As ethical concerns rise on the consumer agenda, more banks and financial services providers are launching products in this sector. But is this anything other than a cynical ploy aimed at cashing in on a growing trend, and what does ‘ethical’ actually mean? asks Catherine Turner
Co-operative Financial Services (CFS) is about to revitalise its ethical positioning (MW last week), causing many to conclude it is under pressure from an influx of rivals cashing in on the phenomenon. CFS has announced it is to push its credentials by introducing the strapline “Good With Money” across its marketing communications.
The ethical consumer movement is gathering pace. According to the Ethical Consumption Report published in December, British consumers spent &£25bn on ethical goods and services in 2004, an increase of 15% on 2003. Retailing giant Marks & Spencer has made much of its recently revealed “Look Behind the Label” premise, while fashion store Oasis last week announced the launch of ethically and organically produced clothing brand Future Organics to exploit consumer desire for ethically sourced products. Topshop is also trialling three fair trade brands made with organic cotton, called People Tree, Hug and Gossypium.
Jez Frampton, chief executive of branding consultancy Interbrand and a non-executive director of the FairTrade Foundation, points to a sea change in consumers’ attitudes across all sectors, from organic produce to fair trade products that shoppers are prepared to pay more for.
The Co-op says that of its &£132m profit realised in 2004, one-third was attributable to its ethical policies, representing an increase of five percentage points on 2003. It claims that 36% of its new customers that year made purchases as a result of its ethical policies. Frampton says/ “You could say that the financial services sector has been slow on the uptake.”
The Ethical Consumption Report showed that money invested ethically broke through the &£10bn mark for the first time in 2004, reaching &£10.6bn. Some &£5.5bn was invested in ethical funds – 31% more than in 2003 – and Frampton expects the trend to continue. Ethical banking and saving into credit unions also increased, with ethical bank accounts receiving &£4.7bn of consumers’ cash.
CFS head of marketing communications Kelvin Collins, responsible for the Co-operative Bank and Co-operative Insurance Services (CIS) brands, believes more consumers than ever before want to bank and invest “with their hearts”. High-street banks are increasingly looking to offer services to that growing number.
Says Collins: “Our time is now. Even ten years ago folk who would strongly express ethical concerns were seen as the left-field, “sandal- wearing” brigade, whereas now it’s everyday.” He says in his last job at a high-street global bank, ethical issues were discussed “day in, day out”.
“Now is the ideal time to be reminding people that we have been here for a very long time. This is not just a marketing ploy,” adds Collins. “It is almost as if the rest of the world has started catching up.”
The Co-operative Bank, Triodos Bank and the Ecology Building Society are the three front- runners in ethical banking and offer standard banking products. Each of the big four banks and numerous other investment companies offer “ethical” investment funds. Many are also thought to be looking into offering ethical standard banking products.
“Ethical money” is achieved by the bank avoiding investments in companies that carry out activities that are not considered ethical. The difference between mainstream funds and ethical investments is more complicated: while mainstream funds invest in a company based solely on its financial performance, ethical funds also take into account a company’s social and environmental record.
Research carried out recently by Standard Life Investments shows that environmental issues are the key concerns for ethical investors. Standard Life has an ethical committee, made up of investors and senior managers, to review its ethical criteria and ensure that they reflect clients’ views. The organisation’s four ethical funds total more than &£300m of investments.
Yet scepticism remains that the influx of ethical policies and products is a cynical marketing ploy used to cash in on a growing trend. Ian Cracknell, marketing director of not-for-profit insurance firm UIA, says: “It is particularly sexy to have an ethical policy at the moment. Companies are trying to reflect what consumers are looking for in any product or service.
“Financial services organisations have been far slower to react to this zeitgeist than many other retailers, but [the trend] is growing. They are reacting to what consumers are asking for, whereas financial services providers have historically tended to offer products they believe the consumer should want. It is now being driven the other way.”
Cracknell adds the caveat: “Financial services organisations are building on their ethical policies and offerings to meet consumer demand. But consumers are not easily deceived.”
Frampton says that while the rising number of policies on offer is a victory for consumer choice, brands must not exploit consumers. “People are buying with their hearts rather than their heads and wallets,” he says. “They want to be reassured that they’re doing the right thing and feel good about themselves.”
If companies were to fail to deliver on their eco-policies it would weaken the whole sector, as cynical consumers rally against marketing messages that fall short of the mark. There remains a danger that companies could use ethics to “cynically make money”, says Frampton.
A Capibus survey conducted last summer underlines this warning. Results showed two-thirds of people suspect some companies pretend to be ethical to increase charges or sell more products. Some 73% demand proof that a company is ethical.
Frampton warns that brands must be categoric in their definition of “ethical”, as unscrupulous companies can shift the emphasis on labels, leading to a weakening of the sentiment in some organic and fair trade products. He continues: “The Co-op Bank was an institution that happened to have an ethical basis because of the type of institution it is. That was manifested as a marketing proposition, but it is actually true to the essence of the organisation.
Fair deal of interest
“It then started to attract a lot of high net worth individuals. All of a sudden it became an interesting business proposition as well. This has led all the other banks to offer ethical funds. The danger is whether they will water down the value of the proposition.”
Frampton observes that the rising interest in fair trade and ethical investing could lead to consumers seeing ethical investing as an alternative to charity. “That must not happen,” he says. “There must be very good economic reasons why it is better in the long term to be choosing these products.”
Despite ethical investment funds continuing to underperform compared to mainstream products, there are signs that they could deliver good returns on investment. F&C’s Stewardship Fund regularly outstrips its mainstream counterparts and is proof, says the company, that ethical investing need not cost the earth. â¢