citizen act memo_risk_management_va

Centrale de Cas et de Médias Pédagogiques81, avenue de la République75543 Paris Cedex 11 - (+33) 1 49 23 57 24http://www.ccmp.fr / http://www.ccmp-publishing.fr

1st World Case Publisher in French

CCMP edits and publishes corporate based cases and on-line teaching materials for teachers from management schools, universities and enterprises.

MEMO – CSR, SUSTAINABILITY AND RISK MANAGEMENT

CITIZEN ACT – season 2011-2012

Developed and written by CCMP (Centrale de Cas et de Médias Pédagogiques) and Olivier DELBARD, Professor of social sciences at ESCP Europe

SOCIETE GENERALECITIZEN ACT

CCMP AND OLIVIER DELBARD, PROFESSOR OF SOCIAL SCIENCES AT ESCP EUROPE

TABLE OF CONTENT

INTRODUCTION

I.A GOVERNANCE AND RISK-CONTROL SYSTEM

II.THE RISK-BASED PRODUCT APPROACH

II.CONSISTENT AND TRANSPARENT EXTERNAL COMMUNICATION

CONCLUSION


2



INTRODUCTION

Companies may address CSR and sustainability issues in different ways, from philanthropy-based societal commitment to rethinking strategy and business models. A risk management approach may be an excellent way of coping with social and environmental issues, on a concrete level, i.e. in dealing with operations and activities, but also from the point of view of image and reputation.

Risk-based consciousness is strongly correlated to the company’s activities and to its culture, which may be national, sector-related, but also corporate. For an international banking group such as Société Générale, risk management is obviously a transversal issue, which is part of its culture. Regarding social and environmental risks, numerous factors have made the risk-based approach a priority in terms of both activities and image even though they may not have been so important in the past.


3



INTRODUCTION

The banking industry is confronted with different types of risk, amongst which:

- Risks of reputation and image related to fraudulent practices such as money laundering or financing unlawful activities.

- Environmental, social and governance-related risks (ESG) linked to the bank’s financing activities. Where these are indirect risks, banks have had to start taking their share of responsibility due to the pressure from the international public’s opinion and NGOs amongst others.

- A more pervasive societal risk linked to the lack of transparency of banking activities as a whole.

With these risks posing a threat to the image and reputation of banking establishments, three priority responses have emerged:

- A governance and risk-control system

- A risk-based product approach

- Consistent and transparent external communication


4



I. A GOVERNANCE AND RISK-CONTROL SYSTEM

It is essential that companies set up a governance system and control procedures that cover risk management in all departments and activities. This approach is based on systematic and generalised control processes whose aim is to minimise potential risks.

This risk management culture is naturally linked to the ethics and compliance culture at the heart of banking activities. This requires setting up appropriate governance structures, codes of conduct or other commitment charters.

Société Générale has set up major risk management processes at various levels. A specialised Internal Control and Risk committee has been created and meets several times a year. A Code of conduct was written in 2005, then revised and updated in 2010.


5



I. A GOVERNANCE AND RISK-CONTROL SYSTEM

From an organisational standpoint, two departments play a key role in risk management bearing in mind that risk-related activities encompass around 5 200 employees.

- The Compliance Department ensures that practices are in line with current laws and regulations. There are for example 80 people at the Paris Head Office and more than 60 people in Russia.

- The Periodic Controls Department, which was set up in 2010, is made up of the General Inspection with more than 1 500 people spread across all of the Group’s activities and operations.

This systematic risk management approach needs to be supported by appropriate training sessions for a large number of employees with regards to major critical issues such as ethics, money laundering or the financing of terrorist activities (more than 19 000 people were trained in 2010).


6



A new step for the banking industry concerning risk management has been to identify the social and environmental risks linked to financing certain projects. The Equator Principles set up in 2003 and now endorsed by most international banks, are based on the idea that projects exceeding 10 million U.S. dollars financing and whose social and environmental risks are deemed too high, shall be rejected by banks. The indirect responsibility of banks is thus clearly established.

Société Générale has applied the Equator Principles since 2007 and also developed specific policies in some areas of activity where social and environmental risks are considered especially high. This is the case for oil and gas, coal-fired plants as well as the defence sector. In this respect, 71 financing projects were screened in 2010. Other sector-related projects should be further included in the near future.

II. THE RISK-BASED PRODUCT APPROACH


7



Taking into account social and environmental risks that are indirectly linked to financing activities is a sign of the bank’s wish to broaden its risk management approach while offering ever more sustainability-friendly products.

In a way, the development of SRI (socially responsible investment) products is another sign. Indeed, SRI funds are based on the assumption that good environmental, social and governance-related (ESG) practices may have a positive impact on a company’s financial results and share value, by minimising the risks while providing innovative responses to the CSR and sustainability challenge.

II. THE RISK-BASED PRODUCT APPROACH


8



A systematic ethics- and sustainability-related risk management approach also requires that communication policies towards external stakeholders be consistent and transparent. This is now a key factor for strengthening both image and reputation (see Communication memo).

Transparency, in line with specific professional rules, has become a crucial aspect in banks’ credibility as responsible players regarding risk management.

III. CONSISTENT AND TRANSPARENT EXTERNAL COMMUNICATION


9



CONCLUSION

The risk management approach taken by banks used to focus mainly on the risks of non-compliance and non-ethical practice such as money laundering or financing or illegal or occult activities. This necessary compliance approach has been extended to include financing practices through enhanced project screening and an innovative offer for socially and environmentally responsible investment funds.

Finally, it is important that risk management clearly should appear both in the internal organisation and in the way the organisation itself communicates with stakeholders and the general public. The next step would consist in broadening the scope of risk management further by fully integrating it into the company’s general strategy in a proactive and innovative manner.


10

citizen act memo_risk_management_va

Business