The rise of the ethical borrower

by AB13 Jul 2018

Across Australia, demand for ethical banking has increased four-fold in three years. Mark Middleton, head of third party distribution at Teachers Mutual, explains why

For many Australians the decision to take out a mortgage on their dream home is the single biggest financial decision they make in their life. However, the decision-making process increasingly considers more than just the community, schools and grocery stores on offer.

There is a growing awareness among consumers that to take out a loan with a financial institution is to support its business and wider impact. So it’s little wonder that we increasingly see the borrower’s choice of lender being considered from an ethical perspective. According to research by the Responsible Investment Association Australia, responsible investments alone increased fourfold in the three years to 2017.

In short, a growing number of Australians see their choice of lender as an endorsement of their values. As a result, there is a desire to switch to financial institutions that have embedded ethical practices across their businesses.

What matters to consumers is not tokenism but tangible and assessable ethical policies and practices being instituted. Consumers are growing dissatisfied with statements from financial institutions claiming that they care about ethics; they want to be pointed towards real policies.

For brokers, this ethical shift will require an increased awareness of the ethical practices of lenders and the environmental, lending and governance policies they are instituting across their businesses. Providing this information to mortgagors not only gives them a more holistic understanding of the business practices of their potential lenders but increases the financial literacy of consumers seeking to understand how their loan supports their lender of choice.

For brokers, this ethical shift will require an increased awareness of the ethical practices of lenders and their environmental, lending and governance policies

So how do you spot a genuinely ethical bank? There are a couple of key tells. Look for an institution that has implemented ethical practices in its business over a number of years. This shows the organisation believes ethical practices should be a priority in how it conducts business.

Beyond annual reports, being open with customers about the impact of community investment is important. At Teachers Mutual Bank Limited, we focus on using the internationally recognised London Benchmarking Group measures to track our community investment level year-on-year. This currently sits at 23 times the financial sector average for last year, at 6.86% of our net profit before tax. We’re proud to punch above our weight on this metric. Other institutions may use other benchmarks, but a good rule of thumb is that meaningful ethical standards should be external to the organisation, transparent, and reliable.

We are open about our belief that we have environmental obligations as a financial institution: we are a carbonneutral bank that doesn’t lend to fossil fuel companies; we place an emphasis on treating our customers with respect; as a mutual bank we have no clash of interest between customers and shareholders; and we don’t make political donations as part of lobbying efforts.

Between increased regulation, a continuing low interest rate environment, and the rapid pace of technological change, we’ll have to work hard as a sector to continue to grow sustainably over the next few years. In all of this, however, ethical practices will be at the core of whether consumers believe they can trust our industry to do the right thing by them, and by their community. Make no mistake – what is right will increasingly be popular.


Mark Middleton
Head of third party distribution
Teachers Mutual