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ethical and ecological value analysis
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- Ethical and Ecological Value Analysis [NEW INDICATOR]
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performance
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Profitability contribution made by customers who state that ethics is the most important factor
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Profitability contribution made by customers who state that ethics is an important factor
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| As a percentage of Profit Before Tax |
2001*
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14%
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26%
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| As a percentage of Profit Before Tax |
2002**
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13%
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24%
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* Profit Before Tax as reported in the bank's interim results to 28th July 2001: £60.2 million
** Profit Before Tax as reported in the bank's full year results: £122.5 million
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commentary
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Background For some time, The Co-operative Bank has been
recognised as a leading proponent of the sustainable
development business model. 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, published biannually, 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) i, it is only rarely specified by customers of
other banks (less than 1% 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' constitute a core component. However, not only are
significant enhancements of ethical and ecological
performance underway, the bank has also seen nine years of
record profits in an increasingly competitive industry. Customer
satisfaction, staff satisfaction and supplier satisfaction are all
above the industry norms. Initially, some argued that ethical
and environmental matters were irrelevant to the conduct of
banking and financial services. However, over time, such criticism
has diminished, and many of the bank's competitors
now partially embrace the sustainable development business
model. The preface to 'Accounting for the Environment'ii, notes
that, whilst sustainability accounting and value analysis has
come a long way in a short time, there is an urgent need for
more case studies and more experimentation. It is against this
background that the bank offers the following ethical and
ecological value analysis.
Ethical and ecological value analysis This is the third year
in which the bank has undertaken an analysis of the estimated
costs and benefits of pursuing sustainable development. The
individual components of the analysis are detailed throughout
the rest of this Report. The sustainability analysis contains
two elements:
- Costs/benefits of particular sustainability initiatives. The
impact of ethical factors on specific decisions are calculated
and disclosed (e.g., the additional costs associated with the
purchase of green electricity; the opportunity cost of
foregoing certain corporate business as a result of the
bank's Ethical Policy), together with any ethical overheads
(e.g., the costs associated with maintenance of the Ethical
Policy Unit and the Ecology Unit).
- Estimate of the total profitability contribution made by the
bank's ethical and ecological positioning. This figure is
determined by aggregating the profitability contribution made
by ethically motivated customers for each product.
No attempt is made to integrate or 'net off' these two
elements, as the first part of the analysis includes hypothetical
costs (e.g., the opportunity cost of declining corporate
business as a result of the bank's Ethical Policy) and savings
(e.g., the cost savings arising from the estimated reduction in
paper usage). The two elements are considered to present
different aspects of the costs and benefits of pursuing
sustainable development. Each is proving to be of interest to a
different audience. For example, the Government's Small
Business Service has produced a booklet for distribution by
Business Links, which highlights the costs and benefits of the
bank's switch to green electricity, whilst BBC Radio 4 has
featured an analysis of the bank's waste reduction and
recycling. At a more generic level, the Financial Times and
other publications have discussed in detail the total profitability
contribution made by the bank's ethical and ecological
positioning (follow this link for further details of how the bank determines the profitability contribution made by its ethical and ecological positioning)iii.
Findings The bank's ethical and ecological positioning makes
a sizable contribution to the bank's profitability. 24% of profits
can be attributed to customers who cite ethics as an important
factor (2001: 26%), and 13% to customers who cite ethics as
the most important factor (2001: 14%). For 2000, the profit
attributable to ethically motivated customers was stated at
between 15% and 18% of the bank's profit before tax. The
analysis presented for 2001 and 2002 is considered to be a
much more accurate assessment.
2000-01 The principal factor behind the improved 'ethical'
profitability contribution between 2000 and 2001 was the
discovery that there are a higher proportion of ethically
motivated Corporate and Business Banking customers than
previously identified. For example, research found that the
bank's ethical and ecological positioning was the number one
reason cited by Direct Banking customers for opening and
maintaining an account.
2001-02 The principal factor behind the reduction in 'ethical'
profitability contribution between 2001 and 2002 was the
improved contribution of Treasury and Asset and Liability
Management to the bank's profitability in relation to retail
banking. As a proportion of retail banking profits, ethical
customers are in fact making a larger contribution in 2002.
There was an almost two-fold increase in the percentage of
Visa credit card customers stating that ethics and ecology are
important factors in opening and maintaining an account. In
addition, now both Business Direct and Direct Banking
customers state that ethics and ecology is the number one
reason for opening and maintaining an account. Of the
profitability attributed to customers who cite ethics as the most
important factor, 72% is attributable to Personal Banking
customers (2001: 69%) and 28% to Corporate and Business
Banking customers (2001: 39%). Of the profitability attributed
to customers who cite ethics as an important factor, 68% is
attributable to Personal Banking customers (2001: 61%) and
32% to Corporate and Business Banking Customers (39%).
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- MORI Financial Services Survey, twelve months ending December 2002
- Gray, R. and Bebbington, J. (2001). Accounting for the Environment, 2nd edition - Sage Publications
- www.co-operativebank.co.uk/ethics/partnership2002/pr/
ethical_value_analysis.html
To follow any of the links mentioned within the Partnership Report 2002, please visit the links page.
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