The Beginner's Guide To Taking An Ethical Approach To Banking And Investing (It's Possible, We Promise)
Lending cash to eco-damaging companies such as oil manufacturers, weapons producers, and more, banks contribute to some of the most violent industries on the planet. A bank that is regulated by the Office of the Comptroller of the Currency (OCC) and has more than $100 billion in assets, such as Citigroup and Wells Fargo, cannot screen clients for loans based on what the loans are for, pushing back against the trend of banks divesting from destructive industries, The Hill reported in 2021. This means that financial contributions to "sin stocks," as they're sometimes called, are compulsory for certain banks, although others might do it simply because it's profitable.
For those who do not want anything to do with banks that fund initiatives against their values, it can be challenging to invest while also ensuring those investments align with what you believe in. Participating in investing at all will be a contribution to capitalism in some form or another, but the ways in which you engage with your investments can ensure that your finances feel ethically aligned with your values. First, know that ethical investing is indeed a thing, and it's as simple as investing in companies based on your personal ethics or morals. Here are a few ideas to take a more ethical approach to banking and investing — because it is possible, even when the odds are stacked against you.
Choose a smaller bank
One of the first steps you can take to move your money away from destructive industries is to move to a smaller bank. This could be a local bank that is more inclined to invest in the neighborhood or region than it is to fund international wars, for example. Among smaller, local banks are those owned by women and people of color and banks that provide customers with socially driven incentives. Although there may be some practical setbacks to banking smaller — less ATM access, and potentially less robust online systems or apps — there are some practical positives, too. For example, smaller banks might charge you smaller fees, and charge less often, than larger banks. Local banks, like big banks, can also be insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 in personal funds, so you will not compromise safety.
Moving to a credit union is another option. Credit unions are non-profit institutions, and you become a part of the union when you join. Credit unions are typically concerned with the needs of their members, rather than heeding the demands of a single, monopolizing power. Case in point: the fall of the Silicon Valley Bank earlier this spring. Plus, being part of a credit union means you will have a voice in how the union operates, for example, by voting for volunteer board members. Credit unions tend to stand with people over power, which can be appealing to the ethically minded.
Learn about ESG funds
When you're ready to invest, look for opportunities to engage environmental, social, and governance funds (ESG). Such portfolios will often exclude investments that go toward damaging environmental, social, and governance initiatives, and instead include those that would benefit those areas. For example, the Fidelity U.S. Sustainability Index Fund excludes companies that are involved with drugs, alcohol, gambling, firearms, and nuclear production. Other funds might pick a specific interest, for example, bolstering women's agency in the world, or smaller companies that are on the rise, diverting capital from corporate giants such as Amazon. Be sure to double-check exactly what investments a portfolio entails before jumping in, and be prepared to make some compromises.
Investments into ESG funds do not require a third party either, you can simply access investment portfolios online. Ellevest, for example, is an investment platform specifically targeting women, where its Impact Portfolio dedicates more than half of its investments to ESG funds and other socially conscious initiatives.
Check for specific certifications
When it comes to screening your investments, you want to make sure that the places you invest in are what they say they are. Greenwashing — that is, deceptive marketing that makes a company appear eco-conscious when it actually is not — is one example of something to watch out for. This is where checking for specific certifications can be helpful. The Green Business Bureau (GBB) outlines some of the certifications that might companies might seek, including its own certification called the GBB program, which outlines different green initiatives a company can achieve to receive higher ratings.
The B Corp Certification is another that requires among the most rigorous standards of social and environmental responsibility. The WELL Certification ensures that the physical workplace environment contributes to the overall well-being of its employees. And the Rainforest Alliance is a global nonprofit that certifies businesses depending on the transparency and fairness of their supply chains. Depending on what kind of company you are investing in, the breadth and rigor of their certifications can tell you much about their priorities, though keep in mind that obtaining prestigious certifications might be difficult for smaller companies, where being certified can take a lot of time and resources to implement sustainably.
Confirm the follow through
The follow-through on these initiatives is just as important as striving for certifications, however. Committing to transparent reporting about their initiatives and standards ensures that companies are walking the walk, not just talking the talk. While there is no federal legal requirement that companies release public reports about meeting ESG requirements, many still do, knowing the value of such reporting to investors. Be sure to read these reports and get a sense of how successful they are in fulfilling their goals. This can be highly valuable information for you, when the ethics of the company you are putting your money toward is of utmost importance. Various frameworks and data collection standards exist to help companies deliver accurate, critical information. The Global Reporting Initiative (GRI) is one of the most robust reporting standards when it comes to the impact of a company's sustainability efforts.
Keep in mind that the concept of ethical investing is relatively new. Be prepared to face a few contradictions in your quest to invest more ethically. But with the call for more responsible business practices rising, your commitment to ethical investing might pay off in more ways than one.