Current account Guides

Green and ethical banking: How eco-friendly are your finances?

Updated: Tuesday 17 January, 2012

By Martin Fagan

Being environmentally friendly is no longer just a fashionable trend, for many it’s a way of life. But how can you turn your finances green?

As demand for green and ethical financial products grows, more and more are becoming available. Our guide looks at some of the ways you can turn your finances various shades of green.

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• Green banking or ethical banking - What's the difference?
• Which is better?
• Green banking
• Ethical banking
• Does it pay to go green?
• Things to bear in mind...

Green banking or ethical banking - What's the difference?

There are two types of eco-friendly banking - green banking and ethical banking. The difference between the two is simple, but it often gets blurred. Green banking concerns the day-to-day management of your finances, in terms of being sent paper statements, your bank having a network of branches - using the energy it takes to run them - and "green" initiatives, such as the bank taking steps to reduce its carbon footprint.

In a nutshell, green banking means using all of the bank’s resources with responsibility and care, avoiding waste and giving priority to choices that take sustainability into account. A 2008 survey from Javelin Strategy & Research found that 57% of consumers expressed interest in green banking initiatives, and that one-third of consumers who turned off their paper statements said they did so in order to reduce their impact on the environment.

Ethical banking looks at the wider picture, with banks considering the social and environmental impact of their investments and loans. An ethical bank will seek to generate returns by investing in “virtuous” companies, for example, those involved in solar and wind power or organisations which are part of the Fairtrade foundation, or else businesses that promote or practice environmentally and socially conscious business strategies.

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Which is better?

When it comes to choosing an eco-friendly option for your savings, it really is a matter of personal opinion. While green banking will show that you are conscientious about "doing your bit" today, ethical banking will show that you are more concerned about the long-term impact of how your finances are used by the bank. If you want to be really eco-friendly, there's nothing to stop you banking and saving with both.

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Green banking

If a building society or bank deems itself to be "green" this generally means it operates a day-to-day business that is environmentally friendly. This might include measures such as using recycled paper for postal correspondence, powering branches with renewable energy, encouraging paperless statements or planting trees to reduce the company’s carbon footprint.

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Ethical banking

Banks and building societies make profit by lending your money to third parties, charging a rate of interest higher than they pay you on your savings. What we’re often unaware of, though, is to which companies our bank is lending.

For example, your money could be loaned to companies involved in the fur trade, arms dealers, or multi-national companies with poor environmental records, or otherwise guilty of human rights abuses in less-developed countries.

Functioning on the principle that funds are only invested into businesses that can prove that they won’t harm the environment, people, animals or wildlife, the idea behind ethical banking is that the money you deposit with your institution is only invested in pro-eco firms.

The first of its kind, in 1992, The Co-Operative Bank launched its ethical policy, available on its website, which provides transparency on which type of company they will and won’t lend to.

Learn more about The Co-Operative’s ethical policy

The Triodos Bank is one of Europe’s leading ethical banks. Established in the Netherlands in 1980, with a UK office following in 1995, Triodos offers an ethical banking service. Its mission statement says the bank’s aim is “to help create a society that promotes people’s quality of life and that has human dignity at its core. To enable individuals, institutions and businesses to use money more consciously in ways which benefit people and the environment, and promote sustainable development”.

Learn more about ethical banking with Triodos

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Does it pay to "go green"?

Aside from the fact that you’ll feel better knowing your investment isn’t helping prop up a repressive regime, burn the rainforest or slaughter whole species of wildlife, sometimes environmentally-friendly banking can be wallet-friendly as well, although none of the providers offer any real financial incentives to join them.

When it comes to investing your money, you have to decide which financial institutions and products best match your own feelings on what’s green or ethical. Choosing an account is a question of personal taste, depending on whether you’re more concerned about your own financial well-being, or the well-being of the environment.

If all the choices seem a bit overwhelming, there are plenty of ethical independent financial advisors that specialise in guiding you through the world of green banking. Ethical Futures is an Edinburgh-based firm that can provide extensive advice about green investments, and The Ethical Investment Co-Operative, which operates a network of offices around the UK, can also offer advice.

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Things to consider

When looking at an account or provider, before deciding which route to go down, it’s worth considering all the aspects. As well as being eco-friendly, you’ll want your money to do well. Many of the banks mentioned have reasonable rates of interest, so shop around for the deal that suits you best, in both a financial and ethical sense.

If you're adamant you want your finances to be invested in pro-eco firms, ethical banking is a good option, so you may wish to consider The Co-Operative Bank's range of savings accounts, current accounts and mortgages and decide on one that suits your needs.

Alternatively, you could put your finances into an account offering the highest interest rate, and then use the additional money you earn to fund your own "green" initiatives, such as a recycling scheme or changing your energy provider to one that offers an environmentally-friendly option or supplies electricity from renewable sources such as wind and solar.

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