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Corporate social responsibility also known as CSR which is the corporation's initiatives which assess and take responsibility of the environment and social well being on behalf of the company. In the other words, it is a corporate conscience which is the self regulatory framework in the business model. Corporate social responsibility also plays an important role in the banking sector. From the CSR activities, most of the banks adjust their crisis and impacted on their social performance so it is necessary to have a CSR concept in banks. In this report, it comprises of literature review of the corporate social responsibility in banking sector.
Corporate social responsibility is a part of the business operations which ensures the company should practices some environmental factors. This will provides profitability to the organization and helps in sustainable development of the company. According to Sigurthorsson, it is operating in social and environment factors so the company should considered this in their CSR activities. Corporate social responsibility embraces the legal, economic, ethical expectations which has been to accepted by the society. The CSR pyramid differentiate various layers of responsibilities. However, the organizations should have to follow legal norms of the Iceland government. The CSR activities will helps in the right thing should do for the business as well as assist in keeping the environment pollution – free. On the contrary, Olaf Sigurjonsson argued that these activities can bring social and environmental issues which can affect the Banking sector. It is an instrument of the organisation which serves to, increase and legally assist in the economic performance of the fundamental principles of business ethics. The main evolution of CSR arrives in the economic crisis in which the sector needs the trust, accountability and transparency to lead the CSR activities effectively and efficiently.
The corporate social responsibility pyramid contains elements such as economic, legal and ethical responsibility as well as philanthropy. As per the view of Kemper and Martin, asserted that the other feature of this activities is to ensure the stability of the banking sector and it is defined by much stricter regulation. As the banking sector differ from the other business sector. Same as its CSR practices also differ from each other. Banking sector emphasis more on areas of responsibility such as loans, investment and other asset management operations. But, here are some issues also occurred which are money laundering and bribery etc. which give negative impact to the key aspects of the anti - corruption activity. This formed the crucial part of the bank's corporate social responsibility activities. Bolton stated that, although banks have little direct impact on the environment whereas their indirect environmental and social responsibility may increase if they grant credit to organizations. This will assist in the increasing of the environment pollution, produce unsafe products or can be violate human rights. In these types of problems, the bank will act as mediators in which it will cause significant changes.
On the other hand Herzig and Moon, the indirect impact will not arise in irrespective to the banking services users but also it will affects the suppliers. As it is stated by the author, the effective supplier chain can incorporate environmental and social factors into the supplier policies which has been supported by the finances as well. By implementing the Carroll’s CSR model to the financial sector, there some responsibilities in terms of banks which will helps in their CSR activities to runs successfully. Firstly, there is a need to increase the owner's welfare which will assure the profitability and growth. In the organization. For this, the company can expand their financial innovation to enhance their corporate social responsibilities of the banking sector. Secondly, the legal aspects focuses on the minimization of the risk and assure the safety and confidence in the financial system. Thirdly, it is all about the ethical responsibilities which are based on the individual conscience and expectations of the consumers and the external stakeholders.
The financial systems plays a crucial role in the Iceland's economy. The borrowed money is the main factor in the banking companies in their activities. This is because they are not self - regulating organizations and helps in controlling the regulatory authorities to ensure the stability. According to Eysteinsson and Gudlaugsson, evaluated that competition in the banking sector has non- price nature and this is because many banks provides similar conditions in the Iceland markets. The central bank of Iceland is main bank which controls and issues all types of aspects in the banking sector. The innovation in the financial sector can not be for long term because of the competitors which offers something similar if products and services gets successful. If additional benefits are searched, which acts as the necessity will got through the promotion of new products and brand development of the goods and services. As per view of Pérez and Del Bosque, explained that the sustainability issues in the Iceland banking industry has been made by the relevant shareholders such as competitors, government and consumers. The competitive structure of the Iceland banking sector elicit the major banks to boost up their competitive edge by building up a strong brand image and goodwill in corporate responsibility.
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The banking sector has been a number of CSR activities in recent past years. Corporate Social Responsibility activities constitutes of the Iceland government, British Bankers Association and Association of British Insurers, The GRI Index Financial Sector Specific Guidelines issued in January 2010 and others are included. The British Banking Association (BBA) has been campaigning for the European Union (EU) to adopt co regulatory options. This will assist in ensuring the self regulation in the financial services sector. Despite of this, opinion that self-regulation can be interpreted in the form of codes and guidance. Through which set some specific standards that are not enforced by the industry itself and some codes are monitored and implemented by the banking industry. In addition to this, British Banking Association states that enforcement of EU that is Financial Services Action Plan (FSAP) will take steps to create a heavy burden of change on the various financial institutions. This will affect the abilities of these institutions which assist in accessing the international financial markets in the environment. It will represent the negative impact from the competitors. The strict rules of Iceland and European legislation and regulatory framework will ensure the risk in competitive and efficient banking market of the Iceland. This will provide increased burden on the financial institution and the sector.
In contrast to above, Pérez, Martínez and Del Bosque contended that indeed the sector can accomplished the activities to assured that CSR activities can monitored the agenda and will increased the regulation. An overly - rigid regulatory regime is making an impact to left out the possibility of self regulation. The Iceland banking companies is following the traditional Corporate Social Responsibility which is related to the human rights, employee relationship and environmental issues etc. The guidelines analysis a number of issues within the market place where CSR activities are identifies as relevant. According to Lowe and et.al, founded that the issues are products and services accessible, business ethics, safety and security, relationships with suppliers. It also includes trade terms, goods and services' value, advertising and pricing and most importantly customer satisfaction. Hence, these activities will helps both the changes of management processes and CSR outcomes. This will determine the new business products should be developed or the existing ones should be made into innovative ones. Providers should work with the educational establishments and endeavours which will help in enhancing the perceptive of financial products and services.
CSR plays a crucial role in the edifice the customer relationship in the financial sector. The Corporate Social Responsibility activities helps in building the link between the business and customers. If the bank is doing any CSR activities for the well being of the society then it automatically increase the ethnicity between the customers and banking industry. According to Senthikumar, Ananth and Arulraj, asserted that the financial institution has to invest in these activities to build the good bond between them. This will helps in the increasing of the profitability and will attract more customers to their company to buy their services. Furthermore, it will assist in enhancing the company's reputation, its brand image in the market place among the customers. Corporate social responsibility (CSR) activities have the potential to evaluate different types of forms which will expand their customers' value. It is the customer representation of the value which mediates the relationship between CSR activities and consequent financial performance. These kinds of the customers relationship will provide positive impact to the organisation's goodwill. CSR activities done their investment under scrutiny and safety.
However, Pérez and Rodríguez del Bosque critically assessed that stakeholders are increasingly demanding that outcomes from these investments should be analysed. This is because it will helped in understanding the profitability of financial companies. For this, the banking organization has to identified the relationship between consumers through market research. This will helped in knowing the link between CSR and profitability of the banking companies. There are two types of CSR activities and they are Business practice and Philanthropic CSR. Business practice leads to the business operations which has targeted by the stakeholders with whom company can exist with market exchange. Whereas, other corporate social responsibility that is Philanthropic has targeted the secondary shareholders from the outside business operations which helps in strengthening the customer and banking company identification. The banking sector should focus on the customers' preferences and requirements to full fill their CSR activities. This will improvise the relation between two parties and this will provide CSR engagement and customers’ perception from these Corporate Social Responsibility activities.
Trotta and et.al, criticized that the banking industry concentrate on the central contingency factors reflecting uncertainty and dependence in Business to Business relationships which helps in determining CSR effectiveness. As it stated above, Corporate social responsibility has been defined as a business organization’s designing of principles which constitutes social responsibility, processes of social responsiveness, policies observable outcomes as they relate to the firm’s social relationships. For example, if the primary goal is to increase customers’ faith, managers of the bank sector should aimed on business practice CSR involvement. If the goal is to foster customer–company identification, managers should consider activities in the philanthropic CSR domain. Business to Business managers should also consider contextual factors which determines the effectiveness of CSR. For instance, the predominant level of market-related uncertainty, the strategic importance of their products to customers and the Corporate Social Responsibility orientation of their customer base.
Corporate Social Responsibility activities is considered as the vital factor for banking enterprise which helps in expanding their market share as well as helps in increasing of the profitability. Due to the recession period, there were the many impacts on the banking sector which has consumed large amount of public funds. According to Wu and Shen, asserted that banks was assuming that the small amount of the public funds will lead them to manage the economic crisis effectively and efficiently. This will helps in the weaken the consequences which has occurred in the crisis. Through this, Iceland government has lowered the interest rates to zero which has give negative impact to the banking sector of the Iceland. The situation which has bank has faced in the recession period are Bank bailout packages, the management of unemployment and economic recovery measures. These all have provide the deformation on state budgets. However, it results in the increasing of the public debt in other countries. If the Iceland government want to eliminate the risk of the economic crisis in their country then have to adopt some CSR activities which helps in their sustainable development. By adopting these types of activities, the banking sector can reduce the risk of the consequences which has occur due to the financial and economic condition of the country.
Therefore, as per the view of Lenka and Jiří. explained that the World Bank has enforced Environmental, Health, and Safety Guidelines which is known as EHS Guidelines. These guidelines provide the measures achievable with existing technologies and levels of performance. Areas which constitutes the guidelines are the environment, health and safety, the health and safety of communities, building and laying up. Besides these, there are sectoral guidelines which are available for the other sectors such as banking industry etc. There are several ways through which banking sector can develop the CSR activities such as to developed the environment and surroundings of the society. To helps in their sustainability and their enhancement of the well being of the society they need various ways through this they can achieved it. As it is assessed by Soana, while CSR has become an important part in western Europe in recent years little emphasis has been put on the concept of CSR in terms of voluntary corporate practices in Iceland. It has generally been considered adequate that companies provide jobs, pay taxes and abide by rules and regulations, which are strict in terms of environmental and social protection. In context to this, the banks is also providing interest rates at low rates to their customers and also enhancing their CSR activities. However, a noticeable exception to this, it is the common practice of philanthropy by Icelandic companies.
In this report, it has been concluded that Corporate Social Responsibility plays an important role in the banking sector. There are four themes has been taken which assessed various kinds of aspects of the Banking sector in Iceland. Its economy has been developed recently which helps in practising the CSR activities. This has improvise their sustainable development and well being of the society. There are pros and cons of the banking sector which are helped out by the CSR activities of the Iceland. Moreover, it assist in building customers relationship with their desired target market. Apart from this CSR allows banks to involve in practices which are in favour of customers and directly allows to accomplish desired aims and objectives. In short, it acts as development tools for the businesses where they can modify services keeping in view customers needs and are considered to be ethical and fair too.
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