The Ethical Portfolio

I’m wealthy enough where I don’t need to own a tobacco company & deal with the consequences of public ownership.

-Warren Buffett.

ESG investing is on the rise as unethical stocks come with a lot of baggage for publicly followed investors. If you’re a closely followed investor, which obviously Warren Buffett is, you are guaranteed to get asked a lot of uncomfortable questions about any investments that is questionable ethically. This means most known investment companies are in practice barred from investing in so-called “unethical” companies even though “unethical” products and services are perfectly legit. Big funds, like for example Norway’s SWF, regularly publish a list of companies that are “unethical”, and this of course sets the bar quite high for other sovereign funds. Because of this, sustainable investing has come a long way. More than one-quarter of assets under management globally are now being invested according to the premise that environmental, social, and governance (ESG) factors can materially affect a company’s performance and market value (source: McKinsey).

Thus, it makes sense to set up an “ethical” portfolio, right?

My “ethical” investment portfolio reads like this:

  1. ____________
  2. ____________
  3. ____________
  4. ____________
  5. ____________
  6. ____________
  7. ____________
  8. ____________
  9. ____________
  10. ____________

I prefer to leave my “ethical” investments blank. Why?

First, what is sustainable investing? I believe many of the criterias are naive. What looks “ethical” on the surface, might not be so “ethical” after all. Is solar power really “clean”? I’m not so sure. Second, “ethical” investing leads to a lot of unintended consequences. We are “blind” to the unintended consequences because they are only indirectly related. Third, because of unintended consequences “ethical” investing is far more complex than most people realize.

Furthermore, talk is cheap. Recently I saw a survey in Norway where 50% of the shoppers said they are willing to pay more for ecological food. Yet, less than 2% of food sales are ecological! Investors say oil is dirty, yet the same people fly all over the world on seminars and holidays. Likewise, the Norwegian SWF is barred from investing in Lockheed Martin (LMT), yet the Norwegian Defense spends billions in purchasing F-35 from Lockheed Martin.

I don’t want to be a hypocrite and I want to keep investing as simple as possible. I’m no saint and I don’t want to be one either. My main concern is to get a decent return on my investments.

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