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What makes banks unethical?

From fossil fuels to cluster munitions, unethical banks enable some of the most damaging industries and projects in the world. 

The decisions that banks make shape our economies, societies and future. With many UK high street banks falling well short when it comes to ethics, we explore what makes a bank unethical, which banks are the worst offenders and what we can do about it.

What is an unethical bank?

Banks use the money they hold to fund companies and projects around the world – including some of the most environmentally damaging. For example, UK banks are behind the expansion of a coal mine in Colombia, destroying Indigenous towns and causing widespread drought. They are also behind palm oil companies causing massive deforestation in Indonesia.

In funding these projects, they enable abuses of the environment, human and other animal rights. Many banks are also directly involved in dodgy practices from tax avoidance to multi-million pound directors’ pay.

When deciding whether a bank is ethical, you may also want to ask, ‘who is its owner?’ A company may have one ethical brand, while ignoring ethics in every other area of its business.

Each of us will have different ethical priorities, but below we outline some key things you might want to look out for when considering who to bank with.

What makes a bank unethical?

There are multiple different factors that play into a bank's ethics. Ethical Consumer’s guides rate and rank banks across over 20 different areas, looking at banks’ investments, policies and track record. Here are a few key topics we consider.

1. Funding climate breakdown

Since 2015, the world’s 60 largest banks have provided $4.6 trillion in financing to the fossil fuel industry. In doing so, they push us further towards runaway climate breakdown.

Many of these projects also harm the communities and ecosystems directly around them. Coal mines, pipelines and other fossil fuel projects are notorious for violating Indigenous rights, polluting local lands and waterways, and causing dangerous air pollution.

2. Avoiding tax

The financial industry is notorious for its tax avoidance. In our recent guide to current accounts, all of the major banks lost marks from their rating for likely use of tax avoidance strategies.

Tax avoidance takes much needed money from the public purse, and forces low income countries to choose between slashing their own tax rates and risking profits being shifted elsewhere.

Every year, global tax avoidance costs over £300 billion. And the poorest countries consistently pay the highest price from tax avoidance, when considered in relation to their GDP.

3. Funding human rights abuses

Banks pump money into corporations behind some of the worst human rights abuses in the world.

For example, European banks have provided over €20 billion in financing to the companies that are selling arms for conflicts in Iraq, Libya, Syria, and Yemen – wars that have cost thousands of civilian lives and caused widespread displacement and suffering for those in the countries.

Banks are also funding companies actively involved in Israeli settlements that have been declared illegal under international law. And they have been found to fund mines implicated in serious human and labour rights violations.

Our article on banks and human rights abuses looks at the banks involved.

4. Funding arms

High street banks are also funding some of the most notorious arms companies.

They are involved in funding companies producing nuclear weapons and cluster munitions. Cluster munitions are weapons that spread dozens, or even hundreds, of smaller bombs over an area the size of a football stadium, which explode on impact. They have been banned by over 120 countries, because of their indiscriminate impact on civilians.

5. Funding animal exploitation

Banks fund companies involved in the exploitation and abuse of animals, such as industrial meat companies, factory farming, or pharmaceutical companies involved in animal testing.

A 2021 report by Shifting Values found,

“Almost half of the banks and investors evaluated have no policy to prevent the worst forms of animal cruelty when deciding on their loans and funding. Only one in ten banks obtained more than half of the total achievable score.”

A 2023 report by World Animal Protection UK has found that Barclays, HSBC, Lloyds, Metro Bank, and Santander are likely to be funding animal cruelty through the companies they finance. The report analysed 10 of the UK’s biggest banks and found that these five, by not having a policy, are likely to be investing customers’ funds in cruel practices, such as factory farming, captive animal entertainment and animal testing. 

Our article on banks and animal exploitation looks at banks funding factory farming and policies against ‘the worst forms of animal exploitation’.

6. Excessive directors’ pay

The financial industry is notorious for excessive pay of their directors and other senior staff.

In fact, one financial institution in Ethical Consumer’s recently updated current accounts guide paid £74 million to their highest paid director in 2022. Many other high street banks also pay over £1 million to senior staff.

7. Gender and ethnic pay gaps

In the finance sector, firms are paying men, on average, almost 24% more per hour than women. This means that women in finance earn £0.76 for every £1 that men earn. Across all sectors, the gap is around 11.6%.

While most banks still don’t report their ethnic pay gaps, those which do show a big discrepancy between their average pay for white and black workers.

Stacks of coins with seeds growing from the top

Which banks are unethical?

In recent years, many mainstream banks have developed some kind of ethical guidance for their lending and investments, excluding the very worst sectors such as financing of new coal-fired power stations. Although this is a step in the right direction, it’s not far enough. They are still financing lots of other fossil fuel projects and dirty industries.

The top 5 UK banks – Barclays, Lloyds, NatWest, Santander and HSBC – all receive worryingly low scores in our current accounts guide.

It can be increasingly complicated to separate the greenwash from those taking genuine action. And with many different things to consider in this sector, finding an ethical bank can be difficult process to navigate. Our current accounts guide rates and ranks 31 different options, exposing the worst and best brands in the sector to help you make sense of the issues.

What is the most unethical bank?

HSBC is the lowest scorer in our current accounts and savings accounts guides. Barclays also stands out as the largest European financier of fossil fuels.

They have been criticised for everything from funding industrial farming to funding companies which are actively involved in illegal Israeli settlements. Both also have a significant gender pay gap, and between white and black workers.

Is my bank unethical?

As always, the answer to this question will depend on your own personal ethics. If you’re with one of the big five banks, though, you may well want to find a more ethical option.

Ethical Consumer’s guides not only provide an overall score and ranking so you can see how your bank compares to other options across a wide range of different factors, we also give a breakdown of key areas so you can pick out what is most important to you – from animal rights to climate breakdown.

How ethical are the new app-based digital banks?

In recent years, a wave of challenger banks like Monzo, Revolut and Starling, have brought their app-based offerings to the markets. Expanding from current accounts into mortgages, savings and investments, these companies are increasingly offering all the services you usually find with the older high street banks.

In general, these newer options have performed slightly better on ethics than many of the mainstream options. However, with a lack of robust policies to ensure that they remain on an ethical track, it has invited questions about whether their ethics are robust-enough or are just a marketing stance.

Read more in our guide to current accounts.

Are you boycotting Barclays Bank?

What can consumers do about unethical banking?

1. Switch accounts

Switching bank accounts is remarkably quick and easy, with the transfer happening in less than seven working days. Current Account Switch provides a step by step guide.

When you open a new account, the bank will usually ask you whether you want to switch across from an old one. 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.

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.

Ethical Consumer’s guides can help you find a more ethical option, whether it’s a current or savings account you’re after.

2. Write to your bank

If you’re switching banks or just want to ask your current bank to improve, it’s well worth writing to them. Like all companies, banks care what customers think, especially if it starts to cost them.

If you are switching accounts and want to let your previous bank know why, we have published a template letter you can use.

3. Avoid the worst offenders

Our ethical banking guides highlight the worst of the bunch, so that you can make sure you’re steering clear of them. We have guides for current accounts, savings, mortgages, business accounts, ISAs and more.