Where do I start with ethical personal finance?
Long gone are the days of stuffing your mattress full of bank notes; nowadays, it’s rare to live without access to financial products. We all rely on being able to access money from ATMs, pay back money we owe, and if we are lucky, save a bit for our future.
We all want to be responsible consumers with our tangible purchases — but how can we make ethical decisions when it comes to the financial products we use?
I realised I didn’t know the answer, so decided to write a blog about it, in the hope it’ll make it a bit easier for others to get switching. This is especially important given moving your savings to sustainable funds can be “27 times more efficient in regard to improving your personal carbon footprint than eating less meat, using public transport, reducing water use, and flying less, combined”.
I use three financial products regularly: my day-to-day current account, a savings account, and, since the introduction of the workplace pension scheme in 2012, a personal pension. However, the pension world is so complex, it qualifies for its own blog (coming in 2020), so I’ll address the first two in this post. I’ll start by covering ethical institutions and then look into more detail at their account offerings.
But before we get there, it’s worth noting that none of this is actually financial advice. Just personal experience of what I’ve found during my research that may help inform some people’s decisions.
The main contenders:
Triodos Bank
The traditional gold standard for ethical banking is Dutch bank Triodos. Their UK office is based out of Bristol, and their current account came on to the market in 2017, and has grown in popularity since then.
Triodos also offer savings accounts and investments, each product with a different focus — for example, innovation, microfinance, and ethical stocks and shares. They also publish details of the organisations to which they lend money.
However, they have no high-street branches, and paper-based forms are required to sign up to their current account.
Nationwide
This building society is owned by its members, and operated for the benefit of its members. It also scores well on customer service and has a large number of branches across the country.
It tends to score ‘least bad’ on ethical comparisons of the high-street banks, and donates 1% of pre-tax profits to local causes. If you’re a member (have a current account, mortgage or savings account), you can also have your say through an online community or their AGM.
The Cooperative Bank
The Cooperative Bank offers a range of consumer banking products. Their ethical policy calls out not only who they will/won’t provide services to and invest in, but also covers their own business, workplace and stretches to their own campaigns. They offset all their greenhouse gas emissions, and are contributing an extra 10% “to address legacy issues”.
Speaking of legacy, due to capital challenges (alongside the “crystal Methodist” chairman Paul Flowers) in 2013, the Cooperative Bank was sold to hedge funds, and still hasn’t returned into cooperative ownership. Whoops.
Ecology Building Society
This relatively small Yorkshire-based outfit offers a range of savings and mortgage products.
They are “dedicated to building a greener society by providing mortgages for properties and projects that respect the environment and support sustainable communities.” Easy enough! However this is a relatively small organisation, lending just £38.4m to 255 projects in 2018, 82% of which were residential projects, and 18% industrial, leaving me wondering if it benefits from the economies of scale of larger institutions.
Charity Bank
A bit like Ecology, Charity Bank takes money in the form of savings accounts, and provides investment for socially and environmentally responsible causes. Instead of offering this in the form of mortgages to individuals, as Ecology does, Charity Bank offers loans to charitable trusts, foundations or social purpose organisations.
Its impact can be seen both in its impact report, and in the swathes of ethical certifications they’ve received (B Corp, Living Wage Employer, Ethicalconsumer.com Best Buy, NCVO Trusted supplier, among others…)
Monzo
Monzo was founded in 2015, so it doesn’t come with the long history of ethical issues that are so easily found with longer-standing organisations.
Is a lack of negative ethical indicators enough? Their ethical statement currently focuses largely on being transparent with what they do with your money, and used the fact they were so small in 2016 as a reason not to have a comprehensive ethical statement. They’ve since grown, but with no changes to the ethical statement around investments (even after a request for comment).
That said, they are still a Living Wage employer and have schemes to increase financial inclusion for refugees, those living on a boat, the homeless, and recent immigrants.
The Accounts:
I’ll give details about one account from each of the relevant organisations mentioned above, and compare them, one against another. Information was taken on 28th November 2019.
Current Accounts:
My requirements: I’m reasonably tech-savvy, want a current account free of charge, and to easily be able to send and receive money from my phone. FSCS coverage is crucial for me.
Savings Accounts:
My requirements: I have some savings and want to earn a bit of interest… however, I want to be able to dip in to them over the coming year, so should be able to make a couple of withdrawals. I probably won’t be saving money regularly. FSCS coverage is crucial for me.
So what am I going to do?
For a very reasonable £3/month, I am switching my Halifax Current Accounts over to a single Triodos account. While it’s not the most convenient, I think this is the best chance of any significant ethical option getting a foothold on the UK current account market. I’ll still keep my Monzo account for the convenience of Apple Pay, and sending money to other people, in the hope that Triodos will catch up with some of the ease of functionality over time.
Saving is a different beast. The administrative barriers with Charity Bank take it out of the running for me, and I can’t get around the “Crystal Methodist” (and ownership structure) of the Co-Operative. I like the idea that my savings will have a tangible, direct impact on individuals’ green journeys, and the slightly higher rate of the Ecology Building Society make it a good trade off between convenience and return.
And what about you?
Presumably you’re reading this blog because you’re interested in changing your personal finance setup to be more ethical. If so, that’s great, but my requirements may not mirror yours, so you’ll need to do some thinking of your own. Here’s a few tips for narrowing down what the right ethical choice will be for you.
1. What are your ethics? (are you particularly concerned about ‘green’ investments? How do these apply to your chosen organisation, and the account that’s offered?)
2. Why are you doing this? (do you want to send a signal to the marketplace? Do you think it’s cool to have a Triodos card? Are you keen for your money to have a positive effect? Would a lack of negative effect suffice?)
3. What requirements do you have for your banking products? (Cost? Interest rate? Convenience?)
While it can be a bit of a minefield out there, well done for even looking in to this — it’s quite a dry topic for many people! I hope this blog has got you thinking about the important factors, some pointers of where to start, and has given you a bit of background about some of the institutions involved.
The financial world has got some thinking to do about what ‘ethical’ finance really is. Some ‘ethical’ institutions display simply a lack of negative indicators (Monzo, for example), whereas Environmental, Social and Governance (ESG) accounts seek to actively incorporate these criteria into their investments and activities. But even with these accounts, the criteria that these organisations apply to each of these ESG areas vary from one to the next.
The fundamental challenge, as with all ethics, is that it’s completely subjective — all we can do is put in that bit of extra effort to research and see how well our chosen financial products match our ethics, and take action if they don’t!
Stay tuned for my follow up blog on how to invest your pension ethically, and in the meantime, bon chance.
