Story:
A Stakeholder Approach to Sustainability: beginning with employees and customers and extending to communities in all its forms
As a response to poor customer, employee, government and community feedback to the banking sector in the 1990s, Westpac, one of the top listed companies in Australia, adopted a business-led stakeholder focused approach based on employees and customers that resulted in them consistently being awarded recognition as a global leader in sustainability across a variety of independent international measures including the Dow Jones Sustainability Index. In 2011 it regained top position in the banking section of the Index, being ranked number 1 out of 190 banks. Its approach in integrating sustainability across all of its operations is based on its link to reduced risk and increased financial performance but it began with a focus on employees.
Westpac began trading on 8 April, 1817 as the Bank of New South Wales. It now has branches and affiliates throughout Australia, New Zealandand the Pacific region and maintains offices in key financial centres around the world.
As at 30 September 2011 the Westpac Group employed approximately 38,000 people (full time equivalents) in Australia, New Zealand and around the world, with global assets of $AUS670 billion.
Westpac is ranked in the top 5 listed companies by market capitalisation on the Australian Securities Exchange Limited (ASX), at $AUS61.6 billion.
For the financial year ending on 30 September 2011 its net profit after income tax was $AUS6,691 million.
At Westpac, increasing shareholder value has always been the core driver and to achieve this, the first step to improve its reputation was a focus on building staff morale by creating a company where people wanted to work. This in turn they believed would lead to more customers wanting to do business with the Bank, and better shareholder returns from a company which people wanted to invest in.
Westpac former CEO Dr David Morgan says “it was a "moment of truth" in 1999 when he had to announce a record profit while we never had the community more dissatisfied with us, we never had our customers more dissatisfied and staff morale was never where it should have been”.
Westpac's journey began with widespread public resentment resulting from their record profits in the 1990s. This was accompanied by a threat to their community license to operate especially as bank closures and in its place the introduction of technology such as Automatic Transaction Machines (ATMs) were viewed as detrimental to their communities.
Hence in the late 1990s as banks shed staff and closed branches their reputation suffered. In a country such as Australia with remote communities the role of the local Bank was seen as integral to maintaining community sustainability. Local bank managers took on many community roles and the loss of their presence was viewed poorly and seen to be the instrumental to the demise of rural areas.
People could still remember when banks were public instrumentalities with a ‘public service’ ethos. However with their privatization over many years public perception of bank behaviors had reached such a low level that the communities had become cynical about banks. Their focus on profits at the expense of communities was viewed by many, including communities and governments as detrimental. The risk to the banking sector therefore was evident and internally Banks recognized that a change of approach was needed even if in order to reduce the risk of government intervention.
In highlighting Westpac's ignorance of stakeholder concerns at the time, Dr Noel Purcell, former Group General Manager, Stakeholder Communications Westpac Banking Corporation, spoke publically of his role in creating a new paradigm leading to the interests of all stakeholders being better balanced. Improving the reputation of banks in dealing with stakeholder needs was the key focus of his executive position.
The importance of having executives leading as change agents cannot be under-estimated. Recognition at the executive level of the importance of active engagement with stakeholders was seen to be pivotal in the transformation. Walking the talk is also an approach that was seen to be key. Actions taking place along with the rhetoric brought improved stakeholder regard.
Even now in 2011 in Australia, the banking sector is confronted with one of the highest industry employee turnover of any industry sectors which threatens their performance. The global financial crisis has not reduced this challenge and many companies have had to develop new means to attract and to retain talent within an increasingly professionalized industry. Thus, to address this issue, managers within these sectors use sustainability and responsibility to promote the tangible advantages offered by jobs in their sector.
Community cynicism of bank’s activities is still evident and Westpac understands that it must use both a strategic and risk approach that is proactive rather than reactive in order to maintain their legitimacy in the eyes of their stakeholders.
In response to widespread community, media and government disquiet about the role of banks in Australia, in the late 1990s Westpac’s first decisions were to place a moratorium on rural and metropolitan branch closures; introduce fee-free transactions for social security recipients and low-income earners; and tighten up on extending credit card limits for people who were likely to spend beyond their means.
In 1998 it became the first bank to introduce paid maternity leave and provide for six weeks’ paid paternity leave.
In 2002 Westpac Bank was the first Australian financial institution and one of only five globally, to deliver a triple bottom line report conforming to the standards of the United Nations-sponsored Global Reporting Initiative.
In 2002 Westpac became number one in the banking sector on the global Dow Jones Sustainability Index, a position it held until 2007 and regained in 2011.
In relation to employee issues it has consistently been recognized in its work in particular with advancing women and diversity. In 2002 Westpac received a high score from Diversity@Work, the Australian Federal Government funded group established to help companies diversify their workforce, after enshrining diversity into its employment policies. Initiatives included the introduction of the Diversity Council and allowing breastfeeding in the workplace. The same year Westpac also re structured its Women’s Markets Unit to comprise a dedicated team of female business development managers to work alongside women to help them grow their own businesses.
In 2007 Westpac announced Westpac Assist, a program to provide assistance to customers to help maintain control of their financial affairs under the umbrella of their newly formed Responsible Lending Practices.
In 2009 Westpac commemorated 10 years of its Matching Gifts Program and $AUS20 million in donations to more than 1200 Australian based charities. This program matches employees gifts to charities dollar for dollar. In 2010 Westpac announced a new strategic partnership with Mission Australia to address family homelessness and help deliver more affordable housing over the next decade. This entails providing $1AUSmillion over three years to Mission Australia, engagement of staff through volunteerism plus in-kind and pro bono support.
It has consistently been recognized in the Equal Opportunity for Women in the Workplace Agency Employer of Choice for Women lists from 2008 to 2011. And in the Asia’s Best Employer Brand Awards 2011 it was named as the Most Sought After Employer.
In regard to the environment in 2007 it was named as the only bank in the world and one of only four on the Global FT500 list to achieve a 100 pint AAA rating in the 2007 Climate Disclosure Leadership Index. This award was in recognition of its disclosure of risks and opportunities of climate change. Between 1997 and 2006 Westpac reduced total greenhouse emissions by over 45 %. Dr Purcell believed climate change to be a fundamental economic issue. In 2007 Westpac partnered with LANDCARE Australia to establish CarbonSMART, an innovative carbon trading pool and brokering service for Australia. And in 2008 it launched its five year climate change strategy to cement a whole-of-supply chain approach to reducing carbon emissions. This strategy is based on 5 pillars:
- Minimising the environmental footprint
- Communication and advocacy for the community
- Risk and capacity building internally to assist employees engage with customers on climate change issues
- Products and services innovation including green home loans and addressing environmental sup0ply chain management
- Engaging employees
All Westpac’s credit processes include an assessment of ESG risk following the introduction in 2010 of its ESG Risk Management Framework and Credit Policy. This brought about a revision of its Principles for Responsible Lending in line with its responsibilities under the UN Principles of Responsible Investment (PRI).
In 2011 Westpac launched the Davidson Institute Australia’s first school of money, a dedicated education resource to help all Australians access financial education.
In 2011 it continued its disaster relief program by contributing over $AUS1.5 million to employees and communities in Queensland, Victoria and Christchurch. By 2012 Westpac had donated over $AUS30.7million to over 1600 charities over 13 years.
Moreover in 2011 Westpac began implementing their Indigenous Reconciliation Action Plan and introduced a new Senior Manager, Indigenous Employment, a steering committee to oversee the indigenous employment, an indigenous employee working group and integrated indigenous suppliers into their supply chain.
In 2011 it is the only Australian bank listed in the Global 100 Most Sustainable Corporations in the World. It is regarded as one of the world’s most ethical companies for the period 2008 to 2011 by the Ethisphere Instutite. And it is included in the international FTSE4Good Index, an international responsible investment index.
In 2011 it was the top Australian bank and in the Global Top 10 of the Carbon Performance Leadership Index for the second year in a row. The Money Magazine 2011 Consumer Finance Awards awarded the bank the 2011 Socially Responsible Bank of the year award.
The big issues in the late 1990s that impacted on banks’ reputation were focused on branch closures, hidden fees and excess profits. In contrast in 2008 Westpac regarded the big issues to be consumer debt, climate change, responsible lending, penalty fees and the 'war for talent'. However now in 2012 the continuing disquiet about banks behaviour in light of the GFC has seen stakeholder concerns revert to excess profits, hidden fees, and high interest rates. This points to the fluid nature of stakeholder concerns and the need for continual and proactive stakeholder engagement strategies. This fluidity is recognized by Westpac in its 2011 Annual Report stating that proactive stakeholder engagement to understand the changing environment is a key strategic activity.
In 2011 Westpac documented its focus areas to be:
- demographic and cultural change, with expected skill shortages;
- environmental challenges, with scarcity of natural resources, environmental disruptions, energy security and climate change; and
- Sustainable wealth creation beyond the customer base.
Westpac believed improving employee morale and retention was key to bring about more responsible business practices. This is often the opposite approach from many businesses which regard employees at the end of the value chain rather than the beginning; who view employees as a cost rather than as key to value creation. In making employees a key component, Westpac believes that external stakeholders will not regard the inclusion of ‘sustainability and responsibility’ into strategy and operations as simply ‘greenwash’. Employee buy-in hence enhances business legitimacy.
Linked to stakeholder perception is the role of communication. Westpac recognized the need to make sustainability part of the 'substance' of the business, and cautioned that stakeholder issues should not be dealt with based on 'perception'. Clear metrics around stakeholder issues and engagement are important. Often marketing and public relations professionals try to explain away the concerns of community, but Westpac’s approach was to engage with the public. Key internal change agents at the executive level argued forcefully internally that public perception of business is usually correct and based on actual stakeholder concerns.
Over the ten year journey, Westpac has moved from perception management (with plenty of spin), through engagement and re-emergence of values and principles, to the situation today with the company both engaged, responsive and values driven.
They believe the result of the integration of Sustainability and Responsibility into strategy will result in these concepts not being an add-on with separate departments and staff responsibilities but be fully incorporated into risk and strategic departments. In 2011 its states in its Annual Report that sustainability is not a static agenda but as the materiality of sustainability issues change Westpac’s responses will evolve and priorities change. Westpac adds that material issues to stakeholders should already be factored into strategic planning and risk management, hence integrated into each sections’ strategies, operations and reporting.
Hence sustainability is now embedded in strategy, and values are extended to products, brand and services. These are incorporated into Board level responsibilities. General carriage for the sustainability model resides with the Board Sustainability Committee although the CEO and Executive team have explicit accountabilities for sustainability performance, reflected in their personal and divisional scorecards.
In moving from a focus on legal risk to an emerging moral risk framework, Westpac believes that it is important to consider the court of public opinion, compliance with the spirit rather than the letter of the law, and the benefits of associations and relationships. Working with others and across sectors benefit society as well as business.
The role of universities in creating a new generation of business people that can deliver on business and financial imperatives, in a responsible manner is believed by Westpac to be key to improve financial institutions and their practices. The social and environmental challenges face us all Dr Purcell has argued and education is a key component to upskilling the next generation of financial experts to meet these challenges. The business sector, government sector and community sector all need to work together to broaden the knowledge base of finance graduates.
In demonstrating its business approach to sustainability its dimensions of Sustainability in 2011 are:
- Deep customer relationships
- Supporting employees
- Strong community connections
- Financial stability
In its pro-active approach to CSR, Westpac enhanced its reputation, displaying a consistently high standard of business practice, providing an employee-rights approach to its workplace, and displaying an honesty and transparency in its business dealings. Companies considering embedding sustainability into their business should be encouraged; using such an approach can improve transparency, lead to better engagement with employees, and lead to enhanced value in the long term.
In relation to Employees the focus on diversity and employee morale led to improved employee satisfaction scores and employee engagement, lower turnover, better career paths for women, and flexible work hours. It’s target for Women in Leadership of 40% in 2014 has nearly been reached with 2011 finding it at 37.5%. Gail was appointed Managing Director & Chief Executive Officer of Westpac on 1 February 2008.
Westpac also reports on total employees by type, region and division, employee engagement, lost time injury, overtime, annual leave, parental leave, training, gender, gender and age profiles, gender salary ratios, and turnover and retention.
In relation to Customers, Westpac reports on numbers, branches, overdue accounts, account fees, complaints and dispute resolution and business lending profile.
As to Environment it reports on emissions, energy consumption, paper, waster and water, and business travel. Westpac set a target in 2008 to achieve a 30% reduction on Greenhouse Gas Emissions by 2013.
In relation to Community Westpac reports on community investment, partnerships, and financial education courses. Against Suppliers, Westpac reports on supply chain spend, sustainability action plans in its supply chain, and supplier self assessment and validation. As to Financial Performance it reports on value generation and distribution, profitability and returns.
Westpac produces an Integrated Report with Sustainability measures reported in the Annual Report alongside its financial performance. In this report the categories that take pride of place are its employee engagement, women in leadership, lost time injury, community investment, and greenhouse gas emissions.
The Westpac approach is based on a broad and integrated view of sustainability and has received awards and recognized throughout industry globally. It uses the GRI G3 framework and the Financial Sectors Supplement as their guiding framework, reporting to an A+ level Independent assurance is provided using the AA1000 and ISAE3000 Assurance Standards.
Sustainability is increasingly seen by community, media, commentators, academics, policy makers and business as important. Advocates argue that corporations have a variety of broad social obligations, as stakeholders exist internally, and include employees, managers and the board, and externally, to include customers, government and community. Sustainability at Westpac is now an important component of a firm's overall strategy. Although some strongly oppose any responsibility of the firm beyond the economic, Westpac’s approach suggests that sustainability and responsibility "pays" and that it has a positive financial benefit to firms.
Its business first approach has seen Westpac expand its operations using a multi-brand approach, with through streamlining services higher quality services at a reduced costs are achieved– benefits gained for both customers and shareholders.
Westpac’s approach demonstrates that top management is integral to incorporating sustainability across all operations to bring about a positive impact on firm value. Corporate managers across all functions and levels are seeking more than rhetoric, they want reasons for taking this philosophy into day-to-day management. Clear metrics and demonstration of benefits and links to performance through making the value chain transparent provides this reasoning.
In any sustainability initiative it is important that the approach is kept fluid, based on an understanding of the changing nature of community mores and concerns. Stakeholder engagement is vital to ensuring the approach used reflects their concerns. Waiting for stakeholders to react to your operations means that your engagement has been poor.
Inclusive employee engagement is a significant component to advancing sustainability, but in practice, its role is far more problematic. Many organizations focus on environmental and financial sustainability with lesser importance placed on dimensions of social sustainability and accompanying employee relations approaches. Westpac’s journey highlights that including employees is the first step, not the final one.
Dr Noel Purcell, has highlighted his learning from working at Westpac during this time of transition. The opportunities for business and risks in not adopting such an approach in can be summarized across three main areas he argues:
First, businesses should adopt responsible business practices towards a range of stakeholders, especially in areas of workplace, marketplace and the environment.
Secondly, the risks in the value chain in regard to customers, suppliers and distributors, need to be at the forefront of management thought, investigation and assurance.
Thirdly, businesses involvement in the wider community through being a responsible corporate citizen is just so important.
Monitoring and managing social risk is vital and a continual improvement process includes performance monitoring and improvement.
The banking sector is concerned with demonstrating good practices considering the community issues they face through their activities in regard to the fees and lending practices, and their gendered labour force. Managing their reputation is key to managing these social risks.
The Westpac 2011 sustainability report can be found in its entirety at:
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