Home » alcohol sin stocks » The Fallacy Of Ethical Investing: Why Investors Need To Look Beyond Their Portfolio To Measure Ethics

On an episode of Jimmy Kimmel Live, Kimmel mentioned that “everyone” is adopting a gluten free diet yet no one seems to know what it is. To prove his point he sent a crew to a park in California to ask people. Here’s the hilarious result:

So why am I posting this?

Because I see a lot of similarities between gluten-free dieting and ethical investing.

In a gluten-free diet, everyone seems to (somehow) know that gluten is bad for you and therefore you should avoid it…. but know one seems to know what gluten is.

Likewise, in ethical investing, everyone seems to (somehow) know what ethical investing is and therefore you should invest that way… but no one seems to know what ethical investing really is. They say “I avoid sin stocks” without really being able to adequately define which sin stocks they avoid and why.

Tobacco sin stocks, alcohol sin stocks, and gambling sin stocks are often pointed to as being unacceptable. But if you press someone on these definitions, you’re going to get differing opinions:

  • Distilleries that make spirits are bad but wineries aren’t so bad.
  • Casinos are bad but software companies that make gambling products aren’t so bad.

Moreover, there are other sin stocks that fall into a grey area: Conflict sin stocks (sometimes called gun sin stocks), which would be a sin stock for gun-haters and an ethical investment for gun-lovers. Crime sin sin stocks, which would be abhorrent to people who think prisons should be run by the government. Or consider Apple (AAPL), which is just a friendly ubiquitously admired consumer tech company that seems to have a horseshoe up its ass. Everyone loves and buys their products… which are manufactured in deplorable conditions.

My point is: Ethical investing is fuzzy at best and no one really knows what it means. Since the first ethical fund created in the 1960s, there have been 600 ethical funds created and banks are jumping on the bandwagon to proclaim the ethicalness of their investments as people with money and information become more socially conscious. We should be looking past the marketing hype to explore exactly how ethical the organizations themselves are.

In this excellent article on ethical investing from Cooperative News, author Frances Coppola (presumably not the film-maker) explores the underlying ethics of the organizations offering ethical investments and sets out a very compelling plan for how to asses the real level of ethics these companies tout. This article exposes the fact that ethical investing is simply a marketing tactic used by companies to attract socially conscious dollars.

DISCLAIMER

Nothing on this site is a recommendation because, hey, I can't read your mind and I don't know what you have in your portfolio, and I'm not a licensed financial advisor. So never EVER trade without doing your due diligence. If you want more information about this fascinating topic, please check out the Sin Stocks Disclaimer page which basically says the same thing but more emphatically.