Investing Ethically

Last year we wrote an article about Ethical Consumerism, the practice of spending your money on businesses who support your ideas of a healthy community and environment.

In addition to where you spend your money, you can also put a lot of thought into which investment vehicles agree with your personal ethics. This is something weighing on my mind as I start from scratch learning about investing as a whole (see my previous article on the subject: What Do I Know About Investing?). There are a few different strategies, as I see it so far:

Invest in things you think will succeed, regardless of your own ethics

One of my co-workers is the sort of person who eats well, exercises all the time and generally treats his body as a temple. When I asked him if he ever does any investing, he quickly answered, “Only in the Vice Fund”. The Vice Fund invests in alcohol, gambling, tobacco and aerospace and defense industries. You could think of it as the “World is Going to Hell Fund”. The way I see it, investing in something with that kind of mission statement is akin to hoping other people keep destroying themselves.

For a guy who treats his own body as a temple, this seems like a weird contradiction, but as he tells it, the fund has been very lucrative for him, excluding 2008.

A similar example might be a vegetarian with a lot of stock in Burger King. Doesn’t make a whole lot of sense, except it could be quite profitable.

Invest in things you wish would succeed

For example, I wish that solar, wind and geothermal energy would succeed, and if I believed my Fifth Grade teachers, by 2009 those are the only sources of energy we should be using. I’m not particularly opposed to oil and coal because they’re dirty and they may be funding who-knows-what kind of overseas operations; I’m opposed to them primarily because they are finite resources. Eventually we will run out, and we may as well start weaning ourselves off of them now, because of the other environmental and political reasons. But do I think all humans will stop using oil and coal by the time I should be retiring, in about 30 years? I’m not sure.

Hedge your bets

Well, there’s one method of hedging your bets, which is to invest both in the things you think are successful-but-harmful, and in the things you think would benefit the world if only people saw things the way you do. But this doesn’t seem like a strong, long-term strategy to me. One of them will eventually fail. Thankfully, there’s another nuance:

The oil giant Shell is following BP and releasing a bunch of commercials highlighting how they’re committed to refining new ways to power things. This reminded me of another transition that shook up some companies: when photos moved from film to digital.

Nikon, for example, cruised along for decades making some very good (and some very cheap) film cameras. When computers became fast enough and connected enough, people started sharing their photos digitally and demand for digital cameras grew. Not willing to let a different company take their market share, Nikon became expert at making digital cameras as well.

Oddly, I don’t hear the names Kodak and Polaroid as often as I used to, though I know they’re still around.

Today we think of Exxon and Shell as “oil companies”, but they may very well position themselves as leaders in the geothermal energy space in the future. Here’s where my earlier advice about doing lots of research come back into play.

Further reading

Consumerism Commentary has written many, many articles about investing in the past. Flexo is a lot more knowledgeable than I am, so far, but I hope to catch up soon.