Is Ethical Finance the Answer to the Ills of the UK Financial Market? A Post-Crisis Analysis

Abstract

The 2008 financial crisis exposed the dark side of the financial sector in the UK. It brought attention to the contaminated culture of the business, which accommodated the systemic malpractices that largely contributed to the financial turmoil of 2008. In the wake of the crisis there seems to be a wide consensus that this contaminated culture can no longer be accepted and needs to change. This article examines the ills of the UK financial market, more specifically the cultural contamination problem, which was uncovered by the 2008 financial crisis, in order to explore its genesis and the suitable solutions for it. In this regard, the article analyses the ethical finance sector from theoretical and practical perspectives in order to assess its role in addressing the cultural contamination problem of the UK financial market.

Full text

Is Ethical Finance the Answer to the Ills of the UK Financial
Market? A Post-Crisis Analysis
Abdul Karim Aldohni
1
Received: 5 May 2016 / Accepted: 14 July 2016 / Published online: 22 July 2016
The Author(s) 2016. This article is published with open access at Springerlink.com
Abstract The 2008 financial crisis exposed the dark side
of the financial sector in the UK. It brought attention to the
contaminated culture of the business, which accommodated
the systemic malpractices that largely contributed to the
financial turmoil of 2008. In the wake of the crisis there
seems to be a wide consensus that this contaminated cul-
ture can no longer be accepted and needs to change. This
article examines the ills of the UK financial market, more
specifically the cultural contamination problem, which was
uncovered by the 2008 financial crisis, in order to explore
its genesis and the suitable solutions for it. In this regard,
the article analyses the ethical finance sector from theo-
retical and practical perspectives in order to assess its role
in addressing the cultural contamination problem of the UK
financial market.
Keywords 2008 Financial crisis Cultural contamination 
Individualism Accountability Ethical finance
Introduction
Traditionally, the banking and finance business has been
predominantly established on the basis of a number of
fundamental concepts, namely prudence, trust, honesty and
responsibility (Cowton 2002; Ellinger et al. 2011,
pp. 119–127). Clients, whether individual savers in a high
street commercial bank or high net worth investors in an
investment bank, deal with their bank because they trust
this institution with their financial affairs. By the same
token, lending, which is the substratum of banking and
finance business, is also primarily based on banks trusting
their clients. The existence of these fundamental concepts
of the business, however, has been significantly challenged
by the unfolding events of the 2008 financial crisis.
The 2008 financial crash had reverberating conse-
quences that were visible at different levels across the
global financial markets. In the UK financial market, for
example, the 2008 global financial crisis exposed the
defects in the legal and regulatory structure of the UK
banking and financial sector. As a result, the UK’s financial
regulatory structure was redesigned in order to enable it to
better supervise the market and protect its participants,
whereby the then chief regulator Financial Services
Authority (FSA) was replaced by two new regulatory
bodies—the Financial Conduct Authority (FCA) and the
Prudential Regulatory Authority (PRA), with the latter
established as a subsidiary of the Bank of England (HM
Treasury 2012). Further, there were some significant
changes in the UK financial market landscape among
which the disappearance of some of its main regional
players, for example Northern Rock in the North East of
England, which was fully nationalised and then sold to
Virgin Money (Goff 2012); the partial nationalisation of
some of the major institutions of the banking market, for
instance the Royal Bank of Scotland; and the break-up of
some of the large banking institutions, such as Lloyds TSB.
Finally, and most importantly for the purpose of this
article, the 2008 financial crash uncovered a questionable
business culture that, to a certain extent, dominated the
business practices in the UK financial sector in the run up
to, and even during, the financial meltdown. It became
evident that the prevailing financial business culture was
remotely distant from the fundamental values upon which
&Abdul Karim Aldohni
a.k.aldohni@ncl.ac.uk
1
Newcastle Law School, Newcastle University,
Newcastle upon Tyne, UK
123
J Bus Ethics (2018) 151:265–278
https://doi.org/10.1007/s10551-016-3269-5
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the sector was originally established. As discussed later,
there were wide spread instances of reckless, manipulative
and even fraudulent practices, which were systemic in
nature.
This article’s argument is twofold. First, considering
that the genesis of the 2008 financial crisis was not only
regulatory but also cultural in nature, it is argued that any
response to the crisis should also address the endemic
cultural contamination in the financial business. This arti-
cle argues that re-enshrining the fundamental ethical values
in the business ethos of this sector could be an effective
way of addressing this questionable culture of the UK
financial industry. This leads to the second part of the
argument, that is, the process in which these values can be
re-enshrined and the role of ethical finance in this
endeavour. This article argues that the ethical finance
sector in the UK should not on the basis of its title be
automatically presumed to be the solution or part of the
solution. It, therefore, examines the ethical finance sector
in the UK from conceptual and practical perspectives and
provides a critical assessment of its potential contribution
to the solution of the business cultural problem. Accord-
ingly, the article is structured as follows.
Part II exposes the ills of the UK financial market in the
run up to the 2008 financial crisis demonstrating the gen-
esis of the ‘cultural contamination’ problem in the UK
financial market. Part III analyses the notion of ethical
finance examining whether it is paradoxical by its nature.
Part IV analyses the application of the concept of ethical
finance in practice charting the development of the ethical
finance sector in the UK market. Part V critically assesses
whether ethical finance could be part of the solution to the
‘cultural contamination’ problem, by judging the ethical
finance sector according to its ability to deal with the two
ethical problems which were identified in Part II and found
to be at the heart of the contaminated culture of the finance
sector, namely individualism and unaccountability. Part VI
concludes the discussion highlighting the prospects and
challenges faced by the ethical finance sector in the UK.
The Ills of the UK Financial Market: the Problem
of ‘Cultural Contamination’
The unfolding events post 2008 revealed some shocking
stories about the market players’ behaviour in the run up to
the 2008 financial crash, which was reckless or manipula-
tive/exploitative—to say the least—and on some occasions
fraudulent.
More seriously, it became apparent from these stories
that implementing a reckless business strategy was the
norm among some of the major global financial institutions
and banks. There were two key features of such a strategy:
First, a significant increase in institutions’ leverage to
pursue short-term profitability (Coffer 2009, pp. 2–3;
Schoen 2016). Second, and more important was, engaging
in highly speculative and complicated financial structures,
a practice which later became known as ‘casino banking’.
In the short run, this business strategy yielded substan-
tial benefits to the senior management of these financial
institutions, as the monetary value of their annual bonuses
soared. But in the long run, this business strategy signifi-
cantly increased institutional exposure to liquidity and
credit risks and weakened its resilience. An example in
point is Northern Rock, one of the main UK mortgage
banks that had pursued a high-risk lending policy. The
bank reportedly provided borrowers, who were not neces-
sarily very creditworthy, loans up to 125 % of the value of
the property they wished to purchase under what was
known as a ‘Together’ mortgage.
1
A post-mortem analysis of Northern Rock financial
transactions revealed that the main reason for its collapse in
2008 was its high leverage that was based on non-retail
funding (short-term inter-bank borrowing). In addition,
there was Northern Rock’s involvement in securitisation
which had worsened its exposure to liquidity risk (Shin
2008, pp. 3–9). Yet Northern Rock’s executives enjoyed
their bonuses in the same year when the bank was
nationalised and made £1.4 billion loss (Kirkup 2009).
Another example of what falls within the category of
manipulative/exploitative behaviour was the mass mis-
selling of financial products, a practice which dominated
the UK financial scene in the run up to the 2008 financial
crash. This problem originally stemmed from the practice
of cross-selling in which the seller tries to maximise their
profits from one sale transaction by using the sale as an
opportunity to sell another product. In principle, this
practice is not itself a wrongdoing. However, a problem
arises when the seller subjects its customers to undue
pressure with ‘hard-sell techniques’, exploiting their
weaker bargaining position and information asymmetry
(Parliamentary Commission on Banking Standards [PCBS]
Report Vol. II 2013b, pp. 88–90). The evidence which
emerged post the 2008 financial crash confirmed that a
large number of financial institutions were involved in this
form of manipulative/exploitative practice with regard to
certain insurance products, more specifically interest rate
hedging products (IRHP or interest rate swap) and personal
protection insurance (PPI). The investigation into this type
of practice found that consumers, individuals and busi-
nesses, were subjected to undue pressure to buy these
1
‘Together’ mortgage combined a secured loan 95 % of the value of
the property and an unsecured loan up to 30 % of the value of the
property or £30,000 whichever was the lowest. National Audit Office
(2009 p. 32); Winnett (2009).
266 A. K. Aldohni
123
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insurance products. Further, these products were, on many
occasions, presented to consumers as if they were part of
the credit agreement, which they were undertaking, and
that they had no other option but to take them (PCBS
Report Vol. II 2013b, pp. 90–91). While in fact these
insurance products (IRHP and PPI) were separate products
that banks would have struggled to sell had they not
exploited that one cross-selling opportunity.
In the case of PPI, banks unnecessarily sold this product
to subsidise for the relatively cheap credit that they were
offering. Further, evidence found some inappropriate
complicated structures of IRHP were sold to business
consumers who did not need them nor understand them
(PCBS Report Vol. II 2013b, pp. 91, 95).
The more serious turn of events that shattered any shred
of confidence left in the financial sector was the LIBOR
scandal. This scandal exemplified a systemic corrupt
business culture that prioritised personal gains at any cost.
In theory, the London inter-bank offered rate (LIBOR) is
supposed to represent an estimate of the cost of banks’
wholesale short-term unsecured borrowing from each
other. The methodology used to reach this simple number
is based on, first, taking submissions from a panel, which
comprises the largest and most creditworthy banks oper-
ating in London, then discarding the top and bottom four
and finally averaging the submissions that are left (Hou and
Skeie 2014, pp. 1–2).
The significance of the LIBOR stems from a number of
facts. First, it sets the borrowing rate for 10 currencies and
15 maturities (The Economist 2012). Second, it is used as a
reference rate where it is relied upon globally to set the
interest rate of a wide range of financial instruments (Hou
and Skeie 2014, p. 2). For instance, in 2012 the US
Commodity Futures Trading Commission estimated that
around $350 trillion worth of derivatives and $10 trillion
worth of loans were based on LIBOR (Nocera 2012).
Third, the LIBOR is also used as a benchmark rate, which
indicates the overall financial health of the market and
relatively measures performance with regard to investment
return and funding cost (Hou and Skeie 2014, pp. 2–3). In
addition to these factors, there is one last crucial element,
that is, the virtue of trust and how it is embedded in the
very concept of the LIBOR. The LIBOR would not have
had any significance if trust in the honest nature of its
calculation was not a given by all participants. The honesty
and trustworthiness of the institutions involved in setting
the LIBOR is what gives this rate its true value. Given that
what banks submit is actually an estimate of the borrowing
cost this demonstrates the importance of honesty and trust
to the functioning of the LIBOR, yet it also makes it very
susceptible to abuse.
Unfortunately, the investigations into the LIBOR scan-
dal have proved that trust could no longer be established
since a systemic fraudulent behaviour was the dominant
feature of this scandal. Traders in some of these trusted
banks, such as Barclays and Royal Bank of Scotland
(RBS), saw a great opportunity to secure financial gains
through manipulating the banks’ submissions and eventu-
ally rigging the LIBOR final fixing. By doing so those
traders abused all the key features of the LIBOR. First, they
manipulated the LIBOR as a benchmark rate when they
submitted highly discounted estimates of the true cost of
their borrowing to signal false financial strength at the
height of the 2008 financial crisis (Hou and Skeie 2014,
p. 6). Second, they also abused the LIBOR as a reference
rate as they manipulated their submissions in order to fix
the LIBOR at a figure that increased their profits, or
reduced losses, in connection with LIBOR-based financial
contracts (Hou and Skeie 2014, p. 6). Barclays’ traders
used this technique, even on occasions colluded with other
banks’ traders, to increase profits or reduce losses on their
derivative exposures (The Economist 2012). Finally, the
actions of those traders showed that honesty and trust-
worthiness are no longer enshrined in the business culture.
While these forms of reckless, manipulative/exploitative
or fraudulent behaviour contributed to the 2008 financial
crash, they are also significant in highlighting the endemic
nature of this behaviour in the financial sector and the
significant change that it brought to the ethos of the
financial business. In this regard, it has been suggested that
Northern Rock’s risky mortgage lending policy was part of
a wider market practice (Aldohni 2011). Northern Rock
was not an outlier among other big banks in the UK in
terms of using non-retail funding for its highly leveraged
operations (Shin 2008, pp. 7–8). The same can be said
about the mass mis-selling of PPI and IRHP where this
type of practice was not only associated with one or two
major credit providers—rather it was widespread among a
large number of financial institutions. Furthermore, in the
wake of the LIBOR scandal Barclays maintained that they
tried to submit honest estimates; however, almost all banks
on the panel were deliberately submitting manipulated
estimates. This had created a market trend that every par-
ticipant had to follow otherwise they risked looking even
financially weaker than their distinctly weak counterparts
(The Economist 2012).
The important narrative that the above discussion pro-
vides is that the various forms of wrongdoing that went on
in the financial market were not isolated incidents com-
mitted by rogue players. Rather, they were the result of a
collective process of malpractice normalisation that has
eroded some of the fundamental ethical foundations of the
financial business such as prudence, honesty, trust and
responsibility. It can be argued, therefore, that at the heart
of this malpractice normalisation process lie two key
problems, namely individualism and unaccountability.
Is Ethical Finance the Answer to the Ills of the UK Financial Market? A Post-Crisis Analysis 267
123
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Individualism in this context refers to the prioritisation
of self-interests whether by the institution or its individuals
(those who act on behalf of the institution and running its
business), which is in many cases primarily driven by greed
and sense of entitlement. This is always associated with
complete disregard by the institutions or their individuals
for the broader context of their actions, namely the societal
dimension.
Unaccountability in this context is a twofold problem.
First, it means that financial institutions and their individ-
uals are unaccountable for the long-term consequences of
their actions. They are handsomely rewarded through the
remuneration system for their short-term success, which is
not always a true representation of their performance, while
they hardly receive any penalties for the long-term effect of
their short-sighted strategies (PCBS Report Vol. I 2013a,
p. 9). Second, it also entails the inability to hold individuals
accountable for fulfilling the long-term commitments of
their institutions. Accordingly, any solution that does not
address these two core problems (individualism and
unaccountability) is bound to fail given their epidemic
nature in the financial sector and their role in fuelling the
highly questionable practices of the market participants in
the UK.
In this regard, there have been recent calls by highly
influential individuals, such as the Archbishop of Canter-
bury Justin Welby and the Governor of the Bank of Eng-
land, to pay more attention to the underlying culture of the
financial sector. The Archbishop identified two key issues
in this respect, first, the need to address the ‘cultural con-
tamination’ in the financial business, and second, the need
to re-introduce ethical values into the vision of the financial
industry as part of the solution to the problem (Welby
2014, pp. 3, 7). These emerging themes have also been
echoed by the executive authorities. The Governor of the
Bank of England, Mark Carney, spoke on a number of
occasions about the systemic nature of the misconduct that
took place in the financial market, which hugely under-
mined public confidence and created a clear sense of
mistrust among participants (Carney 2015, p. 4). Mr Car-
ney has also identified the reinvigoration of the ethical
dimension of the financial business as an important part of
reinstalling confidence in the finance business (Carney
2014, p. 8), a process that the Bank of England has already
taken some active steps to effect, such as the establishment
of the Banking Standards Review Council (BSRC).
2
This
Council is set to ‘work with banks and encourage a process
of continuous improvement, and regularly assess and dis-
close the performance of each bank under the three broad
headings of culture, competence and development of the
workforce, and outcomes for customers’ (Carney 2014,
pp. 9–10).
There is no doubt that this shows a clear realisation of
the fact that the ethical grounds of the financial sector are
not a luxury, which markets can do without or ignore, but
rather are a necessity. Therefore, it is essential to explore
how best these ethical grounds can be reinvigorated in the
UK financial sector. In this regard, the rest of the article
examines whether the ethical finance sector could have an
important role to play in this quest. In other words, before
advocating the promotion of this sector as a part of the
solution to the contaminated culture of the UK financial
sector, it is essential to establish its immunity to the two
key problems, individualism and unaccountability, of this
culture.
Understanding Ethical Finance
‘Can finance be ethical?’ and the alternate, ‘Why would
finance not be ethical?’ are two simple questions, but their
answers are far from simple.
Addressing these questions requires understanding the
meaning of ethics and its position in the financial business
context.
The concept of ethics or morality is complicated and
perplexing, since there is not a universal agreement on
everything that qualifies as moral or ethical. Further, there
is not even an agreement on the criteria that should be used
in the conceptualisation process of these notions (i.e.
morals or ethics). It is important to note that ethics and
morality are used interchangeably in this context consid-
ering that morality includes ethics and vice versa.
3
In this regard, there are a number of philosophical
approaches to dealing with this pressing issue. For instance,
moral cognitivism argues that individuals’ judgment of
what is moral is aimed at truth rather than morality;
therefore, moral judgments are cognitive in their aspiration
(Wiggins 1990–1991, p. 62). Moral realism, however, is
founded on the premise that there is a moral reality,
objective moral truth, which people try to uncover while
they are making judgements about what is right and wrong
(Shafer-Landau 2003, p. 13). According to realists these
moral judgments—right or wrong—are objective and
independent (Boyd 1988, p. 182).
On the other hand, moral relativism disagrees with the
key premise of moral realism, namely the existence of
objective and universal morals or ethics that are in need of
2
It was launched in 2014 and is funded by the UK’s largest seven
lenders. Carney (2014) p. 9. See also Goff (2014); Dunkley (2015).
3
Ronald Dworkin advances this point further by considering ethics
to be concerned with the standards that they should follow to live
well, while morality is concerned with the standards of treating
others. See Dworkin (2011).
268 A. K. Aldohni
123
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uncovering. The starting point for relativists is that there
are irresolvable moral disagreements (Sturgeon 1994,
p. 94). In Gowans’ description of the three aspects of moral
relativism descriptive moral relativism (DMR), meta-ethi-
cal moral relativism (MMR) and normative moral rela-
tivism (NMR) (2009), one can further understand the key
premises of moral relativism. First, DMR advocates that
the disagreements among societies with regard to their
moral judgments outweigh the significance of any existing
agreements in this respect. Second, MMR argues that the
truth and falsity of moral judgments is a relative matter that
is influenced by traditions, convictions or practices of a
group or a person. Finally, NMR endorses tolerance
towards those whose moral judgments we reject when
differences cannot be rationally resolved, and this also
extends to their actions that reflect these views (Gowans
2009; Aldohni 2014).
It can be argued, therefore, that moral relativism pro-
vides participants in the financial market with a rather
convenient foundation for their behaviour. The relativity of
the truth and falsity of any moral judgements creates a grey
area in which they operate. As long as their actions are
approved by their peers in the business community, then
outsiders in the wider society cannot and should not judge
the ethicality of these actions. Further, those who are not
part of this business culture or environment should tolerate
the actions that reflect moral views they reject.
Despite the pragmatic sense that moral relativism con-
veys, the 2008 financial crash has demonstrated how
adopting this relativist approach to define the ethical
boundaries of the finance industry brought catastrophic
results that went far beyond the financial market. It has
been suggested that although the argument of the objec-
tivity of moral standards (moral realism) has not yet proved
to be universally persuasive, it is rather incomprehensible
to think that individuals post 2008 financial crash are
incapable of objectively identifying the wrongs in the
finance business culture (Jackson 2010, p. 759). Accord-
ingly, it has been argued that the ethical foundation of the
financial sector needs to be re-established on three grounds:
moral virtue, human dignity and common good (Jackson
2010, p. 759).
As for moral virtue, this concept could be rather prob-
lematic as it raises the perplexing debate that realists and
relativists have long grappled with, that is, the objectivity
or relativity of moral virtue. However, applying Aristotle’s
definition of moral virtue could provide some needed
guidance to deal with this challenge. In the ‘Nicomachean
Ethics’, Aristotle sets out the foundation of moral virtue as
moderation, and therefore, he describes moral virtue as a
means that holds a middle position between two vices that
are deficiency and excess (Aristotle, translated by Peters
1898, p. 55 and Jackson 2012, pp. 205–207). It can be
argued, therefore, that although the exact location of a
middle way might be a relative matter, the extremes that
should be avoided are not. For instance, it is a given that a
bank should lend to individuals and businesses and by not
doing so its actions will be deficient. On the other hand,
lending mortgages to non-creditworthy borrowers, up to
125 % of the value of the property they wish to purchase, is
no doubt excessive. In other words, while exactly ‘hitting
the mean’ (Aristotle, translated by Peters 1898, p. 46) could
be a relative matter, neither of these two scenarios, that is
not to lend at all or to lend excessively and recklessly, can
be considered as a form of moderation (i.e. neither has
moral virtue). This interpretation of the concept of moral
virtue maps onto one of the key foundations of the financial
business, that is, prudence. Banks that pursue moderate
strategies and avoid being deficient or excessive in their
practices can be described as prudent institutions.
With regard to human dignity, given that it is an
imperative aspect of the conception of human rights
(Preamble and Article I of the Universal Declaration of
Human Rights; McCrudden 2008, pp. 655–679; Nickel
1987, p. 4; Nickel 1982, p. 262; Cohen 2008, pp. 582–582;
Donnelly 1982, p. 303), it can be argued that preserving
human dignity should be considered the starting point of
any human interaction regardless of its context whether it is
financial, social, political, economic, etc.
In this regard, protecting human dignity primarily
depends on two considerations. First, there is a social
aspect to human dignity, and therefore, each individual
should be perceived as essentially connected to society. In
other words, protecting individuals’ dignity means main-
taining a dignified society. Second, and more importantly,
individuals should be treated as an end rather than as means
to an end (Jackson 2010, p. 761). Robin has considered
‘respect for individuals’ in a free market ‘capitalistic’
business context as fundamental to the meaning of ‘being
ethical’ (Robin 2009, pp. 142,144).
These considerations should have a major role in shap-
ing the behaviour of the financial business as there are a
number of examples that demonstrate the lack of attention
to human dignity in the current financial business culture.
Take, for instance, the mis-selling of some inappropriate
complicated structures of IRHP to business customers, the
mis-selling of complicated financial products to pension
funds and the pension annuities mis-selling scandal that is
being investigated by the FCA. In all these examples,
financial institutions took a very individualistic approach in
treating those consumers without considering the wider
social impact of their mis-selling of these financial prod-
ucts. In other words, no consideration was given to the
collective social impact that the mis-selling of these
products would have, for example, where pension funds are
unable to pay pensioners whose all pension savings are
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123
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invested by the fund, or where the pension annuity does not
provide the expected security to its buyer.
Further, they treated their consumers as a means to
achieve financial gains where no consideration was given
to the suitability of these products to those consumers who
later encountered significant losses.
The conceptualisation of the envisioned ethical foun-
dation of the financial sector cannot be complete without
examining the concept of common good. The literal defi-
nition of this concept seems very straight forward; the term
‘common good’ suggests ‘everything that is good to more
than one person, that perfects more than one person, that is
common to all’ (Argandona 1998, p. 1095). However,
articulating the application of the concept of common good
in practice, particularly in the financial business sector, is
not as simple as the literal definition may suggest. It would
first require understanding the genesis of this concept then
examining its application in the finance context.
Given that individuals do not exist in isolation of their
peers, it is essential to recognise the nature of the rela-
tionship between individuals and society, which is the
sphere in which they exist and interact with their coun-
terparts. There are different views with regard to the nature
of this relationship. On the one hand, for some, the exis-
tence of society is based on a social contract according to
which individuals cooperate only because they cannot
survive on their own. This means that the relationship is ‘a
pact between equals for the purpose of mutual self-help,
culminating in the surrender of part of each one’s personal
freedom to the State, in order to guarantee their collective
protection in the pursuit of their personal aims’ (Argandona
1998, p. 1094). The striking feature of this theory is that
there is no place for common good since the social order is
reduced to an abstract means that only facilitates the pur-
suit of individual interests (Argandona 1998, p. 1094).
On the other hand, collectivists would argue in favour of
the extreme opposite view. They subdue the individual to a
mere component of the social mosaic where individuals
and their interests are subordinated to the social (Argan-
dona 1998, p. 1094). Individuals’ identity, therefore,
becomes based on their membership of the social organism
(Oyserman et al. 2002, p. 5). Accordingly, it can be argued
that this view produces a distorted concept of common
good. This is because it does not acknowledge the role of
individuals’ interests in shaping the concept of common
good. It is also unnatural and unrealistic to presume that
individuals’ quests can be only driven by the interest of
their group.
It can be suggested, therefore, that the relationship
between individuals and their society is positioned some-
where midway between these two extremes where neither
individual nor society would be totally subordinated to the
other. Consequently, common good would be a multi-
layered concept in which the individuals’ endeavour to
achieve their personal objectives is an integrated part.
Having said that this does not mean simplifying the con-
cept of common good to a mere aggregate of private goods
of each member of the society, which has been described as
a ‘weak utilitarian’ conception of common good (Ve-
lasquez 1992, pp. 28–29). In this regard, those who do not
subscribe to the utilitarian conception of common good
argue that common good means maintaining the general
conditions of social living that help individuals optimise
their potential while ensuring that these conditions are
communal to all individuals (Rawls 1971, p. 246; Jackson
2010, p. 763; Velasquez 1992, pp. 29–30).
Applying this conception of common good in the con-
text of financial business would have some positive effects
on the functioning of its institutions. Take, for example,
banks, each bank should be aiming to achieve common
good, which in this context means to fulfil the purpose of
the institution in creating conditions that allow individuals
(their clients) to achieve their personal goals (Argandona
1998, p. 1097). Accordingly, banks should be focusing on
facilitating finance and fulfilling their primary intermediary
objective, which allows other individuals and businesses to
play their role as well in achieving common good (i.e.
creating opportunities, for example jobs, for other indi-
viduals to optimise their potential). Individuals who are
involved in running these banks, whether shareholders or
managers, should be aiming to achieve this conception of
common good so they can have their private good and
personal objectives also realised in the form of rewarding
salaries, bonuses and shareholders’ dividends. In this
regard, those individuals should not lose sight of the pri-
mary purpose of their institutions, namely linking finance
with real productive economic activities, as their means to
achieve their personal good. This is a rather critical point in
the business dynamic of the financial sector, which unfor-
tunately was not actively observed by the financial market
participants in the run up to the 2008 financial crash.
It has been suggested that the ‘noble economic function
of intermediation’ had taken a back seat as the focus of
these financial institutions and their members shifted
towards high-risk financial activities with hardly any real
economic benefits (Aziz 2015); a shift that was solely
driven by the relentless pursuit of private good with no
consideration for the conception of common good, that is,
ensuring the general conditions that allow all individuals to
optimise their potential. Consequently, ‘the gains from
excessive risk-taking were privatised among the few while
the losses were socialised [nationalised] among the many’
(Aziz 2015).
This shift has not only had some devastating economic
effects but also some major social repercussions. The
Governor of the Bank of England, Mark Carney, spoke
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about the loss by the financial industry of its own ‘social
license’ (Carney 2015, p. 4). In his speech ‘Building real
markets for the good of the people’, he highlighted the need
of the financial markets for ‘social consent’ in order for
them to operate and grow. Therefore, Carney highlighted
the steps that should be taken to re-build—what he
called—real financial markets. One of the key issues
identified in this respect was the need to re-establish the
link between the financial markets and society (Carney
2015, p. 4). This notion has long been enshrined in the
foundation of the market economy thinking, yet the free
marketers, in the period preceding the 2008 financial crisis,
seemed to have forgotten all about it. Adam Smith in ‘The
Theory of Moral Sentiments’ drew on the interdependent
relation between one’s own interest and the preservation of
society (Smith [1757] 2009, pp. 106–107). In this regard,
Smith’s argument had a clear moral or ethical dimension
and was not by any means purely economic (Smith [1757]
2009, pp. 156–180).
This leads to the original question that the discussion in
this part is set to address, namely ‘Could finance be
ethical?’
As discussed earlier, there are three key elements that
the financial sector should observe in order to operate
within acceptable ethical parameters, which are moral
virtue, human dignity and common good.
In reality, there is nothing to suggest that the financial
business is by nature contradictory to these three elements.
The malpractices and misconducts in the financial sector
should not be accepted, or even considered, as a mutation
to the original nature of this business regardless of the level
of their widespread use. It can be argued that the finance
business was originally founded on the basis of modera-
tion. Making sound decisions to intermediate between
investors and entrepreneurs requires a high level of mod-
eration and common sense to avoid the extremes. Further,
respecting customers and addressing their needs are the
original source of the ‘social license’ of any business and
the financial sector is no exception. Finally, the entire
existence of the financial sector, in the first place, is based
on the theory of free market economy. It is the same theory
that clearly acknowledges the interdependence between the
preservation of society and the advancing of self-interests.
Therefore, since the financial sector stands as one of the
main engines of the free market economy, it is difficult to
accept that the concern with the prosperity of the whole
society does not equally apply to the functioning of this
sector.
To sum up, there are some widely acceptable ethical
parameters that the financial sector can naturally function
within. However, the strong sense of individualism and the
lack of any accountability seem to have tainted the ability
of the sector to observe these ethical foundations, which
are, arguably, part and parcel of any business including the
finance one.
The next two parts will examine the emergence of the
ethical finance sector in the UK, its premise and functions.
The ethical finance sector will also be judged according to
its ability to deal with the two key problems, individualism
and unaccountability, that seem to have tainted the finan-
cial sector and largely contributed to the financial crash of
2008.
The Origins and Practice of Ethical Finance
in the UK
It would be an oversight to examine the ethical finance
sector in the UK without referring to one of the very early
pioneering institutions in this respect, that is, the Co-op-
erative bank.
The establishment of the Rochdale Equitable Pioneers
Society, in 1844 by 28 working men as a retail society, set
a pattern for other retail societies and formed the founda-
tion of the Co-operative movement (Harvey 1995, p. 1006).
In 1863, the amalgamation of these retail societies formed
the Co-operative Wholesale Society (CWS) to which the
origins of the Co-operative bank can be traced back. The
Co-operative bank was initially established as the CWS
Loan and Deposit Department (The Co-operative Group
‘Our History’), providing banking services to the other
CWS departments and retail members. The turning point in
the nature of its business came in 1971 when it was reg-
istered as a separate-wholly owned subsidiary of the CWS,
which made its banking services available to the public
(The Co-operative Group ‘Our History’ and Harvey 1995,
p. 1006). Considering its roots in the Co-operative move-
ment in the UK, the Co-operative bank, since it became
open to the public at large, distinguished itself from its
counterparts on the basis of its wider societal commit-
ments. The bank has always considered the long-term
effect of its investments and their impacts in the wider
social context, which means that profit generation was
never the bank’s only drive. Therefore, the bank is com-
mitted to promoting social and economic development in
Britain, which entails supporting charities, credit unions
and community finance initiatives. Around 60 % of the
credit union sector relies on the Co-operative bank for the
supply of banking facilities (the Co-operative Bank ‘Our
Ethical Policy’). The bank also supports initiatives that
help finance small businesses and social enterprises that
focus on the promotion of local economies and the creation
of employment opportunities within the local communities
(the Co-operative Bank ‘Our Ethical Policy’).
The bank excludes many investment opportunities in
lucrative industries due to their long-term adverse effect on
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societies, such as the tobacco industry and cigarette man-
ufacturing, and arms manufacturing and its export trade.
Further, the bank also refuses to deal with oppressive
regimes or governments as a manifestation of its human
rights commitment (Harvey 1995, p. 1008). The bank’s
ethical policies are referred to in the Articles of Association
which makes them enshrined in the bank’s constitution. It
must be noted that the ethical finance movement, in gen-
eral, has evolved over the years to include a wider range of
the socially concerning issues beyond just issues such as
gambling and tobacco (Chelawat and Trivedi 2013,
pp. 34–35). This can be seen not only in the evolution of
the Co-operative ethical policy, which has now a clear
environmental focus, but also in the ethical agenda of other
ethical financial institutions which now includes not only
environmental but also cultural objectives.
In addition to the Co-operative bank, there are other
ethical financial institutions that operate in the UK market.
Take, for example, Bristol-based Triodos, a Dutch ethical
bank which opened its first branch in the UK 1995, which
has sustainability at the heart of its business. Triodos’
business strategy is based on investing in the community
that it operates within, in order to promote the quality of
life for its members. Triodos provides finance to ‘microfi-
nance banks in developing countries, innovative fair trade
enterprises and social housing providers’.
4
Triodos extends
its sustainability agenda to include investments in culture
and environment, which covers a range of sustainable
environmental enterprises (renewable energy and organic
farming) and cultural activities and welfare initiatives
(schools, medical centres) (Triodos Bank, ‘Lending
Strategy’).
Accordingly, its sustainable banking agenda prevents
Triodos from focusing on short-term gains and, conse-
quently, making profit an objective in itself. Rather, it
requires the bank to align its finance activities with the real
economy. This means, first, Triodos maintains a direct
relationship with its investments, which is quite different
from the lending model of other conventional banks that is
based on ‘originate to distribute’.
5
Second, its portfolio
consists a range of tangible commodities (energy, food and
real estates) (Triodos Bank, ‘Our Sustainable Banking
Expert’). As a result, Triodos was not exposed to the
market volatility in 2007/08 that was caused by some of the
complicated securities and mortgage-backed securities in
the sub-prime mortgage crisis, and the bank’s growth was
not slowed down by the 2008 financial crisis (Triodos
Bank, ‘Our Sustainable Banking Expert’).
One of the key pillars of this sustainable banking strat-
egy is the treatment of profit as a means to an end rather
than an end in itself. While profitability is an important
factor in any investment, its significance—according to
Triodos—only stems from its use to maximise social,
environmental and cultural sustainability (Triodos Bank,
‘Our Sustainable Banking Expert’). Therefore, the lending
decisions are primarily made according to the bank’s
lending criteria, which are based on a ‘self-consciously
positive approach’ that primarily assesses the investment’s
contribution to a more sustainable society and secondarily
measures its negative impact in this respect (Triodos Bank,
‘Lending Criteria’). In other words, in the decision-making
process meeting financial and commercial objectives are
not considered as a priority over the creation of social,
cultural and environmental added value in order to achieve
real and meaningful benefits to the wider community
(Triodos Bank ‘Lending Criteria’).
There is also another type of financial institutions that
provide banking services in the UK market without being
banks, namely mutual organisations such as building
societies and credit unions.
With regard to building societies, some of these insti-
tutions, for instance, Coventry, Cumberland and Ecology
building societies, were recently featured in the Ethical
Consumer magazine guide to ethical banking occupying
top positions (2014). Considering their mutual nature, most
of these building societies are owned by their mem-
bers/customers (savers and borrowers) and they do not
answer to shareholders, which means that their business
decisions are made with only their members in mind. This
eventually benefits the local community in which the
members are based and creates a special bond between the
institution and the local community.
6
Some of these
building societies, for instance The Coventry and Cum-
berland building society, have a clear social agenda where
their investment decisions are primarily driven by the
benefits of their local communities and their members.
While others have more environmental focus, such as
Ecology building society, where their finance is used to
create a greener society by allocating mortgages to promote
green building practices (Ecology Building Society, ‘What
We believe’). In any case, these building societies share
two common features: first, they are not driven by profits
generation and, second, for their investments they only use
4
Triodos Bank, https://www.triodos.co.uk/en/about-triodos/.
5
Making loans with the intention to convert them into securities and
sell them to other financial institutions.
6
For example, see Coventry Building Society (The Coventry)
‘Genuinely Different’ http://www.coventrybuildingsociety.co.uk/
your-society/genuinely-different.aspx#tabs-1. The Coventry immer-
ses its staff in the local communities by encouraging its staff to
volunteer and work with community-based groups. See ‘Community’
http://www.coventrybuildingsociety.co.uk/your-society/community.
aspx. See also Ecology Building Society, ‘What We Believe’ http://
www.ecology.co.uk/eco-difference/beliefs/.
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their savers’ money (i.e. no wholesale money market is
accessed to finance their operations).
With regard to credit unions, they are not-for-profits
financial institutions which are owned and controlled by
their members. Their co-operative model is based on the
idea that individuals who have a ‘common bond’, which is
geographical, associational or occupational, can save
money together and lend money to each other at a
favourable rate of interest. It has been suggested that the
requirement of the common bond has an important role in
strengthening the community element of these institutions
(Edmonds 2015, p. 4). The main focus of these institutions
is the financial welfare of their members, and therefore,
their objectives include using the members’ savings for
their mutual benefits, promoting thrift and educating and
training their members to make better use of their money
(HM Treasury 2014). This means that these institutions are
not driven by self-interest, and profit generation is a means
to a social end.
Interrogating Ethical Finance in the UK Through
the Lenses of Individualism and Unaccountability
Earlier in this article it was argued that the widespread
misconduct in the financial markets, which contributed to
the 2008 financial crash, can be primarily attributed to two
key problems, namely individualism and unaccountability.
Therefore, in order to assess the potential role of ethical
finance in re-constructing the UK financial market, it must
be first judged against the two key problems that heavily
contaminated mainstream banking and finance.
It must be noted that considering that the focus of this
article is the UK financial market, the following critical
assessment of its ethical finance will concentrate on the
institutions that were identified earlier as the key players in
the UK ethical finance sector.
Individualism and Ethical Finance
The concept of individualism predominantly entails the
prioritisation of self-interests as the ultimate goal of a per-
son’s endeavour. Objectivist ethics consider this as a moral
concept. Ayn Rand, who developed the Objectivism phi-
losophy, argued in ‘The Virtue of Selfishness’ that there
should not be a stigma attached to ‘selfishness’ as it is not a
vice. On the contrary, Rand found that ‘every living human
is an end in himself, not the means to the ends or the welfare
of others-and….man must live for his own sake’ (1964,
p. 23). Therefore, she argued in favour of rational selfish-
ness where an individual pursues the ultimate goal of any
man’s life that is his/her happiness while avoiding ‘irra-
tional whims’ (Rand 1964, p. 25). Self-interest accordingly
is a moral concept as it helps an individual achieve the sole
and ultimate purpose of his/her existence, namely his/her
happiness. In this regard, this self-interested pursuit of
happiness is not morally questionable unless it was con-
taminated by fraud or brutal force (Rand 1964, p. 20 and
Belousek 2009).
While Objectivism has it adherents, it can be argued that
the application of the Objectivist ethics in the financial
markets has proved to be a failure that brought disastrous
outcomes.
Alan Greenspan, former Chairman of the Federal
Reserve of the USA and a member of Rand’s inner circle
since the 1950s, stated before a congressional committee in
2008 that ‘Those of us who have looked to the self-interest
of lending institutions to protect shareholders’ equity,
myself included, are in a state of shocked disbelief…. The
whole intellectual edifice…collapsed last summer’
(Belousek 2009).
7
He further admitted that he ‘made a
mistake in presuming that the self-interests of organisa-
tions, specifically banks and others, were such that they
were best capable of protecting their own shareholders and
their equity in the firms’.
8
This clearly does not only apply
to the US financial markets but also extends to other global
financial markets including the UK where the self-interest
ideology was allowed to drive the business, and hence the
same malpractices took place.
It can be suggested, therefore, that in the financial
business context the prioritisation of self-interest by those
individuals running the financial markets was in most cases
primarily driven by greed and sense of entitlement. Exec-
utives in some of the banks that were bailed out by tax
payers’ money in the UK paid themselves handsomely,
while the share price of their institutions was falling sig-
nificantly in the market (Farrell 2014; Treanor 2015).
9
This
does not show any concern with the self-interest of the
institution represented by its shareholders, let alone any
concern with wider social interests. On the contrary, this
clearly exemplifies the type of self-interest pursuit advo-
cated by Objectivists, the likes of Ayn Rand, where the
person is the end and his/her personal happiness is the
ultimate goal irrespective of the effects on others. It must
be noted, for fairness, that the type of self-interest drive
that was uncovered by the crisis exceeded even what Rand
approved. Rand disapproved of the use of fraud in the
selfish pursuit of personal happiness, while the LIBOR
7
A statement made before the House Committee on Oversight and
Government Reform cited in Belousek (2009).
8
Cited by Clark and Treanor (2008).
9
It is reported that staff in the Royal Bank of Scotland (RBS) were
paid £588 m in bonuses despite suffering an £8.24bn loss in 2013
where the share price fell 6.7 %. Also in 2014 RBS staff were handed
out £421 m in bonuses despite suffering 3.5bn loss and RBS shares
slipped 4.4 %. Farrell (2014); Treanor (2015).
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scandal showed that traders’ pursuit of their personal gains
was largely tainted by fraudulent submissions of prices.
In the light of the above discussion, it is reasonable to
suggest that reducing the practice of individualism, by
ensuring that the strategic focus of the financial institution
goes beyond its individual’s short-term financial gains,
could be part of the solution. In other words, financial
institutions should ensure that the pursuit of self-interest by
those running the business is not institutionally accom-
modated. In this regard, it can be argued that the ethical
finance sector seems to be better equipped to address this
issue. Whether due to the mutual business structure of
some of these institutions, which means that there are no
shareholders to prioritise, or because of their central social
or environmental substratum, the self-interest ideology
does not drive the business of these institutions.
As noted above, the sustainability agenda adopted by
Triodos bank prevented it from getting involved in
activities that are not connected to the real economy,
including a range of speculative financial products that
profit only traders without maximising social, environ-
mental and cultural sustainability. Further, the mutuality
of the business model of some of the building societies
and credit unions has kept them close to the local
communities in which they operate. Considering that
they only have members (customer savers and borrow-
ers), they remain connected to the roots of those mem-
bers by serving their communities instead of being driven
by self-interest. Accordingly, they only lend their savers’
money which makes them prudent with their lending
decisions and prevents them from using wholesale money
markets and their complicated financial products. This
reduces the level of leveraging that drives short-term
financial gains, which only benefit those running the
business.
Restraining individualism, through the structure or the
agenda of ethical finance institutions or even both, maps
onto the earlier suggested ethical foundations for the
financial business—moderation, respect for others and
common good. In this regard, there is no doubt that ethical
finance institutions are interested in making profits but this
is not their only end. Instead, they are set to make profits
while achieving their wider social, environmental and
cultural objectives. Profits, accordingly, become the means
to their end. Therefore, moderation is essential to their
investment decisions where the means and the end should
be balanced out. By the same token, respecting human
dignity will also be observed where individuals are not
driven by a selfish pursuit of financial gains at any cost.
These institutions will not be selling financial products that
do not serve their customers, the local community in which
they operate or their social and environmental
commitments.
This leads to the last, and most important, ethical ground
for the financial business, that is, the common good. As
suggested earlier in Part III, the concept of common good
should capture the role of personal interests in shaping
common good, yet it should not be reduced to an aggregate
of private goods of each member of the society. In this
regard, ethical finance institutions through mediating
between savers and borrowers create conditions that are
communal to all individuals and help them realise their
potential, while at the same time balancing this with their
commitments to social and environmental sustainability. In
other words, their financial intermediation is based on
linking finance with real productive economic activities,
which serves as a means to achieve personal good of the
individuals involved while simultaneously advancing the
wider social and environmental agenda of these institu-
tions. This falls squarely within the concept of common
good as discussed earlier in this article.
Unaccountability and Ethical Finance
The problem of unaccountability is connected to the
problem of individualism as the former often fuels the
latter. The lack of any form of accountability would cer-
tainly increase the self-interest drive of individuals since
they are not accountable for any costs associated with their
selfish pursuit of personal gains. Applying this to the
financial business context means that the less account-
able bankers and financiers are, the more selfish and short-
sighted they become.
The 2008 financial crisis showed that although some of
the complicated financial products that bankers used had
handsomely rewarded them in the short run, they were a
complete failure in the long term given the high level of
toxic debt and institutional deficit that they caused. Yet,
those who widely traded these products and rendered their
financial institutions nearly bankrupt escaped lightly with
very little liability. They remained unaccountable for their
actions.
Having earlier considered how ethical financial institu-
tions have certain mechanisms to address the problem of
individualism and limit the self-interest pursuit of indi-
viduals, it is essential to examine their success in imple-
menting these processes and to measure the accountability
of their individuals with regard to the commitments of their
institutions.
In this regard, it is evident at the outset that ethical
finance has not been immune to the problem of unac-
countability. In the wake of the 2008 financial crisis, the
UK ethical finance sector was faced with a major blow,
namely the near collapse of the Co-operative bank in 2013.
Although this was related to one particular institution and
was not systemic, it is still very significant considering the
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origins of the problem and its effect on the ethical brand
that the Co-operative bank has championed for many years.
Setting aside the ethically questionable personal beha-
viour, drugs possession, of the Co-operative’s former
chairman Paul Flowers, the bank found itself in a major
trouble with the regulators. The Co-operative bank was
investigated by the Prudential Regulatory Authority (PRA)
and the Financial Conduct Authority (FCA) with regard to
prudential issues and governance concerns (HM Treasury
2013). The bank was publicly censured, instead of
receiving a substantial fine, due to serious risk management
and transparency failings. The PRA found that ‘Co-op bank
had a culture which encouraged prioritising the short-term
financial position of the firm at the cost of taking prudent
and sustainable actions for the longer-term’ (Bank of
England 2015). Additionally, the FCA found that the Co-
operative bank published misleading information regarding
its capitalisation for the period 21 March 2013–17 June
2013 (FCA 2015).
The findings of the investigations show that despite its
claimed ethical agenda, the bank was not pursuing long-
term sustainable goals. Instead the bank was prioritising
short-term financial gains, which is the exact same practice
that contributed to the 2008 financial crash. This does not
make the Co-operative bank any different from other banks
that never claimed to have an ethical agenda that goes
beyond the self-interest of the institution or its individuals.
The only distinction that can be made with regard to the
Co-operative bank is that the issue of executives’ com-
pensation never came across as the drive behind this pur-
suit of short-term gains. In any case, this cannot be an
excuse for tarnishing the bank’s long established ethical
brand. Further, the publication of misleading information
in breach of the Listing Rules was also another major
setback to the integrity of the institution in general, and to
its ethical claim more specifically.
It can be suggested, therefore, that these breaches
demonstrate a major flaw with regard to the accountability
system in the Co-operative bank. In ‘the report of the
independent review into the events leading to the Co-op-
erative Bank’s capital shortfall’, Sir Christopher Kelly
found that the Co-operative bank suffered from ‘confused
or diffused accountabilities in a number of important areas’
(Kelly 2014,p.9).
It is important to note that by identifying the account-
ability flaw in the Co-operative bank, it is not suggested
that all ethical financial institutions suffer or will suffer
from the problem of unaccountability similarly to all other
mainstream financial institutions. Rather, the key point is
that installing the mechanisms required to deal with the
problem of individualism does not automatically and on its
own improve the accountability culture within ethical
finance institutions. Hence, it can be suggested that ethical
finance institutions should be equally concerned with
ensuring that their systems are capable of holding those in
charge accountable for undermining the institution’s ethi-
cal commitments.
In this regard, the Co-operative bank, as a response and
in order to reassure its customers about its ethical brand,
has ‘codified values and ethical policies in the Bank’s
constitution by writing reference to them into [its] Articles
of Association’ and ‘established a new, independently
chaired Values and Ethics Committee as a subcommittee of
the bank’s Board to ensure accountability for values and
ethics’ (the Co-operative Bank ‘Our Ethical Policy’).
Although these steps show the Co-operative bank’s com-
mitment to remain on its ethical path, their effectiveness in
addressing the unaccountability problem remains to be
tested.
Conclusion
There is no doubt that the 2008 financial crisis exposed the
rotten side of the financial sector. At the same time, it
brought focus to an important aspect of the same business,
that is, ethical finance.
In the UK, the 2008 financial crisis post-mortem anal-
ysis showed that a key factor to the failures of 2008 was the
disconnection between finance and the real world. In other
words, financial institutions were primarily investing in
ever more complicated financial products, existing only on
trading platforms in wholesale money markets (Davis
2015, p. 31). Accordingly, they became less interested in
real productive economic activities. This was predomi-
nantly driven by two key elements: first, their self-interest
pursuit of financial gains, which these financial products
only offered for short term and to a very exclusive elite,
and second, the lack of any accountability for fulfilling the
commitments of their institutions and for the long-term
effect of their actions.
Exposing this dark side of the financial sector brought
attention to the business culture that accommodated these
practices and accepted them as the norm. As demonstrated
earlier, there is a wide consensus that this contaminated
culture can no longer be accepted and needs to change.
This is where ethical finance comes into play, especially
since its underlying foundation stands at odds with the
mainstream—no longer desirable—ideology, which sug-
gests that this sector has the potential to grow and play an
important role in addressing the cultural contamination
problem.
In this regard, ethical finance institutions operating in
the UK market have long advocated that profit is a by-
product rather than the ultimate objective of their invest-
ments. Ethical finance participants in the UK market have
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123
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made creating social, environmental and cultural value
their ultimate objective. As argued, having such an ethical
agenda plays a crucial role in addressing the problem of
individualism, which was found to be at the heart of the
2008 financial crisis.
Further, it can be suggested that there is a real oppor-
tunity for the ethical finance sector in the UK to break the
traditional classification as a niche sector and to join the
mainstream, and this is primarily because the gap between
these two forms of finance is supposed to shrink.
On the one hand, there is a political will to positively
change mainstream finance in the UK and make the sector
more caring and so bring ethical standards more into
mainstream. Among a number of initiatives to help effect
this change, the Banking Standards Review Council was
established to look into the banks’ behaviour, their culture
and effects on customer. This means that banks will have to
improve their culture and customers’ outcomes. This can
be achieved if self-interest and short-term financial gains
are no longer the sole drive of the banking business.
On the other hand, the unfolding events post 2008 were
eye-opening. Investors in the UK and around the globe
realised that earning short-term profits come at an expen-
sive cost in the long run. Therefore, there is a clear place
for ethical finance and its sustainability agenda in the
market where these institutions can attract individuals who
are looking for a sustainable outcome, that is, ‘a combi-
nation of financial and ethical return’ (Davis 2015, p. 32).
Additionally, the UK market is very well equipped to
empower this sector. The Ethical Investment Research
Services (EIRIS) has long been established in the UK,
since 1983, to provide the most needed research and
information on the available responsible investments
(Burlando 2001, p. 376 and EIRIS website).
This leads to the challenges that face the ethical finance
industry in the UK. As argued earlier in this article, the
problem of unaccountability represents the most significant
challenge that the industry should address head-on.
Otherwise, it would risk losing its very unique selling
point, that is, its ethical brand. Mechanisms that address the
problem of individualism are not enough on their own to
ensure their effective application as demonstrated in the
crisis of the Co-operative bank.
Ethical finance institutions should ensure that their
governance systems are capable of holding those in charge
accountable for fulfilling the institution’s ethical commit-
ments. As demonstrated earlier, this is an area where the
Co-operative bank has failed significantly, and as a
response, it has decided to establish Values and Ethics
Committee as a subcommittee of the bank’s Board to
ensure accountability for values and ethics. It is a welcome
step but its effectiveness is still to be tested. In any case,
the forms in which this could be achieved is a subject that
requires significant research and goes beyond the remit and
the capacity of this article.
To sum up, once the right governance systems are in
place, there is no doubt that the three key grounds—
moderation, human dignity and common good, upon which
ethical financial institution are founded can significantly
help re-establish the missing traditional foundations of the
financial business, namely responsibility, prudence, trust
and honesty. The strong presence and participation of these
ethical institutions in the financial market will force their
counterparts to improve their ethical standards in order to
be able to compete. This eventually would have a collec-
tive positive impact on the UK financial market, and its
culture, as a whole.
Acknowledgments The author is grateful to Professor TT Arvind
and Dr Alsion Dunn for their valuable comments on an earlier draft of
this paper.
Compliance with Ethical Standards
Conflict of interest The author declares that he has no conflict of
interest.
Open Access This article is distributed under the terms of the Creative
Commons Attribution 4.0 International License (http://creative
commons.org/licenses/by/4.0/), which permits unrestricted use, distri-
bution, and reproduction in any medium, provided you give appropriate
credit to the original author(s) and the source, provide a link to the
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