A guide to ethical banking in Australia: How to switch
There is a growing movement in Australia to fight climate change. People are signing petitions, lobbying the government and demanding corporations cut their carbon emissions.
Among the calls for change, many organisations are also encouraging individuals to move their money out of banks that invest in fossil fuels.
You might now be contemplating switching banks, too. Of course deciding to divest is the easy part. The tricky bit is knowing where to move your money to. Wading through the wealth of resources out there, while also trying to spot greenwashing can be overwhelming. So, we’ve put together a guide to ethical banking in Australia to help.
In this guide we cover everything from what exactly ethical banking is to where to look for a bank that cares more about what you care about.
What is ethical banking?
To understand ethical banking, you first have to grasp how banks work.
When you deposit money into a bank it doesn’t simply sit, gathering dust in a vault. Instead it forms part of the bank's funds under management. This is basically a pool of cash the bank can use for other purposes, including making investments.
Now here’s the rub. These investments could be in companies that you yourself would not support. An example of this would be investments in oil and gas companies. These add up too. Between 2016 and 2020 the world’s 60 largest banks poured 3.8 trillion USD into the fossil fuel industry. That’s according to the 2021 Banking on Climate Chaos report.
As many scientists agree that burning fossil fuels is bad for the planet*, fossil fuel investments could be seen as unethical. For this reason, some banks make a point of ruling out harmful investments. Investments that take into account the impact on the planet and people can be described as more ethical. Hence the term ethical banking.
Why is ethical banking important?
Ruling out harmful investments is a good first step. The next is to actively invest in things and companies that are doing good. Ethical banking is important because it takes into consideration more than short term profits. Let’s look at an example of this.
Say a bank were to invest $1 million in a fossil fuel extraction project. They do this knowing that they are certain to make X amount of profit in just a few short years. The short term gain is great for a small group of people, but in the long run the project will emit more greenhouse gases and do more harm to the planet.
Higher temperatures will most likely lead to more extreme weather events and emergency situations. More homes will need to be rebuilt as a result of fires, flooding and hurricanes. The climate crisis is expensive. In May 2020, the Insurance Council of Australia announced that insurance claims during the 2019/2020 summer had shot over $5 billion.
So to go back to the bank in this example, that initial investment may seem tempting, but in the long run it could actually cost people and the planet more. For this reason, it could even be argued that divesting from fossil fuels is a smart business decision. In the future, fossil fuel investments could become stranded assets - if oil and gas exploration is banned entirely.
Ethical banking is also important, because it is a way for individuals to take back control of their money. You might not be able to afford solar panels right now, but you can put your money with a bank or credit union that invests in renewable energy. It can be a way of showing the world what matters to you and contributing to a future you want to see happen.
How to search for an ethical bank
We’ve covered the theory behind ethical banking, the next part is practical. The good news is that there are plenty of handy resources out there to help you make the switch to a bank that aligns more with your values.
Some resources to check out are:
- Market Forces’ bank comparison table. In this table you can review banks that currently invest in fossil fuels, as well as a long list of banks that have no record of funding fossil fuels since 2016.
- RIAA’s responsible returns search tool. The Responsible Investment Association of Australasia has a nifty tool to help you find a bank or superannuation fund that aligns more with your values. With this interactive tool you can select what matters to you most, such as renewable energy or sustainable transport. Plus, what you most want to avoid, including human rights abuses, animal cruelty and so forth.
- 1 Million Women’s marketplace. Registered charity 1 Million Women has an online marketplace where you can search for more ethical products and services, including banks and superannuation funds.
You may notice that a number of these resources look at more than divesting from fossil fuels. It’s understandable that for many this will be the number one concern, however, there are other causes and harmful industries to think about.
The long list of possibilities include:
- Animal rights
- Human rights
- Indigenous people’s rights
- Labour rights
- LGBTQI rights
- Women’s rights
It’s important to figure out what you care about, because while a bank might not fund fossil fuels, it might put money towards something else you don’t agree with. Factory farming, for example. Plus, having a longer list of things you care about will help to narrow down your options. A few other resources to look at are:
- Animals Australia’s animal welfare scale. This scale shows how a number of banks operating in Australia rank on animal welfare issues, including live exports and whether or not they have a public animal welfare policy.
- The report Don’t Bank on the Bomb. This report from the International Campaign to Abolish Nuclear Weapons (ICAN) shows which banks around the world invest in nuclear weapons.
Once you have done some research, you could also look at the actual bank’s website. If a bank is proud of what they do, they are more likely to have a lot of information about what they invest in.
Switching to an ethical bank
The last part of all this is to actually switch banks. Opening a new bank account is fairly simple these days. In most cases you can even do it online from the comfort of your home.
To make the transition smoother, it might even be a good idea to leave your old account open for a month. That way you can gradually move your funds across and make sure there are no direct debits you’ve forgotten to update.
Finally, we recommend looking back, before forging ahead. Before moving on to your bright new banking future, be sure to tell your current bank why you’re leaving them. If more and more customers say the same thing, that bank may actually make changes.
One great example of this is the Bank of Queensland. In 2020 the bank announced that it would be reducing its fossil fuel investments to zero by the end of 2024. This move from BoQ shows that not only is it possible for a big bank to change, but that the voice of the people does matter.
Want to read more useful guides like this? Head to Mozo’s bank accounts guides hub for more information on things like open banking, how to open a joint account and more.
*The Climate Council’s explainer: What is climate change and what can we do about it? provides more detail on how human activity is contributing to climate change.