Quezi

Ethical Banking (photo by laurenatclemson - CC-BY)

Ethical banking is a sector of the banking industry which takes ethical considerations into account when making business decisions. Sometimes it represents little more than a marketing catchphrase, but at the other end of the spectrum there are financial institutions whose entire reason for existence is to further a particular ethical goal.

Ethical concerns may include a desire to protect or conserve the environment, or they may involve social or even political goals. An ethical bank may wish to avoid involvement with undesirable or exploitative business niches, or it may specifically seek out desirable business niches.

Triodos Bank is acknowledged by many to be the leader in ethical banking in the countries in which it operates: the Netherlands (Holland), the United Kingdom, Spain and Belgium. They accept deposits from people who wish to invest in sustainable projects, and finance organizations or projects that “add cultural value and benefit people and the environment”.

Triodos also prides itself on its own sustainability. In October 2008 they responded to the financial crisis by pointing out that the bank had a regulatory capital ratio generously above the legislated minimum, that it had no need to borrow from other banks or on volatile capital markets, that its liquidity position was healthy with only 65% of its funding invested into loans, and that it had no exposure to complex financial constructions based on derivatives.

(I am a trustee of an organization that banks with Triodos. We chose them because, of all the banks we contacted, they were the only ones who wrote back with a useful response rather than a canned form letter.)

The Co-operative Bank also prides itself on its ethical stance. It does not invest in businesses that operate in areas of concern, based on policies drawn up in consultation with its customers. Policy documents describe their stance on human rights, corporate responsibility, the arms trade, genetic modification, global trade, social enterprise, animal welfare and ecological impact.

The Co-operative Group’s unit trusts have over £18 billion under management (as at September 2008). They analyse the social, environmental and company management issues (they give “fat cat pay” as an example) of the companies they invest in.

The Co-operative Insurance takes a slightly different approach. They are a major investor, and they use their voting “clout” at the Annual General Meetings of the companies in which they invest. They publish a Responsible Shareholding booklet and a Voting Policy document.

There are, of course, many other ethical banks around the world, including some who do not make much noise about it. There are also other kinds of ethical financial institutions, including many building societies and credit unions.

And, of course, different people have different ideas about what is or is not ethical, so different banks may meet different people’s needs.

Incidentally, what is usually defined as ethical banking does not need to be nonprofit. Many ethical banks have a good track record of profitability.