Last updated: June 2016
The banking sector has been the target of numerous campaigns over the years with tax avoidance, excessive directors' remuneration, investments in the fossil fuel industry and investments in nuclear weapons continuing to be key pressure points.
Big banks failing on ethics
Despite the international 'Equator Principles' encouraging greater transparency around responsible decision-making in banks, they do not appear to have resulted in much movement within the practices of the mainstream banking sector.
For example, despite Lloyds, NatWest, Royal Bank of Scotland and Citibank receiving middle ratings under Ethical Consumer’s environmental reporting category, and HSBC and Banco Santander receiving a best rating, all score worst under Ethical Consumer's climate change category for investing in the fossil fuel industry.
Are any banks driving climate solutions?
There are savings accounts available that can be trusted to drive climate solutions: the Ecology Building Society, Triodos and Charity Bank each gets a positive company ethos mark and product sustainability mark for offering a social and environmental alternative to the mainstream banking industry. The Co-operative Bank also continues to have an ethical investment policy, although it does not score so well overall in our rankings. Read our feature on The Coop Bank for more information.
The Ecology Building Society focuses its lending on projects that offer the greatest gains in terms of carbon reductions and environmental impact, with its ethical lending policy prioritising: sustainable housing practices, sustainable lifestyles, sustainable economic activity, and other ecologically positive projects and ventures.
Triodos and Charity Bank both have ethical investment policies that support low carbon initiatives, and both publicly disclose their investments- a great practice for a sector that is resistant to openness and accountability.
Triodos offers financial services to a range of projects including organic food and farming businesses, renewable energy enterprises, recycling companies and nature conservation projects. And the Charity Bank publishes an annual 'loan portfolio report', which in 2015 included a couple of renewable energy projects. The Charity Bank only lent to charities, social enterprises and organisations with a charitable purpose, and stated that it conducted a social impact assessment for each loan.
What about mutuals?
Mutuals and Credit Unions are often considered to be 'safe havens' for ethical banking- scoring well in a number of ranking exercises including Move Your Money's and our own ethiscore ranking.
Not only are customers members, and are therefore able to vote at AGMs or stand for election to be on the Board, but the legal restrictions imposed on their lending activities prevent Building Societies and Credit Unions from getting involved in the kin of controversial investments detailed throughout this report. For example, none of the mutuals covered in this report had investments in the fossil fuel industry, they only lent on residential properties. And when looking at tax avoidance strategies all mutuals, with the exception of Skipton Building Society, score a best in our rankings.
However, since 2014 (when we last covered ethical finance), discourse within the climate divestment movement is increasingly considering not only what banks avoid i.e. not investing in fossil fuel companies, but also what banks are actively investing in.
To assist the transition towards a low carbon economy, banks are increasingly expected to invest in climate solutions and support initiatives that enable the low-carbon transition. When this is taken into account, the mutuals covered in this guide don’t perform so well, with the exception of the Ecology Building Society. All score a worst in Ethical Consumer's environmental reporting category, and none, except Ecology, appear to finance climate mitigation.
Our feature 'saving with credit unions' provides more information on mutuals.
Which banks are financing nuclear weapons?
In November 2015 the International Campaign to Abolish Nuclear Weapons (ICAN) launched its 2015 'Don’t Bank On the Bomb' report, reviewing the financing of the nuclear weapons industry by financial institutions.
A number of the banks covered in this guide had invested millions of US dollars in nuclear weapons producers since 2012, these include:
- Lloyds Banking Group ($1,921 million)
- Banco Santander ($1,675 million)
- Barclays ($5881 million)
- Royal Bank of Scotland ($6973 million)
- HSBC ($4469 million), Invesco ($5,413 million)
- Danske Bank ($299 million)
- Banco de Sabadell ($29 million)
- Citigroup ($14,449million)
- ING Group ($460 million)
- ICICI Bank ($760 million)
By lending money to nuclear weapons companies, and purchasing their shares and bonds, banks and other financial institutions, and companies and consumers are argued to be “indirectly facilitating the build-up and modernisation of nuclear forces, thereby heightening the risk that one day these ultimate weapons of terror will be used again – with catastrophic humanitarian and environmental consequences.”
ICAN is therefore calling for a coordinated global campaign for nuclear weapons divestment. Of all the banks covered in this guide only Triodos and the Co-operative Bank were listed in ICAN's Hall of Fame for having an all inclusive policy that excluded all types of investments in nuclear weapon companies (withdrawing past investments and avoiding future investments).
Let's talk about tax
In March 2016, the Ecology Building Society became the first building society to have received the Fair Tax Mark, demonstrating the Building Society's openness and transparency regarding its tax affairs. Unfortunately this positive news runs counter to the secrecy and aggressive tax dodging that continues to pervade the rest of banking industry.
Companies that scored a worst Ethical Consumer ranking for likely use of tax avoidance strategies include:
- The Co-operative Bank
- ICICI Bank
- Virgin Money
- Clydesdale Bank
- Yorkshire Bank
- Danske Bank
- Bank of Ireland
- Banco Santander
- Lloyds Banking Group
- First Trust Bank
- Post Office Accounts
- Royal Bank of Scotland
- Ulster Bank
Triodos and Skipton BS, had at least one subsidiary based in a tax haven that did not appear to be serving the local population. As a result they both receive Ethical Consumer's middle ranking for likely use of tax avoidance strategies.
Charity Bank, Nationwide, Al Rayan Bank, Bank of Cyprus, Metro Bank, Coventry BS, Cumberland BS, Leeds BS, Newcastle, Principality, Yorkshire BS, and West Bromwich BS don't appear to use tax avoidance strategies.
Company behind the brand
A long-time favourite of Ethical Consumer readers, Triodos Bank has been at the cutting edge of sustainable banking in the UK for more than 20 years. Its practice of publishing details of all its loans – even with an interactive google map these days – is one which we would like to see the whole banking sector follow.
The company however does have three medium risk company types in Luxembourg, a known tax haven, and for this reason scores a middle rating for our “use of likely tax avoidance strategies” category.
In a statement to Ethical Consumer on the subject Triodos said:
“the reason for the Luxembourg registration for our SICAV funds is because it provides these funds a European passport, which enables us to distribute these funds in all countries where Triodos has branches. If the funds would for instance be registered in the Netherlands, that would not be possible.”
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This product guide is part of the special report into ethical money. See what else is in the report.