Banking in shades of green

Banks may be wise to act sustainably to keep consumers

By Chris Martin Murphy

Australian financial institutions’ corporate responsibility efforts range from concerted endeavours to save energy and recycle to paying lip service while hitching a ride on the back of the bandwagon. But customers want their bank to ‘do the right thing’ and ‘green actions’ may increasingly be a point of difference for winning consumers in the competitive retail market.

Corporate Social Responsibility (CSR) requires organisations to consider the interests of their customers, employees, shareholders, communities and the environment in everything they do. CSR is closely linked with the principles of sustainable development, which require that enterprises should make decisions based not only on financial factors such as profits or dividends but also on the immediate and long-term social and environmental consequences of their activities. 

At Retail Banking Review’s recent Green Banking forum, major financial institutions discussed their efforts to be ‘greener’, although definitions of the term vary. Some are making, or intend to make, genuine, sincere and successful efforts to save energy, recycle paper and other materials, and support environmental protection and social causes. Others are clearly pandering to the issues of CSR and sustainability with bold statements about their lofty objectives, but with little energy saving and even less spending to demonstrate any serious attempt to back up their claims.

Indeed, my observation is that financial institutions in Australia are, rightly or wrongly, setting CSR plans and implementing CSR programs mainly for the benefit of their shareholders, and slightly for the benefit of their employees. The CSR programs in place for the benefit of bank customers are mainly related to local community support and sponsorship. And while these community programs can be beneficial at a local level, and do have some effect on customer acquisition and loyalty, the benefits are not, perhaps, to the degree that their sponsors would like.

Very few financial institutions in Australia have introduced green banking products or ethical investment products. Bendigo Bank has branded a suite of its products ‘green’, but there is no strong evidence that this helps them do better business. Bendigo Bank’s location and support in the community, and ownership by the community are by far their strongest positive attributes according to our recent market research. But the only ‘green’ thing people remember is their logotype. There are some ethical investment fund managers who invest in companies whose products and activities don’t harm people, wildlife or the environment. But as yet there does not seem to be widespread retail investor demand for ethical investments.

So it may be that Australian banking customers actually don’t care how green their banking is, and don’t see a need for banks to promote sustainability. They don’t perceive banks as companies that are destroying the environment or demonstrating low regard for human or animal rights. They may prefer to read their everyday account statement online instead of on paper, but that’s likely less to do with saving trees and more to do with getting an ‘instant’ daily balance.

There was some evidence presented at the Green Banking forum that green banking products that promote a compulsory customer donation may not be successful.

Customers have been telling us for the last five years that they don’t want to increase the interest they pay on loans or decrease the interest they earn on savings to donate to community causes. They would prefer their bank to make a donation, but only so long as it doesn’t play a part in increasing transaction fees. Further, when customers see their bank make one or two billion dollars in annual profit, they also see the contribution the bank makes to the community as miserly, and confirmation of the view that banks put shareholders first.

All this begs the question “How green should my banking be anyway?” We have not seen any research that comes close to answering this question. So The Financial Research Company intends to offer soon to banks, building societies and credit unions a syndicated market research study to find out whether customers and members care much about the subject, and why. We need to discover for our clients whether the terms ‘green’, ‘sustainable’, ‘ethical’ and ‘corporate social responsibility’ are understood, interest banking customers and may influence choice of retail banking products and switching of financial institutions in the future. We need to determine whether or not green banking is a commercially smart practice, and, if not, when it will be, and in what forms.

Whether or not green banking products are commercially advantageous right now remains to be seen. Nevertheless, customers increasingly say that profitable financial institutions need to ‘do the right thing’ for their customers, the community and the country, and not just for shareholders.

If ‘doing the right thing’ includes company support for community programs to conserve energy, wildlife and the environment, then such support may, in time, influence customer loyalty ‘my bank does more than the other bank to recycle’ or choice of a new institution “that bank does more to protect my community than anyone else including the government so I’ll give them a go”.

I suspect that green actions by financial institutions are going to have a far more positive effect on their reputation and business than green loans, green deposits or ethical investments ever will. The great thing about market research, however, is that there is a 50 per cent chance that I could be wrong!

Chris Martin Murphy is managing director of the Financial Research Company