This is something I end up talking a lot with my friends about. They lovingly refer to one of my investments as the unethical portfolio.
I believe ethical firms are getting more attention and inflows due to it being the trend right now, which is good for humanity I suppose?
I’m not a fan of investment purely because a firm is ethical, it’s great to vote with your wallet but that isn’t enough for me. If I want to give selfishly I lean more towards charity than investment as it’s more emotional and personal.
Now a firm that scores well on ESG scale I am interested in. Ethical and social impact I don’t think inherently makes a firm a good investment (lots of extremely poorly ran charities in the world sadly) however firms that make efforts around the governance outperform other firms.
Firms that put in the hard work to make sure they meet the requirements and score well for ESG (logging firm is bad, but if you hire only locals and replant the trees they are good) generally have better controls in place, leading to better management and returns!
In that sense I invest and support firms where they have strong controls and governance in place. Firms that find interesting ways to meet requirements and still protect their bottom line are more agile and innovative (in my personal view.)
That brings me back to my unethical portfolio. I have an investment which is highly emotional for a lot of people and sadly due to American culture sees a jump in share price after tragedies. I feel very at distance with the investment and it’s purely down to getting the best returns and diversification. Would I accept worse returns in favour of a more ethical solution? I guess selfishly I’d need to work out how much return I would be giving up.
I encourage people to look at ESG rated firms because it encourages strong management and transparency, however I wouldn’t shun all typical sin stocks, a lot of the typical oil/gas firms are looking into renewables as a longer term strategy for example.