Why financial services need to integrate risk management and CSR

Top reasons for financial services to include CSR in risk management

Internal audit and risk advisory roles offer a comprehensive view of an organisation, including strategy, operations, risks and controls. From this perspective, we see a clear link between strong risk management and corporate social responsibility (CSR). However, this link is often less obvious in the midst of daily operations. 

Historically, risk management has emphasised controls and frameworks designed to support financial resilience. Whereas CSR is seen as a community or brand initiative separate to risk management. However, increasingly more organisations are starting to see the real benefits of integrating CSR into their risk frameworks. 

Integration offers a more robust risk management approach, broadening the view of risk. In turn, CSR initiatives benefit from the discipline of governance frameworks. Together, they form a mutually beneficial relationship that enhances an organisation’s resilience and credibility.

1. Expanding risk to consider non-financial risks 

Today, organisations must look beyond traditional risk management considerations. Climate events, cyber threats, labour shortages and reputational damage linked to social or ethical failings are equally capable of destabilising a business. For example, allegations of greenwashing or modern slavery can be just as damaging as financial mismanagement. 

Both the ACCC and the Australian Securities and Investments Commission (ASIC) have made greenwashing a top enforcement priority. With civil penalties of almost $13m, it is clear that these can no longer be seen as ‘soft’ risks. They are board-level issues with regulatory, reputational and sometimes legal consequences, requiring organisations to broaden their risk lens to include CSR as a core element in effective risk management.

2. Regulatory alignment and operational resilience

CPS 230 Operational Resilience

The Australian Prudential Regulation Authority (APRA) has a growing commitment to a comprehensive model of resilience, clearly demonstrated through the CPS 230 Operational Resilience standard. At the heart of resilience is ensuring financial institutions understand their critical operations, identify potential vulnerabilities, including third-party risks, and build continuity measures to protect customers.

CSR matters because resilience isn’t just financial. It is about safeguarding stakeholders, communities and society. If customers lose access to funds or partners act unethically, institutions risk not only money, but also trust.

Risk is everyone’s business. Embedding operational resilience means every employee must understand their role in managing risk, not just CROs or compliance teams. Similarly, embedding CSR means linking day-to-day actions back to organisational values, so the business lives its commitments rather than simply talking about them.

3. Integration ensures CSR is on the boardroom agenda

Despite its importance, CSR does not consistently make it to the agenda for board-level conversations. Within the financial services sector, whilst larger institutions may have the resources to create funds, run programs and measure impact, CSR efforts for smaller mutuals tend to be more ad hoc/ fragmented.

The challenge is not always a lack of will, but rather competing priorities. Cyber security, regulatory compliance and operational risk rightly demand attention. In order to achieve better strategic alignment with CSR, boards should be asking:

• How does our CSR align with our organisational values?
• Are we measuring the impact of our activities, not just their frequency?
• How does our social responsibility strategy protect and enhance our resilience?

When treated as a risk consideration, CSR stops being a side activity and becomes part of the core strategy and embedded in the institution’s identity, helping attract talent, retain customers and strengthen community trust.

4. Risk management processes ensure your CSR is credible

When CSR consists of uncoordinated, ad hoc efforts, verifying it becomes more challenging. Organisations without a CSR strategy may not have the necessary structure and processes to demonstrate their CSR activities. This means that community days, charitable donations, or sustainability efforts cannot be used effectively to support brand image. Furthermore, claims of CSR initiatives only carry weight when supported by genuine governance and risk frameworks.

Additionally, CSR claims without evidence can expose organisations to regulatory scrutiny and civil penalties. Regulators, investors, and customers all expect transparency and accountability. Risk frameworks help transform CSR objectives into credible and defensible outcomes. 

Strong risk management ensures that CSR commitments are not just well-meaning statements, but measurable, consistent, and resilient to external pressures. In practice, this means stress-testing CSR goals against risk appetite, ensuring supply chains uphold ethical standards, and identifying unintended consequences of policy decisions. 

Rather than focusing purely on financial risks, internal auditors are now providing boards with independent assurance on whether values and CSR commitments are truly embedded in operations. This includes assessing ethical dilemmas, sustainability trade-offs and reputational risks.

Example: The relationship between risk and social responsibility in member-based financial institutions

Social responsibility is an inherent part of risk management for some organisations. We have seen this firsthand while working with member-based financial institutions to improve their resilience. A core part of their social responsibility is to safeguard members’ funds and interests.

From that perspective, our process for mitigating financial risk also encompassed fulfilling their social responsibility. 

Even the process is similar. We strengthened their three lines of defence by clarifying responsibilities, testing controls and ensuring accountability. In this way, risk management and CSR are two sides of the same coin.

Preparing for the future of risk

Risk management and CSR are converging into a single agenda of resilience and responsibility. Financial institutions that integrate these disciplines are better placed to withstand shocks, maintain trust and create sustainable value.

The future of financial services will not be defined by institutions that only protect their balance sheets, but by those that protect their people, their communities and their purpose.

Is your organisation ready to integrate risk and responsibility?

RSM can help you embed CSR into your risk management frameworks, strengthen internal audit, and meet rising stakeholder expectations with confidence through our risk advisory services.