An ethical bank aims to run in such a way that it doesn't have a negative impact on society or the environment. It can also be designed so that its policies aim to do good for society, and are positive for the environment or the local community.
When you put your money into a savings account or invest your cash in a fund, do you ever think about how the money is being used, and whether it is supporting companies that harm the environment or people? Ethical investing has grown from a relatively small part of the money landscape to one which is now big business.
An ethical bank will have a policy that outlines what it will and won't invest its customers’ money in. For example, some people do not want their money to support tobacco or oil companies, or to support arms and mining companies.
Ethical banking isn't just about not investing in certain companies or projects. In fact ethical banks will often try to encourage positive social change and promote environmental sustainability in their policies too. With the rise of the green movement, growing support for environmental activities such as Greta Thunberg, and a feeling among younger people that their money should be working for good, ethical banking is coming to the fore.
Some ethical banks also aim to be more transparent than regular banks, and to share more information about their practices with their customers.
If you are concerned about your bank profiting from unethical investments or ones that will have a negative impact on society or the environment, then you may want to consider ethical banking.
Ethical banking can positively impact societies worldwide because it does not help to fund companies that deal in morally questionable businesses.
It also means that you gain more control of how and where your bank invests its money and you are safe in the knowledge that your money will not be used by businesses that have a negative impact on the world.
In the past, ethical banking was seen as a minority interest. Now awareness of social and environmental impacts is so much more widespread, many people want to avoid the big worldwide companies that deal in or fund and support products like mining, oil and tobacco.
There are a growing number of people who want to use their money to support socially responsible companies, and to invest in projects with positive objectives, which might mean avoiding these types of companies in their pension or investments and opening a current bank account with an ethical bank.
There are a number of ways of ‘going green’ – by choosing “green” banks and savings projects and choosing to bank with an ethical bank.
The origins of socially responsible investing date back to the time of the Quakers, who in 1758 prohibited members from participating in the slave trade, and from John Wesley, one of the founders of Methodism, who gave guidance on not harming your neighbours or workers through your business practices.
These days, investors who choose ethical funds tends to want to avoid guns, alcohol, tobacco and practices harmful to the environment such as mining and oil. They may also want to invest in companies that try to do good, such as provide fair wages or workers or support green projects and sustainable energy.
Although there are not many ethical banks, there are a few examples of banks who subscribe to an ethical code.
The Co-operative was the UK's first ethical high street bank, with a policy of not investing in companies that are deemed unethical by its customers.
The Co-operative Bank now has 3.3 million personal customers, 85,000 business clients and 50 branches across the UK. It still classes itself as an ethical lender although it was bought out from the Co-operative Group in 2013 and has since then been owned by a group of hedge funds.
Other examples of ethical banks in the UK include Smile, which is part of the Co-operative Bank and Triodos Bank, which deals in everyday banking and savings accounts.
This small building society was established in 1981 and is based in West Yorkshire. The initial vision was to set up a building society that specialised in properties that conveyed an ecological benefit in terms of construction, use of land or lifestyle. The idea was sparked at a Green Party Conference.
It is dedicated to building a greener society by providing mortgages for properties and projects that respect the environment and support sustainable communities, funded through a range of simple, transparent savings accounts.
Since 1981 it has lent to over 3,000 projects, supporting individuals, charities, environmental businesses and community-led housing organisations to realise their sustainable living ambitions. In 2019 it lent £43.5 million to support 308 sustainable properties and projects.
Triodos Bank finances companies, institutions and projects that benefit people and the environment and add cultural value. It was started in 1980 and has supported fair trade enterprises benefiting families in developing countries, to renewable energy companies supplying thousands of households with clean green energy.
It has 721,000 customers and is active in five European countries, having given £7bn of loans to projects across Europe benefiting people and the planet. Triodos publishes details of every organisation it finances on its website, so you can see for yourself how your money is delivering positive change for people and planet.
Triodos Bank’s mission is to help create a society that protects and promotes quality of life and human dignity for all. Since 1980, its sustainable financial products have enabled individuals and organisations to use their money in ways that benefit people and the environment.
No, it's possible to compare the savings and investment accounts alongside regular banks. They offer many of the same personal finance products as any other bank.
Ethical banks have several more criteria that have to be met before they invest your money in a business.