How the ethical banking industry can seize the moment

Eilidh Wagstaff
6 min readNov 10, 2019


Levels of veganism and vegetarianism in western countries are soaring, new generations of climate activists are taking to the streets demanding change and conscious consumerism is on the rise. But all this is yet to translate into a boom for the ethical banking industry. Why is this? And what can be done about it?

There’s something my friends are not doing that strikes me as strange. To explain what it is, I’ll start by sharing a few facts about them. Of the six friends I lived with at university, two now work for charities, two for universities and two in the media. One is vegan and two are vegetarian. As their diet and career choices indicate, these are people who give active consideration to ethical issues.Yet despite their interest in responsible consumerism, none of them banks with an ethical lender.

Of course, this group is not representative of the population as a whole, but their behaviour is still symptomatic of a wider trend. Many people are making efforts to recycle more, eat less meat and/or reduce the amount they fly. Yet these same people continue to deposit their savings in banks that finance fracking and other environmentally damaging activities. How can this disconnect be explained?

Before answering this question it’s important to define what an ‘ethical bank’ is. In reality, there is probably no such thing as an ‘ethical bank’ — at least not in absolute terms. That being said, it is still possible to roughly determine where a bank falls on the ethical scale. At one end of the spectrum are the banks that have comprehensive ethical policies, at the other are the institutions that appear to give little — or no — consideration to the environmental and societal impacts of their activities.

Building understanding

So why aren’t greater numbers of socially conscious shoppers moving away from traditional banks? A lack of understanding of banking business models is one factor. When I was growing up I thought banks stored deposits in vaults for safekeeping. Based on conversations I’ve had with others, I’m not the only one who’s failed to grasp how banks operate. Many people do not realise that, in addition to the retail banking services they provide, high-street banks can also be involved in a range of more contentious activities, such as financing arms manufacturers or offering M&A advisory services to the fossil fuel industry or providing offshore bank accounts for the tax-shy super rich.

The best place to begin building knowledge of the financial system is in schools. Studies show that Britain has lower levels of financial literacy than its OECD peers. To address this, the ethical banking industry should call for reforms to how finance is taught to children and young people. As part of a revised curriculum, students should be educated on how key financial institutions function. Armed with greater understanding, future generations would be more conscious of the ethical dimension of their banking choices.

Educational reform would yield long-term benefits, but there’s also plenty that could be done to deliver more immediate results. For example, the ethical banking industry could lobby for changes to the way financial products are labelled. Banks could be required to publish key environmental metrics, such as their financed emissions normalised to revenue, in their marketing material. This information could be presented in a colour-coded grid, laid out in a similar way to how nutritional values are displayed on food packaging. At present it’s relatively difficult for consumers to assess their banks’ ethical credentials, so this kind of labelling would constitute an important step towards better understanding.

Moving from understanding to action

Motivating consumers to switch bank accounts isn’t easy. According to industry figures, less than 2% of current-account holders switch providers per year. For some, a dim awareness that their bank is involved in activities that violate their principles isn’t enough to spur them into action. The impetus is therefore on the ethical banking industry to find novel ways to incentivise people to make the switch.

What is the most effective way to galvanise informed consumers? One way would be for the ethical banking industry to encourage them to view their banking choices as part of their identity, in the same way that their food and clothing choices are. This shift in perception could be achieved through marketing. For example, an ethical lender could issue a bank card made from recycled sea plastic with an image of a marine-conservation project that it is funding printed on the front. Paying with this kind of card would allow consumers to make a statement about who they are and what they stand for. Perhaps providing people with virtue-signalling opportunities is no bad thing if it ultimately results in positive change.

Addressing concerns and misconceptions is also a must if ethical banks are to win over informed, but hesitant, consumers. Many people agree with the premise of ethical banking but are reluctant to sign up for it themselves out of fear that it will leave them worse off. A Triodos current account comes with a £3 monthly fee and does not pay any interest, while a standard Co-operative current account doesn’t charge a monthly fee but doesn’t pay any interest either. There is scope for these banks to make their current account terms more generous in order to woo more cost-conscious consumers. Alternatively, they could communicate in a clearer way with potential customers about the financial benefits of their accounts. For example, Triodos could make the fact it doesn’t charge any hidden fees more of a selling point. It’s up to the industry to demonstrate that ethical banking can be a ‘win-win’, providing both strong financial and societal returns.

Measuring success

How can it be measured if the ethical banking industry is succeeding in “seizing the moment”? Monitoring the market share of ethical lenders is one way of gauging progress.

The Co-operative Bank and the Dutch lender Triodos are the two main ethical banks operating in the UK. The Co-operative Bank has in the region of 1.3 million UK current-account customers while Triodos has around 60,000. This means that they collectively account for only about 2% of the total number of active UK current accounts.

Around 12% of UK adults are either vegetarian or vegan and the proportion is predicted to rise to 25% by 2025. It is a far-from-perfect proxy, but it is possible to roughly equate vegetarians and vegans with ethically engaged consumers. On that basis, it appears that ethical banks are failing to reach a huge swathe of shoppers who’d be interested in their products. Therefore, a successful outcome for the UK’s responsible lenders would be to achieve a market share of 12% or higher.

Moving from 2% to 12% would require a substantial upheaval in behaviours and attitudes; but it’s an objective worth fighting for. A shift towards ethical banking would help wrestle the steering wheel of the economy away from a reckless and directionless driver and place it in the hands of a responsible one. A cliff edge, in the form of climate change, is looming. It could hardly be clearer that a change of direction is needed.



Eilidh Wagstaff

RI research analyst| Interests include corporate governance and business ethics