How ethical is your bank?
THINK "ethical banking" is an oxymoron? There are a few financial institutions, and many more campaigners, hoping to prove you wrong.
In this guide we look at who these ethical bankers are, what they're running from in the mainstream banks and, more practically, the options available to those contemplating a more ethical financial life in the UK.
Read on for the full story or skip to:
- What makes a bank unethical?
- What's your bank up to?
- Ethical banking options
- Is consumer responsibility realistic?
What makes a bank unethical?
Follow the money in almost any crisis you can think of - from conflict to climate change - and you'll eventually bump into some familiar names.
Campaigners argue that, at best, banks often look the other way when it comes to where their money goes and, at worst, they're complicit.
Here are just a few examples.
All the big five UK banks - Barclays, HSBC, Lloyds Banking Group, RBS and Standard Chartered - have been accused of encouraging mis-selling practises amongst their staff by paying performance related bonuses.
Barclays and HSBC have both been found guilty of employing unsuitable staff in highly skilled roles.
Barclays gave unqualified staff access to sensitive customer records, breaking a plethora of Data Protection rules, and HSBC failed to train their staff sufficiently in regulated products, ignoring Financial Services Authority standards.
Responsibility for the financial crisis
In June 2012, Barclays Bank were accused of deliberately rigging UK interest rates for their own gain over a period of several years.
The Libor Scandal (named after the interest rate Barclays were manipulating) cost Barclays £60 million in fines, but the true cost of the scandal will take years to calculate.
In the first half of 2011, experts estimated the knock on effect of the Libor rigging scandal to be in the region of 554 trillion USD.
Human rights concerns
In 2008, HSBC bank paid fines of 1.9 billion USD for their part in a Mexican drugs money laundering scandal.
Drug cartels laundered millions of dollars through the bank over a period of five years, all owing to poor money laundering controls on HSBC's part.
In the wake of the scandal a spokesperson for HSBC said the bank was "profoundly sorry", but critics say banks regularly fund questionable regimes.
Barclays provide banking services to BAE Systems, which manufactures arms.
Climate change concerns
HSBC is banker for the mining company Rio Tinto, while oil company BP banks with Natwest.
In March 2015, the strength of feeling about funding companies involved in climate change was made clear by some 450 events and protests in 60 countries under the banner of Divestment Day.
This was a global call for banks, government and other institutions to stop investing in environmentally damaging activities, and making a profit from it.
It's no surprise that many question whether they want to be associated with an organisation involved in dishonest banking practices, or that others dislike the idea of their money being utilised for criminal gain, however inadvertently,.
What's your bank up to?
These examples are just a taste of the concerns that have been raised about the UK's big five banks.
There's more about what the banks in the UK are up to in our guide to where your money is invested.
There's also information available from campaigning websites like Move Your Money.
Ethical banking options
Campaigns like Move Your Money support customers who do not want to be involved with unethical financial institutions.
Switching to an ethical bank gives customers the opportunity to make a principled stand against unethical banks safe in the knowledge that their money will not be used for negative purposes in the future.
What's the difference?
In many ways an ethical bank is much the same as any other bank.
They offer similar products and services, from bank accounts and credit cards to mortgages, but they differs in the way they utilise customers' money.
All ethical banks have a specific policy concerning what is and what is not an acceptable way to use a customer's money.
For instance, most will not invest in certain types of companies, such as arms manufacturers or cosmetics companies that test products on animals.
In its guide to banking, alternative consumer organisation Ethical Consumer highlights four main areas such organisations focus on:
- The environment
- Animal rights
- Human rights
Ethical banks also try to use their influence for good - by involving themselves in charitable activities or by promoting environmentally sustainable practices, for instance.
Some ethical banks practice a policy of transparency. That is, they attempt to be very open and honest with their customers about every aspect of the business.
The UK has a number of ethical banks, as well as many that might be better described as "more ethical than average".
Charity Bank: One of the former (truly ethical), they offer savings accounts and cash ISAs, and specialise in financing social enterprises, charities and community organisations.
At the time of this update, they offer up to 1.0% AER interest on savings for individuals and fixed savings with better rates for community groups, making them quite attractive to ethical savers and organisations looking for a decent financial return.
Triodos Bank: Pride themselves on their ethical policy and a reputation for 'total transparency'.
Triodos set out to use investors' money to "add cultural value and benefit people and the environment". They're unusual in that they offer a stocks and shares ISA as well as a range of cash savings products.
The Co-operative Bank: The only high street bank in the UK with an explicit ethical policy.
They have rejected more than £1 billion worth of loan applications since they adopted their ethical policy in 1992.
But they've had a rough few years - at one point their whole future was in question - and while their refreshed ethical policy is supposedly stronger than ever, there are still questions to be answered.
Handelsbanken: The Swedish bank has been operating in the UK since 1982, with 150 decentralised, independent branches.
The ethical slant comes from the fact Handelsbanken promote responsible lending. Each branch really gets to know its customer base and local community, allowing it to make ethically sound lending decisions on a case by case basis.
TSB: Since their relaunch, TSB have made a great deal of their desire to be the "local bank", harking back to the very early days of the original Trustee Savings Banks, which were largely independent of each other and served only their immediate area.
The modern TSB don't have an investment banking or corporate finance arm, focusing instead on UK-only retail banking - and they take that one step further by using the money invested with them to fund loans and mortgages for other local people and businesses.
Ecology Building Society: Use customers' savings to support only mortgage lending on properties and projects that respect the environment.
Credit unions - small, not-for-profit financial institutions that invest people's savings into the local economy - are another option.
There are more than 400 in the UK, each owned by its members and mostly staffed by volunteers. Read our guide to them here.
Another alternative for customers seeking an ethical banking solution might be a building society.
Like credit unions, building societies are "mutual" organisations - owned by their members, not shareholders.
Is consumer responsibility realistic? Or useful?
Critics of ethical banking say that while the movement is worthy, it is also unrealistic.
Even if a significant portion of UK consumers chose ethical options it wouldn't be enough to ruffle the big banks, and would make little difference to big global issues like climate change, they say.
Thinking small, it could also potentially put consumers out of pocket.
In the current economic climate is it too much to expect that most customers won't consider the ethics of a bank when choosing products?
Right now most people are more concerned with "keeping their heads above water" financially than supporting environmentally sound mortgage propositions.
In a time of greater financial stability, more people might pause to make such ethical considerations - but currently many of us can be forgiven for being more worried about their own financial futures.
Does boycotting hold banks to account?
It's very difficult to judge whether or not boycotting the banks on ethical grounds achieves anything but a clear conscience for the customer.
There is recent evidence that consumer pressure might cause banks to change their ways, but there are potentially two sides to every story.
For example, a couple of years ago Barclays' Managing Director for Customer Service resigned from his position, just weeks after the results of a Move Your Money survey revealed Barclays to be the worst performing bank for customer service in the UK.
A spokesperson for Barclays denied any connection between the resignation and the survey.
According to the World Development Movement, Barclays made £278 million from food speculation in 2012. This is a practice that drives up the price of foodstuffs and deprives the poor of food, forcing them into deeper poverty.
But then in 2013, Barclays ceased food speculation.
Campaigners hailed the bank's withdrawal as a victory for ethical banking though, again, Barclays denied public pressure was an influence.