How can the finance and insurance industry also contribute to a more sustainable economy? This question is at the centre of current debates in business practice and management research. In collaboration with the VU Amsterdam and the University of Oxford, the BFH Business School’s Sustainable Business Institute is conducting a qualitative study funded by the Swiss National Science Foundation (SNSF) to investigate the effective implementation of ESG (Environment, Social, Governance) in the Swiss banking and insurance industry. An interim report by BFH researchers Eva Schlindwein and David Risi.

ESG refers to a set of criteria that investors and banks use to assess the sustainability and social impact of a company. Environmental factors include carbon footprint, energy efficiency and waste management. Social factors include human rights, labour practices and community engagement. Governance factors include executive compensation, board diversity and transparency in financial reporting.

Through interviews with bank and insurance company managers and industry experts, as well as document analysis, the research study explores over four years how banks and insurance companies are seeking to integrate ESG into their business and decision-making processes and address emerging challenges.

Corporate Transformation – Implementing ESG

In finance, banks and insurance companies use ESG as a steering tool in the management of financial capital (including investments and lending). A study (Risi, 2020) shows, for example, that Swiss financial institutions rely on ESG in their core business, such as banks that now include ESG aspects in addition to economic ones in the area of wealth management. However, the study also points to the fact that ESG implementation is a major challenge, as it requires new ways of corporate governance, including the systematic integration of social, environmental and ethical concerns in business operations.

Corporate contribution – measuring ESG

ESG measurement is an increasingly popular means of holding companies accountable for their sustainability efforts and providing them with incentives to improve their contribution to sustainable development (Howard-Grenville, 2021). This is accompanied by the emergence of ESG rating agencies. These agencies transform complex sustainability information about companies into metrics that provide the basis for comparing companies on their ESG performance (Crace & Gehman, 2022).

However, measuring ESG measures and thus the effective contribution that companies make to sustainable development is still in its infancy. Primarily, it is assumed that the myriad ESG and other sustainability activities of companies have the positive impact they intend, but there is usually no reliable evidence of what impact such measures effectively have on social, environmental and ethical concerns (Barnett et al., 2020; Wickert and Risi, 2019).

Effective corporate performance – ESG implementation and measurement

In order to reliably measure corporate performance on sustainable development, the research project examines not only how ESG activities are implemented, but also whether implemented activities actually contribute to achieving the results that these activities should achieve in the short, medium and long term. This dual focus on implementation and measurement of ESG measures promises to understand effective corporate performance on sustainable development.

To this end, the two BFH researchers* are conducting case studies with Swiss financial and insurance institutions to investigate how they integrate ESG aspects into their business practices and how effective these measures are. The aim is to gain insights into best practices and weaknesses in order to develop recommendations for an improved integration of ESG aspects in the finance and insurance industry.

Interim results of the project show that while Swiss financial and insurance institutions implement a variety of ESG measures, there is often a lack of effective measurement and monitoring. There is also a certain discrepancy between companies’ ESG initiatives and their actual impact on society and the environment. To achieve a more sustainable economy, companies need to improve their ESG practices and better measure and monitor the effectiveness of their measures.

References

Barnett, M., Henriques, I., & Husted, B. W. (2020). Beyond Good Intentions: Designing CSR Initiatives for Greater Social Impact. Journal of Management, 46(6), 937-964. https://doi.org/10.1177/0149206319900539

Crace, L., & Gehman, J. (2022). What Really Explains ESG Performance? Disentangling the Asymmetrical Drivers of the Triple Bottom Line. Organization & Environment, 0(0). https://doi.org/10.1177/10860266221079408

Howard-Grenville, J. (2021). ESG impact is hard to measure-but it’s not impossible. Harvard Business Review. http://www. repository.cam.ac.uk/handle/1810/317097

Risi, D. (2020). Time and Business Sustainability: Socially Responsible Investing in Swiss Banks and Insurance Companies. Business & Society, 59(7), 1410-1440. https://doi.org/10.1177/0007650318777721

Wickert, C., & Risi, D. (2019). Corporate social responsibility. Cambridge University Press. https://doi.org/10.1017/9781108775298

About the BFH Economy research project

Corporate Social Responsibility (CSR) is used by many companies to contribute to sustainable development. However, the implementation of CSR activities remains challenging and requires changes in existing corporate processes. Crucial for the implementation are on the one hand CSR managers who drive the activities, but on the other hand also the resources that are available for CSR activities. Dr. David Risi’s new research project, which is also funded by the Swiss National Science Foundation (SNSF), aims to better understand the interplay between these two factors. Together with research colleagues at the Vrije Universiteit Amsterdam and the University of Oxford, David Risi will study companies in the Swiss finance and insurance sector – both with qualitative interviews and with the analysis of secondary data (e.g. CSR reports, annual reports or codes of conduct). The project thus closes a research gap: For the first time, it will be investigated how CSR managers and CSR resources jointly influence the implementation of CRS activities and which mechanisms lead to a positive or negative impact.