Money & Ethics: A hole in the wall machine with principles

Banks with a social conscience are few and far between, but they can still be found, writes Iain Morse

ANYONE who has searched in vain for a cashpoint machine on a wet Friday night knows that personal banking is as much about convenience as anything else. Instant access, credit, loans, cheque guarantee cards, overdrafts - it's difficult to imagine life without them.

The cost of this convenience is met partly from ruthless competition, staff redundancies, cutting overheads, the elimination of high street branches, all part of a trend to globalisation among large, retail banks. Profits, when they come, can be at the expense of human beings all over the world, or the environment in which we live.

Participating in this system as a consumer seems unavoidable, but raises difficult issues for the ethically minded. While selecting ethical investments on the basis of activities the banks avoid or support is relatively clear cut, the same cannot be said when selecting personal banking facilities.

The main reason for this lies in the way that our banking system has evolved. Large clearing banks now make most of their profits not from the services they offer to consumers but by investing and lending money directly to large companies or through the international money markets.

Faced with this, an ethically minded saver will want to question just where and to whom a particular bank lends money. But answers are difficult to obtain. Banks defend the confidentiality of their commercial operations for competitive reasons. This makes selecting a bank by the areas of business it avoids almost impossible.

Much of the available information about which banks do what comes indirectly, through annual reports issued by public companies. For example, these show that Lloyds-TSB has acted as bankers to British American Tobacco (BAT), and provided banking services to British Aerospace, the UK's largest defence contractor.

The "big four" clearing banks - Lloyds, Barclays, Midland and NatWest are all involved in the provision of third world debt. Over the last three years, the Lloyds and Midland Boycott (Lamb) has put direct pressure on both banks over this issue. Account holders can join boycotts of this kind, penalising banks by moving their custom, but they will need to own shares in a bank and go to its AGM if they want to ask management difficult questions.

A handful of banks stand out as applying some ethical or environmental principles to their business activities. Among the larger clearing banks, Abbey National does not lend direct to companies, two-thirds of its business is UK based, and much of this is in domestic mortgages.

The far smaller Triodos Bank offers a range of savings accounts, and reinvests only in organisations and businesses with social and environmental objectives. Examples include the "North South Plan", investment into fair-trade projects such as Cafedirect, which buys coffee from farmers' co-operatives at 10 per cent above the market price, reselling through UK supermarkets. Rates on this account start at 4 per cent for deposits of pounds 300-plus, on 90 days' notice of withdrawal.

But while Triodos offers a range of accounts, including Tessas, it does not claim to provide a full range of personal banking services; it has no credit or cheque card facility, and account withdrawals must be made by cheque.

The Co-operative Bank more closely matches services offered by high street clearing banks, while maintaining an ethical stance in its conduct of business. According to Chris Smith, a spokesman: "About 40 per cent of our new account holders say they come to us because of our ethical stance."

The bank's ethical guidelines cover 13 positive and negative criteria, including avoidance of arms and tobacco manufacture, while its annual reports put emphasis on a commitment to environment and social issues. The bank also offers a full range of personal banking services at competitive rates and charges.

Among these are a range of "donation" credit cards, set up to benefit organisations such as Amnesty International and Greenpeace. Most of these charge a rate of monthly interest between 0.25 and 0.5 per cent higher than the bank's own card, with the excess going to the charity in question.

Mutually-owned building societies offer an alternative to banks, which ethically minded savers should find broadly acceptable. The 1997 Building Society Act specifies that no less than 75 per cent of a society's business assets must be held in domestic property, usually in the form of mortgages.

In theory, the remaining 25 per cent could be invested into companies or international money markets. But John Barker, of Bradford & Bingley, reckons: "Most of the business-to-business lending by mutuals goes to housing associations, which are community-friendly by their nature." Be- cause a mutual is owned by its members, issues of this kind can be raised and voted on at annual members' meetings.

The 1997 Act also enabled them to offer the same range of financial products and services as banks, such as credit cards, loans for purposes other than mortgages, foreign currency, travel and home insurance and instant access accounts. Most societies might pass a "negative screening" test - unless you object to their involvement in the housing market. But only two stand out for following "positive" criteria on lending.

The Ecology Building Society offers savings accounts with money reinvested into ecological projects and lent for mortgages involving the renovation of derelict property. Meanwhile, the Catholic Building Society focuses on offering mortgages to first-time buyers, often women on low incomes.

Rob Harrison, editor of the Ethical Investor magazine, argues that there are deeper reasons for choosing a mutual against a bank: "They are our last line of defence against the final globalisation of banking and credit. The multinational banks replacing them are impossible to control." The growing choice these ethical institutions offer make it easier to assert customer priorities against the global banking system.

Triodos Bank, 0500 008 720; Co-operative Bank, 0161 832 3456; Ecology BS, 0345 697758; Catholic BS, 0171 222 6736; Ethical Consumer Magazine, 0161 237 1630