But rather because if all the ethical people invest in Solar Panels and Gender Affirming Care For Everyone Inc, then all the ethically neutral money (which is almost all of it) will simply shift more towards Torture Palistinian Orphans Inc.
So, there's reasons why "ethical investing" doesn't work well in practice, but this isn't really one of them. Industries enjoy a networking effect and efficiencies of scale. Lowering the investing costs of a target industry will naturally improve their growth prospects. And a rising stock price can lure in growth-focused future investors, because investment cash is often dumb and prone to following trends rather than raw performance metrics.
If Good Guys Banking plans to throw $50B into solar panels over five years, that will drive up the price of solar stocks, drive down the cost of solar panels, and proliferate the number of installers and maintenance techs, all of which improve the long term economic prospects of the sector. Neutral investors will want to beat Good Guys Banking to these stocks (accelerating growth of these companies, employment in the field, etc). Retail customers will see more advertising, more local retail sales, and more of their peers getting panels installed, which will induce more spending. And competitors will seek to diversify into Solar in order to capture these gains.
Your real problem is that you're not a bank with $50B in investing cash to toss around, much less the sophistication to know which solar companies stand the most to benefit from the sudden infusion.
(1) Small local investments.
(2) Investing in yourself and your own business.
Definitely also good choices. But for the same reasons. Local investment has the double-benefit of ramping up your local economy and providing yourself and your neighbors with more privatized amenities. But it is also riskier. If your neighborhood goes into a downturn, you're both at risk of unemployment AND big investment losses.
Self-investment has the same problems, only magnified. You're putting all your eggs in one basket. It's also much more of a tax on your time, as spending more on your own business means managing more assets and staff directly. If you don't see profit in this investment, what you're doing isn't going to compound your savings.