I attended my first meeting of the Brisbane chapter of the Australian Shareholders Association today and heard a fascinating talk by Karen McLeod from Ethical Investment Advisers. Her presentation was mostly making the case that investors can and should look for stocks that have nothing to do with ethically-questionable activities, such as fossil fuels, modern slavery, tobacco, etc. However, she didn’t really talk much about why investing in these stocks is unethical. Her presentation contained no deep philosophy and just made the assumption that investing in such things are bad.
I had a quick chat with her during the break and put to her the position that I’ve gained from Tony over the course of this show – i.e. unless you’re participating in a capital raising, e.g. an IPO or subsequent share issuance, buying stocks in a company isn’t actually helping the company and it’s not a vote for the company’s activities. The company doesn’t get our money. The transaction is between a seller and a buyer. So, for example, if we invest in a coal miner, we aren’t actually giving them more cash to mine more coal. We are making a judgment that their business is going to do well over the coming year – we’re not giving their line of business our vote.
In addition, as in investor, we have a greater ability to affect the business’s operations. We can write letters to the Board and management and ask questions at the AGM. We have far more influence as a shareholder than we would have if we were not.
Anyway, when I put that argument to Karen she fundamentally disagreed. In her view, buying a share in a business is a vote for the business. You want it to continue to do well. You are now a part-owner of the business and therefore partly responsible for their activities. While I agree with that last part, I think we also need to keep our investing in perspective.
Every day, I do a lot of things that have ethical implications. The food and technology I buy, as well as all of the other mass-produced products I buy – what are the ethical implications of those? Do I drive my car? Do I fly on a plane? How long do I use the airconditioning or the hot water? Do I separate my recycling from other waste? Do I use a worm bin for food scraps?
All of these actions have ethical implications and if I stack ranked those as well as my investing and asked myself which had more of a direct impact on business ethical standards, I think my investing activities would be very low on the list.
I don’t buy a coal stock, will have it any impact at all on their business? Not as far as I can see. At least if I don’t buy an iPhone, it shows up in Apple’s revenue, even if it’s a tiny, tiny, tiny decimal place. The coal company doesn’t even notice if I don’t buy their shares. Even if nobody bought their shares, would it matter? It wouldn’t affect their operations one iota. It might affect the management personally if the share price plummeted because it impacts on their bonuses and their personal shareholdings. But in most cases, if the price went substantially down, the company would do a buyback and keep the price up.
Participating in IPOs or other capital raisings is, of course, a separate issue. In that case, they do actually get my money.
So as a value investor, I think we are trying to balance the priorities of maximising our portfolio while, at the same time, doing as little damage as possible and being as ethical as we can. If the checklist tells me that the best investment is in a coal mining company, and I can be confident that buying that stock isn’t in any way helping the company prosper (it is, instead, my vote that it’s going to prosper with or without me), then I think it’s ethically sound. I would rather not have any coal mining companies out there. When that day comes, I’ll applaud the human race. But right now coal is used for electricity and that electricity powers homes and hospitals. It keeps people alive. It allows me to run my business which provides an income to support my family. It’s not like, for example, investing in the gun industry (though even guns have some justifiable uses in farming, etc).
I’ve invited Karen on to the show to discuss this important topic with Tony and me in more detail. I’m also very interested in your thoughts. But I don’t think it’s as simple as she wants to make it seem.