Build Employee Pride through Banking, Investment, and Financing Decisions

The first and second articles in this series proposed ways employers can attract and retain talent through corporate sponsored volunteer opportunities and by providing employees with ways to financially support important causes. This article introduces banking, investing, and financing actions employers can take to obtain the financial services they need while promoting social and environmental issues. Similar to the suggestions in the first two articles, these proposals create little or no additional expense, but can create significant social and environmental benefits, while building employee goodwill.

1. Bank at a Community Development Financial Institution (CDFI) – Low-income communities are typically underserved by the large traditional banks, which restrains economic growth and employment in these areas. CDFIs fill the void by providing banking and lending services to individuals and companies. Due to their small size and lack of name recognition, they have difficulty raising the capital needed to meet loan demand. By moving some or all banking business to a CDFI, employers increase capital available for these banks to lend, which in turn, creates new business activity in low-income communities. This incurs no additional cost to the employer but can increase employment, home ownership, and small business activity in low-income neighborhoods, which reduces the racial wealth gap and improves the quality of life.

2. Bank at a Minority Depository Institution (MDI) – An alternative to a CDFI is minority owned or minority-led banks. They are more likely to hire and provide fair career opportunities to minority staff, which creates greater equity in the labor market and brings money into minority communities. The FDIC provides a list of these institutions on its website.

3. Short Term Investing – CDFIs and MDIs can offer short term investment products like Certificates of Deposits, money market accounts, etc. where a company can invest its short-term cash (funds used to cover upcoming expenses). As described above, investing in these products increases the capital that CDFIs and MDIs have available to lend for small business loans and home mortgages. These investments are insured by the FDIC up to $250,000.

4. Long Term Investments – Endowments and other long-term funds can be invested in Environmental, Social and Governance (ESG) funds which favor socially responsible investments. As described in the second article, ESG investments underperformed in 2022, but over the longer term, have earned as much, if not more, than traditional investment strategies. Employers can promote racial equity by hiring minority investment companies to manage their long-term portfolios. It’s well documented that Wall Street has not been welcoming to people of color and that minority and women entrepreneurs receive less funding than their white male peers. Hiring a minority run or owned investment company and using an investment strategy that seeks minority and women-led investments can generate higher returns while creating greater economic opportunity. If investments are made in shares of stock directly (rather than a mutual fund) the employer has the option to vote on proposals that come before the shareholders for decisions. Many proposals, especially from shareholders, seek to protect the environment and advance social issues. Voting on these measures shows investors, the public, and employees where the company stands on important social and environmental issues.

5. Accessing Sustainability Financing to Fund Growth – To smooth the road to sustainable business practices, there is a growing number of sustainability financing options available. One form of financing, called Green Bonds, is capital raised exclusively for environmentally friendly projects (Bloomberg). Examples include renewable energy, energy efficiency, pollution prevention, public transportation, green buildings, and many more. Another financing option is sustainability linked loans, which contain provisions that lower the interest rate charged if the issuer achieves certain environmental or social goals during the life of the financing. Similar to Green Bonds, examples of these social goals include increasing energy efficiency, reducing waste disposal, increasing use of sustainable raw materials, increasing number of affordable housing units developed, and improving the relationship with the community where it operates. By using sustainable financing, a company can demonstrate its commitment to operating in a sustainable and socially responsible way.

These banking, investing, and financing options provide the financial services that companies need to operate while creating goodwill among employees and, potentially, improving the bottom line.