With just shy of 85,000 customers, it’s very far from the biggest bank. Nor is it rich: its 2021 profit of £7.8m would barely cover the reward package of a high-street bank’s CEO.
Yet Bristol-based challenger Triodos Bank UK, the embodiment of an upsurge in consumer demand for ethical banking, is making the incumbents look like dinosaurs – and not the peaceable herbivorous kind. Since its establishment in 1995, it has become a star player in a national “ethical money sector” that the Ethical Consumer Research Association valued at £41.1bn in 2018.
If scandals such as the Panama, Paradise and Pandora papers hadn’t already done enough to highlight the less-than-ethical actions of many large financial institutions, the recent freezing of billions of pounds in Russian oligarchs’ UK bank accounts has rammed the point home. So says Bevis Watts, CEO of the business, which is a subsidiary of 42-year-old Dutch plc Triodos Bank.
“The train had already left the station before the Ukraine conflict,” he observes. “It is good that all this stuff is being exposed, because now we can have a proper public debate about where our money should sit and how it should be used.”
By Watts’ own admission, ‘ethical banking’ is a woolly term (he prefers ‘sustainable’). It can range from a ban on financing ethically dubious industries to the active support of low-carbon enterprises, but one common factor is the notion that “money is not neutral”, to use one of his favourite phrases. Banks’ choices about whom they accept money from and how they use those funds have profound implications – for the environment, for democracy and for everyday customers.
Consider Triodos Bank UK’s loan book, for instance. Included in last year’s £1.13bn deal list is a roll-out of charging points for electric cars at British supermarkets; the UK’s inaugural inter-city all-electric coach service (between Edinburgh and Dundee); and its first ever net-zero housing development for private sale.
Compare that with the £13bn invested by the nation’s five largest banks – HSBC, Barclays, Lloyds Banking Group, NatWest and Standard Chartered – in carbon-intensive oil and gas projects in 2021, according to research by the ShareAction charity.
This contrast points to another principle that Triodos and its ethical banking peers share: the need to balance the immediate interests of their customers against the longer-term welfare of the environment and wider society. If that sounds a little tree-huggy, that’s because it is, but it also makes commercial sense, Watts stresses.
His argument in a nutshell: “What is the point of saving for a pension if you’re creating a world that you won’t want to live in?”
The Triodos philosophy is catching on: more and more banks with explicit ethical and/or ecological mandates are emerging. Many belong to the Global Alliance for Banking on Values, an independent network that has 66 members with more than £160bn-worth of assets under management.
The segment’s growth is no accident. Public attitudes are certainly changing, but successful marketing campaigns such as Switch It and Bank.Green have also given consumers the impetus to change their banks.
In an industry awash with ethical claims and counter-claims, how can people be sure that Triodos is the real deal?
It’s easy, Watts says: visit the Triodos website and call it up. Information on every loan that the bank issues, every investment it makes and every policy it follows is in the public domain for anyone to see.
Such radical transparency not only contrasts with the opaqueness of most conventional banks; it also eradicates the “completely helpless” feeling that many people experience when they consider how a bank might be using their money, he says, adding: “The level of transparency we provide really brings home the power you can have in knowing where your money’s going.”
Watts points to the bank’s mobile app, which has a GPS-based location system that highlights any loans that Triodos has issued in the user’s immediate locality.
Such openness is not a one-way affair either. On the asset management side of its business, Triodos is continually demanding information from its investees.
Watts estimates that “only about 25% of investors in the asset management industry are active. The rest are passive. Active investors will actually engage with companies’ management teams and scrutinise them on the promises they make.”
He would like to see all other UK banks follow Triodos’s lead in publishing the basic details of all their new loans and investments “as a minimum”.
Is there any evidence that the burgeoning ethical banking market has started to change how the whole industry operates?
Just because his cheque book is relatively small, it doesn’t mean that Watts and other advocates of sustainable finance have no influence on the industry. While he freely admits that “we aren’t going be the equivalent of one of the big four”, he says that a “big part of challenging the wider sector is to change how it thinks and operates. We want to be a bigger part of the conversation, which we’ve successfully achieved in recent years.”
One example of this has been the bank’s involvement in discussions in Brussels about the so-called EU sustainable finance taxonomy – in essence, a rulebook defining what products and practices can be classified as environmental, social and governance (ESG) investments.
Watts can point to numerous small victories for ethical banking, such as the UK government’s pledge last November to oblige all large financial institutions to adopt net-zero emissions strategies.
The banking industry has tended to be slow to clean up its act unless compelled to do so. Nonetheless, Watts is confident that further positive changes will come. Why? For the “plain and simple” reason that any bank focused purely on short-term profit is sure to fare poorly in the longer term as the effects of climate change and environmental degradation worsen.
As he warns: “Unless you’re thinking now about whom you’re financing and whether they are resilient, I think you’ll be in for a tough time.”