What are ethical banks, and are there any in the UK? 

There are many ways to be ethical with your money, whether it’s your investments, pensions, purchases – and even with which bank account you choose. 

We explore what ethical banking is, who it is suitable for, and what UK banks can be defined as ‘ethical.’ 

What is ethical banking? 

The term ‘ethical banking’ can be difficult to define. However, for the most part, ethical banking is typically a bank or building society that follows certain principles to impact the environment or society positively.  

For example, some banks may avoid investing in certain sectors such as tobacco, gambling, or mining fossil fuels. Alternatively, they may help finance renewable energy projects. 

The bank may also follow these principles by paying their staff fairly or having sustainable practices, as well as offering increased transparency, such as publishing details of every organisation they lend money to.  

As banks can make a profit in many ways, including investing your money in businesses, it’s good to understand what your money helps fund.  

Of course, as ethical banking can vary by bank, it’s worth considering what you care about and finding the right company that aligns with your principles.  

How can I tell if a bank is ethical? 

Here are some green flags which can signal if a bank is ethical, including: 

• Transparency about the bank's operations, including its goals, principles and the companies they work with. 
• A commitment to not working with specific industries, such as gambling, tobacco, arms dealing, mining and animal testing.   
• A commitment to sustainable business practices and improving the environment or advocating for better standards. For example, if a bank is worried about the environment, they may be paperless, or if they’re concerned about working practices, they may pay staff more than minimum wage. 
• Investing in specific sustainable industries, local communities or charities, community groups, social enterprises and co-operatives. 

Why would someone choose an ethical bank? 

If you want to ensure your money is used according to your principles and ethics, then an ethical bank is right for you. 

You should look at various factors, such as the bank’s principles, how they invest, their business practices, their ethical accreditations, and if they’ve come under fire in the past.  

If you’re reviewing your bank account, you could also review other financial products, such as: 

• Any investments 
• Your pension fund
• Your mortgage 
• Any insurance policies 

Each of these can be ethical or unethical, depending on how you view the world. For example, some insurance companies can invest in unethical sectors that clash with personal principles.  

Who are the most ethical banks and building societies? 

The Good Shopping Guide (GSG) has offered ethical brand ratings and accreditation since 2001 and has compiled a list of the most and least ethical banks and building societies: 

The benchmark score is 75 for this category, with several banks and building societies exceeding this. 

However, there are some banks, including The Co-operative Bank (83) and Yorkshire Building Society (80), who exceed this benchmark but still fall below a score of 85.  

Who are the least ethical banks and building societies? 

There were other well-known names among the least ethical banks and building societies, including Lloyds (33), Halifax (33), Bank of Scotland (33), TSB (45), Bank of Ireland (45), Starling (50), Monzo (50), Revolut (55), Metro Bank (60) and Atom Bank (65).  

How does the GSG decide if a bank is ethical? 

The GSG looks at many factors, including:  

• Environmental: This includes a company’s environmental reporting, including their impact and goals, with fixed targets and evidence of progress. The GSG also examines whether a bank has been involved in harmful environmental projects and if they are committed to reducing carbon emissions.
• People: This looks at whether a bank or building society has been involved in a project over the last five years that human rights groups have widely criticised and if they are engaged in unethical lending practices.  
• Other factors: This looks at whether the company has GSG accreditation and if they integrate ethical, social and governance (ESG) and sustainability principles into their investments and avoid controversial ones. Other things considered are whether a bank or building society has a mutual status and a clear ‘ethical ethos.’ 

Need help with your finances? 

Navigating your finances can be difficult, especially if you want your money to be used according to your principles, but you don’t have to do it alone. 

If you want guidance with your finances, such as building an ethical or ESG-focused portfolio, Unbiased can help by connecting you to a qualified financial adviser. 

A financial adviser can look at your unique circumstances and future goals to help you create a plan, including creating an investment portfolio and regularly reviewing it as your circumstances change.