CSR and Finance: Yes we can!

If there is any branch of the economy more in need of a appropriate sense of CSR than finance and financial institutions, it's hard to picture it. A chain of governance scandals has characterized fruitless financial  advisory services and continuous concerns about fee levels and conflict relate to the agency phenomenon in Venture Capital and Private Equity firms, usual short-term outlook from stockholders and their obsession with shareholder value in companies sacrificing wider shareholder’s issues by fund managers and a bunch of other Corporate Social Responsibiity problems exceptionally  significant to the financial services industry. Calmly lurking in the background is the unsaid supposition that financial services companies are not playing an important role in the development of corporate social responsibility as they might. 

The key issues typical of the finance industry are both shared with other industries and uniquely related to financial services: first of all, the corporate governance issues, such as non-executive directors, board procedures, appropriate accounting background and regulation, measures against corruptiojn; second the accuracy of marketing (including coherent decision on which data to use to describe performance); lastly support for corporate volunteering.
Moreover  there are those CSR problems which are peculiar of financial institutions . Some non exhaustive examples are the following:
Lending criteria, concerning also the way in which social and environmental advantage should be included into the business ideas, and how those ideas should be made within banks for project financing or business purchasing as well as the influence on Green Economics on both the hurdle rate and discount rate for project financing. In fact it has been demonstrated that environmental credit risk assessment (ECRA) yields increase in the firms’ value with great benefits to the shareholders, due an enhanced customer satisfaction, loyalty and market share. However, there is no overwhelming evidence yet and the biggest offenders in energy and aviation are valuable major bank clients.

Acceptable levels of profitability from individual financial product line and decision-making over bankruptcy and loan call-ins, including the relevance of employment implications for customer firms. Investment guideline issues such as lifecycle investing (as in the Ethics Code of the Chartered Financial Analyst examination) and the extent of customer recourse (as in the Barlowe Clowes case in the UK and many others).
Also Investment decision such as ethical investment, Islamic banking , in which global organization (e.g. World Bank and Central Banks) also have a key role, Insider dealing questions and the extent of information privilege.

Due to these factors in the last years, an increasing number of investors merge environmental and social  factors into their investment decisions. The increasing attention on CSR from financial institutions has developed further studies on the impact it can generate. In the academic literature, there are many arguments for why CSR performance  would be beneficial on firms’ value and on consequently on the shareholders’ wealth. From a academic point of view, a well-defined CSR  performance may increase productivity and financial performance because it implies a good relationship with crucial company’s shareholders. Moreover, if it is reached a significant corporate social responsibility performance, then it can give to the comany a competitive advantage. CSR  performance can generate value through the development of intangible assets. By meeting shareholders’ expectations through a higher awareness of corporate social responsibility, firms generate a reputational capital and enhance their social legitimacy, which can  contribute to ameliorate sales and to increase customers’ satisfaction  or allows to have more high quality employees in the company.

    Stay tuned, Stay Green.

    Gabriele Tringali