Ethical Business Banking

Choosing an ethical business bank account

We reveal which banks are the most ethical providers of current accounts for small businesses, charities and not-for-profit organisations.

• The score-table above compares providers of business current accounts.
• Many banks listed both here and in our consumer savings accounts guide also offer business savings accounts.
• Most banks and one major building society provide business current accounts, and these tend to come with monthly fees and transaction charges.
• Some banks also offer special accounts for charities and not-for-profit community organisations, and  you can find details of those below. 
• We also look at the issue of ‘de-risking’ which has led to charities and campaign organisations losing access to account.

Making an ethical impact with your business banking

Most banks use your money to make investments. Many banks invest in fossil fuels, weapons or other unethical practices which might contradict your own company ethos such as animal exploitation. There are also question marks around excessive pay at the top, and gender and ethnic minority pay gaps.

But there are others that won't invest in these areas and maybe a better fit for your values and will be less of a reputational risk. With increasing public awareness of banks and their unethical practices, who you bank with may be more of a consideration to your customers than it used to be.

Our ethical rankings for 30 business bank accounts in the score table above include 3 that are solid ethical choices across all categories, 22 that have issues, and 5 that should definitely be avoided. Even some of the better banks have issues, in particular with environmental and climate change policies, transparency and excessive pay, so it is worth looking at their scores in detail.

With a gap between the top scorer on 14.5 and the bottom scorer on 1.5 (out of 20), moving your business or charity account to a more ethical provider is a quick way to have an immediate ethical impact.

High Street business banking

For all their neglect of the small business sector over the years, the big banks remain dominant in the provision of business accounts in the UK. According to market research, Barclays, Santander, Lloyds Banking Group, HSBC, and NatWest hold the majority of the accounts of small businesses.

This is hardly surprising – switching is rare, physical branches are still important for financial advice, and many business directors prefer the ease of using the same bank for business as they do for personal finances.

Most of the mainstream banks score badly in our ratings due to their many bad financial practices. Unethical financial practices are most definitely the norm in the UK banking sector.

Excessive directors’ pay and tax avoidance are still rife in the UK banking sector. Furthermore, the big banks get marked down across most categories because of their investment practices. Far too many banks lend money to unethical corporations and a lack of transparency doesn’t help them take positive steps forward.

Barclays and HSBC stand out, but for the wrong reasons – they are two of the world’s leading providers of fossil fuel finance. 

Ethical alternatives for business banking

Of the more traditional 'ethical' banks:

Triodos Bank has strong environmental reporting and ethical policies but is only available to existing customers.

The Co-operative Bank still has a strong, wide-ranging and customer-led ethical policy. It also retains a small but diminishing branch network. There is an independent Customer Union for Ethical Banking that campaigns to keep the bank ethical and return it to co-operative ownership.

Cumberland Building Society, now the only major building society to offer business current accounts, keeps its business practices simple by sticking to mortgage lending. Plus, it is mutually owned which helps to avoid the pressures of profit-hungry shareholders. It offers business current accounts to customers living in Cumbria, South West Scotland, West Northumberland and North Lancashire.

Unity Trust Bank performs well and has a clear and well-established commitment to providing banking services that have a positive social impact. 

CAF Bank (Charities Aid Foundation) is a charitable organisation and for providing services exclusively to not-for-profits. However the investment funds that it offers for charity investors are problematic. (See 'Company behind the brand' at the bottom of thepage.)

Challenger Banks

As a condition of its government bail-out, RBS has been tasked with boosting competition in the SME business banking sector. A pot of £425 million was used to support challenger banks to increase and improve their offerings for small businesses.

A further £275 million was used used to incentivise RBS business banking customers to switch banks. Business account switching has seen a steep increase, in part due to the incentives of the scheme. 

(If you are switching accounts for ethical reasons and want to write to your previous bank to let them know why, we have published a template letter for you to use.)

Most of the first pot of cash has gone to challenger banks such as Metro, Starling, and Tide. But the scheme has been criticised for being opaque and having made questionable decisions. Serious irregularities were identified on Metro’s balance sheet before it received £120 million, and Starling’s CEO had a close relationship with the executive director of the body overseeing the distribution of the funds. Some of the banks including Metro and Nationwide building society handed back £50million each which raised further questions about the scheme.

It was questioned how much of a shake-up will really be delivered by these packages. Notwithstanding the manifold issues, including a lack of transparency in awarding funds, the scheme appears to leave the power of the other four banking giants relatively untouched.

App-based business banking

It’s clear that in a bid to disrupt the ‘legacy’ high-street giants, most new banks are focusing on digital services. This makes sense, as the vast majority of small business’s financial activity is now conducted online.

After price, quality online and mobile banking is the top priority for small business owners when choosing a bank.

The growing assortment of primarily app-based business account providers, including Starling, Monzo, Revolut, Tide, offer not only their own account but also access to software that can manage other bank accounts and company financial administration.

However, the inability to provide face-to-face financial advice, the one activity that small businesses still prefer to do in-branch, means the lack of bricks and mortar will continue to be a double-edged sword for online-only banks.

Ethics of challenger and digital-only banks

The new banks are generally more ethical than the established names. However, it is an open question whether this will remain the case.

Starling Bank, for example, has some good statements on avoiding investment in certain industries such as fossil fuels and arms manufacture. But its environmental reporting and transparency commitment is not comprehensive. 

The Starling website also names its leading financial backers as Harald McPike, reported to be a “secretive Bahamas-based investor”, and Merian Global Investors. Merian was acquired by Jupiter Fund Management PLC, a company that receives our worst rating for likely use of tax avoidance strategies. With Starling’s sights set on rapid growth and an initial public offering in the coming years, it will have to work hard to not let its first ethical steps be diluted by the world of unethical finance.

Is Revolut a bank?

Revolut is not technically a bank but rather an e-money institution, authorised under the UK Electronic Money Regulations. This means that your money is not as protected as it would be if you held your money in a bank protected by the FSCS, should Revolut fail, though there are still significant protections in place.

We recommend that readers considering Revolut examine their website for more on this issue and read their page specifically on how they keep your money safe.

Banking for charities and community groups

The brands ranked on the score table all provide current accounts for small business, but the offering for community groups and voluntary societies is much slimmer. Whilst the ‘challenger’ app-based banks listed above tailor their products towards making life easy for micro-businesses, they are still only for sole traders or registered companies. The banks that do have accounts for non-profit organisations tend to come with the stipulation of being a registered charity.

For example, in 2018 a customer of the Co-op Bank and member of Save Our Bank complained that they weren’t able to open an account for a voluntary association. In response, Co-op Bank clarified that their Community Directplus Account was only for registered groups: Charities, Co-operatives and Community Benefit Societies, Credit Unions and Community Interest Companies.

This policy was based on the bank’s risk appetite and regulation around fraud and money laundering. It acknowledged that it now didn’t offer anything for small community organisations. Despite stating that it would be reviewing the eligibility for its accounts in 2020, in 2022, the conditions were the same.

When a small voluntary organisation does manage to open an account, they can miss out on important banking features, such as the use of a debit card. 

Which banks offer what for small businesses, charities and community organisations?

De-risking and the impact on charity banking

In 2018, we reported on the issue of ‘de-risking’, a process whereby banks, in a bid to comply with new international regulations against money laundering, freeze or cancel bank accounts that seem risky.

Unfortunately, many humanitarian charities rely on transferring funds to high-risk locations to carry out their work. This can raise red flags for cautious account providers – banks such as Co-op and HSBC faced criticism, in 2015 and 2017, respectively, for closing the accounts of NGOs with little warning.

Since this time, there has been less reporting of de-risking which suggests banks are applying greater care and thought before they freeze an organisation’s account. However, it is often unclear whether any concrete action has taken place.

In a 2019 report from the House of Commons Treasury Committee, Stephen Jones from UK Finance highlighted the need for better communication from banks, stating “In terms of access to banking, it is very important that, if someone is de-banked, they understand why they have been de-banked, why the institution has de-risked, and we are working with the FCA on better communications around that.”

The 2018 Sanctions and Anti-Money Laundering Bill, which came into force when the UK left the EU listed general exemptions and licenses for NGOs carrying out humanitarian work in sanctioned countries. This was received as a positive step by some charity bodies. However, whether this will represent a major break from current de-risking practice remains to be seen.