Following news of Westpac’s failure to manage risks associated with the processing of cross-border payments, consumers are once again asking where they can find an ethical bank.
The two best sources for consumer guidance are the Responsible Investment Association Australasia and the Global Alliance for Banking on Values. Both have a set of standards for ethical banking and certify banks that meet the standard.
More recently the United Nations has set some banking standards. It has followed up the successful implementation of its UN Principles of Responsible Investment with the launch in September of the UN Principles of Responsible Banking.
In a statement of claim lodged with the Federal Court last week, the anti-money laundering authority Austrac alleges Westpac contravened the Anti-Money Laundering and Counter-Terrorism Financing Act on more than 23 million occasions and that the transfers involved were worth more than $11 billion.
Austrac claims Westpac knew about these problems for some time but management was “indifferent” to the issue.
Most damningly, Austrac alleges that the bank failed to carry out appropriate customer due diligence on transactions to the Philippines and South East Asia that have known financial indicators relating to potential child exploitation risks.
The Responsible Investment Association Australasia has a tool called Responsible Returns on its website, which is designed to help consumers find ethical investment, superannuation and banking products.
Consumers can search under several different bank product headings, including savings account and term deposits, loans and transaction accounts. They can also search according to the environmental, social and governance issues that are of most concern to them.
RIAA chief executive Simon O’Connor says the association has a set of standards that are applied to all financial products.
O’Connor says: “We look at the legal documents that go with a product and we review the ethical strategy that overlays the product. Then we verify that it operates according to that strategy.
“For a banking product we are interested in the use of the proceeds – what sort of activities the bank will fund with the money it raises. For example, we would look to see that money is not being lent to fossil fuel producers.
“With banks, we also look for evidence that the institution adheres to responsible lending guidelines. And we look at how it handles customers experiencing financial hardship.”
Consumers using Responsible Returns to find a bank are not given many options. For deposit accounts, savings accounts and term deposits it has certified Bank Australia, Teachers Mutual Bank and Community Sector Banking, which is backed by Bendigo Bank.
Bank Australia and Teachers Mutual Bank are the only Australian bank members of the Global Alliance for Banking on Values, an international network “committed to advancing positive change in the banking sector.”
The Alliance’s website says: “Our collective goal is to change the banking system so that it is more transparent, supports economic, social and environmental sustainability, and is composed of a diverse range of banking institutions serving the real economy.”
Its principles include: a triple bottom line of people, planet and prosperity at the heart of the business model; serving the community; long-term relationships with clients and a direct understanding of their activities; self-sustaining, resilient organisations; and transparent and inclusive governance.
O’Connor says the fact that there are so few Australian banks on the RIAA website or signed up to the GABV reflects the fact that demand for external verification of banking products is still emerging in the community.
He says super funds and investment managers have been required to have certification for years but it is a more recent development in banking. “Our program has hit its straps over the past couple of years. We see a growing interest in what we do from banks and we have some discussions underway.”
The United Nations, which established a network called the Principles of Responsible Investment in 2006, launched the United Nations Principles for Responsible Banking in September this year.
The UN PRB members agree to six principles:
- Align business strategy to be consistent with and contribute to individuals’ needs and society’s goals, as expressed in the Sustainable Development Goals, the Paris Climate Agreement and relevant national and regional frameworks;
- Continuously increase positive impacts while reducing negative impacts on people and environment resulting from the bank’s activities;
- Work with customers to establish sustainable practices and enable economic activities that create shared prosperity for current and future generations;
- Engage and partner with relevant stakeholders to achieve society’s goals;
- Implement the bank’s commitment to these principles through effective governance; and
- Periodically review the implementation of these principles and be transparent and accountable for the bank’s positive and negative impacts.
Australian member banks are ANZ, Commonwealth Bank, NAB and Westpac. While Westpac’s membership of the UN PRB might not convince consumers to stay with the bank, it can be seen as a step in the right direction.