Co-operative Financial Services (CFS) was formed in 2002 to bring The Co-operative Bank (including the internet bank, smile) and Co-operative Insurance Society (CIS), under common leadership. CFS is one of the larger financial services organisations in the UK. It provides a wide range of insurance and banking products and services, delivered through bank branches, over the telephone and the Internet and via its network of Financial Advisers. Its operations are concentrated within the UK, and the majority of its 14,000 employees are based in the North West of England.
CFS’ vision is ‘to become the primary financial services provider for a broad range of co-operative customers accessed seamlessly through multiple channels’. In time, CFS aims to offer one range of products and services to customers, and to provide the same high standard of customer service irrespective of the channel used. Through business integration, CFS is seeking to build a unified employee community, which shares a common culture and one set of values, based on a shared co-operative heritage. The Co-operative movement was founded in the 19th century based on a set of principles including honesty, openness, caring for others and a commitment to social responsibility. More recently, these principles have been reflected in The Co-operative Bank’s ethical stance and its social and environmental reputation, which has been largely built during the 1990s.
This case study focuses on how the development of triple-bottom-line sustainability reporting has helped the Co-operative Bank, and more recently Co-operative Financial Services to gain a competitive edge through its ethical reputation.
In the late 1980s, much of the UK banking industry suffered from a reputation crisis, and was, at the same time, experiencing profitability issues. The Co-operative Bank sought to address this by looking back to its co-operative heritage and reinvigorating its brand with a modern interpretation of co-operative values. A new Mission Statement was published in 1988 to reflect this move. Subsequently, research indicated that a small, but significant, proportion of customers stated that they joined the bank for ‘ethical reasons’. This finding proved to be a key driver for the development of an Ethical Policy to guide investments. The Ethical Policy was enthusiastically progressed by the then Managing Director, who, as well as regarding it as the right approach for a ‘co-operative’ bank, thought it provided the differentiator the business needed. In 1992, following a period of customer consultation, the first Ethical Policy was published, The Policy reflected customers’ views regarding how they wanted their money to be invested. In its Ethical Policy, the bank promised to invest customers’ money in companies that avoid repeated damage to the environment. But in 1996, the bank went further – publishing its Ecological Mission Statement. This sets out, in four rules, the bank’s understanding of the minimum conditions for an ecologically sustainable society.
In 1997, the bank brought these strands together, with the introduction of its Partnership Approach. The bank believed that the next inevitable step was to commit to delivering value to all its Partners (stakeholders) in a socially responsible and ecologically sustainable fashion. The bank’s Partnership Ballot, conducted in May 1997, involved sending every one of the bank’s then 1.2 million customers a copy of the first Partnership Report, ‘Strength in Numbers’, and a feedback form. Some 98,000 (8%) of customers completed the questionnaire, The Ballot found that there was overwhelming support for the Partnership Approach, with 97% of customers who responded saying it was a good idea. This provided the bank with a strong customer mandate for its plans.
Independently verified reporting also provided the opportunity to demonstrate that the bank’s Ethical Policy was robustly implemented in practice, since it offered any doubters the necessary assurance.
The Co-operative Bank’s first full social and environmental report – its Partnership Report - was published in 1998. It sought to account for its impacts on society, the environment and its partners. “At this time the Bodyshop, Traidcraft and ourselves were the pioneers in taking a progressive approach to reporting on these issues”, said Jayne Beer, Manager of Sustainability Reporting and Diversity at CFS.
The support of the MD helped greatly in overcoming some of the challenges that transparent or ‘warts and all’ reporting would have otherwise faced. Challenges included, trying to encourage staff to commit to, and take responsibility for, performance targets that appeared in the report. As ‘target owners’ staff were committing to trying to improve performance, and some were, understandably, nervous about the consequences of non-attainment.
The bank’s 1996 ecological audit sought to define the priority ecological areas for action. The audit highlighted eight priorities, of which six were deemed to be high priority (e.g. paper disposal, energy and transport). The audit team made recommendations regarding the data required to monitor these issues. An Environmental Steering Group was set up to oversee work on the ecological priority areas, and to develop an action plan for each issue. Regular checks were made to ensure progress against targets. Examples of targets included those to reduce the bank’s carbon dioxide emissions by 20% by 2010 based on 1997 levels, and a commitment to ensuring that 15% of all plastic cups purchased were recycled in 1998. This target was reset for 1999 to 30%.
The business benefits
Aspects of this activity have yielded business benefit. The bank has, for a number of years, undertaken research amongst customers to establish the number who are attracted to the bank because of its ethical and sustainability positioning. The ethical stance does, potentially, have a negative impact on income, since business is turned away on ethical grounds.
To demonstrate that there is a net benefit, The Co-operative Bank measures the proportion of the bank’s profitability that can be attributed to its ethically motivated customers. In 2003, it found that 17% of profitability can be attributed to those customers whose primary motivation for using its services was ethics. 30% (around £40 million) of profitability can be attributed to customers who believe that ethics is an important factor. This compares with £6.9 million of income foregone for ethical reasons, based on business declined by the bank’s Ethical Policy Unit. Furthermore, compared with a typical customer, ethically motivated customers generally come from higher socio-economic groups, are more likely to have more than one bank product, are more likely to be loyal to the bank when considering new products and are more likely to recommend the bank to friends and family.
The Co-operative Bank, CIS and now CFS have won a number of national and global awards for sustainability reporting. This recognition has provided further publicity for the approach to sustainable development.
Why is it CSR?
CFS recognises the need to develop its business in a sustainable manner. Milestones in the development of the bank’s contribution to CSR include the launch of its Mission Statement in 1988, its first Ethical Policy in 1992, an ecological audit and Ecological Mission Statement in 1996, followed by its first full Partnership Report in 1998. Whilst sustainability reporting remains voluntary, CFS’ Sustainability Reporting seeks to provide a balanced picture of the actions the business is taking to improve its performance without compromising the ability of future generations to meet their own needs.
CFS’ Sustainability Report aims to provide a transparent, balanced and independently assured account of CFS’ ethical and sustainability performance. Reporting does not just highlight the positive results, rather it gives a frank account of the business’ impacts and indicates where progress is still needed.
The process of bringing The Co-operative Bank and CIS together is ongoing. A number of ethical and sustainability policies remain distinct to each business. For example, for over a decade, The Co-operative Bank has operated a customer-led Ethical Policy that governs where it will and will not invest its customers’ money. In contrast, CIS’ Responsible Shareholding approach was launched in 1999, based on engagement with the companies in which shares are held with the aim of realising improvements in financial, ethical and sustainability performance. In 2003, a project was initiated to reconcile the historically different approaches of CIS and The Co-operative Bank to Socially Responsible Investment. Reconciliation is focusing on establishing a customer mandate for CIS’ Responsible Shareholding engagement programme, much as bank customers currently guide its Ethical Policy.
For more information on CFS please contact Jo Healy, Sustainability Reporting Manager on 0161 829 5498 or email email@example.com.
© Article 13 and CBI – CSR Case Study Series, May 2005
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