NGOs call for regulation rather than CSR to manage reputational risks, failing to recognise the value of voluntary initiatives

According to ‘A Big Deal‘ CSR is failing to tackle environmental, human rights, social and reputational risks. The report argues that voluntary CSR initiatives are failing to prevent some of the major environmental and social issues in the finance sector. The report calls for increased regulation to overcome these shortfalls. 

However, with the number of signatories to the Equator Principles increasing almost daily, and further banks setting up new environmental and social risk management departments, the evidence suggests that banks are taking measures to reduce their environmental and social risks seriously voluntarily.

In this climate of change, involuntary regulation should not be seen as the only option, particularly when many banks are implementing internal policies that go beyond the requirements of the Equator Principles. The introduction of excessive regulation would stifle the impressive innovation and constrain the momentum of the current initiatives that are transforming the industry.

For information, here is an extract from the report that call for this regulation:

The arrival of corporate social responsibility (CSR) in Europe’s finance sector is not all ‘good news’. A Big Deal? is an attempt to redress the balance. In our ground-breaking report, we present seven case studies which clearly demonstrate the finance sector’s inability to embed corporate responsibility on a voluntary basis. In particular, we reveal that the finance sector:

  • provides a haven to siphon off much-needed tax revenues from cash-strapped developing countries, benefiting only a wealthy minority who avoid paying tax altogether;
  • has abjectly failed to factor in the financial risks of climate change, which may ultimately lead to a global economic breakdown as the costs of climate change begin to outstrip any benefits generated by the global economy, especially for the world’s most vulnerable people;
  • is a primary conduit for bribery and corruption, providing billions of dollars in loans to repressive governments. European filters of finance, such as the UK’s Export Credits Guarantee Department (ECGD) have failed to prevent bribery and corruption on a massive scale;
  • perpetuates poverty and social exclusion in Europe, by providing unscrupulous levels of debt at high rates to those least able to afford it, all the while bringing in record-level profits;
  • regularly undermines human rights protection, by financing projects which pose a threat to the implementation of human rights laws in developing countries, in breach of some companies’ own codes of conduct;
  • often fails to assess adequately the environmental impacts of projects and to address issues raised before releasing project finance, yet continues to reap the reputational benefits of participation in voluntary CSR initiatives.

The financial services sector is not regulated on a global basis and no overarching framework exists to manage key human rights issues. Codes of conduct have been established that, because of either their reach or influence, have become proxies for industry standards… such initiatives may be criticised for ‘lacking teeth’ if no accountability mechanisms exist to assess how well they are being implemented in day-to-day business practices. Ultimately, binding regulation may be more likely to ensure that industry leaders are not competitively disadvantaged, and that all companies operate to a set of agreed minimum standards.

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