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Is Monzo An Ethical Bank? [2022 Updated]

    is monzo an ethical bank

    An ethical bank isn’t too much to ask is it?

    I’d be more than happy with a bank that is easy to use and one that operates in a positive, ethical way towards society and the environment.

    Does Monzo fit the bill? Is Monzo ethical?

    I’ve been signed up with Monzo since 2018 and I’ve found their app-based way of banking to be excellent.

    Initially I opened the account purely to use as a prepaid card when abroad thanks to their free cash withdrawals and no fee payments. But I’ve found that I’m using my Monzo account more often now in the UK too.

    As I increased my usage of the Monzo app, it got my thinking about how they stack up from an ethical perspective.

    I think I almost assumed that because they were a ‘disrupter’ and ‘challenger bank’ who wanted to do things differently, they wouldn’t be doing the same things as some of the fossil fuel investing high street banks.

    I took a deeper look into this to see if Monzo is ethical or not. I’m glad to say that they’ve taken good strides, or at least made their stance more transparent, in their environmental and social approach since I joined up. And since I originally published this blog.

    Let’s take a closer look at what I found out.

    *Post updated in May 2022.

    What does ethical banking mean?

    Firstly, let’s cover what ethical banking means.

    Ethical banking covers a few overarching facets of the business. To put very simply, Ethical Consumer magazine have drilled it down to two main points:

    1. Is the bank an ethical investor? – In other words, does the bank invests its customers’ money in way that has a positive impact socially and environmentally?
    2. Does the bank pay its fair share of tax? – Is it registered in a tax haven or operate some kind of tax dodging scheme?

    An ethical bank understands and is conscious about how its investments and loans impact society, local communities and the environment we live in. Ethical banking should be highly transparent and clear on key themes such as how it operates, how much tax it pays and where its money is invested.

    Whilst operating for profit, an ethical bank will also be concerned about its fairness, how well its workers are treated and its sustainability performance.

    Some of these points contrast to what may be regarded as unethical banking.

    An example of this is banks who still invest in fossil fuels and oil drilling despite knowing the negative impact this has on the environment. Another example is banks who help fund weapons trading or animal exploitation.

    Almost all of the traditional high street banks (Barclays, HSBC, Natwest) still invest in not-so-ethical practices to make money.

    What is Monzo Bank?

    Monzo Bank is online, app-based bank operating in the UK with headquarters in London.

    It was started by five tech-based friends who had a mission to shake-up the traditional banking system to give people more control over their money. Monzo initially started life as ‘Mondo’, but a trademark challenge to the name put a stop to that. The challenge resulted in a naming suggestion contest and a new name – Monzo Bank Ltd.

    Monzo is a fully authorised UK bank and regulated by the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA). This means, yes, it is a real bank.

    what is monzo bank

    In 2016, Monzo raised £1m in 96 seconds via the Crowdcube investment platform, which I believe is still a record. They’ve since held many more rounds of investment.

    Since their launch in 2016, Monzo Bank have grown rapidly and now have more than 5 million customers (correct as of February 2021).

    Alongside private share ownership, Monzo Bank Limited is 29% owned by Passion Capital Investments and 13% owned by Thrive Capital Management.

    Monzo sustainability: Their environmental impact

    Monzo are a branchless digital bank. They do have a number of offices around the world but their entire customer facing side only exists online.

    This immediately lowers their carbon footprint when compared to high street banks, but as a growing business they still have a large environmental footprint and contribute to climate change via carbon emissions.

    Since I initially wrote this post, Monzo have published four environmental commitments:

    1. Net zero emissions by 2030 – Their goal is to reach net zero emissions as a business by the year 2030. This includes measuring the entire value chain footprint and removing the rest.
    2. Carbon footprint reporting – Measure and report on their full carbon footprint every year and share the results publicly. This includes Scope 1, 2 and 3 reporting, which is very good.
    3. Regular reporting to executives and board – Strong company governance for their environmental work with regular reporting to executives and board members, who have representatives responsible for their climate policy.
    4. No fossil fuel investing – This is a big one. Monzo have pledged to not invest in fossil fuel-based energy companies (or arms or tobacco companies). This is a cornerstone for any ethical investing policies.

    Monzo have also said they want to make their environmental messaging and reporting as clear and accessible as possible.

    When I published this post in February 2021 all Monzo had declared to cut their carbon output were four areas of focus which included: card packaging (to be fully recyclable), computer servers that should be carbon neutral, offices stocked with animal friendly, organic products and a cycle to work scheme.

    All good stuff, but pretty basic.

    Since that however, they have certainly upped their environmental game.

    They are now published a full environmental carbon report which includes all Scope 1 (direct company emissions), Scope 2 (electricty and energy they purchase) and Scope 3 (the emissions from their supply chain and 3rd party companies). This is comprehensive.

    For me, this makes them one of the most ethical banks in the UK.

    Helping them build and measure their environmental programme is the climate software company Watershed. You can have a look at the full pledges and other actions on Monzo’s protecting the environment page.

    Monzo and its social impact

    In regards to their social impact, Monzo have identified another four main areas of focus:

    • Accessibility – increasing performance so that Monzo works for everyone, including those with disabilities affecting vision and hearing.  
    • Vulnerable customers – helping customers in difficult situations stay in control of their finances
    • Financial inclusion – helping as many people as possible get access to finance and financial help. Their Banking For All campaign aims to help vulnerable groups, health problems and recent immigrants.
    • The environment – reducing their negative environmental impact

    Monzo have also pledged to be a minimum living wage employer, including all direct staff members and third-party contractors.

    Monzo ethics: What do they do with your money?

    Monzo Bank lend out just 3.5% of deposits stored in current accounts to people and businesses in the form of overdrafts and loans.

    Monzo state that they don’t sell financial products, such as mortgages or credit cards.

    They do offer Cash ISAs and saving accounts though for you to earn interest on your money. Please note, these official saving accounts are different from the ‘pots’ feature (which is really good) that you can create as a way of saving money for different occasions without interest.  

    For their Cash ISAs and other saving accounts, Monzo use third party banks. This certainly muddies the waters of clarity and transparency from an ethical point of view as you now need to know how all these other banks operate.

    These third-party banks include Paragon, Charter Savings, OakNorth and Investec. Transparent investment policies are quite hard to come by, which does leave you a little in the dark.

    Take for example Charter Savings Bank. They are a UK provider for UK savers and use savings for bridging loans and mortgages. How do you know what sort of businesses they are helping out? You don’t.

    Investec are a company associated with oil and gas financing. To be fair, Investec are no longer listed as a savings partner on the app, but they certainly were.

    It would be great if Monzo offered ethical Stocks & Shares ISAs too. Maybe one for the future?

    Of course, you’d expect banks including Monzo to also invest money to provide them with long term sustainability.

    Monzo sustainable investment: Where does Monzo invest its money?

    When sussing out Monzo’s ethics, a big question to ask is does Monzo invest in fossil fuels?

    Since the update, Monzo have categorically stated that they do not invest in fossil fuel companies, in the arms trade or tobacco. This is very good.

    They also state that they invest customers deposits safely and ethically. Most customers money are held in central banks, such as the Bank of England, in the form of government bonds and quasi-government bonds.

    Monzo do lend a proportion of money stored in current accounts (currently 3.5%) in the form of overdrafts and loans. This is down from 25% in early 2021 which is good news.

    I also had a quick look at Passion Capital (who own 29% of Monzo) and Thrive Capital Management (13% owners) but again this doesn’t yield much information on investment policies.

    If you’re interested and want to learn more about sustainable investment, read my easy to understand blog on ethical investing explained. You might also want to read my CIRCA5000 review, the world’s first impact investment app.

    Is Monzo an ethical bank?

    The big question: is Monzo ethical?

    I think we can say yes, Monzo is now an ethical bank.

    Monzo have improved their ethics and sustainability over the last couple of years and are now one of the leading banks in the UK.

    According to Ethical Consumer, a trailblazing ethical body who look at how a company fairs with the environment, people, animals, politics, its company ethos and product sustainability, they also put Monzo up there as one of the most ethical banks you can use.

    The most ethical bank is Triodos, who are very much still leading the way. Triodos have an ethical investment policy and make it crystal clear where all its money gets invested. I think the Monzo ethics are now starting to catch them up.

    Other banks scoring well include Nationwide and Starling Bank, who are very similar in that they a new tech-based disrupter bank. You can read more about the most ethical banks in the UK here.

    Banks not doing well from an ethical point of view include: Tesco, Barclays, HSBC and Natwest.

    When compared to the banking competition, being classed as ‘ethical’ is quite a low bar to reach! Especially when the likes of these low scoring ethical performers are still investing in weapons, militaries, deep sea oil drilling and tar sands.

    So, compared to the competition, Monzo is an ethical banking option and better than most out there. Hopefully they can continue to improve on an environmental, social and ethical front.

    If you like the sound of Monzo, you can sign up for a Monzo account here and get £5 free

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    If you liked that, read more on ethical money below…