Ethical, Banking, Explained, Companies, Finance
Photo Credit: kenteegardin/Flickr

Ethical Banking Explained

The Upvoters that cared:
This is a community post, untouched by our editors.

An ‘ethical’ bank is one that takes care when considering where it invests its money, as well as being concerned about the social and/or environmental impacts of its business operation. Some banks began to operate more ‘ethically’ as financial sectors attempted to be more responsible in the way they work.

So, what does ethical banking mean to the customer? How are you affected by a bank’s decision to operate ethically, or not? This article goes through some of the basics of ethical banking, and how it affects you.

Why is there a need for ethical banking?

The problem with banking ethics arises when we consider where banks actually invest their money. Banks work by taking your money and lending it to another party at a higher interest.

However, this starts getting murky once you consider who they may be lending your money to. It may involve parties that you don’t ethically agree with i.e. the fur trade, or companies with atrocious environmental impact records. Ethical banking exists to prevent your money from going to these places.

How does ethical banking work?

Firstly, you should inquire with your bank as to whether they do have an ethical policy of some kind in place. If they don’t, and ethics in banking is something that you care about, you should consider switching to a bank that does have an ethical policy.

Usually, the bank’s ethical policy will make sure that the bank upholds its customers’ stances on various different issues, whether they involve human rights or environmental issues.

If you feel that the bank is lending its money to an unethical party, you can ask to speak to a representative of the bank about this after putting it in writing. If the bank is serious about its ethical policy, they will look into the matter and keep you notified of any changes in the way that they deal with the parties in question.

How is ethical banking monitored?

Banks that adopt an ethical policy will usually be independently audited each year to review where the money is going and if the parties that borrow the money are ethical in their business practice.

If the bank is very robust in the way it carries out its ethical policy, you should be able to find published reports on their websites, with the results of the annual audits, the conclusions arrived at, and ideas for future direction.