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Ethical Banking

Ethical banking addresses everything from climate breakdown to animal rights.

So what is ethical banking, why are ethics important in banking, and how can you find an ethical bank?

What is ethical banking?

Banks choose where to provide financial support, in the form of loans, investments or insurance. This support determines whether corporations can build an oil rig, expand their munitions production or develop their wind farms. In other words, it decides what our economy, industries and planet look like now and into the future.

Ethical banks avoid funding the most toxic industries and redirect the money to companies or organisations that are doing something positive.

More and more banks are developing ‘ethical investment policies’. Most often, these policies will say what the bank can’t fund – for example, they may not be allowed to fund nuclear weapons.

Some high-street banks are making a lot of noise about these policies without actually making major steps towards change. For example, they may only rule out the very worst of industries, such as cluster munitions (which are banned under international law), or leave their policies riddled with loop-holes so they can still channel money to fossil fuels.

What are the the most ethical policies?

The best ethical policies, though, can really determine the direction of a bank’s finance. For example, it might include:

A truly ethical bank will also finance more ethical alternatives, such as solar panel companies or more sustainable farms. This is crucial because it creates the infrastructure we need for a greener future.

At Ethical Consumer, when deciding whether a bank is ethical, we also look at whether it is dodging tax or increasing inequality through excessive pay of directors or unequal pay e.g. for women or ethnic minorities.

Is ethical banking important?

Banks have an enormous amount of power and wealth. UK banks recorded pre-tax profits of almost £50 billion in 2021. They therefore hold massive sway over the nature of our economies.

The decisions they make now also have long-lasting repercussions. An oil rig funded in 2022 will last for 20 to 30 years. On the other hand, renewable infrastructure also has a long lifespan and needs a high amount of upfront investment, making banks’ support vital.

On a consumer-level, ethical banking is also important, even if you think your savings aren’t worth much. For every £1 a bank holds, it can lend out £9.

This means that if you have £12,500 in savings (the median amount of savings for a UK household), your financial provider can lend out £112,500 to either clean or dirty industries.

Ethical banking therefore offers a chance to both align your money with your values and make a really meaningful impact.

Ethical banking and climate change

Banks around the world are pumping money into fossil fuels, making them a key culprit of climate breakdown. Since the Paris Agreement, the world’s 60 largest banks have provided USD $4.6 trillion in financing to the fossil fuel industry.

Ethical banks are reversing this trend by refusing to fund fossil fuels, or at their best, funding our transition to clean energy through solar, electric vehicles and other shifts.

We expect banks to have a policy against fossil fuels, be reporting their emissions including from their investments and to have a target and be taking real steps towards reducing emissions. We rate all banks in our guides on this.

In our guide to current accounts, all but three companies scored a 'worst' rating for their carbon management and reporting.

Check out the guide to find out which three companies did best >

Which banks are ethical?

Woman in wheelchair paying in cafe

Deciding which banks are more ethical will depend on your personal priorities. Our guides to current accounts, saving accounts and small business accounts provide information on everything from fossil fuel investments to tax avoidance, as well as our own recommendations.

There are nonetheless some standout options. Triodos has a market-leading ethical investment strategy, and is impressively transparent on where its money goes. It gives a list of all 800-plus projects that it funds, from a social housing association in Bradford to a solar panel provider in Arizona.

Ecology Building Society offers savings and small business accounts. It focuses on funding projects to make homes more energy efficient, as well as supporting community-led affordable housing.

Our guides also highlight other ethical options such as building societies, including mainstream brands like Nationwide which may not be as ethically focused but are avoiding the worst investments.

Are high street banks ethical?

In recent years, many mainstream banks have taken small steps towards more ethical lending and investments, by developing ethical lending policies. However, our recent guide to current accounts found, “the presence of policy is no guarantee of good practice.”

In fact, it uncovered multiple instances in which high street banks had either published weak policies, or simply ignored them.

NatWest was found to have a policy that allowed it to continue investing in or lending to certain “restricted” activities, as long as it conducted due diligence audits. “Restricted” projects could include those involving the “direct displacement of indigenous peoples without free prior and informed consent or resettlement of large numbers of people relating to a single project,” according to its policy.

“One could speculate that this final clause would allow for the $24 million provided by NatWest to Cargill Inc between 2015 and 2020,” Ethical Consumer writes. “Cargill’s subsidiaries have been implicated in the seizure of indigenous lands across Brazil and Indonesia.”

Likewise, while HSBC promised to stop financing deforestation in 2017, Global Witness estimated in 2021 that the company had received more than $20 million in proceeds from investments in deforestation-linked businesses since the commitment was made.

In fact, of the largest seven UK banks (Barclays, Lloyds, Halifax, Santander, NatWest, Nationwide, and HSBC), Nationwide was the only one to receive a score of more than 5 out of 20. All six others still invest in fossil fuels as well as arms companies.

Are digital banks ethical?

At the moment, some of the digital banks in our current accounts guide score in the mid-range for ethics. However, this may be because they are still relatively small, and it will be interesting to see if their principles evolve should they capture more of the banking market.

How to find an ethical bank

With so many weak policies around, it can be difficult to separate the greenwashing from the truly ethical options.

Ethical Consumer has rated and ranked 31 current accounts, 50 savings accounts, and 30 small business accounts in three separate guides. Our ratings look at everything, from banks’ commitments to curb the emissions from their lending, to the rate of their CEO pay.

If you want to find an ethical bank through your own research, here are a few key questions you probably want to ask:

  1. Is it funding fossil fuels? Look for a clear policy against fossil fuel investments and lending. It should discuss fossil fuel infrastructure as well as extraction.
  2. Does it support more ethical projects and businesses? More ethical banks and building societies may, for example, fund green energy or community social housing.
  3. Is it transparent about its investments? The most ethical companies will publish a full list of their investments on their websites.
  4. Is it paying its fair share of tax? Banks are notorious for their tax dodging. Check whether it has a robust tax policy.

Should I switch to an ethical bank?

Moving your money is quite possibly the easiest way to have a big impact on the world as an ethical consumer. It offers a chance to align your money with your values, ensure you’re not funding the climate crisis, and address other key areas of concern from animal exploitation to the arms trade.

If you’re with one of the UK’s major banks – Barclays, Santander, NatWest, Lloyds Bank, Halifax or Barclays – you should consider switching.

While Triodos has a low monthly charge, most ethical banks are free to open an account with. They generally also have better customer satisfaction scores, according to Which?

Is it difficult to switch to an ethical bank?

Switching banks is remarkably easy once you’ve found the right one for you.

When you open a new bank account, it will usually ask you during the application whether you want to switch. If you do, by providing the details of your old account, the switching service will move your money, direct debits and standing orders across, and close your previous account. It will also transfer any payments meant to go into your old accounts, for example your salary. All this takes just seven working days.

For at least three years, any money paid into the old account or wrongly down to come out of that account will be moved across into the new one.

Current Account Switch has a guide on how to make the move.

If you are switching accounts for ethical reasons and want to write to your previous bank to let them know why, we have published a template letter for you to use.