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.
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.