Welcome to Taking Stock, a space where we can take a deep breath and try to figure out what the COVID-19 economy really means for our finances. Every month, personal finance expert Paco de Leon will answer your most difficult, emotionally charged questions about money. This last two years have forced many of us to reprioritize our finances, and there’s no clear road map for getting through the pandemic yet — but Taking Stock is here to help us figure it out together.
This month, we're talking about how to ethically invest so your hard-earned money goes to companies you believe in.
I'm 28, work for a nonprofit, and I hope to start investing about $50 to $100 a month outside of my Individual Retirement Account (IRA) when I max it out this year. I also have a 403(b) through work. My options for investing outside of retirement accounts are limited now as I recently moved and am adjusting to a much larger rent payment. I also learned recently that sustainable investing is an option — who knew?
The thought of my money, which is not plentiful, going to socially minded organizations, is much more powerful to me. It feels like every day I read about terrible corporations doing almost nothing for the world. The people who taught me most about money speak from an entirely capitalist angle, and I think there are better options out there, like B-Corps, climate change organizations, or Black-owned businesses. How can I sustainably invest my money? I don't want it going to evil corporations!
Dear ethically inclined,
I appreciate that you want to find ways to be less shitty to Earth and to your fellow humans. I’ll happily lay out a whole bunch of ways you can trim your carbon footprint while still patronizing banks and investing your coin. However, I do want to highlight some gigantic and obvious hurdles.
As individuals, we do have agency and we can make an impact through our financial choices, but that impact can be limited when we compare it to that of huge financial institutions, like hedge funds or banks. Another thing to recognize is that the mechanisms for building wealth through investing are inherently exploitative and extractive. This is less of a judgment and more of a statement so that we can understand the underpinnings of this system we are continuously opting into.
When we invest in companies through index funds, mutual funds, or exchange-traded funds, what we’re buying is ownership. Even though our ownership stake might be small, we become shareholders of the companies we invest in. Instead of the workers getting all the value they create, some of that value instead goes to shareholders, who profit from this. Which, let me be clear, is the whole point of a company. It’s doing what it’s supposed to do.
While we can make a difference by navigating these waters as ethically as possible, as I'll discuss below, it’s also true that making individual choices puts the burden of social problems on the individual.
Banks are in the business of lending money by using their customer deposits and lending it to businesses and people. Really huge banks are often the ones lending to huge corporations because well, they’re huge banks so they have a lot to lend. Banking with smaller, community-focused banks is a way you can use your money to invest in communities.
Consider banking with a local credit union, a minority-owned bank, or a community bank. Some other less-evil banking options to note are Aspiration and Amalgamated. These banks take a holistic approach to banking. For example, Aspiration savings and debit card purchases will never be used to fund the oil or coal industries and customers have the option to help neutralize their carbon footprint by planting trees as they spend money.
Another way to be less evil with your money is through impact investing. Impact investing can be done by investing in socially responsible funds, fossil-free funds, or through something called ESG investing. ESG investing is investing that considers environmental, social, and governance factors to rate and judge an investment’s overall impact as well as its financial return (the money you make from your investments). Plenty of investment banks give investors access to SRI (socially responsible investing) and ESG funds. Betterment, Vanguard, and the aforementioned Aspiration are a few. All these platforms are accessible by individuals. You don’t need a stock broker (does those still exist?) to access these investments. Yay, progress!
It’s important to note that there have been reports that some funds marketed as socially responsible or fossil-fuel-free, in fact, invest in the very thing they say they don’t.
I know what you’re thinking, Gasp! How could an industry that profits off opacity and rarely acts in the consumer’s best interest without the influence of the law, straight-up lie? What is the world coming to when you can’t trust marketing? So, if you want to be entirely certain that what you’re investing in is what you’ve been told you’re investing in, the burden lies on you, the individual.
Until legislation makes it harder or more expensive for companies to lie, you need to do some extra research of your own. Fossil-free funds is a search engine that can help you find funds that avoid fossil fuels. You can also see rankings of various companies that may already be invested in.
Even though we both agree that it’s hard to punish huge corporations by abstaining from buying and owning their stock at the individual level, Holden told me “t's totally fine to choose the ESG Index fund that simply screens out the worst of the worst — usually oil companies and weapons makers — especially if it matters to you. If you don't want to profit off these industries, you don't have to!”
However, she also went on to say, “when you use an ESG Index fund that screens out the naughtiest companies — you aren't investing in oil companies and weapons makers — but you are still investing in many companies that folks would consider unethical, like Amazon and JP Morgan Chase, the latter which happens to be the single largest lender to the fossil fuels companies in the entire world. [And] here we could get into what's a better use of our time as measured by potential impact: demanding better alternatives, pushing for regulation and sweeping legislative change, such as closing tax loopholes, getting lobby money out of politics.”
Think globally, act locally
We can also deploy our money to support communities and organizations whose values and actions are in line with our own. This is one way to reinforce and amplify our values in the real world. But, remember kids, we can’t consume our way out of inequality and climate change.
Support small businesses over large corporations as frequently as possible. Find small, local shops in your neighborhood, and ask your friends, family and colleagues for referrals to companies they’ve patronized in the past. Shop employee-owned businesses, collectives, and B-Corps to support workers and organizations that are taking a more holistic, people-and-planet-first approach to business.
Do what’s right for you
There isn’t one single path that everyone will take as we each navigate and negotiate how to ethically invest and consume. Many of these decisions are deeply personal. Living in such a globalized, financialized, unequal, and interconnected world, makes it hard for us to be perfectly ethical all the time. Each of us will find what works for us while learning to sit with some of our actions that we can’t perfectly reconcile. We live in the gray areas of a gray world; that’s the beauty and the friction of human existence.
Your favorite finance friend,
P.S. None of the above was investment advice.
Do you have a question or dilemma you’d like to see answered as part of Taking Stock? Submit it here or send us an email at firstname.lastname@example.org.