Ethical banking

From ethical savings and current accounts to socially responsible investments – find out what products are available and how your banking choices can make a difference.

From ethical savings and current accounts to socially responsible investments – find out what products are available and how your banking choices can make a difference.

Anelda Knoesen
From the Money team
5
minute read
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Posted 5 AUGUST 2021

What is ethical banking?

Ethical banks aim to have no negative impact on the environment and society. Some go further – investing in companies and charities that make a positive contribution to the world.

They’re popular with consumers who are concerned about how their money is used by banks and other banking services. High street banks and financial service providers are also increasingly aware of the importance of reputation, and many want to distance themselves from what they see as questionable investments.

What makes a bank ethical?

There are lots of things a bank can do to be considered ethical, but it mainly consists of using customers’ money to invest in worthwhile causes. This could include charities, but also other things like:

  • Helping to tackle climate change with renewable energy
  • Reducing fossil fuel emissions
  • Supporting human rights activism.

Some banks were founded on their ethics, while others introduced ethical practices later on. Some publish details of businesses they lend to, others have promised to cut ties with organisations that make money from harmful industries.

In a nutshell, if a bank makes strong efforts to have an overall positive impact on the environment or society, they can be considered ethical.

Which are the most ethical banks in the UK?

It’s a matter of opinion, but there are some banks out there that make a notable effort to make sure their investments have a positive impact.

So how do you know whether a bank is ethical? There’s a number of organisations that champion fairness, and it’s useful to look at their approval ratings when considering an ethical bank.

The Good Egg mark is dedicated to financial service providers that offer a good deal for people and the planet.

Banks, insurance providers and mortgage lenders are assessed based on their environmental, social and customer impact. Examples of banks and building societies awarded the Good Egg mark include Triodos Bank and the Ecology Building Society.

Organisations that haven’t applied for the Good Egg mark, but perform well according to their criteria, are also listed on the accreditor’s website. Examples include Nationwide, Co-operative bank and Metro Bank.

The Ethical Consumer and B Corporation also recognise and award financial institutions that make a positive social and environmental contribution.

Which banks are partially ethical?

Again, it’s a matter of opinion, but there are some banks that are generally considered to be fully ethical, as well as those who are taking the right steps to become ethical, but aren’t quite there yet. For example, a bank may be becoming more environmentally sustainable, but may still have investments that aren’t considered ethical.

The Co-operative Bank for example, were actually considered an ethical bank, as they offered one of the first ethical bank accounts available in the UK. However, they were later bought out by a group of US hedge funds, which don’t operate in the same way. This makes it a slightly greyer area.

Some of the more modern, app-based banks are considered partially ethical, because they're highly accessible, convenient and also offer better currency conversion and international usage charges. So, while they’re not investing heavily in charitable or green causes, they’re looking after their customers well.

Ethical banking comparison tables

For those looking to break down ethical banks by the numbers, the Good Shopping Guide provides a very handy table to highlight which banks and building societies are (and aren’t) doing their bit. They assess these banks on a number of factors including:

  • Their environmental impact
  • Animal welfare practices
  • How they treat their customers and the world around them
  • Any ethical accreditations they might have
  • Criticisms of the bank

Banks are categorised into three colour-coded bands, giving them an Ethical Company Index Score. Those who perform well by the Guide’s standards are in the green category. Mid-tier banks are amber, lower tier banks are red.

Here are some of the names which feature in each of the three brackets.

Green tier banks

Bank Ethical Company Index Score
The Charity Bank 100
Ecology Building Society 95
Monzo 90
The Co-Operative Bank 90
Triodos Bank 90

Amber tier banks

Bank Ethical Company Index Score
TSB Bank 75
AIB 75
Atom Bank 75
Thinkmoney 70
Metro Bank 70

Red tier banks

Bank Ethical Company Index Score
Santander 50
Halifax 45
Lloyds Bank 45
RBS 45
Barclays 35
HSBC 35

Make sure to check out the full table to find out where your bank sits on the overall list. 

Ethical banking policies in 2021

Ethical banking might not be something you’ve come across before. Or, if you have, you may have dismissed it. But managing your finances in this way has a variety of benefits.

Here are what some of the most ethical banks are doing in 2021 to help their customers:

  • Triodos. Alerts are set up on the Triodos app to tell you when you’re down to your last £100, or when you won’t be able to make a standing order payment. From a sustainable point of view, their cards are completely biodegradable. They also took the crown of “Customer Service Champion” at the British Bank Awards 2020.
  • Nationwide. Nationwide offers a 2% rate of interest to account holders when you take out a FlexDirect current account (this drops to 0.25% after the first year). They also ran a “refer a friend” scheme, which saw you and your referral share £200. This has currently been paused due to the COVID-19 pandemic, but intentions are there to start it up again.
  • Engage. These accounts are run by credit unions, who in turn support those in the local community who would otherwise be unable to open a bank account. Customers are also offered cashback when spending with supporting partners like Marks and Spencer, Argos, Debenhams and New Look.
  • Starling Bank. This app-based bank is a great option for people who are conscious of their carbon footprint. Starling makes a point of avoiding the use of and investment in fossil fuels, mining operations and military funding.
  • Ecology Building Society. Ecology is the UK’s only dedicated green mortgage provider. That means it will only offer loan payments to people looking to make green improvements to their house, or who want to build an environmentally friendly home from the ground up.

What’s more, more banks are making it possible for charities, clubs and other community-focused operations to manage their finances safely and efficiently. Here’s a breakdown of some of the most ethical schemes designed to help these organisations:

  • Co-Operative Bank – Free banking for any charities with less than £1m turnover
  • Charity Bank – Fixed rates for charities, with savings which support other not-for-profit organisations
  • Clydesdale Bank – A free current account for any clubs or charities with less than £1m turnover a year
  • Ulster Bank – Your account will be free for 24 months if your turnover is less than £250k
  • NatWest – Accounts with NatWest are accessible to any charities, museums, social enterprises, membership organisations, trusts and foundations without financial restrictions
  • Lloyds Bank – Lloyds offer free features for most charities and not-for-profits 

Whether it’s for the everyday account holder, or charities looking to protect their finances, banks are doing more and more to make sure they provide a fair service to customers.

Should I open an ethical bank account?

Whether you open an ethical bank account is a matter of choice, but an ethical current account can give you peace of mind that you’re banking responsibly. Each bank has different principles, so it’s important to check that their values match your own.

Many banks have tried to improve their image with charity donations and community schemes, but haven’t necessarily become ‘ethical’.

If you’re looking to open an ethical current or savings account, do a bit of research around the bank’s response to issues that concern you – and look out for independent accreditation.

Ethical banking in the age of COVID-19

COVID-19 has had a huge impact on all of us and ethical banking has been no exception. Thankfully, the pandemic has helped to bring a more ethical approach to finance management to the fore.

Triodos, for example, came to the rescue of both care homes and YMCA groups during the height of the pandemic, offering capital repayment holidays to help with cashflow.

And it’s clear that the attitudes of banks during this troubling period will have a huge impact on how we choose to invest in the future. A survey carried out by EY found that 44% of consumers look negatively on banks who don’t actively and transparently support the local community.

Figures from Triodos highlight just how important ethical practices are going to be in the eyes of the everyday person going forward. Their research shows:

  • 22% of investors are now looking to invest in more ethical funds
  • Only 11% of investors feel confident they know where their money is going
  • 39% of the UK population think ethical investments are the best way to address issues like climate change and avoid future pandemics
  • 52% of respondents said choosing where to invest money was one of the best ways to protect the planet

While the pandemic has undoubtedly been a horrible experience for the world as a whole, there does at least appear to be some good to come out of it.

Are ethical loans and mortgages available?

If you’re looking to borrow money in a socially responsible way, check the products on offer from ethical banks. A growing number of positive impact loans are available in the UK.

There are also building societies in the UK which specialise in mortgages for environmentally friendly properties. Their savings accounts also help to support sustainable building projects.

Credit cards with ethical banks

Many ethical banks in the UK don’t offer credit cards. For a lot of consumers, the fees on late payments and high interest rates might be considered irresponsible.

What other ethical financial products are available?

A number of investment services offer socially responsible investments, managed with performance and ethics in mind. These are often weighted towards businesses that conduct themselves in a fair and progressive way.

Fossil-free and climate aware funds are also available through ethical pensions. Providers often work with other sustainable investment funds to provide a socially responsible pension pot.

Current accounts with ethical banks

Most of the banks considered ethical offer the standard products like current accounts, but some may charge fees to maintain the account. However, the recent growth in mobile and app-based bank accounts has changed the way people save and spend. These app-based banks have a number of ethical features, such as lower currency conversion and international spending fees.

Another option is an Islamic current account. While the name might suggest you need to be Muslim to apply for one, that’s not true. Islamic bank accounts tend to be more ethical than others because they avoid investing in things that violate Sharia law, including gambling and alcohol.

Savings accounts and ISAs with ethical banks

If you’ve got money to save and are considering a savings account or ISA, an ethical bank is a great way to support a better future. Not only will your money be working for you, but it’ll also be working to support others, as ethical banks will use the money to invest in good causes.

Islamic accounts with ethical banking

Islamic banking is the name given to any form of banking which adheres to Shariah law. The key differences to regular banking come in the form of Islamic banking’s relationship with commercial transactions and the charging of interest.

The differences to regular banking include:

  • Profit and loss are shared publicly, to avoid any speculation or gambling
  • Lenders and investors can neither pay nor collect any form of interest
  • Money is made through a share of the investor’s profits

Most banks will offer this form of banking, but always be sure to check ahead of time if this is an option you’d like to pursue. Some banks will even have windows in their branches to deal specifically with these types of accounts.

Credit unions

If you’d rather avoid the current accounts, savings accounts and ISAs on offer by the high street banks, credit unions offer a potential alternative to the traditional options. Credit unions are set up to connect people who are similar. This could include the business interests they want to pursue, which could include ethical investments. They offer most of the same money products as the big banks, but you can find one that supports the causes you’re passionate about.

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