The Industrial Bank recently released its Social Responsibility Report for the first time. The report details the bank's concept of social responsibility, its organizational structure in this regard and the actions that it has taken over the past years to fulfill its social responsibilities. The most striking thing in the Report is that the bank has closely integrated its social responsibilities into its corporate strategy, thereby attaching a much greater level of significance to the fulfillment of its corporate social responsibility (CSR). In the words of the people at the Industrial Bank, this concept of social responsibility is called “integrating obligations into interests”.
What is “Integrating Obligations into Interests”?
The fulfillment of corporate social responsibilities can be divided into two approaches, depending on whether or not the fulfillment of CSR is combined with the business of a company. The first mode it's the fulfillment of CSR in a way that is unrelated to the actual business of a company. That means a company simply withdraws a portion of its profits to repay stakeholders. Typical examples of this are tax payment and charitable donations. The second mode is the integration of social responsibilities and the business of a company. By connecting responsibilities to strategy, a company demonstrates its social responsibilities in the course of its business development and operations. The term “integrating obligations into interests” advocated by the Industrial Bank actually refers to this second approach. As a commercial organization, a company engages in business activities for the purpose of creating material wealth for its stakeholders. Thus, “integrating obligations into interests”, means that a company integrates its CSR into its business during actual operations, puts it into specific practice in management and at the same time seeks out commercial opportunities through the fulfillment of responsibilities in an effort to seek sustainable and developable modes of business that are beneficial to both company and society and modes in which companies can fulfill their corporate responsibilities.
In today's world, the climate and rules of commercial competition have undergone huge changes. The pure market-based competition seen in the past has been replaced by responsibility-based competition, which has much deeper connotations. The buildup of enterprise competitiveness is no longer just an issue of tangible forces, such as material resources, business size, product quality and performance, but is increasingly reliant on intangible forces such as corporate vision, values, innovation mechanisms, trustworthiness, awareness of social responsibilities and the social reputation and brand influence that these factors contribute to. Companies should choose social issues that have connections with their business and undertake their social responsibilities towards employees, consumers and communities on a well-targeted and planned basis. These responsibilities should be integrated into their business development strategies as a way of contributing to the attainment of business development targets. By leveraging on their special advantages and specific resource advantages to fulfill social responsibilities, companies can better serve society and bolster their intangible competitiveness. This will give them more of a competitive edge and thereby benefit both the company itself and society in general.
IB's “Integrating Obligations into Interests”
Corporate social responsibility (CSR) has only started to receive widespread attention in China over the last few years. Many companies still lack a systematic understanding of social responsibilities. The Industrial Bank has taken the lead in this regard. The bank has defined the principle “integrating obligations into interests” on the basis of its own attempts to fulfill social responsibilities, and gained a deep understanding as to what it really means. By integrating CSR into all aspects of its business operations and promoting the principle of integrating obligations into interests, the Industrial Bank has comprehensively enhanced its sustainable competitiveness and won a great deal of praise in doing so.
Infusing CSR Concepts into Corporate Governance
Sound corporate governance is both a foundation and a guarantee for development. Corporate governance defines whether or not a company can achieve sustainable development. In modern society, the healthy development of a company requires much more than the sound relationship between shareholders and management, instead, sound relationships between the company and all stakeholders are important for the healthy development of a company. The idea of “shareholders' interests come first” has evolved to “maximizing stakeholder interests”. Only by this way sound conditions for the development of the enterprise be created, the chances of “man-made calamities” reduced and the steady and sustainable development of companies on a long term basis realized. Furthermore, to ensure the sound relationship between a company and all stakeholders, the company must assume responsibilities, that match the level of its influence, towards these stakeholders and, to do this, integrate the concept of special responsibility into its corporate governance.
Being part of a special public-oriented industry, banks rely on not only financial input from shareholders but also the efforts made by customers, employees and other stakeholders with their different resources. The characteristics of the banking industry mean that banks are required to undertake and fulfill more social responsibilities. The way that the Industrial Bank sees it, the social responsibilities of a bank go far beyond making profit, paying tax and offering charitable donations. The core of these responsibilities is actually the protection of the environment, the reduction of emissions and the improvement of social welfare through the provision of professional services. This requires the bank to follow market rules, exert its influence by offering excellent financial products and services and through this support for the sustainable development of society, the economy and the environment. At the same time, by conducting business activities under the guidance of social responsibilities, a bank can find its own niche and thereby enhance its core competitiveness. This results in the realization of long-term and sustainable development.
For a long time, the Industrial Bank has attached great importance to the stable and sustainable development of the bank as well as the protection of the rights and interests of shareholders and stakeholders. At present, the company has a diversified and well-proportioned shareholder structure, with the general shareholders' meeting, the board of directors, the board of supervisors and senior management having clearly defined roles, checks and balances over one another and seamless links as they operate. A comprehensive and systemic corporate governance system has been established which functions according to clearly defined norms at each level. The corporate governance activities of the company are carried out in compliance with state laws and rules as well as the normative documents regarding corporate governance issued by China Securities Regulatory Commission, China Banking Regulatory Commission and the Shanghai Stock Exchange. As to information disclosure, the bank proactively performs capital marketing, strictly fulfills its information disclosure obligations as stipulated in the regulatory rules and protects investors' interests, thus establishing an image as a transparent and responsible co mpany. Especially in 2008, facing the complicated and rapidly changing macro-economic situation together with the significantly changed A-share stock market, the Industrial Bank employed an investor relations strategy that combined day-to-day communications with well-targeted activities according to the attributes of investor groups and their psychologies at certain times. This maintained the impartial and transparent image of the bank.
Supporting Green Credit and Enhancing Environmental Risk Control
At present, people across the world are working together to address energy and environmental issues. The large demand for investment in energy conservation and environmental protection requires urgent financing support from the financial sector. This is a new and highly valuable opportunity for commercial banks. Banks should adjust their credit policies to proactively support the development of “green industries”. They should also take solid action to support energy conservation and environmental protection. In this process, banks can establish environmental risk control systems so as to avoid the environmental and social risks that may arise in the granting of loans.
Since August 2005, the Industrial Bank has been working with the International Finance Corporation (IFC) closely to develop the energy efficiency financing market in China. In May 2006, IB and the IFC signed a cooperative agreement on Utility-Based Energy Efficiency Finance Program. The agreement integrated the market-based financing edges, public service edges and risk control edges of both parties and innovatively introduced a loan principal loss sharing mechanism as well as a new financing product – “energy-efficient loans” according to the financing demands in energy conservation and circular economy development of China . Under the program, IB has provided loans of RMB 900 million (or USD 126 million) to 46 energy conservation & emissions reduction projects in China . The majority of these loans were provided to small and medium enterprises. The projects cover industrial boiler renovation, heat recovery, co-generation, tri-generation, power saving and industrial energy optimization, etc.
On February 25, 2008, IB and the IFC signed a 2nd -stage agreement for the energy efficiency financing program, vowing to strengthen the cooperation between both parties to support China 's efforts in energy conservation & emissions reduction. According to the agreement, the IFC will provide IB with USD 100 million for sharing the risk of loan principal loss to support the IB in granting loans of RMB 1.5 billion (or USD 210 million) for energy conservation & emissions reduction projects. It is expected that the loans will help reduce emissions by over 5 million tons of CO2 each year, which is equal to the emissions given off by ten 100MW thermal power plants. In addition, IB recently set up a sustainable financing center especially for the operation, management and marketing of carbon finance, energy efficiency finance, environmental finance and other sustainable financial services.
The first to launch energy efficiency project financing in China , IB became the pioneer and advocator of “Green Credit” in China , winning not only appreciation from the regulatory authorities but also high recognition from the international community. On June 7, 2007, IB was the runner-up in the “Sustainable Deal of the Year” of the 2007 Sustainable Banking Awards held by the Financial Times and the IFC, becoming the only financial organization in China to have won this honor.
This successful experiment encouraged the Industrial Bank to delve deeper into Green Finance. The bank began to look into the prospect of adopting the Equator Principles at the end of 2006. Following a period of discussions and argumentation, the board of directors approved the Resolution on Adopting the Equator Principles on June 28, 2008. Following a period of preparations, the bank formally committed itself to the Equator Principles on October 31, 2008, becoming the 63rd “Equator Bank” worldwide and the first in China .
The Equator Principles not only require the financing party but also require the bank to formulate well-targeted environmental management schemes and action plans to be implemented throughout the entire course of environmental management in project financing. By taking the Equator Principles as a reference, the IB's board of directors formulated the Environmental a nd Social Risk Ma nagement Policy of the Industrial Bank at the end of 2008. Under the policy, environmental factors are to be taken into consideration in business decision making with an aim to support environmental protection and realize sustainable development. This has significantly expanded the traditional boundaries of risk management in commercial banks and further promoted the enhancement of the Industrial Bank's risk management system.
Establishing Inter-bank Platform to Facilitate Cooperation
Guided by its dedication to social responsibility, the Industrial Bank has also managed the way that it cooperates and competes with small and medium financial firms. The bank has made efforts to cooperate with such institutions to create a harmonious financial eco-environment together. For this purpose, IB innovatively launched its Bank-bank Platform cooperation program. The program has contributed to improving the allocation and utilization efficiency of financial resources in society.
Against a background in which consumers are demanding more and more in terms of comprehensive services from financial organizations, the Industrial Bank launched the Inter-bank Platform, a Bank-bank cooperative service dedicating to becoming a professional banking service provider for small and medium financial organizations. With a basic purpose to share resources and innovate in services, the Bank-bank Platform is designed for cooperation with urban commercial banks and rural credit cooperatives, which have regional network advantages, through the output of key products, services and technologies. By pooling strengths and growing together, IB and small and medium banks are able to exist in harming and to mutual benefit. Under such cooperation, more convenience in terms of outlet services and better integrated financial services will be provided to customers. Currently, relying on the Bank-bank Platform, the inter-bank cooperation program has evolved into a system covering 8 services - technology management export, payment and settlement, capital application, wealth management, exchange brokerage, financing, optimization of capital, assets and liabilities, and comprehensive training.
Cooperating with small and medium banks is actually a process of rebuilding the value chain of the banking industry. IB has taken responsibilities along with upstream and downstream enterprises along the value chain to establish a cooperative, mutually beneficial mechanism for sharing social responsibilities. With unified strategies and uniform standards, all participants along the value chain have established a value chain for joint CSR fulfillment. As to the division of work in the value chain, IB attaches priority to its front-end distribution capability and back-end R&D and operation management capability, while small and medium banks focus on customer development and service capabilities. In the process of cooperation, IB shares the achievements of partners by providing value-added services, which means that it can save front-end expenses and employee costs involved in self-business expansion and also generate income.
The inter-bank cooperation program has expanded the horizons for cooperation between domestic financial organizations in China. It has created a new business field and mode for domestic commercial banks. By using diversified competitive measures to address the problem of homogeneity of financial products, the IB has forged a new niche. The inter-bank cooperation program has now become a special business of the IB, through which, the IB sets up cooperative mechanisms to share resources and strengths with small and medium banks. This way, it has driven-on the growth of a group of small and medium banks.
Responsibility Brings About Outstanding Achievements
The Industrial Bank's precise understanding of social responsibilities and the efforts that it has made to be more responsible have been returned with accolades, results and the ability to develop in a sustainable manner. At the end of 2007, a time when there were many differing opinions about the macro-economic climate, the Industrial Bank accurately predicated an economic downturn and requested that all levels of the bank begin to consider and make preparations for this likelihood. The Industrial Bank lowered growth targets for major indexes for the 2008 fiscal year and turned its focus to enhancing internal management, exploiting potential and promoting quality. Against the backdrop of the worsening global financial crisis and the fluctuating economic situation in 2008, the Industrial Bank continued to give top priority to internal control and risk control. This meant that the bank was capable of devising strategies freely under a complicated macro-economic climate. The Bank's approach of adaptation to the overall climate in a pragmatic manner has won it a great deal of praise from industry insiders.
A bank is there for its shareholders, as it is dedicated to creating profits for them. A bank is also there for creditors and other stakeholders. The interests of all stakeholders in the long run are always the top priority. A bank should conduct its business in a responsible manner with an aim to realize the long-term and sustainable development of both the bank and society.
The Industrial Bank has published its annual report for 2008 at the same time that it has published its first Social Responsibility Report. At the end of 2008, the bank's total assets broke all previous records to exceed the RMB 1 trillion mark for the first time. The net profits for the year exceeded RMB 10 billion for the first time and the rate of non-performing loans (NPL) dipped to below 1%, also for the first time. Both the NPL provision coverage and the adequacy ratio of loan loss provision exceeded 200%, and the capital adequacy ratio continued to be much higher than the regulatory level. With an admirable business performance, the Industrial Bank presented satisfactory results to its investors and the community in 2008. This performance has a lot to do with the fact the bank has integrated concepts of social responsibility into its managerial operations.