Understanding ethical finance

This week the Co-operative Bank is launching what it claims will be the biggest ever survey of what people in this country want from ethical finance.

Each of the bank's 2m customers, including bank and credit card holders, will receive a questionnaire asking what they think is most important in the balancing act between morals and money, with the responses set to shape an ethical policy review next year.

Ethical finance is growing in popularity and the Co-operative Bank estimates that a third of new customers are specifically drawn by its ethical stance. And what this study will help to establish is what consumers really mean when they talk about ethics because it can have so many different interpretations.

There are people who see ethical banking as a green campaign, a form of financial environmentalism taking a stand on issues such as nuclear power and the destruction of the rainforests.

There are others who see ethical finance as a kind of consumerism with attitude, using the money muscle to exert pressure on oppressive regimes, promote fair trade and discourage sweatshops and child labour.

The battlegrounds of ethical finance have changed over the years. A decade ago, when the Co-operative Bank was launching its ethical policy, among the biggest targets were animal testing, bloodsports and the fur trade. Now the bank's ethical policy manager, Barry Clavin, anticipates the survey will reflect more interest in topics such as genetically modified food, along with the continuing concerns over human rights, the arms trade and the environment.

There are also changes in how customers see the role of ethical finance. Barry Clavin says people seem to want a more pro-active approach, moving beyond negative screening and into a positive investment role.

"People are taking a less simplistic approach to what they expect from ethical finance and we've also got to be able to show how we're keeping to our principles. It can't just be PR. It's easy to say positive things about ethics, but it's much harder to fulfil them," he says.

According to financial adviser Holden Meehan, which specialises in ethical money, the two areas of concern most frequently mentioned by clients are tobacco and the armaments trade.

And the bad news for the ciggy companies is that even people who don't think of themselves as ethical investors ask to keep their money clear of the tobacco industry, says director Amanda Davidson.

Human rights and concerns over oppressive regimes are also mentioned, she says. But animal rights tend to divide opinion, between those who feel very strongly about protecting animals and those who prefer to put the emphasis on people.

Whatever we mean by ethical finance, it is an expanding market, as more people want their cash to have a conscience. The ethical financial sector, in terms of "values-based investments" and bank accounts, is up by 20% compared with last year. And sales of ethical products, from food to fuel, have risen by 18%.

If there is such a growing demand, whether it's for an ethical investment scheme or a box of organic apples, people should know what they're buying. And an important outcome of the Co-op's consultation exercise should be to clarify what the public can expect from the ethical label.

Because there's always that moment in the supermarket when you're looking at the free range and organic stuff, packed in the knobbly boxes, when you wonder whether it isn't just another marketing wheeze to tap a few quid more out of us.

If bank accounts, credit cards and pensions are going to have an ethical tag, then we need to know that the label means something specific.

In terms of supermarket products, the Food Standards Agency has highlighted the problems that can occur with vague labelling, such as asking what consumers are meant to understand by "traditional" or "fresh" produce. We see such phrases all the time but what do they really mean? And such ambiguities could easily apply to a term as broadly-defined as "ethical".

I was surprised to find that the rustic-sounding "barn laid" eggs, under European regulations, can mean up to 25 hens per square metre. That's not a barn, that's the kind of squalid overcrowding usually only allowed for the travelling public in London.

So we need to know what we're buying, especially if an increasing number of eco-warriors become eco-borrowers, as they discover that they can get more influence out of an ethical mortgage company than a march through the shopping centre in the rain.