More people are considering the impact their money has. While you may pick up Fairtrade produce when grocery shopping, have you considered the money in your bank account?
According to MoneyAge, 52% of UK adults would review the ethical credential of a savings account before committing capital. The trend was more common among younger generations: 76% of 18- to 24-year-olds said they would take this step, compared to 24% of those aged over 65.
There are many different ways consumers may weigh up the ethics of a bank. While the money in your current or savings account essentially sits there until you need it, the bank will use deposits to invest. So, some ethical savers may consider how a bank uses their money, as well as things like how it treats employees.
However, the research also found that checking credentials didn’t always result in action.
Just a third of survey respondents currently hold their money in an ethical savings account. The response indicates that other factors, such as interest rates or accessibility to physical banks, play a significant role in where to bank.
What counts as an “ethical” bank?
One of the challenges of ethical banking is deciding which banks are “ethical” – there are lots of different ways to measure values and views about what it should mean.
It can also be time-consuming, as you may need to do a lot of research to understand if you consider a bank to be ethical.
However, some organisations such as Ethical Consumer rank and score financial institutions, , although using these metrics could limit your options. Out of the 31 banks the organisation scores, it recommends just four.
According to Ethical Consumer, there are two key things to look out for when choosing an ethical bank account.
- Is it lending ethically? This would involve looking at a bank’s lending policy, and seeing if there are restrictions on the projects it will finance.
- Does it pay its fair share of tax? Tax avoidance, such as banks operating in tax havens, has become a big issue in the financial sector.
Ethical Consumer also highlights red flags to avoid when choosing an ethical bank, including being opaque about investments, and financing climate change, such as through investing in oil and gas fields.
2 other areas to consider when weighing up ethical credentials
If you want to make your finances more ethical, it’s not just your current account you should consider – your investments and pensions have an impact too.
- Investments
Investing that considers ESG (ethical, social, and governance) issues is a growing trend. Some investors are considering how their decisions could affect the world and communities.
There are many different ways to incorporate ESG into your investment portfolio. You may choose to invest in companies that are leading the way in the renewables sector. Or you could choose to invest through one of the many available ESG funds.
One thing to keep in mind is that matching your values can be difficult. What one person considers to be a priority ESG topic can be very different to another’s. As a result, you may not agree with the stance a fund or company takes on all topics, so setting out what is most important to you can be useful.
Remember, investments can’t be guaranteed and your risk profile should inform decisions. When you’re considering ESG investment, it’s no different – it’s still essential that you choose investments that are appropriate for your circumstances.
- Pension
As your pension is usually invested, you may want to consider what stocks, shares and other assets you are invested in.
Much like your investment portfolio, you could change how your pension is invested to reflect ESG credentials.
Most pension providers offer a range of investment funds you can choose from when deciding how to invest your pension. Many now offer ESG or ethical options. Don’t simply choose the ESG pension fund though – do your research. Could switching to a different fund affect your retirement plans, and does it meet your risk profile?
Contact us to talk about balancing ethics with your goals
One of the challenges of considering ethics when making financial decisions is balancing it with your own goals. Whether you want to review your existing portfolio or start a pension that considers ESG issues, we could help. Please contact us to talk about your finances and values.
Please note:
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
