What Is Ethical Business Banking and How Does It Work

Ethical business banking is a type of banking that prioritizes social and environmental responsibility. It's not just about making a profit, but also about making a positive impact on the world.

Ethical business banking works by considering the long-term effects of financial decisions on the environment, employees, and the community. This approach is often referred to as impact investing.

By choosing an ethical bank, businesses can avoid supporting industries that harm the environment or exploit workers. For example, some banks have been known to fund fossil fuel projects, which contribute to climate change.

Ethical business banking encourages businesses to adopt sustainable practices and invest in initiatives that promote social justice.

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Ethical business banking is about more than just making a profit. It's about using business as a force for good.

Community development financial institutions (CDFIs) are a great example of this. They provide affordable banking and credit services to people in economically underserved areas and communities of color. Certified CDFIs can be eligible for various awards to help them grow.

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Transparency is a key principle of ethical banking. Ethical banks are more open about the areas they invest in and their internal business practices. This helps build trust with their customers and stakeholders.

Some industries are considered particularly harmful, and ethical banks will actively avoid investing in them. These include mining fossil fuels, weapons dealing, and animal testing.

Ethical banks also prioritize investing in the local community or third sector. They believe that business should be a force for good, and that's reflected in their investment decisions.

Reliance Bank is a great example of an ethical bank. They've chosen to follow the ethical position of their founding shareholder, The Salvation Army. This means they don't conduct business with sectors and activities that have a negative impact on people, the planet, or have negative ethics.

Here are some key principles that guide ethical banking:

Certifications provide external proof that a bank is serious about creating a positive impact and minimizing harm to people and the planet.

Several certifications can help banks demonstrate their commitment to social and environmental missions, including Certified B Corporation, Global Alliance for Banking on Values, and Fossil Free Certified.

To become a Certified B Corporation, a bank must score an 80 or higher on a 200-point test across five impact areas, including governance, workers, community, environment, and customers.

The Fossil Free Certified program requires banks to not finance fossil fuel companies or projects, now or in the future, and is run by the not-for-profit Bank Green.

Green America Certified banks must have clear policies around where customers' money may or may not be invested and must not fund certain industries, including weapons and fossil fuels.

Banks can also look for certifications like 1% for the Planet, Green America Certified, and Community Development Financial Institution, which demonstrate their commitment to social and environmental responsibility.

Only a handful of U.S. banks are Certified B Corps, with every B Corp having a legal obligation to consider the impact of their decisions, including social and environmental factors.

Certifications like Fossil Free Certified and Green America Certified require banks to undergo a rigorous assessment process to ensure they meet the required standards.

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There are three main types of socially responsible banking institutions to consider.

Banks are for-profit businesses that are licensed to hold and lend money, and can have a focus on big or small geographic areas. Some banks are available nationwide, even for people who bank exclusively online or through mobile apps.

Credit unions are not-for-profit equivalents to banks, but they have membership requirements to join, such as living in a certain area or agreeing to a small donation. Online-only credit unions also exist.

Fintechs, or neobanks, are internet-only financial technology companies that provide online banking websites and apps for a nationwide audience, and usually partner with a bank to provide federal deposit insurance.

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Community finance institutions are a vital part of the financial system, providing affordable banking and credit services to people in economically underserved areas and communities of color. They are also engines of economic development, as Pablo DeFilippi, executive vice president of not-for-profit Inclusiv, notes.

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There are over 1,400 community development financial institutions (CDFIs) in the US, managed by the CDFI Fund, which is part of the US Treasury. CDFIs can be certified and eligible for various awards to help them grow.

CDFIs can provide asset-building opportunities and financing for affordable housing and small businesses. They are not limited to banks, but also include loan and venture capital funds nationwide.

Here are some examples of community finance institutions:

Community finance institutions excel in community involvement, such as affordable housing projects, improving financial literacy, and giving local scholarships and sponsorships.

Credit unions are member-owned rather than shareholder-owned, which gives each member an equal vote in the decision-making process.

This unique ownership structure allows credit unions to focus on the needs of their members and the local community, rather than prioritizing profits for shareholders.

Credit unions put a higher focus on local community development than banks do, and most credit unions lend strictly to people and businesses in the community where the union is located.

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This approach allows credit unions to have a more positive impact on the communities they serve, as they are more invested in the local economy.

However, credit unions may not have the same potential to cause widespread change in business practices as ethical banks do, as they tend to focus on funding local businesses that are easier to monitor.

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Socially responsible banking practices prioritize social and environmental good over profit. These banks often prove their impact with external certifications or memberships that reflect their lending practices and community investments.

Amalgamated Bank is a great example of a socially responsible bank, committed to economic, social, racial, and environmental justice. They have a clear mission and operate in a way that aligns with their values.

Socially responsible banks can go by other names, such as values-based banks and ethical banks, all of which refer to having a focus on social and environmental justice. Some banks, like Atmos Financial, are fintechs that offer environmentally friendly banking options.

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These banks tend to avoid investing in industries that have a negative impact on people or the planet. For example, Reliance Bank excludes investments in sectors that cause harm to people, such as weapons dealing, and those that harm the environment, like fossil fuel energy.

Some socially responsible banks actively invest in the local community or third sector. For instance, Beneficial State Bank serves the triple-bottom-line of people, planet, and prosperity for all, prioritizing social justice and environmental sustainability.

Here are some certifications and networks that socially responsible banks often have:

These certifications and networks demonstrate a bank's commitment to socially responsible practices. By choosing a bank with these certifications, you can support their mission and values.

The environmental impact of banking practices is a pressing concern. Harmful banking models prioritize profit above all else, often causing harm to people and the planet.

Banks make money by lending out our deposit dollars, but many banks are pulling in profits by lending to harmful industries like fossil fuels, private prisons, factory farms, and weapons manufacturing. These industries are responsible for a significant portion of greenhouse gas emissions, with fossil fuels being the largest source.

The world's 60 biggest banks poured $6.9 trillion into the fossil fuel industry from 2015 through 2023, contributing to the climate crisis. In contrast, some banks are taking steps to reduce their environmental impact.

The Fossil Free Banking Alliance is an initiative that identifies and promotes retail banks that refuse to do business with the fossil fuel industry. The alliance currently consists of retail banks such as The Co-operative Bank, Beneficial State, and Areti Bank, which have voluntarily undergone the Fossil Free Certified process.

On average, the 11 largest banks in the U.S. lend over 19% of their portfolios to carbon-intensive industries. This highlights the need for more banks to adopt environmentally friendly practices.

Some banks are certified as B Corporations, which means they pledge to uphold high standards for social and environmental practices. To be certified, B Corp companies must score an 80 or higher on a 200-point test, and meet other requirements such as paying all workers a living wage.

Here are some key differences between certified B Corporations and other banks:

Certified B Corporations have a legal obligation to consider the impact of their decisions, including social and environmental factors, which protects their mission-driven identity from changes in leadership and pressure from shareholders. This approach is essential for creating a more sustainable banking industry.

Banks are making money by lending to industries that harm the planet, such as fossil fuels and factory farms. These industries are allowed to continue expanding, causing damage to the environment.

Predatory lending practices have taken wealth out of communities of color and other marginalized populations. Banks are concentrated in areas with high Black and Latino populations, like California, where payday lenders are 2.4 times more concentrated.

Banks prioritize profit over people and the planet, causing harm to both. This is not an inclusive or sustainable model, as it concentrates wealth in the hands of powerful business owners and megabanks.

Ethical banking alternatives exist, offering a brighter future for all. These alternatives prioritize people and the planet over profit, providing a more sustainable model.

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Beneficial State Bank serves the triple-bottom-line of people, planet, and prosperity for all, prioritizing social justice and environmental sustainability.

To align with their values, Ethical banks avoid investing in industries that have a negative impact on people or the planet. This includes mining fossil fuels, weapons dealing, gambling websites, and animal testing.

Ethical banks like Reliance Bank use a positive approach to guide their investment decisions, focusing on the impact they want to have. They clearly outline sectors and activities that don't fit with their values.

Here are some examples of sectors and activities that Reliance Bank excludes:

Reliance Bank has made a commitment to investing in the local community and third sector, with over 90% of new lending in 2023/2024 going to social impact sectors.

Ethical banks prioritize profit, but not at the expense of people or the planet. They aim to make a positive impact by lending to industries that promote sustainability and social good.

Most ethical banks follow a set of principles or goals to measure their impact on society and the environment. These principles are often referred to as Environmental, Social and Governance (ESG).

Ethical banks publish a Social Impact report each year, highlighting their achievements against set standards. For example, Reliance Bank's 2024 report showed that their funding helped 2,900 people with community centres and facilities, reduced hunger for 2,100 people, and reduced poverty for 545 people.

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To make investment decisions that align with their values, ethical banks avoid investing in industries that have a negative impact on people or the planet. For instance, Reliance Bank excludes sectors like mining fossil fuels, weapons dealing, and animal testing.

Here are some examples of industries that ethical banks may exclude:

Ethical banks like Reliance Bank align their policies to a set of principles or goals to improve the environment and society. These policies aim to measure a business's impact on society, the environment, and how transparent and accountable it is.

Reliance Bank publishes a Social Impact report each year, which shows how successful they have been against a set of standards that measure positive social impact. For example, in 2024, their funding helped 2,900 people with community centers and facilities, reduced hunger for 2,100 people, and reduced poverty for 545 people.

Ethical banks avoid investing in industries that have a negative impact on people or the planet. Reliance Bank uses a positive approach, guided by what it wants to do and the impact it wants to have. They exclude sectors and activities that don't fit with their values, including negative impact on people and the planet.

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Here are some examples of sectors and activities that Reliance Bank excludes:

Ethical banks can also invest in the local community or third sector, but not all do. Reliance Bank has invested in social impact sectors, with over 90% of new lending in 2023/2024 in these sectors, representing 70% of the total Commercial portfolio.

Banks have different approaches to ethics, with conventional banks focusing on internal concerns and ethical banks taking it a step further by applying external ethics.

Conventional banks tend to deal with mostly internal ethics, which means they prioritize their own policies and procedures.

Internal ethics can be thought of as a set of rules that guide the bank's behavior from within.

The contrast is clear when comparing conventional banks to ethical banks, which add to internal concerns by applying external ethics.

External ethics consider the broader impact of a bank's actions on society and the environment.

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External ethics play a significant role in ethical banking, as seen in the Global Alliance for Banking on Values (GABV), which requires member banks to adhere to six core principles, including a triple bottom line and transparency in governance.

Membership into GABV involves a scorecard that captures the organization's values, similar to B Corp certification. This ensures that member banks prioritize social and environmental values alongside financial performance.

GABV member banks must also be regulated directly by their government, have a minimum of $50 million in assets, and follow the six core principles. This network of banks aims to drive positive change through banking, with annual meetings and member-led initiatives to promote sustainability.

The Global Alliance for Banking on Values has over 60 member banks worldwide, with a third located in the US. These banks prioritize transparency, client-centered services, and long-term resiliency.

Some examples of external ethics in action include:

Ethical banks like Reliance Bank exclude investments in industries with negative impacts on people and the planet, such as tobacco, conflict minerals, and deforestation.

The Global Alliance for Banking on Values (GABV) is an independent network of over 60 banks worldwide that seeks to drive positive change through banking. Founded in 2009, GABV member banks must follow six core principles, including a triple bottom line, serving the real economy, and transparency in governance.

GABV member banks have a minimum of $50 million in assets and are regulated directly by their government. They also have a culture that promotes the bank's social and environmental values. This network has annual meetings and member-led initiatives, such as a climate change commitment in 2019 for each bank to track and monitor the carbon impact of their loans and investments.

Some notable characteristics of GABV member banks include:

These principles guide the decision-making process of GABV member banks, ensuring that they prioritize social and environmental values alongside financial returns.

External ethics are concerned with the wider ramifications of banks' actions. They look at the impacts that their business practices, such as who they loan to or invest in, will have on society and the environment.

Banks can use their products unethically, for example, by lending money to borrowers who use it for purposes that harm the environment or society. This can have far-reaching consequences, affecting not just the bank's reputation but also the well-being of people and the planet.

Some industries that Ethical banks avoid investing in include mining fossil fuels, weapons dealing, and animal testing. These activities can have a significant negative impact on the environment and society.

Here are some examples of industries that Reliance Bank excludes from its investments:

By avoiding these industries, Ethical banks like Reliance can promote more responsible and sustainable business practices. This approach can also help to create a positive impact on society and the environment.

The history of ethical business banking is a story of growing awareness and changing social demands. Since the 1990s, there has been a clearer movement towards considering social and environmental impact.

Mainstream financial banks have been feeling pressure from various groups, including NGOs, governments, and regulatory bodies, to adopt more responsible lending policies. This pressure has led to a shift in how banks approach their business practices.

As more is known about the effects of banking on the environment and society, banks are being held accountable for their actions.

Beneficial State Bank is leading the charge in ethical banking, striving to be the gold standard for responsible financial practices. They aim for at least 75% of their lending portfolio to have a positive impact on people and the planet.

Beneficial State Bank has made a commitment to avoid lending to harmful industries. They've also taken steps to hold themselves accountable through third-party certifications and memberships. One of their notable certifications is being a certified Community Development Financial Institution (CDFI).

As a certified CDFI, they're part of a network of financial institutions working to revitalize communities. They're not alone in this effort, as they're also a member of the Global Alliance for Banking on Values (GABV). This membership demonstrates their dedication to values-based banking.

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Beneficial State Bank's commitment to sustainability is evident in their Fossil-Free certification. This certification recognizes their efforts to reduce their carbon footprint and promote environmentally friendly practices. They're also one of the top-rated B Corporations in the world, a testament to their commitment to social and environmental responsibility.

Here's a rundown of some of Beneficial State Bank's notable certifications and memberships:

By choosing to bank with Beneficial State Bank, you're supporting a financial institution that's dedicated to making a positive impact.

The history of mainstream financial banks' relationship with corporate social responsibility and ethical investment is a story of gradual change.

Since the 1990s, a clearer movement has emerged, driven by changing social demands and growing awareness of the effects of banks' lending policies.

As more is known about the impact of banks, they've started to feel pressure from the public, NGOs, governments, and regulatory bodies to consider their social and environmental impact.

This pressure has led to a shift in the way banks operate, with many now taking steps to address their social and environmental responsibilities.

In the UK, it's essential to consider the impact of your money when choosing a bank. Your deposits don't just sit idle, they get invested in businesses and loans to charities.

Many people in the UK are unaware of how their money is being used. It's worth taking the time to research your bank's investments and ethos to ensure you're comfortable with their practices.

You can start by asking yourself some key questions. Does your bank lend to environmentally responsible businesses? Does it finance fossil fuels or invest in weapons? These are crucial factors to consider when making a decision.

Researching your bank's investments and ethos can be a straightforward process. You can ask yourself a few simple questions to get started: What do you know about your bank? Who does it lend to? Does it support ethical business practices?

Here are some key questions to consider when evaluating your bank's ethics:

By taking the time to research and understand your bank's practices, you can make an informed decision about where to put your money.