Bank on something better
The Ethical Consumer research team explains why and how consumers can switch to a more ethical banker.
What’s the problem?
Monthly bank statements are somewhat misleading things. They give the impression that your money just sits there in a lump, and that the bank provides a virtual equivalent of a mattress in times of old. But money in the hands of an international financial institution very rarely sits still, and figuring out where your money might end up can be tricky.
In other sections of this report we detail how banks have been criticised for a litany of abuses including: speculating on food prices, avoiding tax through the use of tax havens, investing in oil, nuclear and other polluting industries, paying absurdly large sums to directors, and financing the arms trade.
If this isn’t enough to put you off, we have also looked at the companies which banks provide services for. For example, Barclays is banker to arms manufacturer BAE Systems, NatWest is BP’s banker, whilst HSBC is banker for mining company Rio Tinto.
The score table has condensed all the information we hold about these and many other controversial areas of operation for banks. We include marks in all the columns where banks have provided finance for problem areas. For example, Citibank is listed as a banker for British American Tobacco, so it receives a half mark in the Irresponsible Marketing column on the table. Just click on the names on the score table – or in the PDF of this report.
Where best engagement practice is evidenced and the institution is only a shareholder, the group will not receive a negative mark for controversial shareholdings.
For readers with a strong disposition there is also an excellent interactive website at www.banksecrets.eu with a world map detailing harmful investments of each of the major banks around the world.
What’s the solution?
As the ranking table and best buy advice show, there are now a wide range of alternatives to banking with one of the big five. Building Societies and Credit Unions score well. They are effectively restricted by law from the kind of controversial investments detailed above, and are discussed extensively in the article ‘Flight to mutuals’. The fact that you are an owner as well as a customer, and that mutuals exist for the benefit of their members rather than to maximise profit, is also an attractive feature.
Why is the Co-op Bank a Best Buy?
Another mutually-owned business, and a clear best buy in the report is the Co-operative Bank. Since 1993 – and in response to the kind of concerns shown above – it has been developing detailed public position statements on who it will and who it will not lend to. These now cover seven human rights areas, five environmental areas, four international development areas and five animal welfare issues. More details are available at www.co-operative.coop/corporate/ethicsinaction/ethicalpolicies. It also uses your money to campaign on key issues of the moment such as unconventional fossil fuels or the decline of bees. Although other banks have come up with similar policy statements, none come close to the Co-operative’s for clarity and ambition.
One of the most frequently asked questions at Ethical Consumer is how the Co-operative can be a best buy when its score is much lower than other providers. Our answer is that its relatively low score is the result of it being part of the Co-operative Group which – as a supermarket – is involved in animal farming and other activities which its banking competitors are not. Best Buys are there for us to apply a sense check to our mechanistic, but largely useful, rankings. In other areas, we weight key categories for the sector when choosing the best buys – such as workers' rights and supply chain management for clothing. In banking, having a clear ethical lending policy is a prime concern, which is why the Co-operative tops the pile.
A new entrant into the banking market in 2010 was Metro Bank with a few branches in London. Although it doesn’t appear to have any particular ethical policies, its current position as a consumer-only bank means that it hasn’t attracted criticisms for problem investments like some of the other banks, and so scores quite well.
How to switch banks
The fact that the big five banks hold 85% of all current accounts is perhaps testimony to the ‘high degree of customer inertia’ in this sector. Switching current accounts can be more complicated than just opening a new savings account, but banks often have ‘switching advice teams’ now, and Which? has a useful online guide to switching.
And the good news is, unlike some markets where the ethical choices can be more expensive or less high quality, the most ethical banks are highly rated in Which?’s ‘Recommended Provider’ list. For banks the list includes: First Direct, Smile, The One Account, Co-operative Bank and Nationwide BS.