We live in a world of digital communications, where social media provides the global population with the opportunity to come together like never before. This has brought a whole new dimension to consumer interaction. It provides instant channels for information exchange, experience and opinion sharing. Social media and multichannel digital communications have increased the power, agility and lobbying capacity of consumers.

The result: Businesses can ill afford to ignore the strong customer feedback that business needs to be seen as acting on the global issues posed by climate change and sustainability.

This is the second post in my series on sustainable banking. In my first - I talked about the role banks must play in ensuring that our economies stay strong by extending credit and bank services while maintaining vital risk management. The economic dimension is of critical importance to sustaining our economy, society and environment. In this post, I’ll talk about another very important dimension – the social dimension.

A bank needs to manage the impact of its activities on society in two ways. First, remove (or at least mitigate) any negative impacts it may have; second, take positive steps to help communities through its employment practices, fundraising, volunteering and charitable giving.

The first part requires a set of ethical business principles that ensure the bank is a responsible provider of financial services to customers – individuals, small businesses, large corporations, public sector bodies – so that bank-financed customer activities do not harm others. A bank’s lending, investing and asset management policies should have built-in respect for human rights.

The consequences of poor governance or risk management in this area are serious. If a bank is found to be treating customers unfairly – by, for instance, lending to those who cannot afford to repay, or selling unnecessary insurance – or its activities end up harming communities or the environment, not only will its commercial image suffer, its reputation for sustainability will be damaged and could end up in tatters. Regulatory and reputational risk management are two sides of the same coin. If a bank fails in one, it fails in the other.

The second part entails many things:

• Employment policies that ensure diversity, including gender, race and religion.
• Encouraging or allowing its staff to get involved in fundraising and volunteer activities for the disadvantaged and the community.
• Investing in communities through donations, loans and assistance to charities and other good causes.
• Persuading suppliers to act in a socially responsible manner.
• Gaining the support of shareholders for these initiatives and others like these.

"Citi"zenship
Citigroup refers to its approach to sustainable banking as good corporate "citizenship" incorporating the bank's name and emphasizing its integral role in society. Vikram Pandit, Citigroup's Chief Executive Officer, writes in the latest Citizenship report that in these uncertain times, the bank’s actions in this area are “more important than ever before.”

On social issues specifically, Pandit explains that the ban's work ranges from "supporting communities struggling to cope with waves of foreclosures" to diversity in its employment practices. "Diversity is very important to me and to Citi," he writes. "The key to business success is having diversity of thought. Our success – and the success of our culture of meritocracy – depends on every one of us having the chance to succeed. Citi’s diverse and talented employees make this possible."

Citi's recent achievements in social sustainability include helping 440,000 homeowners in 2007-08 mitigate their losses and modify their loans; more than 55,000 employees and their families volunteering their time and expertise on Global Community Day; and setting up a Women's Leadership Development Program for female high-flyers. The Environmental and Social Risk Management (ESRM) Unit reviewed 380 transactions – in power generation, mining, oil, manufacturing and other sectors – to ensure that their impact on the environment and society would be limited or negligible.

Most banks check their major suppliers to ensure they are socially responsible. Triodos Bank in the Netherlands, named "Sustainable Bank of the Year 2009" by the Financial Times, mentioned in its award submission that suppliers are "assessed according to social and environment criteria."

Standard Bank of South Africa promotes "responsible procurement standards" and encourages suppliers "to act ethically and responsibly." It conducts ad hoc supplier site visits to check up on them and writes specific social requirements into contracts. Bank staff members have to conform to certain rules when assessing tenders from suppliers, and all invitations to events and gifts from suppliers are recorded and controlled. The policy has teeth: In 2008, the bank terminated one supplier’s contract because it failed to comply with these standards.

Sustainable banking could be included as a new form of customer relationship management. Consider this: Citi, Triodos Bank and Standard Bank are just three of the many examples of banks that are changing their customer relationships by redefining social responsibility. In my next post, I’ll explain how business analytics can help banks meet and report their social sustainability goals.

You can also look for a future post titled The Environmental Dimension. The Environmental Dimension is the third and final dimension of sustainable banking. If you're impatient and want all of the information now, read the white paper, Sustainable Banking.

Tell me about some of the steps your bank has taken to promote its social responsibility and community awareness. Have these moves toward corporate social responsibility improved your customer relationships?