Category Archives: Finance

Money for the people, by the people: our take on democratic finance

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Ecology’s Ethics Manager Anna Laycock considers what democratic finance means in Ecology

AGM participants voting in plenaryCould this be the start of a financial revolution? A few years ago, the term ‘democratic finance’ was barely mentioned; now, within the alternative finance community at least, the concept is frequently used to highlight the need to give ordinary people greater knowledge and control of the financial system. Much of this debate is focussed on the concept of disintermediation – taking out the organisation that intermediates between borrowers and savers.

Historically, financial intermediaries were essential for transforming funds over space and time, enabling individual savers to contribute to long-term, large-scale investments. Today, online crowdfunding platforms enable people to invest, lend or donate directly. It’s an exciting area – so exciting that some think we’ll be able to do away with financial institutions altogether – but we think there will always be a place for intermediaries, not least to spread risk and manage the information demands of investment. So an important and overlooked question is: what does a democratic financial institution look like?

Ownership must be part of the answer. We’re huge fans of mutual governance structures, because they enable organisations like Ecology to put our mission and our members first. We say ‘members’ because that’s what they are: not passive consumers but owners of our business and part of a community of shared values. Some are more active in their engagement than others, but all of our members have a stake in our decisions and our success.

Without a duty to maximise profit for external shareholders, we can focus on maximising our contribution to the sustainability of our built environment, while balancing our borrowers’ and savers’ needs for long-term value. As Forum for the Future’s James Cole argues:
Many proposed alternatives attempt to strip banking back to its original purpose – allowing groups of people to pool savings to smooth the need for credit across society. A mutual organisation can be seen as the very embodiment of this aim, serving only the interests of its members, without the same profit motive.

But mutual or co-operative governance is a facilitator of democracy, not a guarantor. And just as political democracy can be meaningful or token, so can organisational democracy. The culture of the organisation and the attitudes of its leaders towards member empowerment are critical. These attitudes are made concrete in mechanisms which enable and encourage members to take part in the governance of the organisation – or not. Giving members a say is only meaningful if we’re transparent about how we make decisions and how we use the opinions they share with us to influence those decisions. Being clear about what can’t be influenced is just as important as creating the opportunity for dialogue.

For Ecology, the next stage is to move from representative democracy – voting for our Directors and formal motions at the AGM – to participative democracy. This means giving our members a say in the decisions that we make on important issues, such as changes to our lending policy. But this doesn’t mean putting all of these decisions to the popular vote; it means finding a meaningful way to enable our members to feed in their views and debate those views with other members. It also means ensuring we put our mutual principles into practice internally: engaging the whole team in building our vision of the future and planning how we achieve it. At our recent AGM I led a session to share our aspirations for democracy with our members, as well as the challenges it presents, and to hear their views on our ideas (you can see the session materials here).

Facilitating genuinely meaningful engagement isn’t a small task. It can demand a serious amount of time from the organisation and doesn’t lead to simple conclusions. It certainly doesn’t lead to consensus – so who decides the compromise? How do we ensure we’re not just hearing the loudest or keenest voices? Getting involved requires (some) members to have the knowledge, skills, time and inclination. There’s usually a significant gap between the numbers of those who think voluntary or civic engagement is a good thing to do and those who actually want to do it themselves – and understandably so, because we all juggle a range of priorities.

It’s also understandable that some organisations will fear giving away control – it’s not always easy and you don’t always get the result you expect. That doesn’t mean it’s the wrong result. In our AGM workshop, I planned to kick off discussions with a question: what would the most democratic financial institution on the planet look like? But the group didn’t want to talk about this. Or rather, those that spoke up didn’t want to talk about this (that’s another problem with democracy: you only know the views of those that express them). So I took a vote, and half of the room decided to focus on democracy within Ecology, while the other half explored wider issues around housing and democracy.

Where will this all take us? Right now we’re researching the feasibility of the ideas our staff and members have suggested – including how we might resource them within the constraints of a small organisation. We’re committed to making our 2014 AGM even more participative and member-centred, and we want to keep the conversation going in between events, and with a wider audience. So tell us: what should we do next?

Self-build finance in the spotlight: financing your project

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So you’re thinking about self-building. Congratulations! This is an exciting opportunity for you to live in a way that’s more socially and environmentally aware. Now to that million-dollar question: how much is this all going to cost?

Image of friends helping out with straw bale building project

Doing some of the building work yourself, or with the help of friends, can save costs

Whether self-build is financially viable is likely to be one of the first things you ask yourself. If you feel daunted by the thought of grappling with budget plans, don’t panic – you’re not alone! For many this is one of the most challenging hurdles to overcome. But by taking time at the start of your project to put together a strong budget plan, you’ll smooth the way for yourself further down the line. Let’s think about some of the key factors you’ll need to consider…

One of your first steps will be purchasing a plot. Finding your ideal site is an exciting stage as it means you can start visualising the finished property and life in your new home. But finding land suitable for development in the UK is – more often than not – both challenging and costly. More popular areas are usually highly developed and plots can be affected by planning restrictions. Plus they’re constantly being sniffed out by large-scale developers. When considering a purchase, be on the look-out for hidden legal and financial issues. These might relate to missing deeds, access rights or planning conditions, which can all affect your willingness and ability to purchase.

But it’s not all bad news. On 15 April 2013, the Government announced they propose to exempt self-builders from the Community Infrastructure Levy beginning in the summer of 2013. The tax typically adds a hefty 10 to 15% onto building costs, so the move represents a significant step in favour of self-builders. With only 10% of the UK’s new homes being self-builds, we fall far behind our European neighbours. But it seems this is down more to the complexity and expense of self-building in the UK rather than lack of interest – events like this year’s first National Self Build Week reflect a deep and widespread motivation for self-build across the UK. Let’s hope that dropping this tax encourages more inspiring, independent green builds to sprout up at home!

Self-builds generally save 10 to 15% on the purchase of an equivalent property, but it’s wise to reserve that saving in case of unforeseen expenses – a healthy contingency of at least 10% of costs is recommended. Those costs will vary enormously from project to project and depend on factors such as the materials you choose, how much of the building work you can do yourself and how quickly the build will progress. Developing your haggling skills is worthwhile: comparing prices and negotiating with suppliers and trades people can make a real difference to your budget.

Choosing the right mortgage provider is another essential part of your budgeting plan. Take time to look beyond interest rates – you want a lender who understands and cares about your project, and can offer genuine expertise in self-build lending. Some mortgages might seem like a great deal on the surface but are less desirable when you get down to the nitty-gritty of the small print. Check out how much your lender will charge for something like a photocopy of your deeds, a transfer of equity or a change to your repayment method.

When budgeting, it’s important to take a long-term view – be mindful that the choices you make now will affect your finances over the lifetime of the completed build. An energy efficient new home built with sustainable materials isn’t just better for the environment; it’s good for your wallet too. By considering factors like insulation, renewable energy sources and heat recovery systems, you can reap the benefits later on in the form of lower utility bills.

There are further financial incentives available for choosing to go green – for example, Ecology’s C-Change scheme rewards members who prioritise energy efficiency. If you’re upgrading your existing home the Government’s Green Deal could help you to cover initial installation costs. The scheme allows homeowners to install energy saving measures with no upfront costs; instead, the cost can be repaid through your energy bills.

You can’t be too thorough when it comes to putting together a budget plan: draw it up, inspect it, pull it apart and re-sketch until you’re confident that your planning is watertight. And just remember, those lamp-lit, coffee-fuelled hours spent comparing quotes and tweaking spreadsheets will be worth it when you’re moving into a beautiful, sustainable new home.

Not just any placement

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In February Philippa Parry, a Forum for the Future scholar, began a six week placement with Ecology. Here she reflects on her first impressions of a very different sort of financial institution…

IFields overlooking Silsden moorst’s not just in any placement that you work in a grass-topped building, where as you wait for a meeting to start you can watch the energy generated and carbon saved tick up and down respectively, while the solar panels work overhead.

And it’s certainly not just any placement when you can look at those same surrounding hills and realise that your forebears would have known them too.

My placement at Ecology Building Society as part of the Forum for the Future MA Leadership in Sustainable Development is proving to be particularly special for this last reason: just on the other side of Ilkley Moor is my last living relative in West Yorkshire, still in the same house that her father, my great-grandfather, built himself.

My great-grandfather’s idea of energy efficiency was likely to have been somewhat rudimentary compared to Ecology’s average self-build. The principles of sustainable design which it encourages its borrowers to adopt are also present in the Society’s head office, which incorporates extensive insulation, optimal heat retention through solar gain, and innovative features such as sun pipes and rainwater harvesting.

It is for precisely this reason that Ecology exists: to help those who want to build their own sustainable home or access affordable, low impact housing – at a time when owning a house is becoming an ever-more distant dream to younger generations.

Not just environmental benefit

Despite its name, Ecology’s focus is not just on the environmental benefits of eco builds. Its core values are rooted in social as well as environmental capital, meaning that it takes steps to address social justice within its activities.

With house prices still on the up, Ecology’s lending to housing co-operatives and cohousing projects (when many high street lenders will not lend) means that more people can live in properties whose future they control, without having to find a prohibitive deposit on an individual basis. These types of organisations can also help to protect their members from finding themselves unable to make mortgage repayments, and in worst case scenarios losing their home while retaining the debt – something which is becoming increasingly a worry as living costs rise while wages do not.

Ensuring that green properties are made available to as many people as possible – by supporting a wide range of home ownership models and refusing to lend on large-scale buy-to-let – also speaks to my belief in social justice. To have the chance of building a sustainable future, everyone must have the chance to build their own green vision.

Ecology also addresses social equality internally, with no member of staff paid more than five times the lowest full-time salary paid – but this is just a part of what they do to address wider social issues.

Personal journey

This placement in finance, third of the four sectors that the course covers, has shown me the personal satisfaction that there is in working for an organisation that is actively involved not only in pushing for improvements in how we live, but also in offering its own alternatives.

The space and time provided by a 9 to 5 routine and a five-minute bike ride commute has also reminded me of the first year I spent in Spain as a teacher in a rural Catalan town. As in Silsden, life there enabled me to slow down, breath deeper and look around more than the hectic pace of city-based study.

These insights, however,  will last me a lot longer – that I think better outside of a city, I appreciate the time to dedicate to things outside of work (in this case: more work), and that working for something I believe in brings a sense of peace. It is an awful lot easier to accept that your work is only a grain of sand if others around you are putting their grains in too.

You can follow Philippa on Twitter at @philippaparry.

A year to remember: 2012 in review

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Winter in Silsden
Winter view of Silsden, West Yorkshire, home to Ecology’s eco-HQ

When you’re a financial institution that aims to change the world, there’s no such thing as business as usual, and there’s certainly never a quiet year. But it’s fair to say that 2012 has exceeded all of our expectations, so as the year draws to a close, it’s a good time to recap some of the highlights.

In January we launched our brand new website, including this blog, our collection of member stories, and our revamped resource hub. The reception was fantastic and we were proud to have a web presence that reflected the passion and liveliness of our team and our work. We were even shortlisted for a Yorkshire Insider Digital Award!

Our online progress continued in February, when we launched our e-newsletter. We wanted to keep members and non-members updated on our work and interesting developments in the green building and ethical finance sectors, and we’ve seen subscriber numbers climb every edition. If you you’re not a subscriber, why not sign up today?

March was one of our busiest months, as we launched our Shrink This campaign to encourage homeowners to improve the energy efficiency of their properties. The campaign aimed to promote our C-Change Retrofit scheme, which offers a discount on our Standard Variable Rate (currently 4.90% – the overall cost for comparison is 4.9% APR) for every grade improvement you make in your home’s Energy Performance Certificate.

We also announced our new partnership with Parity Projects, who offer independent, individual home energy assessments – the first of our partnerships to promote retrofit. Later in the year, we also teamed with The Energy Saving Co-operative to offer a mutual, ethical alternative to the Government’s Green Deal.

As ISA season reached its height in April, the buzz generated by the Move Your Money campaign started to have a real impact, especially on our Twitter and Facebook feeds. It was fantastic to see more and more people calling for an ethical approach to finance – and putting their money where their mouths were!

We were also seeing an increasing buzz around self-build, or ‘custom build’ as the government likes to call it, and in May our Chief Executive Paul Ellis joined a delegation including Grant Shapps and Kevin McCloud to Europe’s largest self-build development in Almere, Holland.

June and July really were phenomenal months for us. As the crises of LIBOR fixing and mis-selling of hedge fund products hit the headlines, ethical alternatives finally took the spotlight, and we reached millions of people through coverage in the national press, on the radio and even on TV! The timing couldn’t have been more significant, as August marked five years since the start of the credit crunch.

September brought more media coverage as we released our excellent interim results, showing that green really is good for growth. At the end of the month we hosted an international delegation of leaders in ethical finance as part of our membership of INAISE, the International Association of Investors in the Social Economy. It wasn’t all work – we made sure they experienced a little bit of Yorkshire hospitality and the stunning scenery around our headquarters in Silsden!

National Ethical Investment Week in October is always special for us, but this year was extra special, as we announced that our savings balances had passed £100m for the first time. There could be little better evidence of a widespread shift towards sustainable, socially useful models of finance.

November brought an accolade of a different kind: we won Silver at the International Green Awards, a global awards scheme that recognises the best of the best in sustainable business. The judges of our WWF Green Game Changer award saw the potential of C-Change Retrofit to inspire others and drive the transition to a more sustainable future.

Now December is upon us, we’re planning for a very busy 2013, in which we want to help even more people live sustainably and save ethically. If you’re already a member, thank you for helping us achieve everything we did in 2012. And if you’ve not yet joined us, why not make 2013 the year you become part of a very different way to do finance?

Your home may be repossessed if you do not keep up repayments on your mortgage. An early repayment charge may be payable if you repay all or part of your mortgage within the first four years.

Banking and society: “most other lenders might as well be from a different planet”

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People and money

Earlier this year, Ian Marder, a postgraduate student from the University of Leeds, spent six weeks with Ecology as a volunteer researcher.

Here, he reflects on his findings…

“Banks took Friedman’s instruction to make money more literally than I’m sure he would ever have intended. The consequences were bad all round. The role of good companies and good banks extends beyond the narrow pursuit of profit.”

Steven Hester, RBS Chief Executive (in a speech at the London School of Economics, 2012)

In October and November 2012, I volunteered as a researcher for the Ecology Building Society. As someone with a keen scholarly interest in finance and its regulation, I was eager to learn more about how social finance works in practice, and my time with Ecology gave me an outstanding opportunity to do just that.

The most captivating elements of my placement were undoubtedly my weekly meetings, each with a different member of the Ecology team. These all involved fascinating discussions and gave me a great insight into just how different Ecology is from its competitors. I say “competitors”… but frankly, most other lenders might as well be from a different planet.

Ecology’s structure and mission is, in my opinion, unique in the United Kingdom, where the majority of the financial sector is designed in such a way that it tends to put short-term profitability above all else. This typically comes at the expense of its responsibilities in terms of due diligence, society and the environment, as well as institutional and macroeconomic stability.

For several decades, the emphasis among key players in global finance has been on short-term profitability, achieved in some cases through ethically questionable and speculative practices. This is an entirely unsustainable business model, particularly given that the banking sector plays a significant part in determining the shape and direction of our economy through its role as an intermediary between savers and borrowers.

I believe that the expansion of social finance and social investment markets is a crucial step towards a fair and resilient economic system which prioritises social and environmental measures of success, and in which the harm done by the financial sector is substantially reduced and repaired. Lending, like taxation, is a macroeconomic process of huge significance, with the ability to incentivise or disincentivise a given behaviour depending on how cheap and easy it is made (what Alex Nicholls, a professor of social entrepreneurship at Oxford, calls “fiscal signalling”).

Social finance, therefore, has the potential to play a central role in moving us towards a socially just and green economy by making expensive socially and environmentally damaging behaviours (internalising the social and environmental costs) as well as by prioritising any business, consumption or development which is socially and environmentally sustainable.

Ultimately, I believe that the social business model can be used to protect and further the interests of wider society and future generations, while the for-profit PLC model of universal banking has tended to benefit a relatively narrow social group. The time has come to move towards a more stable banking sector, one which measures its success in terms of social and environmental outcomes. Ecology is a brilliant example of how positive action and long-term thinking can be incentivised through social finance, and I believe that its mission-driven model could and should be applied across a variety of industries, on both a national and global level.

Towards a new model of banking: lessons from the mutual approach

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Storm over Canary WharfEarlier this year James Cole, a Masters scholar with Forum for the Future, joined Ecology for six weeks as part of his studies. Here, James reflects on his experiences and the lessons that the mutual model offers for reform of the financial sector:

The 2008 financial crisis and part-nationalisation of major financial institutions has brought closer scrutiny to banks’ operations and complex trading practices, leading many to question the public benefit of activities that are so removed from the high street bank account. This increased attention on the morality of the finance sector presents a real opportunity for change.

Many proposed alternatives attempt to strip banking back to its original purpose – allowing groups of people to pool savings to smooth the need for credit across society. A mutual organisation can be seen as the very embodiment of this aim, serving only the interests of its members, without the same profit motive. In the quest for a new model of sustainable, responsible banking, are we overlooking mutual models that have operated responsibly for hundreds of years?

Ecology’s mission is fulfilled by providing mortgages for sustainable housing projects, both new build and renovations. By demanding ecologically sound building practices alongside a sound financial case, Ecology ensures that its commercial activity delivers real environmental gains.

Unlike many banks and building societies, Ecology relies mostly on the deposits of members to fund mortgage lending, rather than wholesale funding such as that relied upon by Northern Rock prior to its near collapse in 2008. Ecology savings and mortgage products are straightforward, with no catchy introductory rates or fixed fee mortgage periods to attract new customers at the expense of existing members. In this spirit of fairness and mutuality, no savings account pays less than 1% interest, despite the historically low Bank of England base rate at 0.5%. 

A key difference between Ecology and a bank is that its customers are members who are committed to each other and the mission of the society; whereas with a bank the relationship is solely between bank and customer, with no regard for the welfare of other customers. The relationship turns on price and service, and lacks the social capital that a building society can foster between members.  For Ecology, this builds in resilience and ensures that members can effectively borrow money from each other (through the Society) at fair rates, as savers are willing to save at sensible rates so that borrowers can borrow at sensible rates.

Ecology’s relatively small size means that there is little distance between a member and the Board of Directors. In a mutual organisation, visibility of decision making is encouraged and desirable – as are consideration of others’ interests and the facilitation of consensus. The mutual governance structure  serves to distribute power and discourages autocracy, risk-taking or irresponsibility. This could be one reason why the building society model has been proven to be more financially responsible than banks and demutualised building societies.  

Ecology’s culture of mutuality is also reflected in the leadership styles of senior staff, who understand and actively promote the mission of the Society and the interests of its members above all else. A fair pay policy ensures that no staff member is paid more than 5 times the rate of the lowest paid employee.

During my six weeks working with Ecology, I felt good that the growth and development I contributed to furthered the social and environmental mission and benefitted all members as well as wider society.  Not all growth is good, but if we can find sustainable models for business, housing and finance, we’ll be a lot further along the path to living well within planetary boundaries.

The question for me is whether we will seize this opportunity for change, or if we will continue to be surprised at revelations of the moral failures of the current model.