As another fiscal year starts, financial services companies are releasing their 2013 annual and corporate responsibility reports. Since the 2008 financial crisis, and following major fines faced by banks in the past months and years, most stakeholders believe that banks should fundamentally change their models, moving from short-term speculation to long-term financing of economic development. I was therefore interested to see how banks are speaking about the challenges they face in restoring the public’s trust, as transparency is an important first step in driving change and accountability.
Of the 10 largest European and U.S. banks (in terms of total assets), seven banks address the issue of restoring stakeholder trust in their corporate reporting. JP Morgan Chase & Co. writes, “We fully appreciate that rebuilding trust requires more than talk.” And the Royal Bank of Scotland (RBS) CEO Ross McEwan stated, “RBS lost its way before 2008 because it became detached from the customer-focused values that have to be at the heart of any bank.”
To help restore public trust, some banks have started to communicate about how they are changing, and how their role is contributing positively to communities. These banks are reporting on:
- How they integrate corporate responsibility and business strategies. The most impactful reports place helping individual customers and businesses grow and protect wealth—in other words, servicing the “real” economy—at the heart of corporate strategy. Barclays’ 2013 strategic report relates how the bank is repositioning itself to better serve all stakeholders through its Transform Plan. Barclays publishes nonfinancial indicators alongside its financial indicators, and its “Balanced Scorecard,” which is integrated throughout company operations, defines financial and ESG targets and metrics to track progress against objectives.
- How they create and deliver value. Stakeholders often argue that financial markets have lost sight of their primary objective: to channel savings and capital toward economic development. In its strategic report, HSBC explains how it creates value, as well as the role it plays in the economy to convert clients’ savings into financing. BNP Paribas tracks the rate of growth in lending as a key performance indicator to demonstrate support of economic development.
- How they have changed: Some banks seek to show they are really changing their practices to align their interests with those of their clients. BNP Paribas states that extra-financial criteria are now factored into the bonuses of 5,000 group managers. Additionally, BNP Paribas changed the remuneration system of local bank agents in France so that they are not incentivized to sell more products but rather to sell the product most adapted to a client’s needs.
Despite these conversations, banks are still missing one essential aspect in their reports: a frank discussion of how financial markets can shift from short-term decisions to long-term financing. And although corporate reporting is an important entry point, it will only go so far in helping banks restore the public’s trust; there will continue to be skepticism regarding whether banks will back up their reporting with real action. Banks should develop a clear roadmap to support transformative change, while being inclusive and transparent about their challenges and results.
At the BSR Conference 2014, in New York November 4-6, we will explore how banks have changed following the financial crisis in the session “Five Years Later: Has There Been Sustainable Change in the Financial Services Sector?”