Despite the Co-op Bank’s troubles, the ethical finance sector is thriving, writes Charlotte Webster

The Co-operative Bank’s recent troubles have cast a shadow over ethical banking, at least in the eyes of the media. If Britain’s flagship ethical bank is foundering, the theory goes, there can be no future for the sector.

The truth, though, is that ethical banking is alive and kicking. Demand for better banking is higher than ever, with 2.4 million Brits moving their money in 2012 to banks that are well-managed, ethical and secure.

That’s because while the Co-op Bank might have been the best-known ethical financial institution, it was never the best example of what one could look like – and, in fact, many of its troubles stemmed from its failure to act as an ethical bank should.

The Co-op Bank’s executives have rightly been condemned for their mismanagement and high salaries. This April, Sir Christopher Kelly’s investigation also blamed the bank’s woes on an excessive and poorly managed focus on growth, which led executives to bite off far more than they could chew. Bad loans combined with poor lending practices, mis-sold payment protection insurance, and botched IT to create a perfect storm.

That culture of mismanagement is directly at odds with the Co-op Bank’s image as a responsible, ethical institution.

The centrepiece of the Co-op Bank’s ethical banking is its refusal to invest in companies guilty of transgressions such as selling arms to oppressive regimes, violating human rights, or producing fossil fuels. That’s arguably not the most effective approach to ethical investing, but the Co-op deserves praise for its continued commitment to such policies. It’s in other areas where the bank falls down.

Demand for better banking is higher than ever

For starters, it’s important to note that the Co-op Bank is not really a co-operative at all: at heart it remains a plc bank. Its members have limited input, and could do little to avert the disastrous Britannia takeover – a deal that ultimately cost the Co-operative Group its ownership of the bank.

A truly ethical bank, by contrast, should be run for the benefit of its members or customers, as well as society at large, and should represent and reflect its principles throughout its organisation and activities.

Fortunately, according to Move Your Money’s Switching Scorecard, which assesses more than 70 banks’ performance in categories such as honesty, customer service and supporting the economy, there are plenty of institutions that do a much better job of living up to that standard.

The Ecology Building Society, for example, demonstrates real commitment to democracy and environmental sustainability both within its business and in wider society. Its members are highly engaged and regularly consulted, and have a real say in how the institution uses their money.

Charity Bank, meanwhile, focuses on developing social enterprises, charities and community organisations, only investing where there is demonstrable social purpose and impact. The bank publishes details of its loans, pays reasonable salaries and bonuses, appoints female directors, and delivers excellent customer service.

The highest scoring non-mutual organisation on Move Your Money’s scorecard is Triodos Bank, Europe’s largest sustainable bank. Specialising in organic agriculture, sustainable energy, and developing-world microfinance, Triodos has an exemplary commitment to transparency, and a strong record of avoiding risky lending.

By contrast, the Co-operative Bank was mired in the bottom third of the Move Your Money rankings even before its current problems were made public.

That suggests that not only is the Co-operative Bank not the only ethical bank around, it’s not even a particularly good example of one. As for the future of ethical banking, there’s plenty going on – and, in fact, the sector is thriving.

Photo credit: © Move Your Money

  • Kate

    That’s great, but why doesn’t Charlotte Webster say which of these, if any, are underwritten by the UK government guarantee (£80 or £85 000 now.) I know Triodos isn’t, but not about the others. Are any of the institutions cited part of a bigger group? The guarantee only applies to all accounts within a bank ‘family’, members of which may go under different brand names. Few people would be in a position to risk moving their money to an institution without the guarantee.

    And the Co-operative Bank is CERTAINLY not a co-operative now, with hedge funds the majority partners, and arguably unethical.

    This is not good information – journalism lite.

  • Patrick Sudlow

    Hi Kate, Triodos Bank customers are Covered by the more Dutch guarantee scheme. The UK Guarantee was only halve the Dutch scheme, until the financial crisis started.
    “The deposit guarantee scheme guarantees an amount not exceeding €100,000 (equivalent to approximately £82,041 as at 31 January 2014*) per person per institution, regardless of the number of accounts.

    Where two people have a joint account, either account holder can claim payment under the deposit guarantee scheme. The maximum joint deposit covered is €200,000.”

    As well as a being a customer of Triodos Bank, I am a Regisitered Depository Holder.

  • Debra Robinson

    I am fed up or reading that the Co-op Bank is Ethical when it is clearly not where animal testing is concerned.
    I have a vegan friend who uses the Co-op believing that they do not fund testing on animals.
    By their own admission they proudly fund testing on animals for drugs and cures etc.
    They do not make this clear unless you question them on it.
    Debra Robinson

  • Cassie

    Hi Debra,
    I am also a vegan that has always believed that the co-op do not fund animal testing. I’ve had a look online and can only find an old article from the late 90s stating that at that time the had shares in Huntington Life Sciences which are one of the biggest vivisection laboratories in the world. That is shocking! But, do they still that is the question. Are you able to point me to some up to date information on this please? Thank you for raising awareness

  • Nick Jones

    For most people the key element in any bank is the provision of a current account with all the convenience that goes with that.

    The Ecology Building Society doesn’t provide a current account and the Charitu Bank doesn’t either.

    The coop is definitely a work in progress with its ethical qualification still in question, and it’s definitely not a co-operative.

    Triodos Bank doesn’t yet offer a current account although it is on track to do so from sometime in 2016.

    So this article is purely about savings accounts!

    There are some ethical current accounts available. Some of the building societies that avoided the demutualisation frenzy in the 1980/90s are worth looking at (although the Nationwide is a bit dubious since it pays its CEO a package in excess of £2milion which doesn’t feel very mutual!). A number of Credit Unions offer current accounts and it looks likely than many more will in the future, but you have to comply with their Common Bond (usually where you live or where you work) to be able to join.

    B–