How social responsibility can be a key part of business strategy

However, while money is being poured into sustainability initiatives across the board, a recent study by management consultancy Kearney suggests that many companies are still maturing when implementing programmes to address the “S” of environmental, social and governance. 

For example, fewer than a quarter (22 per cent) of companies partner with a non-governmental organisation to manage social impact initiatives, leading to a knowledge gap in businesses’ social initiatives and preventing organisations from pursuing high-impact projects that are beyond their capabilities.

One industry stood out as being behind the curve when it comes to conducting successful social impact initiatives: financial services. 

Scoring an average of 62.6 points out of 100, the financial services industry was the lowest among the seven sectors surveyed. In fact, the financial services industry had the lowest score in every one of the 15 sub-dimensions assessed, excluding “decision-makers”, where consumer goods companies came last. 

This naturally begs the question, why is the financial services industry seemingly behind its peers when it comes to positively impacting communities? And how can the industry act decisively to improve before it loses favour with socially conscious consumers? 

Key factors behind the score

The Index of Social Performance measured the social maturity of companies based on three social impact dimensions: strategy, operating model and performance.

While they performed poorly across the board, the following factors had a significant impact on the financial services industry’s overall score: 

• Project selection: 76 per cent of the companies surveyed use only ad hoc or internal processes to select projects compared with the leading practice of soliciting proposals and working with communities to get input on projects.
• Partnership on delivery: only 12 per cent of companies reported working with experts and NGOs to execute projects.
• Means of engagement: more than 50 per cent of the companies focused on donations as their primary social impact strategy and only 16 per cent blended that with volunteering, pro bono services or other forms of engagement. This compares with the overall leader profile, where only a third are focused solely on donation.
• Measurement: only a quarter of the companies used a return on investment methodology to track the impact of their programmes.

Roadblocks to social maturity

The financial services industry is often perceived as being profit-driven, with a primary focus on maximising shareholder value. However, this perspective ignores the pivotal role that banks and other financial institutions play in society as key drivers of socioeconomic mobility and upliftment.

Capital flows are a critical part of addressing social inequalities and rebuilding societies sustainably, and banks can carry out initiatives that other industries simply cannot do. 

For example, banks can finance low-cost community housing at low interest rates or educate children about money. Their key capability is steering capital to support sustainable causes, rather than executing them.

One of the first roadblocks to the social maturity of financial institutions is a lack of recognition of this role they play.

There are also some practical reasons as to why it is difficult for the financial services industry to compete with its peers on social impact.

High compliance and risk management costs within the sector can leave companies with limited room to make substantial investments in social impact initiatives.

These programmes often required dedicated resources and sustained effort, leaving less space for substantial investments in social impact initiatives. 

With limited capital, leaders at financial institutions may also disproportionately prioritise the environmental factor of ESG over social initiatives, due to the growing focus on sustainability as a core part of every business’s long-term strategy.