Understanding and Measuring Sustainability Performance in the Banking Sector

Abstract

Stakeholders have increasingly demanded the adoption of sustainable strategies and the increase in sustainability reports from the business. At the same time, the assessment and measurement of corporate performance now extend beyond its established financial return. This paper follows the argument that it is important for companies to be an entity that plays an active role in sustainable development. However, it is commonly accepted that there is no single, integrated way of assessing this performance. The purpose of this paper is to provide a framework for understanding and measuring corporate sustainability in the banking sector. More specifically, the paper aims to fill the gap in the corporate sustainability assessment in the banking sector because there is, in fact, a tendency to underestimate the indirect impact these sectors have on environmental issues and social responsibility. A theoretical framework of an integrated composite sustainability index is analyzed based on the adoption of the GRI sustainability guidelines and the application of the analytic hierarchy process. The construction of a composite sustainability index includes the economic, environmental and social dimension of entrepreneurship. Each of the three sub-indices is a synthesis of several key performance indicators, which are usually the subjects of annual sustainability reports of an organization. This process is used to benchmark a company over a period of time and provides an indicative tool in order to analyze banking companies. Managers can use this analysis as a valuable component for comparing them over time, so as to adopt appropriate sustainable strategies and to improve the economic, environmental and social performance. A key tool to achieve sustainability in the banking sector is to analyze the corporate performance of the organizations. This will give a competitive advantage to the bank operators.

Auditing Sustainable Performance Using the Sustainable Value-Added Model: Applied to Banks Registered in the Stock Exchange

“…Although the banking sector is not considered a polluting sector, the volume of business and thus the increase in all banking activities are being weighed down by its environmental footprint. Banks' environmental and social responsibility has also led to green banking by adopting corresponding technology, processes and products that can make the environment friendlier and enhance sustainability (Stauropoulou & Sardianou, 2019), (Bhardwaj & Malhotra, 2013).…”

Bank ownership structure and reputation through sustainability reporting in Indonesia

“…Foreign investors may be able to bring better expertise and technology to solve a wide range of information issues (Lindemanis et al , 2019). With technological innovations such as digitalization, it is expected to help sustainable friendly development (Stauropoulou and Sardianou, 2019). Foreign investors are more willing to oppose management decisions and make better business supervision, hence the firm is more responsible for economic, social and environmental impacts (Rustam et al , 2019).…”

“…Climate change and poverty are rising global issues that become serious concerns today (Stauropoulou and Sardianou, 2019). Firm activities that affect the environment and society need more transparency, thus the disclosure of SR is a must to gain legitimacy from the public.…”

“…First, society prefers a firm with positive impacts on the environment (Nawawi et al , 2020). Second, the firm is required to meet the stakeholder’s needs and demands (Elalfy and Weber, 2019; Taghian et al , 2015) such as NGOs that need enhancement in the firm’s sustainable strategy and SR (Stauropoulou and Sardianou, 2019). By fulfilling of how well the firm has initiatives to social and environmental value, a higher firm reputation can be achieved (Pérez, 2015).…”

“…However, we will try this as a mediator in the banking sector because financial industries became the pioneer of an SR as stated in the Sustainable Finance Roadmap (OJK, 2015). The commitment to the SDG’s and economic growth through other firms (Buallay, 2019) makes the banking sector required to publish their environmental and social impact reports (Elalfy and Weber, 2019) although is often underestimated because they have no direct effect on environmental damages (Stauropoulou and Sardianou, 2019). However, their loans and investments to other industries need to be considered because it may cause environmental effects.…”