Banks Not Cashing In on Shared Value: Report

Banks worldwide are failing to capitalise on value-generating market opportunities, according to a new report looking at the business strategy of creating shared value (CSV) in the sector.

Banking on Shared Value: How Banks Profit by Rethinking Their Purpose, by social impact consultancy FSG said that in a post-GFC climate where banks were forced to be “combative,” CSR and sustainability initiatives had not proven sufficient in enabling them to address global challenges and generate value.  

The report said the value of global business opportunities in social and environmental markets was projected to be upwards of $3 trillion annually by 2050.The estimated financing gap for small and medium-sized business (SMEs) totalled $2.1 trillion; and 2.5 billion people around the world still needed access to quality banking services.

“Banks are leaving much of this value on the table,” the report said. “Instead of serving this growing market with products and services, banks have instead invested in CSR and philanthropy programs. At too many banks, shared value opportunities have been ignored, considered unprofitable or sub-scale,” the report said.  

According to the report, banks fell victim to three common myths that prevented them from pursuing shared value: A profit vs. purpose trade-off mentality, low return on investment (ROI) expectations, and insufficient scale.

Harvard Business School academic and Co-Founder of FSG Michael Porter said banks had to choose a new path.

“This new path centers on creating shared value—addressing relevant societal problems with a business model generating measurable returns,” he said.

“It is a decision to move away from peripheral engagement with society through isolated corporate philanthropy, CSR, or sustainability programs. It is an opportunity for banks to capture business value by enabling and financing societal solutions.

“The potential to create shared value through retail, commercial and investment banking is enormous. And the banks that realise this potential will grow faster and recast their role in society through a lens of mutual opportunity: an opportunity for banks to increase long-term profitability, and an opportunity for society to leverage the unique financial capabilities of banks to drive progress.”

Creating shared value is a business strategy developed by Professor Michael Porter and Mark Kramer and shared in the Harvard Business Review in 2011.

Companies create shared value when they generate measurable business returns by addressing social and environmental challenges.

According to the report: shared value opportunities for banks existed at three levels:

• Furthering client prosperity by improving the financial health of individual and business clients and extending banking services to the financially excluded
• Fueling the growth of regional economies by moving beyond individual transactions to proactively finance and strengthen entire ecosystems of players within an industry or community
• Financing solutions to global challenges by working with socially or environmentally beneficial client segments and by structuring, placing, and/or investing in impact investments

The report, intended to help bank leaders, their partners, and industry regulators seize opportunities to create financial value while addressing unmet social and environmental needs at scale, featured case studies where shared value projects had been effectively implemented, including Australian banks NAB and the Bendigo Bank.

Read the full report here.