How to bank ethically
Tips and advice on building financial wealth through collective care
Written by Aimee Laurel
London, UK
Our How To guides offer practical step-by-step instructions of how best to use your individual actions to contribute to wider movements.
Aimee Laurel offers tips and advice on how to build financial wealth through collective care, moving away from fossil fuel investment and extraction.
Ethical banking is a method of managing money that takes a socially conscious approach to financial management and decision-making. It’s not about maximising personal financial wealth but seeing money as a tool to build solidarity, define reciprocity and redistribution, and take measures to create collaborative impact.
From co-operatives to credit unions, ethical banking often involves choosing or switching to alternatives to traditional banking institutions that prioritise social or environmental responsibilities over financial profitability. Ethical banking can also include savings clubs or money circles, for smaller, and sometimes marginalised, communities.
A traditional bank’s primary motive is profit and it plays an important role within a capitalist society. As institutions, many have the power to impact national and global economies, and also help sustain a neoliberal system that relies on their continuous churn of profit.
But, much like the concept of compound interest, individual action can have a positive and cumulative effect on the wider collective movement.
When more individuals choose ethical banking, ethical banks have access to a bigger collective pot of wealth to reinvest or opportunities to charge nominal fees that can allow them to compete with other high-street banks, making the choice to opt for socially conscious options even easier.
Before we get started…
It’s essential to recognise that banks are first and foremost businesses. They serve to enable financial processes. But they also charge for this service, which contributes to a bottom-line philosophy designed to extract as much as possible to continue their operations and provide a return on investment to shareholders. This contributes to a cycle of destructive and unequal wealth distribution.
Today, we live in a world where the planet’s biggest banks are actively walking back their climate pledges and investing $869bn in fossil fuels instead.
This is important to understand because while it’s hard to see how tapping your card at the till at your favourite cafe is directly fuelling the climate crisis, not knowing exactly where your money is going and how it is being used is what major financial institutions are, well, banking on.
So how can we start banking ethically, use our financial wealth to do more for our communities, divest from industries that cause harm, and find alternatives to the current neoliberal financial system?
Step 1: Follow the money
Before you make any financial moves, look at where your money is and how it is being used. Check your personal current and savings accounts and any personal loans, credit cards or lines of credit.
Broadly speaking, banks require these accounts to operate and generate a profit. They take the money you’ve deposited or saved and lend it to someone who’ll pay interest on the loan. They also use the money you’ve deposited or saved and invest it in the financial market to generate more returns.
So the act of deciding where your money is held and who gets access to it is a reminder (or wake-up call) that you hold power in these accounts and can say whether or not a bank can benefit from them.
Step 2: Consider what makes a bank ethical to you
There are several ways you can check out how ethical the bank you use is, but first, we should consider what principles make a bank ethical, which may differ for different people, their needs and/or access.
Is it a firm stance on sustainability and its responsibilities to the planet? Transparency about investments? Commitment to creating a positive social impact? Divestment from industries that cause harm, like mining or the arms trade? Paying workers a living wage? Participation in initiatives that support local communities?
Step 3: Research how ethical your bank is
Once you’ve figured out what ethical banking means to you, do your research!
First stop: your bank’s annual reports, statements on environmental sustainability and community impact. You can access these through your bank’s website under sections titled ‘Investor Relations’, ‘Corporate Governance’ or ‘Publications’.
You may also be able to find reports through a governmental regulatory body. In the UK, the Financial Conduct Authority (FCA) maintains a public archive called the National Storage Mechanism, which contains documents, such as annual reports, that UK banks are required to submit to the FCA.
Step 4: Read what others have to say
Second stop: rating websites such as Bank.Green assess banks specifically on their climate impact. The civil society organisation BankTrack also tracks and evaluates major banks based on their impact on climate, nature and human rights. You may also want to check if your bank is B Corp certified or if they’re part of the Global Alliance for Banking on Values (GABV).
This can be an eye-opening experience. It’s not a great feeling finding out your bank actively invests in nuclear weapons, for instance, but this is where your action comes into play.
Step 5: The big switch
Let’s say you’ve been banking with a ‘Dirty Dozen’ bank and you’re looking to move your money.
You could switch to a greener, friendlier bank (and by now, you may have seen a few good options). But what do you do if you want to leave major retail banks behind altogether?
There are bank alternatives, such as co-operatives, credit unions and building societies, that fundamentally operate differently from traditional banks.
They are shaped by their sense of shared community or ‘membership’, the concept of shared ownership and their profit motive, which is not designed for maximisation, but for redistribution through lower rates and fees.
Step 6: Accounting for accountability
When you’re closing your accounts, there will usually be an opportunity to share with the bank why you’re leaving – this is where you can take all that research you did and tell them exactly why and, for example, note their complicity with the current climate crisis. This is where the cumulative effect of what might feel like small action can create collective change through coordinated pressure on banks and how they’re run.
Step 7: Encouraging collective action
Share your move with friends and family, and encourage them to review their accounts to see if their bank aligns with their ethics and values. Share your findings and help them evaluate whether they want their hard earned money potentially funding destructive industries.
Given how many traditional banks are designed to support a neoliberal world, the inconvenience may be high but the need to switch is likely, so your encouragement could make all the difference.
Step 8: Alternatives to the alternatives
Safety note: Some of the concepts below are unregulated and are built upon a foundation of trust within a small group or community of people. Participating in a savings circle or investment club carries a level of risk and offers no governmental protection, so exercise caution.
In certain circumstances, participating in the traditional banking system, or even in an ethical banking system, isn’t feasible or doesn’t fit the needs of a community. Those who are unbanked can be so for a variety of reasons; they could lack necessary documents or formal identification, like people who are seeking asylum or they could be living in poverty or are low-income and unable to maintain banking fees.
This is where a rotating savings and credit association (ROSCA) comes in, such as a pardner (Jamaica), a paluwagan (Philippines) or a menage (Scotland).
ROSCAs are a peer-to-peer means of banking where a group pools money on a regular basis and everyone takes it in turns to pay cash in and out. It’s an alternative way to save and helps some people stay accountable through mutual community.
Money as a tool
The above ideas outline the process of banking ethically, but don’t necessarily address why it is ultimately an effective strategy to move towards the social and solidarity economy (SSE) and away from neoliberalism. The dictionary tends to define neoliberalism as a political and economic system committed to intensified market capitalism and deregulation. However, it’s also the dominant Western ideology which promotes a system of power that privileges an elite minority. Rejecting the values of neoliberalism and moving towards the SSE means that we can begin to unwind this system of power and reshape it for all of us.
SSE is just one alternative economic future. Maybe ethical banking won’t get us there, but perhaps it can get us somewhere better.
