Ethical Investing and Shareholder Activism

A growing number of investors are building investment portfolios that include companies considered to be ethical – in their products, services, carbon footprint, social responsibility and other criteria relating to environmental, social and corporate governance (ESG) . While it’s clear that the whole point of investing is to make money, there is a group of investors who believe that there is money to be made while sticking to their principles. Moreover, with the increased demand for transparency in publicly traded companies, dodgy dealings are difficult to get away with and can result in billions of dollars in litigation and payouts that inevitably have an impact on shareholders.

There are several research companies that compile annual lists of the world’s most ethical/trustworthy/reputable companies, and these can all assist individual investors in making portfolio management decisions. There are also hedge funds that specialize in building portfolios according to a set of ethical standards and it would be up to the investor to decide if those standards are compatible with their own. This can become quite complicated with multinational companies that source products or product ingredients from developing countries where child labor may be common, workers’ rights are neglected, natural resources are being stripped, and other similar issues, but some investors are prepared to put in the extra work to ensure they are not supporting, even in an indirect way, any of these unacceptable practices.

Some investors are prepared to go even further than that by becoming activist shareholders. Shareholder activism can take many forms and is engaged in for various reasons, but the goal is to influence the way a company is operated. From an ethical investing perspective, shareholder activism may present a way for investors to pressure companies to clean up their act, sometimes quite literally if they are polluters, or in their business practices, by using their right to have their say at shareholder’s meetings.