Banks and Their Boards Need a More Strategic Approach to Responding to Societal Challenges

Responding to new expectations demands a robust governance framework to address environmental, social, and political issues

WALTHAM, MA / ACCESSWIRE / October 25, 2023 / Leaders of global corporations and financial institutions are facing heightened expectations to play a role in addressing a wide range of social, political, and environmental challenges, including climate change, racial justice and equity, geopolitics, and politically sensitive issues. The largest global banks, whose systemic importance has garnered the attention of regulators and activists, face particular scrutiny. A new report released by High Meadows Institute and Tapestry Networks, Responding to societal challenges: a framework for bank boards and their directors, highlights the complexities that banks and their boards confront in meeting these expectations and provides a framework for how bank executives and boards can respond more effectively to societal issues.

"As fiduciaries of some of the most systemically important and powerful institutions in society, bank boards can no longer afford to approach social issues on a reactive, piecemeal basis. To protect both their shareholders and stakeholders, they need a proactive and strategic framework for managing the political expectations they now face," said Chris Pinney, President and CEO of High Meadows Institute.

As environmental, social, and governance (ESG) issues become ever more politicized, banks face mixed, sometimes conflicting pressures from their stakeholders. Investors are seeking assurance that banks are managing risks and seizing opportunities related to a wide range of environmental and social issues, while customers and employees want to support companies that reflect their values. In addition to governing on behalf of the interests of shareholders, bank boards must also exercise oversight and judgement of the firm's "political" strategy to manage the concerns and demands of all stakeholders. "We are seeing our social license to operate tied to political issues, and we have to factor that into our strategic thinking," said one bank director. "At the end of day, we're in the business of managing risk, whether it's climate risk or reputational risk, and you have to factor that all into how you think about strategy. If you come at this reactively, you will end up in a hell of a mess."