Banking with a Heart

Socially Responsible Loans are a Good Investment

Most people don’t think of their bank as a catalyst for social change. Yet if you accept the premise, unfortunate as it may be, that money makes the world go ‘round, how your bank lends out your money can influence which way it spins. Banks invest in a wide variety of projects; so while your neighbor’s bank may finance a new strip mall or oil well, yours could be helping to get an organic farm on its feet.

Socially responsible banking first received national attention in the mid-1970s when the South Shore Bank turned a poor, decaying section of Chicago into a respectable area with pleasant housing and thriving shops. South Shore performed its “miracle” by investing in its own neighborhoods with money from its own depositors and from socially concerned savers throughout the country. It was a reversal of the illegal but still widely practiced process called “redlining”—taking depositors’ money from poor areas but not lending it back to those same people.

In 1977, partially to address the redlining problem, Congress passed the Community Reinvestment Act (CRA), which was created to encourage banks to meet the credit needs of their local communities, including those in low- and moderate-income areas. Every bank has a CRA rating, which is part of the public record. You can get a copy of your bank’s rating by contacting its main office. There are, however, two problems with CRA ratings. First, as John Lind, executive director of the banking watchdog group CANICCOR, points out, “While CRA reports have valuable information, the grading system gives almost everyone a ‘satisfactory’ rating. Regulator evaluations have tended to overemphasize banks’ efforts to establish monitoring systems and promote community relations, which includes their [local] advertising. The actual distribution of loans has been underanalyzed.” Groups such as CANICCOR have developed their own methods of analyzing lending patterns, and can provide independent appraisals of your bank’s lending fairness.

Second, simply filing CRA reports doesn’t mean a bank is sensitive to local concerns. Corporate social research pioneers Amy Domini and Peter Kinder complain that “CRA ratings don’t address a fundamental issue: Is the consolidation of banking and the consequent elimination of local control a good thing?”

A rhetorical question indeed, as Domini and Kinder go on to note how large commercial banks infamous for their inappropriate, ill-conceived and environmentally destructive development loans to the Third World drain money from the hinterlands and pour it into the controlling hands of central banks. Large banks tend to be removed from the real needs of smaller communities.

Investing from the Heart

Community development credit unions are a particularly socially proactive form of credit union, designed to help disadvantaged communities improve their lot. Some socially-motivated depositors are willing to accept a lower-than-market interest rate so more of their funds can be channeled into socially productive developments. With more than 15,000 credit unions in the United States (300 of which are the community development variety), even country folk usually have a local socially appealing banking option.

If you want your banking dollars to directly benefit the environment, you need a traditional but progressive bank such as Vermont National (its socially responsible division) in Brattleboro, Vermont, Wainwright Bank & Trust Company in Boston, or South Shore Bank. This spring, South Shore will open Shore Trust, the nation’s first ecobank in Washington state. Its deposits will assist environmentally sustainable businesses such as oyster growers, cranberry farmers and ecologically conscientious lumber companies.

While Vermont National doesn’t exclusively make environmental loans, the director of its socially responsible banking division, David Berge, points out that most of the money it lends has an environmentally positive impact. “For example,” he says, “we recently lent money to the Putney Grammar School to help upgrade its heating system to an energy-efficient Chiptec system, which burns wood pellets from waste wood. Another loan provides funding for farmers to buy equipment to convert from chemical to organic farming.” Vermont National also recently funded the expansion of the Vermont Institute of Natural Science.

Even if you don’t live near one of the environmentally sensitive banks, you can keep your checking account at a credit union or small regional bank and send your longer-term savings to an institution whose lending practices more closely match your goals.

MARSHALL GLICKMAN edits and publishes Green Living, an environmental journal which regularly covers socially responsible investing.