Janice Warman looks at two ‘ethical’ banks that are drawing customers away from the shamed high-street giants
The credit crunch left most of our major banks in disarray, not to say disgrace. But it has been remarkably good for some of their smaller competitors. ‘Ethical banks’ might once have been dismissed by the high-street giants as a benignly unthreatening fringe, just as ethical share investment was considered by mainstream investors to be little more than an eccentric luxury for trustafarians. But in terms of cash savings, as opposed to equities, the opportunity cost of choosing to go ethical varies widely — and may actually be zero. As a result, savers disenchanted by City greed, or simply disconcerted by the near-collapse of big banks that had always seemed so permanent, have been switching in significant numbers towards alternative providers such as the Co-operative Bank and Triodos.
Triodos Bank — founded in Holland in 1980 — has increased its UK lending by almost a third in the first half of this year, to £305 million. At the Co-operative Bank, lending and deposit balances also increased strongly in the first half of this year, and bad debts were significantly lower than those of the major banks. In a Which? Money survey of 15,000 respondents, the Co-op Bank and its internet banking arm, Smile, were ranked in the top three for customer satisfaction; Triodos won this year’s Financial Times Sustainable Bank of the Year award. To have piled on new lending in the middle of the worst recession in living memory might look dangerous, but Triodos at least has the merit of being transparent about how it has done so: it is the only UK bank that offers an online tool which pinpoints every organisation it finances by keyword, location or sector.
Charles Middleton, UK managing director of Triodos, previously worked for Barclays in Botswana, India and the Caribbean. He points out how opaque most banks’ operations have become. ‘The subprime fiasco revealed that many banks, let alone their customers, simply didn’t know where the money they invested had ended up.’ Knowing where your money goes is ‘something the industry should aspire to’, he adds wryly. Triodos’s particular ambition, he says, is ‘to help people who are involved in environmental and social activities’. One example is Ecotricity — the wind-powered energy supplier favoured by Stella McCartney, David Miliband and actor Pete Postlethwaite, not to mention a couple of royals who can’t be named.
Founder and former New Age traveller Dale Vince was using small windmills to run the lights in his trailer until he decided he could make a bigger impact on the environment by starting an energy business. When he offered conventional banks the opportunity to finance it, ‘they looked at me as if some crazy person had popped in off the street’. But Triodos backed him; and when the panicky high street bank that does Ecotricity’s clearing pulled the plug on its credit for energy trading, Triodos stepped in. Yet, he points out, this was one of the banks the government had poured millions into on the condition that they continued to lend to small businesses.
Meanwhile, Ecotricity has 40,000 residential customers, and signs up another 1,000 or so homes each month. ‘People matter and outcomes matter, not the bottom line,’ Vince says. ‘Ethical business is the way business should look. Everything we do should be ethical.’ It’s a strategy that is certainly not doing his bottom line any harm: he featured in the Sunday Times Rich List last year with an estimated fortune of £85 million.
Triodos has also worked with Café Direct since its launch in 1989 after the collapse of the International Coffee Agreement left the livelihoods of millions of small coffee growers around the world in jeopardy. Founded by Oxfam and others charities, Café Direct bypasses intermediaries to buy coffee directly from growers in developing countries. It is the kind of brand that can be vulnerable in tough times as consumers switch to cheaper non- ethical products — but unlike many recession-hit companies, Café Direct is a saver, not a borrower. ‘When the credit crunch was at its worst last year, we had over £4 million on our balance sheet,’ says Richard Scanlon, Café Direct’s finance director. ‘We needed to know that the money was safe and secure.’
It’s clear that the relationship between Triodos and Café Direct is different to the usual one between bank and customer. The two businesses have a similar outlook, says Scanlon. ‘We know how the money is being invested. It’s not being packaged and bundled up. [Triodos] is transparent about where its money gets lent and we are transparent about the provenance of what we do.’ And not only that, Café Direct supplied the coffee and tea at Triodos’s annual shareholders meeting, which unlike most banks’ rather dreary events, has stalls around the room so you can see or sample what your money is supporting, from honey and wine to onshore wind and ‘aerobic digestion’.
The account holders are also an interesting bunch. One of them is the journalist and former presenter of the Money Programme, Moyra Bremner, who began by splitting her ISA money between a high-street bank’s ethical ISA and Triodos. No prizes for guessing which did better. ‘Triodos is one of the great British secrets of British banking,’ she says. ‘It’s the face of how banking should be in the future.’ Triodos’s next move is to raise a target of £82 million of new capital through a share issue in November. Two years ago it raised £45 million (beating its target of £20 million) from more than 5,000 investors.
The Co-op, founded in 1872, has become well known for its firm stance of excluding investments in tobacco, arms and alcohol and enterprises funded by oppressive regimes, either directly or through sovereign wealth funds. It also avoids fossil fuels, deforestation and chemical manufacture. Importantly, it asks its customers to decide which areas to avoid. ‘The system is open and democratic,’ says the Co-op’s ethical policy manager Barry Levin. ‘As new issues arise we get a fresh mandate from our customers.’ Recent additions include foxhunting, animal experimentation, landmines and biofuels that may cause global warming. And the Co-op is equally careful with its customers’ money, he adds. ‘We have a cautious approach to our lending. All our lending is funded by our deposits.’
Ethical stock market investment is often a trade-off between higher returns and a clearer conscience — and in recessionary times, ‘sin stocks’ such as those related to arms manufacturing, cheap booze and gambling are likely to form a ‘defensive’ chunk of any conventional portfolio. But for savings accounts, particularly when interest rates are at rock bottom, it’s a different matter. This week you could get 4.5 per cent on a three-year fixed deposit at the Co-op or 2.5 per cent at Triodos; that compares with 3.5 per cent at HSBC or 4.25 per cent at the last of the big building societies, Nationwide. For one-year money, the Co-op and HSBC were neck-and-neck at 3.25 per cent, with Nationwide at 3 per cent and Triodos trailing at 1.75 per cent.
So the choices are straightforward — but the credit crunch has introduced a new factor. Putting your money in smaller, more cautious banks that tell you precisely who they lend to and why, might in the long run turn out to be the safer choice as well as the one that happens to appeal to your conscience.
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