Sustainable Finance: Corporate Social Responsibility and Corporate Governance of Banks

This paper will examine sustainability in the financial sector. Specifically, it will look at ways in which banks apply voluntary measures aimed at enabling socially and environmentally sustainable business practices. It will be argued that flaws that contributed to the global financial crisis - misaligned incentives, information asymmetry, financial innovation and levels of risk, likewise pose risks from a broader environmental, social and governance (ESG) perspective. The paper will present an assessment of the sustainability performance of banks using a range of frequently used indicators, while also scrutinising the indicators by examining the extent to which they effectively measure the performance and commitments of banks. It will be argued that symbolic sustainability efforts often outweigh substantive measures, that precautionary responsibilities require more attention - as current sustainability efforts by banks are predominantly reactive and aimed at boosting corporate reputation, and that voluntary sustainability measures fall short as an effective supplement, let alone substitute, to incomplete or absent public policy. It will be argued that increased convergence of corporate social responsibility and corporate governance would have a number of advantages, such as ESG matters becoming increasingly enforceable and making companies more accountable for their actions. By embedding ESG in authoritative frameworks, the risk of CSR being used as a public relations tool would also greatly diminish, and it would also lead to a commonly accepted definition of sustainable finance and harmonise the indicators used to assess performance.