Creating the World We Want with the Power of Our Wallets

My friend was recently lavishing praise on his Wealthfront account. The results really are quite impressive; he stashes a few hundred dollars each month in his account, and Wealthfront algorithmically balances his portfolio to fit his risk tolerance by investing in a broad-based basket of securities. Combine this ease with low fees, and you start to see why the robo-advisory industry has grown so quickly: with very little effort, his portfolio has grown 20% faster than if it had been sitting in a bank account.

Intrigued, I asked him what he was invested in. To our chagrin, we discovered that his portfolio was heavily exposed to fossil fuels. In addition to a large concentration in US equities (of which the 4th largest holding is Exxon), Wealthfront allocated even more of the portfolio to “Natural Resources”. Digging a bit deeper, we found that this comprised ETFs of coal and oil companies. All told, he owned over a thousand dollars of the largest fossil fuel companies.

I don’t mention this to pick on him or Wealthfront, but to point out the power each of us has to create the world we want through our investing and purchasing decisions. Honestly, until recently my portfolio was no different. I poked around my 401(k) and IRAs, and I realized that I too was invested in fossil fuels, to my horror. After spending the last few years in my day job trying to devise financing solutions for solar energy, I was undoing much of my work through my retirement accounts! And this is exactly the point: we can’t spend our lives marching for social justice then unknowingly buy stocks or bonds that reverse those ideals. It’s the same as boycotting the baker that doesn’t serve immigrants but then investing in his bakery.

We can think of our financial power in three ways. First: choosing who gets equity. We can actively invest in and own companies doing good things for the world, or we can divest our portfolios from companies doing bad things for the world. “Impact investing” has become a sexy term, but many people think only Bill Gates or Pierre Omidyar can do it. Sure, we may not all be able to form social impact VCs, but if you have a 401(k) then you can be an impact investor. For example, State Street debuted an ETF last year that contains the S&P 500 minus fossil fuel companies. On the actively managed side, there are also several mutual funds like the Parnassus Mid Cap Fund that own socially responsible businesses and generate great returns. Or if robo-investing is more your style, OpenInvest is a new startup that allows investors to align their portfolios to their values. They do this by removing certain stocks and industries from an otherwise broad basket of securities.

Second way we can flex our financial muscle: choose who gets debt. Banks are in the business of taking our deposits and loaning them out to people and companies. To the extent that we care about where our deposits are going, we can choose banks whose values align with our own. My boss Kat Taylor likes to say that banking is the original form of crowdfunding. You would never deposit your funds with banks that would exclusively lend your money to cigarette companies, so why not open an account with a bank that is focused on social impact lending? The Global Alliance for Banking on Values is a consortium of banks around the world helping to finance a more sustainable future. The Treasury Department also designates certain institutions as Community Development Financial Institutions if they prove that they are helping economically distressed communities, so you can look for those. (Full disclosure: I work for Beneficial State Bank, in Oakland, CA, that is a member of GABV and a CDFI and aims to change the banking sector to maximize returns for people and the planet in addition to profits.) Finding a bank that aligns with your values is one of the easiest ways to engage in impact finance because you can do good simply by cashing out your paycheck every month. For example, if you care deeply about the rights of the Standing Rock Sioux Reservation, you probably shouldn’t hold deposit accounts with Citigroup or Wells Fargo. They might have loaned out your dollars to finance the pipeline!

Finally, the third way: choose who gets our everyday money. This is the one most people already know about (with campaigns like #GrabYourWallet), so I won’t belabor it here. Don’t spend money on, for example, groceries grown unsustainably or clothes made in sweatshops if those are issues you care about. Do eat lunch at a cooperatively owned bakery or dinner at a restaurant that hires former convicts. For better or for worse, we spend money every day, and that’s power that businesses want.

The 2016 election left many of us reeling with questions like “what more can we do?” By buying equity in companies we like and divesting from companies we don’t, by making loans available to the underserved, by spending our money on sustainable goods and services, we have power. We can’t write impassioned Medium articles and canvass for progressive candidates, but then let a robo-advisor undo that work with our money. We can vote every single day with our wallets, and we must tilt the cost of capital balance in favor of a better, more compassionate, more responsible world.