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THE PEOPLE'S
Indi ra Gandhi National Open University
School of Management Studies
MS - 495
Ethics and Corporate
UNIVERSITY
Governance in Banks

Corporate Social Responsibility

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"Education is a liberating force, and in

our age it is also a democratising force,
cuttine~ across the barriers of caste and
class, smoothing out inequulities imposed
by birth and other drcumstances.'~'
- Indira Gandhi
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~ THE PEOPLE'S
UNIVERSITY
MS-495
Ethics and Corporate
Governance in Banks
Indira Gandhi
National Open University
School of Management Studies

Block

3
CORPORATE SOCIAL RESPONSmILITY
Unit 9
Corporate Social Responsibility and Citizenship 5
Unit 10
Corporate Social Responsibility Guidelines 25

Unit 11
Sustainable Development 36
COURSE DESIGN COMMITfEE- AND PREPARATION- TEAM
Prof. M.S. Narasimhan Dr. Shital Jhunjhunwala
Indian Institute of Management Assistant Professor
Bangalore Institute of Public Enterprises
Hyderabad
Dr. P. Balachandran
Deputy CEO Dr. Neeti Agrawal
Indian Institute of Banking and Finance School of Management Studies
Mumbai IGNOU
New Delhi
Mr. S. Balachandran
Management Consultant
Course Coordinators
Mumbai

Mr. R.K. Srivastava Prof. G. Subbayarnma

Consultant (Banking & Finance) School of Management Studies
General Manager (Retd.) IGNOU
State Bank of India New Delhi
Lucknow
Dr. Leena Singh
Prof. Gp. Rao School of Management Studies
Spandan IGNOU
New Delhi New Delhi

Mr. Venkateswaran
DGM & Company Secretary
Lakshrni Vilas Bank Ltd.
Karur, Tarnil Nadu

PRINT PRODUCTION

K.G Sasi Kumar

Asst. Registrar (Publication)
School of Management Studies
IGNOU, New Delhi

March, 2011

© Indira Gandhi National Open University, 2011

ISBN: 978-81-266-5242-6

All rights reserved. No part of this work may be reproduced in any form, by mimeograph or any
other means, without permission in writing from the Indira Gandhi National Open University.
Further information on the Indira Gandhi National Open University courses may be obtained from
the University's office at Maidan Garhi, New Delhi-110 068, or website www.ig.wu.ac.in
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Laser typeset by Nath Graphics, 1121, Sarvapriya Vihar, New Delhi-110 016.

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BLOCK 3 CORPORATE SOCIAL
RESPONSIBILITY

This block explains the concepts of citizenship, Corporate Social Responsibility

(CSR) and Sustainable Development (SD) in the context of corporations.
Unit 9 describes citizenship of banks and discusses the prime responsibility of
corporate citizenship. It analyses how Corporate Social Responsibility (CSR) is
related to progress in banking industry and the interrelationship between business and
the society.
Unit 10 describes the nature and different kinds of CSR guidelines applicable to both
Indian and Foreign banks. Further it examines whether the banks are fulfilling these
guidelines.
Unit 11 explains the concept of sustainable development, and the key challenges
facing sustainable development and also corporate sustainability. Then it analyses the
corporate response to sustainable development. It also discusses the importance of
Social Audit.
"
UNIT 9 CORPORATE SOCIAL
RESPONSmILITY AND
CITIZENSHIP
Objectives
The main objectives of this unit are to:
• describe the Citizenship of Banks;
• highlight how Banks act beyond Corporate Social Responsibility;
• discuss the Prime Responsibility of the Corporate Citizenship;
• describe how Corporate Social Responsibility pertains to progress in Banking
industry; and
• describe the inter-relationship between Business and Society.

Structure
9.1 Introduction
9.2 Social Responsibilities and Corporations
9.3 Corporate Citizenship
9.4 Alternative models of Corporate Citizenship
9.5 Banks beyond CSR
9.6 Business, Society and Corporate Citizenship
9.7- Corporate and Business Ethics
9.8 Challenges ahead for CSR
9.9 Summary
9.10 Self-Assessment Questions
9.11 Further Readings
,
Annexure 1: Grameen Bank at a Glance - June 2010
Annexure 2: Citigroup - A Case Study on Corporate Citizenship

9.1 INTRODUCTION
.Corporate Citizenship has emerged as a prominent term in the management literature
dealing with the social role of business. Corporate Social Responsibility (CSR) is an
activity which is dedicated to improving the quality of human life which resides in the
neighbourhood of an industry. It is not an activity relating to philanthropy. In other
words, it is an activity to improve the socio economic status of the society in the
neighbourhood of an industry by providing healthy, prosperous and peaceful
atmosphere. It culminates from the fact that corporate units should establish
industries in the countryside so that they will get governmental benefits and
concessions and by setting up industry in that area will provide local employment and
would enhance the status of weak and helpless members of the society. Corporations
also enter the arena of citizenship where government has not as yet administered
5
Corporate Social citizenship rights. Due to the absence of viable governmental protection, corporations
Responsibility
become l;l kind of "default option" for administering citizenship rights.
~ Society increasingly demands that corporate as a separate legal entity is a Corporate
Citizen and must contribute to their well being just like people are. Given this reality,
Corporate wants to give simply because it is expected of them. Such CSR activity
build's the corporate's image as "good" corporation.
Modem technology, globalization, the Multinational Corporations, and large amounts
of unengaged, surplus capital are heralding a new era that is changing the traditional
boundaries between government and business and that underlies the new concern
about corporate social responsibility in the world of business.
Business, with its significant wealth and its ability to deliver increasing profitability, is
assuming new responsibility for many previously governmental areas, such as the
environment, individual health, the redress of economic inequities, specific social
problems, continuous adult education, and the financial fostering of culture.
In an interesting turn-about, the state is becoming more driven by market dynamics
and the corporate principles of operational effectiveness, and the world of business is
becoming more concerned and involved with social and cultural responsibilities
.previously left to government and non-profit institutions.
Corporate Social Responsibility (CSR) is defined as "open and transparent business
practices that are based on ethical values and respect for the community, employees,
the environment, shareholders and other stakeholders".
A competition-cum-study conducted in 2005 and 2006 on 'CSR and Leadership' by
the British Council in association with Institute for Integrated Learning in
Management (IILM), New Delhi and the Association of Sustainability Practitioners,
UK (ASP) has listed the major drivers of CSR as follows:
• Concerns and expectations from citizens, consumers, public authorities and
investors in the context of globalization and large scale industrial change.
• Social criteria are increasingly influencing the investment decisions of individuals
and institutions both as consumers and investors.
• Increased concern about the damage caused by economic activity to the
environment; and
• Transparency of business activities by the media and modem information and
communication.
Though there are many Indian Corporates which arewell known for so many years
and have been contributing to the society and disseminate socially responsible
behaviour, it will not be out of place to mention the Corporate ''Tatas''. Tata steel is a
golden example. It is pointed out here that the founder ofTata Steel, Jamsedji
Nusserwanji Tata was a visionary in his own right. In his words,the business was
defined as "in a free enterprise, the community is not just another stakeholder in
business, but is, in fact the very purpose of our existence". From the above, it can be
easily concluded that unless a Corporate tries to improve the socio economic status
and conditions of the community in which it operates, the existence of the corporate
will be a question mark. In fact, Tata Steel is the forerunner in providing CSR activity
and has incorporated its CSR responsibility and mandate in this regard in its Articles
of Association. The Tata Steel's Corporate Social Responsibility was unveiled which
states,"Tata Steel believes that the primary purpose of a business is to improve the
quality of life of people. Tata Steel will volunteer its resources, to the extent it can
6 reasonably afford, to sustain and improve the quality oflife ofthe people ofthe areas
in which it operates." In fact, Tata Steel has gone a step further in CSR activity and Corporate Social
Responsibility and
adopted Corporate Citizenship Index, Tata Business Excellence Model and Tata
Citizenship
Index for Sustainable Development. It is said that Tata Steel under a broad spectrum,
about 5 to 7% of its net profit is spent on CSR activities, with core areas specified as
employee welfare, environment and community welfare at large .

.
9.2 SOCIAL RESPONSIBILITIES AND
CORPORATIONS
The concept of Corporate Social Responsibility (CSR) can be traced to actions taken
and pronouncements made by American business leaders as strategic responses to
anti-business sentiments that developed during the late 1800s and early 1900s. The
goal of these business leaders was to promote corporations as forces for the social
good and thereby lessen the threat of government intervention and regulation.
Academicians and other corporate critics, realizing the need for a "moral sanction" to
underpin the idea of corporate social responsibility, began proclaiming the doctrine
that corporations are possessions and servants of society that are created through the
permission of the state which itself owes its existence to society.

Companies Bill, 2009 and CSR

The Standing Committee of the Parliament on Finance which had thoroughly
examined the Companies Bill, 2009 have shown overwhelming concerns inter-alia on
Corporate Social Responsibility and the extent to which the corporates undertake the
same and expressed the need for a comprehensive CSR policy. The Ministry of
Corporate Affairs have agreed that the Bill may now include provisions to mandate
that every company having a net worth of Rs.500 crore or more or turnover of
Rs.I000 crore or more .or a net profit of Rs.5 crore or more during a year shall be
required to formulate a CSR policy to ensure that every year at least 2% of its
average net profits during the three immediately preceding financial years shall be
spent on CSR activities as may be approved and specified by the company.
In addition, directors are required to make suitable disclosures in the Annual Reports.
In case any such company does not have adequate profits or is not in a position to
spend prescribed amount on CSR activities, the directors are required to give a
suitable disclosure / reasons in their report to the members. Thus, separate
disclosures are required to be made by the companies in their Annual Report by way
of CSR statement indicating the company policy on CSR as well as the specific steps
taken there-under will be sufficient check on non-compliance.

The aforesaid measure of bringing CSR activities as a mandatory condition although a

welcoming measure, only goes to show that Corporates are themselves not coming
forward to provide adequate CSR activities. This also indirectly shows that
improvement of socio economic status in a particular area by providing basic
amenities, infrastructural facilities by Government has been shifted partly to the
Corporate through this mandatory condition. On the other hand, the business houses
themselves consider that by offering CSR activities, they would increase their
reputation, and earn a name for good of its business. If not fully, this kind of thinking
is slowly emerging and corporates have now realized that they have to contribute to
the local people in order to increase their socio economic,status. A corporate unit can
grow only if it promotes its surroundings in which it operates and otherwise the
growth of the unit will be hampered.
7
Corporate Social The Corporation as Common Property
Responsibility
"Society" is said to be able to legitimately demand that a corporation must perform
certain activities that the owners and managers do not wish to perform. "Society" has
, been reassessing its expectations of corporations and has forced them to balance
profit -making with social responsibility. Social crusaders believe that corporations
should be socially responsible both out of gratitude for their existence and a moral
sense of reciprocation for benefits received from society, including the purchase of
their goods and services by consumers and the access to, and use of public goods. In
essence, the 'corporation is viewed as more like common property than as private
property. Corporations are created for the benefit of society and must therefore serve
the public interest.

True Corporate Responsibility: Respect for Natural Rights

The social responsibility of the corporation, and its directors, managers, and other
employees, is simply to respect the natural rights of individuals. Individuals in a
corporation have the legally enforceable responsibility or duty to respect the moral
agency, space, or autonomy of persons. This involves the basic principle of the non-
initiation of physical force and includes: (a) the obligation to honor a corporation's
contracts with its managers, employees, customers, suppliers, and others; (b) duties
not to engage in deception, fraud, force, threats, theft, or coercion against others; and
(c) the responsibility to honor representations made to the local community.
Customers, employers, suppliers, and others autonomously negotiate for and agree to
contract with the corporation. If managers were to break: an agreement with the
shareholders to maximize profits in order to give one or more groups more benefits
than they freely agreed upon, they would not only be violating the rights of the
owners, but also would not be respecting the autonomy of individuals within other
groups. Corporations and their managers are obligated to respect the rights of
individuals within each group, but the rights are limited to the rights of parties in
market transactions. The social responsibility of corporations is limited to respecting
the natural rights of all individual parties.

Activity 1

Examine Corporate Citizenship Report of any Indian or Foreign bank and

highlight its salient features.

9.3 CORPORATE CITIZENSHIP

Corporate citizenship is a term used to describe a company's role and responsibilities
towards society. However, many experts also mean that corporations should be
regarded as citizens within a territory - i.e. that corporations have citizenship of some
sort. This is usually based on the principle of corporate personhood, which according
to certain legal jurisdictions, such as the United States, accords same legal rights to
companies-as individuals. Therefore, if corporations are 'artificial persons' under the
law (e.g. they own their own assets, they can sue and be sued etc), then they can
also claim some of the entitlements, privileges and protections of citizenship such as
8 rights to free speech and political participation. Although this debate remains very
active, a more recent approach to.corporate citizenship has also stressed the political Corporate Social
Responsibility and
role of corporations in protecting and safeguarding the citizenship rights of individuals
Citizenship
by taking over previously performed governmental roles and functions which also
includes direct political activity such as lobbying and party fmancing.

9.4 ALTERNATIVE MODELS OF CORPORATE

CITIZENSHIP
Although the literature on corporate citizenship (sometimes referred to.as corporate
social responsibility=Cxk) is extensive and has many subtle distinctions within it, one
can divide this literature into.four highly-stylized models:
1) Minima1ist
,2),' Philanthropic
3) Encompassing
4) Social activist conceptions of corporate citizenship.
These fQur models differ in terms of both the supposed beneficiaries of corporate
action (shareholders vs. broader societal stakeholders) and the motivation behind
'these actions (instrumental vs. moral/ethical).

1) The more traditional or ininimalist conception of corporate citizenship was

'perhapsbest'articulated by the famous economist Milton Friedman. According
to.Friedman, "the social responsibility of business is to.increase the wealth of its
shareholders" . In other words, the sole responsibility of business is to.those who.
have invested capital in the company, By maintaining a singular fQCUSon wealth
creation, businesses will promote efficiency and achieve optimal economic
performance, which is the ultimate good that a business can do.for society, Of
course, cQrpQratiQn~'shoiIld'nQtviolatelaws or engage in any irregular activities
that CQuldharm the wealth of shareholders, but anyattempt to.incorporate social
goals into. core business activities will, according to.this view, lead to.
inefficiencies. Moreover, given that most managers do.not have expertise in the
area of SQcialresponsibility, engaging in these activities will simply distract them
from their Primary and fiduciary responsibility, which is to.protect.and promote
shareholder wealth. '
2) The philanthropic model is an extension of this traditional view. Although it,
tQQ,is concerned primarily with the optimizationof efficiency and shareholder
wealth, it does recognizethatindividual managers, shareholders, and sometimes
even companies can, at times, engage in various philanthropic activities.
However, these activities are seen notas important or even related to.core
business activities, but rather as motivated by various moral or ethical reasons.
3) A more inclusive stakeholder view of the corporation underlies the third, more
encompassing model of corporatecitizenship. According to.this view,
manag~ment is responsible not solely to.shareholders but also to.other groups
(e.g., employees, consumers, creditors, suppliers, local communities) that may be
affected by the company's practices. As a result of this potential impact,
managers must take into. consideration the interests of thesegroups when
making decisions. Some proponents of this approach contend that corporate
responsiveness to.a wide constellation of stakeholders SUPPQrtsthe resiliency of
the firm in the face of external threats. This, in turn, promotes the long-term
survival of the firm. Others argue that company engagement in broader societal
issues directly enhances company's profitability and hence shareholders' wealth. 9
Corporate Social Thus, according to this third model of corporate citizenship, corporate behaviour
Responsibility
may be directed toward a wider constellation of actors, but it is nonetheless
instrumental, geared toward maximizing benefits to this broader (albeit still
limited) group.
4) The fourth, social activist model of corporate citizenship extends the
boundaries of supposed beneficiaries beyond those groups directly affected by
company decision-making and toward society at large. According to this view,
corporations should act to enhance broader societal goals and not merely to
benefit a more restricted number of shareholders and/or stakeholders.
Corporations should act not merely out of instrumental concerns but rather out
of moral or even ethical considerations. In fact, because corporations are usually
powerful and wealthy actors in society, they have a moral obligation to act in
such a way that aids their less fortunate fellow citizens. Of course, there exist
many other, more subtle views of corporate citizenship.

Activity 2
'The philantrophic model is an extension of traditional view". Examine this
statement with respect to any Nationalised bank of India.

9.5 BANKS BEYOND CSR

Banks make a large contribution to the country's GDP growth, meet the demands of
the growing middle class, contribute to infrastructure spending, and reach out to the
semi-urban and rural areas. .

Financial inclusion is one w~y that banks can become socially responsible. Private
ownership, good governance, professional management, reasonable interest rates, and
most importantly commitment to local areas and local community are a few factors
that could lead to inclusion. The Reserve Bank of India believes that a deposit
account is the gateway of inclusion.

Financial Inclusion
The Reserve Bank has taken several initiatives in recent years for promoting financial
inclusion. A significant step in this direction was the issue of RBI guidelines in
January 2006 for engagement of Business Correspondents (BCs) by banks for
providing banking and financial services in addition to the traditional 'brick and
mortar' model. Under this BC Model, banks have been permitted to use the services
of various entities like Non Governmental Organisations/Self Help Groups (NGOs/
SHGs), Micro Finance Institutions (MFls) and other Civil Society Organisations
(CSOs), companies registered under Section 25 of the Companies Act, 1956, retired
Governmentlbank employees and ex-servicemen to act as BCs. Based on the
recommendations of the Working Group constituted to examine the experience of the
BC Model and suggest measures to enlarge the category of persons that can act as
BCs. Keeping in view the regulatory and supervisory framework and consumer.
protection issues, the banks were allowed to appoint as BCs: individual owners of
kiranalmedicallFair Price shops/individual PCO operators, agents of small savings
schemes of Golllnsurance companies, individuals who own petrol pumps, retired
10
teachers, authorized functionaries of well run self help groups which are linked to Corporate Social
Responsibility and
banks and any other individuals including those operating common service centre as
Citizenship
BCs. As announced in the Annual Policy Statement for the year 2010-11, a
discussion paper on engagement of 'for profit' companies as BCs was placed on RBI
website on August 2,2010. Taking into consideration the feedback received from
various quarters, banks have now been permitted to engage "for profit' companies as
BCs excluding Non Banking Financial Companies (NBFCs), in addition to the
individuals/entities permitted earlier.
The Economic Times, l l" February has an article which mentions the following:
• 38% of bank branches are in rural areas
• 40% of the country's population has bank accounts
• Average population per bank branch is 13,900
• Banks to open 5 crore new accounts by March 2012
• Out of 600,000 habitations in the country, only about 30,000 have a commercial
bank branch. Under the fmancial inclusion drive announced by Finance Minister
in the 2010-11 budget, the government has set a target of covering 73,000 new
habitations, with population of 2,000 and above under the banking services by .
March 2012.

The Prime Responsibility

The prime social responsibilities for the Financial Institutions will be defined by its
social function, followed by the environment in which it operates. As a Financial
Institution, its main function is to provide intermediary services, which diverts the
savings to investments. By doing so it has to reduce the risk of the savers. Financial
Institutions' primary role is to safeguard the interests of its shareholders and
customers. Also maintain the balance on investments and payments with other
industries. Most of the times these Financial Institutions try to reach the Small and
Medium Enterprises (SMEs) and the so called 'moderately poor'. All the Financial
Institutions have the responsibility to provide access to the fmancial services.

Progress in Banking Sector

In 2004 and 2005, several banking sector companies adopted rigorous CSR policies to
limit lending related to destructive projects. In response to pressure from
environmental activists and shareholders, several Banks agreed not to finance
projects in endangered or high conservation value forests or where illegal logging is
occurring. Goldman Sachs was the first global investment bank to adopt a
comprehensive environmental policy, acknowledging the scientific consensus on
climate change and calling for urgent action by public policy makers and federal
regulators to reduce greenhouse gas emissions.
To be successful the Corporates should adapt to the changing conditions of the
globalized economy. Banks can operate successfully if they are fully integrated into
the society. International Trade cannot thrive without globally operating banks. Banks
have established forum to discuss key issues concerning the future of our societies.
Its work comprises, for example, a series of conferences in the world's mega cities,
dedicated to examining the socio-economic and ecological challenges from
urbanization. For Banks to be profitable, it is necessary to remain internationally
competitive.

11
Corporate Social Simplicity of Conditions
Responsibility
The Banks have made progress in reducing the number of conditions attached to its
loans and grants, and appears to be using fewer policy conditions than in the past.

9.6 BUSINESS, SOCIETY AND CORPORATE

CITiZENSIJIP
Business needs society - but society also needs business. A healthy community
depends on a solid material base. Without the creation of value, public tasks cannot be
performed. Creating value needs profit seeking as a presupposition: only with
sufficient profitability can we create jobs; only by making a profit can we take on
risks and finance economic activity; and only with profits can we pay taxes and make
our contribution to financing the communities we operate in; only by making a profit
can we be a good corporate citizen.

9.7 CORPORATE AND BUSINESS ETHICS

Most of the companies through out the world had accepted that business is not just
for making money but for making reasonable profits and this is evident through their
involvement in various community developmental activities. Many Business firms had.
realized the importance of using business ethics as a tool for retaining customers and
increasing its market share by highlighting the initiatives it has taken for providing a
clean environment for the society. Also some companies started using the CSR as a
strategy which aims at mutual development of company and the community
simultaneously. CSR should be looked at as both responsibilities of companies to
contribute to resolving social problems as well as a set of rights that companies
themselves have, and should build a competitive, transparent, and value.-creating
private sector that can create wealth to address global poverty, poor governance, and
other problems.

9.8 CHALLENGES AHEAD FOR CSR

An ideal CSR framework for a company should facilitate the company's engagement
in facing tomorrow's challenge of having to forge partnerships with educational and
allied institutions as well as the community in which the company operates, and by
equipping its own people to build the skills they need to run independent businesses.
This way, it promotes the growth of entrepreneurs in the country. Overall, tomorrow's
company should take the responsibility for pushing people's thinking forward on the
basis that, in the long run, it is impossible to be a successful organization in an
unsuccessful society.

Activity 3
Take the code of ethics, vision and mission statements of any private bank and .
discuss how CSR policies are incorporated in them .

.............................................................................................................

12
Corporate Social
9.9 SUMMARY Responsibility and
Citizenship
Corporate Citizenship means that companies not only be engaged with stakeholders
but be stakeholders themselves alongside governments and civil society. Since
companies depend on global development, which in turn relies of stability and
increased prosperity, it is in their direct interest to help and improve the state of the
world. Compared to just a decade ago, it is common for the business people to talk
abo~t the Social Responsibility and the importance of being good Corporate Citizens.
Addressing global issues can be good both for the corporation and for society at a
time of-increasing globalization and diminishing state influence. A better
understanding of engagement between corporation and society requires separate
definitions for corporate governance, corporate philanthropy, and corporate social
responsibility as well as for an emerging element: corporate social entrepreneurship,
that is, the transformation of socially responsible principles and ideas into commercial
value.

The recommendations by the Government making it mandatory to embark at least 2%

average net profit during the previous three years will help increase the awareness
among the corporate and is a laudable approach. By prescribing the particulars in the
Director's Report, it will have regular follow up by the independentdirectors to
monitor and to improve the CSR activities to a greater extent. By this process, the
corporates will ensure that the money is spent or put to use in rightful activity relating
to CSR and the stakeholders has the said power to ensure that the money is spent
properly without any fudging entries in the accounts books.

9.10 SELF -ASSESSMENT QUESTIONS

1) What is Corporate Citizenship?
2) What are the different models of Corporate Citizenship?
3) Explain the progress made in Banking Sector by adopting CSR.
4) "Corporate Citizenship means that companies not only be engaged with
stakeholders but be stakeholders themselves alongside governments and civil
society" - Comment.
5) Discuss the Social responsibilities of the Corporates.
6) -What are the prime responsibilities of the Financial Institutions?

9.11 FURTHER READINGS

Handbook of Research on Global Corporate Citizenship - The Economic View of
Corporate Citizenship.
Jennings J. Philip - Social Resonsibility on Banks.
Leisinger. M. Klaus - On Corporate Responsibility for Human Rights.
RBI Report on Trend and Progress of Banking in India, 2009-10.
Weblinks Retrieved in January, 2011.
www.hreoc.gov.au
www.globalreporting.org
www.business-humanrights.org
13
Corporate Social www.ethicsaction.com
Responsibility
www.interactioncouncil.org
www.nitd.novartis.com
www.wikipedia.org
www.ethicalcorp.com
www.global-business-initiative.org

14
Annexure 1 Corporate Social
Responsibility and
Grameen Bank At A Glance Citizenship
June, 2010

1.0 Nobel Peace Prize, 2006

October 13,2006 was the happiest day for Bangladesh. It was a great moment for
.the whole nation. AnnouncemeI1t came on that day that Grameen Bank and
Muhammad Yunus received the Nobel Peace Prize, 2006. It was a sudden explosion
of pride and joy for every Bangladeshi. All Bangladeshi's felt as if each of them
received the Nobel Peace Prize. We were happy that the world has given recognition
through this prize, that poverty is a threat to peace. Grameen Bank, and the concept
and methodology of micro-credit that it has elaborated through its 30 years of work,
have contributed to enhancing the chances of peace by reducing poverty. Bangladesh
is happy that it could contribute to the world a concept and an institution which can
help bring peace to the world.

Following is a brief introduction to Grameen Bank.

2.0 Owned by the Poor

Grameen Bank Project was born in the village of Jobra, Bangladesh, in 1976. In 1'983
it was transformed into a formal bank under a special law passed for its creation. It is
owned by the poor borrowers of the bank who are mostly women. It works
exclusively for them. Borrowers of Grameen Bank at present own 95 percent of the
total equity of the bank. Remaining 5 per cent is owned by the government.

3.0 No Collateral, No Legal Instrument,No Group-Guarantee or Joint

Liability
Grameen Bank does not require any collateral against its micro-loans. Since the bank
does not wish to take any borrower to the court of law in case of non-repayment, it
does not require the borrowers to sign any legal instrument.

Although each borrower must belong to a five-member group, the group is not
required to give any guarantee for a loan to its member. Repayment responsibility
solely rests on the individual borrower, while the group and the centre oversee that
everyone behaves in a responsible way and none gets into repayment problem. There
is no form of joint liability, i.e. group members are not responsible to pay on behalf of
a defaulting member.

4.0 97 per cent Women

Total number of borrowers is 8.28 million, 97 per cent of them are women.

5.0 Branches
Grameen Bank has 2,564 branches. It works in 81,362 villages. Total staff is 22,807.

6.0 Over Tk 546 billion Disbursed

Total amount ofloan disbursed by Grameen Bank, since inception, is Tk* 546.16
billion (US $ 9.43 billion). Out of this, Tk484.66 billion (US $ 8.36 billion) has been
repaid. Current amount of outstanding loans stands at TK 61.50 billion ( US $ 887.44
million). During the past 12 months (from July' 09 to June' 10) Grameen Bank
disbursed Tk. 87.54 billion (US $1265.76 million). Monthly average loan
disbursement over the past 12 month was Tk 7.30billion (US $ 105.48 million).
* Tk - Taka 15
Corporate Social Projected disbursemeatforyearzuluis Tk97.00 billion (US $1403 million), i.e.
Responsibility
monthly disbursementofTk8.08 billion (US $ 116.92 million). End of the year
outstanding loan is projected to be at Tk. 70.00 billion (US $ 1013 million) .•
,-
7.0 Recovery Rate 97 per cent
Loan recovery rate is 97.20 per cent.

8.0 100 per cent Loans Financed From Bank's Deposits

Grameen Bank finances 100 per cent of its outstanding loan from its deposits. Over
54 per cent of its deposits come from bank's own borrowers. Deposits amount to 148
per cent of the outstanding loans. If we combine both deposits and own resources it
becomes 157 per cent ofloans outstanding.

9.0 No Donor Money, No Loans .

In 1995, GB decided not to receive any more donor funds. Since then, it has not
requested any fresh funds from donors. Last installment of donor fund, which was in
the pipeline, was received in 1998. GB does not see any need to take any donor
money or even take loans from local or external sources in future. GB's growing
amount of deposits will be more than enough to run and expand its credit prograinme
and repay its existing loans.

10.0 Earns Profit

Ever since Grameen Bank came into being, it has made profit every year except in
1983, 1991, and 1992. It has published its audited balance-sheet every year, audited
by two internationally reputed audit firms of the country. All these reports are J.
available on CD, and some on our web-site: www.grameen.com.

11.0 Revenue ,and Expenditure

Total revenue generated by Grameen Bank in 2009 was Tk 14.50 billion (US $ 209.80
million). Total expenditure was Tk 14.13 billion (US $ 204.42 million). Interest
payment on deposits ofTk 7.07 billion (US $ 102.29 million) was the largest
component of expenditure (50 per cent). Expenditure on salary, allowances, pension
benefits amounted to Tk 3.82 billion (US $ 55.33 million), which was the second
largest component ofthe total expenditure (27 per cent). Grameen Bank made a
profit ofTk 371.57 million (US $ 5.38 million) in 2009.

12.0 30% Dividend for 2009

Grameen bank has declared 30% cash dividend for the year 2009. This is the highest
cash dividend declared by any bank in Bangladesh in 2009 .Highest record of dividend
declared by Grameen Bank was in 2006.It was 100%. The bank has also created a
Dividend Equalization Fund to ensure distribution of dividends without much
fluctuation in successive years. Receiving of dividends each year greatly inspires our
shareholders, 97% of whom are our borrowers.

13.0 Low Interest Rates

Government of Bangladesh has fixed interest rate for government-run microcredit
programines at 11 per cent at flat rate. It amounts to about 22 per cent at declining
basis. Grameen Bank's interest rate is lower than government rate.

There are four interest rates for loans from Grameen Bank: 20% for income
16 generating loans, 8% for housing loans, 5% for student loans, and 0% (interest-free)
loans for Struggling Members (beggars). All interests are simple interest, calculated Corporate Social
Responsibility and
on declining balance method. This means, if a borrower takes an income-generating
Citizenship
loan of say, Tk 1,000, and pays back the entire amount within a year in weekly
instalments, she'll pay a total amount ofTk 1,100, i.e. Tk 1,000 as principal, plus Tk
100 as interest for the year, equivalent to 10% flat rate.

14.0 Deposit Rates

Grameen Bank offers very attractive rates for deposits. Minimum interest offered is
8.5 per cent. Maximum rate is 12 per cent.

15.0 Beggars As Members

Begging is the last resort for survival for a poor person; unless s/he turns into crime or
other forms of illegal activities. Among the beggars there are disabled, blind, and
retarded people, as well as old people with ill health. Grameen Bank has taken up a
special programme in 2002, called Struggling Members Programme exclusively for
the beggars. Over 111,847 beggars have joined the programme. Total amount
disbursed stands today at Tk. 149.85 million. Of this amount ofTk. 116.03.million
(77% of the amount disbursed) has already been paid off.
19,236 beggars have left begging and are making a living as door-to-door sales
persons. Among them9,422 beggars have joined Grameen Bank groups as main-
stream borrowers.
Beggers members have voluntarily opened their personal savings accounts.
Cumulative dposit in these savings accounts amounts to BDT 19.48 million; present
balance stands at BDT 7.86 million.
Basic features of the programme are :
1) Existing rules of Grameen Bank do not apply to beggar members; they make up
their own rules.
2) All loans are interest-free. Loans can be for very long term, to make repayment
instalments very small. For example, for a loan to buy a quilt or a mosquito-net,
or an umbrella, many borrowers are paying Tk 2.00 (3.4 cents US) per week.
3) Beggar members are covered under life insurance and loan insurance
programmes without paying any cost.
4) Groups and centres are encouraged to become patrons of the beggar members.
5) Each member receives an identity badge with Grameen Bank logo. She can
display this as she goes about her daily life, to let everybody know that she is a
Grameen Bank member and this national institution stands behind her.
6) Members are not required to give up begging, but are encouraged to take up an
additional income-generating activity like selling popular consumer items door to
door, or at the place of begging.
Objective of the programme is to provide fmancial services to the beggars to help
them find a dignified livelihood, send their children to school and graduate into
becoming regular Grameen Bank members. We wish to make sure that no one in the
Grameen Bank villages has to beg for survival.

16.0 Housing For the Poor

Grameen Bank introduced housing loan.in 1984. It became a very attractive
programme for the borrowers. This programme was awarded Aga Khan
International Award for Architecture in 1989. Maximum amount given for housing 17
Corporate Social loan is Tk 15,000 (US $ 218) to be repaid over a period of 5 years in weekly
Responsibility
instalments. Interest rate is 8 per cent. 683,847 houses have been constructed with
the housing loans averaging Tk 13,081 (US $ 189). A total amount ofTk 8.94 billion
(US $ 210.19 million) has been disbursed for housing loans. During the past 12
months (from July' 09 to June' 10) 10,274 houses have been built with housing loans
amounting to Tk 117.93 million (US $1.70 million).

17.0 .Micro-enterprise Loans

Many borrowers are moving ahead in businesses faster than others for many
favourable reasons,such as, proximity to the market, presence of experienced male
members in the family, etc.Grameen Bank provides larger loans, called micro-
enterprise loans, for these fast moving members. There is no restriction on the loan
size. So far 2,567853 members took micro-enterprise loans. A total ofTk 68.29
billion(US$1015.71 million) has been disbursed under this category ofloans.Average
loan size is Tk 26,593 (US $ 383.73), maximum loan taken so far is Tk 1.6 million (US
$ 23,209). This was U~d in purchasing a truC.kwhich is operated by the husband of
the borrower. Power-ti Ier, irrigation pump, transport vehicle, and river-craft for
transportation and fishi g are popular items for micro-enterprise loans.

18.0 Scholarships
Scholarships are given, every year, to the high performing children of Grameen
borrowers, with priority on girl children, to encourage them to stay ahead to their
classes. Upto June' 10, scholarships amounting to US$ 2,276145 have been awarded
to 114250 children. During 2010, US$ 584,490 will be awarded to about 26,840
children, at various levels of school and college education.

19.0 Education Loans

Students who succeed in reaching the tertiary level of education are given higher
education loans, covering tuition, maintenance, and other school expenses. By
June' 10, 44,988 students received higher education loans, of them 42,735 students are
studying at various universities; 474 are studying in medical schools, 759 are studying
to become engineers, 1020 are studying in other professional institutions.

20.0 Grameen Network

Grameen Bank does not own any share of the following companies in the Grameen
network. Nor has it given any loan or received any loan from any of these
companies. They are all independent companies, registered under Companies Act of
Bangladesh, with obligation to pay all taxes and duties, just like any other company in
the country.

1) Grameen Phone Ltd.

2) Grameen Telecom
3) Grameen Communications
4) Grameen Cybernet Ltd.
5) Grameen Solutions Ltd.
6) Grameen Information Highways Ltd.
7) Grameen Bitek Ltd.
8) Grameen Uddog (Enterprise)
9) Grameen Shamogree (Products)
18
10) Grameen Knitwear Ltd. Corporate Social
Responsibility and
11) Grameen Shikkha (Education) Citizenship
12) Grameen Capital Management Ltd.
13) Grameen Byabosa Bikash (Business Promotion)
14) Grameen Trust
15) Grameen Health Care Trust
16) Grameen Health Care Service Ltd.
17) Grameen Danone Food Ltd.
18) Grameen Veolia Water Ltd.

21.0 Grarneen Bank-Created Companies

The following companies in the Grameen network were created by Grameen Bank,
as separate legal entities, to spin off some projects within Grameen Bank funded by
donors. Donor funds transferred to Grameen Fund were given as a loan from
Grameen Bank. These companies have the following loan liability to Grameen Bank :

GrameenFund.: Tk373.2 million (US $ 6.38 million)

Grameen Krishi Foundation: Tk 19 million (US $ 0.33 million)
Grameen Motsho (Fisheries) Foundation: Tk 15 million (US $ 0.26 million)

Grarneen Kalyan
Grameen Kalyan (well-being) is a spin off company created by Grameen Bank.
Grameen Bank created an internal fund called Social Advancement Fund (SAF) by
imputing interest on all the grant money it received from various donors. SAF has
been converted into a separate company to carry out its mandate to undertake social
advance activities among the Grameen borrowers, such as, education, health,
technology, etc .

• 22.0 Loans Paid Off At Death

In case of death of a borrower, all outstanding loans are paid off under Loan
Insurance Programme. Under this programme, an insurance fund is created-by the
interest generated in a savings account created by deposits of the borrowers made
for loan insurance purpose, at the time of receiving loans. Each time an amount equal
to 3 per cent of the loan amount is deposited in this account. This amount is
transferred from the Special Savings account. If the current balance in the insurance
savings account is equal or more than the 3 per cent of the loan amount, the borrower
does not need to add any more money in this account. If it is less than 3 per cent of
the loan amount, she has to deposit enough money to make it..equal ..
. ' -. ,:

Coverage of the loan insurance programme has also been extended to the husbands
with additional deposits in the loan insurance deposit account. A borrower can get the
outstanding amount of loan paid off by insurance if her husband dies. She can
continue to borrow as if she has paid off the loan.
Total deposits in the loan insurance savings account stood atTk 5,778.66 million (US$
83.39 million) as on June 30, 2010. Up to that date 167,416 insured borrowers and
insured husbands died and a total outstanding loans and interest ofTk 1390.66 million
(US $ 20.74 million) left behind was paid off by the bank under the programme. The
families of the deceased borrowers are not be required to payoff their debt burden
i any more, because the insured borrowers or their insured husbands do not leave
behind any debt burden to take care of. 19
Corporate Social 23.0 Life Insurance
Responsibility
Each year families of deceased borrowers of Grameen Bank receive a total of Tk 17
to 20 million (US $ 0.25 million to 0.29 million) in life insurance benefits. Each family
receives Tk 1,500. A total of 127,490 borrowers died so far in Grameen Bank. Their
families collectively received a total amount ofTk 225.47 million (US$ 4.52 million).
Borrowers are not required to pay any premium for this life insurance. Borrowers
come under this insurance coverage by being a shareholder of the bank.

24.0 Deposits
By the end of June, 2010 total deposit in Grameen Bank stood at Tk. 90.83 billion
(US$ 1310.63 million). Member deposit constituted 54 per cent of the total deposits.
Balance of member deposits has increased at a monthly average rate of 2.42 percent
during the last 12 months.

25.0 Pension Fund for Borrowers

As borrowers grow older they worry about what will happen to them when they
cannot work and earn any more. Grameen Bank addressed that issue by introducing
the programme of creating a Pension Fund for old age. It immediately became a very
popular programme.

Under this programme a borrower is required to save a small amount, such as Tk 50

(US $ 0.72), each month over a period of 10 years. The depositor gets almost twice
the amount of money she saved, at the end of the period. The borrowers fmd it very
attractive. By the end of June 2010 the balance under this account comes to a total of
Tk 32.80 billion (US $ 473.30 million). Tk 7.89 billion (US $ 113.85 million) was added
during the past 12 months (July'09 - June, 2010). We expect the balance in this
accountto grow by Tk 5.95 billion (US $ 86.08 million) in 2010 making the balance to
reach Tk 32.45 billion (PS $469.47 million).

26.0 Loan Loss Reserve

Grameen Bank has a very rigourous policy on bad debt provisioning. If a loan does
not get paid back on time it is converted into a special type ofloan called "Flexible
Loan", and 50 per cent provisioning is done on the last day of each month. Hundred
per cent provisioning is done when flexible loan completes the second year. At its
third year, the outstanding amount is completely written off even if the loan
repayment still continues.

Balance in the loan loss reserve stood at Tk 5.69 billion (US $ 82.37 million) at the
end of 2009 after writing off an amount ofTk 1.53 billion (US $ 22.11 million) during
2009. Out of the total amount written off in the past an amount ofTk 0.67 billion (US
$ 9.72 million) has been recovered during 2009.

27.0 Retirement Benefits Paid

Grameen Bank has an attractive retirement policy. Any staff can retire after
completing ten years, or more of service. At the time of retirement he receives a
retirement benefit in cash. It is usually paidout within a month after retirement. Since
this benefit was introduced 7,931 staff members retired and received a total amount
ofTk 5.36 billion (US $ 89.58 million) in cash. This amounts to Tk 0.68 million (US $
11295) per retiring staff. During the past 12 months 413 staff went on retirement
collecting a retirement benefit ofTk 649.50 million (US $ 9.39 million). Average
retirement benefit per staff was Tk 1.57 million (US $ 22,736).
20
28.0 Telephone-Ladies Corporate Social
Responsibility and
To-date Grameen Bank: has provided loans to 386,089 borrowers to buy mobile Citizenship
phones and offer telecommunication services in nearly half of the villages of
Bangladesh where this service never existed before. Telephone-ladies run a very
profitable business with these phones.
Telephone-ladies play an important role in the telecommunication sector of the
country, and also in generating revenue for Grameen Phone, the largest telephone
company in the country. Telephone ladies use 2.22 percent of the total air-time of the
company, while their number is only 1.89 per cent of the total number of telephone
subscribers of the company.

29.0 Getting Elected in Local Bodies

Grameen system makes the borrowers familiar with election process. They routinely
go through electing group chairmen and secretaries, centre-chiefs and deputy centre-
chiefs every year. They elect board members for running Grameen Bank every three
years. This experience has prepared them to run for public offices. They are
contesting and getting elected in the local governments. In 2003 local government
(Union Pori shad) election 7,442 Grameen members contested in the reserved seats
for women, 3,059 members got elected. They constitute 24 per cent of the total
members elected in the seats reserved for women members in the Union Porishad
local government. During 1997 local government election 1,753 members got elected
to these reserved seats.

30.0 Computerised MIS and Accounting System

Accounting and information management of nearly all the branches (2,563 out of
2,564) has computerised. This has freed the branch staff to devote more time to the
borrowers rather than spend it in paper-work. Branch staffs are provided with pre-
printed repayment figures for each weekly meeting. If every borrower pays
according to the repayment schedule, the staff has nothing to write on the document
except for putting the signature. Only the deviations are recorded. Paper work that
remains to be done at the village level is to enter figures in the borrowers' passbooks.

All zones (40) are connected with the head office, and with each other, through intra-
net. This has made data transfer and communications very easy.

31.0 Policy For Opening New Branches

New branches are required to fund themselves entirely with the deposits they
moblise. No fund from head office or any other office is lent to them. A new branch
is expected to break -even within the first year of its operation.

32.0 Crossing the Poverty-Line

According to a recent internal survey, 68 per cent of Grarrieen borrowers' families of
Grameen borrowers have crossed the poverty line. The remaining families are
moving steadily towards the poverty line from below.

33.0 'Stars' for Achievements

Grameen Bank: provides colour-coded stars to branches and stafffor 100 percent
achievement of a specific task. A branch (or a staff) having five-stars indicate the
highest level of performance, At the end of Dec' 2009, branches showed the
following result.
21
Corporate Social 1,461 branches, out of total 2,562 branches, received stars (green) for maintaining 100
Responsibility
per cent repayment record.

. . .
19,64 branches received stars (blue) for earning profit. (Grameen Bank: as a whole
.earns profit because the total profit of the profit -earning branches exceeds the total
loss of the loss-incurring branches.)
1,836 branches earned stars (violet) by meeting all their financing out of their earned
income and deposits. these branches not only carry out their business with their own
funds, but also contribute their surpluses to meet the fund requirement of deficit
branches.
351 branches have applied for stars (brown) for ensuring education for 100% of the I

children of Grameen families. After the completion of the verification processes their
stars will be confirmed. 61 branches have applied for stars (red) indicating branches
those have succeeded in taking all its borrowers' families (usually 3,000 families per
branch) over the poverty line.

The star will be confirmed only after the verification procedure is completed. Each
month branches are coming closer to achieving new stars. Grameen staff look
forward to transforming all the branches of Grameen Bank: into five star branches.
Source : http://www.grameen- info.org

22
Annexure 2 Corporate Social
Responsibility and
Citigroup- A Case Study on Corporate Citizenship Citizenship

Our Approach
We are committed to running our business in a mannrr that benefits society and
the environment. This approach - including a decade of external reporting - is
part of our heritage and has remained consistent throughout the recent
economic downturn. We believe that our strategic focus on Citizenship -
supported by continued internal commitment and informed by external feedback
- will strengthen confidence and trust among our stakeholders.
"At Citi we have not only an opportunity but an obligation to make a positive
contribution to the communities we serve. This is not a new thought. but something
baked into the way we run the company. While our philanthropy makes a positive
impact, we know that our business is where the real power to make the largest
impact lies - focusing on areas where we can serve clients and shareholders while at
the same time help to improve communities.
We are proud of our achievements - our work on environmental sustainability,
financial capability and microfinance. But we know that trust in the banking sector
generally, and in Citi specifically, has been undermined by the financial crisis and our
role in it. It is our strong belief that by holding true to aprinciple of providing finance
responsibly, we will be able to earn back that trust. We intend to playa positive role in
the economic recovery and beyond." .
- Pamela Flaherty, Director, Corporate Citizenship; President and CEO of the Citi Foundation

MANAGEMENT APPROACH AND MATERIAL IMPACTS

Management
The Public Affairs Committee of Citi' s Board of Directors oversees our overall
Citizenship priorities and performance. Our businesses, supported by our Director of
Corporate Citizenship, implement Citizenship policies and commitments through their
daily work. Internal teams specializing in topics such as the environment, public policy,
diversity, fmancial education, community relations and human rights support the
businesses.

Citizenship Priorities
We align business objectives with stakeholder views, adjusting our priorities to meet
local and global concerns and changing economic conditions. Our priorities are to:
• Treat customers fairly and support them in times of financial difficulty.
• Lead the industry in developing and using standards to manage the
environmental and social risks of our fmancing.
• Help tackle climate change, directing $50 billion over 10 years.
• Provide access to financial services to those who would otherwise be excluded,
through our microfinance business.
• Improve fmancial capability by helping individuals and families gain the
knowledge and support they need to achieve fmancial stability.
In addition to these priorities, we aim to:
• Recruit and retain a diverse and engaged team of people around the world.
23
• Reduce the environmental footprint of our operations.
Corporate Social • Encourage suppliers to meet our sustainability guidelines.
Responsibility
• Support our Citizenship priorities through community investment and the Citi
Foundation.

Measuring Citizenship Performance

. We measure performance in each of our Citizenship priorities. We plan to consolidate
these into key performance indicators (KPls), and will share our progress in our next
report.

Citi Foundation
The Citi Foundation, while independent, supports our Citizenship priority areas. It is
committed to the economic empowerment of individuals and families, particularly
those in need, in the communities where we work, so that they can improve their
standard of living. We provide grant support for programs aligned with the Citi
Foundation's five strategic funding areas.
• Microfinance and Microenterprise
• Small and Growing Bu~inesses
• Financial Capability and Asset Building
• College and Careers
• .Neighborhood Revitalization

Source: Global Citizenship Report 2009. www.citizenship.citigroup.com

24
UNIT 10 CORPORATE SOCIAL
RESPONSffiILITY GUIDE~INES
Objectives
After reading this unit, you should be able to:

• describe the nature of CSR Guidelines applicable to Banks;

• explain different kinds of CSR Guidelines of the Banks;
• state CSR Guidelines pertaining to Indian Banks; and

• assess whether the Banks are fulfilling these Guidelines.

Structure '
10.1 Introduction

10.2 Economic, Social and Environmental Responsibilities

10.3 EmployeesRights

10.4 Consumers' Rights

105, Responsibility to Employees

10.6 Contribution to the Community

10.7 Managementof Corporate Social Responsibility (CSR)

10.8 Summary
10.9 Self-Assessment Questions
10.10 Further Readings

10.1 INTRODUCTION

Banks are 'special' as they not only accept and deploy the funds of the public in
fiduciary capacity, but they also leverage such funds through credit creation. Banks
are important for functioning of the smooth payment system. It has been
demonstrated that Banks are businesses. Banks are not simply corporate entities, in
fact, due to the growth of industrial society they become part of everyday life to such
a degree that they develop into utility entities thereby justifying calls for Corporate
Social Responsibility (CSR) to be embedded in their actions. CSR is the continuing
commitment by banks to behave ethically and contribute towards economic
development in order to improve the growth of work force and families as well as of
the local community and society at large: The CSR has become integral and
·important part of modem society. During 1930's American President Roosevelt was
quoted as saying that 'We have always known that heedless self interest was bad
morals, we now know its bad economies. We should not lose sight of the enterprise,
its proprietors and other stakeholders as they depend on the community in which they
operate for their existence and prosperity' ,
This scope of Social Responsibility of the Banks is very vast. Therefore, it is
imperative on the part of the Banks to lay down the broad guidelines, paving the way
for the wide variety of guidelines that should be simple to understand and easy to
execute. 25
Corporate Social
Responsibility 10.2 ECONOMIC, SOCIAL AND ENVIRONMENTAL
RESPONSIBILITIES

CSR is defined in the guidelines as the economic, legal, ethical and charitable
responsibility that Financial Institutions assume in their dealing with shareholders,
employees, consumers, business partners, government and the wider community. The
guidelines are divided into three key areas:

i) , Economic responsibilities: Subjectto compliance with the law, build up a fair,

safe and stable, competitive industry .and consistently create economic value
through best professional operation for state, shareholders, employees, clients
and the general public.
ii) Social responsibilities: Actively protect the public interest of consumers,
employees and the community as guided by the corporate vision; advocate
charitable responsibility, actively participate in public welfare activities, cultivate
social harmony and promote social development.
m) Environmental responsibilities: Support State industrial policies and
environmental protection policies, conserve energy, protect and improve the
natural ecological environment and support sustainable development of the
society.
The key requirements in each fiel~ are outlined below:

i) Economic' Responsibilities
Economic growth provides the conditions in which protection of the environment can
best be achieved. Environmental protection, in balance with other human goals, is
necessary to achieve growth that is sustainable. In turn, versatile, dynamic, r
responsive and profitable businesses are required as the driving force for sustainable'
economic development. They contribute by providing the managerial, technical and '
financial resources for the resolution of environmental challenges. Market economies,
characterized by entrepreneurial initiatives, 'are essential to achieve this. Business
thus shares the view that there should 'be a common goal, not a conflict, between
economic and social development and environmental protection, both now and for
future generations. Thus there is a considerable overlap, interaction and interrelation
between the three elements of sustainability. '

ii) Social Responsibilities

Social responsibility is an ethical or ideological theory that business should
contribute to the welfare oftheir communities and an entity whether it is a
government; corporation, organizationor individual has a big responsibility to society
at large.

Responsible credit system

• .Gradually establish a credit system;
• Raise public awareness about the credit;
• Share information within the industry to develop the credit system; and
• Inclusive growth.

iii) Environmental Responsibilities

In the last few years environmental degradation has reached to immense proportion
26
owing to unabated exploitation of nature and natural resources. The major factors . Corporate Social
Responsibility
responsible for degradation of environment in India have been heavy industrialization,
Guidelines
deforestation, increase in traffic in cities, population explosion, illiteracy, etc.
Accordingly, in order to preserve environment and promote pollution free
environment, the companies should launch a comprehensive programme topreserve
and promote green and pollution free environment. Under the programme, the
organizations should undertake number of measures like planting trees, developing
parks and gardens at barren lands, undertaking cleanliness drives, banning sand
mining, paper avoidance, etc.
: ,\ Sustainable development can best be achieved by allowing markets to work within an
I

.appropriate framework of cost efficient regulations and economic instruments. One

of the major economic agents influencing overall industrial activity and economic
growth is the financial institutions such as banking sector. In a globalized economy,
the industries and fums are vulnerable to stringent environmental policies, severe
lawsuits or consumer boycotts. Since banking sector is one of the major stake holders
in the Industrial sector, it can find itself faced with credit risk and liability risks.
Further, environmental impact might affect the quality of assets and also rate of
return of banks in the long-run. Thus the banks should go green and play a pro-active
role to take environmental and ecological aspects aspart of their lending principle,
which would force industries to go for mandated investment for environmental
: :.. management, use of appropriate technologies and management systems.
!.' Sus~na'ple Development is discussed in detail in unit 11.
.", ...: - ~"

. Envlronmental protection programme

Establish a system to optimize allocation of resources in accordance with the
State's environmental policies;
'., l' ••

• Intem~tional treatie~; global practices and industry codes;

t; ','~' , .•. ". .' .;, • : -: ' •. ;

;Formulate plans for conserving resources and environmental protection;

• Set up a special.divisionto manage environmental policy;

• Train employees regarding

. environmental
_.,' protection; and

• Actively participate in public environmental campaigns.

Consumer products .
• Borrow and learn from Equator Principles if applicable to economic and
fmancial development of India;
• Provide preferential terms to clients with good CSR and environmental track
record;
• Train clients in terms of environmental protection, including but not limited to
specific operating procedures for assessing environmental impact and preparing
green credit documents; and
• Conduct independent environmental impact assessments; do not purely rely on
the environmental impact report provided by clients.

Corporate governance
"Corporate Governance is the application of best management practices, compliance
oflaw in true letter and spirit and adherence to ethical standards for effective
management and distribution of wealth and discharge of social responsibility for
sustainable development of all stakeholders."
27
Corporate Social Corporate governance is the set of processes, customs, policies, laws, and
Responsibility institutions affecting the way a corporation (or company) is directed, administered or
controlled. Corporate governance also includes the relationships among the many
stakeholders' involved and the goals for which the corporation is governed. The
principal stakeholders are the shareholders, the board of directors, employees,
customers, creditors, suppliers, and the community at large.
, .
Good corporate governance is key to the integrity of corporations, financial institutions
and markets, and central to the health of our economies and their stability.

Good Corporate Governance practices in banks includes:

• Build up a fair, safe and stable competitive banking industry; and
• Strictlyfulfill the obligation of disclosure, and ensure the rights for all
stakeholders especially middle and minor shareholders.

Activity 1

i) Discuss whether the major financial institutions which collapsed during the
2009 financial crises followed Corporate Social Responsibility (CSR) guidelines
or not.

••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• ~ •••••••• !" ••••••••••••••••••••••••

.. .- ,

10.3 EMPLOYEES' RIGHTS

All employees have basic rights in the workplace, including the right to privacy, fair
compensation, and freedom from discrimination. A job applicant aiso has certain rights
even p?s.r~~.,;~~~g~~~, ~s:~ ~employee. Those ri~hts in~l~de the ~g~t to be. free
from dis~rupJ.ila'ijppbased on age, gender, race, national ongm, or religion dunng the
hiring process. ~}'example, a prospective employer cannot ask a job applicant
certain family-related questions during the hiring process .
••it ~ ...,' .
In most states, employees have a right to privacy in the workplace. This right to
privacy app~lttl we'eml'lQyee's personal possessions, including handbags or
briefcases, storage lockers accessible only by the employee, and private mail
addressed only to employee. Employees may also have a right to privacy in their
telephone conversations or voicemail messages. However, employees have very
limited rights to privacy in their e-mail messages and Internet usage while using the
employer's computer system.
There are certain pieces of information that an employer may not seek out
concerning a potentialjob applicant or employee. An employer may not conduct a
credit or background check of an employee or prospective employee unless the
employer notifies the individual in writing and receives permission to do so.

Other important employee rights include:

• Right to be free from discm:unation and harassment of all types;

• Right to a safe workplace, free of dangerous conditions, toxic substances, other
potential safety hazards;
• Right to be free from retaliation for filing a claim or complaint against an
28 employer (these are sometimes called "whistleblower" rights);
• Right to fair wages for work performed. Corporate Social
Responsibility
• Equal pay for equal work; Guidelines
• Comprehensive employee development program; and
• Reasonable incentive scheme.

10.4 CONSUMERS' RIGHTS

Consumer's right is defined as 'the right to be informed about the quality, quantity,
potency, purity, standard and price of goods or services, as the case may be, so as to
protect the consumer against unfair trade practices' .
The rights of consumers in India can be listed as under:
• The right to be protected from all types of hazardous goods and services.
• The right to be fully informed about the performance and quality of all goods and
services.
• The right to free choice of goods and services.
• The right to be heard in all decision-making processes related to consumer
interests.
• The right to seek redressal, whenever consumer rights have been infringed.
• The right to complete consumer education.
• Properly disclose information;
• Consumer complaints procedure;
~
• Client confidentiality protection system and client alert; and
• Warn clients of potential risks.

10.5 RESPONSffiILITY TO EMPLOYEES

Employers and employees have responsibilities to each other; they should also expect
their rights to be upheld. These rights and responsibilities relate to areas such as
Health and Safety, the provision of Terms and Conditions of Employment, Equal
Opportunities and the right to be paid a Minimum Wage. The Health and Safety at
Work Act sets out responsibilities and rights for both employees and employers.
Employees are expected to carry out their work in a way that has regard to the
safety of others. Employers are expected to abide by a range of requirements
.governing such aspects as providing safe machinery and equipment, carrying out
regular health and safety checks,ensuring the training of employees in health and
safety issues, and carrying out a risk assessment to assess the dangers of particular
work activities. There are also specific regulations about the way in which potentially
, harmful substances should be used and stored. There are a number of requirements
. about the minimum temperature at work, and other aspects of working conditions.
Employees are expected to receive the terms and conditions of their work setting out
, ..when their work commences, what their main duties are, who they are accountable
; to, rates of pay, and other entitlements.
The legislation on Equal Opportunities sets out that all employees should receive the
same pay and conditions for carrying out the same or broadly similar work.

29
Corporate Social The Minimum Wage Act sets out the Minimum Wage that workers can expect to
. .Responsibility
receive which today is more than ~2970 per month @ ~99 per day. The Minimum
Wage is regularly reviewed and will increase over time. There is also a legislative
requirement governing the maximum number of hours that workers will be expected
to work in a typical week which is currently set at 48 hours a week.

Employers and employees are expected to meet minimum legal requirements for such
areas as Health and Safety at Work, and minimum standards and conditions related to
number of working hours, and the treatment of people in the workplace. Along with
rights for employees there are corresponding responsibilities such as the expectation
to work in a safe way and to have regard for the safety of colleagues.

• Emphasize the health and safety of employees;

• Provide human resources management;
• Provide effective employee training; and
• Create a professional working environment.

10.6 CONTRffiUTION TO THE COMMUNITY

India's inadequate social infrastructure means that corporate funding of community
initiatives will remain a critical contribution to the national development for years to
come. However, better understanding is needed of the performance of these
programmes to enable companies to allocate their funding appropriately and for their
stakeholders - notably affected communities - to be able to have a real influence on
decision-making. In addition, there is a real opportunity for corporate action in this
area to move upstream into core operations to make underlying business models 'pro-
poor'.
Most large companies develop the communitythrough.their own foundations or
contribute to other initiatives that directly support the coinmunity up1iftment, notably in

• Health, education, and agriculture;

• Support the social development of the community;
• Provide convenient fmancial services for the community; .
• Initiate campaigns for financial education and poverty alleviation; and
• Participate in charity donations and voluntary activities.

Activity 2
Discuss the Environmental protection programme being followed by any
leading Indian bank .

..............................................................................................................

30
Corporate Social
10.7 MANAGEMENT OF CORPORATE SOCIAL Responsibility
RESPONSIBILITY Guidelines

This section is about how to integrate Corporate Social Responsibility into every
aspect of the company's operations. This means that the primary objective or 'vision'
of the company has to be ethical.

The following methods of implementation are recommended:

i) Ethical Principles
a) Ethics
As recently as a decade ago, many companies viewed business ethics only in terms
of administrative compliance with legal standards and adherence to internal rules and
regulations. Today the situation is different. Attention to business ethics is on the rise
across the world and many companies realize that in order to succeed, they must earn
the respect andconfidence of their customers. Like never before, corporations are
being asked, encouraged and prodded to improve their business practices to
emphasize legal and ethical behavior. Companies, professional firms and individuals
alike are being held increasingly accountable for their actions, as demand grows for
higher standards of corporate social responsibility.

Ethics refers to a code of conduct that guides an individual in dealing with others.
Business Ethics is a form of the art of applied ethics that examines ethical principles
and moral or ethical problems that can arise in business environment. It deals with
issues regarding the moral and ethical rights, duties and corporate governance
between a company and its shareholders, employees, customers, media, government,
suppliers and dealers. Henry Ford said, "Business that makes nothing but money is a
poor kind of business".
Ethics is a continuing commitment and all the companies must:
• Manage the company along with ethical principles; and
, '

• Integrate Corporate Social Responsibility compliance into management

structures.

b) Social Audit
Social Audit may be defined as an in-depth scrutiny and analysis of the
working of any public utility vis-a-vis its social relevance.

The purpose of-conducting Social Audit is not to find fault with the individual
functionaries but to assess the performance in terms of social, environmental
and community goals of, the. organization. It is a way of measuring the extent
to which an organization lives up to the shared values and objectives it has
committed itself to. It provides an assessment of the impact of an
organization's non-financial objectives through systematic and regular monitoring,
based on the views of-its stakeholders.

The foremost principle of.Social Auditisto .achieve continuously improved

performances in relation to the chosen social objectives. Eight specific key
principles have been identified from Social Auditing practices around the
world. They are:

1) Multi-Perspective/Polyvocal. Aims to reflect the views (voices) of all

those people (stakeholders) involved with or affected by the organization/
department/programme.
31
Corporate Social 2) Comprehensive. Aims to (eventually) report on all aspects of the
Responsibility
organization's work and performance.
3) Participatory. Encourages participation of stakeholders and sharing of their
values.
4) Multidirectional. Stakeholders share and give feedback on multiple aspects.
5) Regular. Aims to produce social accounts on a regular basis so that the
concept and the practice become embedded in the culture of the
organization covering all the activities.
6) Comparative. Provides a means, whereby, the organization can compare
its own performance each year and against appropriate external norms or
benchmarks; and provide for comparisons with organizations doing similar
work and reporting in similar fashion.
7) Verification. Ensures that the social accounts are audited by a suitably
experienced person or agency with no vested interest in the organization.
8) Disclosure. Ensures that the audited accounts are disclosed to
stakeholders and the wider community in the interests of accountability
and transparency.
Social audit should be extended to the activities relating to the employees, the
environment, the society and the products. There is need to develop a useful social
reporting framework to ensure the effectiveness of the social audit programme in the
corporate sector which in turn can contribute positively to society at large.
Ideally, Social Audit should be conducted regularly, and the method should be
developed through a participatory relationship between the auditor and the
organizations / departments to assess the performance of the Company towards the
community.

ii) Setting up a CSR Department

As responsible investment standards continue to evolve, it becomes quite difficult for

investors to keep up to date on which companies in their portfolios have stringent
corporate social responsibility (CSR) policies. As a result, both institutional and
individual investors are turning to index -based investments to help them navigate the
CSR landscape and take the guesswork out of responsible investment. As a result,
companies interested in capturing these investments are striving to improve their CSR
practices and policies in order to be included and remain in these indexes.

• Enforce systematic management and reporting of CSR;

• Establish a decision making process based on ethics;
• Endeavor to achieve an organic combination of CSR in daily operations;
• Integrate CSR into performance review procedure;
• Integrate CSR into core business operations such as credit; and
• Undertake internal and external review of CSR.
Once a niche investment strategy, Responsible Investment (RI) has become a priority
for individual and institutional investors globally. In the wake of corporate scandals,
and the tightening of carbon emissions standards over the past decade, investors have
begun to seriously evaluate the environmental, social and corporate governance risks
within their portfolios. In turn, companies are responding to investor demands by re-
examining the way they do business-from the reduction of emissions and energy
conservation to fair trade and labour standards.
32
Carbon credits are certificates issued to countries that reduce their emission of GHG Corporate Social
Responsibility
(greenhouse gases) which causes global warming. Carbon credits are measured in
Guidelines
units of Certified Emission Reductions (CERs). Each CER is equivalent to one ton of
carbon dioxide reduction. Its rate stood at 22 Euros, then fell to below 7 Euros, before
stabilizing at 12-13 Euros. Under IET (International Emissions Trading) mechanism,
countries can trade in the international carbon credit market. Countries with surplus
credits can sell the same to countries with quantified emission limitation and reduction
commitments under the Kyoto Protocol. Developed countries that have exceeded the
levels can either cut down emissions, or borrow or buy carbon credits from
developing countries.

iii) CSR Reporting

• Actively establish a disclosure system for CSR, disclose information about
performance of CSR through publications and websites as well as other
channels;
• Submit a CSR report for last year by the end of June of each year; and
• Encourage the implementation of an independent third party assessment of
performance of CSR.

COMPLIANCE RECOMMENDATIONS
If a Banking company wishes to comply with the Guidelines, the ideal steps are:

1) Imbue vision statement with CSR philosophy.

2) Write a CSR strategy and appoint internal CSR Task and Finish Force to
execute it.

3) Integrate CSR into core business operations such as credit.

4) Integrate CSR into performance review procedure.

5) Undertake internal and external review of CSR.

6) Promote CSR activities via your external and internal website.

7) Prepare a CSR report before the end of June and submit to the Indian Bank
Association.

Activity 3
On the basis of CSR guidelines mentioned in this unit, frame CSR guidelines
for a bank in your locality.

10.8 SUMMARY
. Corporate Social Responsibility (CSR) has occupied important place among society
business firms and financial institutions. The CSR guidelines mention ecnomic, legal,
ethical and charitable responsibilities of fmancial institutions towards stakeholders like
employees, shareholders, consuiners, business partners, government and community
as a whole.
33
•
Corporate Social Economic responsibilities focus on sustainable growth which includes economic and
Responsibility
social development along with environmental protection. Social responsibilities deal
with responsibilities for the welfare of individuals, community, organizations and
government. To fulfill environmental responsibilities, banks should undertake
measures like planting trees, developing parks, recycling used paper and also aim at
paperless office. For management of Corporate Social Responsibility the banks'
vision, mission and code of conduct should be ethical.
Social audit focuses on assessing social, environmental and community goals of the
organization. Auditors are required to play a responsible role towards the
organizations/departments to assess the performance of the Company. A CSR
department needs to be set up in order to follow responsible investment standards.
CSR Reporting should establish a disclosure system related to CSR performance
through publications and information on websites and other channels as well.
Thus as compared to traditional philanthropic model, CSRnow covers a wide
framework of social, ethical, economic and environmental responsibilities.

10.9 SELF-ASSESSMENT QUESTIONS

1) What is meant by Corporate Social Responsibility (CSR)? Briefly discuss the

concept in the context of banks.
2) What are the rights of the employees in the company?
3) By what ways does the company contribute to the Society? Discuss.
4) What is Social Audit? Highlight the key principles guiding the Social Audit
Practices around the world.
5) What are the ideal steps to be taken by the Banking Company to comply CSR
Guidelines? '

10.10 FURTHER READINGS

Bymes Nanette and Lavelle Lousis, Corporate Tax Game.

Carroll, B Archie, A Three- Dirnentional Conceptual Model of Corporate
Performance.
Contreras. E. Manuele, Corporate Social Responsibility in the promotion of Social
Development.
Crane Andrew and Matten Derk, Theories and Concept of Corporate Social
Responsibility.
Manesek John, Investing in Coporate Social Responsibility.
Mendy Charles, What's a Business For?
Jennings. J. Philip, Social Responsibility of Banks.
Kumar Retin, A state of CSR in India.
Lea Ruth, Corporate Social Responsibility.
Nwete Bede, Corporate Social Responsibility.
Sahoo Pravakar, Nayak Prasad Bibhu, Green Banking in India.
The Bergams Report - Bank Safety and Responsibility towards Consumers.

34 Wei Liu, CSR Guidelines - For Financial Institutions.

Weblinks Retrieved in January 2011. Corporate Social
www.rbi.org Responsibility
Guidelines
www.i-Iaw.com
www.greenleaf-publishing.com
www.mallenbaker.net
www.indiacsr.in
www.csr-asia.com
www.ethicalcorp.com
www.icicifoundation.org
www.wbcsd.org
www.wikipedia.com
www.sbigroup.com
www.karmayog.com
www.jkbank.net
www.pfdf.org

35
UNIT 11 SUSTAINABLE DEVELOPMENT
Objectives
After reading this unit you should be able to:
• explain the concept of sustainable development;
• examine the key challenges facing sustainable development;
• describe the concept of Corporate Sustainability;
• analyse the Corporate Response to Sustainable Development; and
• discuss the importance of Social Audit.

'Structure
11.1 Introduction
11.2 Definition
11.3 Key Challenges facing Sustainable Development
11.4 The Corporate Response to Sustainable Development
11.5 Social Audit
11.6 Ethics and Corporate Social Responsibility
11.7 Sustainable Development and Corporate Sustainability
11.8 Summary
11.9 Key Words
11.10 Self-Assessment Questions
11.11 Further Readings
Annexure 1: HSBC Sustainability Report 2009
Annexure 2: Green IT

11.1 INTRODUCTION

Sustainable development is a very significant concept underlying global and national

environmental policy and it is a macro concept. The management science approach
of Corporate Social Responsibility (CSR) and Corporate Sustainability (CS) is a micro
concept at firm and business level. Sustainable development has been defined as
development which meets the need of the present generation without compromising
the need of future generation. This concept has its origin in World Commission on
Environment and Development (WCED) Report, "Our Common Future".
Sustainable Development gained further impetus with the Rio Conference in 1992
which laid emphasis on three pillars of sustainability namely economic, social and
environmental imperatives.
The Corporate response to sustainability is in terms of Corporate Social Responsibility
(CSR) and Corporate Sustainability (CS). Corporate sustainability implies that in order
to sustain itself companies should maintain competitiveness and retain profitability,
Companies' products, processes and procedures should include economic, social and
36
environmental dimensions. In this unit we shall discuss different aspects of Sustainable Development
sustainable development.

11.2 DEFINITION

Sustainable Development occupies a very important place in domestic and

international environmental policy. In the present day environmental condition earth's
carrying capacity has become limited in the light of present levels of technology,
population and social organization. The need of the hour is to generate effective
policy initiatives with respect to sustainable development. Moreover, most of the
economic practices followed by developed and developing countries are unsustainable
even when the developed countries possess the knowhow to operate sustainably. The
remedy is to follow an efficient pattern of resource use by all the Governments and
Corporations.

William Nitze in his work "The Economic case of Sustainable Development" has
presented a contradiction of popular opinions about sustainable development.
According to him the actual obstacles to change are lack of adequate information,
training and incentive and that the sustainable practices are not more expensive than
the present day industrial processes. He targets public development institutions to
focus on innovation, rather than lend huge funds for incremental costs. He also
emphasizes that the clear technologies are very competitive. An effective
environmental policy needs to be evolved by world bodies like World Bank and United
Nations which cater to core issues like corporate interests, technology transfer and
fmancing sustainable development. Corporations which take an initiative in '
environmental stewardship are likely to be frontrunners in the global economy
(Fernando, 2(09).
The most popular definition of sustainable development is the one provided by the
World Commission on Environment and Development (WCED) report, Our Common
Future, 'development that meets the needs of the present without compromising the
ability of future generations to meet their own needs.' The WCED definition was
extensive enough to include all types of needs. Further, to influence the institutional
and corporate path to Sustainable Development the approach based on three pillars of
sustainability which focuses on the economic, social and environmental considerations
have been further consolidated ever since the Rio Conference in 1992.

The 'three pillars' influence individually in the short run but they need to be satisfied
simultaneously in order to attain sustain ability in the long run. These three dimensions
are inter-related and influence and support each other.
i) environmental system or ecological or biosphere system
ii) economic system or the economy, the market
iii) the community social system or society.

Thus sustainable development has been defmed as the reconciliation of the three
imperatives derived from three systems. This model has been graphically represented
with the help of the figure 11.1 given below.

37
Corporate Social
Responsibility Figure 11.1: Sustainable Development

Community

SOCIETY

Safety,
Equity health and

ECONOMY Impact of
Environment
Economic
feasibility

The three pillars of sustainable development do not discuss the capital approach to
sustainability. According to this approach sustainable development depends on
maintenance of different forms of capital stock over time. The three main kinds of
capital have been identified as economic, natural and social and there is growing
debate over substitutability between different kinds of capital. This concept has been
grouped into two main schools of weak and strong sustainability. .

The weak sustainability approach assumes that the three forms of capital are
equivalent and loss in anyone kind can be substituted by others. For example, man
made technology can substitute natural capital. This has been explained by the use of
chemical fertilizer to compensate the loss of fertility in sOILThis approach permits the
degradation of natural resources and believes in increasing stocks of-other forms of
capital. The strong sustainability approach assumes thatrhereis nosubstitutability for
some forms of capital especially natural capital. The different forms of capital are
. complementary but not perfect substitutes and hence they are required to be
conserved independently of one another. The example of nature has been taken to
____
-_~ubstantiate this view. Forest for example is the store house of oxygen as it absorbs
Carbon Dioxide (C02) and releases Oxygen, it preserves the fauna and flora and
contributes to water cycle and as such cannot be replaced by other forms of capital.
In this context, a useful definition of sustainability is provided by Costanza et al.: 'the
amount of consumption that can be continued indefinitely without degrading capital
stocks - including natural capital stocks' .

A prescriptive definition of sustainable development which incorporates sustainability

and does not substitute different forms of capital has been discussed. This definition
is very popular as it takes into account economic, social and environmental decisions:
38
'Sustainability is a relationship between dynamic human economic systems and Sustainable Development
larger dynamic, but normally slower-changing ecological systems, in which a) human
life can continue indefinitely, b) human individuals can flourish, and c) human culture
can develop; but in which the effect of human activities remains within bounds, so as
not to destroy the diversity, complexity, and function of the ecological support
system'.
Another definition of Sustainable Development has been given by the Company
ABN-AMRO "To live our values and business principles to meet the needs of the
organisation and our stakeholders today, thus protecting, sustaining and enhancing
human, natural and financial capital needed in the future".

Activity 1
a) Differentiate between the weak and strong sustainability approaches.

b) Which according to you is a better approach? Explain giving examples .

.............................................................................................................

11.3 KEY CHALLENGES FACING SUSTAINABLE

DEVELOPMENT

After discussing the possible defInitions for sustainable development let us look into
the key challenges facing sustainable development.
,
Firms behave irresponsibly by polluting physical environment when they release
smoke and gas into atmosphere and toxic effluents into near by rivers and lakes.
They also discharge waste matters in the surrounding land. It is essential that
companies should necessitate steps to increase their social accountability and
responsibility. The government is becoming increasingly conscious of the harms
caused to the environment and ecological balance by industries in pursuit of their
business by the indiscriminate felling off trees and wiping of vast forests for earning
profitability. As a result, the ecological balance of the adjoining areas has been
disturbed leading to rampant floods. While some areas have become flood prone the
other areas have become drought affected. Due to disturbance in their natural habitat
the rare fauna and flora are becoming extinct. The age old pattern oflivelihood
derived from agriculture and traditional arts and crafts have been destroyed. Now we
need economic development simultaneously with environmental development.
Industries and firms carrying out production should also set up effluent treatment
plant (ETP) and environmental management system (EMS) so that toxic wastes are
first treated before being released in the environment.

The challenge to sustainable development practices being followed by a company

have been summarized below: . 39
Corporate Social • What are the ways for a business firm to follow sustainable development
Responsibility
approach?
• What does this mean practically?
• How can sustainable development practices be implemented?
Three ways to address sustainable development and its practical implications:

• Partial association: Here the company follows the minimum legal

requirements as imposed by various acts and does not strictly associate with
sustainable development agenda. However, mere compliance with the legal
framework itself leads to following sustainable development nonns like
Environment Impact Assessment (EIA) and Environmental Management
Systems (EMS).
• Confront risks: Environmental risks threaten in the form of social, economic
and environmental risks like poverty, population and pollution respectively.
Company identifies these risks and develops a defence mechanism to fight these
risks thus addressing the underlying sustainable development issue.
• Play a responsible role: Here the company occupies an important role and
addresses sustainable development issues like climate change, carbon emissions
and contribute towards development of renewable technologies and maintain
energy efficiency.

Parameters of Sustainable Development

Challenges Framing a Stipulating the Confronting Valueaddition

consistent sustainable competitors by implementing
sustainable development who follow sustainble
development norms to be different development
process and followed norms for norms and
programme sustainable helping
integrating local development company earn
and global profit.
responsibilities
Measures Regulatory Introduction of Access to Greater
governineent sector wise capital and awareness of
norms initiatives incentives both stakeholders
monetary and towards
non-monetary implementation
of sustainable
development
practices
Barriers Lack of Fear of The Complex Opposition from
management incurring method of other
vision additional costs implementation stakeholders

Activity 2

a) Explain what you understand by the terms ETP and EMS.

40
b) List any five Companies which have ETP and EMS. Sustainable Development

11.4 THE CORPORATE RESPONSE TO SUSTAINABLE

DEVELOPMENT

After discussing the key challenges facing sustainable development let us examine
corporate responsibility towards sustainable development norms.
Corporate Social Responsibility (CSR) is a dynamic concept which is in its
evolutionary phase. Corporate Social Responsibility has been identified as business
contribution to sustainable development. It defines 'sustainable development as a
measure to develop company specific mechanism to become economically, socially
and ecologically friendly. The awareness needs to be created among the future
generations also. .
The World Business Council for Sustainable Development defines Corporate Social
Responsibility as: "Corporate Social Responsibility is-the continuing commitment by
business to behave ethically and contribute to the economic development while
improving the quality of life of the workforce and their families as well as the local
community and the society at large." The key issues with which CSR usually deals
are labour protection, community development, stakeholder's rights, busiriess ethics,
supplier relation, human resource management practices, health and safety, human .
rights and environmental protection. Industries by following the Corporate Social
Responsibility approach create (i) greater credibility (ii) improved branding (iii)
stronger ties with communities (iv) improved employee loyalty (v) enhanced
profitability (vi) increased investors confidence.
The Companies which follow CSR practices become accountable for their operations
to the stakeholders namely customers, employees, suppliers, shareholders,
communities and the environment. These Companies thus try to establish a balance
between the three imperatives economic, social and environmental and also increase
their credibility towards the shareholders and stakeholders. Corporate Social
Responsibility also shares the features of related concepts like Corporate
Sustainability, Corporate Accountability, Corporate Responsibility, Corporate
Citizenship, Corporate Stewardship, and so on.
One of the unique contributions of CSR is that it propagates sustainable practices.
These practices are not only implemented, i.e systems to plan, implement and
evaluate are developed, but close monitoring in order to align with the stipulated
norms is also maintained. Corporate Accountability includes the assessment of all
plans, processes, policies and programmes. The Company is accountable not only for
its own actions but also for the actions of all actors and factors throughout the
Company's value chain. Greater accountability improves the Companies image,
credibility and also confidence among its stakeholders. There is greater emphasis on
quality consciousness, certification thereby increasing the need for transparency to
improve social, economic and environmental performance.

41
,Corporate Social CSR is an effort on behalf of the Companies to build a commitment towards society
Responsibility in their strategic decision making. Thus the Companies should be ethically oriented in
their decision-making in such a way that they contribute towards social welfare.
Historically Corporate Social Responsibility can be divided in terms of following three
generations:
The initial generation of CSR contributed in philanthropic activities which comprised
of mainly charitable donations towards social, economic and related cause as part of
corporate citizenship strategy. There are various instances in which Indian family
owned business houses like TATA's have contributed to social cause like rural
development, education, rehabilitation, health and sports activities of employees and
down trodden. The other Indian Company's like the Birlas, the Mahindras, the Godrej
Group, TVS Group, the Bajaj' s have contributed in philanthropic activities like opening
schools, colleges for education, hospitals, dispensaries for the sick and old age
homes. Added to this, is the engagement in the philantrophic activities for social and
hence sustainable development by banks, PSU's and new companies like Infosys,
Wipro and others.
The second generation of Corporate Social Responsibility witnesses Companies
engaged in social responsibility as a long term business strategy. It is developed as a
regular practice rather than once in a while approach pertaining to social, economic
and environmental matters.
The third generation would require greater emphasis of companies/financial
institutions in alleviating poverty and environmental degradation. This requires a
concerted effort by leadership Companies to remould entire market to undertake
sustainability measure rather than individual initiatives of Companies. CSR now
addresses issues like business ethics, human rights and lab~ur rights with further
expansion in fmancial and environmental domain. The two basic approaches of CSR
have been discussed below.

Triple Bottomline Approach of CSR

To maintain Corporate Sustainability and exercise measures for Corporate Social

Responsibility the concept of Triple Bottom line (TBL) is acquiring importance among
Corporates. The term has been introduced by John Ellington in 1997 . The concept of
Triple Bottom line (TBL) emphasizes that Companies in addition to making profit
which is the economic bottom line, should also contribute to two non-economic
bottom lines namely environmental and social (ICSI, 2007). This requires planning,
implementing and evaluating business activity in terms of their impact on profitability
(economic), social and environmental dimensions. It requires to apply the concept of
Triple Bottom line (TBL) due to the following reasons:
1) Growing consumer awareness towards corporate social behaviour
2) Increasing demand for greater transparency
3) Regulatory environmental framework
4) Responsible media
5) Growing Corporate Social Response
Thus the Triple Bottom-line approach aims to address the three dimensions of
sustainable development simultaneously. Moreover, any firm which is committed
towards Corporate Sustainability and Corporate Social Responsibility should consider
the following principles.
i) Environmental principle - the rate of absorption of natural resources should be
42
according to its carrying capacity and renew ability.
ii) Social principle - Companies should consider the human and social capital in the Sustainable Development
area of their operations.
iii) Economic Principle - the company should be accountable to its shareholders and
stakeholders.
According to the concept of strong sustainability the triple line approach is not
sufficient to explain the concept of sustainable development (SD) at firm level;
therefore there is a need to understand a new approach called the hierarchical model.

Hierarchical Model
Hierarchical model lays emphasis on prioritizing decisions based on scarcity of
resources, resource boundaries and exigencies of circumstances. Hierarchical model
helps in prioritizing and facilitates trade offs among different aspects of sustainable
development. For example, Montreal Protocol introduced phase out regulation of
pollutants like chlorofluorocarbons (CFCs) which caused depletion of ozone layer.
The global ban on products emitting CFCs created direct impact on industries, firms
and employees', generating a trade off between ecologically friendly approach,
economic values and social issues. A prioritization among three aspects of
sustainability gives emphasis to environmental protection. This has forced many
companies to stop production and divert to other activities. Even the Kyoto Protocol
sets limits on carbon emissions emphasizing on environmental considerations and
sidelining economic and social goals.
At the Company level adhering to environmental norms involves trade-offs between
the three domains - economic, social and environmental. As each Company has to
monitor the discharge of effluents (smoke, particulates, water etc.) such that it is less
than the absorption capacity of natural systems and does not exceed the carrying
capacity. Firms are forced to face this trade-off in everyday activities. The
technological efficiency is required to grow so that growth of sales is not ignored. It is
essential to realise that market (economic) growth is equally important as
environmental growth as also the social imperatives. It is in this light that social
auditing becomes important.

Activity 3
Corporate Social Responsibility has acquired significant position in many banks.
Discuss this statement taking example of a foreign bank.

11.5 SOCIAL AUDIT

Social audit is planned study and estimation of an organization's social purpose. Social
auditing has been defined by the New Economics Foundation (NEF) as, "the process
whereby an organisation can account for its social performance, report on and
improve that performance. It assesses the social impact and ethical behaviour of
an organisation in relation to its aims and those of its shareholders. " According
to Social Enterprise Partnership (UK)", Social Audit is a method for organisations to
plan, manage and measure non-financial activities and to monitor both the internal and
external consequences of the organisation's social and commercial operations." 43
Corporate Social Thus it can be stated that social audit is the audit or estimation of social cost due to
Responsibility
adverse factors affecting the employees, labourers ofan organisation. These adverse
factors are health related problems like consumption of contaminated water due to
pollution, occupational diseases caused due to inhalation of poisonous gases, welding
fire seen with bare eyes, excessive noise affecting ear cords added to this is the loss
of non- renewable energy resources.
Social audit also analyses whether the benefit of economic development has
percolated down to the disadvantaged section in terms of jobs, development of
backward areas and township for employees. While making comparative evaluation
through social audit it is desired that social benefit should exceed social cost.
Corporate organisations are frequently observed by whistle blowers like employee
unions, consumer associations, environmentalists, legislatures (legislative enactments)
to mould their social objectives.
Social audit also requires identification of social responsibilities and making
disclosures in annual fmancial reports and Corporate Sustainability report. As social
. auditing is an estimation of social cost and social benefit and in order to measure them
they are quantified in monetary terms. Social responsibilities like social service to
workers, environmental measures for pollution control, safeguards adopted while
producing products to ensure user safety are all quantified.
In India, Companies like Tata Group, Hindustan Lever Ltd, and Infosys have become
increasingly conscious of their social auditing and social responsibility.
After analysing the concept of social audit let us examine the relationship of ethics to
corporate social responsibility.

11.6 ETHICS AND CORPORATE SOCIAL

RESPONSIBILITY

Corporate Social Responsibility (CSR) is essentially an ethical concept which has also
been reinforced in terms of corporate sustainability. Ethical code of conduct deals
with morality i.e. doing right or wrong. The three pillars of sustainability also
emphasises that Corporate organisations should follow the ethical code of conduct
while pursuing economic, social and environmental imperatives.
The ethical implications of strategic decisions should be examined to improve
corporate social responsibility. Companies like Enron, World Corn and Satyam are
responsible forfmancial debacle and have behaved unethically. Their business
expansion initiatives have ignored social accountability and sustainable development
Company's code of ethics is mentioned in its annual reports, mission statements and
corporate sustainability report. Companies like Johnson and Johnson follows the
company code of ethics when they confront ethical dilemma. Managers of companies
which do not take their ethical code of conduct seriously first safeguard their own
interest before protecting stakeholders' interest.
Socially responsible and sustainable companies are more profitable, less risky, with
committed workforce and enjoy better reputations with the stakeholders and
shareholders alike. Let us understand the relationship between the terms sustainable
development and corporate sustainability.

44
Sustainable Developmenl
11.7 SUSTAINABLE DEVELOPMENT AND
CORPORATE SUSTAINABILITY

While the concept of sustainable development originated at macro level, corporate

sustainability and corporate social responsibility originated at micro level of firms and
business. The environmental threats like Ozone depletion, climatic change, pollution,
scarcity of non- renewable resources, and destruction ofbio-diversity threaten the
stake of future generations. The Johannesburg Summit of 2002, has raised the
question of an equitable social distribution of resources and reduce the emerging gap
between developed and developing countries. This requires a drastic change in our
production and consumption pattern based on judicious use of three sustainability
imperatives namely economic, social and environmental.
Realising the seriousness of the looming threat the sustainability goals have been
imbibed by various government and international agencies. The European Union had
adopted various policies and prograinmes in 1992 ever since the launching of Fifth
Environmental Action Plan. Even the developed countries like United States,
European nations; Canada and Japan have from time to time set up agencies for
example the setting up of Environmental Protection Agency by US. Many
Conventions and protocols like the Kyoto Protocol, the Convention on Biodiversity,
the Basel Convention have been set up at national and international leveL
Companies have become increasingly conscious of environmental threats and have
pursued the path of sustainable development. Many big industrial houses have
initiated eco friendly processes and products, introduced strategies for sustainable
development organised associations and networks and adopted best practices. The
World Business Council for Sustainable Development (WBCSD) has mobilised 180
global companies from more than thirty countries who have taken a united stand to pursue
sustainable development goals based on economic, social and ecological imperatives.
Most of the Companies like TATA, Infosys have incorporated sustainable
. development goals in their vision and mission statements with emphasis on
development of environmental friendly and energy efficiency technologies.
Companies are also following the normal international standard ISO 14000 norms for
adherence to environmental management standards.
A debate on the modalities of businesses and firms to contribute to sustainable
development developed after United Nations Conference on Environment and
Development in 1992. It was here that a different view of Corporate Sustainability
was developed based on the goal of value creation with the social and environmental
considerations. According to the Dow Jones Sustainability Index, Corporate
Sustainability is a business approach that creates long term shareholder value by
embracing opportunities and managing risks deriving from economic, environmental,
and social developments (www. sustainability - index). Hart and Milstein (1999)
defme a sustainable enterprise as 'one that contributes to sustainable development by
delivering simultaneously economic, social and environmental benefits - the so- called
triple bottom line. '
Following conclusions about Corporate Sustainability can be drawn from these
definitions:
Firstly, corporate sustainability means that in order to sustain itself companies should
maintain its competitiveness thus preserving the firms' entity.
Secondly, the firm should also retain its profitability i.e. economic sustainability with
social and environmental sustainability, 45
Corporate Social Thirdly, Companies should assimilate into its business operations: sustainable
Responsibility
processes, products and procedures in order to include environmental and social
dimension thus emphasizing the 'triple- bottom1ine concept.'
Hence, from these conclusions we can ascertain that an integration of the macro
sustainable development concept and the management discipline approach to
corporate sustainability and corporate social responsibility is essential.

11.8 SUMMARY

Sustainable Development, has occupied a key position in many disciplines including

Corporate Management where the key issue of corporate sustainability has acquired
an important position. The threat to natural environment is caused due to pollution,
climatic change, ozone depletion, destruction ofbio- diversity. This has forced
environmentalist and management thinkers to think of sustainability at large. Two
approaches to sustainability have been developed namely the weak and strong
sustainability approach. The weak sustainability approach propagates that natural
capital can be compensated with other forms. While strong sustainability advocates
that different forms of capital are complementary and not perfect substitutes and
hence cannot be substituted. There are various challenges to sustainable development
namely the challenge of planning, implementing and the barriers faced in
implementation.
The corporate response to sustainable development is in the form of corporate
sustainability and corporate social responsibility. Within this broader concept the
concept of Triple Bottom line and Hierarchical Model have been evolved.
According to the Triple Bottom line approach business entities should not consider
mere profit which is the pure economic bottom line, but also two additional bottom
lines- environmental and social. Hierarchical Model states that at company level
adhering to environmental norms involves trade-offs between the other two domains -
economic and social. Companies have also realized the need for social audit, which is
an estimation of social cost and social benefit. However, while making comparative
evaluation social benefit should exceed social cost.
Ethics has also been integrated with corporate social responsibility and corporate
sustainability. Ethical companies are those which follow ethical code of conduct and
are socially responsible and sustainable. Thus sustainable development is a macro
concept and corporate social responsibility and corporate sustainability are micro
concepts orig.inating at firm and business level. Thus we can sum up that a study of
sustainable development, corporate sustainability and corporate social responsibility
calls for integration of the three dimensions.

11.9 KEY WORDS

Sustainable development : development which meets the needs of the present

generation without sacrificing the needs of the future
generations
Triple bottom line three features of sustainability namely economic,
social and environmental
Hierarchical Model explains trade-off between the three imperatives of
46
sustainability
Social Audit monetary estimation of social cost and social benefit. Sustainable Development

Whistle blower a person who reports illegal or unethical behaviour

and takes a stand against unscrupulous managers or
other stakeholders who are pursuing their own ends.

11.10 SELF -ASSESSMENT QUESTIONS

1)' Differentiate between term sustainable development and corporate sustainability.

Explain giving example from an Indian bank.
2) Examine the role of ethics in sustainable development. State the ethical practices
being followed by any Financial Institution of your choice.
3) What were the initiatives taken during the Rio Conference of 1992? Also
substantiate developments of Montreal and Kyoto Protocol.
4) Discuss the chief features of the Corporate Sustainability Report published by
any two Indian Companies.

11.11 FURTHER READINGS

Costanza, R, H. Daly, and J. Bartholomew, 'Goals, Agenda, and Policy
Recommendations for Ecological Economics' in Ecological Economics The Science
and Management of Sustainability, R Costanza (ed), New York: Columbia
University Press, 1991.
Dyllick, T. and K. Hockerts, 'Beyond the Business case for Corporate Sustainability',
Business Strategy and the Environment, 11,2002, pp. 130-141.
Edited by Egon Becker and Thomas Jahn, Sustainability and the Social Sciences, A
cross- disciplinary approach to integrating environmental considerations into
. theoretical reorientation ,Zed Books Ltd, New York,1999, pg 197-198.
Edited by Peter U tting, Jennifer Clapp Corporate Accountability and Sustainable
Development, Oxford University Press, New Delhi, 2008, pg 41-42.
Fernando A.c. Business Ethics, Dorling Kindersley (India) Pvt. Ltd., New Delhi,
2009.
Hancock John, Investing in Corporate Social Responsibility, A Guide to Best Practice,
Business Planning & the UK's Leading Companies, Kogan Page Limited, 2007,
New Delhi, pg 55-59.
Pearce, D.W. and R K. Turner, Economics of Natural Resources and the
Environment, Brighton: Wheatsheaf,1989.
Pearce, D., E.B. Barbier and A. Markandya, Sustainable Development: Economics
and Environment in the Third World, London: Earthscan Publications, 1990.
Sneddon, C., RB. Howarth and RB. Norgaard, ' Sustainable Development in a
Post - Brundtland World' , Ecological Economics 57, 2006, pp.253-68.
The Institute of Company Secretaries of India, Corporate Governance, Modules of
Best Practices, Taxmann Publications (P.) Ltd, New Delhi, 2007.
Weblinks Retrieved in January 2011.
<http://unstats.un.org
<http://en.wikipedia.org
http://www.sustainability-index.com
http://en.wikipedia.org
47
Corporate Social Annexure-I
Responsibility

HSBC Holdings plc Sustainability Report 2009

This report focused on the specific environmental and social issues that contribute to
the sustainability of HSBC, and were of interest to our stakeholders in 2009. This is a
report on the financial year January to December 2009.

HSBC'S AWARDS 2009

Number 1 financial institution for climate strategy and carbon data disclosure

Carbon disclosure project

Number 1 in the Corporate Social Responsibility Survey of Hang Seng Index

Listed Constituent Companies

Oxfam Hong Kong and CSR Asia

Number 2 for environmental, social and governance policies and

performance among global financial institutions

GS Sustain (Goldman Sachs)

British Business Awards 2009 Green Award for sustainable development in

Chine British Chamber of Commerce
Best-in-Class Award in Corporate Citizenship Category in Best Pratice
Financial Services Award 2009, Hong Kong

Benchmark and Best Practice Management Magazines

Group Chairman's Introduction

At HSBC, sustainability is not just about how we do business, it is part of our every
raison d' etre, As a leading international and emerging markets bank, we are
especially aware of our responsibility to manage our business across the world for the
long term by making a real contribution to social and economic development, and by
protecting the environment in which we operate.

This means maintaining our financial strength so that we can continue to deliver value
to shareholders by supporting our 100 million customersworldwide, Our focus is on
providing financial services which are competitiv~,.:~<;Ulsp~entandl;~sponsive to
customer needs. Throughout the financial crisis, we make credit available to
individuals and businesses and provided a safe home of customer deposits. We are
also preparing for the emergence of a burgeoning rriiddle class in many faster-
growing markets. This will lead to a greater demand for small business lending, saving
and wealth management services in the future.

While it is vital that we support social and economic development, we also recognise
that this inevitably leadsto competing demands on the world'sresources. This brings
challenges for those who finance that development We are, therefore, working with
the energy sector, for example, to recognise and balance the increasing demands for
power with emerging environmental concerns, and we continue to screen all our
Project Financing in line with the Equator Principles.

We are also closely watching the opportunities that will emerge for our business as
the world shifts toward a low carbon economy and we are putting in place the
48 expertise and governance to take full advantage of them. Each one of our 300,000
employees is an important contributor to our sustainable future. We seek to reward Sustalnable Development
them appropriately in order to meet the long-term goals of our business, and also to
create a working environments, where fmancial reward is not the only motivating
factor.
One way we do this is through the employee engagement work of the HSBC Climate
Partnership programme. If the 21 st century has ushered in a new phase of
globalisation in which einerging markets are driving economic growth, it has also
brought home the realisation that the effects of climate change are expected to be
most keenly felt in many of these regions. We are working with four leading global
organisations on climate change. So far, nearly 1,000 HSBC employees have
conducted scientific research in the fields. In doing so, they are not only contributing
to the body of knowledge on climate change, but are also bringing understanding and
enthusiasm for the issues back into our business, helping to educate and motivate
colleagues across the organisation.
We have also made a long-term commitment to supporting the communities we serve
by facilitating education and life-skill programmes. Our work here continues to focus
on improving financial and business literacy, and on supporting disadvantaged
children.
This report touches on each of these themes and covers in more detail the ways in
which HSBC affects the social, economic and environmental issues our customer and
communities faced. It describes the different ways in which we are building
sustainability issues into the fabric of our culture, from how we manage our carbon
footprint, to the way we treat and support our employees globally, and to how we
build social and environmental criteria into business decisions.
I am also pleased that our leadership on some of these issues has been externally and
internally recognised. In 2009, HSBC was listed number one amongst fmancial
institutions for its climate change strategy and reporting of emissions in the Carbon
Disclosure Project; we were again listed in the FfSE4Good and Dow Jones
sustainability indices; and we improved our overall employee engagement scores
despite the tumultuous business environment.

Our Approach
We aim to run a sustainable business for the long term. This is about achieving
sustainable profits for our shareholders, building long-lasting relationships with
customers, valuing our highly committed employees, respecting environmental limits
and investing in communities.
The current fmancial crisis has highlighted how important it is to look ahead to the
challenges of the future. We believe that by doing this, we can provide shared value
for our shareholders and the wider economy, the environment and society.
As a bank, we manage risk and identify business opportunities every day. We seek to
embed social and environmental issues into what we do. Climate change and
globalisation are critical trends shaping the way we do business in the future. These
trends will affect the world's poorest people most significantly. We aim to mitigate the
risks and maximise the opportunities associated with these shifts.

How We Manage Sustainability

HSBC has corporate sustainability teams working at Group, regional and country
level to shape the bank's approach to sustainable business opportunities and risks, our
own operational, environmental and social footprint, and community investment. Many
other specially trained individuals in departments across the Group hold responsibility 49
Corporate Social for implementing our approach to sustainability, for example in credit risk, purchasing,
Responsibility
IT, and relationship management teams.
We have.Heads of Corporate Sustainability in each of the Group's five main regions,
who have joint reporting lines to their local Chairman or Chief Executive, and to the
Group Head of Corporate Sustainability. The Chairman of Personal and Commercial
Banking and Insurance is responsible for Corporate Sustainability on behalf of the
Group Chief Executive and the HSBC Holdings Board.

Sustainability Governance
Sustainability at HSBC is overseen by the Corporate Sustainability Committee, a sub-
committee of the HSBC Holdings Board. The Corporate Sustainability Committee is
responsible for advising the HSBC Holdings Board, Committees of the Board and
executive management on sustainability policies, including environmental, social and
ethical issues ..
Policies and operational procedures are in place for countering reputational risks that
might arise in any part of HSBC. They cover many aspects, ranging from money
laundering deterrence and counter-terrorism financing to anti-corruption measures,
information security, social and environmental impacts and employee relations.
Reputational risk management forms an integral part of the internal controls system
and is communicated through manuals and statements of policy, internal
communications channels and a variety of training methods.

Anti-money Laundering, Bribery and Corruption

HSBC is a founding member of the Wolfsberg Group, an association of 11 global
banks which develops principles and best practice for managing anti-money
laundering and counter-terrorism financing. HSBC is also a corporate supporter of
the anti-bribery and anti-corruption pressure group and Transparency.Hfilif: has
adopted Principle 10 of the UN Global Compact on corruption, extortion and bribery
and is a supporter of the Extractive Industries Transparency Initiative which was
developed to counter misuse of the payments to governments for mineral rights and
mining.
HSBC has stringent policies and procedures for countering bribery and corruption in
all the jurisdictions in which it operates. These apply to dealings with government
entities, private organisations and individuals. While it is not possible to give details,
HSBC has in place a number of systems and controls which are designed to detect
potential corruption and to provide alerts in high-risk situations. The Group also has
processes in place to monitor activities by third parties which may be suspected of
being linked with corrupt practices.

Comment and Opinion

"A successful path to a global low carbon economy requires unprecedented
collaboration from countries around the world. While developed countries must take
the lead in cutting emissions, it will also be crucial for emerging economies to move
quickly, and it is these countries that will see the largest share of investments". Lord
Stem, Special Adviser to HSBC's Group Chairman on Economic Development and
Climate Change, May 2010.

International Commitments
We have voluntarily agreed to abide by a number of external codes of conduct, some
50 of which are listed here:
UN Universal Declaration of Human Rights Sustalnable Development

HSBC has expressed its support for the UN Universal Declaration of Human Rights
since 2004.

UNEP Finance Initiative

HSBC is one of the founder signatories of the UNEP Finance Initiative". a global
partnership between UNEP and the financial sector working to understand the
impacts of environmental and social considerations on fmancial performance.

UN Global Compact
HSBC is a corporate supporter of The Global Compact. The Compact challenges
companies to demonstrate progress in supporting and advancing key principles in four
fields: labour standards, human rights, environmental responsibility and anti-corruption.
Sir Mark Moody-Stuart, a non-executive Director on the Board of HSBC Holdings
plc, is a eo- vice-chair of the Global Compact Board.

Global Business Coalition on HIV IAIDS

Global Business Coalition on HIV IAIDS, Tuberculosis and Malaria (GBC) is a
coalition of more than 220 companies united to keep the fight against HIV /AIDS,
tuberculosis and malaria a global priority.

Global Sullivan Principles

HSBC is a corporate supporter of The Global Sullivan Principles. The principles
address economic, social and political justice issues, such as human rights and equal
opportunities in employment.

OECD Guidelines for Multinational Enterprises

HSBC follows the OECD Guidelines for Multinational Enterprises which promote
. business conduct in the area of sustainability.

Equator Principles
The Equator Principles are a set of voluntary guidelines which provide a common
framework to address the environmental and social issues that arise in financing
projects.
Source: http://www.hsbc.com

51

\
,
Corporate Social Annexure-2
Responsibility

Green IT
Green computing or green IT refers to environmentally sustainable computing or IT
which is more environment friendly. The green computing is also defined as the study
and practice of designing, manufacturing, using, and disposing of computers, servers,
and associated subsystems - monitors, printers, storage devices, and networking and
communications systems - efficiently and effectively with minimal or no impact on the
environment. Modem IT system rely upon a complicated mix of people, networks and
hardware, as such, a green computing initiative must cover all of these areas as well.
The other aspect of Green IT comprises of using the IT services to reduce
environmental impact of other industries.
The goals of green computing are to maximise energy efficiency during the product's
lifetime, and promote the recyclability or bio-degradability of defunct products and
factory waste. The following would be benefits accruing from practicing principles
associated with Green IT: (i) reduced energy costs both through lower usage and
more efficient operations of equipment, (ii) streamlined IT processes to reduce cost
inefficiencies and decrease environmental impact, (iii) enabled a more mobile and
agile workforce for flexible and remote working, further reducing carbon emissions
from unnecessary travel, (iv) organisations of all sizes can benefit by reducing
operation costs and equipment costs.
While ensuring that this can be practiced in all areas of work, the following tips are
helpful: .

IT Services
• !E! !nergy efficient data centre and renewable energy sources for data centre
power consumption;
• Low energy communication and networking equipments and low energy
consuming computing devices;

IT Infrastructure
• Use cloud computing and software-as-a-service solutions (SaaS) instead of
running a new application in-house;
• Technologies such as virtual private networks, and collaboration tools help
employees work together from different locations;
• Server and storage virtualisation;
• Develop a thin client strategy;

Computers and Desktop Monitors

• Reduce power consumption through effective power management by employing
alternative energy sources for computing workstations, servers, networks and
data centres;
• Power-down the CPU and all peripherals during extended periods of inactivity
and activating standby setting;
• Power-up and power-down energy-intensive peripherals such as laser printers
according to need;
• Use liquid-crystal-display (LCD) monitors rather than cathode-ray-tube (CRT)
52 monitors;

,
Paper Sustainable Development

• Reduce paper consumption;

• Use recycled paper or non-wood paper, eliminate paper, printer and packaging
waste;
• Re-use papers to make rough notes;

Printer
• Ensure that printer has a standby mode, which should be activated after a short
period of inactivity;
• Buy automatic duplex printers, set duplex printing as default or manually feed
the paper for printing on both sides;

Go digital ,
• Transition from paper based to digital processes;
• Use emails with attachments for sending office documents instead of sending
hardcopies;

, Encourage Telecommuting and Collaboration

• Use Web conferencing instead of travelling to meetings;
• Enable staff to telecommute;

Waste Management - Reduce, Reuse, Recycle

• Dispose of e-waste properly;
• Minimise the use of paper and properly recycle waste paper;
• Donate to non-profit organisations.

Source: RBI Report on Trend and Progress of Banking in India, 2009-10.

53
NOTES
SOMS-IGNOU/P.O. 2T/March, 2011

ISBN: 978-81-266-5242-6