What is Ethical Investing?




We all want our money to serve the right cause – but how can we make sure that it will? Catherine Greene on what is involved in ethical investing and ESG considerations.

What is ethical investing?

The desire to invest ethically is not new. For example, in the 18th
Methodists in the US avoided investing in companies involved in
alcohol, tobacco, or gambling. Today, retail investors can access an
increasing variety of ESG funds and investments (ESG stands for
Environmental, Social and Governance), which reflects the ongoing desire
of many of us to do good while investing to generate a financial return.
Broadly speaking, ESG strategies aim to promote Environmental, Social or
Governance factors, either by excluding certain sectors (such as
tobacco, or oil and gas), or by investing to actively improve one or
more of these factors. But what exactly is ESG, and does investing in a
company or fund rated highly for ESG make us an ethical investor?

But what exactly is ESG, and does investing in a company or fund rated highly for ESG make us an ethical investor? 

Measuring John

Let’s begin with a very simple problem. I’ve woken up with a cracking
New Year hangover, and can vaguely remember my friend, John, convincing
me to ride down the high street in a shopping trolley. I begin to wonder
whether John is a good person. Drunken antics aside, I’m sure he is – he
gives to charity, is patient with his children, lends me money…

Suppose I want to be a bit more systematic in my assessment. How ethical
is John on the basis of environmental, social and governance issues?
After pausing to wonder why anyone would ever want to ask the question
in this way, I draft a list of criteria:


Does he own a car, if so, what kind? How many miles does he drive?
Does he use public transport when he can?
How large is his house, and how is it heated?


Does he make charitable contributions?
What job does he do?
Does he help friends in need?


Does he vote?
Does he participate in local government?
Does he get involved in local causes?

We might also think about his motivations:

Did he use his car less just because he knew I’d be checking?
Does he help out at a local charity, but post pictures of himself doing
so on social media?

The list can be as comprehensive as we like. Now that I’m quite into
making lists, I score each of these factors out of five, and come up
with a rating. This is awesome, as I can now compare John to other
friends, and divide my friends into tiers ranging from saintly to

Unfortunately, this doesn’t help very much. Firstly, because my friends
and I are unlikely to agree on how to weight these different factors.
For example, John might impress me so much with his selfless charitable
activities that I am unconcerned by his draughty, oil-heated mansion.
This is a matter of judgement. Secondly, does any of this really tell me
whether John is …

Originally appeared on Daily Philosophy Read More



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