Maintaining corporate social responsibility across financial supply chains

In today’s consumer-centric world, corporate governance is under great pressure to become an environment of trust and transparency in which the ethics and moral values of companies align with those of customers. In the financial sector, which is entirely built on customer trust, corporate social responsibility (CSR) programs are critical for building and preserving a strong brand reputation.

The financial services sector is one of the most heavily regulated and scrutinized of all. Know your customer (KYC), periodic due diligence (PDD), and anti-money laundering (ALM) checks are, however, just the tip of the iceberg. For far too long have organizations viewed these as little more than the legal bare minimum. However, the time has come to incorporate all these standards into part of a broader CSR program that puts trust, transparency, and sustainability first.

When it comes to maintaining the high standards that today’s customers expect, the weakest link tends to be the supply chain itself. Even if a company’s internal policies might be beneficial to society and the environment, partnering with a vendor who does not meet those standards themselves can lead to regulatorily and reputationally unacceptable results. In other words, a company’s reputation can only hold up if it does business with the right partners.

Financial services firms can enjoy numerous business benefits by adopting and enforcing CSR initiatives. For example, mergers and acquisitions are booming in the financial sector, but high levels of risk remain in cases where the acquiring party fails to conduct proper due diligence. Without access to the right information, they risk acquiring all the company’s reputational risks and challenges along with its more beneficial aspects.

Building trust with banks with better supply chain governance

Supply chains are more complex than ever before and, much like individuals, businesses are often judged by the company they keep. For example, working with a technology vendor who has a poor track record in information security will have a diminishing effect on customer trust. Similarly, partnering with a business that has lax societal and environmental policies will look bad to customers, employees, as well as to potential investors and other stakeholders.

With the trust deficit at an all-time high, a transparent approach to CSR serves as an important competitive advantage. Financial institutions that can demonstrate a positive impact on society and the environment will stand apart from the rest. By actively supporting their communities with targeted efforts, such as financial literacy programs and outreach for vulnerable sections of society, companies can make a positive impact.

While there are many ways financial institutions can directly benefit local communities, the biggest challenge is achieving governance across supply chains. Being the driver of the global economy, financial services have the huge responsibility to set the bar for the whole industry. With consumers, regulators, investors, and lenders all watching closely, firms must carry out comprehensive environmental, social, and governance (ESG) audits when evaluating new or existing suppliers. These audits should not be merely viewed as a legal requirement, but also something that can reveal insights that add value to your organization. After all, any company with a demonstrably positive impact on the environment or the communities it serves has a competitive advantage, simply because they will be more attractive to customers, employees, and investors.

The role of data in making the right supply chain decisions

The explosive impact of digitization in the financial sector means there has been a deluge of data in recent years. However, most of this data remains unused for analytics and decision-making, hence the popular term ‘dark data’. Much of this data is spread across supply chains and comes in from a wide range of different sources. However, when it comes to supply chain management, this data can reveal crucial insights about who you’re doing business with. Financial services firms are already tapping into big data to automate routine supply chain operations, such as KYC and ALM checks.

The European Union is also catching up with the need to manage international supply chains at scale by sponsoring projects like PROFILE. These initiatives seek to leverage big data analytics, machine-learning and natural language processing (NLP) to serve a broad range of purposes, such as establishing risk indicators when profiling organizations. Financial services firms can and should themselves tap into these emerging technologies for validating the practices and legitimacy of their own suppliers, especially in regions of the world that might not have such rigorous regulatory standards.

Conducting KYC and PDD audits obviously requires a degree of cooperation from suppliers, but tapping into so-called dark data can greatly elevate the effectiveness of these audits. For example, NLP technology can scour social media and any other publicly available content to analyze customer sentiment at scale. As such, it may reveal red flags that aren’t so obvious from proprietary data alone.