Banking Overview
How much do you know about your bank? Do you know what type of businesses it lends to?
Does it refuse to lend to companies with poor human rights records, that sell arms or pollute the environment, for example? Does your bank offer services to those on low incomes or the unemployed? And how many women sit on its board?
Such questions often go unasked of the banking sector. But the same caring principles that make you buy Fairtrade goods and recycle household waste can be applied to how you bank too.
Key green and ethical issues to consider
Finding a green or ethical banking option
How banks use your money
The money that you deposit in your current or savings account doesn't just sit there untouched until you require it again - your bank lends it on to others at interest.
Banks don't just lend money to current account-holding customers either, they lend to large corporations, public institutions and even governments.
As many banks are listed on the stock exchange, they are answerable to external shareholders who expect healthy returns on their investments.
While the Treasury hands down some prohibitions as to who banks can and can't do business with, it still leaves them relatively free to engage with companies that you might not approve of and they use your money to do it.
Would you approve if your bank was lending money to heavy polluting industries or even to an oppressive regime?
Key green and ethical issues to consider
Responsible Lending
The recent global economic downturn is often attributed to the 'sub prime crisis'.
Sub prime lending means giving loans to people who are considered to be in higher risk categories - those more likely to default or who have a poor credit history, for example.
This type of lending is not problematic in itself - credit unions and community development finance institutions regularly lend to sub prime candidates. Instead, irresponsible lending to customers in the sub prime category is the problem.
In the build up to the 'crunch' some financial institutions were lending 100% mortgages (and in some cases more) to people who would not be able to make their repayments in the long term.
Lending responsibly shouldn't be limited to just mortgages - it applies to all loans, big and small, and to the provision of credit cards too. Figures from the Bank of England show that UK residents owe £233bn on credit cards, overdrafts and other loans.
Key questions to ask: Does your bank have responsible lending policies that ensure that its products are targeted in an appropriate manner? And does it provide advice or debt management services to customers who fall into financial difficulty?
Climate Change and the Environment
Banks have an impact in these areas, not just in terms of who they lend to or invest in, but how they run their own operations. It is important to find out what your bank is doing to improve its environmental performance as a business: have they pledged to go carbon neutral for example? Or do they offer any green products to their customers?
Financial Exclusion
There are an estimated two million people in the UK without even the most basic bank account. Is your bank doing anything to address this situation?
For more details see our Financial Exclusion section.
Project Finance
In its most basic form, this type of financing is for companies and governments where lenders are repaid through the revenues generated, i.e. the lender has a vested interest in the success of a project.
Common projects receiving finance are petrochemical and chemical plants, power plants, telecommunications and infrastructure. But do lenders ensure that these projects are conducted in a green or ethical way?
Use our search facility to find out about your bank's policy on the environment, ethical lending, responsibility towards its customers, equal opportunities and other issues.
Finding a green or ethical banking option
Building Societies and Credit Unions
Mutual building societies and credit unions are generally smaller, customer-owned operations that primarily lend to individuals and so are less likely to have the same exposure to issues like the arms trade, for example.
Green and Ethical Alternatives
There are a number of banks and building societies with prominent green and ethical credentials. The four examples listed below also scored the highest marks on ethical lending in our research:
- Co-operative Bank: this bank's robust green and ethical policies govern its current accounts, savings and investment products.
- Smile: this internet arm of the Co-operative Bank shares the parent company's ethical policy.
- Triodos Bank: this bank offers green and ethical savings accounts and investments. The bank was established in 1980 in the Netherlands and now has significant operations in the UK.
- Ecology Building Society: this mutual building society offers a range of green savings accounts and mortgage options.
You can use the banking section search to find the banks that perform best against our green and ethical criteria.
Your next steps
What do you do now? Check out our guide Next Steps - Banking for information on how to give your bank account a green and ethical makeover.
Banking Search
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Bank / Building Society Profile
Smile
Green/Ethical Products
All Co-operative Bank (and Smile) products are covered by its customer-led Ethical Policy. For details of additional green and ethical products on offer, see the profile for the Co-operative Bank.
Ethical Lending or Insurance
The Co-operative Bank’s Ethical Policy applies across all its services and is developed in consultation with its customers. The Policy’s exclusion/inclusion criteria include:
Human rights
The bank will not finance:
- Any government or business which fails to uphold basic human rights within its sphere of influence
- Any business whose links to an oppressive regime are a continuing cause for concern
Arms trade
The bank will not finance any business:
- Involved the manufacture or transfer of armaments to oppressive regimes
- Producing equipment to be used in torture or in any other way that violates human rights
- Involved in the manufacture or transfer of indiscriminate weapons e.g. cluster bombs and depleted uranium munitions
International Development
The bank will not finance organisations:
- That fail to implement basic labour rights as set out in the Fundamental ILO Conventions. These include the avoidance of child labour, or to oppose the rights of workers to freedom of association (e.g. in a trade union)
- That take an irresponsible approach to payment of tax in the least developed countries or engage in irresponsible marketing practices in developing countries, for example with regard to tobacco products and manufacture
Ecological impact
The bank will not finance any business:
- Whose core activities contribute to global climate change via the extraction or production of conventional fossil fuels (coal, oil and gas), with an extension to the distribution of fuels that have a higher global warming impact, e.g. tar sands and some biofuels.
- Manufacturing certain polluting chemicals
- That harvests natural resources in an unsustainable way
- That develops genetically modified organisms where there is evidence of uncontrolled release into the environment or negative impact on developing countries
- That developments nanotechnology in circumstances that risk damaging the environment or compromising human health
The bank will also seek to support businesses involved in:
- Recycling and sustainable waste management
- Renewable energy and energy efficiency
- Sustainable natural products, including timber and organic produce
Animal welfare
The bank will not finance businesses involved in:
- Animal testing for cosmetic or household products or their ingredients
- Intensive farming, for example caged egg production
- Blood sports
- The fur trade
- The exploitation of great apes, for example in experimentation or general commercial use
The bank will seek to support businesses involved in:
- The development of alternatives to animal experimentation
- Farming methods that promote animal welfare like free range farming
The implementation of Co-operative Bank's Ethical Policy is assessed independently by a third-party (csrnetwork) and customers are invited to comment to express concerns and opinions of it too. The bank’s Ethical Policy Unit is comprised of five full-time staff members.
Social enterprise
- The bank seeks to support charities, co-operatives, credit unions and community finance initiatives.
Responsible Lending
1. Credit Lending
Smile offers 70% to 85% LTV (loan-to-value) rates depending on mortgage product. Its LTI (loan-to-income) rates stand at 3.5 times joint income on a joint application and 4.5 times income on a single application. The bank’s LTV rate compares favourably with FSA’s Turner Review, which suggests that LTV rates be set at a maximum of 90%, i.e. that borrowers should have at least a 10% deposit for a mortgage. The Review’s analysis suggests lending 3.5 times sole income for single borrowers, however.
In its Terms and Conditions for loans the bank states that it will use applicants’ personal information at credit reference or fraud prevention agencies.
No information was found as to whether the bank has a policy to avoid or prevent the offering of unrequested increases in credit limits to customers.
2. Debt Warning
The bank offers suggestions as to how to calculate what customers can afford to borrow when seeking secured credit (mortgages). It also offers a generic warning: ‘Your home may be repossessed if you do not keep up repayments on your mortgage’.
No debt warning notices or suggestions to those noted above were found for customers seeking unsecured credit (i.e. personal loans). However the bank does refer both mortgage and unsecured loan customers to the FSA’s Financial Healthcheck and Debt Test tools for help with budgeting, borrowing and planning for the future.
3. Debt Management and Advice
With regard to payment default and handling payment problems, the bank offers general suggestions, as well as specific in-house services and outlines the different stages it will go through with customers experiencing difficulty making mortgage payments. A mortgage helpline is available to customers with secured loans. The bank will also consult a debt advice agency, e.g. Consumer Credit Counselling Service (CCCS), if requested.
It states that it will give customers ‘reasonable time’ to pay back the debt. The bank says it ‘might’ be able to pursue the following:
- Arrange a new payment plan
- Change the way payments are made, or the date they are made
- Allow customers to pay back their mortgage over a longer period of time, thus reducing monthly payments
- Change the type of mortgage
The bank also outlines the steps leading up to repossession of property/court action. It says that it might agree to the customer remaining in the property to sell it themselves depending on their circumstances.
With regard to unsecured credit the bank refers customers to Visa Europe's Better Money Skills website for ‘help with budgeting, understanding credit and managing your credit card’.
No other information was found on debt management or advice for customers with difficulties related to unsecured credit.
On the subject of payment holidays, Smile/Co-operative includes them among standard features for mortgage products, but does not clarify the circumstances under which they may be available. According to the bank, payment holidays may be taken for up to six months, though interest will continue to mount up and customers will be required to either increase their mortgage term or make higher monthly payments.
In the Terms and Conditions of personal loan products it states that a payment holiday of three months is available to Current Account holders who have held their account for seven months or more.
No evidence was found that the bank offers re-housing advice to customers facing re-possession or that it liaises with organisations such as Shelter and the Citizens Advice Bureau to work out re-housing arrangements.
Financial Exclusion
The bank offers a basic bank account to low-income and unemployed customers. It is also the largest provider of banking services to credit unions in the UK – covering 60%.
The bank provided IT, administration and training resources to the recently launched Credit Union Current Account (operational in a small but growing number of credit unions since 2007) and has also made donations to support the Association of British Credit Union’s (ABCUL) annual conferences and its newsletter (£24,000 in 2007).
The bank is engaged in a project, Credit Action, to enable prisoners to open a basic bank account to facilitate employment and housing for offenders leaving prison.
Access: the bank offers financial products and service through non-branch-based channels including the internet, telephone, Post Office and a network of financial advisers, enabling customers to access many services from home.
Smile’s website is ranked as meeting A-level in relation to their level of accessibility for customers with disabilities according to the Web Accessibility Initiative’s (WAI) content accessibility guidelines (where AAA is the most accessible).
Microfinance: in 2007 the Co-operative Bank created a special £25m fund to support the development of small businesses in a number of third world countries.
Work in Communities: As at June 2007, 8% of business current accounts and 7% of business loans were provided to small businesses in deprived areas. This compares to industry average figures of 4.7% and 3.6% respectively.
Environment
The bank’s environment policy covers climate change/energy efficiency and waste management and shows a commitment to continued improvement of environmental performance and has targets for same. An Environmental Advisory Committee is in place.
The bank has also been involved in lobbying the UK government with regard to carbon emission reduction targets and has worked with environment charities like Friends of the Earth to further the climate change cause.
Some 99% of the bank’s electricity is sourced from renewable sources, such as wind and hydro technologies. The bank has also committed £400 million to invest in the renewable-energy sector.
Carbon Neutral
The Co-operative Financial Services (incorporating Smile) plans to go ‘beyond’ carbon neutral by repaying 10% off its outstanding carbon ‘debt’ in addition to the existing carbon neutrality of all its business operations.
Equal Opportunities
The bank’s parent company, Co-operative Financial Services, has gone ‘beyond’ carbon neutrality by repaying 10% off its outstanding carbon ‘debt’ in addition to its existing carbon neutrality.
Women on the Board
Smile is part of the Co-operative Bank which reported that 10% of its board members were women in 2007.
Voluntary Standards & Initiatives
The Co-operative Bank is a signatory/member of a number of charters and initiatives including:
Charitable Giving
The bank’s parent company, Co-operative Financial Services, donated 2.2% of its pre-tax profits (£3.4m) to the community (figures for 2007).
Smile
- Current Accounts
- Savings
- Credit Cards
- Loans
- Mortgages
- Investments (through Co-operative Investments)
- Insurance (Home, Motor, Life, Health – through Co-operative Insurance)
- Student Current Account
Smile
Smile
The Co-operative Bank
Customer Services
PO Box 200
Delf House
Southway
Skelmersdale
WN8 6GH
