|
Ethical and Ecological Value Analysis
|
Determining the total profitability contribution made by the bank's ethical and ecological positioning
Experience has shown that 'examples of the costs/benefits of particular sustainability initiatives' are relatively easy to identify and account for. The methodology employed this year, therefore, remains much the same as for the Partnership Report 2000 and 2001. However, estimating 'the total profitability contribution made by the bank's ethical and ecological positioning' is much more complex. The Partnership Report 2000 reached the following tentative conclusion.
"Whilst it is clearly not possible to identify absolutely the exact impact of 'ethics' on the bank's profitability, it can be related to the brand, of which it is the major component. Technical analysis shows that the brand generated between 15% and 18% of the bank's pre-tax profit (2000). This figure is supported by in-house research and independent market surveys which show, for example, that over 20% of personal customers are influenced to open an account with the bank for ethical and environmental reasons and this is by far the most frequently specified reason".
Clearly, the methodology employed to reach this conclusion was at an early stage. For the 2001 and 2002 Partnership Reports, a more robust methodology has been developed in order that a more meaningful analysis could be presented.
Determining ethical motivation factors
For all major products, the bank has asked its customers to specify the degree to which ethical and ecological factors influence decision making, as shown in the box below. This produces a response range. For example, in 2002, 44% of personal saving account customers state that 'ethics' is one of a number of important factors (2001: 34%), whilst 37% cite 'ethics' as the most important factor (2001: 22%). Data is derived via comprehensive telephone polling. Computers randomly sort options presented to pollsters to ensure that no bias arises from the order of presentation. For reasons of commercial confidentiality, the bank will not publish the ethical motivation factors of each product as this might allow competitors an unfair advantage when designing and marketing products. However, all data has been reviewed by the bank's social auditor, who can provide assurance that factors have been formulated in a balanced and robust fashion.
It is interesting to note that, where comparative information is available for UK retail banks in relation to the importance customers place on ethical and environmental factors, the data indicates that Co-operative Bank customers are uniquely placed to express a preference. For example, MORI Financial Services conducts research on a biannual basis into the influence of various factors on the opening of personal current accounts . This research strongly indicates that whilst 'ethics' is a major determining factor for customers of The Co-operative Bank (28% cite ethics as being influential in opening an account, and this is by far the most frequently specified reason), it is only rarely specified by customers of other banks (less than one percent cite ethics as being influential in opening an account). This is considered to be a consequence of the fact that only customers of The Co-operative Bank are routinely presented with products and services in which 'ethics' are constituted as a core component.
Profitability analysis
For each product, profitability data is available. The bank has determined the profitability of each product on a fully costed Activity Based Management (ABM) basis for the first half of 2001 and 2002. This means that not only are all direct costs incurred by the product accounted for (including bad debts and all divisional support costs), but those central sustaining costs indirectly attributable to the product (e.g., brand marketing) are also allocated in an appropriate proportional amount. Analysis was undertaken on the basis of the bank's half year profitability (i.e. Interim Results, 2001 and 2002) as many of the ethical motivation factors were derived over this period. The profitability of each product has then been multiplied by the relevant ethical motivation factor, and aggregated to produce an ethical profitability contribution range (which ranges from those customers for whom 'ethics' is the most important determining factor to those customers for whom 'ethics' is one of a number of factors).
Treatment of 'examples of the costs/benefits of particular sustainability initiatives'
Throughout the Partnership Report, costs and benefits have been identified in relation to particular sustainability initiatives. For example, the additional cost of purchasing renewable energies as opposed to fossil fuels; the Report also identifies a number of savings attributable to the bank's ecological policies - for example, savings associated with reduced paper usage. As the ABM profitability analysis described above already accounts for all costs incurred by the bank, it is considered that all such costs are already accounted for. Savings are a hypothetical matter representing costs that would have accrued under a different management scenario and, as such, do not figure in the final profitability analysis.
|
|
Sample questions in 2002
Saving Account - Personal Customer Example:
'Which of these factors are important in your decision to open and maintain a Co-operative Bank account?'
[Any number of influencing factors can be specified]
- Branch near home/work
- Parents banked there
- Recommended to me
- Dissatisfied with previous bank
- Image/reputation
- Ethical/ecological reasons
- Lower charges/competitive rates
- Other
'Which one of these factors is most important in your decision to open and maintain a Co-operative Bank account?'
[Only one influencing factor can be specified]
- Branch near home/work
- Parents banked there
- Recommended to me
- Dissatisfied with previous bank
- Image/reputation
- Ethical/ecological reasons
- Lower charges/competitive rates
- Other
|
|
- MORI Financial Services Survey, twelve months ending December 2002
|
|
|
