What Is Ethical Banking? How To Make The Swap

21 July 2017
Have you ever considered pushing your banking affairs in a more ethical direction? Here’s our guide to ethical banking, and how to make the swap to it.

Many Australians want to live a more ethical life. Recycling, catching public transport, donating to charity – these are all things that many of us do in order to live a more ethical life.

But did you know that your financial affairs can be more or less ethical depending on who you bank with on a day-to-day basis? It all depends on where exactly your bank invests the money it controls on your behalf.

What is ethical banking?

Ethical banking is a bit of a vague term, but the generally accepted definition is that it encompasses any bank, financial institution, or system that operates based on values driven by environmental and social responsibility.

Just as with ethical or responsible investment, ethical banking can rely on negative screening (avoiding investment in companies that cause harm to the planet or people) or positive screening (actively investing in companies that do good for the planet or people).

In Australia, the definition of ethical banking tends to skew towards banks and institutions that do not invest, trade in, or have exposure to any of the following:

  • Fossil fuels and coal mining (or mining of precious minerals and other materials)
  • Weapons (guns or other arms)
  • Tobacco
  • Deforestation of the environment
  • Human exploitation or human rights abuses
  • Gambling
  • Pornography or sex slave trade
  • Animal cruelty

For the purposes of this article, we’ll be treating the above as a general guideline for what constitutes unethical practice. This is because ethics are typically subjective in the financial world, for two main reasons.

First, some ethical banking institutions or ethical super funds use both positive and negative screening to make sure they are only invested in the “good” causes. Meanwhile, other institutions with the same “ethical” label may not use any screening but merely integrate environmental, social, and governance (ESG) considerations into their investment strategy – which obviously has vastly different results.

Secondly, one person may find something objectionable that the next person does not. For example, some people specifically try to avoid fossil fuels investments, while others care more about finding animal cruelty-free banking options.

Who offers ethical banking in Australia?

It’s hard to say which institutions offer ‘ethical banking’ since it is a subjective term, but there are several banking institutions in Australia that were recently recognised as being a cut above the rest, and some that have been singled out as under-performing.

Banking institutions that were honoured in Ethisphere’s 2017 World’s Most Ethical Companies awards include the following:

  • Allstate Insurance (mortgage lender, car insurance, home insurance, farm insurance)
  • Arthur J Gallagher Insurance (US-based insurance company with branches in Australia)
  • Northern Trust (asset management)
  • Principal Financial Group (retirement solutions, insurance)
  • Teachers Mutual Bank (mortgage lender, bank accounts, credit cards, insurance)
  • TIAA (asset management, financial advice, investment solutions)
  • USAA (banking services, life insurance, health insurance, car insurance, home insurance, investments)

The Responsible Investment Association Australia has a member register on its website. While not every ethical bank or institution will be a member, it may be handy to check whether your current institution is currently listed there.

In 2016, Westpac won (for the ninth time in a row) the award for the most sustainable bank globally in the 2016 Dow Jones Sustainability Indices (DJSI) Review. CommBank ranked 4th in the G100 DJSI list of the world’s most sustainable corporations.

In terms of negative screening (avoiding the “bad guys”), check out the Market Forces website’s list of banks that invest in fossil fuels or are owned by institutions that invest in fossil fuels. They also list banks that have no current record of funding fossil fuels.

Watch this space

In 2017, the Turnbull Government announced they will be appointing a Financial Adviser Standards and Ethics Authority to investigate banking ethics in Australia.

Compare banking institutions for home loans, credit cards, savings and transaction accounts, and more on the Canstar website:

You can also learn more about ethical investing for your super fund here or compare super funds on the Canstar website:

How to switch to ethical banking

The good news is that if you want to shift from your current bank to a more ethically-minded institution – also known as divesting – it’s not a particularly hard process. Here’s how to do it.

Figure out whether your current bank is ethical or not

Figuring out where your bank or financial institution puts their money can be tricky in terms of figuring out whether or not they’re involved in every last problematic thing we’ve mentioned above. Check out the guides we’ve mentioned above, such as Ethisphere, the Responsible Investment Association Australia, and Market Forces.

If your current bank isn’t ethical, find one that is

The next step before you leave your current bank, is assessing the range of ethical banks and institutions available to you, and choosing one to move your everyday banking to.

When looking at a bank, you may want to consider:

  • Whether or not it has branches in your town or city, is online only, or is based somewhere else in the country
  • The values and ethical guidelines it follows and operates under
  • The quality of the banking products it offers (i.e. Does it offer competitive interest rates? What about the product features you need?)

You can compare a wide variety of products from different banking institutions on the Canstar website:

Open an account with your bank of choice

Once you’ve chosen a bank you want to move your everyday banking to, it’s time to get the product you need from them – maybe a transaction account, or other products such as savings accounts or credit cards.

Depending on the location of the bank in question, you’ll be able to do this online, over the phone, or in person at a branch.

Make sure you have your identity documents handy when you’re trying to sign up. For example, check our list of documentation you need to apply for a credit card, or documentation for applying for a home loan. We have an article all about how to switch banks when it comes to your home loan.

Once you’ve done that, it’s time for the finale!

Move your money, and tie up any loose ends

Now that you’ve got your shiny new ethical accounts and products provided by your ethical bank of choice, all you need to do is make the move. This means moving any savings you have across from your old bank accounts to your new ones, paying off any credit card balance you have on credit cards with your old bank, and closing the old accounts entirely!

Additionally, you’ll need to contact any companies that you have a direct debit arrangement with (such as your gym, streaming services like Spotify or Netflix, or Afterpay) and provide them with your updated bank details. That way, they won’t think you’ve ghosted them and cancel your account.

And there you go! Once your old accounts are closed and all your loose ends are tied up, you’ve officially divested, and can now proudly call yourself a customer of sustainable, responsible, ethical banking.

Congratulations! Now, have you considered the ethics of where your super or other assets are invested?

Learn more about ethical investing for your super fund here or compare super funds, investment products, and trading platforms on the Canstar website:

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