Ethical Banking

An ethical bank, also known as a social, alternative, civic, or sustainable bank, is a bank concerned with the social and environmental impacts of its investments and loans. Ethical banks are part of a larger societal movement toward more social and environmental responsibility in the financial sector. This movement includes: ethical investment, socially responsible investment, corporate social responsibility, and is also related to such movements as the fair trade movement, ethical consumerism, boycotting, etc. Other areas, such as fair trade, have comprehensive codes and regulations to which all industries that wish to be certified as fair trade must adhere. Ethical banking has not developed to this point; because of this it is difficult to create a concrete definition distinguishing exactly what it is that sets an ethical bank apart from conventional banks. Ethical banks are regulated by the same authorities as traditional banks and have to abide by the same rules. While there are differences between ethical banks, they do share a common set of principles, the most prominent being transparency and social and/or environmental aims of the projects they finance. Ethical banks sometimes work with narrower profit margins than traditional ones, and therefore they may have few offices and operate mostly by phone, Internet, or mail. Ethical banking is considered one of several forms of alternative banking, and shares some approaches with Islamic banking.

Contents 1 History 2 Potential for banks to create environmentally and socially conscious business practices 3 Ethical initiatives 4 Community involvement 5 Environmental standards for lending 6 Internal vs. external banking ethics 6.1 Internal ethics: processes in banks 6.2 External ethics: products of the banks’ relationships/products 6.3 Discussion 7 Judging what is ethical 7.1 John Stuart Mill 7.2 Immanuel Kant 7.3 Aristotle 8 Bank regulations and the free market 9 Differences from credit unions 10 List of ethical banks 10.1 Europe 10.2 North America 10.3 Oceania 11 Alliances 11.1 Global Alliance for Banking on Values 12 See also 13 References 14 Further reading 15 External links

History

Historically banks have been viewed solely as financial institutions, which should concern themselves with all things financial. Morality has not entered the equation. This public view has allowed banks significant leeway with concern to ethical standards. This is because they have not been associated with the actions taken by the businesses they lend to. Banks have also stated that a reason for not mounting the new challenges that sustainability presents is that such inspection would require interference in the activities of clients.^{Jeucken 2002} However with changing social demands, and as more is known about the effects that banks can have through their lending policies, banks have begun to feel pressure from the general public, NGOs, governments, and the like to go beyond conventional business management. For example in the mid 1990s the Cooperative Bank asked 6,000 customers what their thoughts were on ethical banking; 84% responded that it was a good idea.^{Harvey 1995} In fact the cooperative bank was formed in response to the growing consumer base looking for ethically oriented banks.

Potential for banks to create environmentally and socially conscious business practices

In general all banks play an intermediary role in the economy; because of this the possibility for banks to contribute to sustainable development is potentially profound. ^{Jeucken 2002} Banks have extensive and efficient credit approval systems, which gives them a comparative advantage in knowledge (regarding sector-specific information, legislation and market developments).^{Jeucken & Bouma 1999} Banks are well seasoned and well equipped to weigh risks and attach a price to these risks; because of this banks can fulfill an important role in reducing the information asymmetry between market parties, for example between the business and consumers. This is important not just to consumers but also to depositors. When depositors allow a bank to invest for them they are able to assume that the bank will know which investments will maximize their returns. Conventional banks are legally bound to maximize return for their clients. If clients are concerned with more than simple return (i.e. the costs of the return on other areas such as society and the environment) then they may need to turn to an ethical bank to find ways in which they can garner return while keeping to their own moral concerns.
Some businesses externalize costs onto the environment and society. An example of this would be water pollution. A wood mill, for example, could dump its waste into a local river instead of paying to dispose of it properly. This cost is then put onto to the public who uses this water; the costs could come in the form of poor health or as a cost to the local water treatment plant. In order to create more equitable distribution of costs amongst consumers, the environment, and businesses, banks can raise interest rates or apply tariffs on loans given to clients with high environmental risks. This tariff differentiation by banks will stimulate the internalization of environmental costs in market prices.^{Jeucken & Bouma 1999} Meaning that companies would pay more if their business caused extensive environmental damage; taking some of the cost off of society as a whole and putting it on the company. Through such price differentiation, banks have the potential to foster sustainability.^{Jeucken & Bouma 1999} This potential would be determined by the extent to which all banks worked in unison to create similar regulations that would result in the loss of access loans that treat the environment and/or society as an externality.
Through their intermediary role, banks may be able to support progress toward sustainability by society as a whole—for example, by adopting a ‘carrot-and-stick’ approach, where environmental and social front-runners would pay less interest than the market price for borrowing capital, while environmental laggards would pay a much higher interest rate.^{Jeucken & Bouma 1999} Banks can also develop more sustainable products, such as environmental, social, or ethical investment funds. In addition, there is great scope for banks to improve their internal environmental performance.^{Jeucken & Bouma 1999} In creating environmental and social screens, banks can promote socially/environmentally geared companies and penalize those who do not conform to these standards. However it is important that these different possibilities (i.e. social/environmental screens, ethical products, and internal environmental practices) be used as a package. If not, there is a danger that banks could simply do the things that make them look the most ethical (i.e. advertise their recycling program) while not changing other areas that would have a larger impact. If the changes are solely driven by customers, the bank will be pressured to offer preferential treatment to what depositors deem as desirable, but will have limited ability to punish undesirable action. Governmental regulation, initiated by an informed and involved public would be an effective way to ensure that all banks follow socially accepted morals and ethics.

Ethical initiatives

Numerous ethical banks (as well as some conventional banks) allow customers to contribute to organizations that have positive societal/environmental impacts either in the local community or in developing countries. Examples include an evaluation of the energy efficiency of a home and potential improvements in this; carbon-offsets;^{Coro Strandberg 2005} credit cards that benefit charities^[1] or lower interest rate loans for low emission cars.^[2]

Community involvement

Ethical banks excel in community involvement, as do other financial institutions such as credit unions. Community involvement is not limited to ethical banks as conventional banks also partake in such actions. The following are a few examples of community involvement done by ethical banks, credit unions, and conventional banks:

• Affordable housing projects (ex. Vancity & Citizens bank)
• Many banks/credit unions try to increase financial literacy in the community
• Give local scholarships & sponsorships.
• Financially support community events (for ex. each year TD Canada trust donates to a local cause).

Environmental standards for lending

Environment is a key focus amongst ethical banks (in this field specially called sustainability or green banks) as well as amongst many conventional banks that wish to appear more ethically oriented or that see switching to more environmental practices to be to their advantage. Some view this move as green washing. In general bankers "consider themselves to be in a relatively environmentally friendly industry (in terms of emissions and pollution). However, given their potential exposure to risk, they have been surprisingly slow to examine the environmental performance of their clients. A stated reason for this is that such an examination would ‘require interference’ with a client's activities."^{Jeucken 2002} While the desire to not meddle in the business of the client is valid, one could also note that banks are required to interfere in the business of their clients regularly to ensure that the clients’ business plan is viable before issuing them a loan. The kind of analysis that all banks partake in is termed a single bottom line analysis (this analysis only considers financial performance). It is arguable whether or not performing a triple bottom line analysis (an analysis that takes into account environmental, social, and financial performance) would be any more intrusive.

Internal vs. external banking ethics

Conventional banks deal with mostly internal ethics, ethical banks add to internal concerns by applying external ethics.

Internal ethics: processes in banks

Internal ethics are concerned with the well being of employees, employee and customer satisfaction, benefits, wages, unionization, fair sex and race representation, and the banks environmental standing. Environmentally the potential combined effect of banks switching to more environmentally friendly practices (i.e. less paper use, less electrical use, solar power, energy efficient light bulbs, more conscientious employee travel policies with concern to commuting and air travel) is huge. However when compared with many other sectors of the economy banks do not incur the same burden of energy, water and paper use.^{Jeucken & Bouma 1999} Many times such energy efficient changes are not based on moral concern but on cost efficiency.

External ethics: products of the banks’ relationships/products

External ethics are concerned with the wider ramifications of banks actions. External ethics looks at the impacts that their business practices, such as who they loan to or invest in, will have on society and the environment. In applying external ethics, one looks at how the products of banks can be used unethically, for example how borrowers use the money that is lent out by the bank.

Discussion

In general banks are reluctant to broaden the scope of their external ethics policies because it would require that the bank interfere with the activities of its clients and/or screen its potential clients. External ethics can be seen as much more important than internal ethics because the potential that the bank has internally to cause huge societal or environmental damage is minimal whereas many companies that banks fund have great potential to cause widespread damage. Internal ethics, such as switching to energy efficient light bulbs, are relatively insignificant if the bank is, for example, simultaneously funding the unsustainable harvest of natural resources.
Ethical banking is a relatively new sector; along with this fact come problems. These problems fall under two categories; the first concerns depositors, and the second concerns ethical banks.
In the first category lies the problem of really knowing how ethical banks measure or qualify their ethical policies. For example when Vancity/Citizen Bank states ‘we seek to work with organizations that demonstrate a commitment to ethical business practices,’ the depositor is unable to understand what ‘seek’ means. These statements sound nice but they do not tell potential depositors how the bank evaluates or uses these statements. This is insufficient. Even when given the opportunity to view an accountability report it is difficult to truly understand what their screening processes are. For example, the Van City Accountability Report for 2006/07 (for Van City credit union and Citizens Bank in Canada)states,

"the Ethical Policy requires that all business accounts are screened at the time of account opening by the staff person dealing with the member. Social and environmental risks of larger business banking loans (non-credit-scored loans) are assessed at the time of the loan application, guided by the Ethical Policy and Lending Policies."

This statement does not give the reader the information s/he needs to understand the criteria used in assessing clients. However statistics such as that given by the Cooperative Bank (UK), stating that in 2003 they reviewed 225 potentially problematic financial opportunities and of these 20% were found to be in conflict with their ethical statements and were subsequently denied further business, costing the bank 6,887,000 pounds^{Coro Strandberg 2005}, give the consumer the impression that the banks’ proposed ethics, however ambiguous, are being taken seriously.
Another issue in this category is that of codes. Many ethical banks as well as conventional banks voluntarily join larger bodies that put forth certain regulations that, according to the rules set by the body, should be followed by members. Such outside bodies could act as overarching institutions that could guarantee a certain level of conformance with certain regulations. An example of this in the United States is the Food and Drug Administration. Depositors who use ethical banks do not have this assurance because there is no external regulatory body that sets minimum acceptable legal standards.
In the second category ethical banks face obstacles such as losing business and consumer support to conventional banks, and having to regulate above and beyond the present international legal systems.
According to Cowton, C. J., and P. Thompson, "banks that had signed the United Nations Environment Programme (UNEP) Statement, a voluntary industry code that promulgated environmental stewardship, transparency, and sustainable development, did not act significantly different than the non-signatories."^{Cowton & Tompson 2000} They concluded that, for codes to be more effective; regulators, monitors, and methods of enforcement need to be in place.^{Cowton & Tompson 2000} This problem is similar to the problems faced by the fair trade movement. Both the fair trade movement and ethical banks rely on people to pay extra for known ethical goods. There is a limit to how much more people will pay for that guarantee, after that point further initiatives will undercut the banks income and therefore are likely to not be followed.
Losing business to banks that do not screen so strictly is a problem for ethical banks. Many times ethical banks must work with much lower budgets because of this. Ethical banks exclusion of unethical borrowers often results in the borrowers going to other banks, this brings up the importance of industry wide regulations. One way of raising the industry wide regulations would be for citizens to apply pressure on banks. Without this rise it is difficult to impede unethical businesses from finding a bank to finance their projects. A rise in regulations that deal with moral topics is not out of the question. The current industry wide codes, for example, prohibit the financing of illegal drug production. This reflects the prominent societal morals against such drugs.
Ethical banks cannot solely rely upon the legal system to determine whether or not a potential client has acted unethically or whether or not their future plans are unethical. This is because of the wide range of laws throughout the world. While a business may be lawful in the international setting, this does not mean that the laws were up to the moral standards in which the bank originates. For example, extensive pollution and labor laws that would not be considered lawful in many developed countries are allowed in many lesser-developed countries.

Judging what is ethical

Claiming to be an "ethical" bank requires an objective way to determine what is ethical. Popular ethical theories that could be used include those of Mill, Kant and Aristotle.

John Stuart Mill

The premise of John Stuart Mill's utilitarian ethical theory is that an action's moral status is dependent on the extent to which if it contributes to happiness. Therefore, in Mill's perspective a bank would be moral if it tended "to promote happiness".(p. 10)^{Mill 1957} If the bank in question acts in way that produces the greatest amount of happiness for the greatest amount of people then it will be acting morally according to Mill. Because the banking sector is so large, complex and far-reaching in its effects it is difficult to accurately judge the happiness of everyone affected by the conduct of banks in general or by certain banks in particular. However it sometimes possible to discern which of different possible courses of action would produce the most happiness. For example the act of generous philanthropy in forms such as giving back to communities, employees, members, environmental/development groups, etc. will on the whole increase happiness. Similarly lending to businesses that do not "produce the reverse of happiness"(p. 10)^{Mill 1957} by, for example, giving to businesses that treat employees fairly and are concerned with such public goods as the environment would also be considered ethical according to Mill. Given that things such as global warming, air pollution, water contamination, and soil pollution negatively affect large groups of the population, if not all of the population (in the case of global warming), banks that chose to partake in the above examples could be viewed as contributing to the overall happiness of all people and would hence have moral value.

Immanuel Kant

According to Immanuel Kant's Categorical Imperative, morality concerns intentions, and not outcomes. A person is moral insofar as they act with a good will, regardless of the consequences. With this knowledge one could propose that the act of lending money is not in and of itself immoral and according to Kant's perspective banks should not be judged as moral or immoral based on the outcomes of their lending. However the second formulation of Kant's categorical imperative states: "act in such a way that you always treat humanity, whether in your own person or in the person of any other, never simply as a means, but always at the same time as an end" (pg. 66–67)^{Kant 1956}. Based on this formula one could argue that the whole practice of lending is not ethical, as it treats people as means to gaining money, (mere means) rather than as ends in themselves.

Aristotle

For Aristotle, lawfulness is important in the measurement of morality, as is equality and justice. Whether an action is or is not in accordance with the law is an important measurement of morality for Aristotle. Many banks do business in accordance with the law in all practices. They may also specifically seek to do business with law-abiding clients. Nevertheless this can be problematic, as laws vary internationally. This means that a bank could be viewed as ethical even while funding clients who lawfully conduct business in harmful manners. However this measurement is challenged by Aristotle's statement: "what is just in transactions is something equitable, and what is unjust is something inequitable" (p. 84)^{Aristotle 2002}. This means that a bank needs to take into account the unjust/inequitable behavior of its borrowers to qualify as an ethical bank. For example, lending to a law-abiding corporation that does not pay its employees a sufficient living wage would be immoral.

Bank regulations and the free market

See also: Wall Street reform

The argument against regulating banks is that the regulations would violate the proper functioning of the free market economy. Severyn T. Bruyn disputes this argument in his article "The Moral Economy".^{Bryun 1999} He states that the extreme disconnection between market actions and morals was never the intent of the market economy's founding thinkers, specifically Adam Smith. He argues that putting standards and regulations in place that rest on the basic morals of society should not conflict with the free market, but are actually an important part of the proper functioning of the free market. His conclusion is based on statements made by Adam Smith. When Smith first envisioned the market economy, he did not divorce morals from the market. In fact, morals were supposed to be a natural part of the workings of the market economy. He believed that economic transactions should be the result of mutual agreement and should involve morality and friendship. He stated that selfishness could obstruct the market economy from running morally. If interpersonal relationships did not play a part, then the interdependency experienced by individuals could vanish and unfair play based on greed and mistrust would exist. Bruyn discusses today's society as one that has lost its basic morals in the market. He states that there is a need for a reigniting of civil society.^{Bryun 1999} Originally, civil society was assumed to be naturally able to regulate the morality of the market, but with the great distances between individuals involved in transactions as time has passed, governments became the prime regulators of morality in economic exchanges. In recent history governments have been pressured to stop interfering in the economy. This has allowed bodies such as corporations, which operate immorally or at best amorally, to create extremely damaging outcomes without legal or societal penalty. Bruyn promotes the resurrection of civil society, calling society to demand fair practices and to regulate the morality of the economy.^{Bryun 1999} One way people could influence civil society would be to act as economic regulators by choosing to do business with banks that do not finance corporations such as the aforementioned.^{[citation needed]}
Rudolf Steiner suggested that capitalism has the task of funding economic initiatives; capital should be directed into directions productive for society. He proposed that rather than prices being set through either the total control of government regulation, or the total lack of control of a free market, each industry could have self-regulating associations of producers, wholesale and retail businesses, and consumers. These associations would determine prices fair to all three groups. The state would not interfere with purely economic decisions but would be responsible for protecting human rights (this could include a minimum wage and safety in the workplace) and equality of its citizens' rights.^[3] (See Threefold Social Order.)
Ayn Rand suggested that all the evils, abuses, and iniquities, popularly ascribed to businessmen and to capitalism, were not caused by an unregulated economy or by a free market, but by government intervention into the economy.^{Ayn Rand — Free Market48}

Differences from credit unions

Credit unions are not banks but they offer many of the same services as banks (e.g. investment opportunities, commercial and business loans, checking & savings accounts, etc.). Credit unions are member-owned rather than shareholder-owned. This gives each member more influence in the decision-making process. When a credit union has surplus, the profits made will either be invested into the community or will go back to the members in the form of "patronage rebates" (i.e. cheques). Credit unions focus on the members because they are also the owners, and on the communities in which they are situated. Credit unions put a higher focus on local community development than banks do. Most credit unions lend strictly to people and businesses in the community where the union is located. This fact leads credit unions to affect communities more positively than regular banks.
However, credit unions do not necessarily have the same potential to cause widespread change in business practices as ethical banks do. This is because credit unions largely avoid the problem of funding unethical corporate/business activities by focusing on funding local businesses, which are easier to monitor and arguably less capable of generating wide-reaching social and environmental benefit.^{[citation needed]}

List of ethical banks

Europe

Denmark

• Oikos Bank]
• Merkur Bank
• Dragsholm Sparekasse
• Arbejdernes Landsbank
• Folke Sparekassen

Germany

• GLS bank
• EthikBank (serves also Austria)
• Umweltbank

Spain

• Comparativa de finanzas éticas en España
• Fiare
• [1]

United Kingdom

• Charity Bank
• Co-operative Bank
• Reliance Bank
• Shared Interest, based in the United Kingdom, investing throughout the developing and developed world
• Unity Trust Bank
• Ecology Building Society

Other European countries

• Cultura Bank, Norway
• MagNet Community Bank, Hungary (Hungarian wiki-article)
• JAK members bank, Sweden, interest-free bank
• Ekobanken, Sweden
• Crédit coopératif and NEF, France
• Alternative Bank Schweiz, Switzerland
• Banca Etica, Italy
• ASN Bank, the Netherlands

Based in various countries

• Triodos Bank, The Netherlands (also based in the UK, Belgium, Germany and Spain)

North America

USA

• Urban Partnership Bank, Based in Chicago. Successor to ShoreBank
• RSF Social Finance, based in San Francisco, not a 'bank,' but offers social investment accounts with rates comparable to bank CDs
• New Resource Bank, based in San Francisco. New Resource is a commercial bank that focuses on businesses that share their mission to progress sustainability within their community.
• First Green Bank, Based in Mount Dora, FL is a commercial bank dedicated to ethical practices and environmentally friendly investments.
• One Pacific Coast Bank, Based in Oakland, with branches in Seattle, Portland, and Illwaco, WA.

Canada

• Citizens Bank

Oceania

New Zealand

• Prometheus

• The Co-Operative Bank

Alliances

Global Alliance for Banking on Values

The Global Alliance for Banking on Values (GABV) is a membership organization founded in March 2009 by BRAC Bank in Bangladesh, ShoreBank in the US, and Triodos Bank in the Netherlands.^[4] It is currently made up of twenty one of the world’s leading sustainable banks, from Asia, Africa, Latin America to North America and Europe.^[5]

See also

• Carbon Disclosure Project
• Chris Van Hollen
• Clean Energy Bank
• Climate ethics
• Corporate social responsibility
• Equator Principles
• National Venture Capital Association
• Socially responsible investing

References

1. ^ Citizens bank
2. ^ (ex. of low emission car initiative put forth by Citizens Bank)
3. ^ Steiner, Rudolf (1999). Towards social renewal: rethinking the basis of society. London: Rudolf Steiner Press. pp. 8 and Chap. 3.
4. ^ http://www.microcapital.org/microcapital-story-global-alliance-for-banking-on-values-launched-in-the-netherlands-eleven-banks-join-to-form-the-alliance/
5. ^ http://www.gabv.org/AboutUs/

• ^ Aristotle, and Joe Sachs. Nicomachean Ethics; Nicomachean Ethics. English. Newbury, Massachusetts: Focus Pub./R. Pullins, 2002.
• ^ Bruyn, S. T. "The Moral Economy." Review of Social Economy 57.1 (1999): 25–46.
• ^ Cowton, C. J., and P. Thompson. "Do Codes make a Difference? the Case of Bank Lending and the Environment." Journal of Business Ethics 24.2 (2000): 165–178.
• ^ Coro Strandberg. (2005). Sustainability finance study:A study of best practices, standards and trends in corporate social responsibility
• ^ Fairbairn, B., et al. Credit Unions and Community Economic Development. Centre for the Study of Co-operatives, University of Saskatchewan, 1997.
• ^ Green, C. F. "Business Ethics in Banking." Journal of Business Ethics 8.8 (1989): 631–634.
• ^ Greenspan, Alan, "Gold and Economic Freedom," Capitalism: The Unknown Ideal, 101. Inflation, Ayn Rand Lexicon.
• ^ Greenspan, Alan, "Gold and Economic Freedom," Ayn Rand — Capitalism: The Unknown Ideal, 96. Gold Standard, Ayn Rand Lexicon.
• ^ Harvey, B. "Ethical Banking: The Case of the Co-Operative Bank." Journal of Business Ethics 14.12 (1995): 1005–1013.
• ^ Jeucken, M. "Banking and sustainability—slow Starters are Gaining Pace." Ethical Corporation Magazine 11 (2002): 44–48.
• ^ Jeucken, M. H., and J. J. Bouma. "The Changing Environment of Banks." GREENER MANAGEMENT INTERNATIONAL (1999): 21–35.
• ^ Kant, Immanuel, and H. J. Paton. The Moral Law : [Or] Kant's Groundwork of the Metaphysic of Morals. [3 .] ed. London: Hutchinson University Library, 1956.
• ^ Mill, John Stuart, and Oskar Piest, eds. Utilitarianism. Indianapolis ; New York: Bobbs-Merrill, 1957.
• ^ Missbach, A. "The Equator Principles: Drawing the Line for Socially Responsible Banks? an Interim Review from an NGO Perspective." Development 47.3 (2004): 78–84.
• ^ Rand, Ayn, "The Objectivist Ethics", The Virtue of Selfishness, 23. Morality, Ayn Rand Lexicon.
• ^ Rand, Ayn, "Moral Inflation," The Ayn Rand Letter, III, 12, 1. Inflation, Ayn Rand Lexicon.
• ^ Rand, Ayn, "Who Will Protect Us from Our Protectors?", The Objectivist Newsletter, May 1962, 18. Inflation, Ayn Rand Lexicon.
• ^ Rand, Ayn, "America's Persecuted Minority: Big Business," Capitalism: The Unknown Ideal, 48. Free Market, Ayn Rand Lexicon.
• ^ Rand, Ayn, "America's Persecuted Minority: Big Business," Capitalism: The Unknown Ideal, 47. Free Market, Ayn Rand Lexicon.

Further reading

• Ben Cohen and Mal Warwick, Values-Driven Business, ISBN 1-57675-358-1
• Christopher J. Cowton & Paul Thompson, "Do Codes Make a Difference? The Case of Bank Lending and the Environment", Journal of Business Ethics, v.24, n.2 (March 2000)
• Clark Schultz, "What is the Meaning of Green Banking", Green Bank Report http://greenbankreport.com/green-bank-deals/what-is-the-meaning-of-green-banking/
• Paul Thompson & Christopher J. Cowton, "Bringing the Environment into Bank Lending: Implications for Environmental Reporting", British Accounting Review, v.36, n.2, pp. 197–218 (June 2004).

External links

• FEBEA, European Federation of Ethical and Alternative Banks
• INAISE, International Association of Investors in the Social Economy
• GABV, Global Alliance for Banking on Values
• Ethicalconsumer.org Ethical banking guide (UK)

Ethical Consumerism

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Ethical consumerism (alternatively called ethical consumption, ethical purchasing, moral purchasing, ethical sourcing, ethical shopping or green consumerism) is a type of consumer activism that's based on the concept of dollar voting. It is practiced through 'positive buying' in that ethical products are favoured, or 'moral boycott', that is negative purchasing and company-based purchasing. ^[1]
The term "ethical consumer", now used generically, was first popularised by the UK magazine the Ethical Consumer, first published in 1989. Ethical Consumer magazine's key innovation was to produce 'ratings tables,' inspired by the criteria-based approach of the then emerging ethical investment movement. Ethical Consumer's ratings tables awarded companies negative marks (and from 2005 overall scores) across a range of ethical and environmental categories such a 'animal rights', 'human rights' and 'pollution and toxics', empowering consumers to make ethically informed consumption choices and providing campaigners with reliable information on corporate behaviour. Such criteria-based ethical and environmental ratings have subsequently become a commonplace both in providing consumer information and in business-to-business corporate social responsibility and sustainability ratings such as those provided by Innovest, Calvert, Domini, IRRC, TIAA-CREF and KLD Analytics. Today, Bloomberg and Reuters even provide "environmental, social and governance" ratings direct to the financial data screens of hundreds of thousands of stock market traders.^[2] The not-for-profit Ethical Consumer Research Association continues to publish Ethical Consumer magazine and its associated website, which provides free access to ethical ratings tables.

Contents 1 Basis 1.1 Global morality 1.2 Spending as morality 1.3 Growing diverse use of the term 2 Positive buying 2.1 Standards and labels 3 Areas of concern 4 Boycott 4.1 Products 4.2 Corporations 4.3 Countries 5 Research 6 Tax choice 7 Related concepts 7.1 Conscious consuming 7.2 Conscientious consumption 7.3 Alternative giving 8 Criticism 9 See also 10 References 11 Further reading

[edit] Basis

[edit] Global morality

An electric wire reel reused like a center table in a Rio de Janeiro decoration fair. When consumers choose and reuse environmentally friendly material like this, they are practicing ethical consumerism.

In "The Global Markets As An Ethical System", John McMurtry argues that no purchasing decision exists that does not itself imply some moral choice, and that there is no purchasing that is not ultimately moral in nature. This mirrors older arguments, especially by the Anabaptists, e.g. Mennonites, Amish, that one must accept all personal moral and spiritual liability of all harms done at any distance in space or time to anyone by one's own choices. It is often suggested that Judeo-Christian scriptures further direct followers towards practising good stewardship of the Earth, under an obligation to a God who is believed to have created the planet for us to share with other creatures... It should be noted, however, that a very similar argument can be presented from an entirely secular humanist point of view, and there are many people who believe that it is simply better for human beings to acknowledge that the planet supports life only because of a delicate balance of many different factors.
Accordingly, sustainability is required and purchasing for vanity or status is abhorred and shunned. This theory is echoed in some modern eco-villages who adopt very similar stances, effectively blocking all goods that do not satisfy their moral criteria at the village gate, and relying on internally produced food and tools as much as possible.

[edit] Spending as morality

Some trust criteria, e.g. creditworthiness or implied warranty, are considered to be part of any purchasing or sourcing decision. However, these terms refer to broader systems of guidance that would, ideally, cause any purchasing decision to disqualify offered products or services based on non-price criteria that do not affect the functional, but rather moral, liabilities of the entire production process. Paul Hawken, a proponent of Natural Capitalism, refers to "comprehensive outcomes" of production services as opposed to the "culminative outcomes" of using the product of such services. Often, moral criteria are part of a much broader shift away from commodity markets towards a deeper service economy where all activities, from growing to harvesting to processing to delivery, are considered part of the value chain and for which consumers are "responsible".
Andrew Wilson, Director of the UK's Ashridge Centre for Business and Society, argues that "Shopping is more important than voting", and others that the disposition of money is the most basic role we play in any system of economics. Some theorists believe that it is the clearest way that we express our actual moral choices, i.e., if we say we care about something but continue to buy from parties that have a high probability of risk of harm or destruction of that thing, we don't really care about it, we are practicing a form of simple hypocrisy.
In an effort by churches to advocate moral and ethical consumerism, many have become involved in the Fair Trade Movement:

• Ten Thousand Villages is affiliated with the Mennonite Central Committee^[3]
• SERRV is partnered with Catholic Relief Services and Lutheran World Relief^[4]
• Village Markets of Africa sells Fair Trade gifts from the Lutheran Church in Kenya^[5][6]
• Catholic Relief Services has their own Fair Trade mission in CRS Fair Trade^[7]

[edit] Growing diverse use of the term

As large corporations have tried to position themselves as moral, principled or ethical organisations, the definition has become wider and means different things to different groups of people. For example, McDonald's started to sell salads, (a more healthy choice) and has a corporate social responsibility blog. Ethical Consumerism can be seen as a movement in marketing, which may or may not reflect actual changes in the practices of businesses. Particular areas of interest for large businesses are environmental impact and the treatment of workers at the bottom of the organisational hierarchy. This change reflects an increasing awareness of ethical issues and corporate identity amongst mainstream consumers.

[edit] Positive buying

Positive buying means favoring ethical products, be they fair trade, cruelty free, organic, recycled, re-used, or produced locally. This option is arguably the most important since it directly supports progressive companies.

[edit] Standards and labels

A number of standards and labels have been introduced to induce positive buying, such as the following:

• B corporation
• Dolphin safe fish
• Equal Exchange
• Fairtrade
• Free-range poultry
• FSC-certified sustainably sourced wood
• Grass fed beef
• Green America Seal of Approval
• Halal (religious standard)
• Kosher (religious standard)
• Local food
• Made in USA
• MSC-certified sustainably sourced seafood
• No Pork No Lard (semi-religious standard)
• Organic food
• Organic Trade Association
• Product Red
• Rainforest Alliance certified
• Recycled/recyclable
• Shade-grown coffee
• Social Accountability 8000
• Union-made
• Vegan

Along with disclosure of ingredients, some mandatory labelling of origins of clothing or food is required in all developed nations. This practice has been extended in some developing nations, e.g., where every item carries the name, phone number and fax number of the factory where it was made so a buyer can inspect its conditions. And, more importantly, to prove that the item was not made by "prison labor", use of which to produce export goods is banned in most developed nations. Such labels have also been used for boycotts, as when the merchandise mark Made in Germany was introduced in 1887.
These labels serve as tokens of some reliable validation process, some instructional capital, much as does a brand name or a nation's flag. They also signal some social capital, or trust, in some community of auditors that must follow those instructions to validate those labels.

Some companies in the United States, though currently not required to reduce their carbon footprint, are doing so voluntarily by changing their energy use practices, as well as by directly funding (through carbon offsets), businesses that are already sustainable—or are developing or improving green technologies for the future.
In 2009, Atlanta's Virginia-Highland became the first Carbon-Neutral Zone in the United States. Seventeen merchants of Atlanta's Virginia-Highland allowed their carbon footprint to be audited. Now, they are partnered with the Valley Wood Carbon Sequestration Project—thousands of acres of forest in rural Georgia—through the Chicago Climate Exchange.^[8][9] The businesses involved in the partnership display the Verus Carbon Neutral seal in each storefront and posted a sign prominently declaring the area's Carbon Neutral status.
Over time, some theorists suggest, the amount of social capital or trust invested in nation-states (or "flags") will continue to decrease, and that placed in corporations (or "brands") will increase. This can only be offset by retrenched national sovereignty to reinforce shared national standards in tax, trade, and tariff laws, and by placing the trust in civil society in such "moral labels". These arguments have been a major focus of the anti-globalization movement, which includes many broader arguments against the amoral nature of markets as such. However, the economic school of Public Choice Theory pioneered by James M. Buchanan has offered counter-arguments based on economic demonstration to this theory of 'amoral markets' versus 'moral governments'.

[edit] Areas of concern

Ethical Consumer, the alternative consumer organisation, collects and categorises information of more than 30.000 companies according to their performance in five main areas, composing the Ethiscore:

• Environment: Environmental Reporting, Nuclear Power, Climate Change, Pollution & Toxics, Habitats & Resources
• People: Human Rights, Workers' Rights, Supply Chain Policy, Irresponsible Marketing, Armaments
• Animals: Animal Testing, Factory Farming, Other Animal Rights
• Politics: Political Activity, Boycott Call, Genetic Engineering, Anti-Social Finance, Company Ethos
• Product Sustainability: Organic, Fairtrade, Positive Environmental Features, Other Sustainability.^[10]

[edit] Boycott

Moral boycott is the practice of avoiding or boycotting products which a consumer believes to be associated with unethical behavior.
An individual can choose to boycott a product. Alternatively, the decision may be the application of criteria reflective of a morality (or, in the terminology of ethics, a theory of value) to any purchasing decisions.

[edit] Products

Reasons for products boycotts include

• Factory farming
• environmental harm
• Excessive packaging
• Strike action

[edit] Corporations

Examples include corporations that

• are perceived to espouse unethical behavior by one of its subsidiaries
• investing a portion of their profits in for example the arms industry

Such boycotts can cause great damage to reputations, not to mention loss of profits, and has, in part, led to the development of the concept of corporate social responsibility.
Consumers are encouraged by animal welfare organisations to only shop at supermarkets which have strict animal welfare policies regarding the products they sell. Compassion in World Farming produce a supermarket survey every 2 years assessing supermarket performance in the UK.^[11]

[edit] Countries

Examples:

• Made in Germany
• Consumer boycotts of South Africa over apartheid. These boycotts were mirrored in state policy over time, and contributed to the fall of the Apartheid regime.
• The ongoing boycott of Israeli products due to the treatment of ethnic Palestinians by the government of Israel.

[edit] Research

GfK NOP, the market research group, has made a five-country study of consumer beliefs about the ethics of large companies. The report was described in a Financial Times article published on February 20, 2007 entitled "Ethical consumption makes mark on branding",^[12] and was followed up by an online debate/discussion hosted by FT.com ([1]).^[13] The countries surveyed were Germany, the USA, Britain, France and Spain. More than half of respondents in Germany and the US believed there is a serious deterioration in standards of corporate practice. Almost half of those surveyed in Britain, France and Spain held similar beliefs.
About a third of respondents told researchers they would pay higher prices for ethical brands though perception of various companies ethical or unethical status varied considerably from country to country.
The most ethically perceived brands were The Co-op (in the UK), Coca Cola (in the US), Danone (in France), Adidas (in Germany) and Nestlé (in Spain). Coca Cola, Danone, Adidas and Nestlé did not appear anywhere in the UK's list of 15 most ethical companies. Nike appeared in the lists of the other four countries but not in the UK's list.
In the UK, the Co-operative Bank has produced an Ethical Consumerism Report^[14] (formerly the Ethical Purchasing Index) since 2001. The report measures the market size and growth of a basket of 'ethical' products and services, and valued UK ethical consumerism at GBP36.0 billion (USD54.4 billion) in 2008.
A number of organisations provide research-based evaluations of the behavior of companies around the world, assessing them along ethical dimensions such as human rights, the environment, animal welfare and politics. Green America is a not-for-profit membership organization founded in 1982 that provides the Green American Seal of Approval and produces a "Responsible Shopper" guide to "alert consumers and investors to problems with companies that they may shop with or invest in."^[15] The Ethical Consumer Research Association is a not-for-profit workers' co-operative founded in the UK in 1988 to "provide information on the companies behind the brand names and to promote the ethical use of consumer power"^[16] which provides an online seachable database under the name Corporate Critic^[17] or Ethiscore.^[18] The Ethiscore is a weightable numerical rating designed as a quick guide to the ethical status of companies, or brands in a particular area, and is linked to a more detailed ethical assessment. "alonovo" is an online shopping portal that provides similar weightable ethical ratings termed the "Corporate Social Behavior Index".^[19]

[edit] Tax choice

Tax choice is the concept that taxpayers should be given the option to choose which government organizations they give their taxes to. Having this option would give taxpayers the opportunity to shop for themselves in the public sector. Creating a market for public goods would allow them to put their money where their hearts are. If a taxpayer believed that a government organization was engaging in unethical behavior then he would be able to withhold his own taxes from that government organization and redirect his taxes to more ethical government organizations. For example, pacifists would have the opportunity to boycott the military by giving their taxes to the Environmental Protection Agency.

[edit] Related concepts

[edit] Conscious consuming

Conscious Consuming is a social movement that based around increased awareness of the impact of purchasing decisions on the environment and the consumers health and life in general. It is also concerned with the effects of media and advertising on consumers. Many aspects of Conscious Consuming have been practiced throughout the world but not in a cohesive form.
As a result of organizations such as Adbusters and the Center for a New American Dream, the Conscious Consuming movement began in Boston in the summer of 2003 when a group of people gathered together and planned an alternative gift fair, "Gift It Up!" In the fall of 2004, another group of Bostonians formed a group named "Conscious Consuming" and began meeting to discuss a broad range of topics, from the environmental impact of consumption to the effect of media and advertising. The memberships quickly overlapped and in 2005, the groups merged into Conscious Consuming.
Conscious consuming has its roots in voluntary simplicity, in which people re-evaluate their work-life balance in order to spend more of their time and money on the things that matter to them. As people work less, there is more time for connecting with family and friends, volunteerism, hobbies, and community service. A natural off-shoot of working less is spending less. Instead of spending time and money shopping, people engaging in voluntary simplicity buy less. They get goods using web sites like craigslist, trade with friends, make do with what they have, or hit yard sales. When they do purchase something new, the decision to buy is made consciously. A would-be shopper asks, "Is this item made in line with my values? Am I supporting the local economy? Are the people who produce this item treated and compensated fairly? Is this item built to last?" As a result of these questions, conscious consumers find themselves supporting organic agriculture, fair-trade and sweat-shop free products, and local and independent businesses.

[edit] Conscientious consumption

The consumer rationalizes unnecessary and even unwanted consumption by saying that "it's for a good cause".^[20] As a result, the consumer buys pink ribbons during National Breast Cancer Awareness Month, green products to support the environment, candy and popcorn from school children, greeting cards and gift wrap from charities, and many other, often unwanted objects. The consumer avoids considering whether the price offered is fair, whether a small cash donation would be more effective with far less work, or even whether selling the item is consistent with the ostensible mission, such as when sports teams sell candy.
Some of these efforts are based on concept brands: the consumer is buying an association with women's health or environmental concerns as much as he is buying a tangible product.^[20]

[edit] Alternative giving

Main article: Alternative giving

In response to an increasing demand for ethical consumerism surrounding gift giving occasions, charities have promoted an alternative gift market, in which charitable contributions are made on behalf of the gift "recipient". The "recipient" receives a card explaining the selected gift, while the actual gift item (frequently agricultural supplies or domestic animals) is sent to a family in a poor community.^[21]

[edit] Criticism

Critics argue that the ability to affect structural change is limited in ethical consumerism. Some cite the preponderance of niche markets as the actual effect of ethical consumerism,^{[citation needed]} while others argue that information is limited regarding the outcomes of a given purchase, preventing consumers from making informed ethical choices.^{[citation needed]} Critics have also argued that the uneven distribution of wealth prevents consumerism, ethical or otherwise, from fulfilling its democratic potential.^{[citation needed]}
One recent study suggests that "Buying Green" serves as a license for unethical behavior. In their 2009 paper, "Do Green Products Make Us Better People?",^[22] the authors state the following:

In line with the halo associated with green consumerism, people act more altruistically after mere exposure to green than conventional products. However, people act less altruistically and are more likely to cheat and steal after purchasing green products as opposed to conventional products. Together, the studies show that consumption is more tightly connected to our social and ethical behaviors in directions and domains other than previously thought.

This may have implications for pollution licensing programs, for example. A polluter that buys a pollution license in effect has "bought green", which makes them more likely to engage in unethical behavior, leading to increased pollution. Without considering human psychology, such programs could aggravate the very problems they hope to solve. See Law of Unintended Consequences.
In a 2010 newspaper article, British environmental writer and activist George Monbiot described green consumerism as "a catastrophic mistake" on the grounds that "it strengthens extrinsic values" (those that "concern status and self-advancement"), thereby "making future campaigns less likely to succeed".^[23]

[edit] See also

• Anti-consumerism
• Carrying capacity
• Cause marketing
• Consumerism
• Ethical banking
• Fair trade
• Green brands
• Socially responsible investing

[edit] References

1. ^ "Why buy ethically". ethical consumer. http://www.ethicalconsumer.org/aboutec/whybuyethically.htm. Retrieved 2007-05-03.
2. ^ Is ESG Data Going Mainstream? http://blogs.hbr.org/leadinggreen/2009/05/is-esg-data-going-mainstream.html
3. ^ http://www.tenthousandvillages.com/about-history/
4. ^ http://www.serrv.org/category/our-story
5. ^ http://www.villagemarkets.org/mission/about
6. ^ http://www.thelutheran.org/article/article.cfm?article_id=10300&key=106089998
7. ^ http://www.crsfairtrade.org/about/
8. ^ Jay, Kate (November 14, 2008). First Carbon Neutral Zone Created in the United States. Reuters. http://www.reuters.com/article/pressRelease/idUS164153+14-Nov-2008+PRN20081114
9. ^ Auchmutey, Jim (January 26, 2009). "Trying on carbon-neutral trend". Atlanta Journal-Constitution (The Atlanta Journal-Constitution). http://www.ajc.com/services/content/printedition/2009/01/26/carbon0126b.html
10. ^ Rob Gray, Dave Owen and Carol Adams, "Accounting and accountability : changes and challenges in corporate social and environmental reporting"
11. ^ "Compassion in World Farming - Supermarket survey". Ciwf.org.uk. http://www.ciwf.org.uk/your_food/supermarket_survey. Retrieved 2011-12-18.
12. ^ Grande, Carlos (2007-02-20). "Ethical consumption makes mark on branding". FT.com. http://www.ft.com/cms/s/d54c45ec-c086-11db-995a-000b5df10621.html. Retrieved 2011-12-18.
13. ^ "entitled 'Ethical consumption makes mark on branding'". Financial Times. http://www.ft.com/cms/s/d54c45ec-c086-11db-995a-000b5df10621.html. Retrieved 2007-05-03.
14. ^ "Ethical Consumerism Report". Co-operative Bank. http://www.goodwithmoney.co.uk/ethicalconsumerismreport. Retrieved 2010-09-03.
15. ^ "Coop American: Responsible Shopping: About". Coopamerica.org. http://www.coopamerica.org/programs/responsibleshopper/about.cfm. Retrieved 2011-12-18.
16. ^ "Ethical Consumer Research Association: About". Corporatecritic.org. http://www.corporatecritic.org/info/about/ethicalconsumer.aspx. Retrieved 2011-12-18.
17. ^ "Research & Ratings: About the Ethiscore". Corporate Critic. http://www.corporatecritic.org/info/rr/ethiscore.aspx. Retrieved 2011-12-18.
18. ^ "Research and ratings". Ethiscore. http://www.ethiscore.org/info.aspx?info=research. Retrieved 2011-12-18.
19. ^ Aalonovo Corporate Social Behavior Index^{[dead link]}
20. ^ ^{a b} Gayle A. Sulik (2010). Pink Ribbon Blues: How Breast Cancer Culture Undermines Women's Health. USA: Oxford University Press. pp. 111–132. ISBN 0-19-974045-3. OCLC 535493589.
21. ^ "Giving well is hard to do: so here's my seasonal guide". London: The Guardian. 2005-12-22. http://www.guardian.co.uk/christmas2005/story/0,,1672350,00.html. Retrieved 2007-05-03.
22. ^ Do Green Products Make Us Better People? (Psychological Science, April, 2010) Nina Mazar, Chen-Bo Zhong
23. ^ Monbiot, George (12 October 2010). "It goes against our nature; but the left has to start asserting its own values". The Guardian. http://www.guardian.co.uk/commentisfree/cif-green/2010/oct/11/left-values-progressive-self-interest. Retrieved 29 December 2010.

[edit] Further reading

• Speth, James Gustave (2008). The Bridge at the End of the World: Capitalism, the Environment, and Crossing from Crisis to Sustainability. Caravan Books.

v t e Consumerism the philosophy of and activism for consumer protection Concepts Consumerism Consumer protection Consumer Anti-consumerism Consumer capitalism Ethical consumerism Consumer privacy Informed consumer Consumer revolution activism Consumer movement Consumer activism Consumer education United Nations Guidelines for Consumer Protection Consumer Bill of Rights Consumer complaint fields of study Home economics Family and consumer science Consumer math key players List of consumer organizations Consumer organization Consumers' Association Ralph Nader Esther Peterson

v t e Sustainability Foundations Ecological modernization Environmentalism Human impact on the environment Planetary boundaries Stewardship Sustainable development Consumption Anthropization Anti-consumerism Ecological footprint Ethical Over Simple living Sustainability advertising Sustainability brand Sustainability marketing myopia Sustainable Systemic change resistance Tragedy of the commons Population Birth control Family planning Control Over Zero growth Technology Appropriate Environmental Sustainable Biodiversity Biosecurity Biosphere Conservation biology Deep ecology Endangered species Holocene extinction Invasive species Energy Carbon footprint Carbon neutral fuel Climate change mitigation Conservation Descent Efficiency Emissions trading Peak oil Renewable Food Forest gardening Local Permaculture Security Sustainable agriculture Sustainable fishery Urban horticulture Water Conservation Crisis Efficiency Footprint Accountability Sustainability accounting Sustainability measurement Sustainability metrics and indices Sustainability reporting Sustainability science Standards and certification Sustainable yield Applications Advertising Architecture Art Business City Community Design Education for Sustainable Development Fashion Gardening Green marketing Industries Landscape architecture Living Organizations Packaging Practices Procurement Tourism Transport Urban drainage systems Urban infrastructure Management Environmental Fisheries Forest Natural resource Planetary Waste Agreements UN Conference on the Human Environment (Stockholm 1972) Brundtlandt Commission Report (1983) Our Common Future (1987) Earth Summit (1992) Rio Declaration on Environment and Development Agenda 21 (1992) Convention on Biological Diversity (1992) ICPD Programme of Action (1994) Earth Charter Lisbon Principles UN Millennium Declaration (2000) Millennium Ecosystem Assessment (2005) Category Lists Outline Portal Science Studies

v t e Recycling Materials Aluminium Asphalt Concrete Copper Cotton Energy Ferrous metals Glass Motor oil Paint Paper Plastic Refrigerant Timber Scrap Vegetable oil Water Products Appliances Batteries Bottles PET bottles Computers Fluorescent lamps Mobile phones Ships Textiles Tires Vehicles Apparatus Bins Blue bags Blue boxes Codes Collection Materials recovery facility Waste sorting Countries Brazil Canada Ireland Japan The Netherlands United Kingdom Northern Ireland United States Concepts Dematerialization Downcycling Eco-industrial park Ecodesign Extended producer responsibility Freecycling Industrial ecology Industrial metabolism Material flow analysis Precycling Product stewardship Recursive recycling Recycling (ecological) Resource recovery Reuse Upcycling Waste hierarchy Waste minimisation Waste picking Zero waste See also Composting Container deposit legislation Dumpster diving Ethical consumerism Freeganism Simple living Waste Waste-to-energy Waste collection Waste legislation Waste management Waste management concepts

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Categories:

• Anti-corporate activism
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• Consumer boycotts