12 Ethical Investing Apps For A Socially Responsible ROI (2024)

When you funnel your money through ethical investing apps or socially responsible investment firms, it can do a lot more than just increase your ROI.

Speaking of, what’s the first thing that comes to mind when you think of investing?

You’d be forgiven for conjuring The Wolf of Wall Street, but we’d venture (capitalist) a guess that “ethics” probably isn’t it.

While the industry as a whole is light years away from adopting a true triple bottom line, some financial institutions, organizations, and start-ups are bucking the trend.

Like socially responsible banks, these apps for impact investing are a case in point.

They invest in companies that avoid or have minimal involvement in “sin sectors,” or stigmatized activities that include firearms, fossil fuels, tobacco, alcohol, and gambling.

But what is an example of ethical investing?

What Is Ethical Investing?

What is ethical investing exactly?

According to the Cambridge Dictionary, ethical investment is “the practice of investing in companies whose business is not considered harmful to society or the environment”.

Pro-social or environmental investing works by either including positive-impact investments, avoiding negative-impact investments, or ideally doing both.

ESG Investing

Ethical investing is used interchangeably with another term: ESG investing, which assesses a company’s operations based on environmental, social, and governance criteria.

However, there’s no standardized definition for ESG and ethical investing apps have unfortunately been associated with subsequent greenwashing and “woke-washing.”

Investors may experience higher fees on ESG products, hard-to-trace investments, and bogus sustainability claims.

It’s no wonder the former chief investment officer for sustainable investing at BlackRock (Tariq Fancy), warned that sustainable investing is often nothing more than a “placebo.”

ETFs

ETF’s (exchange-traded funds) are curated collections of securities, or financial assets that can be bought, sold, and traded.

They can contain several different types of investments, including commodities, stocks, bonds, or a mixture of investment types. A single ETF can own hundreds—or thousands—of stocks across various industries or could be concentrated in just a single sector.

EFTs are traded like stocks, and as such, the price of shares will fluctuate throughout the trading day (unlike mutual funds, which only trade once after the markets close).

Robo Advisory

Many green investing apps are considered to be “robo-advisors,” an investment management system that relies on AI instead of human financial advisors.

The process begins with you, the interested investor filling out a quick survey or questionnaire on things like desired growth and risk. Then the impact app suggests services that will help you achieve your financial goals.

Unlike traditional portfolios, robo-advisors generally keep costs down and have low or no account minimum requirements.

They also make the process less intimidating, making it more accessible for those who don’t have access to financial advisors or the time to learn the ins and outs of investing.

Tax-loss Harvesting

Many of these impact investing apps mentioned “tax-loss harvesting”—but what exactly is that?

While it’s not related to ethical investing per se, it is an appealing option if you have investments subject to capital gains tax.

The process involves selling an investment that has lost value and replacing it with a similar investment. The loss on the first investment can offset the gains made from the new investment.

Essentially, it minimizes the taxes that arise from capital gains, thus helping you keep more of your money.

Thanks to robo-advisories, many ethical investment apps offer free, automatic tax-loss harvesting.

Why Build A Responsible Investment Portfolio

What’s the best long-term investment strategy?

Put money in a fund and forget about it.

But since your investment is doing more than paying a dividend, you should consider where you’re investing before logging off for the next 10 years.

As You Sow has several online tools to help you find out exactly what your retirement and mutual funds are investing in—but you may not like what you find.

Traditional investment has financially backed so many of society’s ills: oil, weapons, unethical working conditions, animal testing, nuclear power, gender inequality, climate change, etc.

Ethical investing apps can help you divest from these “sin industries,” and instead support organizations that are making our world a better place.

Thanks to an increase in ethical investment options, your money can not only work for you, but also for good.

According to The Guardian, the average annual return for a sustainable fund has been 6.9% a year, while traditionally invested funds average around 6.3% a year.

As millennials—who now make up the largest share of US investors—continue to amass more of the global investment pie, it’s likely that environmentally and socially responsible investment apps will continue to grow in popularity and performance.

What To Look For In A Social Investing App

While the U.S. Securities and Exchange Commission (SEC) is working to define ESG, we should continue to be wary of where our money is going, especially since greenwashing is rife.

So if you’re wondering how to build an ethical investment portfolio the right way, consider the following:

Legitimacy:

Choosing a trustworthy investment platform is step one.

In the United States, FINRA allows you to search for an investment firm to confirm they’re licensed and check for any serious complaints or regulatory issues filed.

Alternatively, these third parties can also help you identify lemons:

• SEC: When a US investment-oriented firm registers with the Securities and Exchange Commission, they become legally entitled to sell securities.
• SIPC: SIPC is a non-profit corporation that protects investors and is based on the Securities Investor Protection Act.
• PRI: The Principles for Responsible Investment is the world’s leading proponent of responsible investment and a UN-supported network of investors.
• FCA: In the UK, the Financial Conduct Authority regulates financial services firms.

It’s also helpful to look for ethical investment platforms that are fiduciaries, as this legally requires them to act in the investor’s best interests.

Certifications:

Look for a socially responsible investment firm or app that is a public benefit corporation—a for-profit entity that has a legally-defined mission to create a positive impact on the environment or society at large.

Certified B Corp have taken it a step further by meeting rigorous social and environmental criteria. Many sustainable clothing brands, socially conscious investing firms, B Corp banks, and other businesses from a variety of sectors have achieved B-Corp status.

However, some recent accusations of B Corp greenwashing mean we should not implicitly trust the B-badge completely.

Customizations:

In addition to choosing an investment option that suits your budget and financial goals, some ethical investing platforms allow you to fine-tune your investments so that they better align with your values or level of risk (i.e. automated investing vs something more hands-on).

Transparency:

Many ethical funds aren’t as ethical as they appear to be.

Similarly, what is “ethical” is up to you, so be concrete on the values you’re looking for in an impact investing app and be sure to check the platform’s list of holdings to see if they fit the bill.

The best impact investing apps will provide a concrete breakdown of what positive impact your funds have (i.e. amount of CO₂ offset, trees planted, and other measurable metrics of ethical practices).

ESG/Sustainability Scoring:

As with personal sustainability apps, there are several questions we can ask when looking for an ethical investment app:

• Does the app have a thoughtful process behind sustainability scoring using reasoned metrics?
• How thoroughly are the companies and funds they support vetted?
• Is there data demonstrating a commitment to affordable housing, gender equality, emissions reductions, and other social/sustainability metrics?

When an investment platform has a detailed process, or partners with third-party agencies to obtain additional data, it’s a good assurance that their ethical fund is legitimate.

Ethics:

Look for the fine print regarding ethical vs unethical funding.

Some funds make it clear that a percentage of your investment can still be invested in the “sin sector” while others only invest roughly half in ethical companies.

Investing platforms are far from perfect, but it’s a start. Progress over perfection, right?

Inclusivity and Accessibility:

Some funds are clearly more budget-inclusive than others. Not everyone has a spare $100,000 lying around.

It’s good to see that many have tried to make investing more approachable, not just by having a low minimum investment amount, but by eliminating jargon and making the application process far easier than it used to be.

Final Thoughts On Social Investing Apps & Platforms

So, can you ethically invest?

Absolutely! You can (and should), as more people are realizing. In 2022, the impact investing market hit $1 trillion. That’s a lot of money that can do a lot of good.

Besides, investing is a privilege—not everyone has the means to do so. So for those of us with extra cash (who don’t exclusively rely on ethical credit cards), let’s use our investments as a force for good.

And while ethical investment portfolios are rarely 100% ethical, they are getting better and the process of investing via impact investment apps means it is also becoming easier.

Progress over perfection…because let’s be honest, anything is better than the default ethics of Big Finance.

Do you have any friends or family with too much green in unsustainable sectors and sin industries?

Share this guide with them so they too can make their money support more than just a comfy retirement.