An awful lot of journalism during National Ethical Investment Week will get bogged down in a tired debate about performance and gleefully pointing out ‘unethical’ companies which appear in funds’ holdings. This sterile debate misses the point entirely and is no longer a defensible argument in the face of emerging trends.
It is true that in recent years, there have been greater returns to be had from investing without sustainable, responsible or ethical constraints, but that’s because the market massively fails to price in any externalities – the social and environmental costs. Friedrich Hayek realised this and he is the father of modern classical liberal economics.
The president of Harvard University Drew Faust recently strongly came out against divestment from fossil fuels and this sentiment was echoed in an article in the Financial Times. But again, both miss the more fundamental point. The endowment is harming the future, through investment, of the same young people it has been endowed to help, through education.
Educating someone today while investing in companies that degrade their future, is a sure sign of wilful blindness or reckless endangerment.
This cannot make sense to any forward-thinking, rational or ethical human being – and certainly not a highly educated one. A reckless, profiteering investor would probably accept the central thesis of profit maximisation, but following that logic investment in commodities, weaponry, tobacco, gambling, pornography and alcohol while arguing for the reintroduction of slavery is equally justifiable. If someone is willing to sell themselves into slavery, why should the state fetter the market?
An optimised investment strategy focuses on sustainability. A sustainable investment strategy recognises that there are dimensions to investment where we ensure we leave behind a viable economy, society and environment.
As a society, we accept restrictions on all sorts of potentially harmful activities, often through the imposition of outright bans, regulatory oversight, age restrictions or taxes. The sale of alcohol, cigarettes, weapons, gambling, pornography, prostitution, movies, driving, drugs (both legal and illegal) all fall under these constraints. We don’t necessarily agree where the lines fall, but all but the most dogmatic libertarians accept some restrictions.
Why should this same thinking not apply to the burning of fossil fuels which cause respiratory, gastric and dermatological harm (especially to the young) as well as being a prime mover in climate change? The opium trade was economically valuable and caused wars (it’s why we owned Hong Kong). The same is true for the slave trade.
In 100 years, our descendants will look back on fighting wars over oil and burning fossil fuels as equally immoral and foolish as we see the opium and slave trade today.
Focusing on performance alone, in a “look at this, not at that, and certainly not at that” approach, simply says we should focus on marginally better returns today, but do not look at the fallout and costs heaped on tomorrow. These are costs which we have paid in the blood of our soldiers, the health of our children and the economy crippling subsidies and dependence (some would say addiction) with which we underwrite the ‘mature’ oil and gas industry. These costs will fall even more heavily on subsequent generations.
As for the presence of certain stocks in the portfolios of ethical funds, big business is not the enemy. They can be when they fund misinformation, but most sensible CEOs and boards recognise growing consumer, shareholder and political pressure to clean up their act. Resource inefficiency and pollution (another inefficiency) simply means lower profits than are possible. Ethical funds play a key role in leaning on large companies with dubious records to clean up and embrace sustainability.
We desperately need to reframe the debate. Smart investors are already moving their assets into more sustainable options. The wealthiest individuals, organisations and countries have contingency plans in place for when the bubble bursts.
The militaristic developed world can just march in and take what it wants when things run out. It’s what we’ve always done. We have the wealth to fight, adapt and engineer our way through the problems we face, but it would be a lot cheaper and more prudent to mitigate the effects our excess.
The sterile arguments of the business as usual crowd are jeopardising our country’s potential in leading the sustainability revolution and the future prospects of our children.
We need to reframe the debate. Join us.