Small Business Accounts


Ethical buying guide to Small Business Accounts, from Ethical Consumer

Ethical buying guide to Small Business Accounts, from Ethical Consumer


This is a product guide from Ethical Consumer, the UK's leading alternative consumer organisation. Since 1989 we've been researching and recording the social and environmental records of companies, and making the results available to you in a simple format.

We track ethical changes in banking for small businesses and charities
 
 

This guide includes:

  • Ethical and environmental ratings of 24 banks
  • Best buy recommendations
  • Spotlight on de-risking
  • Meet the super-ethicals

 

This product guide is part of the special report: Ethical Money

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Our ratings are live updated scores from our primary research database. They are based on primary and secondary research across 23 categories - 17 negative categories and 6 positive ones (Company Ethos and Product Sustainability). Find out more about our ethical ratings

 

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Last updated: April 2018 

 

 

 

 

 

Special Report

Ethical Issues in the Banking Industry.

 

 

 

 

Small Business Accounts

 

Back by popular demand, this guide covers current accounts available for small businesses and charities in the UK.

Banks which only offer business savings accounts have not been included, but many banks in our consumer savings accounts guide will offer business savings accounts too.
 

 

Market share

 

88% of business accounts,[1] and 76% of charity accounts,[2] are held with the five biggest banks in the UK; Barclays, HSBC, Lloyds Group, RBS Group and Santander. All of these companies score very badly against our Ethiscore rating. Santander scores highest but still only receives a score of 5/20.

 

Table: market share

 

Barclays 19%
Santander 17%
HSBC 16%
Lloyds 15%
Natwest 13%
RBS 5%
Bank of Scotland 3%
Co-op 3%
Other 11%

 

Many commentators have argued that the lack of competition in this market has lead to an abuse of power. Without viable alternatives, banks have been free to manipulate and manage the system for their own benefit.

The RBS scandal being the most recently exposed example of this abuse. The recently published government report into this scandal concluded that: “The overarching priority at all levels of GRG [RBS’s Global Restructuring Group] was not the health and strength of customers, but the generation of income for RBS, through made-up fees, high interest rates, and the acquisition of equity and property.”

Remaining largely unchallenged, these dominant banks have also normalised other unethical practices in this sector, such as excessive directors’ pay, tax avoidance, and loans to fossil fuel and nuclear weapons companies. More information about these practices appears in our reports on current accounts and savings accounts.

 

 

Image: business bank accounts

 

 

The widening gap

Since our last report on this sector, the gap between ethical and unethical banks has grown significantly. There is now a 5 point gap in the middle of our table, between ICICI (6.5/20) and Al Rayan (11.5/20).

This growing gap proves that the UK’s largest banks are falling further behind on ethics. Since our last report, 75% of the ethical choices in this market have improved their Ethiscore. Whereas, of the big five, only Barclays managed to improve their score, albeit from a measly 1.5 to 3.

Clydesdale Bank and Yorkshire Bank are this guide’s biggest movers. Impressively, their Ethiscores rose from 6.5 in 2016 to 12.5. This sharp increase is due to a change of ownership, with previous owners the National Bank of Australia exiting the UK market and handing over control to the newly formed CYBG.

 

 

The ethical and the super-ethical

In the murky world of finance where profit often trumps ethics, readers should consider banks which receive an Ethiscore of 11 or above as solid ethical choices. This leaves a variety of building societies and banks to choose from. The vast majority of these are only marked down under Anti-Social Finance and Environmental Reporting.

There is however a stand out choice for ethical business consumers in the UK to consider; our best buy Triodos. Not only do Triodos not lose a single mark, they also pick up positive marks for its transparency and company ethos. Moreover, Triodos have recently been awarded the Ethical Consumer Best Buy label in recognition of its pioneering ethical approach to banking.

This product guide’s other two Best Buys are Unity Trust Bank and CAF Bank. Unity Trust focuses on social enterprises, co-operatives and trade unions. Whereas CAF specialise in charities and not-for-profits.

 

 

A spotlight on de-risking

 

One of the main ethical issues in the charity banking sector is de-risking. This is a process by which banks, prompted by regulators (governments), seek to reduce ‘risk’ in their client portfolios.

Stemming from the 2001 September 11th twin towers attacks, and perpetuated by the growing fear of terrorism and money laundering, de-risking is one of the methods regulators have employed to curtail funding finding its way to terrorist groups. Unfortunately, this policy has had serious repercussions for the charity sector.

Image: bank at your own riskCharities often operate in areas deemed high-risk by banks, such as war zones or oppressive regimes. As such, charities are vulnerable to being deemed risky clients, and as such, having their accounts closed. Infamous examples include the Co-op Bank’s decision to close the accounts of the Palestinian Solidarity Campaign, and HSBC’s closure of Upendo UK (who collect money to help homeless and impoverished HIV suffers in Kenya).

When bank accounts are frozen or closed, non-profit organizations often have to rely on other means to transfer money between countries. Rather than being able to rely on the safety and transparency of a regulated bank account, some have resorted to carrying cash through terrorist-controlled regions to reach those they are trying to help. This process not only puts non-profit staff at incredible risk but also potentially makes it easier for terrorist groups to access funds.

“This is a serious concern…de-risking may drive financial transactions underground which creates financial exclusion and reduced transparency, thereby increasing money laundering and terrorist financing risks.” - Financial Action Task Force.

Ironically, also, by hampering NGO’s ability to address the root causes of inequality and conflict, these international financial regulations may be having the opposite effect to the one intended.

Anecdotally, whilst some high street banks abandon charities, Unity Trust’s Peter Kelly stated that, “As high street banks continue to demerge and restructure, Unity remains focused in its aim to become the go-to bank for organisations committed to community, social or environmental benefit.”

 

 

 

Company behind the brand

 
Unity Trust Bank standout as a solid ethical choice in this market. Previously owned by the Co-operative Bank, they are now majority owned by trade unions. Unity operate a ‘Double Bottom Line’ strategy, meaning they calculate profit and loss alongside analysis of the positive social impact. As a company they were one of the first to be awarded the Fair Tax Mark and implement a real Living Wage.

 

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References:

1 Mintel Small Business Banking Report 2017

2 Charity Financials Banking Report 2017

 


 

This product guide is part of the special report into ethical money. See what else is in the report.


 

 


 

 

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