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Ethical Banking- More Than Just Greenwash?

Make no mistake, there’s big money to be made in ethics. The Co-operative Bank’s latest annual Ethical Consumerism Report estimated that the total UK ethical products market grew 11% to £29.3bn in 2005- compared with a rise of only 1.4% in overall UK household expenditure. Employing a perhaps rather moralising comparison, the report’s authors made great play of the fact that for the first time this exceeded the combined retail sales of that terrible twosome, tobacco and alcohol (£28.0bn).

While much of this ethical growth is concentrated in areas such as food, consumer goods and eco-travel, your bank manager may be after a piece of the pie as well- money invested in ethical banking and investments rose 9% during 2005 to £11.6bn. Consumer demand is certainly there waiting to be met. According to a Which? survey in June this year, 40 per cent of customers questioned said they would accept a lower interest rate on their current accounts if they thought their money was going to ethical and green causes.

Concentrating on Carbon- the Easy Option

Over the summer Al Gore and his global warming bandwagon have monopolised publicity to such an extent that the whole issue of ethical behaviour seems to have been simplified to reducing one’s ‘carbon footprint’. This message runs the risk of letting large corporations off the ethical hook by applying a relatively easy and non-controversial veneer of ‘greenwash’ to standard products. For example, HSBC recently introduced a ‘green option’ for its current accounts , accompanied by a high-profile advertising campaign featuring a variety of trees to be saved around the world. This option amounts to simply converting to internet rather than paper-based communications- something my standard Lloyds TSB account offers without any green song-and-dance. Oh, and for every account opened £5 will be donated and split between WWF, Earthwatch and The Climate Group- something customers could easily do for themselves.

But of course, there’s much more to ethical behaviour than green PR. The large banks have very long investment tentacles, and wider international controversies such as human rights, animal welfare and the arms trade inevitably fall within their reach. Most are silent on these issues. Searching under ‘ethics’ on the websites of all the major UK high street banks brings up- you guessed it- “no results”. Still, there are financial institutions out there offering an alternative- though they are still relatively thin on the ground.

The Co-Op and Negative Screening

The Co-Operative Bank (along with its internet arm, Smile) is probably the most high profile organisation to offer banking based upon a robust ethical code, introduced in 1992. Drawing on the strong nineteenth century traditions of social welfare within the Co-Operative movement, they promise to screen all potential investments and not put money into businesses that violate their principles. In addition to ecological sinners- polluters and unsustainable resource harvesters as well as those judged contributors to climate change- unsavoury organisations such as arms dealers, animal testers or those doing business with oppressive regimes can expect to be shown the exit door by the bank.

The Co-op’s tough stance inevitably leads the organisation into lost business and controversy from time to time. For example, during 2005 the bank turned away £9.9m of new business due to non-compliance with its ethical code. Most of this was for ecological reasons, though questionable labour practices and animal welfare concerns- including refusing a Scottish firm that manufactures sporrans using fox pelts- were also factors.

In the same year there occurred a well-publicised spat with existing customers Christian Voice , an evangelical group given just 30 days notice to close all their Co-op accounts. Although the Co-op’s ethical policy makes no mention of discrimination based on sexual orientation, CV’s anti-gay stance clearly spooked them into action. Issuing a statement, they said the group was "incompatible with the position of The Co-operative Bank, which publicly supports diversity and dignity". Looking at the issue a little more cynically, the CV decision may have more to do with the increasing economic power of the ‘pink pound’ in the wake of the Civil Partnership Act. Co-op Funeralcare’s launch in the same year of Pink Partings- a service aimed at the estimated 50,000 annual homosexual funerals in the UK- may have kick-started a review of potentially embarrassing dealings within the Co-op group. Gay Times subsequently selected the Co-operative Bank for its Ethical Corporate Stance Award, and losing CV’s limited funds would have been a small price to pay for access to such a lucrative new market.

Also in the spotlight has been the Co-op’s long-standing loan programme to the Labour party, financing them to the tune of £11m over recent years. With thorny issues such as the Iraq war looming large in many people’s minds, walking that ethical line continues to be tough act for the bank to maintain.

Conscious Investment- Triodos and the Ecology Building Society

Although the Co-op’s ethical policy does mention actively ‘seeking to support’ compliant businesses, the organisation still operates within the banking mainstream. Just like any other bank, maximising financial return is their primary aim- the policy simply provides an additional hurdle for potential investments to overcome.

Triodos, a bank founded in 1980 in the Netherlands but now with branches in the UK and Spain, aims to turn the priorities of banking around completely. In their mission document ‘The Future of Finance’, they state that well-worn industry terms such as ‘ethical investments’ and ‘responsible banking’ have become “debased by their overuse and extension”. Instead, they prefer to use the term ‘conscious investment’- defined as consumers being aware of, and intentional in, how their money is used.

While customers need to accept savings returns less than that available on the high street, Triodos pledges to adhere to two policies, of equal importance:

• Lending only to organisations creating genuine social, environmental and cultural value (i.e. positive screening).
• Publishing a detailed list all the activities that they currently finance.

Triodos’ website indeed lists all investments great and small- from major windfarm developments to individual organic farmers, village shops and Buddhist communities. All are admirably clear and in the open, but this only serves to emphasise the inevitably small-scale nature of the enterprise. If Triodos ever became as big as a high street bank, your investment would soon become unconscious as you attempted to wade through a list as big as a telephone directory.

The Ecology Building Society has similar if more limited aims, savers again accepting a lower return knowing their money will be lent only on projects judged to have environmental benefits. Builds renovating derelict, disused or run-down properties or those using traditional building materials are prioritised. Definitely not getting a look in here are holiday or second homes, intensive farming practices nor, for some reason, riding stables.

The Choice is Yours, Unfortunately

Don’t let the current primacy of the climate change campaign fool you- the more you care about real ethical choices, the less they are obvious or easy to make. Even with Triodos, burrowing into the detail of their investments reveals many organisations that could potentially raise qualms due to their spiritual basis, if not their activities. For example, Buddhist groups and Steiner schools may prove difficult bedfellows for committed Christians or Muslims to accept.

The demand for ethical corporate behaviour and products is certainly growing, but has its limits. Ultimately, most consumers will not be prepared either to put in a great deal of time and effort or accept significantly lower returns for ethical banking services. Triodos’ conscious investment may be the ideal, but the Co-op system of basic screening or an ethical ‘kitemark’ will be as far as most customers will be prepared to go- so long as confidence in its robustness remains high.

Successive future consumer reports may well show ever-increasing sales of ethically badged financial products- but this will all ring rather hollow if it represents merely the triumph of highly-paid PR and advertising executives. Choosing an easy green option may be a start, but it won’t save the world.

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