Ethical banking is a term that has become increasingly visible in the financial space, and it relates to companies which offer services, or operate in such a way, that is deemed ethical and beneficial for society.
“Ethical banks have fundamental principles which govern the way they invest their customers’ money. Ethical banking is when a financial institution or banking provider tries to positively impact society, the local community and/or the environment. What exactly they do to be an ethical bank will depend on the bank’s ethics, values and principles and the type of impact they want to make.”
- Raisin[i]
However, as above the term is broad, and ultimately relies upon the institutions own beliefs and goals, As MoneyExpert explain: “Ethical banking is not actually a strictly defined term, in that it doesn’t immediately describe the practice guidelines of a bank. It’s more of a term used to describe what a bank doesn’t do. Ethical banks don’t invest in commodities like oil, tobacco, or weapons, or in businesses whose services might be considered harmful to society.”[ii] The concept of ethical banking is not new, having been present in society for several years; the Co-operative Bank, for example, has had an ethical policy since 1992- meaning it will not lend to companies which breach its values.
Ethical banking volumes, Source: Raisin UK[iii]
Ethical banking is certainly on the rise. As the data above shows, investments have more than tripled since the turn of the century, from £6.5 billion in 2000, to £39.5 billion in 2016, driven by both consumer awareness in banking practices, the availability of ethical finance, and due to increased transparency within the industry.
Further, we are now seeing a rise in the provision of ethical finance offerings which relate to particular social issues, eg. Sustainable finance:
“A sustainable bank is a financial institution that recognises the importance of social and ecological criteria when it comes to the creation and use of financial services. In simpler terms, a sustainable bank invests in activities such as energy efficiency, sustainable agriculture, healthcare or education as opposed to damaging industries such as oil or unsustainable farming.”[iv]
Here we list some of the key ethical banking providers available to the UK market today, alongside a brief overview of some of the impacts they have had on society:
Source: NewMoney[vi]
There is still much potential for growth in the UK ethical banking market, however a barrier is consumer behaviour. YouGov findings from 2015 found that: “75% of personal current account holders have never switched, with nearly 1 in 5 saying this was because of the hassle and potential risks”[vii]. However, many of the newer ethical banking start-ups are actively targeting young, Gen Z, investors, capturing those would be new customers, for older financial institutions. This will be a key route for growth over the next decade.
Further, ‘ethical banking’ relies on readily available information and transparency. Failure to offer this has led to some institutions or providers being classed as ‘partially ethical’, whereby some practices are not completely transparent, in the sense the data is not readily available. This highlights the importance of delivering clear, up to date, information on business practices, to allow customers to make informed decisions on where their money goes. Ultimately there is space in the market for further disruptive entities to operate around particular social goals, we could also see the bigger, traditional banks take further steps to increase transparency and ethical investment opportunities, to challenge smaller players.
The emergence of ethical banking provides an opportunity for banks/financial institutions to redefine themselves and help unlock consumer inertia and provide a USP (unique selling point). The emergence of impartial ranking/ measuring of positive ethical practices may be a way of helping consumers and businesses find new growth opportunities. Similarly, this would be a threat to those who’s customers base high value on audited ethical business
[i] Ethical banking | Ethical banks UK (2021) | Raisin UK
[ii] Current Accounts Ethical Banks in the UK (moneyexpert.com)
[iii] Ethical banking | Ethical banks UK (2021) | Raisin UK
[iv] Ibid
[v] Our ethics statement - Starling Bank
[vi] Top 5 ethical bank accounts for 2020 | New Money (new-money.co.uk)
[vii] A Guide to Ethical Banking — Millennial Money UK
Lauren has extensive experience as an analyst and market researcher in the digital technology and travel sectors. She has a background in researching and forecasting emerging technologies, with a particular passion for the Videogames and eSports industries. She joined the Critical Information Group as Head of Reports and Market Research at GRC World Forums, and leads the content and data research team at the Zero Carbon Academy. “What drew me to the academy is the opportunity to add content and commentary around sustainability across a wealth of industries and sectors.”
