How to identify socially responsible banks
- Ethical banking is a commitment banks make to address social and environmental issues.
- Socially responsible banks establish policies or initiatives that reflect community needs or values.
- An ethical bank will often have a certification or designation to comply with specific requirements.
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Part of choosing a bank can include finding an institution that matches your values.
If you’re passionate about the environment or social justice, ethical banking might be something you’re considering. Here’s what you need to know about ethical banking to determine if it’s a good option for you.
What is ethical banking?
Ethical banking is a practice where banks implement practices or initiatives that reflect social responsibility. The bank’s mission statement, policies, and culture will describe a cause the bank is focused on and how it addresses community or societal issues.
Ethical financial institutions will also often obtain third-party certification or designation to fulfill their environmental or social action commitments.
Types of socially responsible banks: in brief
Socially responsible banks often put forward a specific cause. Here are the most common examples of socially responsible banks:
- Community Development Financial Institutions (CDFI): These are banks, credit unions, or non-profit organizations that serve low-income communities. To become a CDFI, financial institutions must undergo a certification process by the United States Department of Treasury Community Development Financial Institutions Fund.
- Minority Depository Institution (MDI): The FDIC and NCUA designate minority depository institutions. MDIs are owned or operated by African Americans, Asian Americans, Hispanic Americans, or Native Americans and serve these groups in the community.
- Sustainable banks: These are banks or online banking platforms with policies and initiatives involving sustainability and environmental action.
A CDFI extends banking services and lending opportunities to low-income and underserved communities.
According to a 2021 CDFI Fund report, approximately 75% of all CDFI loan portfolios were made up of underserved communities. During the COVID-19 pandemic, CDFIs have also been a vital resource for Hispanic-American small businesses.
Teri Williams, president and chief operating officer of OneUnited Bank, says socially responsible banks must have an inclusive culture.
Williams explains that when OneUnited Bank was deciding on its mission statement, it was important for the bank to serve the full spectrum of the community.
“One of the things we have in there is that we treat all customers the same, regardless of their account balance. We treat customers with respect and dignity,” Williams says. “It led us to offer a second chance checking account, it led us to offer a secured credit card as opposed to a prepaid card.”
What is a Minority Depository Institution?
MDIs also serve low-income and underserved communities. These banks and
often focus on providing solutions to banking barriers in their communities.
Black-owned banks can provide access to financial literacy training and reasonable loans to close the racial wealth gap. Many Spanish-owned banks are tackling language barriers or allowing customers to open bank accounts if they don’t have a US ID.
Manuel Chinea, chief operating officer at Popular Bank, explains that many MDIs start because there is a banking gap in the community that needs to be filled.
Chinea notes that the Spanish-American bank Popular Bank started in Puerto Rico to serve low- and middle-income households.
“When we opened our first branch in Bronx, New York, it was exactly the same reason. We felt Puerto Ricans and Latinos in the Bronx and New York were being ignored by mainstream institutions, and then we are came in. to fill a void,” adds Chinea.
Chinea says MDIs understand the cultural affinities and nuances between Hispanic American, Asian and African American communities so that they are able to provide the support and education that community members need to establish a credit and apply for fair loans.
What is a sustainable bank?
A sustainable bank implements policies and develops partnerships to combat climate change.
When sustainable banks make investments or provide loans to customers, many will prioritize green initiatives. Some sustainable banks will also deny financial products to companies that derive substantial revenue from environmentally harmful production.
Sustainable banks may have unique benefits for specific bank accounts, such as environmental impact scores or donation opportunities.
Melissa Fifield, head of corporate social responsibility and sustainability at Bank of the West, says the banking sector plays a unique role in the fight against climate change and that financing particular assets is an important part of solving the climate change problem. problem.
“We have pledged to fund $1 billion worth of renewable and clean energy projects. It was a 5-year goal in 2018. We actually hit it two years early,” says Fifield.
Partnering with environmental organizations is also another common feature of sustainable banks.
For example, Bank of the West has partnered with many organizations, including 1% for the Planet, The Conservation Alliance and Sustainable Surf.
How to identify a socially responsible bank
Identifying a socially responsible bank among other institutions requires research.
You’ll want to look at a bank’s customer reviews and history to gauge its reliability.
If you’re looking for a sustainable bank, Fifield says you’ll want to check a bank’s policies and make sure they have a meaningful impact on the environment.
For socially responsible banks that care about social justice, Williams recommends reviewing a bank’s mission statement and community involvement to understand how it addresses specific causes.
“On an institution’s website, there should be just that – some sort of dashboard, some sort of summary, a body of work,” adds Williams. “If you can’t see it, then don’t believe it.”
Chinea also suggests looking at branches and their location, as this can serve as an indicator for the communities it serves.
“Historically, many banks have maintained a relatively small number of branches in low-to-moderate income neighborhoods relative to their overall branch network,” Chinea says. “When you see a bank that has a large percentage of its branches in low-to-moderate income neighborhoods, that’s a sign that it’s a bank that’s very committed to supporting minority communities and the most vulnerable communities. underprivileged.”