Applying the Universal Social Performance standards to new actors: banks and SME finance institutions

  • Adiano PALLARO, Banca Etica
  • Mercedes Canalda de Beras-Goico, Banco de Ahorro y Crédito Adopem, Dominican Republic
  • Micol GUARNERI, Consultant
  • Jürgen HAMMER, Social Performance Task Force (SPTF)

    The session was opened by Jürgen HAMMER, who explained that SPTF conducted research on how the Universal Standards of Social Performance Management (SPM) could be applied to banks and financial institutions. The aim of the session was to give an overview of how SPM relates to the sustainable performance of Small and Medium Enterprise (SME) finance and to hear from practitioners about their experiences. 

    Hammer first gave more context on the Universal Standards of SPM, which were launched in 2012 and consist of management practices organised in six dimensions. The standards focus on increasing inclusion and creating value for clients. The Universal Standards were designed for MFIs. The research project of SPTF, which started in 2018, is aimed at better understanding the existing practices and implementation of the standards by SME banks. SME banks are asked what they already do within the realm of SPM, which standards are relevant to them and if there is any confusing terminology. The first analysis showed that the Universal Standards are relevant to banks. The main reasons for relevance are: sustainability, reputational risk, client and employee retention and attracting investment.

    Lucia SPAGGIARI, from MFR further elaborated on the differences between MFIs and SME banks in applying the Universal Standards. She mentioned that the language changes, for example, SME lenders speak of ‘sustainable performance’ more than ‘social performance’. Additionally, the concept of ‘social’ encompasses a broader group of stakeholders, the assessment needs to cover clients, the employees of the SMEs and communities in which SMEs operate. Also, environmental assessment should be fully integrated and not just be optional for SME banks. Therefore, a new element called Environmental Social Management System (ESMS) is embedded in dimension one and two of the Universal Standards. These assessment principles speak to the biggest reputational risks of SME banks.

    The session continued with presentations of three practitioners of the Universal Standards, who first introduced themselves. Mercedes CANALDA, represented Banco Adopem, an MFI in the Dominican Republic that started as an NGO, with a specific focus on women and rural areas. She mentioned that it has become more important for institutions to report on the results of their activities. According to Canalda, the Universal Standards give a good indication on where they stand at the moment and where they want to get to. A challenge for them was to convince the board on the importance of the Standards. 

    Adriano PALLARO, from Banco Etica, a cooperative bank with a focus on social enterprises, explained that one of the core values of the bank is transparency on how the money is spent. The Universal Standards can be used for the evaluation of impact. The standards helped to improve their system on reporting and accountability. 

    The third panellist, Micol GUARNERI worked at MFR for eleven years and currently works as an independent consultant in SPM capacity building. Guarneri argued that the Universal Standards are relevant and applicable for banks, also those banks which do not have an explicit triple bottom line. She stated that especially the addition of ESMS is a good proposal, because environmental issues cannot be optional for banks to assess. 

    Hammer wanted to know if the practitioners experienced challenges with the Universal Standards and if there were difficulties to understand or apply the standards. Canaldo responded that it was both difficult to understand and apply. It was especially difficult to convince the team on the importance of the standards. What was most important for Canaldo was to keep the social mission of the bank. The standards provided the parameters on how to improve. Hammer wanted to know if the work of the Universal Standards had led to any concrete action plans and improvements. Canaldo mentioned systematisation as one of the biggest improvements, to assess more efficiently and faster.

    Pallaro answered that he had similar experiences with Banco Etica. For them, it helped to more systematically report and manage governance within the bank. The Universal Standards helped to create a complete set of information to present to social institutions and investors, not only about the financial performance, but also in social and environmental parameters. Guarneri added that the Universal Standards make it is easier to make statements and show improvements to the members of the board. 


    A member of the audience commented that she was not surprised to hear the panellists’ experiences because they all have a clear social mission. She asked how to expand the social and environmental performance of more conventional banks. Hammer responded that adapting the Universal Standards to the language of banks makes it more applicable to them. So for example, speak of sustainable performance and societal and environmental objectives instead of social performance. Guarneri added that the push to use the Universal Standards usually comes from investors, so it is important to get them on board. It is also important to show the business case and to talk their language. Reputation is a big issue for banks; the standards can increase the credibility of banks.

    Another question from the audience was on what kind of data is already available and how much new data is necessary to collect. From his experience, the leverage to encourage borrowers to do anything differently is diminished, so if we ask too much, they might leave. Guarneri answered that there is not just one answer to this question, it depends on the starting point of the organisation. Spaggiari mentioned that you should have a pragmatic approach and aim at a gradual implementation. Hammer argued that if investors only are asking banks to change, not much will happen. He stated that the work with standards is useful because they are directly related to improving practices, an angle that any business needs to relate to. 

    Guarneri explained that in her experience, there are several challenges with working with banks. She stated that it is important to convince the decisions makers, thereby talking their language. It is possible to start small, with just a few indicators and show them there is a business advantage as well, not only mission achievement.