Corporate social responsibility in banking

Written by richard morgan
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Corporate social responsibility in banking
Environmental awareness is one aspect of social responsibility in the banking sector. (Jupiterimages/Photos.com/Getty Images)

Corporate social responsibility and banking often are at odds. The banking sector focuses primarily on profits in the financial area, while corporate social responsibility takes a broad overview of the needs of society in general and how the banking sector serves those needs. Many difficulties arise from combining corporate social responsibility and banking.

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CSR

The corporate social responsibility movement is found in many businesses, ranging in scale from Ben and Jerry's Ice Cream to Citibank. CSR takes the position that a corporation's obligation to shareholders cannot take precedence over the responsibility to society in general. Raising money for charity is a good thing, but doing so doesn't negate maintaining good stewardship in other areas. CSR in banking, in some ways, brought about the economic downturn of 2008. In an effort to ensure everyone lived the American dream of owning his own home, banks and mortgage lenders engaged in risky lending practices that sent shock waves throughout the world.

Problems

In the banking industry, corporate social responsibility might seem to be in short supply. Part of the reason banks do not engage in massive corporate socially responsible behaviour comes down to basic finances. Shareholders own shares of stock in the banks, which means banks must make as much profit as possible to keep the shareholders' trust. This means banks need to charge fees for various transactions and try to get as much for those fees as possible. This results in banks providing profits to the shareholders, but at a high cost to its customers. This is why some financial observers believe true CSR is unattainable in a capitalist system.

Addressing Issues

A socially responsible bank needs to address a variety of issues, including environmental sustainability and refraining from conducting business with companies and individuals not socially conscious. A socially responsible bank would place the needs of its customers and the needs of society over the needs of its shareholders. In the short term, such a bank might lose a great deal of support from shareholders, but the positive publicity generated by behaving responsibly might offset some or all of the losses.

Investments

One area where banks maintain some sense of corporate social responsibility lies in investments. Entrepreneurs looking to finance projects geared toward improving energy usage and increasing global food sustainability have access to funding from the banking sector. Naturally, the entrepreneurs need to present plans with actual working potential, as opposed to optimistic thinking.

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