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The Ethical Portfolio (Sustainable Moral Idea)

Last Updated on 10 February, 2024 by Trading System

I’m wealthy enough where I don’t need to own a tobacco company & deal with the consequences of public ownership.

-Warren Buffett.

ESG investing is on the rise as unethical stocks come with a lot of baggage for publicly followed investors. If you’re a closely followed investor, which obviously Warren Buffett is, you are guaranteed to get asked a lot of uncomfortable questions about any investments that are questionable ethically. This means most known investment companies are in practice barred from investing in so-called “unethical” companies even though “unethical” products and services are perfectly legit.

Big funds, for example Norway’s sovereign fund (SWF), regularly publishes a list of companies that are “unethical”, and this of course sets the bar quite high for other sovereign funds. Because of this, sustainable investing has come a long way. More than one-quarter of assets under management globally are now being invested according to the premise that environmental, social, and governance (ESG) factors can materially affect a company’s performance and market value (source: McKinsey).

Thus, it makes sense to set up an “ethical” portfolio, right?

Our “ethical” investment portfolio reads like this:

  1. ____________
  2. ____________
  3. ____________
  4. ____________
  5. ____________
  6. ____________
  7. ____________
  8. ____________
  9. ____________
  10. ____________

We prefer to leave the “ethical” investments blank. Why?

First, what is sustainable investing? We believe many of the criteria are naive. What looks “ethical” on the surface, might not be so “ethical” after all. Is solar power really “clean”? We’re not so sure.

Second, “ethical” investing leads to a lot of unintended consequences. We are “blind” to the unintended consequences because they are only indirectly related.

Third, because of unintended consequences “ethical” investing is far more complex than most people realize.

Furthermore, talk is cheap. Recently we saw a survey in Norway where 50% of the shoppers said they are willing to pay more for ecological food. Yet, less than 2% of food sales are ecological!

Investors say oil is dirty, yet the same people fly all over the world on seminars and holidays.

Likewise, the Norwegian SWF is barred from investing in Lockheed Martin (LMT), yet the Norwegian Defense spends billions in purchasing F-35 from Lockheed Martin.

We don’t want to be hypocrites and we want to keep investing as simple as possible. We’re no saints and don’t want to be either. Our main concern is to get a decent return on our investments.

Disclaimer: We are not financial advisors. Please do your own due diligence and investment research or consult a financial professional. All articles and model portfolios are our opinions – they are not suggestions to buy or sell any securities. This is how we invest our own money. You are responsible for your own investment decisions. This webpage is for information only.


– What is ESG investing, and why is it gaining popularity?

ESG investing focuses on environmental, social, and governance factors, and it’s gaining popularity due to the increasing awareness of the ethical implications of investments. Warren Buffett’s stance on avoiding tobacco companies is referenced.

– Why are closely followed investors like Warren Buffett cautious about unethical stocks?

The content discusses how closely followed investors, including Warren Buffett, often face uncomfortable questions about ethically questionable investments. The rise of ESG investing is linked to the challenges public ownership of unethical stocks brings.

– What percentage of assets under management globally are invested based on ESG principles?

A statistic from McKinsey is cited, stating that more than one-quarter of assets under management globally are invested based on the premise that ESG factors can significantly affect a company’s performance and market value.

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