Ethical Banking—What Is It And Why Should You Care?

When it comes to choosing a bank, often what we consider first are the products on offer and the customer service.

However, another important consideration is what your financial provider does with your money and whether it has ethical practices.

Of course, every institution needs to turn a profit, but it’s what they do with their profits and whether it has positive social and environmental impact, that matters.

While there are a range of definitions out there for ethical banking, Canstar sums it up nicely:

“Ethical banking… encompasses any bank, financial institution, or system that operates based on values driven by environmental and social responsibility.”

When considering a financial provider there are a few questions to ask yourself to see whether they tick the boxes when it comes to ethical practices:

Do they lend to or invest in the fossil fuel industry?

Just like partaking in environmentally friendly practices in your personal life, like recycling, reusing and buying locally, when it comes to your banking, choosing an ethical bank can help ensure your money isn’t going towards practices that have negative impacts on the environment.

Figures from the Banking on Climate Change report found that 36 of the world’s largest banks increased their investment in ‘extreme’ fossil fuels by 11% from 2016 to 2017. This equated to a staggering $115 billion funnelled into extreme fossil fuels in 2017. ‘Extreme’ fossil fuels refers to extreme oil, such as tar sands, Arctic, and ultra-deepwater oil, liquefied natural gas (LNG) export, coal mining, and coal power.

However, the report did shed light on some positive moves by some of the world’s major banks, with the World Bank committing at the One Planet Summit in Paris to no longer finance oil and gas extraction after 2019.

Closer to home there are a number of banks in Australia, including Teachers Mutual Bank, that have committed to not using customer funds to invest in greenhouse polluting activities.

For a full comparison of 120 Australian financial providers, you can visit Market Forces, which compares banks on their position when it comes to investing in fossil fuels.

Do they give back into the community?

On top of investing in environmentally friendly pursuits, part of being an ethical bank is giving back to the community.

As explained in an article by Forbes, socially conscious banks are coming to the foreground: “Customers are actively expecting that the businesses they choose are socially responsible, sustainable, and contributing to the communities around them.”

An ethical bank will ensure a portion of its profits are going back to the community through a range of activities. This may include providing scholarships and grants, or taking part in charity initiatives through partnering with like-minded organisations.

If you want to know what a bank’s policy is when it comes to community initiatives, you can often find this information listed on their website.

Do they treat their staff fairly?

Another aspect of ethical banking is the fair treatment of employees. Whilst also giving back to the community, ethical banks will invest money back into their staff.

Some of the ways they will do this is through learning and development, by introducing specialised employee training, employee benefits such as generous paid parental leave, ensuring an inclusive workplace with a commitment to gender equality and good work-life balance with flexible working arrangements available.

Employee satisfaction rates are a good indicator of how a bank is performing in this area.

The bottom line when it comes to choosing an ethical bank is to find one that not only provides you with competitive products and good customer service but aligns with your values, too.