Explaining CSR Performance with Contextual Factors: Focus on Development Banks

Abstract

With a stronghold in the institutional theory of corporate social responsibility (CSR), a hypothesis is made on banks’ CSR performance being positively driven with the contextual factors, i.e., countries’ macroeconomic and institutional development and their banking sectors’ development (briefly country development level). Development banks, rather than commercial banks, are at the center of the empirical evidence, mainly because they are perceived to be socially responsible institutions by their definition, as well as the best in class example for commercial banks’ CSR practices in certain country. CSR performance is measured throughout CSR reporting quantity and reporting form following Global Reporting Initiative’s (GRI) Sustainability Reporting Guidelines. By combining the aforementioned data and the World Bank’s data for 22 European countries in 2013 out of which 15 are Balkan and Eastern European countries and the rest Western European countries, we find out that GDP per capita, research, and development expenditure over GDP, gross savings over GDP, and employment of total labor force are positively related to development banks’ CSR performance, while banking sector variables (net interest margin and regulatory capital to risk-weighted assets) are negatively related to development banks’ CSR. Countries’ institutional development variables are also connected to development banks’ CSR performance, but with rather slight differences between better and lower performing development banks with regard to CSR. Thus, more developed economic systems as well as less profitable banking systems, which have lower level of regulatory burden have higher performance of development banks’ CSR when K-means clustering approach was adopted. An important caveat of the research is that there is a trade-off between cost of banking intermediation and development banks’ CSR performance, while macroeconomic performance and CSR performance are in complementary relationship. Altogether, a conclusion is made that banks’ CSR performance is rather modestly explained by the country development level in the previous empirical works and thus a more general approach when researching and creating public policies about the CSR phenomenon is required.