December 29, 2004
Report Finds Bank Sector Assessment of Impact on Disadvantaged Communities Lacking
by William Baue
AccountAbility and Business for Social Responsibility to apply their new assessment methodology to
the pharmaceutical, agricultural, and extractive sectors next.
If "you can't judge a book by its cover," as the old saying goes, then an apt corollary might be,
"you can't judge a report by its title." Take, for example, Business & Economic Development:
Financial Sector Report, a recent report from AccountAbility and Business for Social
its contents a bit, the report's topic is how banks strategize, assess, and disclose their economic
impact on disadvantaged communities. The report's findings are significant, making its white bread
title seem coy. As the report points out, the Equator Principles broke new ground for signatory
banks to voluntarily assess the social and environmental impacts of project financing, but
disclosure of the findings from such assessments has not been forthcoming. The report advocates
for extending assessment beyond project financing, which typically involves substantial funding to
companies, to cover bank activities more broadly, including direct interactions with individuals
and indirect impacts on communities. The report also promotes transparent reporting.
is the first of four sector reports to use a new BSR/AccountAbility methodology for assessing
corporate economic impact on disadvantaged communities. The Business & Economic Development project
researched 68 companies in all, and will release sector reports on the pharmaceutical,
agricultural, and extractive industries in the near future. The finance sector report, which
examines the five largest US and UK banks, the ten largest European banks, and the ten largest
banks in the rest of the world, thus sets the precedent for the series.
"What is clear
from this research, is that there is little consistency or coherence in whether and how banks
manage their economic impact," state report authors Helen Campbell and Williams Johnson,
AccountAbility senior researcher and researcher, respectively. "We found that only 13 of 37 banks
specifically reported on their broader economic impact (not just [their] financial [impact])."
Unfortunately, the report does not make it readily apparent which banks are which. Likewise,
the report enumerates how many banks participate in socially responsible investment (SRI) indexes
such at the Dow Jones Sustainability Indexes (DJSI) and FTSE4Good (21 in each), but it does not name
names. Identifying the precious few banks participating in social and environmental initiatives
such as the UN Global
Compact (9) or the Equator Principles (4) instead of just tabulating them would have
accentuated the poor commitment to sustainability.
Interestingly, the report elsewhere
deemphasizes quantification when it comes to assessing the sustainability performance of banks.
"[I]t is the quality, not just the quantity of capital flows, including bank lending, to
developing economies that may determine whether banks contribute to improved sustainability," the
report authors state. "Enhanced accountability for economic impact is one way for banks to examine
these issues--to begin to manage the quality of their contribution to economic development and
The report, which was funded by the Ford Foundation and the US Agency for International
Development (USAID), follows the example of the
Global Reporting Initiative (GRI) in
distinguishing between direct and indirect economic impacts. Direct economic impacts are those
created by company operations, such as employment and tax payment, while indirect (also known as
"induced" or "multiplier effect") economic impacts are more remote, such as employment along supply
The report suggests that the finance sector footprint tends to lean toward
indirect economic impacts.
"[I]t is arguable that the most significant and positive
impacts of the sector are indirect impacts created by investment, increased productivity, and
second round employment and income effects, generated by bank products and services," the report
states. "Intuitively, the indirect and induced economic impacts of consumption of credit are a
significant product-related economic impact for the banking sector, which can have a direct impact
on the capacity of individuals, communities and countries to engage in economic activity."
The report's recommendations call for enhanced assessment of economic impacts and enhanced
disclosure of such assessment, as well as expanding assessment methodology to cover an additional
business function: government relations.
"This would enable companies to include in their
economic impact assessment corporate policies and practices relating to lobbying, political
donations, corruption and transparency and a rationale for these decisions," the report authors
state. "Corporate responses to these issues are critical across all sectors, but particularly
important in the banking sector where the relationships between companies and government are
"Strategies might include more widespread adoption and implementation of
internal Codes of Conduct on bribery and transparency," they conclude.