«A case study of Fair Finance Guide International Transparency & Accountability in the Financial Sector A case study of Fair Finance Guide ...»
-60The Dutch Code of Conduct for Banks162 was introduced in 2010 and includes principles comparable with the Dutch Corporate Governance Code for companies on the stock exchange. Although the Code is a form of self-regulation, it is enshrined in Dutch legislation. By law, Dutch banks have to report how they observe the Code in their annual reports. 163 The Code states that banks have to formulate a mission, strategy and goals, relevant for the long-term, and these have to be incorporated in risk-policies of banks and policies for sustainability and CSR. The NVB did not only publish a new ‘Code of Banks’ but also a ‘Maatschappelijk Statuut’ (Social Statute)164 and ‘Gedragsregels’ (Course of Behaviour) 165, which includes a bankers oath166 mandatory for all bankers. In the oath, the interests of the society are explicitly included. All three documents were published after some extensive public consultations in 2014, as a result of the very negative opinions of many Dutch citizens about banks in recent years.
In September 2014, the Dutch parliament organized a public ‘Hoorzitting Ronde Tafel Gesprek Duurzaam Bankieren’ (Public Hearing Round Table Sustainable Banking’, including speakers from several banks, Dutch Fair Bank Guide, scientists etc. Several speakers, including those from the Dutch Association of Investors for Sustainable Development (VBDO), SOMO and Fair Bank Guide, stressed the importance of more transparency about amongst others bank’s investments, tax payments, and both own and financed greenhouse gas emissions.
The public hearing was followed by a debate in the parliament about ‘Bankieren: Duurzaam, Dienstbaar en Divers’ (sustainable, compliant and diverse banking).167 In the debate, both the governing PvdA (Labour Party) and the opposition party D66 (Democrats 1966) stressed the importance of greater transparency on investments of banks. Regarding tax payments of banks, Labour also asked for full country-by-country reporting. Another opposition party, SP (Socialist Party), published an ‘Initiatiefnota’ (initiative note), with the main message that bank clients with savings have the right to know how banks invest their money. 168 The Minister of Finance, Dijsselbloem, reacted that “more and more NGOs and research organizations ask banks for more transparency, for example on tax payments, and I think that’s very good. (…) I consider transparency in the financial sector as very relevant. The pressure for more transparency will further increase“. The minister also gave support for the efforts of Dutch Minister of Foreign Trade and Development Cooperation Ploumen, to promote a covenant regarding Dutch banks and CSR within two years. There has to be a covenant in 2016 ultimately, if possible earlier. The Minister of Finance also stated that he is willing to implement legislation regarding CSR in the banking sector, if banks refuse to sign a covenant in 2016 at last.169 In November 2014, EY published its report The Path Forward 2.0, where European and Dutch financial institutions were benchmarked and compared from a sustainability perspective. EY encourages financial institutions to adopt integrated reporting, and concludes that “The Dutch organizations outperform their European counterparts in terms of the relative number of integrated reports, the outlook paragraph and the materiality disclosure. However, they perform less well in terms of the number of organisations reporting on their sustainability performance, disclosure of business models, explanation of the CR strategy and disclosure of the value creation process. Since these topics are key for Integrated Reporting the Dutch organisations can learn from the approaches and disclosures of the European institutions.” In addition, EY stated: ‘However, the connectivity between business model, strategy and value creation process is largely absent in the current reporting. (…) The survey results show that the majority of reporting organisations do not have a sound performance framework (including appropriate financial and non-financial KPIs) in place. A key area of improvement is to develop such a framework and appropriate performance metrics (KPIs), related to the significant and relevant impact areas for the financials. More specifically, it is necessary to strengthen the cohesion between current KPIs disclosed and the future strategy, objectives and targets of the business, in relation to its business model and resources available.’170
-61In January 2015, after some delays, the NVB invited the Dutch Fair Bank Guide and two other stakeholders for a preparatory meeting on how to continue the dialogue between banks and stakeholders about transparency, following up on the meeting organised by Fair Bank Guide in March 2014. Furthermore, as a first step that serves as a guidance for a larger stakeholder meeting later in 2015, NVB has published a vision document on ‘Accountability and Transparency in the Dutch banking sector’ in January 2015.171 The stakeholder meeting has taken place on 22 April 2015, and during that meeting, NVB has announced it will publish a formal follow up paper on transparency in the financial sector in September 2015.
7.2 Results of the policy assessment The results of the assessment of the two most relevant themes of the Fair Finance Guide methodology are summarized in Table 17.
It is interesting to note that all ten banks now report through GRI, including indicators from the Financial Services Sector Disclosure. Also, all banks describe their so-called Environmental and Social Risk Management System (ESRMS), including investment policies, and publish a responsible investment report. However, not all policies and reports are equally detailed.
Some banks clearly present the investment process and the related risk management activities. Other banks (Aegon and Rabobank) do not include detailed investment principles, making it more difficult to hold them accountable for their investments.
Most banks do not disclose names of companies in their portfolio. However, Triodos and ASN Bank publish the names of companies granted a loan. This provides customers detailed insights in what is being done with their savings. Further, banks publish information on stakeholder dialogues with civil society more often than information on engagement with investee companies and clients. ABN Amro, Aegon, ASN Bank, NIBC and Van Lanschot publish the number of companies with which there has been interaction on social and environment topics (GRI indicator FS10) and SNS Reaal, Triodos Bank and Van Lanschot also publish at least the names of a part of these companies. Most financial institutions, namely Aegon, ASN Bank, Delta Lloyd, ING, SNS Reaal and Triodos Bank, publish their full and detailed voting record, while the rest publishes summaries of their votes cast.
-62Country-by-country reporting has been on the agenda of various NGOs since a couple of years, but it is only since 2014 that the Netherlands, has adopted legislation, based on an EU Directive on this issue. In 2013, not all banks have reported tax payments to governments on each country they are active in. Most banks published tax payments per region rather than per country or only included information regarding revenues. From 2014 onwards it is expected that all Dutch banks publish country-by-country on their revenues, cost, profits and tax payments.viii Transparent banks are expected to publish their responsible investment and finance policy as part of their ESRMS. Regarding the theme Taxes and Corruption, all banks have policies to prevent corruption and bribery, both within their own organisation and in companies invested in. Further, seven out of ten banks (Aegon, ASN Bank, ING, NIBC, SNS Reaal, Triodos Bank and Van Lanschot) expect companies to maintain management systems with which immediate action can be taken if employees or suppliers are guilty of corruption or tax evasion.
Finally, while banks ask for information on the beneficial owner or owners of companies (including full name, date of birth, nationality, jurisdiction of incorporation, contact details, number and categories of shares, and if applicable the proportion of shareholding or control) as part of their obligations regarding Anti-Money Laundering legislation, they do not require companies to publicly report about it.
7.3 Best practices
ASN Bank and Triodos Bank, are the only two banks (out of ten) which publish the names of both companies and governments they invest in. By providing the names of companies and governments invested in, banks can be held accountable when their investments do not abide the policy they set for responsible investment. The amount of money invested in companies can further provide insight in the severity of investments in possible sensitive sectors and issues by the bank. Banks that choose not to publish the names of companies they finance or invest in, could as an alternative provide detailed overviews of their portfolios, including a breakdown to sectors and regions. A good example of such tables can be seen in the annual report of NIBC. This pivot table shows a breakdown in six regions and eleven sectors.
Other financial institutions, Aegon, Delta Lloyd, SNS Reaal and Van Lanschot, choose to publish lists of companies that are excluded from investment and financing. Often these lists include only weapon producing companies, but in the case of SNS Reaal also other types of companies and reasons for their exclusion.
Banks providing insight in engagement and voting activities can further enhance accountability regarding their sustainable investment policies. Although all banks but Delta Lloyd, explain in their policies and risk management tools that they use engagement to influence the companies invested in, not all banks report transparent about it. Only SNS Reaal and Triodos Bank publish the names of companies with which there has been interaction on social and environmental topics, including the results of that engagement. In relation to that, Triodos Bank, Aegon and ING, whose final score on Transparency & Accountability is rather low but on this specific topic clearly a frontrunner, have published both their full voting record and a summary of their voting activities in an annual report.
viii The research and analysis of this study is based on Annual Reports 2013. At that time banks were not obliged, by law, to report country-by-country on tax payments. As they are expected to do so in their Annual Reports 2014, they have all received the score for Taxes & Corruption element 1 (For each country in which the financial institution operates, it reports country-by-country on its revenues, costs, profit and tax payments to governments) beforehand.
-63Triodos Bank and Van Lanschot both provide a complete overview of its structure of ownership, including all its subsidiaries and participations, including those in tax havens. Both reported country-by-country on tax payments to governments, already in 2013. Additionally, Van Lanschot has a clear policy document concerning fiscally improper behaviour, in which it declares that it does not provide financial services to companies in tax havens, unless these companies have substance and undertake local economic activities and does not advise companies to set up international corporate structures with the main purpose to avoid taxes.
Improvements in 2014
This research is based on reporting year 2013, as this report was written in the first quarter of 2015.
A number of banks, but certainly not all, have released their new annual reports, sustainability or CSR reports and GRI Tables about 2014 during April 2015. These reports sometimes include improvements related to transparency. Although Fair Finance Guide would like to use the most recent information possible for its research and would like to applaud banks that have made improvements, it was deemed impossible to use the latest reports available, because of the scope of this research, the importance of a fair comparison, and for practical reasons.
In 2014, Rabobank added a more extensive part about sustainable investment and engagement with companies to its annual report. Rabobank also published a sustainable agenda towards 2020 and it reported about the percentage of companies that do and do not (yet, or temporary) meet its sustainable policy. ING for the first time produced an integrated report. SNS Reaal, which has made two separate annual reports, one for SNS Bank and one for Vivat Verzekeringen,,added a strategic value model that shows how SNS Bank operates regarding non-financial values and assets.
Triodos Bank states that it is working on determining whether companies invested in apply country-by-country reporting on tax payments through a questionnaire. ASN Bank improved its reports on voting behaviour by making them more elaborate.
8.1 Government policy Since the financial crisis, civil society has been lobbying to enhance transparency in the financial sector. One of the issues they most strongly urged for, also at European level, has been country-by-country reporting on tax payments, which would provide an insight in the substance of financial operations in tax havens and hence in potential tax evading behaviour.
At the European Union, especially France insisted on drawing EU regulation for this issue. 172 For years though, country-by-country reporting was rejected because of the exorbitant costs and constraints it would place on the private sector. In addition, the European Commission was hesitant about publishing this data.173 Nevertheless, in 2013 the EU Capital Requirements Directive was put into practice, which requires all financial institutions in EU member states to publish financial information for each country the institution is active in from January 2015 onwards.174 Other relevant EU Directives developed in this context but not yet put into practice by all the EU countries are the EU Directive on Non-Financial Reporting (2014/95/EU) and the EU Directive on Administrative Cooperation. The already existing Anti-Money Laundering Directive (AMLD) of 2005 is currently under proposal of amendment, so that information required by it becomes public for authorities and people with a legitimate interest such as journalists.175 Table 18 provides an overview of the European regulations regarding transparency in the financial sector.”