ETHICAL BANKS & BUILDING SOCIETIES
Banks and building societies claim to have their
customers' interests at heart, but are they really
listening? Most of us choose our banks or building
societies for reasons of convenience – simply
because there's a branch around the corner or
maybe because we had an account with a predecessor
of one of today's conglomerates. But, as customers,
we have the right to make judgements about the
ways our banks behave, not least in the realm
of their relationships with the developing world.
Support mutual building societies like Britannia.
This specifically excludes de-mutualised building
societies – those that have become banks
– such as the Alliance & Leicester,
Halifax, Northern Rock and Bradford & Bingley.
The debate over the future of mutual building
societies has largely focused on their potential
benefits to customers; mutual status means that
there are no shareholders to pay dividends to,
so profits can be ploughed back into lower loans
charges and higher interest rates for savers.
These claims appear to
be borne out by Which? magazine's July 2001 study,
which reported that in general, mutuals still
give better deals on mortgages and savings than
their de-mutualised cousins.
Some mutual building societies can also offer
a better option than most banks as they don't
take business customers, so they could never fund
dubious business practices, like logging or oil
Of those on the table, the Coventry, Yorkshire,
Leeds & Holbeck and Portman do not lend commercially.
Information on the benefits of mutuals, and a
list of the remaining mutual building societies,
can be obtained from the Building Societies Association
on 020 7437 0655 or www.bsa.org.uk
Several British banks – most notably Lloyds
(now Lloyds TSB) and Midland (now HSBC) –
were the focus of campaigns in the 1980s and 90s
over their holdings of Third World debt. Much
of this has now been written off as banks realised
that they were unlikely to recoup the loans, and
that they were acquiring significant bad publicity.
Some, such as the Bank of Scotland, 'swapped'
their poorest-country debts for commitments by
national governments that they would use the money
for domestic development programmes. However,
EIRIS has listed some high street banks as still
holding some Third World debt. See eiris.org.
British banks have been the targets of other important
campaigns about their holding of World Bank bonds,
their involvement in the kind of currency speculation
that has ruined many developing countries, and
their support for the World Trade Organisation's
controversial agreement on trade and services.
Some of these issues are indicated in the table.
Information on the environmental and social policies
and reporting standards of a range of banks can
be found in an EIRIS factsheet, available from
0845 606 0324 or www.eiris.org.
Charity Bank is the UK’s first not for profit bank. It is a unique enterprise, combining the compassion of a charity and the strength of a bank. By investing in dynamic organisations and people with vision, Charity Bank aims to grow the grass roots of charitable funding, helping organisations across the country tackle poverty, exclusion, abuse and prejudice, and enabling them to breathe life back into under-invested communities. The bank offers affordable solutions to charity borrowers, providing them with the type of sustainable investment and short-term capital that is essential for a successful operation, but which is often difficult to find elsewhere.
For savers, the Charity Bank approach allows your money to work for charitable activities. Your deposit will be used to provide credit, and to invest in stable finance options for voluntary groups, social enterprises, community businesses and other benevolent organisations. While donations will always be an important part of funding, Charity Bank believes that donating is most effective when combined with long-term investment. Saving with Charity Bank offers you a social return on your cash, and ensures that your money is being used, not for commercial gain, but for the common good.
www.charitybank.org Tel: 0173 277 4040
CHARITY CREDIT CARDS
Charity avnity credit cards are excellent, because
they continually raise money for good causes without
serious cost to the customer. Nowadays, there
are plenty on offer, most of which let us choose
which charities we wish to support. Single charities
issue the cards both for raising money and winning
publicity. Several banks co-operate closely with
them, but not all. Read here for details.
A charity credit card raises money for a charity
(or several) when the card is first taken out
or first used, and from then on a small percentage,
like 25p for every £100 used, goes straight
to the charity. The charities benefit from the
extra revenue and also because the cards and associated
marketing can raise their profile and thus recruit
Few affinity cards charge an annual fee, but
it is worth checking on this before taking one.
Some have low introductory rates of interest in
the first few months, but in general the rates
are close to the average available at any one
time. This is irrelevant if we pay off our bill
in full, as most affinity cardholders apparently
do. As the donations depend on the money spent,
not on the size of the outstanding balance, there
is no loss to the charity if we do clear it every
Many banks have been happy to co-operate not
only with conventional charities but also with
sports clubs, hobby groups and professional organisations,
seeing it as a way to gain market share. In terms
of ethics, it makes little difference whether
our card is Visa or Mastercard. It is more appropriate
to ask which bank the charity has teamed up with
to issue its credit card. Some of the banks have
resisted getting involved, considering cards too
costly to administer or being reluctant to pay
VAT on donations.
Of the UK high street banks, Bank of Scotland,
Royal Bank of Scotland, Halifax, Co-operative
and HSBC all offer charity-linked cards. Three
US banks, MBNA, Beneficial and People’s
Bank of Connecticut, jointly issue affinity cards
Co-op Bank cards support among others Amnesty
International, Greenpeace, Help the Aged, Save
the Children, Oxfam and the RSPB. Beneficial Bank
has several cards which benefit animal welfare
charities as well as the Wildlife and Wetlands
Trust, English Heritage and Unicef. Frizzell supports
the Cancer Research Campaign, while People’s
Bank has cards for Comic Relief and the Vegetarian
Society. The Bank of Scotland also has several
to choose from.
Co-operative Bank has been researching alternatives
to PVC for its credit and debit cards and hopes
to make a biodegradable plastic known as polyethylene
teraphthalate, completely free of hazardous chemicals.
No other UK card issuers seem to have followed
Choosing insurance companies is rather like a
lottery. They may be offering the best deal today
but who knows what will happen in the future?
Companies keep merging and taking each other over
and sometimes we can hardly tell their names apart.
One way to keep ahead of the main companies is
to look at their ethical policies and to ask questions
about the companies that their managers like to
A key question for ethical consumers is: ‘In
which shares is the money invested?’ As
Friends of the Earth puts it: ‘The fate
of the global environment is in large part under
[institutional investors’] control, and
yours too – because it is your money and
you are their client.’ But according to
the Ethical Money partnership: ‘No insurer
has an “ethical investment” policy
whereby they avoid investing in particular types
of company.’ Campaigners have become increasingly
impatient over unethical corporate activities
and they are learning how to put pressure on insurance
companies as shareholders. One way to make this
pressure work is to keep consumers aware of what
their insurers are investing in. Campaigners ask
the insurance companies to use their own power
as shareholders to vote or create pressure for
more ethical or environmentally sound behaviour
by the target company.
As share prices plummeted in 2001 and 2002, many
insurance companies went through a difficult time
and saw their assets devalued, as their own investments
in stocks, shares and property markets began to
mark up losses. Premiums started to rise and companies
became much more careful about the risks they
were prepared to cover. In the UK, flood cover
was withdrawn from a lot of homes that were deemed
to be at risk.
So-called natural disasters have required insurers
to make huge pay-outs, the rate of which has been
doubling every decade. One report in 2002 warned
that more frequent natural disasters in future
could bring insurers, re-insurers and banks ‘to
the point of impaired viability or even insolvency.’
The insurance companies usually offset their potential
liabilities by trading some of the premium (like
a bookie ‘off-setting’ a large bet
with another bookie) with a re-insurance company.
Many of these companies have now become involved
in the UN Environment Programme’s Insurance
Industry Initiative, which commits them to working
together to address issues like pollution reduction,
efficient use of resources and climate change
– or in other words to try to work out more
sustainable development policies around the world.
The UNEP finance initiatives have three working
groups: environmental management and reporting
(EM&R), climate change and asset management.
The EM&R Working Group aims to develop international
guidelines on reporting for the financial sector
16 members have been working with accountants
It aims to produce guidelines on environmental
management and reporting at present, with a view
to expanding this
to encompass social issues in the future. The
Climate Change Working Group has twelve members,
including Aviva and Prudential. As well as taking
steps to manage the effects of climate change,
the group wants to reduce ‘greenhouse gas
emissions now.’ The Asset Management Working
Group has 16 members: its purpose is to extend
the understanding (which has seen renewable energy
emerge as a new area for investment) ‘further
into the mainstream investment community’.
Choose from the greener ones and source the best
insurance deals with GOOSHING
Ten years ago, most mortgages were taken out
with building societies, but since de-mutualisation
about four out of five mortgages are now provided
by either a bank, a life insurer or a specialist
mortgage lender. This section covers a few of
the remaining building societies, some of the
major bank lenders and some of the ethical mortgage
lenders. All of the companies in the report offer
standard ‘repayment’ mortgages.
Mortgages are likely to be one of the single
biggest outlays for many people. However, monthly
repayments could be contributing to loans for
animal testing laboratories or investment in companies
involved in other unethical activities. Consequently,
the mortgage company’s lending policies
are as important as the kind of mortgage on offer.
Although all the banks/building societies covered
in this report were asked about their approach
to lending, the only ones to offer comprehensive
ethical lending policies were the Ecology Building
Society and the Co-operative Bank. The Ecology
lends primarily to ‘green’ housing
and the Co-op excludes companies involved in a
range of activities like animal testing and arms
exports to oppressive regimes.
For companies which have not offered specific
information, it is probably correct to assume that building societies
are less likely than banks to be involved in what
ECRA describes as ‘questionable’ corporate
Homes are one of the largest sources of carbon
dioxide emissions in the UK. While most mortgage
lenders offer valuation surveys as part of the
mortgage deal, relatively few at this stage are
offering specialised environmental surveys. These
environmental surveys assess how energy efficient
the house we want to buy is, and give advice on
energy savings measures. Currently, the Co-op
Bank offers this kind of survey free with its
green mortgage, as do the Norwich & Peterborough
and the Ethical Mortgage Service.
All the banks and building societies in this report
were asked for their latest environmental reports.
Although the situation has improved since EC last
covered banks, few of the companies had any environmental
report that would receive ECRA’s clean rating.
The Co-operative Bank continues to be a leader
in this sector.
The Ecology Building Society currently
lends only on properties that give ‘ecological
payback’. This translates as being houses
which it considers energy-saving – such
as back-to-backs, derelict houses which would
otherwise have been abandoned, etc. This strict
lending policy means that it won’t be suitable
to every person seeking a mortgage.
The Norwich & Peterborough offers a carbon-neutral
mortgage. For the first five years of each of
its Green Mortgages, it will plant eight trees
a year. Its leaflet claims that the trees will
absorb carbon dioxide to the equivalent of the
estimated emissions of the property. It also offers
a ‘brown’ mortgage scheme which aims
to encourage the renovation and restoration of
buildings for residential use.
The Co-operative Bank’s green mortgage will
‘pay Climate Care to offset around 20 per
cent of an average home’s carbon dioxide
production for every mortgage we grant.’
It claims over a 20-year mortgage, just under
a fifth of an acre of forest would be planted.
The Ethical Mortgage Service is a collaboration
between the Ethical Investment Co-operative (a
group of Independent Financial Advisors) and consultants
called Thirdwave. It offers advice on mortgages
from a panel of lenders that it has ethically
screened. This panel includes the Skipton, Scottish
and Yorkshire Building Societies. For the purposes
of this April/May 2001 report ECRA included the
ratings for these building societies in the rating
on the table for the Ethical Mortgage Service.
On the table, amber circles appear where the bank
is an investor or service provider to companies
criticised for particular activities.
One of the most effective ways you can put ethical
consumerism into practice is with your investments.
With the growth in awareness on the part of companies
as well as investors of the benefits of ethical
investment, it is becoming easier to put your
money where your mouth is…
The roots of ethical investment can be traced
to the religious movements of the nineteenth century,
such as the Quakers and Methodists, whose concerns
included issues such as temperance and fair employment
conditions. At the beginning of the 1900s, the
Methodist Church began investing in the stock
market, consciously avoiding companies involved
in alcohol and gambling. During the twentieth
century, more churches, charities and individuals
began to take account of ethical criteria when
making investment choices. An ethical investment
ideology began to develop in the US as controversy
over American involvement in the Vietnam War led
to the founding of the Pax World Fund in 1971,
which aimed to avoid investments associated with
the war. In the 1980s, the apartheid regime in
South Africa was the focal point for ethical investment
and, indeed, its success as a tool of protest
there accelerated its acceptance and growth round
In 1983 the Ethical Investment Research Service
(EIRIS) was established as the UK's first independent
research service in ethical investment, providing
the underlying research into companies' social,
environmental and ethical performance needed by
investors to make informed and socially responsible
investment decisions. The UK's first ethically
screened unit trust – the Stewardship Fund
– was launched by Friends Provident a year
later. Now there are over 60 ethical retail funds
in the UK market, with an estimated value of £3.8
billion. This growth in SRI (socially responsible
investment) has been reflected globally, for example
the Asia-Pacific region has seen the launch of
several SRI funds in places like Japan, Australia
and Singapore. In Europe there were 170 ethical
funds in 1999, by the end of 2001 the number had
grown to over 280. Ethical or socially responsible
investment describes any area of the financial
sector where the principles of the investor inform
where they place their money. Companies large
and small have an increasingly large impact upon
the world around them. How they conduct their
business can affect all manner of things beyond
the actual product or service they provide.
There is a growing awareness that, alongside
simply choosing to buy or not to buy their products,
those of us who invest our spare money can also
influence companies towards better social and
environmental behaviour. With any standard unit
trust, investment trust, ISA or pension you may
find your money going to companies which you would
not wish to support. An ardent anti-smoker, for
example would be dismayed to discover that their
savings were invested in a tobacco company. Whether
your investments are limited to a pension fund
or if you're more involved in the stockmarket,
knowing as much as you can about the ethics of
the financial companies you're investing in can
be as important as choosing an environmentally
sound washing-up liquid. In fact, as the recent
War on Want campaign to encourage the 10 million
people who are occupational pension scheme members
to find out where their money is invested shows,
you can use your influence no matter how small
your investments might seem.
The first step towards positive investing is
to identify what social, environmental and other
ethical issues are most important to you. Areas
of concern can be wide ranging, from animal testing
to gambling, from human rights to nuclear power,
from environmental enhancement to community involvement.
Surveys by EIRIS have shown that the most prominent
areas of concern were: operations in oppressive
regimes, breaking environmental regulations and
testing products on animals. The companies that
respondents most liked their pension fund to favour
over others when making investments were those
with good records on environmental issues and
employment conditions. Identifying these areas
will reflect the type of companies you want to
invest in or to avoid.
It is important, however, to remember that there
is no such thing as a perfect company. All are
involved in activities that someone somewhere
will object to and none go far enough in terms
of positive social and environmental contribution
to satisfy all of the people all of the time.
Ethical investment is about compromising and prioritising.
Once you've worked out your individual criteria,
there are a diverse range of ethical funds available
and different funds suit different investors.
Some funds select a set of criteria which they
believe will appeal to the widest range of investors.
Others take a precisely focused approach, designed
to appeal to a particular market. It is therefore
very important to look behind the 'green' or 'ethical'
label to what the fund is actually investing in
deciding to invest.
- How the fund researches the activities of the
companies in which it invests.
- Is there an ethical committee or advisory board
that is independent of the investment process,
to make sure
the fund adheres to its published
- How good is the fund's communication with investors,
e.g. does it have mechanisms in place to allow
investors to voice their concerns?
- How active is the fund in engaging or communicating
with companies? Does it encourage companies to
improve their social and environmental performance?
Ethical investing works two ways:
- by using their power as a shareholder to influence
- by choosing to invest only in companies who
behave in a socially responsible manner
One method of shareholder influence, which is
as useful as much for the publicity it often receives,
is the practice of posting shareholder resolutions
which companies then have to consider in public
at their annual general meetings. Campaigners
say that the rules governing who can put forward
a shareholder resolution are more restrictive
in the UK than in the US. Nonetheless, a recent
UK example is the resolution placed before BP's
spring 2002 AGM – filed by the global environment
network WWF, together with an international coalition
of ethical investors – on its drilling activities
in environmentally and culturally sensitive areas.
This is one part of the campaign to prevent BP
and others from drilling for oil in places such
as the Alaskan Arctic National Wildlife Refuge,
which is one of the last pristine areas left in
the US and currently off-limits to oil and gas
exploration and development.
Ethical investment is not confined to shares
traded in stock exchanges. Many investors prefer
to back individual projects or causes. Such directed
investment is known by a variety of terms including,
alternative investment, mission-based investment
and socially directed investment. Examples of
cause-based investment include regeneration projects
in Birmingham (through the Aston Reinvestment
Trust), and the support of projects in developing
countries (through the co-operative lending society,
Shared Interest). The cause-based investment sector
is currently dominated by financial institutions
such as Triodos Bank and the Ecology Building
Society, although it also includes ethical companies
who raise money directly from stakeholders by
selling ‘ethical shares’. Such companies
include Traidcraft and the Centre for Alternative
There are three main strategies that funds can
adopt to implement their ethical investment policies.
No companies are excluded but areas
are identified in which companies can improve their
environmental, social and ethical performance.
The fund managers then 'engage' with the companies
to encourage them to make such improvements.
The funds adopt social, environmental
or other ethical guidelines which they prefer
companies to meet. These guidelines are applied
where all other things are equal (e.g. financial
An ‘acceptable list’ of companies
is created based on chosen positive and/or negative
criteria (e.g. avoid companies involved in the
arms trade, include companies with good environmental
performance and so on). Funds are invested only
in those companies on the list.
You don't need to worry that concentrating on
ethical investments will make your financial performance
suffer. Research by EIRIS and others indicates
that investing according to ethical criteria may
make little difference to overall financial performance,
depending on the ethical policy applied. Five
ethical indexes created by EIRIS produced financial
returns roughly equivalent to the returns from
the FTSE All-Share Index. For example, the total
return of the Charities' Avoidance Index, which
excludes the vast majority of companies involved
in tobacco, gambling, alcohol, military sales
and pornography, was 0.38 per cent greater than
And companies, too, can benefit. Over £3
billion is already invested in companies screened
for good social, environmental and ethical practice
by retail investors. Many churches and charities,
pension schemes and local authorities are also
investing according to socially responsible investment
policies. That means money is being consciously
diverted from companies that cannot demonstrate
this good practice. And many investors are engaging
with companies which they invest in or are considering
investing in to persuade them to improve their
policies and practices.
You can get further information by contacting
the organisations listed below:
EIRIS's Guide to Ethical Funds covers the ethical
retail funds (such as unit trusts, OEICs, investment
trusts) available to the UK investor, giving a
summary of each fund's ethical policy, top ten
holdings and outlining what products (pension,
ISA, etc.) are available with that fund.
EIRIS was established in 1983 by a group of churches
and charities, today it is one of the leading
providers of independent corporate research for
socially responsible investors. EIRIS has a wealth
of information for people who want to apply their
principles to their investments and finances. EIRIS
can provide a directory of financial advisors who
have expertise in advising on ethical investments
(available from www.eiris.org ).
Tel: 020 7840 5700
The UK Social Investment Forum is a membership
network that promotes and encourages socially
responsible investment in the UK including shareholder
activism, social banking and community finance,
www.uksif.org tel. 020 7749 4880)
The European Sustainable and Responsible Investment
Forum (Eurosif) is a non-profit organisation promoting
the concept, practice and development of responsible
and sustainable investment, www.eurosif.info.