Wednesday, 13 January 2010

Ethical Banking

“What’s banking got to do with sustainability and why are ethical banks better?”
Good question! Well, banks make money out of borrowing money from some people and lending it to others at a profit.

Now, the concept of banks borrowing money may seem strange, what they do after all is normally lend it to people as an overdraft or personal loan or to a company as a business loan. However, opening up an account with a bank which has cash in it, whether it’s a current account or a savings account, is the bank borrowing money from you. The banks then take this money and lend it to other people. Some of this lending may seem good, like letting you have an overdraft or letting us invest in the Castle, but if they lend it to someone who uses it to make money but who is damaging the environment in the process, then you’re funding the damage!

By not asking what the bank is going to use your money for, you have implicitly agreed to their using it for whatever purpose they see fit. If you generally owe money to your bank then the profits they earn from the interest they charge could also be used to fund activities you don’t agree with. So, whether you invest your hard-earned cash in a bank account or one of the financial products the banks peddle, or pay them interest on the money you borrow, then you could be funding some fairly unpleasant activities.

The same is true of insurance companies.
“But I’m just paying for a service. What’s wrong with that?”

The thing is that insurance companies don’t generally make much money out of the insurance premiums you pay, they actually make money by investing the premiums you pay to them until they have to make a payout. They have to be sitting on a big pot of cash in order to underwrite your risk and they use that cash in the same way a bank does, without telling you but, implicitly, with your permission. So, you don’t just need an ethical bank, you need an ethical insurance company as well.

“Yeah, well my bank’s got an ethical policy that looks pretty good to me”.
They all do and they keep going on about Corporate Social Responsibility (CSR) but have you checked what that actually means? Do they actually commit to restricting their lending beyond what the law requires or do they just plant a few trees to offset their emissions? Most don’t and it’s a sad fact that pollution and conflict are great money earners.

Exploiting natural resources but not taking any responsibility for the mess that creates is an easy way of making money. So is making and selling weapons to people who’ve run out of ideas about how to resolve their differences. Considering animal welfare when developing commercial products is expensive as well as tedious, so ignoring that can of worms can also add to a company’s bottom line. The list goes on but making a real commitment to a sustainable future isn’t likely to be a quick way to make money even if it does make sense, and a profit, in the long run.

“They’re all as bad as each other. Ethical policies are just a load of greenwash.”
Not true! Some banks and insurance companies do make a genuine commitment. They won’t lend money to organisations that take part in activities that don’t fit their criteria.
Most ethical banks are either mutual societies or co-operatives. In some ethical banks the investors decide who they will lend money to and others have a board of trustees who guide the decisions based on the declared aims of the society. They will have a vetting procedure that checks out prospective borrowers to make sure their intentions are genuine. There are ethical insurance companies that do the same. They may not always offer market-leading rates but they’re still pretty good value for money if you consider the extra work they’re doing on behalf of your conscience.

“So, how do I find these ethical bankers?”
It’s really not too hard. There are several organisations run as mutuals or co-operatives. They may have different aims such as supporting local causes or providing funds for developing counties. You can pick the organisation that shares your values. You’ll want to know that your money is secure and many ethical banks are supported by the governments guarantee scheme. If you run a business, like we do, then the government scheme won’t help. You need a bank that has a solid capital base. Some of these organisations are insurers as well so they can service all your needs.

“What’s The Castle doing?”
As a limited company we have a duty to act responsibly towards our shareholders who, after all, have invested in the business so far. We’ve looked at the options and found that the Co-operative Bank is the only ethical bank who provide a solid ethical policy ( and can meet our business banking needs. If you only want a private bank account then you have a wider choice.

To be honest, we’ve only made a partial commitment because moving business banking arrangements is a lot of hassle. Most of our daily transactions still go through our mainstream bank. However, we’re saving up for the next big exciting development at The Castle. We figure if anyone’s going to benefit from that spare cash while we’re waiting to spend it then we would rather the Co-op to decide who that is, so we’re opening a deposit account with them.

As for insurance, The Castle is an unusual business, and not many insurers will get involved with what we do. We’re members of the Activities Industry Mutual Society which provides insurance for businesses like ours. This is a mutual society and is owned by its members so we have a say in how the society’s funds are invested. We intend to use our voice as members to persuade the society to invest their funds in an ethical way too. If you insure through a similar organisation then you can do the same.

So back to my original question “What’s banking got to do with sustainability and why are ethical banks better?” Well everything really. It’s easy to feel powerless as an individual dabbling in a vast global financial web that seems set to gobble up the world. The global economy pervades every facet of our lives from food to transport to energy to money. “Surely only governments can influence those things.” Don’t believe it! You are not helpless. Thirty years ago virtually all soaps and cosmetics were tested on animals, but because people made a fuss and then chose to buy products not tested on animals, many of these products now proudly claim “Not Tested on Animals”. You can make a difference and you vote every time you put your hand in your pocket and buy something. You choose what happens to your money. Don’t waste that choice. You can’t do it all at once but make your choices one at a time and make them count. Be part of the solution not part of the problem!


  1. After the disasterous performance of the Banking sector over recent years its important to see that the Coop Bank has performed very well financially as well as ethically.
    Coop has been great for us - ID recommend it to anyone

  2. This is good to see, I bank ethically too, keep up the good work