Retail banks have been at the heart of the UK’s economic response to the coronavirus pandemic: supporting the nation to manage its money through the terrible personal and financial costs the disease has wreaked – from payment holidays through to bounce back loans. Now, banks have a new role to play. Not only in supporting economic recovery, but in ‘building back better’: resetting the balance between generating investor returns and serving community interests.
But doing the ‘right thing’ isn’t simply altruistic. It also makes business sense. Consumers and colleagues alike want to know what’s behind brand names – to see action speaking more loudly than words. Ethics is now three times more important in driving trust in a company than competence. Further, most people think that CEOs should take the lead on societal problems and hold themselves accountable to the public, not just boards. So striking the right balance between the financial and non-financial aspects of a business has never been so important. Even more so for younger customers, who are sceptical of business motives: only 37 per cent of millennials believe business leaders make a positive impact on the world.
With origins that go back to the world’s first savings bank, TSB is rooted in helping to create social as well as economic value. Continuing that strong legacy, we launched the ‘Do What Matters’ plan, our responsible business strategy, informed by ESG. For us, it’s a matter of delivering on the wider purpose behind our brand. The plan does what it says on the tin: it focuses on doing what matters in those areas where TSB can make its most meaningful contribution. But how can retail banks demonstrate their impact in a way that ensures social and environmental contribution, as well as commercial viability?
Non-financial metrics must be led from the top
The first step is to start at the top. When metrics are Board supported and Executive led, they become embedded within strategic thinking to drive business – as well as social – value. That’s why we’ve made sure our Do What Matters plan is Executive-sponsored and included in one of our key business targets for 2021 – hardwiring its delivery into the fabric of our business. This Board-level commitment to our plan – and sponsorship by our Executive Committee – is critical to driving through real impact.
A similar approach works for cross-sector initiatives too. For example, TSB is proud to be a signatory of the CBI’s Change the Race Ratio campaign. This includes both Board and Executive level commitments to taking tangible action through senior hires, transparent reporting and fostering an inclusive culture. When such an approach is echoed around boardroom tables there’s an opportunity to deliver real change across sectors and throughout individual businesses.
Aligning business growth with broader good: focusing where a business can have a meaningful impact
As we look ahead, focusing on the issues that matter to customers and colleagues where banks – and wider business – can have the most meaningful impact is essential to the financial health of our sector. For example, expectations around decarbonisation and ‘levelling up’ regional inequalities are escalating at pace: we need to listen and act if we’re to retain customer and colleague support. Certainly, at TSB, we already see business growth and reputation gain that’s driven by non-financial aspects of our operations.
For example, as customers increasingly use online services, fraudsters are becoming more sophisticated. Customers rightly want and need their banks to help protect them. That’s why two years ago TSB committed to refund every customer who is an innocent victim of fraud – our Fraud Refund Guarantee. Not only is this what customers want and the right thing to do, but it makes sense for the business: customers know if they choose TSB they will be protected if they are targeted by fraudsters.
It also has the benefit of building trust with our customers who are more forthcoming about the way in which they fell victim to fraud. This, in turn, means we provide more detailed information to the police – helping them to better protect all consumers and improve criminal justice outcomes. As regulators review the current voluntary code for industry – which falls well below TSB’s Fraud Refund Guarantee – this issue is more pertinent than ever and the case for a cross-industry guarantee is compelling.
Working together on the bigger issues and sharing best practice
We can learn a lot from each other. Across our sector banks strive to develop best practice – revealing areas where a standardised approach to reporting would be constructive to competition, to value and to social good.
For example, on the environment – a standardised approach to measuring decarbonisation goals and climate risk is already making headway at both national and international levels. The recent extension of the UN’s Science-Based Targets initiative to financial services provides a helpful framework to measure our progress against emissions reduction targets – one which TSB is pleased to be working towards. Similarly, the recommendations of the UK’s Financial Stability Board’s Taskforce on Climate-related Financial Disclosures are driving towards comparable disclosures.
The challenge now is to consider what other aspects of ‘building back better’ could benefit from a uniform approach. For example, improving diversity through a holistic set of measures across all minority groups. HM Treasury’s Women in Finance initiative has been extremely effective in helping to drive Board and Executive focus on gender equality – but there is more we can and should do through a consistent approach to reporting for all diversity groups. After all, not only is improving diversity the right thing to do, it’s also in the interest of business. Time and again, more diverse businesses are proven to be more successful.
Deeds not words
In any standardised approach though, we must make sure that well-intended pledges or reporting frameworks don’t hinder true change. As Julian Richer, of Richer Sounds, recently noted – action speaks louder than words when it comes to demonstrating ethical capitalism. Our aim should always be to make ESG simpler and more compelling so that we increase participation and deliver change.
It’s why TSB became the first high street bank to be accredited by the Good Business Charter: requiring us to measure our behaviour across ten straightforward and action-focused components, from employment practice and customer treatment through to tax and the environment. And, in line with the Charter, when we spotted that SME suppliers were struggling with cash flow, we accelerated processes to help budget holders sign off payments more quickly – so much so that we’re now faster than the standards set by the Prompt Payment Code. This all was achieved by an action first mentality.
Critical friends: the role of government and civil society
However, no single business or sector will solve an issue in isolation. Setting a baseline and encouraging inter-bank competition through minimum reporting standards goes some way to driving business momentum on social and environmental issues. But external partnerships and scrutiny are vital to incentivising positive business contributions. They also form a critical check on the balance between financial and non-financial drivers.
For TSB, we engaged with government, think tanks, NGOs and Third Sector organisations to develop and critique our Do What Matters Plan. After all, it takes a critical friend to point out your strengths and weaknesses. That’s why we’ve aligned our goals with national and international standards, including as signatories of the Good Business Charter and by committing to the UN Global Compact corporate responsibility initiative and its principles on human rights, labour, the environment and anti-corruption.
Complementary metrics through collaboration
To conclude, for retail banks to help drive the UK’s post-COVID recovery in the right way requires transparency, action, partnership and accountability. If we apply this approach it’s no longer a question of balance between financial and non-financial metrics. Instead we can focus simply on the purpose behind a brand. Business value is driven from social and environmental endeavours, and vice versa. Put simply, it means doing good is good for business, and business is good for society. It’s a role that customers want their banks to play and which they are willing to pay for.
This doesn’t duck the fact that retail banks will need to continue to make difficult decisions. Customers are changing the way they shop and bank, whilst low interest rates and the current environment are impacting banks’ profitability It’s inevitable that changes to business models need to be made to ensure economic sustainability. But by taking a socially and environmentally conscious approach, we can help make those decisions in the right way.
I truly believe that’s how retail banks can help drive an economic recovery which isn’t just about improving the UK’s finances, but about levelling up across the country. And it’s why I will continue to ensure that at TSB we’re action led: listening and doing what matters most for our customers. Together, through collaboration and learning from each other, retail banks can help the UK to build back better.
Debbie Crosbie is Chief Executive Officer of TSB Bank. This essay is published as part of the Social Market Foundation and Chartered Banker Institute’s Banking on Building Back Better essay series. The full set of essays is available here.