• The Financial Doctor

Ethical Banking - The Future of the Banking Industry

The banking industry is complex and multi-faceted; customers have different financial needs in which must be addressed by banks. Often when it comes down to choosing a bank, customers have a priority checklist to see which institution meets their needs the best, with product offerings and customer service delivery usually being the most important.

However, in recent times, a new criteria many customers have found themselves prioritising in their checklist is the ethicality of the banking institution’s business practices.

Society is shifting into a direction where more and more people wish to live a more ethical life, contrary to the events we have all heard about – those institutions that have shed light to business malpractices within their industries.

When we think of ethical practices, we tend to register it as contributing towards a fairer and more equal society. However, this very same concept also applies to financial affairs, with many banks opting to conduct its business as an ‘Ethical Bank’. Intelligent HQ defines an ethical bank to be “alternative, civil or sustainable bank … concerned with the social and environmental impacts of its investments and loans.” It is a practise that has garnered lots of attention during recent times, and is projected to push into a wave that could possibly well be the future to how banks will choose to conduct themselves in their operations.

What is Ethical Banking?

Ethical Banking is simply a bank or a financial institution that operates in a manner that is environmentally and socially responsible. An ethical bank can promote these responsible actions into their business operations through negative and positive screening. Negative screening is a reducing procedure, in which the institution will invest responsibly and avoid investments into ventures that may cause harm to society. Positive Screening on the other hand, is an adding procedure, in which investments are focused towards ventures that add value benefits the broader society.

In Australia, ethical banks generally abide with a similar negative screening criteria. They do not invest or operate in a manner that promotes categories such as

  • Tobacco

  • Deforestation

  • Abuse of human rights

  • Animal cruelty

  • Pornography

  • Gambling

  • Firearms

  • Fossil fuels and coal mining

Features of an Ethical Bank

Ethical banking is broad concept that encompasses many ideas. When it comes to operating ethically, there isn’t a strict criteria of what is wrong and right. It is up to the discretion of human judgement to understand what is morally just and what should be avoided to prevent disruption within society. However, whilst these ethical banks might have differences in their policies, many common characteristics amongst them remain quite mutual. These include:

  • Operate and promote sustainability: ensure business practices are sustainable and that clients that advocate for sustainability are well supported.

  • Improving the community: ethical banks are generally involved into helping improve the state of the current community’s welfare, and finds solutions to improve its current state.

  • Screen clients before investing: screening clients ensure that ethical banks only cooperate and invest into ventures that are socially ethical and responsible.

  • Abiding with consistent set of ethics: bank cannot discriminate, instead must be partial to all its stakeholders.

Why should I choose an ethical option?

Choosing an ethical option means that you are invested into the ethical bank’s interests and how they choose to promote environmental and social practices into the community. Hence, being part of an ethical is a way of being socially responsible and giving back to the community.

Environmental sustainable practices

Similar to partaking in personal environmental sustainable actions such as the infamous 3 R’s – Reduce, Reuse and Recycle, placing your money with an ethical bank ensures this in a financial manner. The only difference that separates your own personal actions and an ethical bank is that it will not invest into any given venture that threatens the condition of the environment.

Australian ethical banks such as Teachers Mutual Bank ensure customer funds are not used to promote any environmental degrading activities.

Encourage more skilled workers

As an organisation, ethical banks will also be required to pay their staff through remuneration. However, by opting into an ethical bank, they can acquire skilled workers to work alongside them and encourage them to also be advocates for a more ethical option. This can be done through training and development, and also providing a good work-life balance to improve satisfaction rates.

Give back to the community

Another reason to choose an ethical bank is because it is a great way to give back towards the community. Ethical banks tends to use a large sum of their profits to give back to initiatives including but not limited to – charities, grants and scholarship, fuelling a commitment back into the community.

Some leading Ethical Banks in Australia Bank Australia

Bank Australia only lends to industries that are socially and environmentally responsible. They have an intensive screening process, to ensure caution in what they choose to invest. They operate with values that ensure the betterment of broader society rather than simply pleasing the pockets of their shareholders.

Community First Credit Union

As an ethical bank, it has operated in collaboration with the McGrath Foundation, creating a new product offering, McGrath Pink Visa. Containing a low purchase rate of 8.99% and up to 55 days interest free, Community First Credit Union has opted to donate half of its member annual fee towards the McGrath Foundation. By choosing Community First Credit Union, you are also providing improved nursing to women with Breast Cancer across Australia.

UBank – Green term deposits

Choosing UBank, means you are contributing towards a movement that addresses the issues presented by climate change. Their product offering Green Term Deposits, allows you to place your savings, and be granted investment opportunities equal to what you have placed in your savings, towards environmentally appeasing projects such as low carbon transport and buildings.