Tobacco. Assault weapons. Oil — and any other product or company that contributes to climate change.
That’s the list of industries so-called ethical investors typically avoid, preferring to put their money into stocks of companies that do no harm.
But a couple of new names have joined the toxic list, according to Toronto-based ethical investment adviser Tim Nash.
“The top two companies that tend to get flagged these days as ethically questionable are Facebook and Amazon,” said Nash.
Reports of Amazon’s poor labour practices have made headlines while Jeff Bezos’s billions have grown, and Facebook “has stoked the division around very contentious issues, whether it’s Black Lives Matter or climate change,” he said.
Add the recent antitrust report by American lawmakers that said big tech companies including Apple and Google abuse their “monopoly” power, and some investors are turning up their noses.
According to TD Securities, 2020 will be a record year for exchange-traded funds that track companies focused on ethical factors such as the environment, social impact and corporate governance. More money was invested in them in the first quarter than in all of 2019.
Nash’s clients are keen to invest in the stock market, he said, but are choosy.
“They still want profits. They still want to be able to save and earn money for their retirement. However, they want to avoid the worst offenders.”
Nowadays, those “worst offenders” include Big Tech.
In Killaloe, Ont., Duncan Noble and his wife, Mary Crnkovich, are approaching retirement age. Despite how well tech stocks are performing, they aim to keep them out of their investment portfolio.
“Facebook was in the news a lot in terms of influencing the 2016 election in the U.S.A., and I started reading more about how Big Tech can be a negative influence on our society,” said Noble. “It happens at the personal level also, in terms of people getting addicted to social media and becoming radicalized through various processes that technology enables.”
Noble said he and his wife also avoid the oil and gas sector. They don’t believe they’re losing money by avoiding specific industries.
“Our investments have done really well this year,” he said.
But others argue that it’s possible to find an ethical concern with almost any company, and that it’s foolish to not take advantage of the best performing sector in the stock market.
Not ‘dastardly’ billionaires
Financial advisor Barry Schwartz of Baskin Wealth Management says the technology category has been a superstar.
“It hasn’t been a winner for this year; it’s been a winner for the last 10 years,” he said. “The 10-year compounded return on the NASDAQ as of Sept. 30 has been 18 per cent, including dividends.”
Schwartz adds that rate of return has “smashed” every other class of asset.
He also points out that Mark Zuckerberg of Facebook is donating billions of dollars to worthy causes, while Amazon’s Bezos is funding journalism along with space exploration.
“These guys are not hoarding their money,” he said “They’re not these dastardly billionaires you see on TV that are out to crush society.”
Another point in their favour, said Schwartz, is that both Facebook and Amazon have been creating jobs and adding wealth in a number of ways, both for workers and for investors.
“That improves the economy and adds value,” he said.
That argument doesn’t hold water for Samantha Early, a labour organizer in Toronto, who is one of Nash’s newest clients.
At age 27, she says her investments aren’t aimed at retirement, but at giving her a financial cushion in the years ahead.
“I think for folks of my generation, the expectation is that we will spend our working lives in a very precarious situation, that jobs will turn over, that we could see long periods of joblessness and have to switch careers,” she said.
Despite that insecurity, she says her moral compass is just as important as her finances.
“I have already taken losses to switch up my mutual funds and withdraw all of my investments, to switch over to this new system I’m working on with Tim,” she said. “And that’s just something that I’m willing to do, to make sure my money is invested ethically, so I can feel like my money is not dirty.”
Excellent, ethical returns
Money decisions are by their nature very personal, but Nash is eager to point out that it’s possible to earn excellent returns with mutual funds custom-designed to appeal to ethical investors.
“What’s been really interesting during COVID is these sustainability funds have outperformed over the last year, quite significantly,” he said. “So even some of these funds that have excluded companies like Amazon and Facebook are clearly finding other companies that are just as profitable.”
Nash consults a variety of indicators, including the Morgan Stanley Capital Index, and a firm called Sustainalytics in order to find ethically acceptable options for his clients.
It may strike some as odd that companies involved in such seemingly innocuous activities such as online shopping and social media can be seen as morally offensive as cigarettes, assault rifles and pipelines. But for a growing number of investors, societal harm can take many forms, and they want to be careful not to contribute to it.