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Three ethical issues to think about when switching your bank account

Who you choose to bank with is an important decision. You’ve worked hard to earn your money and now you want to make sure it’s looked after by a bank that won’t use it to fund unethical companies such as those involved in fossil fuel extraction or arms manufacturing. 

We highlight three big issues that might affect who you bank with.


What is ethical banking?

There are three key issues to think about when assessing if a bank or building society is ethical:

  • Its commitment to the environment, particularly investment in fossil fuels 
  • Its investment policy
  • Its record on transparency 

Whether you’re thinking about a new mortgage, current account, regular savings account or a cash ISA, these factors should play a part in choosing a bank.


1. Is the bank funding climate change?

Many of the big high-street banks in the UK are still investing in fossil fuels. An international report published in March 2021 placed the following UK banks in the top 50 in Europe in terms of their level of investment in fossil fuel industries:

  • Barclays
  • HSBC
  • Santander
  • NatWest
  • Lloyds

The Paris Agreement of 2016 set specific targets for reducing greenhouse gas emissions and limiting temperature rise. The Banking on Climate Chaos report, from campaign group Banktrack, stated that these targets are unlikely to be met if the level of investment in coal, oil and gas continues at the current pace. 

We look at banks, climate change and the environmental crisis in more detail in a separate feature article

However, there is some good news as not all banks and building societies fund fossil fuel industries. Some banks actively invest in renewable and more sustainable technologies. Some other banks are proactively investing in sustainable communities and housing.

Find out which in our guides to ethical bank accounts and savings accounts.


2. Does the bank have an ethical investment or lending policy?

In order to know what your bank is investing in, it needs to have an investment policy, and this needs to be easily available to customers.

What is an ethical investment policy?

An ethical investment or lending policy can include positive and negative screening. 

Positive screening is where a bank chooses to proactively lend to organisations making a positive contribution towards social or environmental benefit e.g. renewable technologies. 

In contrast, negative screening seeks to specifically exclude other investments that are considered harmful e.g. oil extraction, arms, human rights abuses, animal exploitation, and tobacco. 

An ethical investment policy will address social and environmental issues and apply to all the assets held by the company group – not just those in ethical funds or products. 

Do mainstream banks have ethical investment policies?

Our research has found that the ‘big five’ do not have transparent ethical investment policies and all have investments in fossil fuels.

Do building societies have ethical investment policies?

Building societies are generally less likely to be investing in unethical industries and business practices, partly because their focus is on loans and mortgages for individuals or small companies.

Do app-based banks have ethical investment policies?

Our guide to current bank accounts also looks at newer app-based banks. In general they do not currently make large corporate loans or investments, and therefore are not directly funding destructive industries like arms and fossil fuels. 

Some of these newer banks score reasonably well in our bank account guide, so if you are thinking of switching to them ask if they have an ethical lending policy. 

Is the bank involved in positive change?

You can see if your bank is a member of the Global Alliance for Banking on Values (GABV). The GABV is a network of banking leaders from around the world committed to advancing positive change in the banking sector including transparency of their investments.

In the UK the Charity Bank, Ecology Building Society, and Triodos are members.


Top secret ink stamp

3. How transparent is the bank or building society about its investments?

As well as having an ethical investment policy, more ethical banks and building societies are transparent about where your money goes. 

For example, Triodos state on their website: “We publish details of every organisation we finance on our website, so you can see for yourself how your money delivers positive change for people and planet.” You can search by keyword, sector or a map to see where your money goes. 

Other ethical banks show the positive impact their investments make through impact stories and annual reports.

Our guide to current accounts found that it is hard to get public information on investments from the ‘big five’ (and most other mainstream banks) and even harder to find information on the projects and companies for which banks provide other financial services like loans and insurance. 

Transparency in investment funds

For our ethical investment fundsethical pensions guides and fossil free investments feature we looked at company transparency and engagement policies, and based on our assessment of these policies and disclosures, a company was placed in one of four categories: 

  • top of the pile
  • getting there
  • vague/unsubstantiated
  • bottom of the pile. 

Companies that are not rated ‘top of the pile’ for their transparency and engagement will generally receive comparatively much lower scores because they have been marked down according to the companies they invest in, many of which do not fare well against our strict rating system.  


4. Other ethical banking issues

Tax avoidance

In our ethical finance guides we found that secrecy and tax avoidance continues to occur in the banking sector. Not only may it be difficult to find out what they are investing in (ethical or unethical), but there can also be secrecy over tax matters. 

Our guide to current accounts found that many banks score a worst rating for likely use of tax avoidance strategies. In general building societies, smaller banks and the newer app-based banks were more likely to achieve middle or best ratings. 

Building societies are ‘mutuals’, i.e. owned by and run for their members. All customers are members and are able to vote at AGMs or stand for election to the Board. The organisation is run for the benefit of its members rather than short-term financial gain. This tends to help with more transparent processes and policies. 

Another clear way to know if a bank (or any organisation) is open about paying its fair share of tax is to see if it’s signed up to the Fair Tax Mark

The Unity Trust Bank, Ecology Building Society and Leeds Building Society have all been awarded the Fair Tax Mark.


Pay inequalities

Our research into the ethics of the banking world found many banks pay some senior staff in excess of £1 million a year. We believe this to be excessive in a world of huge inequalities, especially when only a few banks have signed up to be a Living Wage employer and pay the Real Living Wage.

The list with figures of highest amount paid to a single employee shows the eye-watering figures some directors are paid, with a staggering £11m at Citibank. In comparison Leeds Building Society paid £350m.

Several financial institutions are Living Wage employers including the Charity Bank, Cumberland Building Society, Ecology Building Society, Leeds Building Society and the Nationwide Building Society.


Switching your bank account

Because we feel where our money goes is fundamental to ethical decision making, we have created resources to help you switch your account.

First - check out the guides to various financial products:

Once you have decided to switch banks, you can use our handy template letter to let your old bank know why you are moving to a more ethical choice.