Ethical Investing and Values-Based Investing

If you’re an investor, and if you want your money invested in companies that will not just bring you a return on investment, but will also some good in the world, that means you’re interested in what is variously called “responsible investing” or “ethical investing” or “values-based investing.”

I was recently interviewed for a documentary on the topic. Here it is: “Responsible Investing: An Evolving Story.” The 20-minute video was produced by the Ontario Teachers’ Pension Plan (OTPP). OTPP (colloquially known as “Teachers”) is one of the biggest institutional investors in Canada, managing a fund of just over a hundred billion dollars.

One of the main points I tried to make in the segments I’m in is that the key to thinking about values-based investing is to think of it as a mechanism for value-alignment. That is, it’s a way for investors to invest in companies whose values are like their own. It allows pacifists to avoid investing in arms manufacturers, and allows anyone who is stridently anti-tobacco to avoid investing in that industry. It’s not about all of us investing in products or industries that are “more ethical”, overall. Such global judgments are difficult to arrive at, and even harder to find consensus on.

That is, it’s best not to think of values-based investing as “ethical” investing, as if in contrast to all that other, unethical, investing. Indeed, referring to it as “ethical” investing probably makes the same mistake as references to “ethical oil” or “ethical food” does: it confuses the fact that there is ethical reasoning involved in such investing with a much grander claim that your investments are the only (or most) ethical ones.

9 comments so far

  1. martina on

    Hi Chris, I’m sorry to use this post comment not properly, but I didn’t know how/where to write this thought. I expected to find some posts about Apple and Steve Jobs yesterday or today. Maybe you’re not posting anything for respect or just because you think there’s nothing related to ethics to say but I’ve been reflecting a lot in these days about this issue. I found right to commemorate such a genius and leader, especially from common people, but when I see the iPhone 4s advertising saying “the most sold iPhone ever” I can’t avoid asking to myself when it ends the person and when it starts the marketing…

    I hope I’ve been clear and not disrespectful…

  2. Andi on

    Hi Chris,
    I like you suggestion about value based investing. But can we even influence companies behavior to be ethical with our investment?!
    Just think about the following thoughts. We invest in a company we think acts according to our values. This company will definitely spend some money but the major part is put into a bank account. Every company having a bank account in this bank can now ask for a loan. Therefore we indirectly fund the unethical behaviors of other companies, as well.
    Shouldn’t we therefore discuss the banks behavior when giving loans to companies?! Or even our behavior when choosing a bank? Do we have an ethical responsibility when choosing our house bank?

    In my opinion yes but how should we ever know whom our bank gives loans (there is still a bank secret)?

    • Chris MacDonald on


      Interesting question, but I don’t think it’s true that companies take investors’ money and just stick it in the bank. They usually *use* it, as I understand things. But of course, what they *use* it for is to buy things — land, equipment, materials — from other companies, and you’re right to wonder whether the investor can ever be sure about *those* companies.


      • Andi on

        I totally agree with you. But this brings me to another question.
        Nowadays it is easier for companies to communicate with their potential investors through platforms like facebook, twitter, flickr, etc. With this platforms, companies do reputation management. But I have never seen a company posting bad/questionable news on their accounts. So how should an investor find out where to invest his money?

  3. Thomas on


    I like your reasoning but it is hard for investors to know what the company are going to do with the money. You can never be 100 % sure that the money you invest will be spent on things you seem to be unethical. But of course you can chose to invest in companies that have similiar or different values as you have. This makes me wonder of an other thing. Like when banks are lending out money to companies, it is like they are “investing in that company”. If the bank are against child labour, you can question whether it is the bank’s responsibility to not lend to companies using child labor or not, from a CSR point of view. Or is not that a part of their responsibility, but if they do not take that responsibility, why should other companies take responsibilies for their actions. And why should investors care about what company they are investing in, from an athical point of view.

  4. Miguel on

    All investment philosophies reflect an ethical position. Typically, those in favour of the status quo, i.e. maximizing returns regardless of any social or environmental consequences, phrase their position in such a way as to try to wrap their practices in a veil of objectivity rather than acknowledging it as a fairly extreme vision of utilitarian self-interest.
    I agree 100% that investors’ values should align with investments, as in the above cases of arms or tobacco. In the context of pension plans, this becomes problematic as the prevailing wisdom is such that fulfilling one’s fiduciary duty is interpreted as requiring the ‘objectivity’ outlined above, rather than taking a more nuanced view of the fiduciary relationship.
    The difficulty around reaching a consensus around values is legitimate, though I would argue it’s blown far out of proportion: most obviously, by suggesting that unanimity would be required – an absurdly onerous standard for any democratic process, and one that the current practice certainly does not meet. I would suggest that a majority of beneficiaries would support standards around non-financial criteria such as respect for international standards around human rights, labour relations, environmental standards and not investing in companies whose primary business is armaments would be a place to start.
    A widespread commitment (not just argreeing in principle, but actually putting it into practice) such principles could go a long way towards rectifying social and environmental problems.

  5. Jaho on

    I would agree about us not knowing for what purposes the company uses our investment, however is it ethical for the company to declare itself as an ethical orientated company however using the sources of their investments to unethical ways?


  6. Chris on

    I am skeptical when it comes to ethical investing. How can you bee 100 % sure that the e.g. a ethical fund actually will place your investment in ethically related companies? More than often, funds promoting and selling ethical investment solutions charge the investors with a higher duty for providing this service. But, do they actually do it for ethical reasons or just see it as a profit making financial service? I mean, nowadays banks are more ingenuity than ever when it comes to inventing new financial solutions for investors.

    • Polza on

      I totally agree. In many cases ethical investment is more of a marketing solution to a bank than a real ethical step. It may as well be used to bluewash questionable practices of banks. If ethical investment is about supporting companies with values similar to invertor’s own, then investors should have ethical values in order to make truly ethical investments. This seems, however, impossible to reach since most investments are driven by a wish to make profit. And a wish to make profit is not at all negative because this way investors benefit the whole economy. What should be prioritised then, ethics or profit?

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: