Can you still bank ethically on the high street?
IT would be lovely if banking were a simple matter of nipping into town to deposit our money with a good company that invested it well and shared the returns with us fairly.
As the world has become smaller, investment opportunities have grown and priorities have changed. As a result, the number of friendly institutions that will both look after our money and the world we live in has drastically reduced.
We'll start by looking at two of the most ethical options available to consumers on the high street: the Co-op Bank and TSB.
We'll also look at some other options, including the most dedicated ethical banks, which tend to be online only.
High street champions
One benefit of having lots of banking options is that we're not limited to our own high streets any more - but the concept of an ethical bank on our doorstep is an attractive one.
Let's begin by taking a look at the Co-op Bank.
The Co-operative Bank
The Co-op have benefited a lot over the years from being the only high street bank to have an explicit Ethical Policy that people can refer to.
But they've had a rough few years, losing thousands of customers as a result of jitters over bad business decisions, revelations about executives and their pay, and several high-profile resignations.
In February 2017 the bank was put up for sale for the second time in four years, following massive financial losses. The bank lost £610 million in 2015 and £117 million in the first half of 2016.
Many of the banks' problems started when it took on a large number of bad loans with its purchase of Britannia Building Society back in 2009.
Indeed, at the depth of the Co-op's problems Ethical Consumer's Rob Harrison pointed out that, "...things didn't go wrong because of ethics, they went wrong because of the decision to buy the Britannia Building Society".
Furthermore, in recent years the Co-op has had to shut down more than half of its local branches, with just 105 left. This isn't great for customers who want their bank to have a local high street presence.
The Co-op were also the institution that wanted to buy what's now become TSB - although this ultimately didn't happen due to their many problems.
In light of this, Move Your Money Chief Executive Laura Willoughby MBE spoke of "the dangers of banks seeking to grow by acquisition instead of pursuing sustainable growth".
She added that banks should "take a 'back to basics' approach" and concentrate on "reliable and consistent service to individual savers and businesses".
So in June 2014, the Co-operative announced a review of their ethical policy, polling customers, stakeholders and staff to see what was most important to them.
More than 74,000 people responded and it transpired that transparency and responsible banking were bigger worries for many than human rights and protecting the environment.
But the vast swathe of issues covered by the term 'human rights' - which in the Co-op's ethical policy includes torture, arms trading, oppressive regimes and sexual discrimination among other things - was still the third most important factor.
The bank say that as a result of the poll they've "strengthened and extended" their ethical policy.
For example, the updated version states that the bank will not do business with gambling or payday loan companies, or provide finance for companies that avoid tax.
At the time of writing, Ethical Consumer give the Co-op Bank a fairly high ethical rating on their score table coming second only to the dedicated ethical bank Triodos.
However, in June of this year a £700 million rescue deal from hedge funds was agreed, leaving many wondering how this will impact the bank's ethical policy going forward, particularly as this rescue deal leaves the Co-operative Group with just a 1% stake in the Co-op Bank.
But the bank's chairman, Dennis Holt, said that the deal meant that the bank could continue as a "viable standalone entity, with values and ethics at its heart".
TSB - whose current accounts are reviewed here - don't claim to be an ethical bank. Instead they call themselves "different" and emphasise their local ties.
The bank relaunched in 2013 after being rescued by the Lloyds Banking Group.
TSB use money invested by their customers to fund loans and mortgages to local people and businesses. They also don't have an investment banking or corporate finance arm.
Meanwhile any profits are either reinvested in the business, or paid as dividends to their shareholders - a decision taken by the board of directors.
There's nothing to stop anyone who wants to be a shareholder becoming one - and TSB shares proved incredibly popular when the bank was first floated in 2013.
However, just because a business is small and local it does not mean that it is automatically ethical.
As previously mentioned TSB is part-owned by Lloyds, and their reputation is not great.
For example, Lloyds were one of the worst offenders when it came to the mis-selling scandals.
They were handed a record £28 million fine from the Financial Conduct Authority (FCA) in 2013 due to their incredibly poor practice - including pressuring staff members to sell unsuitable products to customers or risk pay cuts and job losses.
Because of this continued connection with Lloyds, Ethical Consumer rank TSB among the least ethical banks, just above Natwest, Barclays and HSBC.
TSB does, however, have a refreshingly open approach to explaining how they work, with an explanatory page on their website which provides lots of details about how the bank operates.
Other ethical options
On the high street
In terms of customer satisfaction and ethical considerations, building societies tend to come top of most consumer research lists.
That's because building societies are owned by their members and not by large international banking groups. As such, their focus is much more local and less driven by outside pressures.
For example, Nationwide Building Society holds the same Ethical Consumer ranking as the Co-op Bank - at second place behind ethical bank Triodos - along with Norwich and Peterborough Building Society.
Nationwide also offer one of the better current accounts available, paying one of the highest rates of interest available.
Building societies are also popular because they have a strong presence on the high street, which many banking customers prefer.
For those in bigger towns and cities Metro Bank have a very good rating from Ethical Consumer and Handelsbanken also perform well.
It's also worth looking at banks and building societies that offer Sharia-compliant accounts. As we explain here , they're a good option for everyone because of their strong ethical code and good rates of return.
Finally, credit unions are also worth investigating. Many only offer savings and loans, but some of the larger unions also provide other forms of banking.
As credit unions are democratically owned and managed by their members, they promote responsible, inclusive finance.
Credit unions also provide ethical savings accounts, in that the money invested in them is redistributed as loans to other members of the credit union.
There's more on some of the options available here.
Online ethical banks
The most dedicated and focused ethical institutions are only really accessible online - and they also tend to primarily focus on savings and investments.
The primary examples are Triodos, the Ecology Building Society and the Charity Bank.
Each offers something slightly different:
- Triodos offer a current account, a stocks and shares ISA and ethical investment opportunities. They only lend money to organisations that put "the planet before profits".
- Ecology Building Society are focused on a sustainable environment and focus their offerings with this in mind. They offer savings accounts and a range of mortgages for environmentally friendly properties or properties for local community use.
- Charity Bank provide loans to charities and social organisations. They also offer savings accounts and use the money to fund their loans to support causes like affordable homes or renewable energy.
Whether or not it's possible to bank ethically on the high street depends primarily on where that high street is: bigger towns and cities have many more banking options than smaller locations.
But being able to bank online removes the limitations imposed by geography. It allows those who are determined to bank ethically to bank with a clear conscience and often get a good return too.