Shunning the bad guys still matters at heart
Our investment choices do have an influence, Martin Hawes writes.
Last week there was an interesting opinion piece on Stuff by Richard Meadows. Entitled, ‘‘The case against ‘ethical’ investing,’’ the article pointed out some of the very real difficulties with socially responsible investment.
Fair enough, I thought – there certainly are difficulties and there is every benefit to point them out.
However, I turned grumpy when Meadows said that ethical investing won’t make a jot of difference and may do more harm than good.
No doubt Meadows was looking for a bite – and he’s got one!
Meadows claimed that if you understand how the share market works, you will know that when you buy shares in Evil Corp you are giving your money to another investor rather than to Evil Corp.
Effectively, you can happily buy shares in Evil Corp because Evil Corp does not see a cent of your money.
That’s true – but disingenuous. If you followed Meadows’ logic, you would happily buy any company no matter how they made money: the use of child labour, manufacture of nuclear weapons, the sale of tobacco, harvesting whale meat, and so on.
Extend the logic further and roll the clock back 80 years and you would knowingly have bought shares on market in the German company Degussa. Degussa manufactured Zyklon B, the gas that was the preferred killing tool of the Nazis at Auschwitz.
I wonder how we would explain that to the grandchildren.
‘‘Sin companies’’ may not see any of your money when you buy shares but they do benefit.
When you buy shares, you are helping to push the share price higher. In doing so, you are rewarding not just the investor whose shares you have bought, but also the existing shareholders.
The reward of a growing share price encourages other prospective shareholders to come in and buy. That higher share price means it is easier and cheaper for Evil Corp to raise more capital.
You may also be benefiting Evil Corp’s management, whose salaries may be tied to the share price through share options and other incentives.
Yes, as Meadows says, you should also refuse to buy these companies products, but anything that assists a company’s share price helps the company access cheaper capital.
I think most of us lie in our beds easier if we snub investment in businesses that are certain to make the world a poorer place.
Martin Hawes is the Chair of the Summer KiwiSaver Investment Committee.
The Summer KiwiSaver Scheme is managed by Forsyth Barr Investment Management Ltd. You can obtain the Scheme’s product disclosure statement and further information about the Scheme on our website at www.summer.co.nz.
Martin is an Authorised Financial Adviser and a Disclosure Statements is available from him on request and free of charge.