THE financial crash of 2007-08 brought banking into general disrepute, and prompted a huge upsurge in customer dissatisfaction, which was only made worse by subsequent scandals. In 2012, the campaign Move Your Money UK was launched, to encourage people to take their custom to more ethical and sustainable alternatives.
“It’s difficult to tell how many people have switched from bad to good banks,” its spokesman, Fionn Travers-Smith, says, “but, in the past two years, some two million people have changed banks on ethical grounds.” Many smaller institutions that pride themselves on their values have seen a large influx of new customers.
The market leader and standard-bearer in ethical banking — a perennial “best buy” for the magazine Ethical Consumer — is the Co-operative Bank, which has had a torrid time in recent years. Although not especially affected by the crash, it overstretched itself in 2009 when, encouraged by the government of the day, it took over the Britannia Building Society and with it some bad mortgage debt.
Three years later, it attempted to buy more than 600 branches of Lloyds Bank, but had to pull out in April 2013.
A month later, the Co-op’s chief executive resigned after the credit-rating agency Moody’s downgraded its debt status to “junk”. The bank’s chairman, the Methodist minister Paul Flowers, followed suit in June, a few days before it emerged that the bank had a £1.5-billion capital shortfall.
The following November, Mr Flowers was caught in a sting, apparently buying cocaine and methamphetamine. The chairman of the parent Co-op Group resigned as a result.
By then, the bank’s recovery had already begun, but the means chosen by its board to recapitalise it — a “bail-in” by its bondholders rather than a bailout by the Government — although seemingly principled, jeopardised its image as an ethical bank. The Co-op Group’s stake in the bank was reduced from 100 per cent to 30 per cent rather than the 75 per cent it had hoped to retain.
Worse still, when an attempt to float the bank on the stock market was abandoned in May 2014, the Group was left with little more than 20 per cent of the shares. The remainder was now owned principally by hedge funds in the United States — and, as Ethical Consumer has put it, hedge funds “make no attempt even to speak the language of socially responsible investment”.
THE man who had just retired as the Co-op Group’s chief executive, Peter Marks, told MPs that the bank could no longer be called “ethical”. Robert Peston, the BBC’s departing economics editor, said that the Co-op’s conversion into “just another bank owned by professional investors” could “fundamentally alter [its] ethos and culture”.
The trade union Unite declared that this was a “tragic day” for the bank, and “dreadful for the wider banking industry”. Shaun Fensom, who helped to set up the 10,000- strong pressure group Save Our Bank, said that there was a widespread feeling among the bank’s 4.7 million customers that it “was being sold down the river to vulture capitalists”. There were petitions to the Chancellor, George Osborne, to intervene.
Happily, the pessimists turned out to be wrong. The new management evidently recognised that its ethical stand was the only thing that differentiated the Co-op from other banks (its own research revealed that 84 per cent of its customers identified that as a key reason to bank with it). The board decided to formalise its ethical commitments — which had hitherto been merely a matter of policy — by incorporating them into its articles of association before the ownership changed hands.
Then, in June 2014, the bank conducted a survey of its customers and wider stakeholders to find out what most concerned them, and 74,000 responded.
“We saw that as a moment of great danger,” Mr Fensom admits. “If you know what you’re doing, you can always get the answer you want, and we knew there were people in the bank who were saying, ‘Never mind all this stuff about human rights — what people are really interested in is: Do you treat your customers properly?’
“Save Our Bank ran a campaign against the bank dropping a single one of its existing commitments, and the bank said publicly, before they did the survey, that they wouldn’t. As a result, they could only add new commitments — and they did.”
SAVE Our Bank now intends to become a permanent union of Co-op Bank customers, to maintain a constant watch on its performance. “Our single biggest argument with the bank at the moment”, Mr Fensom says, “is over executive salaries and bonuses.
“We ran a big campaign this year, calling on the new chief executive to hand his bonus back. He clearly knows what he’s doing, but we don’t think that anybody is worth that amount of money.”
The bank’s Values and Ethics Manager, Ian Rigarlsford, says that, today, the Co-op is “the only high-street bank in the UK that has a customer-led ethical policy that makes clear commitments on which businesses and other organisations we will or will not provide banking services to.
“Our original policy, which was set in 1992, included: oppressive regimes, and the trade in arms to such regimes; animal testing of cosmetics; the fur trade; blood sports; and tobacco. Later, we added fair trade as a positive, and concerns such as fossil-fuel extraction, biodiversity, and international labour standards.” The most recent additions are “irresponsible gambling”, payday lending, and irresponsible tax avoidance.
The survey also established that the bank’s customers wanted it to resume its long history of campaigning. “The Co-op has made a lot of friends by being a campaigning bank,” Rob Harrison, one of the editors of Ethical Consumer, says. “Often, that has been on quite edgy issues, such as cluster munitions, and disability discrimination in the workplace — and the pollution that other banks were investing in. It has held up a mirror to the rest of the industry and said, ‘Look at yourself.’”
THE magazine has assessed the lending policies of institutions that offer savings accounts and ISAs, with reference to human rights, animal welfare, and environmental and political impact, and has given each one a mark out of 20.
In 2013, Move Your Money incorporated this “ethiscore” into its own, more comprehensive “switch score”, which considered each institution’s performance in four further areas: “honesty” (for example, how many times has it been fined for misconduct?); customer service; culture (is the directors’ pay excessive?); and impact on the real economy. The result, Mr Travers-Smith says, is the most comprehensive, transparent, and robust scorecard of its kind.
Surprisingly, the Co-op is some way down the table (with the Britannia, and the Co-op’s online subsidiary, Smile), with a modest score of 51 out of 100. None the less, Mr Travers-Smith points out, it still did significantly better than all of the big five banks that dominate the British retail market — RBS and Barclays sit at the bottom of the table, with scores of seven and four respectively — and, since 2013, the Co-op has addressed many of its problems, and strengthened its ethical commitments. With its household name and large network of branches, it remains a crucial player in the market, and a “best buy” for Ethical Consumer.
THERE are, of course, other ethical banks. The highest score awarded by Move Your Money — a full 100 — was earned by the Ecology Building Society. Founded in 1980, at a conference of what is now the Green Party, it is dedicated entirely to building a greener society, providing mortgages only for properties and projects that respect the environment. Today, it has assets worth £138 million.
In second place, with scores of 92, are Triodos and the Charity Bank. The Cumberland Building Society, on 91, is at present the highest-rated institution offering a current account, albeit only to those living within its branch-operating area. Several other building societies, such as the Principality, also score highly.
Triodos is nowadays an online bank, based in the Netherlands, but with branches in Germany, Belgium, and Spain, as well as in the UK. Its communications officer, Faye Holst, says: “It is for profit, but not profit for profit’s sake: it’s not a money-making machine like the high-street banks, which aggressively sell their customers things they don’t need. Even our managing director doesn’t get an annual bonus.”
All the money deposited with Triodos is lent out to ventures that will have a positive impact on society. The bank is influenced by Rudolf Steiner’s philosophy of anthroposophy. Its name refers to his “three-way” emphasis on “head, heart, and hands”.
“We look for a good balance of all three,” Ms Holst explains; “so we have a very strong presence in lending to faith groups, which are the head; to the cultural sector, such as theatres, which is the heart; and to organic farms, renewable energy projects, and so on, which are the hands.”
Triodos says that it is the only bank that discloses what it is doing with its depositors’ money: the information can be found online at www.knowwhereyourmoneygoes.co.uk. It offers a savings account, various ISAs, and a business account with a credit card; and, from the end of 2016, it will also offer a current account.
THE Charity Bank, which is the only bank or building society given full marks by the ethical comparison site thegoodshoppingguide.com, bills itself as “the bank for people who believe that banking should always work for good”.
It differs from Triodos principally in that it lends only to charities and social enterprises. All its shareholders are charities or other social-purpose organisations, and, although it no longer has charitable status itself, it has incorporated its original charitable objects into its articles of association.
It accepts savings from individuals as well as organisations, and offers interest-paying savings accounts and an “ethical” cash ISA that, it emphasises, is “fossil-free”. Ethical Consumer also gives extremely high scores to small local building societies, and points out that most credit unions would earn full marks.
Bristol Credit Union is a fairly large example of the species: it has more than 10,000 members and more than £5 million of savers’ deposits. It offers mutual, ethical financial services, including dividend-paying savings accounts and cash ISAs, to people in the old county of Avon; in 2013-14, it helped some 4800 people to borrow a total of almost £3 million at affordable rates. It also handles the local currency, the Bristol pound, as well as sterling.
OTHER institutions that score highly are, on 77, the unconventional Metro Bank, which now has 37 “stores”, mostly in the south-east, open 362 days of the year; and (on 74) two decidedly traditional banks: Al Rayan Bank (formerly the Islamic Bank of Britain) and Handelsbanken, a subsidiary of the Swedish bank of that name. The latter represents a return to an older style of retail banking, strongly decentralised, relationship-centred, and focused on customer satisfaction. It now has more than 200 branches across the UK.
Al Rayan has a high-street presence in London, Birmingham, Manchester, Leicester, Luton, and Blackburn. Its digital marketing manager, Ben Collins, reports that, in recent years, there has been a large increase in the number of non-Muslims banking with it.
“Everything we do is monitored for sharia compliance,” he explains, “which ensures that every product we sell and service we provide is in line with Islamic values. But our ethical rating also takes in other factors, such as the fact that we have been classified as a Living Wage employer.”
Al Rayan pays no interest on its savings accounts, but instead offers depositors an “expected profit rate” from the ethical trading activities in which it invests their money.
The Nationwide Building Society scores a respectable 64. Neither the Salvation Army-owned Reliance Bank nor Unity Trust Bank was assessed by either Ethical Consumer or Move Your Money, but both could be expected to score highly.
GOOD Money Week is an annual campaign to raise awareness of the steadily growing sustainable-finance sector in the UK. This year, it runs from 18 to 24 October.
Working with financial advisers, fund managers, charities, faith groups, and a wide variety of financial organisations, it seeks to ensure that people know that they have ethical options when it comes to their financial decisions, whether it is what they do with a current account or with an investment portfolio involving numerous types of funds and asset classes.
Lisa Stonestreet, who is managing Good Money Week for the UK Sustainable Investment and Finance Association, says that ethical investing in the UK has its roots in the faith community: “Churches, charities, and people of faith were the first to take account of ethical criteria when making investment decisions.
“Throughout the 20th century, they used their power as investors to address such issues as unfair labour practices, apartheid in South Africa, and arms trading.
“Since then, the number of ways to invest sustainably and ethically has grown, as have the number of issues that these investments address. We use the term ‘good money’ to cover all investment and finance options that include social and/or environmental considerations alongside financial ones.
“‘Ethical investment’, ‘socially responsible investment’, ‘sustainable finance’, and ‘ethical banking’ are some terms that you may have come across — Good Money Week covers them all.”
The campaign-organisers say, however, that it is not a one-size-fits-all message, or set of rules and regulations, when it comes to good money; it is more important that every individual feels comfortable with what his or her money is financing.
Good Money Week urges all of us to ask questions of those who are making decisions about what is done with our money, and to ask questions of ourselves about whether we can make any changes to this aspect of our lives.