Ethical Finance Options

Posted on: 21 May 2008 by Gareth Hargreaves

Have you ever thought about your social responsibility when deciding where to invest?

Ethical financial products are becoming increasingly popular among consumers who are becoming more aware of the effects of their choices.

The term 'ethical banking' can be hard to define, as it is often interpreted in different ways. It usually refers to a certain level of transparency in terms of the company's practices as well as involving a social or environmental aim.

'Ethical' banks, such as Co-operative Bank, Shared Interest and Triodos Bank must adhere to the same rules and regulations as traditional banks. Like most banks, they offer a range of financial products such as current and savings accounts, credit cards and loans. However, these organisations claim to be more concerned about the ethical implications of their investment and loan portfolios than other financial organisations.

The attitude of Co-operative Bank and its subsidiary Smile toward ethical investment is clearly at the heart of its operations. This includes not investing in the development of genetically modified organisms and considering animal welfare and the environment. They offset the carbon emissions of their business by planting trees and investing in advancements in green technologies, and refuse to do business with companies or investors which have unethical practices such as being associated with the arms trade or any practice which violates human rights.

"Ethical banking has grown in popularity in recent years as consumers become more determined to make socially informed choices in terms of where they keep their cash," according to James Caldwell, director of Fair Investment Company.

Some consumers use charity credit cards as a way of donating money to environmental causes. Providers usually make an initial donation upon the opening of the account or on its first use, followed by further donations of a certain percentage of each subsequent purchase made with the card.

One such card is a new one offered by The Co-operative Bank called the Think card, which saves half an acre of Brazilian rainforest the first time the card is used, and makes subsequent donations to the charity Cool Earth of 25p per £100 spent on the card.

"There are many ways in which the consumer can do their bit against the threat of climate change," explains Caldwell.

There are a number of simple things that people can do to reduce the footprint they leave behind, such as opting for paperless billing, and switching to bank accounts which do not issue paper statements.

There is a growing number of green energy providers, such as Good Energy and Green Energy, in addition to traditional energy providers which have introduced the option to consumers of offsetting their emissions. Green energy can help to lower the carbon footprint left behind from heating a home or boiling the kettle, by offsetting the emissions created when generating gas and electricity. Some companies offset a certain proportion of the emissions and others offset 100 per cent, by investing in research to further the reduction of carbon emissions and sourcing energy by environmentally friendly methods such as wind and solar power.

Insurance companies, such as ibuyeco, are also realising that consumers want to do their bit to reduce their impact, so are now offering eco-friendly car insurance which offsets either part or all of the emissions from the customer's car by investing in green alternatives and planting trees.

"Providers of green products such as car insurance and domestic energy sometimes charge more in order to cover the cost, so it is up to the consumer to decide," says Caldwell, "but it is still possible to find competitive deals on green products without it costing the earth.

"There are environmental gains to be made with ethical investment products, for socially responsible investors who wish to avoid companies that have a negative impact on the environment, or those who see the opportunity for growth in companies which practice ethical investment management or stand to benefit from developments in this area."

One example of an ethical investment provider is Legal and General, who provide an ethical investment fund which excludes businesses in the stock market which don't meet certain ethical criteria, allowing investors to put their money in the stock market without compromising their principals.

"As part of their investment or pension portfolios, investors might like to consider funds that invest in companies that are serious about ethical issues such as climate change," suggests Caldwell.

If you are already committed to buying Fairtrade products on a daily basis, you could also think about your ethical stance on personal finance. 

"Although banking habits are not always at the forefront of people's minds when Fair Trade is mentioned, some banks and building societies are looking to make a difference," says Caldwell.

In terms of Fair Trade, the Co-Op Bank is invests in and supports "sustainable and successful businesses that serve a social purpose''. This includes community finance initiatives through which funds are placed into a central pot to be used by various social enterprises.

Meanwhile, Triodos has introduced a Fairtrade saver account which directly contributes to the Fairtrade Foundation. Savings deposited are used to support fair trade enterprises in the UK such as Cafédirect and Equal Exchange, and the bank donates the equivalent of 0.25 per cent of the average balance held in the account each year to The Fairtrade Foundation.

However it's not only in buying that you can contribute - borrowing can also be ethical; focused more specifically on the environment, Abbey has introduced a Green Loan so that for every accepted application, it plants five trees in the UK in collaboration with Tree Appeal.

Building societies could also be seen as a viable alternative to ethical banking, as they can offer greater transparency. Norwich and Peterborough Building Society was the first lender to introduce a 'green' mortgage, back in 1998, and is involved in various community sponsorship schemes. Meanwhile, Ecology Building Society promotes sustainability through its mortgage lending and offers various ethical savings accounts.

"Ethical accounts don't always promise to pay the highest rates of interest," says Caldwell, "and you may not get the lowest rates with a green mortgage, but they can allow people to have a direct impact on people's lives or on the environment."

Web Links

Fair Investment Company offers more information about ethical banking, and free comparison services which allow the consumer to compare providers of a range of financial products and services, including bank accounts, investments, credit cards, insurance products and energy, to find the products which best meet their ethical requirements.

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