Financial Institution Research Methodology

Overview 

The UK’s top financial institutions: banks, building societies, mortgage lenders, insurance companies and credit card providers, were invited to take part in an online survey asking questions on the following areas of green and ethical concern:

  • Green or ethical products
  • Ethical lending/insurance policies
  • Financial exclusion
  • Environment
  • Carbon neutrality
  • Equal opportunities policies 

There was a 65% response rate to the survey. Additionally an EIRIS researcher was commissioned to source answers for the survey’s questions in the public domain (e.g. corporate responsibility/sustainability reports, corporate websites). 

The findings were then compared and rated on the basis of how many positive answers were returned in each area to questions designed to be answered in a simple yes/no format. The researcher’s findings were used on their own to derive ratings where a financial institution did not take part in the questionnaire. 

Each area was rated on a three-stage scale from ‘worse’ to ‘better’ (colour-coded red, amber and green). Where no information was found or supplied a ‘red’ rating was awarded. The presence of any green or ethical products or services is rated ‘green’ and the number or ‘quality’ of the products is not considered, though details are included anecdotally in each profile. 

We also asked additional non-rated questions on: 

  • Women on the board
  • Charitable donations
  • Voluntary standards and initiatives 

Completed profiles with ratings and a rationale document explaining how ratings where achieved were sent to the relevant corporate responsibility person for each financial institution for final feedback, or a ‘right to reply’. If sufficient evidence was supplied to support requested changes, these were then made. 

  • Responsible Lending

In May 2009, EIRIS conducted further research on Responsible Lending which was based on eight questions under three themes: Credit Lending, Debt Warning and Debt Management and Advice. This new criterion was rated in the same way as the others (‘worse’ to ‘better’). However, in this instance only information in the public domain was used to assess lender’s performance. Once the responsible lending profile sections were scored and written up, copies were sent to the relevant financial institutions for their feedback and to give them the opportunity to present further evidence of their policies under each theme. 

Research Criteria

Green or Ethical Products

If a financial institution offers a product that has an environmental or social remit it is noted in the profile. Examples of such products might be green mortgages, motor or travel insurance policies, or an ethical child trust fund. 

Ethical Lending

This asks if banks refuse to lend money to companies in typically unethical areas e.g. arms manufacturing, nuclear power, companies with poor environmental records or with operations in countries with poor human rights records. It also considers whether a company has an ethical lending team (or third party) in place to enforce/advise on its policy. 

Ethical Insurance

In the case of insurance companies, this asks if an institution refuses to insure companies involved in typically unethical areas.

Responsible Lending

1. Credit lending 

  • We looked at whether the institution’s initial LTV (loan-to-value) and LTI (loan-to-income) ratios for secured credit set are within the limits suggested by current financial reviews such as the Turner Review (90% for LTV, i.e. customers must have 10% deposit, and 3.5 times annual income for LTI). This review was conducted by Lord Turner, chairman of the FSA, at the request of the Chancellor of the Exchequer to review the events that led to the financial crisis and to recommend reforms.
  • Whether the institution uses credit checks in line with the Office of Fair Trading guidelines on credit checks, including the borrower’s income and employment status, previous credit history and outgoings to assess potential borrowers.
  • Whether the institution has a policy to avoid or prevent offering unrequested increases in credit limits to customers. 

2. Debt warning

  • We looked at whether an institution has a debt warning policy and how it is communicated to customers i.e. is a prevalent debt warnings in the pre-contractual stage of the lending (web-based warning); at the contractual stage of the lending (warning included in the Terms and Conditions), or not at all.
  • Whether an institution uses the FSA Debt Test or a close equivalent and in which contractual stage: pre-contractual before entering into a loan arrangement; as part of the debt advice; or none (just calculation, no warning). The Debt Test tells customers how they would appear to a credit rating agency. Results are only an indicator, not an exact prediction. 

3. Debt management and advice 

  • We looked at whether the institution has policies on payment default and handling payment problems and if it has a clear set of stages before moving to repossession or court action.
  • Whether it offers payment breaks/holidays, for how long and in what circumstances.
  • Whether it offers re-housing advice. We also looked for examples of instances when the institution liaised with organisations such as Shelter and Citizens Advice Bureau to work out re-housing arrangements with mortgage customers liable to re-possession. 

Financial Exclusion

This section investigates whether institutions provide any financial products aimed at those on lower incomes, the unemployed, those with a poor credit rating or those otherwise ‘excluded’ from the financial world. It asks if companies provide direct financial support to, or engage with Credit Unions or other mutual organisations; whether they provide access schemes for the disabled, those in remote areas, those for who English is not their first language or any other relevant groups; and whether they invest in or lend at lower rates to poor/financially excluded communities. The section also takes into account provision or promotion of microfinance or microinsurance projects. 

Environment

This section asks whether companies’ environment policy cover the key areas of climate change/energy efficiency and waste management and if they are committed to continued improvement of environmental performance. 

Carbon Neutrality

This section asks whether companies have made a pledge to go carbon neutral and if yes, when. If they have not made a pledge but are trying to reduce their footprint, this will be acknowledged anecdotally in the profile. 

Equal Opportunities

This section asks whether companies’ equal opportunities policies take into consideration the key equality issues of race, gender, sexuality and disability. Not addressing all four issues reflects poorly on the policy while any additional issues are noted in the given company’s full profile. Please note the ‘quality’ of the institution’s policy is not taken into consideration. 

Women on the Board

We additionally asked each institution for a percentage figure of the number of women sitting on their board or in senior management positions. Women are often absent from high level executive and board positions across the finance sector. As there is no benchmark against which we can measure the percentage of women or rate it. Therefore this information is unrated and included anecdotally in each profile. 

Charitable Donations

We also asked what percentage of profits is donated to charitable organisations. As there is no benchmark against which we can measure the percentage of women or rate it. Therefore this information is unrated and included anecdotally in the body text of each profile. 

Voluntary Standards and Initiatives

We asked financial institutions what voluntary standards and guidelines they have signed up to.