It’s no secret that many of our UK high street banks are supporting companies that are amongst the worst offenders in damaging the environment, and have done for years. It’s not just the environment (although climate change is a huge concern for many people right now). No, there are also companies who don’t pay their worker’s fair wages or pollute rivers through toxic dumping practices.
We really shouldn’t be surprised then at the rising popularity of ethical finance – both in the number of organisations who practice this, together with the people and companies who want to take out accounts with them.
What is ethical finance?
One of the tenets of ethical finance companies is to support companies that are ‘ethical’ i.e. they aren’t causing damage to the environment and, in turn, people or wildlife and society in general.
Just like mainstream financial institutions, ethical banks and lenders also want to earn money and make a profit, but they do so without sacrificing their principles or causing harm along the way. In other words, they make money in as ethical a way as possible.
But ethical finance isn’t just about investing in ‘ethical’ companies, it can also cover areas such as not charging interest on overdrawn accounts or loans and giving financial help to start-ups whose aim is to help less well-off communities, for example. Ethical institutions will also help projects which assist charities.
In other words, it is all about having a core set of principles ‘for the good of mankind and society’ and not deviating from them, even if that means making a poor profit or, worse, none at all.
In essence, ethical finance is:
- All about principles and ideals that the organisation stays true to in dealing with clients and their community. This extends to society in general.
- Not all organisations that comes under the ‘ethical’ banner have the same principles, i.e. some are more environmentally conscious, while others focus on a particular community. They all have practices in common though, such as being consistent with their ethics, screening clients and being involved in their community.
We’ll now go on to look at those concepts further:
Screening clients. This involves checking not just whether a company is financially sound but also looking at where it invests, in what spheres it operates and even how it treats its workers.
Community involvement. Companies that support their local neighbourhood and community could be in terms of funding an annual scholarship, putting up some money for affordable housing, sponsoring a local sports team or event such as an annual festival.
Being ethically consistent. An organisation that refuses to take on a client because that company doesn’t promote women to management or promoted roles in any form, cannot then have a senior team where all the directors are men. That would be hypocritical of the organisation.
The benefits of ethical finance
- It promotes transparency. This isn’t always something that is easy to demonstrate with main street financial institutions, with reasons for investing in particular companies not typically provided.
- Gives start-ups a chance. Ethical institutions are willing to give start-ups ‘with a conscience’ a chance because of their guiding principles. This may have been the start-ups only chance, having been refused by high street lenders for lack of experience, not having big enough profit projections etc.
- Promotes the idea of building community. All people belonging to the organsations have similar ideals and principles and help each other i.e. there is a belief in the ‘greater good,’ rather than the one individual.
Why being in an ethical institution benefits a company
From letting customers know you also care about issues that worry them to benefiting from good publicity and building a financial network of like-minded individuals, there are many benefits for a company signed up to an ethical bank. Here are some of the biggest benefits:
Customers know what they stand for
By having an ethical account, that company’s clients will know that they have similar ethical principles i.e. that they won’t deal with suppliers or other companies who, for example, get involved with practices that damage the environment or who don’t pay their staff fair wages or operate zero hours shifts.
They’re more likely to get good publicity
Companies which use unethical practices are likely to be reported to a news outlet at some point. This leads not only to bad publicity but also a poor reputation.
By the same token, companies that follow ethical standards are highlighted for the good they do and are more likely to win further customers who have similar principles. The COOP and its Fair Trade policies is a good example of this, where it supports workers in third world countries by paying them a fair wage for their labour.
Companies who have signed up to the Ethical Trading Initiative have vowed to ensure child labour isn’t used to produce goods that they sell. Big names include supermarket giants ASDA and ALDI as well as online retailer ASOS, Boden and Clarks.
@ethicaltrade: “Codes of labour practice can, and should, help create space for workers to bargain with management through trade unions. In several countries around the world we are supporting initiatives that raise workers’ awareness of their rights and helping create work cultures where workers can confidently negotiate with management about the issues that concern them.
“We also broker resolutions where there are major breaches of trade union rights by companies that supply our members.”
They won’t be accused of being ‘tax dodgers’
An investigation a couple of years ago uncovered details about many big UK and international companies which avoided paying tax by hiding money in off-shore accounts. By having an account, a company’s customers know it pays its fair share of tax.
Join an ethical financial institution
There are is a big movement supporting ethical business and Rizq is one of those organisations that is making strides in helping businesses be more ethical.
If you are interested in having an ethical account for your business, you can download the latest Rizq Business App and apply for your ethical account today.