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Ethical Investing, A Beginner’s Quandary

I’ll preface this by saying that I am not an expert who has mountains of experience in the world of shares and investment. By no means do I offer any advice on what to invest in, this story is simply anecdotes from my recent expedition into the world of ethical investing.

With that out of the way, stock markets have always fascinated me. I see them as “plug-ins” to the economy, where as a whole, investors get to decide which businesses and industries grow and which ones fade. Conceptually, besides their more popular use as a way to theoretically make money, investments also provide a mechanism whereby we can vote with our wallets on how we want the world to develop, so naturally it makes sense to be at least aware of how the market is doing, and perhaps even become more actively involved.

On top of which, I live in Australia where, by law, a percentage of my income must be paid to a superannuation fund who manages my retirement investments on my behalf. As my participation is forced, as I grow older, I have increasingly wondered whether my super fund is invested in organisations that reflect my principles and ethics.

Then, as I wonder these things, I start to question what, exactly, ARE my principles and ethics?

For Example

I think that renewable energy has massive potential. I have a bunch of reasons which I won’t expand on here, suffice to say I have some considerations when trying to make, for me, an ethical investment.

So from this basic idea began my journey to find a company to invest in that aligns with these concerns. Such a company:

  • Has to be legitimate, not just something that looks good on paper.
  • Offers a tangible product or service with proven value.
  • Has tangible goals and realistic strategies to meet them for long term growth potential.
  • Is directed by accomplished, trustworthy, qualified, and ethical leaders.
  • Holds relevant assets, has a legitimate workforce, and has sufficient working capital to maintain these over inevitable dips and setbacks.
  • Aligns with my personal ethical considerations.

A bit of Googling quickly results in a huge list of renewable energy companies, from wind farm developers to materials producers, to companies who solely focus on real-time trading on decentralised energy markets.

So I get to trying to predict, as global demand for renewables grows, what kinds of technologies are going to be more generally in demand.

One such area might be energy storage, to balance out the natural variance in renewable energy sources which are largely determined by the weather. There’s plenty of technologies in development, but I decided to investigate battery tech a bit further, as these seem to be rolling out at grid-scale across the world so seem like a tangible thing to invest in today.

I adopted the view (however informed or naive) that whether a certain battery manufacturer lives or dies due to to market forces is irrelevant if you invest in the material source, as mining leases are generally granted over a range of decades — as long as material demand exists, a well founded resources company will generally outlive the ebb and flow of the manufacturing sector.

Graphite, for instance, is a common material for electrodes in lithium batteries, and if renewable growth continues, assuming no mass-scale battery tech revolutions in the next decade or two, seems likely to increase in demand.

So exploring this area, it turns out there’s plenty of materials companies advertising themselves as “Green” tech, which when you scratch the surface, are essentially traditional graphite mining operations who market their product for use in battery tech.

Looking deeper, it would appear many such companies have obtained rights to vast swathes of pristine land, often in relatively poor nations where workers are paid a pittance by western standards, where who knows what safety standards are enforced (if any), local taxes are insignificant, and environmental considerations are unstated. Oh, and like 2/3rds of the graphite is sold to steel refineries, so from a cynical point of view the whole “green” angle seems in many cases like a feel-good marketing front to the actual guts of the operation.

I went down this trail for a number of companies only to find similar stories everywhere I looked, whether it’s battery tech, solar, wind, or whatever. Eventually we end up at the resources sector.

Well, obviously!

I will say I wasn’t particularly surprised by these findings, but hadn’t really explored the reality of them in any detail.

Obviously, “things” are made out of “stuff”, and that “stuff” comes from somewhere. Markets being what they are, and the real good quality “stuff” being relatively sought after, it’s unsurprising that the more successful resources companies only exist and survive because they minimise operating overheads like labour and regulatory costs in order to maximise profits.

Or viewed another way it seems like the investment landscape presents a kind of survivorship bias, you don’t see the companies who died out or never succeeded quite simply because they couldn’t compete, and those who did succeed only did so because they were able to get their hands on the good stuff for cheap. What one person might say is “exploitation” another might say is just good business. After all if a consumer is deciding to buy ethically-sourced battery A vs questionable ethics battery B which is 50% cheaper, well…

In any case, what I quickly realised was that it’s all a balancing act. On the one hand, my desire for cleaner sources of energy production weighed against the reality of sourcing raw materials and the impact this has on the local environment and people.

Is there a greater good, then?

I ended up wondering whether my personal ethical concerns for a cleaner, greener energy future outweighed my concerns over the relatively poorer people and their lands.

Some may say it’s a no-brainer; does the present-day implication really warrant consideration if the ever-looming climate catastrophe will cause violent upheaval anyway if we do nothing about it?

And, as I sit here weighing up the ethical pros and cons, where the amount I as a lone individual can invest is just a drop in the ocean anyway, does it actually matter in a practical sense what I believe the right thing to do is?

Or I can frame it another way to myself; if everyone in the market invested according to my view of ethics, does the world get better or do we end up with all developed nations running clean and green power grids while poorer nations are left destitute, exploited of all their resources and left with nothing to show for it? What then is the quantifiable difference to their future outcomes?

I don’t have an answer, just questions at this stage. Things to ponder.

Clearly the free market is here to stay, and on a wider scale the combined super investments of millions of people clearly have the power to drive entire sectors one way or another. I can’t shake the feeling that if everyone started to make more considered and ethical investment decisions the world could improve in general.

But I also can’t help feeling that there is no clear objective relativity for what’s ethical, and by simply wanting to “do the right thing” with my investments, I’m still implicitly deciding that certain negative outcomes are not as important as others; outcomes which have a real impact on real humans.

It’s a quandary. I went into this exercise thinking I could take some control over my investments, and possibly, if many others started to think about their investments along similar lines, that we could gently steer the world toward a cleaner and more ethical future.

But rather than finding a clear path forward, all I’ve found are more questions and deeper ethical considerations that I simply don’t have any answers to; act or don’t act, there’s no perfect answer at present (and there may never be one).

I feel I’ve been left more cynical after this expedition than before I started.

I am also left feeling that I should not let “perfection” be the enemy of “improvement.”

In the end, I made some decisions based on my own ethical principles, but I’m definitely not under any illusions that there are no downsides at all to my investment. I can only hope I’m choosing the lesser of evils.

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