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that 84 percent of its 30,000 sampled cus- tomers wanted the bank to have an explicit ethical policy. This support from its custom- ers, according to the bank, had increased to 97 percent in 2001. The bank considered such strong support of ethics as a ‘mandate to pursue’ and it is today well-known for the institutionalisation of its ethical policies.
According to Becker, some high street banks in the UK are addressing the challenges pre- sented by CSR by collaborating with other banks, social organisations, and other finan- cial institutions embracing a socio-economic mission like community development finan- cial institutions (CDFIs) and credit unions. In this way they participate in addressing problems like financial exclusion and assist in community regeneration.
As an act of good corporate citizenship, many banks also set up socially-oriented foundations under which they fulfil their social obligations. Retail banks like Lloyds TSB, for instance, have been seen to sup- port charity works in the fields of social and community needs and encourage education and training programmes through its various UK foundations.
The Case of Socially Responsible Financial Institutions Besides the promotion of CSR by main- stream financial providers, it is observed that since the 1990s there has been an el- evation in the provision of financial services to a prominent social role such that banks and non-bank financial institutions (NBFIs) have been re-engineering their products, processes and services in order to increase their social impact.
These suppliers of financial services are said to ‘take a positive interest in the social out- comes and effects of their activities’ whilst being driven by financial returns. In some cases, ethics is another key motivating fac- tor of these financial institutions. This trend could be recognised under the labels of ‘social banking’, ‘socially responsible invest- ment’, ‘ethical banking’, ‘micro-financing’, ‘community reinvestment’, and ‘co-operative banking’.
To this end, a diverse range of financial insti- tutions have emerged which, above all, seek to service the local economy and the com- munity. Some of these experiences have developed in Third World countries, like the micro-credit movement, which have been in turn employed in industrialised countries to serve their respective local needs. Micro- credit institutions act as ‘social banks’, tak- ing initiatives to support the disadvantaged, the poor and small and medium businesses which are otherwise excluded from financial assistance.
50 Global Islamic Finance April 2012
In the UK, the emphasis on the social goals of financial institutions has led to the devel- opment of a number of ‘mutual’ financial institutions–like credit unions, savings and loans funds, retail cooperatives, friendly so- cieties, provident and building societies.
According to the Government Policy Action Team 14 of 1999, the scope for developing credit unions in the UK was looked into as a government strategy to combat financial exclusion among communities in disadvan- taged areas. Mutual financial institutions are said to play an equally, if not more, im- portant role in the retail financial market in countries such as Australia, Germany and the USA.
Community development financial institu- tions (CDFIs) are another type of financial institution with a social mission. They sub- scribe to a variety of structures, including, community development banks, credit un- ions, loan funds, venture capital funds, and micro-enterprise development loan funds.
Their key role is to serve in the social, eco- nomic and physical renewal of under-invest- ed communities, by creating jobs, economi- cally empowering individuals, building local businesses, and developing entrepreneurial capacity. Importantly, they seek to help peo- ple out of poverty by developing a ‘culture of empowerment, entrepreneurship and ini- tiative, rather than dependency’. The CDFI industry registered a dramatic boost in the USA in the 1990s, and based on its success, the CDFI sector in the UK was modelled in the ten years follwing 2000.
The number of CDFIs in the USA is reported to be between 800 and 1000, operating in every state and serving both urban and rural communities. In the UK, it is reported that there are 66 CDFIs operating across 175 branches as of 2010, which form part of the Community Development Finance Associa- tion (CDFA).
Some financial institutions have taken one step further by specifically promoting social and ethical issues, over and above embrac- ing professional ethics. They have labelled themselves as ‘socially responsible’ or ‘ethi- cal’ financial institutions whereby their fi- nancing and investment strategies will com- bine the criterion of financial performance as well as social, ethical, environmental and governance issues.
Examples of such institutions are Friends Provident (UK), Triodos Bank (Netherlands) and Jupiter Asset Management (UK). These socially responsible financial institutions (SRFIs) adopt a number of screening meth- odologies to ensure adherence to ESG val- ues. Two of the most common screening
techniques are ‘positive’ and ‘negative’ screening whereby SRFIs select invest- ments in companies whose activities will make a positive impact on society (e.g. pro- environment, human rights, animal welfare) and avoiding companies engaged in socially negative behaviour that will cause harm to society (e.g. pornography, weapons, alcohol, gambling).
Other screening methodologies used in- clude ‘best of sector investing’ to include companies which make the greatest effort in addressing ESG issues, ‘community in- vesting’ to promote investment in unders- erved communities, and ‘shareholder advo- cacy’ whereby investors utilise their rights as shareholders to advocate for socially re- sponsible changes in corporate policies.
A study by Sairally indicated that the CSR pol- icy of these SRFIs is observed to represent an integrated business practice whereby the SRFIs have a formal system to manage CSR responsibilities. The following observations were noted to form part of the CSR compli- ance system of some of the SRFIs:
• CSR was embedded in mission and vi- sion statements; • CSR, corporate governance and SRI policies were clear; • CSR departments were established and CSR staff appointed; • External and internal committee boards were set up to ensure CSR/SRI compli- ance; • Abidance by legal rules governing the industry and by global ethical stand- ards were observed; • Guidelines were developed on how to implement CSR/SRI policies; • Stakeholder consultations were con- ducted when setting SRI research proc- ess; • Transparency in reporting CSR policies and practices was observed.
Today, the SRI industry is fast expanding in different parts of the world, with a greater prominence in the USA, the UK and some European countries. As of September 2010, the SRI industry is reported to be encom- passing a worldwide industry worth €6.9 trillion (approx. US$1 trillion), with Europe holding the largest share of €4.9 trillion fol- lowed by the USA at €1.5 trillion.
For the UK-the main SRI market in Europe- total SRI assets under management is esti- mated at £938.9 billion as of 31 December 2009. This includes £9.5 billion being in- vested in UK green and ethical retail funds- up from £2.4 billion ten years ago.
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