Ethical investing isn't as easy as it sounds -

Ethical investing isn’t as easy as it sounds

Prof. Pettigrew on why universities can’t divest


Fort McMurray, Alta. oilsands (eryn.rickard/Flickr)

Here, Cape Breton University Professor Todd Pettigrew argues that divesting from “unethical” companies isn’t as easy as activists make it sound. After reading his commentary, check out Torrance Coste’s argument in favour of divestment.

I served, for a brief time, on the Board of Governors of Cape Breton University, and one thing I did during that period was speak in favour of looking into ethical investments. After all, we know from the proverbs that money talks.  So if we are talking with our money, why not have it say something important?

Ethical investing, I argued at the time, seemed all the more urgent in the context of university education. If we are trying to teach our students to think critically, shouldn’t we ask tough questions about scholarship endowments and pension funds? Should we give scholarship funds to a student studying, let’s say, social justice, and then tell that student not to worry where that money came from?

I wasn’t on the Finance committee that looked into the matter, but recently I began to get a sense of the difficult task they had been charged with. Credit must be given to the students who have called for a national ranking of ethical investments at universities. The project seems, however, unlikely to get very far.

Look carefully, and you see that the calls here are not so easy.

The devil, it turns out is not always in the boardroom, but rather, as they say, in the details.

What, after all, counts as an ethical investment?

According to reports, students calling for divestment list tobacco, fossil fuels, and weapons as three supposedly unethical areas of investment, and those do seem, at first glance, to be promising candidates. So let’s consider each one in turn.

Tobacco companies, one might argue, make a lot of money off of addicts who wish they could quit even as they are dying of lung cancer—so refusing to invest in such companies might seem like an easy call. But that’s not the whole story. Some smokers don’t want to quit: even Health Canada recognizes people have the right to smoke if they want to. I know some people who enjoy an occasional cigarette at a party, and nothing more.

I myself quite enjoy the occasional cigar after dinner with friends. I know the risks and weigh them against the benefits. And I don’t resent the House Horvath for making my favourite cigar. I applaud them. Students at the University of Toronto might have cheered when their school divested itself of tobacco, but did they reflect on the fate of their own Johnny Miller, maker of Canada’s only hand made stogies?

What about fossil fuels then? Well, consider the financial company Ethical Funds, whose Ethical Canadian Dividend Fund invests in Canadian Utilities, which is in turn owned by ATCO, a company that, among other things, “provides a wide range of services” to oil and gas companies in Western Canada, and is looking to take advantage of “massive natural gas” expansion in Australia. That’s exactly the kind of company students say is unethical.

But wait, ATCO also has green energy projects, so maybe they are ethical after all.

Not so fast: ATCO identifies hydro-electric generation in the Canadian north as one of its future priorities, but such projects have been the source of heated debate before, as in the case of James Bay, where a massive hydro project caused controversy over its effect on indigenous peoples and the environment.

Similar concerns have been raised about power generation in Northern Manitoba where power projects have been blamed for “community trauma.”

Okay, then, how about weapons? How can it be moral to build products whose express purpose is to kill other people? Well, what if those weapons are used in the cause of defending the innocent or the oppressed? Should we divest ourselves from gun manufacturer Colt? Does it matter that they make the C7 A2 automatic rifle used by the heroes of our Canadian Forces?

And to what extent should a company’s home country be an issue? Or its the country of its customers? Should we refuse to invest in any company that does business with Iran or China given their dubious records on human rights? What about American companies located in states with capital punishment? What about boycotting companies from Israel? If you are reading this in the UK, you might be in favour of divesting from Canadian companies over the Canadian seal hunt.

Pity the poor soul who is tasked with keeping track of the ethical implications of every wrinkle and nuance of the world’s politics and finances.

My point is not to argue that any particular company, or industry, or country is good or bad. My point is that there are almost no easy cases—every investment is bound to have its pluses and minuses, ethically speaking. So, while “no unethical investments” sounds great at a protest rally, the slogan rings hollow the moment it’s really tested.

When I served on the CBU Board, the Finance people came back and reported that finding ethical investments wasn’t feasible. I was skeptical at the time—but it turns out they were right.

Editor’s note: The original post inaccurately identified the petition as originating from McGill.


Ethical investing isn’t as easy as it sounds

  1. Another issue is that, in divesting, we are selling those stocks which we feel it is unethical to own. In doing so, we ask others (the purchasers) to engage in behavior which we feel is immoral. In the future, we will likely criticize those same people for contiuing to hold (and make money from) the investments tht we asked them to buy. Perhaps it is better to hold the stocks, which gives us a voice in shareholder meetings, and use that voice to call for improved behavior on the part of the companies.

  2. @The Balding One, I think you make a great point about shareholder activism. I think what this article lacks is the idea that ethical investment isn’t only about divestment. The University of Toronto for example is doing a great job by allowing investment managers to engage in proxy voting to promote better sustainable policies in the companies they hold stock in. They could totally be rewarded for this in an ethical investment ranking.

  3. This is absurd. I bet Paul Bernardo once helped an old lady across the street does this mean that it’s not safe to call him an unethical person? Of course he is an unethical person and dabbling in good behaviour on occasion isn’t enough for salvation. There’s no doubt in most people’s minds that companies like Exxon, Marlboro or Haliburton have a business model based on creating things that undermine human progress. It doesn’t matter if Exxon siphons a fraction of a percent to renewable energy. If you like renewable energy invest in Vestas or something like that, not British Petroleum.

    If we follow this same flawed logic where would South Africa be? The answer is probably still knee deep in apartheid. What we can’t boycott that nation, they grow such healthy and nutritious oranges! Right?

    Ethical investments can be done quite well. Just look to Norway, which has one of the largest pension funds in the world, collected from oil royalties, and distributed to companies that do not consist of the above mentioned fundamentally unethical industries. Their system isn’t perfect but we can easily learn from their mistakes. Even if the investments aren’t perfect it would be a huge first step.

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  6. Fortunately, some of the mutual fund companies are asking these questions and doing this homework for us (the biggest one in Canada is NEI Investments). They do some pretty impressive research and include shareholder activism as part of their strategy. You can find a local advisor who specializes in Responsible Investing through the RIA Canada website–I’m one of those advisors! My profile is here:

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