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The Axiom of Ethical Banking: Does Morality Really Matter in Business?


9 min read

How often do you think about the fate of your money in a savings account? As a socially conscious person, would you feel unsettled to realise that the bank you’ve entrusted your finances with invests it in crude oil extraction? That’s exactly what happened with one Australian bank in 2016 when it spent $10bn to fund fossil fuels, which was three and a half times the amount of money allocated to support clean energy. Back then, you wouldn’t feel comfortable placing your financial resources in a savings account of either ANZ or Commbank.

Accordingly, ethical business banking is where the future starts, serving as a bar for traditional banks to reach. Corporate social responsibility (CSR) and sustainability have ceased to function as part of a high-flown talk delivered by big tech players at conferences. Since the revelations of Greta Thunberg in 2018 outside the Swedish parliament, climate change has become an in-built concept inherent in the agendas of both governments and corporations. But what’s hidden behind the ethical banking meaning, any guesses? In a nutshell, such banks adhere to moral principles to manage their clients’ finances in a way that doesn’t facilitate the development of ‘unethical’ industries like tobacco, alcohol, fossil fuels, etc.

Other questions to consider while choosing an ethical banking institution include whether they treat staff well, prevent harassment, or ensure social equality. Therefore, businesses need to be more careful when selecting a bank to invest in because modern audiences are sensitive to unethical practices. To clarify, 20% of Millennials and almost 19% of Zoomers in the UK preferred only sustainable brands in 2019. Today these numbers are only growing, so it’s the right time and place to refresh your corporate approach to ethics. Now let’s find out what ethics has in store for your enterprise!

Key Features of an Ethical Bank

Specifically, ethical investment banking presupposes not only funding environmentally-friendly industries but also giving back to the communities. Thus, a socially responsible institution organises grants or scholarships on a par with other activities allowing local people to bring back their investments in the bank. Although there’s no specific ethical banking definition, one thing remains clear for certain — ethics is a Schrödinger’s cat in your Christmas box. More specifically, this concept can either revolutionise or impede your commercial activity, depending on the approach. Yet, if you leave it closed, you’ll never know.

In practice, ethical banking drives the future of business, as more demographic segments are becoming ready to pay a higher price for eco-friendly products as well as services provided by sustainable brands. In 2018, 90% of surveyed American respondents reported that they’d disregard a business that didn’t conduct a socially responsible activity. As a rule, most modern ethical banks rely on the following pillars: client screening and community involvement that work in conjunction with external and internal ethics. However, everything has to be consistent to smooth out all the processes and not get caught up in an unethical situation. Moreover, ethics is a strong tool not only in banking. Ready to know how you can leverage it to power your business? Then read on!

New Perks for Businesses Turning to the Ethical Side

Consequently, what new features does the implementation of corporate ethics offer for your commercial activity?

  1. Customer loyalty. In the present-day world of enterprises, the audience is the primary asset. But there’s one thing. It comes with loyalty or the absence thereof. By sticking to CSR practices, you automatically win a considerable number of young customers who treasure sustainability more than other product characteristics. According to Statista, global businesses spent $126bn in 2019 to enhance customer loyalty and its management. Isn’t it a noteworthy argument to start building customer loyalty through ethics?
  2. Flourishing corporate culture and work environment. If all stakeholders behave ethically, it stimulates the entire community to be responsible as well. By choosing an ethical bank, cherry-picking moral partners, and behaving accordingly, you’ll maximise the odds of hiring and retaining good employees. The 2018 survey reported that 72% of respondents nourished and respected the culture of ethics as a corporate objective.
  3. No issues with law, reputation, and legal proceedings. Complying with ethical standards may come in handy to stay afloat and remain in the clear for a long time. Customers feel it, and some of them will undoubtedly pay more for an ethical product. Just look at the statistics: in 2017, 34% of the UK Zoomers were ready to overpay 20% or even more if a service or product was ethical. Nowadays, the audience is far larger.

How Developed Is an Ethical Bank Idea to Rely on It Now?

If dissected, the entire ethical banking paradigm comprises such constituents as CSR, impact investment, ethical investment, social enterprise, ethical consumerism, fair trade, and so forth. When examined apart from one another, each component serves as a sufficiently developed concept ready to emerge as part of your business equipment. Though the international movement towards sustainable development was significantly spurred by Greta Thunberg in 2018, it all had begun in the early 1990s. Consequently, ethical banking has had enough time to blossom like a good wine.

There’s a myth travelling across the Internet spreading rumours that if you rely on an ethical bank, you’ll need to be prepared for higher fees or other compromises. Experts like, for instance, CEO of the Responsible Investment Association Australasia, Simon O’Connor, points out that this claim bears no scrutiny and has no factual basis. In this respect, you should be careful before deciding to invest in a certain banking institution or place your money in a savings account.

Usually, banks own official websites where they post information about their activities. So, check if these hands aren’t stained with vice before putting your finances in them. Other resources to monitor banks’ decision-making and keep fingers on the pulse of their financial streams are Responsible Returns, Don’t Bank on the Bomb, as well as Market Forces.

Principal Differences between Ethical and Traditional Banks

Simply put, ethical banks try to steer clear of legal troubles, unlawful businesses, and immoral investments. Still, it doesn’t imply that all traditional banks, which currently can’t be referred to as ethical for some reason, avail themselves of illegal businesses or invest in addictive substances. The primary difference lies in positioning, the establishment of objectives as well as consistency of both internal and external ethics.

Fundamentally, following external ethics encompasses supporting good businesses, investing in environmentally friendly industries, bringing back into communities, etc. Subsequently, internal ethics is when banks treat their employees well, facilitate a flourishing positive work environment, and bet on positive communication with clients. To sum up, here are a few most common features of an ethical bank for you to quickly spot:

  • Making use of applied ethics;
  • Leading a transparent public activity;
  • Participating in the life of local communities;
  • Focusing on positive working environments;
  • Investing in sustainable industries.

Conversely, a traditional bank would only offer:

  • Exclusively economic benefits and no social aspect;
  • No publicly visible information about projects, activities, etc;
  • Investing in tobacco, alcohol, fossil fuel, and other unethical business sectors.

What Are the Ethical Issues in Banking that Matter for Entrepreneurs?

So, what are the examples of ethical dilemmas in banking? No wonder, it’s always about security vs. privacy, profit vs. ethics, short-term vs. long-term benefits, etc. Finding a workable compromise entails better business results. That’s why not all banks and businesses stumble upon dilemmas whether to pursue ethical decision-making or give up on customer loyalty to focus on pure profit. As already evident from the above discussion, the examples of ethical issues in banking include questions where and how much to invest as well as in what way to treat partners, clients, or competitors.

And yet does everything associated with ethical banking matter for entrepreneurs? No, so let’s stop at aspects of ethics that are relevant for an IT-based enterprise:

  1. Investment prospects, platforms, and overall management;
  2. Borders of what a business can and can’t do within its scope of expertise;
  3. Corporate social responsibility and sustainability;
  4. Attitude towards customers and partners;
  5. Choice of stakeholders with whom to negotiate and share assets.

Also, mind that ethical behaviour isn’t the same as a legal one, and moral duty may sometimes collide with corporate needs. Better stick to the balance. Always remember that more than 70% of employees prefer to be paid less but work for an organisation whose activity is clean and ethical.

Can Ethical Influence Become a Sustainable Business Tool?

As more brands are becoming sustainable and socially responsible, the very idea of business ethics is rising in popularity. Merely take a look at IKEA, Nike, Apple, Amazon, Google, Starbucks, and many more. Each company features a broad spectrum of principal differences in market positioning, pricing policy, business model, and other stuff, but they all share one essential outlook — ethical influence. All right, this may sound like a theory. What’s in practice?

Running an ethical business means ensuring encouraging working environments, treating all genders equally, sticking to diversity, paying a fair wage, practising CSR, minding sustainability, treating employees and customers with respect, etc. Now that you know the examples of ethical companies, are you ready to peep into the world of corporate cases notorious for immoral attitudes towards stakeholders?

  1. Equifax. When hackers stole the data of 143m consumers loyal to Equifax, it turned out that their systems had been severely outdated. A good example of how one shouldn’t make corporate decisions. Furthermore, not only did the company disregard the security system’s update but they also resolved not to report the data breach.
  2. Activision Blizzard. It’s the case when one person, CEO Bobby Kotick, is responsible for the lost brand’s reputation. According to news, Kotick is accused of sexual misconduct and discrimination, so many company leaders now want him to be removed from the Board of the Coca-Cola Company, let alone his dismissal at Activision Blizzard.
  3. HSBC. Without one roaring scandal yet with multiple relatively small ones, HSBC is considered one of the most unethical banks in the UK. As The Guardian reported, the bank was questioned regarding the disclosure of alleged money laundering to monitors. Similarly, HSBC funded the Amazon crude oil extraction and supported Chinese oppression in Hong Kong.

The Principles of Ethical Influence: Rules to Abide

  1. Mitigate, eliminate, and report any sign of aggression, harassment, or discrimination in the workplace;
  2. Don’t get involved in questionable politics, especially the international one;
  3. Promote transparency, sustainability, and thriving systems in your workplace;
  4. Comply with a generally accepted Code of Conduct;
  5. Remember the principles of ethical influence, including reciprocation, authority, consistency, consensus, scarcity, and liking.

How to Deal with Ethical Investment Processes?

What ethical investment maintains is that a person willing to put a certain sum of money into something should identify whether the result won’t cause any harm in the long run. In contrast, such an investor aims to bring social impact while expecting either an average or above-average return. Focusing on pure profit without considering social impact is not about ethical investment.

The examples of where to invest ethically are Socially Responsible Investing Funds (SRI), Environmental, Social, and Governance Funds (ESG), Impact Funds, Faith-Based Funds, and the like. Therefore, bringing your money into healthcare, environmentally friendly companies, big tech that work on socially helpful solutions, and non-profit organisations may also serve as good investment options.

What Is the Most Ethical Bank Today?

Is there any best ethical bank? Not one, actually. Here’s the list of top ethical banks (not full, of course) in the world:

  1. Aspiration. As a banking institution providing green services, Aspiration supports sustainable investment, allocates 1% for the planet, and gives back to the community. A dream, huh? Though chiefly based in the US, it operates internationally but only in an online mode. It’s a good option to match your values with a fintech company.
  2. Amalgamated Bank. It’s the first union-owned bank in history that morphed into a publicly-traded company. Headquartered in New York City, US, Amalgamated Bank supports workers’ rights, gives back to the community, and facilitates the spread of sustainable as well as eco-friendly products.
  3. Triodos Bank. The first bank on the list to operate primarily in the UK. Triodos Bank promotes a positive society and flourishing environment. The institution is a Certified B Corp thanks to its emphasis on culture, people, and climate.

Has Ethics Become a Business Concept?

Since sustainability is the global agenda, ethics, as its companion, has also become embedded in the corporate culture of many companies worldwide. What’s more curious, to become socially responsible and ethical, you don’t need to invest billions, reallocate resources dramatically, hire a new department, or develop a novel architecture. It’s about simple words and actions.

If you need help with finding your ethics model, choosing investment opportunities, or need a new fintech system to be arranged for you, don’t be in two minds. Contact DashDevs, and we’ll do our best to provide first-rate assistance!

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