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Corporate Social Responsibility, Sustainable Development and Non-Financial Reporting – Role of Banks

DBOD. No.Dir. BC. 58/13.27.00/2007- 08

December 20, 2007
Agrahayana 29, 1929(Saka)

All Scheduled Commercial Banks
(Excluding RRBs)

Dear Sir / Madam

Corporate Social Responsibility, Sustainable Development and
Non-Financial Reporting – Role of Banks

At present, the world over, there is an increasing awareness about Corporate Social Responsibility (CSR), Sustainable Development (SD) and Non-Financial Reporting (NFR).  Consequently, there is a concerted effort among all types of organizations, to ensure that sustainable development is not lost sight of, in the pursuit of their respective goals - profit making, social service, philanthropy, etc.  CSR entails the integration of social and environmental concerns by companies in their business operations as also in interactions with their stakeholders.  SD essentially refers to the process of maintenance of the quality of environmental and social systems in the pursuit of economic development.  NFR is basically a system of reporting by organizations on their activities in this context, especially as regards the triple bottom line, that is, the environmental, social and economic accounting. The contribution of financial institutions including banks to sustainable development is paramount, considering the crucial role they play in financing the economic and developmental activities of the world.  In this context, the urgency for banks to act as responsible corporate citizens in the society, especially in a developing country like ours, need be hardly overemphasized.  Their activities should reflect their concern for human rights and environment.

2. In view of the gathering, worldwide momentum regarding sustainable development and the initiative being taken on various fronts by different organisations, including all major banks worldwide, it has become incumbent to highlight the developments that are taking place and  raise the level of awareness and focus the attention of banks in India on this issue. The enclosures introduce the concepts of CSR, SD and NFR, the felt need therefor, financial sector initiatives worldwide in the wake thereof and other related issues and underscore the importance of the issues involved and the global initiatives being taken in this regard.

3. Global warming and climate change are particularly important in the context of sustainable development, especially for developing countries, which tend to be ill-equipped for such changes. According to recent studies on climate change, the majority of Asian companies are “largely oblivious” to the risks posed by climate change issues to their business models and the environment. Nearly two-thirds of the respondent companies were given a zero score for their approach to climate change. The findings suggest that, generally, Asian businesses are far behind their US and European rivals on this issue. Another joint study by Asian Development Bank (ADB), UNDP and ESCAP on the 'Millennium Development Goals (MDG): Progress in Asia & the Pacific 2007' shows that on environmental sustainability, which is one of the eight goals of the MDG, India has regressed in the matter of carbon dioxide emission and consumption of ozone-depleting CFCs.

4. As such, there is general lack of adequate awareness on the issue in our country.  In this context, the need for sustainable developmental efforts by financial institutions in India assumes urgency and banks, in particular, can help contribute to this effort by playing a meaningful role.  In the circumstances, banks are advised to take note of the issues raised and consider using the same to put in place a suitable and appropriate plan of action towards helping the cause of sustainable development, with the approval of their Boards. In this context, particular reference is drawn to the IFC Principles on project finance (the Equator Principles) and carbon trading. Further, it will be advisable for the banks/Financial Institutions to keep themselves abreast of the developments on an on-going basis and dovetail/modify their strategies/plans, etc. in the light of such developments. The progress made thereunder could be placed in the public domain along with the annual accounts of banks.
Yours faithfully

(P. Vijaya Bhaskar)
Chief General Manager