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  • Margaret Curtis, MD

Ethical Investing

A friend who is a whip-smart trauma surgeon but says she doesn’t know anything about finance, recently asked me about “ethical investing”. I figure if she has the brains to become a trauma surgeon a little thing like money management will be no big deal, but here’s my take on it anyway:


There are two different ways to look at “socially responsible investing”, or “ethical investing”.

Vote with your dollars. Only buy stock in companies that practice in a manner consistent with your beliefs. This may mean no oil companies, no gun companies, only companies with good labor relationships, etc. You can do this by buying individual stocks or investing in mutual funds with one or more screens.


There is debate about whether there is an “ethics discount”, meaning that this kind of stock screen results in lower returns. Data seems mixed (and if you ever thought medical research was full of bias, try reading economics journals)[1][2]. One problem is that defining “ethical” companies is pretty difficult: do you prioritize labor relations or the environment? Public companies are part of a network of suppliers and distributors – do you evaluate them too? You can get deep into the weeds, fast.


You also may not have the impact you were hoping to have. Your money is not actually going to the company you own, and here’s why:


Companies issue shares to raise capital. When you buy shares in an initial public offering (IPO), your money goes right to that company to invest. When you buy shares on the stock market, however (which is how the vast number of individual investors obtain shares), you are buying them from an individual or a bank. It’s like buying a used car: your money doesn’t go to Toyota, it goes to the guy you bought the Toyota from. [3]


Here’s the other way to look at ethical investing: Beat them at their own game. Invest your money in index funds, or stocks, or real estate, or whatever your due diligence leads you to. Make money. Use that money to do good in the world. I like the idea of owning stock in, say, Exxon Mobil and then donating the dividends to the Sierra Club. You could even donate the shares to the Sierra Club (who will them promptly sell them, but then they get the profit and neither of you has to pay taxes on the whole thing!).


We are mostly invested in stock and bond index funds, so we are exposed to the whole market. We own a few individual stocks (Bogleheads, I can see you squirming in your seats. Not right now, OK?). We also donate to charity and feel that is the most powerful leverage we have.

Whatever your investing approach, I hope you have the greatest success.



[1] James Mackintosh and John Authers, “Sin Stocks Pay as Alcohol and Cigarettes Beat Sober Rivals”, Financial Times, February 10, 2015.

[2] https://www.ussif.org/performance

[3] Wonkish footnote: Companies still want you to buy their shares. Many companies have investor-friendly incentives written into their executive contracts (and in fact, this is something to look for when evaluating individual companies). CEO pay should generally be tied to long-term investor performance so they are motivated to move the company in ways that benefit you. In addition, companies can get lines of credit based on their stock price. When stock prices are up, the company can borrow more money.

Owning shares gives you voting rights. You can show up at meetings or call into the company’s quarterly earnings call and tell them what you think of their policies. You can vote for the executive board. You may not have much pull until you own a lot of shares (like, Warren Buffet numbers of shares) but you still have a say. This is called being an “activist investor”. Most activist investors use their votes to influence the company’s business practices, but nothing says you can’t use yours to demand higher ethical standards.

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