«CSR IN BANKING SECTOR A LITERATURE REVIEW AND NEW RESEARCH DIRECTIONS Tran, Yen Thi Hoang VNU University of Economics and Business, Vietnam ...»
to the environment issues, social commitment and labor welfare practices of business houses (Namrata Singh et al., 2013). CSR reporting is a strategic plan that a bank can manages stakeholder relationships (Robert, 1992). In otherwords, bank uses CSR reporting to communicate with its stakeholders. Disclosure/ Reporting on CSR activities is necessary because bank “owes a duty to the society or has a social contract” (Theofanis Karagiorgos, 2010). Corporate disclosures provide banks with the opportunity to spread value information mainly to financial stakeholders as capitalmarkets and stockanalysts. As a result, there as get evaluated on its financial measures. Despite the necessity for disclosures on social and environmental issues, there has been a variety of factors, which may affect either positively or negatively firms to provide these reports. Firm‟s size and characteristics of the industry seem to play the most important role in the disclosure of environmental issues, according to many studies (Da Silva Monteiro and Aibar-Guzmán, 2009; Brammer and Pavelin, 2008; Magness, 2006). In the significant development of information, today, bank reporting of CSR has increased dramatically (Herzig & Schaltegger, 2011; KPMG, 2011). Although reporting about CSR has become mandatory in some country like India since 2012 (Namrata Singh et al., 2013, Kamayog‟s CSR rating, 2009), most of the Indian banks do not mention CSR on their annual reports or websites.
EMERGING ISSUES AND FUTURERESEARCH DIRECTIONQuantitative CSR contribution to the society Globally, there is a growing concern about the CSR and its impact of the organization's activities because providing a quantitative report about CSR‟s impact on the society can enable bank clearly recognized both advantages and disadvantage of embracing CSR in banking sectors. As such, they can have a proper perception toward CSR, therefore, can embrace CSR activities.
Licensed under Creative Common Page 11 © Tran However, the lack of assessment of impacts of CSR in banks on society still exists. Adeyanju Olanrewaju David (2012) indicates a strong and significant relationship between CSR and Societal Progress in Nigerian banking and communication industry.
Like Nigerian, Bank of America also works to achieve the core purpose of making financial lives of their customers, clients, shareholders and communities better and helps their communities flourish (Bank of America, 2013). In more details, it was reported that they mitigated unemployment rate by providing nearly 85 percent of American workforce. Besides, in 2013, they provided more than $85 billion in affordable housing. Through these projects, they help to motivate neighborhoods by creating jobs, and building or renovating buildings.
Therefore, infrastructure can be improved and local economies can be enriched.
The result from previous researches reveals that impact of CSR of banks in other countries worldwide, especially in developing countries should be addressed in future research Barriers for banks to undertake CSR It is important to recognize that any organization may decide to not undertake CSR programs due to various barriers. The economic, political, knowledgeable and perceptional barriers which prevent Chinese SMEs from engaging in CSR are summarized jointly (Qi Lai, 2006). Ironically, given prevalence of CSR practices in banks, there has been little attention to build a summary about reasons for conducting CSR programs with respect to bank situations. Thus, we believe there still has other reasons that deserve further research attention.
Economic barriers It is often believed that investment in social responsibilities is a financial burden for any banks, in which banks have to pay extra money, time and even energy to conduct a wide range form of CSR programs. Especially, small firms in general may lack resources such as finances, human resources or time to devote to CSR (Lorraine Sweeney, 2007). Allen Goss and Gordon S.
Roberts (2009) also calculates the impacts of CSR on the Cost of Bank Loans, and this research raises question that CSR also negatively affect banks loan in several way.
Besides, there are predictably some small banks that do not pay any effort in calculating cost of conducting socially and, as a result, they cannot even know that the benefit is likely to outweigh the cost. Thus, this is in support of emerging research that has studied CSR in small banks and found that the economic barriers thought to prevent them from undertaking CSR and recommend solutions.
Political barriers and regulatory framework In some nations, there is a lack of policy frameworks and incentives needed to adjust bank leader‟s attitude of CSR and enable banks to perform socially. This practice is because the local government might lack knowledge about CSR in banks and also lack of incentives to impose law regarding CSR implementation in banks. More specifically, it is easier for them to get promoted by short-term economic successes than by long-term environmental and social commitments (Qi Lai, 2006). In future research, it is, therefore, necessary to make a clear different roles and responsibilities of government and banks in the implementation of CSR measures.
Besides, while CSR in developed countries become a common place for such a long time, mostly banks in developing countries starts conducting CSR measure later. The possible barrier preventing banks in those countries from improving their social responsibility is the lack of regulatory requirements for social and environmental responsibility. Companies in the USA, Canada, Japan, Germany, UK and Australia practice and disclose more CSR through their websites, annual reports and separate sustainable reports because of strict laws towards sustainable issues. However, developing countries like Bangladesh need such strict laws to embrace CSER reporting (Md. Moazzem Hossain et al., 2013). Bangladesh Company‟s Act 1994 is a striking example. The Company Act only covers the financial reporting aspects and other general matters of organizations, such as company directors, company business, directors‟ remuneration, company location, corporate governance. Thus, Bangladesh banks might lack motivation in providing CRS report, as such, they cannot be motivated to performany CSR activities.
As a result, there appears to be a need for stricter legislation on CSR in banks. Concern about the ineffectiveness of existing laws and recommendation for a new one deserves our future research. At the same time, future research should clarify the implementation of existing laws, which contains the rules, and regulations of social and environmental standards in banks‟ circumstances.
Knowledge and Perception barriers As mentioned above, the horizons and perceptions of managers or bank leaders are considered driving forces to guide bank‟s performance in CSR because if those managers have a clear idea about the concept, they do embrace CSR, and they can impose suitable policy for their own banks. Essentially, the concept of CSR and specific components of CSR in banks are still very limited. Besides, there are misconceptions in the sense that CSR is government‟s and NGOs‟ incorporation.
Licensed under Creative Common Page 13 © Tran The reason for this can be the lack of sustainable education among bank‟s people. Many people are not aware of destructive consequences of not conducting CSR activities and CSR reporting.
Thus, future studies analyzing interventions and solution to improve the knowledge and attitude of bank leaders and even bank employees who directly conduct CSR programs may help improve CSR practices in the banking sector.
How to implement effectively CSR program in banks / Lesson from developed country In order to support businesses to develop their own CR codes and practices, ICC has established nine practical steps that are addressed to companies of all sizes. ICC also states that setting and implementing guidelines are not a once-and-for-all affair, but a dynamic process. We believe that those steps also can be useful for banks.
In addition, the planning and implementation is the most important step within the SME's attempt to improve its CSR performance.
It is obvious that management plays an importantrole in CRS practices (Shirley Yeung, 2011). In this study, authors said that bank should do a series of actions to implement successfully CSR activities. One of them is to understand complex financial products through external management of the economic situation and internal management of people and process. Besides, management of a banking organization shall have an appropriate policy in place for establishing positive organizational culture and social responsible mindset of staff members. Shirley Yeung (2011) also pays attention to the importance of effective and efficient internal audit in reducing the risk and enhancing thequality of banking products.
In brief, it is evident that little research on CSR implementation has been undertaken until now. Therefore, there is no standard of steps for CSR implementation in banking systems.
Thus, in the future, the general regularization step show to implement CSR effectively should be studied. Future research can summarize the successful case study of social banks in all over the world and make an adjustment to some specific situation in some countries, especially developing ones.
More importantly, before proposing any CSR program or CSR strategy, banks can consider following lessons implied from six lessons from the UK Construction Products Industry (Ian Holton et al., 2007).
Lesson 1: Who Is the Strategy For? It is for the needs and interests of all the organizations and stakeholder groups.
Lesson 2: What Is the Purpose of the Strategy? The strategy often aims at setting out a longterm plan for improved economic, environmental and social performance in the sector.
Lesson 3: Have All Impacts Been Considered? This lesson plays a crucial role because underestimation or omission of impacts during the analysis phase is likely to reduce the effectiveness of the strategy.
Lesson 4: Has the Strategy Been Formulated To Meet its Purpose? A clear long-term plan for improved economic, environmental and social performance must be established in the formulation phase.
Lesson 5: How Will the Strategy Be Implemented? In this issue, the support of businesses and stakeholders is critical to the successful implementation of the CSR program. In order to gain this support, it is necessary to clearly specify how these changes can be achieved, which stakeholders would be involved and what the costs and benefits will be.
Lesson 6: How Will Progress Be Measured and Reported? Targets and indicators need to be specified in order to measure improvement and demonstrate progress to stakeholders. If quantifiable progressis not demonstrated, stakeholders will consider this strategy ineffective, and it will lose their support.
Moreover, future study should consider some successful factors given by European Banking Federation. They are "Encourage sustainable behavior by consumers and partners, Support evolution of separate business models for various segments, Provide tangible benefits for society as a whole (economic, environment and societal development, Engender higher employee motivation and superior performance levels, Make banks more aware of their potential role in society, Afford positive publicity and /or increased brand recognition."
CSR model for banks Approach to CSR model in banks, there has been no pure form because it depends on different countries‟ historic features (N, Kostyuket al., 2012), conceptual structure, methodological tools and managerial implication (T. M. Jones, 1983).
Long-term economic benefit orients the sustainability model of CSR. By comparison, the constituency model of CSR considers the corporation as an organization consisting of a number of different groups of people (David Millon, 2011). The social performance model suggests that the social responsibility is the number of different issues such as product safety, discrimination, and the environment (Archie B. Carroll, 1979). Those models imply differences in their underlying assumptions, a conceptual framework, methodological tools, and managerial implications can contribute to various CSR models (T. M. Jones, 1983; the Committee for Economic Development (CED), 1971).
Recently, Aviva Gena VIVA GEVA (2008) provides a comparative analysis of three recognized CSR models consist of a pyramid, intersecting circles (IC), and concentric circles
(CON). One of the main differences between pyramid model and IC model is that IC model rejects the hierarchical order in the pyramid model. Besides, IC model implies the different domains of CSR are interrelated and equally important. However, it is also the disadvantage of IC model, in which it leaves managers to face competing responsibilities so that it is very difficult for them to make decisions. By comparison, like the pyramid, CON model views the economic role of business as its core responsibility. However, it combines considerations of external constraints and emphasize the simultaneous implementations of a wide range of separate responsibilities that are all mandatorily considered for social betterment.