Risk Management’s New Tool: Corporate Social Responsibility

Cooperative governance. Member-centric decisions. Strong and authentic ties to their communities. All credit unions exhibit these and other facets of corporate social responsibility (CSR)—it is core to their DNA and their reason for being. Many credit unions now also proactively manage the CSR aspect of their business, in order to achieve greater impact, attract members and employees, reduce costs, grow revenues, and build their brand and competitive differentiation. But while CSR is laudable and worth pursuing for its own sake, we seek to understand other ways it can contribute to the success of credit unions and their members.

Seven credit unions with strong CSR practices—three from the United States and four from Canada—were interviewed in this study for their views, practices, and results in harnessing CSR as a risk mitigation tool. We also explored public reports to see how large banks are using CSR to address risk.

We identify four stakeholder groups that should take note of this report’s findings:

1. Credit union boards: Hold a governance-level discussion about how CSR should be integrated into your business strategy. Make sure your CSR objectives and the supporting metrics are clear, well understood, and embedded throughout the organization.
2. Risk and credit officers: Invite those responsible for CSR into risk management conversations. Pay attention to emerging CSR practices at larger institutions and among peers. Develop and test theories relating CSR to your risk profile.
3. CSR managers: Learn the language of risk management, including categories, tolerances, and outcomes. Quantify your activities so they can more easily be used in risk models. Understand how social and environmental trends can become risks and opportunities for your credit union.
4. Credit union system leaders: Aggregate data on the CSR activities of credit unions in your jurisdiction. Start with one or two metrics to allow for broader reporting for public and regulatory consideration. Articulate how collaborative CSR among credit unions can ameliorate systemic risk.

Filene thanks its generous partners for making this important research possible: