Thursday, 17 May 2012
Sustainable policies boost risk management at financial firms says think tank
The integration of sustainable Corporate Social Responsibility (CSR) policies with risk management strategies can boost the ability of financial firms to manage operational risk, according to a French think tank.
The claim was made by Paris-based Observatoire sur la Reponsabilité Sociétale des Entreprises (ORSE) that have launched a guide to help banks and other financial institutions cope with the new risks created by environmental, social and governance rules alongside traditional operational risk.
The authors claim that the implementation of CSR policies complement and expand the scope of operational risk management practices dictated by current banking prudential rules, known as the Basel II accords.
Such integration can help financial firms avoid financial losses, whilst at the same time the risk management functions can gain extra credibility by taking care of CSR risk, the authors say.
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The guide is aimed at banks, but ORSE is also working on a similar document for insurance companies. The authors have already identified several similarities between the challenges faced by banks and those that will be posed to insurers by the Solvency II directive.
CSR risks result from the potential impact that activities at a financial company can have on stakeholders such as clients, employees and suppliers, as well as on the environment.
But, contrary to the operational risks faced by banks, which are clearly dealt with in the Basel II rules, CSR risks remain to be properly addressed by regulation.
In order to fill this void, ORSE opted to follow the ISO 26000 industry standard that deals with CSR issues, as well as accounting standards that also tackle sustainability.
CSR policies to address the prevention of corruption and improve business ethics can help reduce the likelihood of both internal and external fraud, the guides authors say.
They also argue that policies that address workforce concerns, such as gender and racial equality, can reduce the risks companies face as a result of breaking labour regulations.
CSR policies can be especially effective in mitigating the risk of reputational damage at financial companies, the authors point out.
The study, in French, can be downloaded from ORSE's website, www.orse.org.
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