Banking is overseen highly to ensure transparency and accuracy with financial reporting as we discussed in our last blog. It comforts stakeholders to know that the institution where they put their hard earned money is trustworthy and that they can, at any time, go online and get a true picture of that particular institutions financial health, and how it delivers corporate responsibility on behalf of its stakeholders. In todays society and economic climate consumers are socially conscious and they expect organizations they are associated with to be as well. People feel good putting their dollars in the hands of organizations they know are doing good and giving back to their stakeholders at large, not simply creating value for the shareholder.
Business to consumer retail banking is dominated by the ‘big 5’, which are CIBC, RBC, TD, Scotia, and BMO, all these institutions have the profit portion of the triple bottom line (TBL) down to a science. In fact, I would argue they operate with profits being highest priority, with people and planet initiatives secondary. They operate under an agency theory, where their primary duty is to shareholders. Not to say they haven’t undertaken some very impactful philanthropic initiatives. For example, ‘CIBC Run for the Cure’, which I myself have participated in many times. It also became particularly important after the 2008 financial crisis for all banking institutions to deliver on people before profit, and this means more that charitable action, but operating with corporate social responsibility. “It is banks embracing a viable model that strategically takes a long-term view of profit and prosperity. For sustainability-focused banks, profit is a result of sustaining and growing the real economy and healthy communities, not an end goal” as described by Dr. Marcos Eguiguren the Executive Director of the Global Alliance for Banking on Values (GLBV) (www.glbv.com). This strategic thinking truly brings profit, people, and the planet together. Institutions recognize that this amalgamation of values is where they will find financially viability and sustainability long term. It is good for all stakeholders.
Some institutions have embraced this model more than others. We see many consumers choosing to put their money into and create relationships with credit unions (CU). It seems this is because they choose to operate in a way that aligns with the core values that both the consumer and the CU possess. The CU structure is more locally independent and can zero in on local needs, and therefore value is directly visible to the consumer and the relationship is stronger because of it. CUs are free to operate under stakeholder theory. Let’s examine some of these institutions that are truly getting it right.
PROFIT
It is a common criticism that you somewhat must sacrifice profits to operate with a true TBL focus. A common and clear metric to measure this is returns. GLBV prepared a financial performance analysis of 25 of the world’s ethical banks and 30 of the world’s major banks over a 10-year period from 2004 to 2014. The results prove that ethical banks competitively profitable.
Derek Wong for Carbon49 explains the analysis, “In the two main metrics used, the ten year average return on assets (RoA) of the ethical banks was 0.63% per year, beating the major banks’ 0.52% per year. For the return on equity (RoE), the ethical banks’ average was 8.4% per year, losing slightly to the major banks’ 8.9% per year.” (2016). Also, of note is that ethical banks showed less volatility. The crash in 2008 can be seen on the graph and we all know it wasn’t ethical banking that brought that on. Of the 25 ethical banks analyzed by the GLBV, three Canadian banks made the list: Vancity CU, Affinity CU, and Assiniboine CU. Let’s examine why they made the list.
People
It is almost impossible to choose one specific way to measure an institutions commitment to people, especially with these three exemplary institutions giving us so many examples. Each institution serves their unique community in the way that best matches the local need and makes life better for citizens. Assiniboine CU operates in Manitoba and some of their initiatives are: development of a unique mortgage product in partnership with the Manitoba Islamic Association to fill the needs of that particular community, specialized loans for foreign trained professionals to ensure they are able to get their credentials in Canada, creating business and financial literacy by partnering with Tec Vov High School to operate a student run CU, etc. Vancity CU has set a goal to have 50% of their loan portfolio made to impact focused individuals or groups, either a positive social or environmental impact, such as affordable housing, non-profit organizations, green businesses, etc., September 2018 sees them halfway to achieving this goal (Avery, 2018). Delinquency rates on impact loans are slightly better due to these individuals being highly value based and have deep roots to the communities they are operating in (Avery, 2018). Affinity CU is right here in Saskatchewan, and they have given us a breakdown of just how and how much they assist the people and the community. Also, they have a charitable giving program and volunteer days for their employees.
Planet
Vancity CU has been carbon neutral since 2008. They also choose not to invest in any capital or assets that involve the oil, gas, or coal industries, nor do they lead to them (which has some debatable ethical points, but it aligns with their chosen values). Assiniboine CU has reduced Greenhouse Gas emissions by 56% since 2012 and has been named one of Canada’s Greenest Employers for 6 years in a row through their many green initiatives. See above chart for Affinity CU’s environmental financial commitments.
These are all great examples of banks operating with a TBL and doing so very successfully. They all have clear value-based missions and have proven that profit in the by product of operating with the best interests of all your stakeholders in mind and with a clear and steady value system.
Annual Financial Reports
https://www.assiniboine.mb.ca/About-Us/Governance-And-Leadership/Annual-Reports/
https://www.vancity.com/AboutVancity/GovernanceAndLeadership/OurReports/
Sources
Avery, H., 2018. Impact banking: Vancity – delivering on the triple bottom line. Euromoney. https://www.euromoney.com/article/b1b0bl41gbrkzd/impact-banking-vancity-delivering-on-the-triple-bottom-line
BUS 306 - Group F 
