Banks have long been known for their unethical practices. They sit behind some of the most controversial industries in the world – from nuclear weapons to the exploration for new fossil fuels.
Many of the mainstream banks are trying hard to reform their image and some have made steps in the right direction, but in recent decades there has been little true change in their practices. Fortunately, a handful of alternative banks can properly claim to be ethical.
What is ethical banking?
In our Ethical Markets Report we estimated the size of the UK 'ethical money' sector as £41.1B as of 2018. With high street banking still dominated by the big five, switching to an ethical bank is the next step many could make towards more ethical spending.
The biggest ethical impact that banks make on the world comes from the companies and projects to which they provide capital, loans, and insurance.
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.
This is a step in the right direction, but we don’t think a bank can be considered ethical overall without more comprehensive policies. To be considered ethical in 2020, at the very minimum, banks should not be providing new funding for fossil fuel projects and companies.
While big banks (most of those scoring below 10 on our scoretable) finance multinational companies and projects, many of the smaller banks won’t provide this kind of corporate investment and lending. They instead focus on loans and mortgages for individuals or small companies, while building societies focus on financing homes and other buildings.
They therefore won’t be funding dirty global conglomerate, arguably making them more ethical by default.
There are still steps that these banks and building societies can take to improve their impacts.
The most ethical banks not only prohibit the financing of dirty industries, they help fund the transition to a fairer, more sustainable economy. For example Triodos finances everything from green-energy projects to sustainable community-led housing.