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Looking for a bank with a moral compass

Whenever Ethical Consumer is approached by journalists asking about the top five or ten ethical choices that consumers can make, changing bank accounts is almost always on the list.

Three years before the COVID-19 pandemic, it was clear even to capitalism’s biggest cheerleaders, the World Economic Forum, that “the global economy is broken”.

With the climate crisis spinning out of control and ever rising inequality, the idea that the single-minded pursuit of profit by unregulated global business will somehow lead to better outcomes for everyone is now, quite rightly, filed under ‘tried and proven not to work’.

Unfortunately, there do not currently appear to be any global institutions capable and ready to step in to fix things. This means we face the daunting task of trying to persuade the institutions we do have to change direction quickly.

Banks and the web of unethical business

Banks and other financial institutions will play a particularly important role because they sit at the heart of the broken global economy. The decisions they take daily – on which projects to finance or not – determine the direction of travel for this economy and therefore for us all.

In June of this year, for example, a report by the Bureau of Investigative Journalism and Unearthed found that British-based banks and finance houses had provided more than $2 billion in financial backing to Brazilian beef companies linked to Amazon deforestation.

Perhaps this made sense to the banks based on immediate financial return on investment. Yet, when balanced against the scientifically agreed actions needed to preserve a global ecosystem and allow Homo sapiens as a species to thrive, it looks less smart.

That many people now understand the central role of banking has been shown by recent Extinction Rebellion protests. For example, in October 2019, dozens of XR protesters were arrested for demonstrating outside the Bank of England. Hundreds of protestors sat down in the road outside the bank in a protest against “the system bankrolling the environmental crisis”.

Civil society rising

Campaign groups have, of course, long been concerned about the impacts that banks make, from the boycotts of Barclays over its support for racism in South Africa in the 1970s to modern-day campaigners against deforestation.

In 2020, the list of reports and analyses published by civil society criticising banks appears to be longer than ever. We have highlighted some of these in the our ethical money pages:

We have also listed some of the issues on our ‘moral compass’ image featured above as another way of illustrating the choices that bankers are currently making.

The role of consumer choices

Whenever Ethical Consumer is approached by journalists asking about the top five or ten ethical choices that consumers can make, changing bank accounts is almost always on the list.

This is because, although your own savings might not be that great, the place of most banks at the centre of the web of business means that the choices you make can become amplified across the economy. When choosing a bank, you are in a sense choosing how you want the whole economy to look.

A glance at the average savings of UK adults shows not just how unequal our society is but how this amplification might work. Figures vary, but we know that roughly:

  • 9% have no savings at all.
  • One third have less than £600 in savings.
  • Average UK savings are £9,633.
  • Men have almost double (£13,140) the average savings of women (£6,869).
  • Londoners have the highest average savings with £28,978.

Generally, banks can lend up to nine times the amount of money you have with them.5

This means that even the relatively small deposits of 10,000 people could become a more impactful £10 billion of lending to either positive or destructive businesses around the world.

Fortunately, as our guides show, there are a now some specialist ethical banks that understand all this and are creating some great alternative options. 

The special case of the climate

This groundswell in climate activism is undoubtedly forcing many banks to put systems in place to begin to measure and address the climate impacts of the decisions they are making. As we discuss extensively in our money features, many of these systems are still woefully inadequate, but it is important that they are happening.

These actions admit that making decisions based only on financial return (and a very narrow definition of risk) is inadequate and must be urgently redressed if we are to avoid some very dangerous and immediate outcomes. Banks have paid lip service to non-financial values such as human rights for decades now, while taking little real action.

Now that they are quickly setting up systems, departments and standards to deal with climate impacts, however, it is less easy for them to argue that making similar steps to address non-financial values like human rights is impractical or uneconomic.

Ranking the banks

To simplify this down for consumers, we have integrated all the criticisms found into our ranking tables and the Ethiscores that appear in our guides to current accounts and savings accounts.

For example, when we find that Barclays has been financing Brazilian Beef companies criticised for rainforest destruction, we deduct half a mark under the ‘Habitats and Resources’ category.

We do this whenever we find a problematic ‘banking or investment relationship’ between two companies, and most global financial institutions end up losing marks in most of our ethical categories.

Choosing a way forward

In order to calibrate a moral compass for banking going forward, there are four elements that banks will need to address, and consumers will need to look out for:

Institutions that think they have a financial duty to shareholders which overrides their duties to the rest of society should have no part to play in the economies of the future.

Two of the best performing financial institutions in this magazine, Triodos and WHEB, have legally acknowledged their responsibility to non-economic stakeholders by converting to B-Corporation status since our last review.

Mutuals, such as building societies which are owned by their customers, are also a good alternative option for many financial services.

Banks need to develop policies that prioritise human, ecological and other animal interests over financial ones in the event of a conflict.

If communities are able to identify the financial institutions behind the projects affecting them, it allows all-important feedback loops. Ethical Consumer’s 2020 Manifesto suggests that this transparency should be required by law.

We saw that such measures are emerging around carbon impacts above. Engaging with communities affected, via the transparency element above, will be a key part of this role. Incredibly, more than 75% of us still bank with one of the big four banks.

It is very hard to make global financial institutions change behaviour, but not impossible. During the Barclays boycott over its role in South Africa, its share of the student market fell by 15%.

This was enough to force a U-turn, which was one of many to contribute to the lasting change that later occurred in the region.

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