A guide to ethical banking in Australia: How to switch

There's a growing movement in Australia to combat climate change and promote ethical practices across various industries. One area gaining significant attention is the banking sector, with many Australians now considering the environmental and social impact of their financial choices. If you're contemplating a switch to ethical banking, this comprehensive guide will walk you through everything you need to know.

Ethical banking goes beyond offering financial services—it's about ensuring the bank’s activities benefit society and the environment. To understand ethical banking, it helps to know how banks operate. Your deposit doesn’t sit untouched; instead, it becomes part of a pool that banks use for investments, often in industries like fossil fuels that you might not support. Ethical banking aims to avoid these harmful investments and focus on funding companies and projects that make a positive impact.

Here are three key things to consider when putting your money in a bank:

1. When you deposit money into a bank, it doesn't simply sit in a vault. Instead, it becomes part of the bank's "funds under management."
2. Banks use these funds to make investments and loans, which generate income.
3. Traditional banks often invest in a wide range of industries, including some that may not align with your values, such as fossil fuels, weapons manufacturing, or companies with poor human rights records.

Ethical banking adopts a more considered approach.

An ethical bank by contrast commits to investing in and supporting businesses and projects that have a positive impact on society and the environment. They typically avoid investments in industries considered harmful, such as:

• Fossil fuels
• Weapons manufacturing
• Tobacco
• Gambling
• Companies with poor labour practices or human rights records.

Ethical banks often focus on investments in:

• Renewable energy
• Sustainable agriculture
• Affordable housing
• Education
• Healthcare
• Small, local businesses.

Choosing an ethical bank allows you to align your financial activities with your values. Here are some compelling reasons to consider ethical banking:

1. Environmental impact: By avoiding investments in fossil fuels, ethical banks help combat climate change. Between 2016 and 2020, the world's 60 largest banks invested a staggering 3.8 trillion USD in the fossil fuel industry.
2. Social responsibility: Ethical banks often support community projects, affordable housing initiatives, and small businesses, contributing to social well-being.
3. Transparency: Many ethical banks are more transparent about their investments and operations, allowing you to make informed decisions about your money.
4. Long-term sustainability: By investing in sustainable industries, ethical banks may be better positioned for long-term success as the world transitions to a low-carbon economy.
5. Personal values alignment: Banking with an institution that shares your values can provide peace of mind and a sense of contributing to positive change.

In Australia, several banks and credit unions have committed to ethical practices. Here are some resources to help you identify ethical banking options:

1. Market Forces' bank comparison table: This resource provides a comprehensive list of banks that have no record of funding fossil fuels since 2016.
2. RIAA's responsible returns search tool: The Responsible Investment Association of Australasia offers an interactive tool to help you find banks and superannuation funds that align with your values.
3. The B Corp directory: B Corp certification indicates that a company meets high standards of social and environmental performance, transparency, and accountability.

When researching ethical banks, consider factors beyond just fossil fuel investments. Look into their policies on:

• Animal welfare
• Human rights
• Indigenous peoples' rights
• Labour rights
• LGBTQI rights
• Women's rights.

Some ethical banking options in Australia include:

• Bank Australia
• Teachers Mutual Bank
• Beyond Bank
• Community First Credit Union
• Bendigo Bank.

Remember to review each bank's specific policies and practices to ensure they align with your personal values and priorities. 

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. 

Once you've identified an ethical bank that aligns with your values, making the switch will involve:

1. Open a new account: Most banks allow you to open an account online. You'll typically need to provide identification and proof of address.
2. Set up your new account: Ensure your new account is fully operational, including setting up online banking and obtaining any necessary cards.
3. List your regular payments: Make a list of all direct debits, recurring payments, and regular deposits (like your salary) linked to your old account.
4. Update your payment details: Contact your employer, service providers, and anyone else who regularly pays into or debits from your account to update them with your new bank details.
5. Transfer your balance: Once you're sure all payments have been updated, transfer the remaining balance from your old account to your new one.
6. Close your old account: Contact your old bank to close your account. Be sure to get confirmation in writing.
7. Provide feedback: Let your old bank know why you're leaving. If more customers cite ethical concerns, it may encourage larger banks to change their practices.

Tips for a smooth transition

• Consider leaving your old account open for a short period (e.g. one month) to ensure all payments have been successfully transferred.
• Keep records of all communications with both banks during the switching process.
• Monitor both accounts closely during the transition to catch any missed payments or issues.

Want to read more guides? Head to Mozo’s bank accounts guides hub for more information on things like open banking, how to open a joint account and more.