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If you consider yourself a conscious consumer, you are likely aware of the impact your buying decisions can have, so you make thoughtful choices about how you spend your money. You can pay more to buy local, look for more sustainable products, or make sure the clothes you wear are sourced and produced ethically.
But have you thought about the money in your savings account? Does it stay aligned with your principles?
If you think your money should support your values while you save it, you might want to explore the idea of an ethical or socially responsible bank.
What is ethical banking?
Ethical banking is about choosing financial institutions that implement socially responsible investment policies and business practices.
A more socially responsible bank may, for example, have a policy against investing in carbon-generating sectors or companies that engage in exploitative labor practices.
Some banks invest in companies or organizations focused on environmental sustainability, community development, or social justice. These banks are generally transparent about their business practices as part of an overall commitment to their stakeholders.
What are the ethical issues in banking?
Socially responsible banks typically choose to highlight specific causes and align their investment policies and business practices around them. Here are three examples of issues that receive financial attention through Ethical Banking.
1. Access to banking services and community development
According to data from the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC), more than 5% of US households are “unbanked,” meaning they do not have a checking or savings account. Agencies say people of color and low-income families are more likely than other Americans to be unbanked because they often struggle to pay fees from traditional banks for overdrafts, low balances, withdrawals at ATMs, etc.
Banks that seek to help these consumers by reaching out to their communities are often referred to as community development financial institutions (CDFIs).
Over 1,000 CDFIs operate throughout the country, with support from the Community Development Financial Institutions Fund. The fund was created by Congress in 1994 to promote economic revitalization and community development in low-income communities by helping banks, credit unions, and other financial institutions provide capital and credit to those areas. .
2. Environment and climate change
Some customers of socially responsible banks do not want their money invested in oil companies and energy exploration. Environmentally focused banks typically refrain from investing in industries related to climate change, and they may actively support organizations that demonstrate positive environmental impacts.
A few environmental groups offer certification programs for banks and companies seeking to demonstrate their commitment to positive environmental change.
- green bank offers “fossil-free” certification to banks that the group says do not finance fossil fuel companies or projects and have pledged not to do so in the future.
- 1% for the Planet has a membership program for companies that donate the equivalent of 1% of their gross sales directly to non-profit environmental organizations. The organization reviews and certifies member donations annually.
3. Holistic social responsibility
Some banks support a combination of environmental, social justice and community investment initiatives while committing to stakeholder responsiveness and transparency. To take a more holistic approach to social responsibility, a bank can:
- Become a “B Corporation”.“These are companies certified by B Lab, an association that helps companies become greener and more socially responsible. To receive B Corp status, a bank must meet environmental and other standards, have a corporate governance structure that is responsive to all stakeholders, and demonstrate public transparency.
- Join the Global Alliance for Banking on Values. The alliance is a network of financial institutions that focus on sustainability and social and environmental development. The group has 11 member banks and credit unions in the United States
How does ethical banking work?
How each ethical bank displays its commitment to social responsibility will be different, but there are similarities in their approaches.
Most socially responsible banks publish information about their investment policies. This typically includes a commitment to avoid investing in sectors with negative environmental impacts or companies that the bank believes have unethical or abusive business practices.
Many banks also actively support local or minority-owned businesses, or that adhere to environmental or ethical business standards. And, they often pledge to use the profits for good. These commitments can include grants to organizations, political support for causes such as human rights or social justice, or ethical business processes and transparency of operations.
Banks can request certifications from third parties that verify their commitments, policies and charitable donations.
Which banks are ethical?
Many banks demonstrate their commitment to social responsibility through their business relationships, investment policies, community involvement and public support for important causes.
Here are four examples of banks often cited for their ethical business practices.
1. Financial Aspiration
Aspiration Financial is focused on its environmental impact and promises it will never use your money to “do things like build pipelines, mine coal or drill in the Arctic”. Additionally, Aspiration allows customers to round up purchases and donate additional amounts to reforestation initiatives.
The company has a tool called Aspiration Impact Measurement, which provides a personalized durability score based on where you shop. Aspiration is B Corp certified and a member of 1% for the Planet.
2. Sunrise Banks
Sunrise Banks is a Minneapolis-based financial institution that claims to be “the most socially responsible bank in the world.” Sunrise’s 2021 Impact Report Highlights its Alternative Mortgage Program for Borrowers Who Wouldn’t Qualify for a Traditional Mortgage; the $135 million in Paycheck Protection Program (PPP) loans it disbursed as part of pandemic relief; and its commitment to financial literacy programs for low- and middle-income students.
Sunrise Banks is a Certified B Corp, a Certified Community Development Financial Institution and a member of the Global Alliance for Banking on Values.
3. Merged bank
Amalgamated, founded by a labor organizer and labor leaders in the 1920s, says its mission is to promote “economic, social, racial and environmental justice”.
Amalgamated Bank was the first bank to publicly endorse a bill in Congress that calls on the federal government to form a commission to investigate the payment of reparations to African Americans. It also received a high score in the Corporate Equality Index from LGBTQ advocacy group the Human Rights Campaign.
4. National Cooperative Bank
The National Cooperative Bank claims to be the only bank in the United States “dedicated to providing nationwide banking products and solutions to cooperatives and other member-owned organizations to help communities thrive.”
The bank uses its loans and investments to increase the availability of local food, expand access to healthcare, create affordable housing and build renewable energy. The NCB says it made loans and investments in 2021 totaling $456 million that benefited low- and moderate-income communities.
Where do ethical banks invest their money?
How an ethical bank invests depends on its priorities. Some pledge not to invest in fossil fuels or actively invest in organizations that promote environmental sustainability. Others focus on local investments in food, health care, transportation and housing.
Some give loans to small business owners or direct money to underserved communities. Yet others provide grants and funding to organizations promoting causes such as social justice or financial literacy.
When looking for a socially responsible bank, look for a financial institution that aligns its investment priorities with yours. A bank that claims to be socially responsible must be transparent about where it invests its customers’ money.
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