Banks play a critical role in our everyday lives and influence many areas of society like other big businesses. They do not just store your money for your convenience. They put it to work to make themselves money by investing and lending it out.
Still, banks are increasingly expected to prioritise environmental, social and governance (ESG) activities.
Socially responsible banks attempt to manage their banking activities with integrity and hold themselves accountable to stakeholders regarding sustainability, environmental performance, and other ethical concerns. This is indeed a tall agenda.
In a conference organised by Times of Malta and the education ministry discussing the social elements of ESG, a Bank of Valletta economist argued that “If you do not conform to respect the environment and the social element under the guiding principles of the International Labour Organisation and the Organisation for Economic Cooperation and Development, you will not be given credit”.
Some will argue that the last thing we need is for banks to act as morality police to clean up the business world. Historically, banks did not have a very good corporate responsibility governance regarding social responsibility.
In the local context, the incidents of money laundering assisted by banks’ lack of understanding of this risk have, in past years, tarnished the country’s reputation with significant negative consequences to society.
However, it is encouraging that local banks are now taking their corporate social responsibility (CSR) seriously and implementing business practices that positively impact society. CSR can also mean not supporting industries and initiatives that harm society, such as the big oil and tobacco industries.
But more relevant for the local context, ethical banking means not supporting businesses that exploit third-country low-paid workers, which is one of the central planks of many companies’ operating models.
Banks need to evaluate the beneficiaries of their business as worthy recipients, lest their access to funding be used for illicit or unethical purposes like worker exploitation.
Today, banks have sophisticated risk management tools honed by directives of the European Central Bank and the European Banking Authority. These tools help to manage risks better to create new sources of value to protect their reputation and increase the positive return for people, planet and profit.
The credit evaluation process can, and should, be enhanced to include an assessment of the sustainability of clients’ business models. A business’s dependence on exploiting low-paid, vulnerable workers must undoubtedly be a red flag for a credit risk analyst considering lending depositors’ money.
However, the fight against workers’ exploitation must remain the prime responsibility of public institutions, which must act as front-line guardians of basic human rights.
These institutions should be autonomous, even if still dependent on government support. They must address the concerns of NGOs like the Malta Malayalee Association, an NGO for Indians in Malta, which claims that Indian nationals often pay thousands of euros in agency fees to work for temping agencies only to find that the job that was promised to them does not exist. Times of Malta also reported how some migrant workers are forced to sleep on construction sites.
While banks will do well to include practising the three Ps by trying to deliver positive returns for People, Planet, and Profit, the government must regulate to curb workers’ exploitation. This social injustice is not being addressed with enough political determination.