Raking it in
Banks have announced record profits. Is this
success at the expense of ethics, or do banks really have hearts of gold? Jenny
Edwards investigates...
This report looks at cash and current accounts available in the
UK. Current accounts give us access to 24 hour nationwide (and global)
networks of cash machines, along with cheque books, guarantee cards, debit cards,
standing orders, direct debits and overdraft facilities.
With many accounts
operated by post, telephone or internet, you're now far more likely to be
waiting in a queue on the telephone than you are in a bank branch.
Commercial Banking
Banks have also attracted criticisms for offering financial services to companies
engaged in unethical activities. Such companies might be involved in weapons
manufacture, tobacco or pornographic magazines. Ethical Consumer looked at
which banks the FTSE 100 companies banked with.
The banks then received a
half mark on the table opposite for any criticisms of companies for which they
provided services. A full list of who banks with whom is detailed later.
Most building societies still do very little commercial banking and
their money is, on the whole, invested in its members' homes.
This can make
them an attractive option for consumers wanting to avoid supporting a range of
unethical activities. More detail on the extent of building society involvement
in commercial lending is available in the lending policies section below.
Global initiatives
Criticisms from citizens' groups about unethical banking have led to some
global initiatives from the UN and the industry itself. These are designed to
persuade people that action is being taken on some of the most destructive
activities.
Despite these fine words, campaigners argue that abuses by
signatories to these initiatives have not stopped. We examine two case studies
- the Narmada Dam - and the Thai-Malaysian gas pipeline which illustrate the
campaigners' position. We then look briefly at 'Bankwatch' a campaign network
with its own agenda for change. Before all this, we take a look at tax havens
and directors' pay.
Make the move
Act now! Surveys have found that you're more likely to get divorced than
change bank accounts.(2) Many people don't switch bank accounts because of
concerns about direct debits and standing orders not being paid on time.
Changes to the Banking Code mean that your old bank must pass details of
direct debits and standing orders to your new bank within three days of the
request. If anything goes wrong banks must cancel the charges that have been
incurred because of mistakes or delays caused by them.
A recent Which? survey
found that 90% of people who switched bank accounts found it
straightforward.3 So what's stopping you?
Tax havens
Tax avoidance by corporations and the wealthy shifts the burden of tax onto
ordinary people and small businesses. Bank secrecy laws mean that tax havens
are ideal locations for channelling the profits of illegal activities (See Tax
Havens feature in Ethical Consumer Issue 90 for more information).
The
following banks in our guide were found to have subsidiaries in tax havens:
Abbey, Alliance & Leicester, Allied Irish Banks, Banco Santander, Bank of
Ireland, Barclays, Citigroup, Danske Bank, HBOS, HSBC, Lloyds TSB, National
Australia Bank, Nationwide, Northern Rock, Norwich & Peterborough, Royal
Bank of Scotland. Citigroup tops the table with 92 subsidiaries based in tax
havens.(4)
Directors' Pay
At Ethical Consumer we show in the Alert column all reports of directors being
paid more than �1million in one financial year. A 2004 UK report found that
directors' average total earnings rose by 16.1%, whereas the average total
earnings of all employees only increased 4.3% over the same period.
(5) In 2003
the Directors' Remuneration Report Regulations came into force in the UK to
encourage increased transparency and accountability. The regulations have
required companies to put their remuneration reports to separate shareholder
votes, which in turn has led to high profile votes against excessive directors'
remuneration.
(6) Shareholder campaigns against excessive pay have yet to
really hit home and the unfair imbalance means that both employees and
shareholders lose out from fair returns. At the same time as HSBC announced a
37% rise in profits, 50% of its staff were facing zero or below inflation pay rises
this year. Currently new starters at HSBC can expect to earn only 28p more
than the minimum wage.
Union Amicus was preparing staff for strike action
unless a more equitable profit share was agreed for employees. Morale was said
to be so low among HSBC's employees that less than half would recommend a
friend work at the company.(7)
Lending Policies
Allied Irish Banks (owners of First Trust in Northern Ireland), Bank of Ireland,
Danske Bank (owners of Northern Bank), HBOS (parent company of Halifax,
Intelligent Finance and Bank of Scotland), National Australia Bank (parent
company of the Yorkshire and Clydesdale banks) and Lloyds TSB all have
basic policies based upon environmental risk assessments and make little
information available on the detail of these policies.
They could all do a good
deal better. Lloyds TSB states: "as a lender we are not environmental
policemen but continue to support all sectors of industry apart from those
excluded under our Group Code of Business Conduct", but Ethical Consumer
could not find the Code of Business Conduct on Lloyds TSB's website and the
company had not responded to our request for information on its lending
processes.
Abbey gives a list of situations in which companies are screened on a
"case-by-case" basis, but again no exclusions are made.
The remainder of the large UK banks, along with Citigroup
(parent of Citibank) and Co-operative Financial Services, all have more detailed
policies.
Barclays has a weak policy on investment in animal
experimentation: "we have a strict policy that we will not enter into business
transactions with any company that does not comply fully with all relevant
Government regulations and the terms of their licences."
Its policy on the
defence sector is only slightly better, excluding finance for nuclear, chemical,
biological or other weapons of mass destruction along with landmines and
instruments of torture. However, other defence sector decisions are made on a
"case by case basis" depending on the nature of the equipment and its likely
use.
Barclays aims not to fund oppression of populations or unjustified external
aggression. Barclays' claims its environmental impact assessment policy
statement "ensures project finance proposals are rigorously assessed to
identify, quantify and, where appropriate, mitigate the environmental
impacts". Barclays' human rights policy was "being revised" when Ethical
Consumer viewed its website, and Barclays did not respond to Ethical
Consumer's request for information on its policies.
Co-op Financial Services, which comprises both the Co-
operative Bank and its online cousin Smile, has a number of ethical policies.
It will not invest in:
any government or business which fails to uphold basic
human rights;
any business whose links to an oppressive regime are causing
concern;
any business involved in the manufacture or transfer of armaments to
an oppressive regime;
any business involved in the manufacture of torture
equipment or other equipment that is used in the violation of human rights;
irresponsible marketing practices in developing countries; multinational
companies which do not have a clear commitment to core labour standards;
businesses involved in the uncontrolled release of GMOs into the environment;
terminator technologies;
patenting, especially of indigenous knowledge;
cloning, particularly animals for non-medical purposes;
businesses whose
activity contributes to global climate change through the extraction/production
of fossil fuels;
manufacture of chemicals persistent in the environment and
linked to long-term health concerns; unsustainable harvest of natural resources
including timber and fish;
and businesses involved in animal testing of cosmetic
or household products or ingredients, intensive farming methods, blood sports,
or the fur trade.
The policies are all more explicitly detailed on the Co-op's
website and further information is included on businesses that the bank is
proactively seeking to do business with. The Co-op's lending policies are way
ahead of any of the other banks covered in this report.
After years of campaigning by the Rainforest Action Network,
Citigroup launched policies prohibiting investment in any extractive industry
(oil, gas, mining or logging) in primary tropical rainforests and placed
restrictions on destructive investment in endangered ecosystems worldwide.
It
also launched an anti-illegal logging initiative, requiring documentation of
legality before investment in any logging or logging-related projects. Citigroup
is also now committed to an audit of its climate changing investments and to
investing significant capital in renewable energy projects (Ethical Consumer
Issue 89 July/August 2004).
In May 2004 HSBC launched a new guideline on forest land and
forest sector products. It will no longer invest in logging operations in primary
tropical moist forest of high conservation value, illegal logging, or logging
which endangers listed species and will in preference deal with forests
managed to FSC (Forest Stewardship Council) standards.
According to HSBC's
environmental risk statement, environmentally sensitive proposals, including
industries with pollution potential, commodity related, or with impact on the
local environment, must be documented through confirmation of compliance
with local and government legislation, environmental impact assessment,
audits or reviews and fulfilment of international treaties or standards.
The policies state that HSBC will not apply local standards in countries where a
history of environmental protection has historically not been a high priority, as
"the group is a global brand and will be judged on higher global standards".
HSBC has a statement on animal testing, but this does not place any
restrictions on what businesses the company will provide financial services for.
On the subject of armaments export HSBC states that it "decided some time
ago to withdraw from this type of business progressively". HSBC told Ethical
Consumer that it would be "introducing our own sector-based lending policies
for certain industries that are potentially damaging to the environment". The
first of these was the forest sector guidelines.
Royal Bank of Scotland's animal welfare policy and defence
industry policies are fairly weak, matching the UK government's standards for
legally carrying out business and excluding nothing on this basis. The bank will
not fund landmines, including non-detectable ones, to all countries, due to the
Ottawa Convention. The company's tobacco and alcohol lending position states
that it will lend to these sectors.
Ex -building societies Alliance & Leicester and Northern Rock
carry out limited commercial lending. Historically their client base is still
similar to that of the building societies.
Alliance & Leicester recognises in its environmental
management system report 2004 that retail and commercial lending,
investment and insurance all have indirect environmental impacts, but no
targets or policies were included for the mitigation of these impacts.
Alliance
& Leicester's website stated that three-quarters of the company's loans were
for residential mortgages and that its commercial lending risk assessment
process "includes, where appropriate, a review of the environmental risk
associated with each transaction".
Northern Rock is primarily a specialised mortgage lender. As
such it primarily invests in commercial and residential properties. As part of its
environmental policy residential customers are provided with energy efficiency
leaflets.
It excludes development finance and hotel and guest houses from its
commercial business and an environmental risk assessment is carried out for
commercial loans. It states that it primarily addresses involvement in
environmentally damaging activities by avoiding development finance,
brownfield projects and industrial properties.
Of the building societies that provide current accounts, the
Cumberland provides only mortgages to individuals, while Leeds & Holbeck
provides both individuals and commercial mortgages, and Nationwide also
provides project finance. The Cumberland and Leeds & Holbeck did not have an
environmental policy and Nationwide's environmental report did not mention
the environmental impacts of its lending policies.
Norwich & Peterborough fares slightly better, although it did
not provide Ethical Consumer with a specific ethical lending policy. Norwich &
Peterborough provides a range of green (carbon neutral) and brown
(restoration with energy efficiency survey) mortgages and is involved with the
government's House Purchase and Finance Committee for Energy Efficiency.
The society does provide commercial accounts and mortgages and there was no
indication of any restriction on who these accounts were offered to.
As building societies' money is on the whole invested in its
members' homes, they should be encouraged to increase the environmental
standards of their mortgages. Members' resolutions to encourage building
societies to include energy efficiency measures in all mortgages would greatly
decrease the environmental impact of the majority of loans on building
societies' books.
Examples of such measures include energy efficiency surveys
on house purchase, discounts on mortgages to those who commit to carrying
out energy efficiency improvements on their properties, or sourcing green
electricity. If you are a member of a building society, why don't you contact
them and ask them to do this? Building societies tend to make much of their
mutuality and perhaps this could be put to good use.
Global initiatives
Equator Principles
In addition to banks' own ethical lending policies there are a series of
international standards that have been developed. The highest profile of these
are the Equator Principles, developed by the banks, but based on World Bank
guidelines, for managing social and environmental issues related to the
financing of development projects.
Twenty-nine banks internationally have
adopted the Equator Principles. Although Barclays claims on its website to be
the only UK signatory to the Principles, HSBC and the Royal Bank of Scotland
are also signatories. HBOS told Ethical Consumer in February that "we are
expecting to sign up to the Equator Principles next month, after carrying out an
extensive review of our lending procedures".
(33) The principles are voluntary
and the banks do not sign an agreement. Each bank individually declares that it
has or will put into place internal policies and processes that are consistent
with the Equator Principles. NGOs have expressed concern about uneven
implementation of the principles by different banks and the lack of
transparency regarding the implementation of the policies. Citigroup is the only
other non-UK bank covered in this guide that has also committed to the
principles.(34)
UNEP FI
The United Nations Environment Programme's Financial Initiative (UNEP FI)
commits signatories to recognising the impacts of the financial sector on
sustainable development. UNEP FI announced that it would be weeding out
"free riders" - financial institutions which signed the UNEP Statement on the
Environment and Sustainable Development, but have done little to demonstrate
their commitments to the values of the statement.
In a letter to all UNEP FI
signatories sent in February 2005 Chairman Martin Hancock warned that "there
will be a concerted effort over the next six months to part company with those
institutions that do not pay their requisite fees or abide by the statements they
originally signed to." Banktrack is a network of civil society organisations
tracking the operations of the financial sector and its effect on people and the
environment.
Its coordinator Johan Frijns said, "We welcome this step. Many
NGOs have long urged UNEP FI to remove those signatories who show little
commitment to these principles. This will bring more accountability and
meaning to endorsing the UNEP statement and indeed increase the relevance of
UNEP FI for the sustainability agenda."(35)
In response to the ineffectiveness of other initiatives,
Banktrack has launched its own financial sector guidelines, the 'Collevecchio
Declaration', at the World Economic Forum in 2003. The Declaration calls on
financiers to make six concrete commitments in the fields of sustainability.
Collevecchio Declaration
1 Commitment to sustainability. Banks must expand their mission
statements from ones that prioritize profit maximisation to a vision of social
and environmental sustainability.
2 Commitment to 'do no harm'. Banks must prevent and minimize
the harmful environmental and social impacts of their portfolios and
operations.
3 Commitment to responsibility. Banks should bear full
responsibility for the environmental and social impacts of their transactions
and pay their full and fair share of the risks they accept and create.
4 Commitment to accountability. Banks must be accountable to
their stakeholders, particularly those that are affected by the activities and
side-effects of companies they finance.
5 Commitment to transparency. Banks must be transparent to
stakeholders, not only through robust, regular and standardized disclosure, but
also by being responsible to stakeholder needs for specialised information on
bank policies, procedures and transactions.
6 Commitment to sustainable markets and governance. Banks
should ensure that markets are more capable of fostering sustainability by
actively supporting public policy, regulatory and/or market mechanisms which
facilitate sustainability.(38)
References
1 which.co.uk 03/02/05
2
www.prnewswire.co.uk 04/03/05
3 Which? September 2004
4 Ethical
Consumer Issue 90 September/October 2004
5
www.bbc.co.uk 04/03/05
6 Report on the impact of the Directors'
Remuneration Report Regulations. Deloitte November 2004
7 www.unifi.org.uk 07/03/05
8 Citigroup Proxy
Statement 2004
9 National Australia Bank Ltd Annual Report 2004
10 Barclays
plc Annual Report 2003
11 Labour Research 08/04
12 Labour Research 01/02
13 Nationwide Building Society Annual Report 2003
14 Lloyds TSB Group plc
Annual Report 2003
15 Bank of Ireland Annual Report 2004
16 HBOS plc Annual
Report 2003
17 Co-operative Financial Services Annual Report 2003
18 www.hemscott.com 26/01/05
19 Juniper
09/02/05
20 Friends of the Earth UK 26/06/01
21 www.gruposantander.com 16/11/04
22 www.bigcampaign.org
23/02/2005
23
www.corporatewatch.org.uk 08/12/04
24 www.karmabanque.com 25/02/05
25
Observer 01/08/04
26 www.bigcampaign.org 29/02/05
27 The
Co-operative Group Corporate Social Responsibility Report 2003
28 http://business.scotsman.com
14/12/04
29 www.bbc.co.uk 22/03/04
30 www.bigcampaign.org 23/02/05
31 www.wilderness.org.au 2002
32 What
on Earth Issue 39
33 Email to Ethical Consumer from hbosplc.com 18/02/05
34
www.equator-principles.com
07/03/05
35 www.banktrack.org
07/03/05
36 Barclays and the financing of the Narmada Dams Friends of the
Earth 01/05
37 What on Earth Issue 39
38 www.banktrack.org 8 Feb 2005