1.

The Co-operative The Co-operative Bank Case Study

Prague 2009 – session three

ethical finance

2.

The Co-operative Bank

• Born in 1872• Plc wholly owned by Co-operative Group• Full service clearing bank (1971)• National, network of 100 branches • Shared ATM network• Award-winning telephone & internet banking• First UK bank to offer free current account• First to launch internet Bank (smile)• 1-4% market share

3.

The Co-operative Group

• The world’s largest co-operative society– Food, Bank, Travel, Insurance, Pharmacy, Funeralcare, Legal

Services• In 2007, over 3 million economically active members,

the UK’s largest co-operative• £1 share – one vote• In 2007 turnover of £9.4bn and 87,000 employees

serving around 10 million customers a week • The Group

4.

Creative Market Leader - examples include:

• Longer opening hours• Free banking Current Accounts• Free for life Credit Cards• Interest on Current Accounts• Fixed Rate Credit Card• Internet Banking “smile”• Mortgage Market – Green Flexible mortgage

The Co-operative Bank – A Reputation as an Innovative Niche Player

5.

The Co-operative Bank

• Steady but measured growth through the decades

1970 1980 1990

• Share Capital £4m £8m £90m• Reserves £18m £37m £56m• Customer Bals £239m £626m £2,349m• Loan Advances £93m £402m £2,408m• B/S Footage £283m £686m £3,122m• Pre Tax Profit £3.9m £5.7m (£5.9m)

6.

1992 – A Milestone Year in the History of the Bank

• In 1992 the Co-operative Bank became the world’s first Bank to introduce a customer led Ethical Policy.

• The Policy gave customers, for the first time ever, the opportunity to chose a Bank which will not do

business with unethical companies and organisations.

7.

Co-operative Bank – Ethical Policy journey

• Early 1990’s: ‘The business of business is business’

• Ethics generally not an issue!• Profitability issues.• Policy introduced in 1992.• Key facts – materiality:

directs the bank’s core activity – the provision of finance.

• Customer led.

8.

This drove the Bank’s approach to business

1999/2000PartnershipReport

1999/2000PartnershipReport

40.11

• Ethical Policy

• Ecological Mission Statement

• Partnership Approach

9.

Our Sustainable Development Policy Six Partner Groups

Formulated a Sustainable Development Policy

10.

Many Accolades since 1992…….

Just a few examples…..• Winner Business in the Community “Example of Excellence” Award (1995)• Best Social Report in the UK (2000)• United Nations recognises The Co-operative Bank as one of six champions for

ethical and environmental reporting and our Sustainability Report as No 3 in the World (2000)

• Top 50 “Best Companies to Work For” (2001)• Best Environmental Report in the UK (2001)• Overall Winner worldwide for Corporate Social Responsibility Performance at

Corporate Conscience Awards in New York (2002)• United Nations No. 1 Sustainability Report in the World• UK Impact on Society Award (2004)• No.1 Corporate Responsibility Index (2005)

11.

Ethical Policy – A Closer Look

• Human Rights

• The Arms Trade

• Corporate Responsibility and Global Trade

• Genetic Modification

• Social Enterprise and Charities

• Ecological Impact

• Animal Welfare

12.

•Research undertaken in 1990

•30,000 customers approached in 1991 with draft policy

•Policy reflects concerns of customers

•Majority of customers (84%) who responded believed that it was a good idea to have an ethical policy. 97% now fully support the policy

•No statements receiving less than 70% of customers support was included

•Consultation exercise repeated in 1994, 1998 and 2001..

Origins of the Policy?

13.

Are ethics relevant to business?

• Growth of ethical consumerism

• Regulatory framework

• Lack of trust in business

• Competitive advantage

14.

The 1980s – “Loadsamoney”

Why Have a Policy?

15.

The banks have to face some hard headlines

Why Have a Policy?

16.

Human Rights‘Through our investments, we seek to support the principles of the Universal Declaration of Human Rights.

In line with this, we will not invest in:

any government or business which fails to uphold basic human rights within its sphere of influence (98% support)

any business whose links to an oppressive regime are a continuing cause for concern. (98%)

What is the Policy?

17.

‘We will not invest in any business involved in:

the manufacture or transfer of armaments to oppressive regimes (98%)

the manufacture of torture equipment or other equipment that is used in the violation of human rights. (99%)

The Arms Trade

What is the Policy?

18.

‘We advocate support for the Fundamental International Labour Organisation Conventions. In line with these, we will seek to support businesses which take a responsible position with regard to:

fair trade (97%) labour rights in their own operations and through their supply chains in developing countries (96%)

We will not support:

irresponsible marketing practices in developing countries (93%) tobacco product manufacture (81%) currency speculation. (79%)

Corporate Responsibility & Global Trade

What is the Policy?

19.

‘We will not invest in businesses involved in the development of genetically modified organisms (GMOs), where, in particular, the following issues are evident:

uncontrolled release of GMOs into the environment (95%) any negative impacts on developing countries; in particular, the imposition of ‘Terminator’ technologies (93%) patenting; in particular, of indigenous knowledge (88%) cloning; in particular, of animals for non-medical purposes. (85%)

Genetic Modification

What is the Policy?

20.

‘We will seek to support charities and the broad range of organisations involved in the Social Enterprise sector, including:

co-operatives credit unions community finance initiatives.

95 % Support

Social Enterprise

What is the Policy?

21.

‘In line with the principles of our Ecological Mission Statement, we will not invest in any business whose core activity contributes to:

global climate change, through the extraction or production of fossil fuels (70%) the manufacture of chemicals which are persistent in the environment and linked to long term health concerns (88%) the unsustainable harvest of natural resources, including timber and fish. (94%)

Ecological Impact

What is the Policy?

22.

‘Furthermore, we will seek to support businesses involved in:

recycling and sustainable waste management (70%) renewable energy and energy efficiency (88%) sustainable natural products and services, including timber and organic produce (97%) the pursuit of ecological sustainability. (97%)

Ecological Impact

What is the Policy?

23.

‘We will not invest in any business involved in:

animal testing of cosmetic or household products or ingredients (88%) intensive farming methods, for example caged egg production (88%) blood sports, which involve the use of animals or birds to catch, fight or kill each other (84%) the fur trade (87%)

Animal Welfare

What is the Policy?

24.

‘Furthermore, we will seek to support businesses involved in:

the development of alternatives to animal experimentation (95%) farming methods which promote animal welfare, for example free range farming. (94%)

Animal Welfare

What is the Policy?

25.

The Ethical Policy applies to all our business partners including:

•Business Customers

•Suppliers

•Treasury Investment

•Marketing Partners

Ethical Policy Team ensure business accounts are compliant with Policy.

Putting the Policy into Practice

26.

9.8

36.7

74

107.5

132

0

20

40

60

80

100

120

140

1992 1995 1998 2001 2004

Has Ethics had an Impact?

Operating Profit £m

27.

Customer Deposits £m

1097

1907

3169

4887

6566

0

1000

2000

3000

4000

5000

6000

7000

Has Ethics had an Impact?

28.

Ethical approach now embraced across the wider Group

29.

Increased awareness and media coverage

30.

The concept of “Profit with Principles”

•15 years of a customer-led Ethical Policy.

•Over £700 million of loans declined since 1992.

•4 separate customer consultation exercises.

•Circa 300 case studies p.a.

31.

Competitors are now involved

32.

Ethical Consumerism Report 2007

• Household expenditure on ethical goods and services has almost doubled in the past five years

• However, whilst the overall ethical market in the UK is now worth £32.3 billion a year, up nine per cent from £29.7 billion in the previous 12 months, it is still a small proportion of the total annual consumer spend of more than £600 billion.

• Ethical banking saw a 11 per cent increase from £5 billion to £5.6 billion

• The Report

33.ethical finance 2006

The market we’re in…more spending

34.

Value of the Ethical Policy today…

Brand awareness

35.

Value of the Ethical Policy today…

PR

36.

Value of the Ethical Policy today…

• Business case:• Up to 33% of bank profitability can be attributed to

customers who state that ‘ethics’ is an important factor. (Sustainability Report 2005).

• Contemporary interpretation of co-operative values.• Maintains the bank’s reputation as a pioneer of ethical

finance (e.g. 2007 – awarded Business in the Community platinum status).

37.

Proposed 2008 Bank Ethical Policy Review

•Key objectives

•refresh mandate

•re-establish pre-eminence of bank policy

•Range of issues under consideration

•Great apes and animal experimentation

•Airport expansion

•Indiscriminate weaponry

38.

Support for Social Enterprises

• Social Enterprise defined (by UK Government) as:

“Businesses with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners”

• Now 55,000 SE’s in the UK with combined turnover of £27bn• Now regarded as a movement, not just a sector.• SE’s possess a belief in social justice with ethics at the centre of business and

not just an addition.• The Business Studies curriculum in schools is to be altered to teach children

about SE’s.

39.

Involvement in Social Finance & Financial Inclusion

• Co-operative values: 7th co-operative principle “concern for the community” guides the work for the development of sustainable communities.

• Bank’s support covers the following key sectors:– Co-operative organisations– Credit Unions and Community Development Finance

Institutions– Social Enterprise and support for small businesses in

deprived areas

40.

Support for Co-operative Organisations

• Customer / Community Donation Fund• Support for discreet sub-sectors

– Football supporters trusts– Leisure trusts– Housing co-operatives– Co-operative Action

41.

Support for Credit Unions

• Longstanding supporter – bankers to two thirds of the UK credit union movement.

• 3 years spent developing a new current account facility for CU members – first ever in the UK. (launched 2006)

“Our support to the credit union movement reinforces our commitment to community and co-operative development”

42.

Our support for Community Development Finance Institutions

• Co-operative Bank acts as “wholesale” lender to Community Development Finance Organisations. (CDFI’s) who supply capital and business support to individuals and organisations in deprived areas.

• The Co-operative Bank lends more than any other UK bank as a % of its balance sheet.

• Central Government support crucial – e.g. Community Investment Tax Relief scheme – 5% p.a. tax relief x 5 years for investments.

43.

Where are we now ?

In October 2005 the new CFS vision was unveiled:

Our Vision“To be the UK’s most admired financial services business”

Our Purpose“To be a growing pioneering financial services business delivering benefits

to customers, members and communities through commitment to value, fairness and responsibility”

44.

Values – Determined by Staff

• Being Customer Focused – we always aim to satisfy our customers and exceed their expectations where we can.

• Openness and Honesty – we work hard to earn credibility and trust from our customers and each other

• Making Work Fun – we are proud of CFS and know we can contribute to making it a great place to work.

• Being Successful – we work together to make sure that CFS is admired, profitable and sustainable.

• Social Responsibility – we are committed to leading the way on ethical, environmental and community issues.

Our five values, which are very similar to the original Co-operative values, drive our behaviour, underpin our decisions and help shape our business as we work towards achieving our vision.

45.

Lessons the Bank has Learnt

• Customer and Community engagement is crucial to success.

• Central and regional government support is very helpful.• Values and Vision must be at the core of the

organisation and not a bolt-on marketing initiative.• Our Principles reflect our Heritage.• You can bring about fundamental change within Society

if you have the commitment and desire to do so.• It does not happen overnight.

46.

Customer-led…

Public declaration of how it uses funds…

Subject to third party verification and reporting.

Campaigning

Membership

what makes the Co-op unique…

47.

Loyalty

“On average, US corporations now lose half their

customers in five years, half their employees in four, and half their investors in less than one year…

We seem to face a future in which the only business relationship will be opportunistic transactions between virtual strangers.”

Frederick Reichheld: The Loyalty Effect

48.

‘Ethics in Action’ to Drive Loyalty

49.

Controversy and questions

• In order to communicate its ethical stance, the Bank took the decision to advertise. Even this action caused controversy. Critics argued that if the bank advertised its ethics as a means to pursue its own ends, then it was, at worst, not acting from a pure moral duty, or at best, acting with self interest and with mixed motivation.

• Despite this questioning of the purity of its moral intentions, advertise the bank did, although their brief was a challenging one. The idea of ‘responsible sourcing and distribution of funds’ needed to be conveyed to the potential customer in a simple and challenging and motivating way.

• Despite the controversy, the bank’s new strategy worked. Immediately the bank’s current account customer base strengthened and, the number of organisational accounts, including customers such as charities, student unions and local authorities, also grew. There was positive feedback from staff and customers. It is a testament to the architects of the ethical policy that it continues to go from strength to strength by following the same basic strategy.

http://www.co-operative.coop/aboutus/