5.4.2 Ethical business operations

According to Dutch law, banks, insurance companies, asset managers and investment firms should pursue an adequate policy to ensure not only controlled business operations but also ethical operational management.1 The integrity of a financial institution is one of the pillars of trust and therefore regarded as a precondition for its proper functioning. It is deemed essential that the institution prevents that the company or its employees get involved in unlawful or “socially unacceptable” acts. Integrity policies must, just like risk management policies, be implemented in the form of procedures and measures and put into daily operational practice.

Ethical and controlled business operations often go hand in hand, and cannot always easily be separated. The provisions on ethical business operations, however, do not find their origin in European legislation and can, for the most part, be considered as purely national law.

Terms like “socially unacceptable”, “integrity” and “ethical behavior” are principle-based terms and their meaning changes over time. Consider, for example, the changing social morals on tax evasion. Integrity policies therefor need to be regularly revised. However, the principle-based rules on ethical business operations may give rise to uncertainty about what these rules actually mean. What is meant by “ethical behavior”? Does this imply supporting sustainability goals? And if so, does this mean that supporting actions to reduce emissions can be regarded as socially acceptable, responsible business behavior and that the institution should abstain from actions that lead to the contrary?2 Or should a sudden stop in providing financial services to high intensity companies be regarded as non-ethical, as this may lead to sudden shocks in the economy?

There are no easy answers to these questions, and financial supervisors cannot readily supply them. Just like in the Dutch Corporate Governance Code “long-term value creation” is a leading principle, it is up the companies to give meaning to these terms. The Wft nor the Code state clear values and standards that companies can just copy, and comply with. Companies have to set and follow their own moral compasses.

An important question, also, is how to reconcile supporting sustainability goals with existing legal duties to act in the best interests of your clients (fiduciary duties and the duty of care). Sustainability goals are by definition longer-term ambitions, pursued in the interests of both the present and future generations, while fiduciary duties, laid down in European legislation, lead to the concept of putting clients’ interests first.3 This concept is also part of the Banker’s Oath that all members of the management body in Dutch banks, insurance companies, investment firms and asset managers, as well as many of their employees, are required to take.4 As part of this oath they swear or promise to draw a careful balance between the interests of all parties associated with the business and, when drawing that balance, to make the customer’s interests central. Are clients’ interests best served by going for as much (short term) profits as possible, or by taking environmental considerations into account?

Fortunately, sustainability and profitability do not need to be each other’s enemy. According to the European Commission, taking longer-term sustainability interests into account does not necessarily lead to lower returns for investors.5 Dutch financial institutions like ABN AMRO seem to agree with this.6 “Green” investments may even lead to higher returns than regular or “brown” investments. Nonetheless, the Commission’s work on delegated acts to provide clarity among financial institutions on how to integrate ESG-factors in their investment decision-making processes, as part of their duties towards investors and beneficiaries, may prove very welcome (see paragraph 5.2.2).

In practice, many financial institutions are indeed committed to contributing to sustainability as part of their social responsibility. This may be illustrated by increasing voluntary commitments to sustainability Codes and Principles (see paragraph 5.2.4), and internal sustainability policies. The difficulty, however, mostly lies in the follow-up of these principles, implementing them into daily business operations. Financial institutions encounter the same difficulties when implementing new risk policies that incorporate sustainability considerations (see 5.4.1). Research has shown that many financial institutions still have a lot of work to do in setting the necessary next steps, putting the sustainability policies, codes and principles into actual practice.7