European Banks' Reputation for Corporate Social Responsibility

Abstract

Dow Jones Sustainability Index (DJSI) members are considered top sustainable companies within each sector. Thus, DJSI inclusion signals a reputation for strong Corporate Social Responsibility (CSR) engagement, which should contribute to enhanced firm performance. This paper examines the performance of the European banks listed in the DJSI for the period 2003-2013 and analyzes the effect of having a reputation for CSR on performance during a period of economic crisis. A vast amount of literature links CSR, reputation and performance, but few studies have examined the banking sector and the impact of the last recession. Our results suggest that banks' efforts to build a reputation for CSR benefits performance. Nevertheless, in periods of crisis, these efforts do not contribute to improved returns.

The Relation between Corporate Social Responsibility and Bank Reputation: A Review and Roadmap

“…Dell'Atti et al (2017), adopting a multiple econometric approach, highlighted that bank reputation is positively related to accounting performance and is negatively related to leverage and riskiness.The authors show positive relationships between reputation and social performance and negative relationships between reputation, corporate governance, and environmental performance.This last result is due to the fact that in the banking sector there is still no strong focus on the environmental impacts of banking activity.On the other hand, Sneekes et al (2016) show that banks that perform highly on CSR indicators behave more transparently with regard to the presentation of earnings.Banks that engage in CSR activities to improve their reputation use managerial discretion to show socially desirable earnings numbers.For banks that value their reputation, pursuing societal trust is more important than the fulfilling of self-interest.In addition, bank managers should pursue CSR practice as a long-term survival strategy to enjoy different benefits, including enhanced reputation (Shen et al, 2016). Forcadell and Aracil (2017) show that banks' efforts to build a reputation for CSR benefits performance.Nevertheless, in periods of crisis, these efforts do not contribute to improved returns.According to the authors, investments in CSR can be justified as a way to boost both corporate reputation and firm performance, because CSR is a mechanism that contributes to restoring a tarnished reputation.In line with the reputation-building hypothesis, Jo et al (2015) highlight that good environmental management provides firms with a reputational advantage that leads to increased marketing and financial performance.A major contribution of these quantitative studies is empirically testing the relationship between CSR and reputation and its impact on economic performance in the banking sector.In addition, these studies look at managerial behavior and its impact on banks' reputation.…”

“…Over the past decades, scholars have paid greater attention to the relation between corporate social responsibility (CSR) and corporate reputation (Forcadell & Aracil, 2017).Recently, an increasing number of financial institutions are accepting the idea that there is room to increase their social and environmental responsibilities.The banking sector's commitment to more sustainable practices has interesting implications.The relationships between CSR and reputational risk in the banking sector can be interpreted via social-political theories, which recognize CSR as a tool available to companies to increase their legitimacy toward stakeholders and to improve their transparency toward investors (Carnevale & Mazzuca, 2014).Diverse stakeholders are requiring financial institutions to improve their social and environmental performance.As a result, some banks are developing CSR programs, corporate environmental responsibility (CER) policies, and management systems to reduce potential social and environmental risk, and improve their reputation and performance (Jo et al, 2015).However, despite a growing interest in this area, such linkages have remained relatively unexplored in the banking industry and the precise relationships are not clear (Lee et al, 2016).Moving from these considerations, this study proposes a systematic review of attempts in peer-reviewed scientific literature to analyze and synthesize past studies on the relationships between CSR and reputation in the banking sector.The aim of this study is to provide a complete picture of the research on these relationships by listing, classifying, and comparing existing studies.The review was carried out using the following databases: ISI Web, Google Scholar, and SSRN. I investigate a number of published academic works, summarizing the main approaches, results, and insights.I also provide a roadmap for future study and offer research questions about critical areas of this stream of research.The paper is structured as follows: in section 2 methodological details are provided; section 3 show a descriptive analysis; section 4 provides a discussion on the findings of the literature review; and in section 5 conclusions and future research directions are provided.…”

The "Virtuous Circle" Between Corporate Social Performance and Corporate Financial Performance in the European Banking Sector

“…Following one of the most profound financial crises in history, which directly involved all the major banks in the world and undermined their credibility and reputation, CSR is perceived as a strategy to re-establish bank's credibility (Hsu, 2012;Schultz, Castelló, and Morsing, 2013). The banking sector's commitment to ethical policies and activities has important implications (Forcadell and Aracil, 2017). Non-responsible companies pay a higher cost to obtain financial resources than companies engaged in social activities, because investments in CSR may reduce the risk and increase the attractiveness of potential lenders (Goss and Roberts, 2011).…”

“…Consequently, the bank's involvement in CSR practices determines the benefits for the bank itself (Polychronidou, Ioannidou, Kipouros, Tsourgiannis, and Simet, 2014), and promotes the adoption of sustainable practices by potential applicants, generating a positive impact on sustainable growth (Dorasamy, 2013). Studies on the relationship between CSR and CFP in the banking sector are limited (Forcadell and Aracil, 2017;Goyal, Rahman, and Kazmi, 2013;Wu and Sheng, 2013;Simpson and Kohers, 2002;Scholtens and Dam, 2007;Chih, Chih, and Chen, 2010;Soana, 2011;Carnevale and Mazzuca, 2014;Mallin, Farag, and Ow-Yong, 2014; Esteban-Sanchez, de la Cuesta-Gonzalez, and Paredes-Gazquez, 2017). Scholtens and Dam (2007) compare the commitment in CSR policies, observing that the banks that adopt the Equator Principles pursue important CSR policies but register lower Return on assets (Roa).…”

“…Carnevale e Mazzuca (2014), using a sample of European banks, reveal the positive influence of the publication of a bank sustainability report on the share price. Forcadell and Aracil (2017) analyse the impact of the reputation-improved through CSR policies -on the financial performance of European banks listed on the Dow Jones Sustainability Index (DJSI). Results show that banks' efforts to build a reputation deriving from the CSR programs determine benefits on financial performance.…”