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 this ethical bank bill?
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 actually are an ethical bank. Although they appear ethical on paper, things aren’t so clear cut. Here’s what I found out.
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:
- 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?
- Does the bank pay its fair share of tax?
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.
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 and the environment
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.
Despite this, the company do still contribute to climate change via carbon emissions.
To cut their carbon output, Monzo have identified four areas of focus to minimise their impact:
- Card packaging – all the packaging used to send out cards to customers is fully recyclable
- Computer servers – Monzo’s digital operations are hosted at an AWS facility plant in Dublin. AWS stands for Amazon Web Servers. Monzo state that these servers are carbon neutral and that all the non-renewable energy used gets offset by Amazon.
- Environmentally Preferred Purchasing – Offices in London and Cardiff are stocked with animal friendly and organic products
- Cycle to Work scheme available for workers
This all sounds well and good, if not a little basic to me.
I tried to source their environmental policy or an environmental report, but none have been published.
This means no greenhouse gas reports, no emission reduction targets or climate actions.
For a bank striving to be classed as an ethical bank, I think you’d want to see much more in terms of what they are doing to help the environment and be environmentally positive, rather than just covering the minimum.
With transparency a core value of Monzo, an environmental report with performance stats and targets should be essential.
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.
What do Monzo do with your money?
Monzo Bank lend out a upto 25% of total deposits stored in Monzo 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 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 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.
Of course, you’d expect banks including Monzo to also invest money to provide them with long term sustainability. So where do Monzo invest their/their customers’ money and into what sort of companies?
Monzo sustainable investment: Where does Monzo invest its money?
As mentioned, Monzo do lend a proportion of money stored in current accounts (up to 25%) in the form of unsecured personal overdrafts and loans.
Despite Monzo’s clear call for transparency as one of its core values, there is very little information available on where it invests its money and there is no ethical investment policy.
They do have an ethics page on their website, which has some minimal information.
But it isn’t clear where Monzo makes investments, or if it does invest in other businesses at all. Reading between the lines of the ethics page, which has to be trusted and taken at face value, you have to assume that Monzo doesn’t (currently) invest money in other companies.
All the deposits made into Monzo accounts are held in the Bank of England.
I also had a quick look at Passion Capital (who own 29% of Monzo) but again this doesn’t yield much information on investment policies.
Is Monzo an ethical bank?
The big question: is Monzo an ethical bank?
In all honesty, I think the jury is still out.
According to Ethical Consumer, one of the leading ethical bodies and rating systems out there that looks at how a company fairs with the environment, people, animals, politics, its company ethos and product sustainability, puts Monzo up there as one of the most ethical banks you can use. Moneyexpert.com rank Monzo as a partially ethical bank, mainly due to its not so clear investment interests.
The most ethical bank is Triodos, who are very much still leading the way when it comes to ethical banking. Triodos have an ethical investment policy and make it crystal clear where all its money gets invested.
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 Bank is quite an ethical option and better than most. If you’re looking to live a more eco-friendly life, then you could do a lot worse than Monzo.
In the same breath, you’d like to see a little more positive action, more clarity and more transparency from Monzo to really set them apart on the ethical and environmental front.
Monzo have real potential to be a truly ethical bank choice and I hope they can make the necessary adjustments to get there.