My thoughts on the topic are generally similar to yours. It seems like private ethical investment would have a minimal or no effect. However, I think it’s possible to create genuine incentives for companies to act more ethically if you have a large amount of money to allocate (preferably many billions). The most viable route would be to have (or find—I think there are a few already) a fund that’s explicitly aiming to promote ethical investment (and has specific criteria for assessing ethics). If there’s enough money at stake, some companies would probably make at least the easy changes to attract it.
Of course, unless you think you might be able to start a movement towards more people supporting ethical investment, or you’re actually a billionaire, chances are your personal impact would be minimal. Not only that, but supporting charity is almost certainly more directly beneficial, simply because the primary aim of charity is to help people, while the primary aim of investment is to generate returns, so it would be very surprising if it did better at helping people than charity, at least in the short- and medium-term. For the long-term (say 40 years), investment might be more beneficial (although it’s debatable), but that would probably ultimately be dominated by the potential benefits of FAI research.
Not only that, but supporting charity is almost certainly more directly beneficial, simply because the primary aim of charity is to help people, while the primary aim of investment is to generate returns, so it would be very surprising if it did better at helping people than charity, at least in the short- and medium-term.
That makes no sense. It sounds like you’re saying that charity is always more cost-effective than reducing your negative externalities, while not providing any evidence for this assertion.
Actually, I think it makes perfect sense. If you use money in the best way you can think of—or other people can think of—to help people, you should on average expect to help people more than if you use money for something else in the hopes that one of its side-effects will be to help people. If you disagree, I think the onus is on you to provide an example of why that would not be the case. (And I would prefer a modern example, not one about a company dumping toxic waste in the river a hundred years ago and you maybe being able to sway it with large enough investments, since I’m not aware of any similar things occurring currently.)
I don’t mean to be confrontational, but I’m really having trouble thinking of any reason when this would not be the case (at least in the short- and medium-terms, as mentioned).
The positive consequences of investing $1 in a particular company don’t have to be anywhere close to as good as the positive consequences of donating $1 in order for the investment to be more cost effective, because investments generate returns, so the cost of changing your investment behavior is no where near the amount you spend on the investments. For example, if investing in company A or company B has the same expected payoff for you, but investing in company A instead of B has positive externalities, then you can do good for free by investing in A instead of choosing one randomly. I don’t have any actual examples where I believe this to be the case. I was criticizing your argument, not your conclusion, which BenGilbert has defended fairly persuasively with other arguments.
‘I think it’s possible to create genuine incentives for companies to act more ethically if you have a large amount of money to allocate (preferably many billions)’
-‘Assets in socially screened portfolios climbed to $3.07 trillion at the start of 2010’ So there are already billions invested there. However, it’s questionable what is ethical about these investments. First, billions or even trillions might not make much of a difference to prices, according to the logic of the argument I gave above. Second, these funds’ criteria about what is ethical are open to question. Third, even if money invested in them makes a small difference, you also end up paying various management and other fees which might be close to wasted money, when you could instead invest directly and, say, give the money you save to charity.
I think it’s worth clarifying whether or not there’s anything ethical about ethical investment as currently practised, and, if not, what real ethical investment would be. There are already some movements towards this, eg impact investment, although I’m not sure there are yet convincing answers.
‘Of course, unless you think you might be able to start a movement towards more people supporting ethical investment, or you’re actually a billionaire, chances are your personal impact would be minimal.’
-I’m not certain what you mean by ‘minimal’. It could mean two things which are often not distinguished but I think should be. If my $1,000 has a millionth of the impact of someone else’s $1 billion, well, that’s fair enough, it’s a million times less money. I wouldn’t see this as a minimal effect; it could be the maximum difference I can make given my resources. Or you could mean that my $1,000 makes no difference at all, whereas over some cut-off point - $1 million, $1 billion or whatever—it would start to make a difference. This is possible but one would have to explain why.
-Even if ethical investment has no different effect from any other type of investment, investment per se might have welfare consequences, in raising the total amount of money available for investment globally.
-I don’t think there’s much doubt that ethical investment is part of a wider set of attitudes which have led many companies to some combination of changing their policies and changing their self-presentation to fit better with common ideas of what ethical and unethical practices are. Large amounts of money in ethical investments may powerfully signal to companies that they should respond to the attitudes expressed in those investments even if there is no direct effect on asset prices.
I have doubts about how much difference this has made, although I am very uncertain and don’t know enough about it. The first doubt is about how far companies have changed their practices rather than just their self-presentation. The second doubt is over how far the changes they have made are in fact changes for the good. eg it could be the case that higher wages and better working conditions for people in poorer countries leads to fewer people there being employed (I don’t know if this is the case, it’s just an example)
‘supporting charity is almost certainly more directly beneficial, simply because the primary aim of charity is to help people, while the primary aim of investment is to generate returns’
-I don’t know if we agree or disagree here. I think the fact that the primary aim of charity is to help people does not make it almost certainly more beneficial. People working in and donating to charities might have false beliefs about the good that charitable work does. If no-one actually knows what good a charity does, and no feedback mechanism exists to put an end to charities that do harm or no good (since, eg, the people served by the charities are totally disconnected from the people who fund them), there is no reason why many or most charities could not be totally ineffective or harmful. The pursuit of returns, on the other hand, could be a powerful force driving companies to be beneficial if they generate those returns only by offering people things they value enough to pay for. I think you might agree with me given your comment that investment might be more beneficial in the long-term.
First, billions or even trillions might not make much of a difference to prices, according to the logic of the argument I gave above.
That’s a good point. For some reason it didn’t click the first time I read it, but you’re right. It probably depends on precisely what most other investors expect—if they’re primarily investing based on their expectations of price movements, the prices might be swayed, but if they’re trading on value, they probably would not.
As to what constitutes ethical investment, that would certainly be the first thing to figure out. I’m not sure you would find a clear consensus even among the LW community, let alone the wider world.
I’m not certain what you mean by ‘minimal’.
You’re right, I should’ve been clearer. I meant it in the sense that such an investment would be completely indistinguishable from noise to the market at large, and would consequently make nearly no difference at all. If many people made these types of investments using the same definition of “ethical” it might be noticed; if one person makes an investment it would probably be very hard to figure out that it’s correlated with ethics or to decide that it’s worth considering for future decisions (that it’s not one-off).
I don’t think there’s much doubt that ethical investment is part of a wider set of attitudes which have led many companies to some combination of changing their policies and changing their self-presentation to fit better with common ideas of what ethical and unethical practices are.
I’m actually not entirely sure about that. I haven’t investigated the issue very closely, but my impression has been that where companies changed their practices, this has mostly occurred as a result of consumer boycotts (or just unfavorable media coverage), of wishing to retain valuable employees, or of wishing to remain in favor with governments. Do you have any particular evidence in mind?
If no-one actually knows what good a charity does, and no feedback mechanism exists to put an end to charities that do harm or no good (since, eg, the people served by the charities are totally disconnected from the people who fund them), there is no reason why many or most charities could not be totally ineffective or harmful.
My impression is that at least in the last decade or so this has not been the case. While I don’t know the specifics, it is my impression that GiveWell, for example, does extensive research to determine which charity actually has high impact (on quality-adjusted life years). I have also read that Bill Gates focuses on ensuring effective use of funds and hitting actual goals with his Foundation.
I do agree with your optimism about investment being beneficial, though.
My thoughts on the topic are generally similar to yours. It seems like private ethical investment would have a minimal or no effect. However, I think it’s possible to create genuine incentives for companies to act more ethically if you have a large amount of money to allocate (preferably many billions). The most viable route would be to have (or find—I think there are a few already) a fund that’s explicitly aiming to promote ethical investment (and has specific criteria for assessing ethics). If there’s enough money at stake, some companies would probably make at least the easy changes to attract it.
Of course, unless you think you might be able to start a movement towards more people supporting ethical investment, or you’re actually a billionaire, chances are your personal impact would be minimal. Not only that, but supporting charity is almost certainly more directly beneficial, simply because the primary aim of charity is to help people, while the primary aim of investment is to generate returns, so it would be very surprising if it did better at helping people than charity, at least in the short- and medium-term. For the long-term (say 40 years), investment might be more beneficial (although it’s debatable), but that would probably ultimately be dominated by the potential benefits of FAI research.
That makes no sense. It sounds like you’re saying that charity is always more cost-effective than reducing your negative externalities, while not providing any evidence for this assertion.
Actually, I think it makes perfect sense. If you use money in the best way you can think of—or other people can think of—to help people, you should on average expect to help people more than if you use money for something else in the hopes that one of its side-effects will be to help people. If you disagree, I think the onus is on you to provide an example of why that would not be the case. (And I would prefer a modern example, not one about a company dumping toxic waste in the river a hundred years ago and you maybe being able to sway it with large enough investments, since I’m not aware of any similar things occurring currently.)
I don’t mean to be confrontational, but I’m really having trouble thinking of any reason when this would not be the case (at least in the short- and medium-terms, as mentioned).
The positive consequences of investing $1 in a particular company don’t have to be anywhere close to as good as the positive consequences of donating $1 in order for the investment to be more cost effective, because investments generate returns, so the cost of changing your investment behavior is no where near the amount you spend on the investments. For example, if investing in company A or company B has the same expected payoff for you, but investing in company A instead of B has positive externalities, then you can do good for free by investing in A instead of choosing one randomly. I don’t have any actual examples where I believe this to be the case. I was criticizing your argument, not your conclusion, which BenGilbert has defended fairly persuasively with other arguments.
‘I think it’s possible to create genuine incentives for companies to act more ethically if you have a large amount of money to allocate (preferably many billions)’
-‘Assets in socially screened portfolios climbed to $3.07 trillion at the start of 2010’ So there are already billions invested there. However, it’s questionable what is ethical about these investments. First, billions or even trillions might not make much of a difference to prices, according to the logic of the argument I gave above. Second, these funds’ criteria about what is ethical are open to question. Third, even if money invested in them makes a small difference, you also end up paying various management and other fees which might be close to wasted money, when you could instead invest directly and, say, give the money you save to charity.
I think it’s worth clarifying whether or not there’s anything ethical about ethical investment as currently practised, and, if not, what real ethical investment would be. There are already some movements towards this, eg impact investment, although I’m not sure there are yet convincing answers.
‘Of course, unless you think you might be able to start a movement towards more people supporting ethical investment, or you’re actually a billionaire, chances are your personal impact would be minimal.’
-I’m not certain what you mean by ‘minimal’. It could mean two things which are often not distinguished but I think should be. If my $1,000 has a millionth of the impact of someone else’s $1 billion, well, that’s fair enough, it’s a million times less money. I wouldn’t see this as a minimal effect; it could be the maximum difference I can make given my resources. Or you could mean that my $1,000 makes no difference at all, whereas over some cut-off point - $1 million, $1 billion or whatever—it would start to make a difference. This is possible but one would have to explain why.
-Even if ethical investment has no different effect from any other type of investment, investment per se might have welfare consequences, in raising the total amount of money available for investment globally.
-I don’t think there’s much doubt that ethical investment is part of a wider set of attitudes which have led many companies to some combination of changing their policies and changing their self-presentation to fit better with common ideas of what ethical and unethical practices are. Large amounts of money in ethical investments may powerfully signal to companies that they should respond to the attitudes expressed in those investments even if there is no direct effect on asset prices.
I have doubts about how much difference this has made, although I am very uncertain and don’t know enough about it. The first doubt is about how far companies have changed their practices rather than just their self-presentation. The second doubt is over how far the changes they have made are in fact changes for the good. eg it could be the case that higher wages and better working conditions for people in poorer countries leads to fewer people there being employed (I don’t know if this is the case, it’s just an example)
‘supporting charity is almost certainly more directly beneficial, simply because the primary aim of charity is to help people, while the primary aim of investment is to generate returns’
-I don’t know if we agree or disagree here. I think the fact that the primary aim of charity is to help people does not make it almost certainly more beneficial. People working in and donating to charities might have false beliefs about the good that charitable work does. If no-one actually knows what good a charity does, and no feedback mechanism exists to put an end to charities that do harm or no good (since, eg, the people served by the charities are totally disconnected from the people who fund them), there is no reason why many or most charities could not be totally ineffective or harmful. The pursuit of returns, on the other hand, could be a powerful force driving companies to be beneficial if they generate those returns only by offering people things they value enough to pay for. I think you might agree with me given your comment that investment might be more beneficial in the long-term.
That’s a good point. For some reason it didn’t click the first time I read it, but you’re right. It probably depends on precisely what most other investors expect—if they’re primarily investing based on their expectations of price movements, the prices might be swayed, but if they’re trading on value, they probably would not.
As to what constitutes ethical investment, that would certainly be the first thing to figure out. I’m not sure you would find a clear consensus even among the LW community, let alone the wider world.
You’re right, I should’ve been clearer. I meant it in the sense that such an investment would be completely indistinguishable from noise to the market at large, and would consequently make nearly no difference at all. If many people made these types of investments using the same definition of “ethical” it might be noticed; if one person makes an investment it would probably be very hard to figure out that it’s correlated with ethics or to decide that it’s worth considering for future decisions (that it’s not one-off).
I’m actually not entirely sure about that. I haven’t investigated the issue very closely, but my impression has been that where companies changed their practices, this has mostly occurred as a result of consumer boycotts (or just unfavorable media coverage), of wishing to retain valuable employees, or of wishing to remain in favor with governments. Do you have any particular evidence in mind?
My impression is that at least in the last decade or so this has not been the case. While I don’t know the specifics, it is my impression that GiveWell, for example, does extensive research to determine which charity actually has high impact (on quality-adjusted life years). I have also read that Bill Gates focuses on ensuring effective use of funds and hitting actual goals with his Foundation.
I do agree with your optimism about investment being beneficial, though.