Discharge social role, RBI tells banks

The Reserve Bank of India (RBI) has directed banks to undertake corporate social responsibility (CSR) initiatives for sustainable development.

The regulator has also asked banks to begin non-financial reporting, which will give an account of the banks' intangible assets.

"There is insufficient awareness on an issue such as global warming and climate. Majority of the Asian companies are not aware of the risks that climate change can pose to their business models and environment in general. In this context, the need for sustainable developmental efforts by financial institutions in India assumes urgency and banks, in particular, can help contribute to this effort by playing a meaningful role,'' said the RBI in a circular issued to banks.

CSR entails the integration of social and environmental concerns by companies, in their business operations and interactions with stakeholders, according to the central bank. Sustainable development is about maintaining the quality of environmental and social systems in the pursuit of economic development.

Non-financial reporting is a system whereby organizations report on their activities, especially those pertaining to environmental, social and economic accounting.

The new generation private sector banks and foreign banks have an active corporate social responsibility department.

The regulatory authority has directed banks to put in place a board-approved plan of action aimed at ensuring sustainable development.

The banks will have to keep themselves abreast of developments and modify their strategies and plans in the light of changing situations. Banks will have to place their CSR initiatives in the public domain, along with their annual accounts.

"Non-financial reporting is an opportunity to communicate in an open and transparent way with the stakeholders. The non-financial reports allow firms to provide an overview of the environmental and social impact in the previous year. This information contributes towards building a company's risk profile. The importance of non-financial disclosure in the overall assessment of a company's risk profile is steadily gaining ground,'' said the RBI.

The central bank said the contribution of financial institutions, including banks, is crucial to sustainable development, considering their role in financing the economic and developmental activities worldwide.

Hence, the need for banks to act as responsible corporate citizens, especially in a developing country such as ours, need be hardly overemphasized. Their activities should reflect their concern for human rights and environment.