By James Osborne, Head of Sustainability at Lundquist, and Analyst at Comprend
From the recent Panama Papers and the issue of tax avoidance to scandals around market rigging, responsible banking remains a hot topic. With scrutiny on bank’s activities in this area widening in scope, transparency and restoration of trust are priorities for the business.
We have monitored the way banks tell their sustainability stories online closely in our yearly Webranking by Comprend research, a comprehensive study that evaluates corporate websites based on input from financial journalists, analysts and investors in Europe and globally. Conducted by digital consultancy Comprend in Stockholm, in collaboration with Lundquist in Milan, this year’s is the 19th edition of the research. It provides a useful perspective from which to observe how the industry in Europe is responding to these public pressures and to see which companies are leading the way in translating those expectations into credible communications.
An act of survival
As a starting point, the Webranking survey reveals that capital-market participants expect banks to involve a range of stakeholders in their CSR (corporate social responsibility) process because they understand the important role they have in today’s business. The capital markets, therefore, judge banks on what CSR targets are set and achieved, and how relevant developments are reported. This gives us an insight into how sustainability is coming of age with key audiences looking for evidence of how banks address governance, social and environmental topics, precisely because they are critical to investment decisions and customer attitudes.
RobecoSAM, a sustainable-investment specialist based in Zurich, argues that some banks are already doing this. In fact, it states that top players are “taking a lead in integrating cultural, incentive and environmental factors into their long-term investment strategies” and that this has not only served as a foundation for developing new products with growth opportunities “but has also contributed to ensuring better risk management in the banks’ overall investment strategies”.
Our research provides a useful snapshot of this evolution. Webranking works as a stress test in that it measures the fundamentals of online corporate communications and digital dialogue under the pressure of the most demanding audiences. We analysed 52 banks included in the FT 500 index and found that banking ranks as the 14th most transparent sector (out of 22) in Europe. It shows an overall poor performance in communicating clearly and transparently on a range of topics, including financials, employer branding, media relations and corporate governance. It ranks 11 positions below insurance, which this year is in second place, but above other financial-service providers (the worst-performing sector overall).
This overall lacklustre performance is explained by the fact that only a quarter (27 percent) of banks passed the stress test this year. Danish bank Danske Bank tops the ranking with 69.5 points out of 100. The company is followed by Swedish lender Swedbank (63.4) and Austria’s Erste Group (60.5), which also wins the title of best improver, gaining an impressive 15.2 points. Other best improvers include Spain’s Bankia and Italy’s Mediobanca, which both climbed by more than nine points.
Don’t be misled, however. Despite this overall poor performance, leading banks scored higher for transparency in sustainability communications than they did in matters related to investor relations. As a sector, more than 90 percent of banks are broaching sustainability as a topic.
Sustainability as the backbone to restoring customer trust
So why does it matter whether banks communicate transparently on sustainability? It matters because the banking industry remains under scrutiny from regulators and under pressure from the public, which has resulted in reputational issues, fines and penalties. This has made the restoration of trust a key priority for the industry. From a communications perspective, this means increasing credibility from the public and stakeholders through transparent comms, thereby helping to restore trust.
The restoration of trust as a key priority for the industry can be noted in the decision-making process. Banks’ direct impacts often pale in comparison with their wider role in the economy as they affect broad sustainability outcomes through their lending and investment strategies. Which project a bank decides to finance can have a direct impact on the environment or social context of the given area. Leading banks have started to move away from a solely market-based approach of investment, and now also base decisions on the social and environmental impacts (or adversely, the negative impacts) a given investment can lead to. In so doing, they assumed what can be termed “a social responsibility” for the outcome of a project they ultimately help facilitate. Deutsche Bank devotes an entire section of its corporate website to explaining why it is helping to finance green infrastructure and why renewable energy is important.
Good communications, as argued by Webranking, means that banks are communicating on issues deemed key to stakeholders. Take UK bank Lloyds Banking Group, for example, the highest-scoring bank in the ranking when it comes to CSR. The bank has a detailed sustainability section on its corporate website, presenting its strategy and a report aligned to the overall group strategy, as well as publishing its environmental and social target numbers. Objectives and target achievements are published in individual reports (from environment to communities) and provide a holistic sense of what the group intends to achieve in this area.
Managing reputational risk through stakeholder engagement
Key to sustainability is defining material issues via stakeholder engagement, both internally and externally. When it comes to restoring trust, and managing reputational risk, engaging with key players to see what is important to them (known in the world of sustainability as a materiality analysis) not only increases credibility but also makes business sense. Yet this engagement with the outside world is often missing from CSR communications (only 26 percent of banks present the results of a materiality analysis), leaving the suspicion that the industry is working on its own agenda. In the same way, while more than 70 percent of banks present a CSR report, many fail to present even basic environmental data, while less than half are publishing sustainability targets.
A number of leading banks are paving the way for more transparent engagement. Take Swiss bank UBS, for example, ranked overall in seventh place and fourth for CSR communications. The bank not only publishes a detailed materiality matrix outlining key areas of importance but also shows how it came to prioritise these areas through stakeholder engagement. Intesa Sanpaolo, ranked overall in ninth place and second for CSR comms, draws the connection between stakeholder engagement and management of reputational risk.
Listening = gaining trust
The banking industry remains under intense regulatory scrutiny and continues to face a host of risks to its systems and reputation. By communicating transparently on critical issues related to sustainability, banks show a willingness to better understand how to contain and act when things get tough. Most importantly, leading banks that do this well show an appreciation for their stakeholders. By listening and acting on their specific needs, banks can slowly regain the trust of the public.
A focus on sustainability is not just a “preventative measure” but also makes good business sense. By understanding what is important to stakeholders, and by delving deeply into risk management, banks can produce better products, and act more responsibly and in turn win more loyal customers. In a world where reputational risks continue to lurk and FinTech competitors increasingly crowd this space, communicating more transparently on matters close to stakeholders’ hearts could do just the trick in winning them over.
James Osborne is Head of Sustainability at Lundquist, a strategic communications consultancy in Milan. Building on over a decade of experience in international journalism, James advises corporations in Italy, Switzerland, Austria, Germany and beyond on their sustainability communication and reporting. Lundquist is also partner of Webranking by Comprend, the most comprehensive and authoritative study of corporate websites in Europe, and represents Comprend in Italy, Switzerland and Austria.