Ethical Bank Accounts

Ethical Banking & Current Accounts

Ethical banking means using a bank that:

• doesn't invest your money in things like fossil fuels, weapons, gambling, tobacco and other unethical industries
• does invest your money in positive areas, such as renewable energy

Choosing an ethical bank is one of the simplest and most ethically productive things you can do. 

In this guide we scored banks against our core ratings on climate and the environment, and on financial issues such as director pay and tax avoidance. But banks aren’t like the companies we normally rate.

They don’t make things that we can eat or wear and don't have the corresponding supply chains. That means we can’t score them directly for things like workers’ rights or palm oil sourcing. However, banks have a massive impact on the world through their loans and investments.

It's their choices about where they put their money that largely determine how ethical they are. We looked at the kinds of activities they’re funding and the ethical policies they have in place to prevent the financing of harmful practices.

Banks offering current accounts

The current account market is dominated by seven banks and building societies: Barclays, Lloyds, Halifax, Santander, NatWest, Nationwide, and HSBC. Between them they account for four out of five main current accounts in the UK.

Barclays is the most popular provider with 16% of main accounts and 12% of second accounts. Lloyds Bank and Halifax are both owned by Lloyds Group and together take 24% of the main account market.

The remainder of the market is shared between around 20 providers who are very small by comparison. These include foreign banks, such as new entrant Chase, building societies, digital disruptor banks and also the Post Office.

We only recommend 4 of the 31 current accounts in the scoretable above. 
 

Unethical banking and ethical policies

Banks don't just passively process money but actively reshape industries, communities and ecosystems through their lending and investment choices. Their decisions about whether or not to finance a company should not, therefore, be purely economic.

We have separate feature articles highlighting work by external NGOs documenting the relationships between the finance sector and a range of unethical practices, from Amazon deforestation to nuclear weapons production, and from fossil fuel extraction to animal cruelty.

Of the banks in this guide, HSBC, Barclays, Santander and JPMorgan Chase appear frequently in these reports.
 

Many banks now have policies that restrict their funding to exclude activities such as fossil fuel extraction or arms manufacture. But there is considerable variety in the strength and scope of those policies.

Triodos and the Co-operative Bank lead the field on ethical lending and investment policies.

Triodos’ standards are detailed and comprehensive, covering everything from fossil fuels to genetic modification, and are published on the bank’s website.

The same is true of the Co-op Bank, which has polled its customers and stakeholders regularly since 1992 to shape its customer-led ethical policy.
 

Yet, the presence of policy is no guarantee of good practice and the need for scrutiny is demonstrated by the example of NatWest. Its environmental, social and governance policies prohibit the bank from financing certain activities, yet list others as merely “restricted”. NatWest can still lend to or invest in companies engaged in these restricted activities so long as it carries out annual or bi-annual due diligence audits.

Activities listed as “restricted” include:

• “the manufacture, trade or sale of semi- or fully-autonomous armed unmanned aerial vehicles and depleted uranium weapons”;
• “non-harmful child labour”;
• projects 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”.

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

More apparently robust commitments can also prove insincere. HSBC promised to stop financing deforestation in 2017 yet in 2021 Global Witness estimated that HSBC had received over $20 million in proceeds from investment in deforestation-linked businesses since that commitment was made. Global Witness stated: “a starker illustration of why voluntary policies and commitments will not keep rainforests standing could scarcely be imagined”.

Banks, climate change and greenwashing

In their own advertising, banks paint a rosier picture of their activities, but a recent judgement might make them think twice about their greenwashing tendencies. In a significant milestone, in October 2022 the Advertising Standards Authority (ASA) banned a series of HSBC adverts (similar to the one above) because of their misleading environmental claims.

One of the banned adverts boasted of HSBC’s involvement in a tree-planting programme that claimed to “lock in 1.25 million tonnes of carbon”. The bank did not, however, advertise its far more substantial contribution to global deforestation, having provided some £5.25 billion worth of financing to some of the world’s worst deforesters since the 2015 Paris Agreement.

The ASA told HSBC that future adverts featuring environmental claims should be adequately qualified and not omit material information about its contribution to carbon dioxide and greenhouse gas emissions. The regulator’s ruling will therefore have consequences for other banks with similar investments in fossil fuels, such as Barclays.

Robbie Gilbert from AdFree Cities, which brought the complaint, welcomed the ruling:

“HSBC can no longer ply us with ads pretending they are green while continuing to bankroll climate breakdown in the background.”

This controversy comes in the wake of another climate-related PR headache for HSBC earlier this year, when their now ex-head of sustainable investment Stuart Kirk gave a talk titled “Why investors need not worry about climate risk”. Kirk was suspended, and later resigned, following a public uproar.

Much of the media focus, and resultant outrage, centred on Kirk’s deliberately provocative, joke-styled soundbites, which included him asking “who cares if Miami is six metres underwater in 100 years?” This distracted from the substance of his talk, which displayed real scepticism about the financial sector’s ability – and crucially, responsibility – to mitigate climate change.

Kirk’s suspension shows that his rhetoric is an outlier in the financial sector, but is the same true of his ideology? The onus is now on HSBC to prove that his views are “inconsistent with HSBC’s strategy” and that it takes the substance of climate change seriously, not just the optics.

The rise of the digital banks

The last few years have seen digital banks like Monzo, Starling, and Revolut further cement themselves as household names in the UK. The neobank sector has expanded beyond its foundations in current accounts to offer mortgages, savings accounts and investment products in direct competition with ‘legacy’ high-street banks. This rapid expansion has, however, courted media controversy, focused primarily on the sector’s alleged vulnerabilities to fraud and money laundering.

Neobanks present as approachable and progressively minded, and in many ways this branding is reflected in their practice. Revolut’s ads, for example, pitch to ‘money underdogs’, whilst its Twitter account regularly mocks legacy banks for their elitism and lack of innovation.

How ethical are digital banks?

Neither Revolut, Monzo nor Starling appear to finance problematic industries such as fossil fuels or the defence sector at present.

Digging deeper, however, reveals that the policies underpinning neobanks’ progressive claims are often patchy.

For example, neither Revolut, Monzo nor Starling publish dedicated environmental, social and governance (ESG) policies or reports, instead choosing to parade their ethical credentials via bitesize information chunks and impressive sounding stats on their respective websites.

This absence of firm policy could leave the door open to more problematic lending practices as these banks continue to expand. For example, whilst Monzo’s lending eligibility criteria currently excludes industries involved in mining and weapons manufacture, these exclusions are justified on pragmatic, rather than moral grounds. In Monzo’s words, “certain industries have higher risks, where we need to put extra checks and controls in place. We’re currently focusing on industries that don’t need these”. So what happens when Monzo grows?

A cynic might suspect that neobanks’ progressive, socially-conscious branding primarily serves to undercut conventional high-street banks on ethical issues. Consumers are increasingly aware of big-name banks’ dodgy practices, whilst newer and smaller challengers are yet to accumulate the same baggage.

Are digital banks better than high-street banks?

For the time being, several neobanks generally score well in our ethical table, but it will be interesting to see if their principles evolve should they capture more of the banking market.

However, banking digitally is no guarantee of banking ethically: consider newcomer Chase UK, which launched in September 2021. Chase is owned by US behemoth JPMorgan Chase, the world’s largest investor in fossil fuels and amongst the lowest scoring banks in our table.

Banks and problematic loans and investments

Because so much of the impact banks have on the world is a result of their lending and investments we created special ratings to consider how ethical these are. We looked at how transparent banks were about who they were lending to, and how strong their policies were.

Where we found they were lending to particularly problematic sectors such as mining or forestry, and they did not have policies to ensure they were not funding harmful practices within those sectors, we deducted half marks in relevant categories.

For example, if a bank lent to the mining sector, we deducted marks for pollution and toxics, human rights, workers’ rights, and habitats and resources; and if a bank lent to the agriculture sector, we deducted marks for animal rights and factory farming.

Most lost marks in this way apart from Triodos, Co-op, Nationwide, and Cumberland which did not lend to problematic sectors. As Revolut and Monzo did no or minimal commercial lending they did not lose any marks.

Many banks hold shares in companies as well providing them with loans. This gives them a degree of control over those companies and means that they profit from their activities. We therefore also deducted marks for investments in companies that we have previously rated for their unethical practices.

For example, if banks held shares in poor-scoring companies such as Amazon, Walmart and Coca-Cola we deducted marks in our environment, animals and people categories. Where no information could be found about the companies a bank was invested in, we deducted the same marks in order to produce a rating that did not penalise transparency.

Banks, tax and directors’ pay

Apart from the impact of their lending, there are two other significant areas in which banks lost marks: excessive director remuneration and likely tax avoidance. All banks and building societies in the current account guide lost marks for excessive directors' pay. We have a separate feature about excessive pay where you can find out more.

The highest scoring banks and building societies in our table did not lose any marks for their tax conduct but all of the big banks were marked down for likely use of tax avoidance strategies. Of the smaller banks, the tech start-up Revolut and Al Rayan lost full marks.

Political activity and banks

All of the big banks lost marks for political activity for donating to political parties or for membership of multiple lobbying groups. For example, in 2022, JPMorgan, owner of Chase, donated over US$1.6 million to both the Republican and Democrat parties in the United States.

Financial inclusion or exclusion: branch closures and the digital transition

Fewer than 5,000 bank branches remain in the UK, down from almost 15,000 in 2012.

The Yorkshire constituency of Wentworth and Yearne, home to 98,000 people, has been without a single bank branch since 2019, and the rate of closures shows no signs of slowing. At the same time, online and app-based banking has surged. Physical branches are closing under the growing expectation that consumers will embrace digital technologies just to participate in everyday life.

Digital proponents take it for granted that technology brings people closer together and improves their access to essential services. But this is, at best, only partially true for even the younger, urban demographics that app-based banks primarily target. In branding terms, Monzo, Starling and Revolut all place financial inclusion front and centre.

Monzo’s ‘mission’ is, apparently, to “make money work for everyone”. But banks that require a smartphone and a reasonable level of digital literacy to use are fundamentally exclusive.

Many cannot afford smartphones, and many in rural areas – the worst hit by branch closures – struggle for good signal. Older people are far more likely to feel left behind by the digital transition, whilst shuttered branches leave small communities alienated and high streets empty. The digital push for financial inclusion risks becoming a story of deepening exclusion for many across the UK.

Nationwide appears to have gone the furthest in addressing these concerns and has pledged to keep all of its 625 UK branches open until at least 2024.

Additional research for the guide by Shanta Bhavnani.