsibility Be a Differentiator for Community Banks?

By John R. Hancock, Moss Adams LLP and Lorinda R. Rowledge, EKOS International

With a few exceptions, community banks lag behind both large banks and other industries in corporate social responsibility (CSR) and sustainability policies, strategy, goals, performance and reporting. None are fully realizing the potential that integrating CSR into their core business has to offer.

Why is CSR important? And how can your bank develop a CSR road map and report?

According to IFC’s 2007 report Banking on Sustainability, which surveyed 120 financial institutions in 43 emerging markets regarding their adoption of CSR strategies, 74 percent of respondents reported a reduction in risk as a result of considering environmental and social issues. Another 48 percent noted improved access to international capital, 39 percent benefited from improved brand value and reputation, 35 percent developed new business and 26 percent benefited from improved community relations.

Most corporate leaders in other sectors today recognize that CSR is strategically relevant to their business. This is equally true in banking, where executives are now increasingly seeing CSR as an effective means of:

• Assessing lending and investment risks
• Protecting reputation and brand
• Building loyalty among commercial and retail customers
• Attracting new clients
• Capturing savings from reduced operational costs
• Attracting, engaging, and retaining employees
• Fulfilling their responsibility as good corporate citizens

While many banks have long supported community activities, and several have initiatives to encourage recycling and reduce paper consumption, true leverage comes from integrating CSR into every aspect of the business. This includes business strategy, product and service offerings, risk assessment and lending policies, facilities management, governance, procurement and supplier management, HR practices, and corporate philanthropy.

Developing a plan for greater integration of CSR in the form of a CSR or sustainability road map together with a publicly shared CSR report are two major approaches that will move banks toward more successful implementation. Begin the process by defining your bank’s social, environmental, and economic impacts and opportunities, then specify your CSR strategy, goals, implementation plan, initiatives, and milestones. Here’s how the steps might look:

• Commit to strategically managing CSR.
• Develop a sustainability implementation road map, with goals, milestones and progress reviews.
• Identify material CSR-related impacts, issues and opportunities.
• Develop and implement key sustainability performance indicators.
• Develop a CSR or sustainability report (may initially be internal only).
• Capture your current success stories – what’s already happening that can be celebrated and built on.
• Obtain assurance on sustainability assessment systems and data.
• Integrate CSR into your core business through policies, strategies, and product and service offerings.
• Improve internal CSR practices.
• Engage stakeholders – employees, customers, shareholders, community members, local economic development offices, suppliers, etc.
• Participate in the Global Alliance for Banking on Values and other relevant initiatives.
• Drive both continuous and breakthrough improvement in CSR performance and outcomes.

These need not be done sequentially. Although the primary purpose of a CSR or sustainability report is to transparently communicate CSR impacts, risks, strategies and progress (or lack thereof) to stakeholders, it can also be a powerful organizing driver for strategic sustainability planning and implementation. The tangible goal of producing a CSR report serves as a catalyst to educate leaders and key organizational members, gather and analyze significant issues, assess which measurements are in place and which are needed, engage a cross-functional team in data gathering and analysis, engage the organization in developing strategy and goals, and develop the framework for monitoring progress against goals.

CSR reporting also serves as a platform for telling your story. Although most community banks discuss community involvement on their websites, and several publish facts about their environmental efforts, very few produce CSR reports. Two notable exceptions are Triodos Bank, the pioneer of sustainable banking over 30 years ago, and San Francisco-based WIB member New Resource Bank, which published its first report in 2013.

The first year or so of a sustainability initiative typically involves building the bank’s measurement system to ensure decisions and reporting are based on valid, accurate data. The latest guidelines released by the Global Reporting Initiative make reporting simpler and more targeted, encouraging companies to focus on those issues most material to their stakeholders rather than reporting on a laundry list of performance indicators. The guidelines now allow assurance evidence per indicator, which enables companies to choose to assure only the most significant indicators in their report. External assurance helps build credibility and trust, and this change in reporting expectations makes assurance more affordable and achievable for smaller companies.

Most community banks are failing to leverage CSR to accelerate new product and service offerings, deepen customer relationships and loyalty, stimulate business growth or attract and retain talented employees. For those that jump on board, there are many potential rewards.

Lorinda Rowledge is Cofounder and Partner of EKOS International, a strategic sustainability consulting firm.  She is passionate about the synergistic nexus of innovation, sustainability and employee, customer, and stakeholder engagement. Lorinda leads EKOS CSR Report Rapid Prototyping, Materiality Assessment, and Open Innovation/Crowdsourcing services.  She co-authored Mapping the Journey, a book featuring global businesses leading in the application of sustainability.  Lorinda holds a Ph.D., specializing in Organizational & Community Psychology.  She is a strategic advisor to CSRHub.com, a database that provides sustainability ratings data on 8,900+ companies worldwide.     Contact Lorinda: LRowledge@ekosi.com  and EKOS: www.EKOSi.com