The Taiwan Banker

The validity of Corporate Social Responsibility (CSR) as a concept is rarely questioned today. As businesses run a wide range of CSR initiatives, they recognise its potential in building reputation within their communities as well as boosting staff morale. To encourage companies to think and operate responsibly, business-reporting requirements have evolved to incorporate CSR elements. The banking industry – as a major pillar of the modern economy – has significant scope to contribute to the wider society, especially by empowering communities with stronger financial knowledge and skills relevant to the digital age.In his book Capitalism and Freedom, the prominent US economist Milton Friedman declared: “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits”. Discussions on CSR often start with this quote written in the 1960s – largely to illustrate how much business thinking has evolved since then. Indeed, CSR (and the linked concept of sustainability) has become an integral part of any organisation in the last few decades. It is associated with responsible business as customers, suppliers and employees expect firms to consider objectives other than profit maximization.It is useful to think of companies as corporate citizens with the same responsibilities to wider society expected of individuals. Whilst there is no single definition of CSR, the European Commission – the European Union’s executive branch – describes it as the responsibility of enterprises for their impact on society. This does not just refer to complying with the relevant legislation, but also integrates social, environmental, ethical, human rights and consumer concerns within the companies’ strategy and operations.A lot to consider… and reportWhilst Friedman’s views might be considered old-fashioned among modern market participants, policymakers understandably do not envisage putting interests of investors and other stakeholders on equal footing. To do so would not be feasible. The modern consensus therefore revolves around incorporating certain CSR considerations as the company pursues its raison d'être: profit. In the UK, for example, company directors operate under a duty to promote success of the company (directors owe their duties to company, not its shareholders), which specifically requires them to have regard to matters such as interests of employees and impact that the company’s actions have on the community and the environment.Furthermore, large companies are often required to disclose information on their non-financial performance. Reporting has long been favoured by policymakers as a supervisory tool since it facilitates greater transparency, enables benchmarking and helps shareholders build a better understanding of the company. In the context of CSR, it encourages businesses to look at their practices and consider their corporate footprint in a more structured way.The European Union Directive on disclosure of non-financial and diversity information, which applies to the so-called public-interest entities (a category of firms which includes listed companies, banks and insurance firms), with over 500 employees, represents a major development in corporate reporting within the EU. Under the framework that became effective in the 2017 financial year, companies must – to the extent necessary for understanding of their performance – integrate environmental, employee, social and other matters in their annual reports. Most significantly, companies are required to discuss principal risks related to these matters, outline policies they pursue as well as describe their outcome. In other words, it is no longer sufficient to undertake some activities; companies should also be able to articulate results by monitoring what they do and measuring their success or failure.You have more than you thinkWhilst charitable donations – either directly or through staff contributions – remain a significant element of the CSR work, banks in Europe often look for more comprehensive community engagement. Money is important, but your time, experience and knowledge as a business are invaluable. Banking is an integral part of our lives and how we spend, plan and save today determines our financial future.According to Standard & Poor’s Global Financial Literacy Survey, however, the European Union’s financial literacy rate averages just 52% (Taiwan’s score is 37%). The Financial Conduct Authority in the UK also considers consumer vulnerability a key concern as almost 50% of the country’s adults have a numeracy age of 11 or below. The swift transformation of the financial landscape through digitisation and new technologies is likely to compound this rather worrying status quo even further.Consequently, financial education has been quite naturally identified as an area of focus for CSR work in Europe. For instance, DNB – Norway’s largest financial group – has developed a digital learning programme A Valuable Lesson, which was used by over 900 schools in 2016/17. The tool aligns with the competency targets for 9 to 12-year olds and teaches them money management skills to avoid payment problems later on in life.Programmes, where bank employees are trained to help children practise their reading and numeracy skills, are also popular. The UK’s Coventry Building Society – one of the many companies involved in such a scheme – explains on its web-site that the activity supports confidence building among students and receives positive feedback from staff, presumably for its community building spirit. Bank of Ireland, on the other hand, partnered with the local financial literacy expert Frank Conway to develop a financial education magazine Ollie for children between 7 and 12 years old, which is distributed to schools for free along with a guide to facilitate financial conversations with children.Santander, one of the leading banks in Spain, claims to be the world’s largest corporate contributor to education. It particularly focuses on higher education where it provides scholarships, grants as well as seeks to encourage entrepreneurship by offering free training, support and mentoring to young people between 18 and 31. On a smaller scale, Raiffeisenbank Austria supports the Future Entrepreneurs programme, which runs for a week as part of a summer school The Innovation Academy and teaches students the art of developing their ideas, writing a business plan, as well as designing marketing strategies and financing modelsEmployers, however, frequently complain that young people are not job-ready, even where they have the required qualifications for a position. This stems from a limited understanding of skills required to operate in the professional environment. Some CSR activities, as a result, focus on enhancing young people’s employability as they prepare to enter the job market. The Bank of Ireland runs the TY Academy, a three-day programme focused on introducing transition year students to the business world as well as raising awareness of employer expectations. By contrast, other banks seek to respond to future challenges in the labour market today: To tackle ageing population concern, Swedbank runs an initiative with the Employment Agency that helps foreign-born graduates to access relevant employers in Sweden.Educational support needs exist across the generational divide as people struggle to keep up with relentless digitalization. To help them adapt to the new environment, banks offer a variety of integration programmes. Barclays, for instance, runs the well-publicised Tea and Teach sessions aimed at building confidence with computers and the internet, including how to stay safe online. With 23% of the UK population lacking basic digital skills, the bank perhaps views such training as an integral investment in local communities.DNB has also observed that around 820,000 Norwegian adults - especially the elderly - have weak digital skills. It therefore held sessions on digital banking services for 3,000 of its senior customers in the course of 2016. Commitment to society goes hand in hand with a strong business case here: As branch offices close around Norway – as well as around the world – and banks encourage their customers to use digital channels, it is necessary to ensure accessibility for all segments of society.Trond Bentsen, Head of Personal Banking at DNB, was quoted in the bank’s Annual Report 2016: ‘We regard it as a social responsibility to include people in the digital community’. To take things further and to respond to the growing interest among the older generation, DNB produced a Guide to the Internet, which built on contributions from digitally savvy users who shared their tips on making the most of the Internet.In defense of CSRTo be sure, there are still critics of CSR as a concept – suffice to look at The Economist’s Special Report The Good Company: A survey of corporate social responsibility, which was published in 2005. It duly quoted Adam Smith’s classical Wealth of Nations: ‘I have never known much good done by those who acted to trade for the public good. It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest’ and concluded that the ‘business of business is business’.Another criticism questions the validity of CSR’s model as companies are more concerned with creating a positive image of a good-doer, rather than effectiveness of their activities. These are perhaps valid arguments, but CSR does offer an opportunity for meaningful engagement with the community and contributing to its financial well-being. Following a string of financial crises and malfeasance in the last decade, the banking industry is acutely aware of the need to rebuild its reputation and reconfirm its commitment to society. CSR offers just that.