It’s also up for debate whether avoiding certain investments and divesting actually works. When investors sell off shares of a company whose practices or business models they object to, they are giving up their seat at the table and to other investors who don’t care. Divestment campaigns, like the one Harvard announced to no longer hold direct investments in fossil fuels, are good at drawing attention to causes and creating negative PR. But in the short term, they don’t accomplish much in terms of harming companies, and in the long term, there’s debate about their financial effectiveness as well.
“The problem with the financial markets is they’re so big that you can’t possibly affect them by deciding not to own something that’s objectionable,” Fancy said. “In five milliseconds, someone who doesn’t give a shit will go buy it.”
There are steps one can take to make sure their money is aligned with their values (more on that below), but ultimately, there’s only so much individual investors can do. Regulators need to define ESG so that the people creating such funds have something to comply with, and investment professionals need to be encouraged to contemplate broader issues when advising their clients (if that’s what their clients want)…As You Sow has created multiple tools for people to learn what’s in their investments and try to decipher whether it aligns with their goals and values. People can type in a ticker or name of an ETF or mutual fund to see how it rates in terms of fossil fuels, gender equality, or guns, among other items…ESG investing and 401k funds are everywhere. Does “ethical investing” work? – Vox
Minow, from ValueEdge Advisors, said that the easiest way to try to move your money toward doing good (or at least not something terrible) is to take a look at your 401(k). If there’s an index fund with an ESG component in there and the potential social benefits outweigh the potential costs, consider choosing it. A next step, if you’re up for it, is to look at how funds vote their proxies, meaning ballots shareholders get to vote annually on various corporate issues.
In the case of many funds, the firms behind them vote on behalf of their individual investors, and because they have so many shares, they have quite a bit of sway. Are they voting for or against outrageous CEO pay packages? Climate proposals? Diversity requirements? Big investment managers like BlackRock say they’re paying attention, but are they?
“Either they put their money where their mouth is or they don’t,” Minow said. “If a company says we’re making a commitment to be carbon-neutral by 2050 but they don’t make that part of the CEO’s pay plan, don’t listen to them, because they’re not serious about it.”