Ethical Bank Accounts

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.

Ethical Banking Issues

Tax avoidance

Many of the banks in the table score poorly for likely use of tax avoidance strategies.

A best rating was achieved by only Triodos, Cumberland, Monzo, Nationwide, Starling, Metro Bank, Handelsbanken, The Co-operative Bank, ICICI, Virgin Money, M&S

Revolut got a middle rating, and the worst rating was given to Al Rayan, Lloyds Banking Group, Banco Santander, Citigroup, NatWest Group, HSBC, Barclays, and Tesco.

Financing and investments

Where dodgy investments – for example in companies like Nestlé or Amazon – were found, we marked banks down. Often, though, companies do not publish information of this kind. It’s even harder to find information on the projects and companies for which banks provide other financial services like loans and insurance.

We therefore also rely on the huge number of reports from civil society organisations like BankTrack and Campaign for Nuclear Disarmament that monitor banks’ financing for and investments in problematic industries.

Climate Change

Our new Climate Change rating means that we now not only look for dodgy practices (such as investments in fossil fuels), but also at how a company reports on its own carbon impacts and its commitment to reduce these.

Most banks scored a worst rating in this category, including any investment bank which had not prohibited investments in fossil fuels. Triodos was the only company in this guide to score a best rating in this category. Cumberland and the Co-operative Bank scored a middle. All the rest scored a worst.
 

Human rights abuses

By funding environmental breakdown, UK banks also show a disregard for human rights.Climate change is already having a devastating effect, disproportionately affecting those in the Global South.

Environmentally damaging projects and companies also often directly harm local communities. Unsustainable palm oil plantations, deforestation, and mining and extraction frequently displace communities and violate Indigenous rights.

In our feature on banks and their environment impact, we look at some of the specific fossil fuel projects funded by UK banks and their devastating impact on local populations.

For years, banks have also been criticised for their role in the arms industry. They have provided financing for companies involved in everything from nuclear weapons to the supply of arms to countries involved in the war in Yemen. We write more about this in our feature on banks' investments in nuclear weapons.

They have also been criticised for backing companies that supply military equipment to the Israeli government.
 

Environmental breakdown

By investing in fossil fuel companies and funding new fossil fuel projects, banks lock us into a high climate impact future for many years to come. Some banks claim to be making improvements.

Yet, since the 2015 Paris agreement, 35 of the world’s major private banks have provided a total of $2.7 trillion in lending and underwriting to the fossil fuel industry – with fossil fuel financing increasing each year.

Banco de Sabadell (owner of TSB), Barclays, Citigroup (Citibank), Danske Bank, Deutsche Bank (part owner of ICICI), Handelsbanken, HSBC, Lloyds Banking Group, NatWest Group, Santander and Virgin Money all continue to provide finance for or invest in fossil fuel companies. The Co-operative Bank was the only high-street bank that had expressly prohibited support for fossil fuels.

We look at banks’ financing of fossil fuels in more detail in our feature on banks and the environmental crisis.

The environmental impacts from these banks don’t end there. From funding factory farming and palm oil plantations to the mining and extractive industries, the banks remain behind some of the most environmentally destructive practices in the world.

Amazon Watch has said

Today, the Amazon’s irreplaceable ecosystems are under immense threat, driven primarily by a handful of industrial interests, industry-beholden governments, and organized crime ... big banks and large investment companies play a critical role.

In our feature, 'Banks and the Environmental Crisis', we run through some of the key reports on banks’ roles in environmental destruction which are reflected in our score table

Positive marks for ethical banks

We award positive marks in the scoretable to banks taking an ethical lead for their transparency and for the clarity of their ethical lending policies.

The Co-operative bank received half a Product Sustainability mark for its lending policy.

Triodos received a Company Ethos mark for being certified as a B-Corporation and providing a social and environmental alternative, and a full Product Sustainability mark for having an ethical lending policy and being transparent about its investments and engagement.

App-based banks

25 million customers – equivalent to half the country’s population – now use mobile banking. While many mainstream banks offer their own apps, the shift has also seen a rise in mobile-only app-based banks.

These banks offer traditional services such as current and saving accounts, mortgages and credit cards. The only difference is that they exist solely as an app on your smartphone or tablet.

Three app-based banks are included in this guide: Monzo, Revolut and Starling.

What they offer

Once you have downloaded their banking app, you can access a range of financial services. Monzo, Revolut and Starling all offer personal and business current accounts.

Monzo also now offers savings accounts and cash ISAs, which can be managed through the app but are held at other financial institutions, such as Investec.

Revolut offers ‘savings vaults’ also held at other banks and the option to trade stocks, commodities and cryptocurrencies through its app. Starling and Monzo also offer loans. Secondly, the apps all offer analysis of your spending and help track money spent in real time.

The Monzo app, for example, tells you how much money you can spend each month; notifies you when bills increase or are due to be paid; and helps to reduce your bills by suggesting cheaper alternatives.While this used to be somewhat unique, more and more mainstream banks are offering similar options.

It is also easy to download a free budgeting app like Emma, Yolt, Money Dashboard or Tandem (none of which have yet been rated by Ethical Consumer).
 

Are they ethical?

Like building societies, these app-based banks do not currently make large corporate loans or investments, and therefore are not directly funding destructive industries like arms and fossil fuels.

However, unless they tell us clearly otherwise, they may do so in the future. When we asked them about this, only Starling appeared to have any kind of ethical policy for its lending services, and this was pretty vague.

It states: “We do not provide banking services to organisations that use excessive power to systemically promote public behaviour that is harmful to individuals, groups or to the whole of society in order to maximise their own profits. This may include, for example, arms manufacturers and tobacco companies ... We lend to UK-based individuals and small businesses and, as a policy, don’t lend to companies involved in extracting fossil fuels.”

In addition, many new app-based banks are backed by individual investors and venture capitalists who may hold investments across a wide range of industries that have ethical issues of their own. 

For example, Monzo is almost 25% owned by Passion Capital – a company that was co-founded and is jointly owned by Stefan Glaenzer, who pled guilty of sexual assault in 2012. (Monzo’s other major investor is owned by the brother of Jared Kushner, senior advisor and son-in-law to Donald Trump.)

The financial services these companies offer may also be linked with banks and investment funds doing dodgy deals. For example, Monzo provides savings accounts and cash ISAs through other banks (listed in our Savings Accounts and Cash ISAs guides). When Monzo was recently asked by a customer on Twitter whether it considered ethical issues when choosing its banking partnerships, it responded: “It’s not something that we consider at the moment.”

Although we haven’t marked the companies down for these links, they are not quite as problem-free as they first appear to be.
 

Is your money safe?

With regards to the protection of money, Monzo and Starling have the full £85,000 Financial Services Compensation Scheme (FSCS) protection. This means should anything happen to your bank you are protected up to £85,000.

However, doubt has been raised about the security of funds held through Revolut which is not covered by the FSCS.

With regards to the security of your data, they all offer similar security settings to those you get with traditional banking apps such as using passwords or passcodes.

Starling and Monzo offer security measures such as Touch ID/Fingerprint scan. If you particularly want to switch to an app-only bank, Starling appears marginally more engaged than the others on ethical issues.

How to switch to more ethical banking

Government regulation designed to reduce monopoly in the UK banking sector has forced banks to make switching accounts quick and easy, taking just seven working days.

When you open a new bank account, it will usually ask you during the application whether you want to switch. 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. We asked about our readers’ experience.

Sarah, who recently switched from HSBC to a more ethical option, said that she was motivated to switch accounts by:

“The knowledge that my investments and any interest gained by the bank was ultimately being used (at least in part) to fund things/activities that I find abhorrent: Amazon rainforest destruction and other global warming/ecologically damaging companies. I did not previously know this. It couldn’t have been easier. The switch guarantee service was as easy as switching electric or Wi-Fi supplier.

Remortgaging is always hard but it wasn’t any harder moving banks. My only concern was why didn’t I do this sooner.”

If you are switching accounts for ethical reasons and want to write to your previous bank to let them know why, we have published a template letter for you to use.