Is It Possible to Invest Ethically?

Key takeaways:

• Believing that you have to choose between growing wealth and having values is not only a false choice, it’s an expensive one.

• Growing your wealth and using it to support causes you believe in, and your local economy and community, is the best way to “ethically invest.”

• Giving money to a corporation you view as problematic every once in a while for their speed and convenience isn’t a mortal sin.

“Ethical investing” often serves more as a form of virtue signaling than as a mechanism for actual change. It feels good. It sounds good. It gives you the sense that you’re doing something. But feeling aligned and making an impact are not the same thing.

Socially Responsible Investing has gotten more sophisticated over the years. Known by many names like ESG, Impact Investing, Mission-driven investing, what we’re talking about is deliberately excluding companies from your investment strategy that have reportedly done something you don’t like, or don’t align with your values or dreams for a better future. Today, you can build custom portfolios that exclude gun manufacturers, fossil fuels, private prisons, or whatever else you want removed. If you tell your financial advisor you don’t want to own gun companies, that is absolutely doable.

For most people¹, ethical investing is a costly illusion that substitutes moral comfort for real impact, and the price is slower wealth-building that actually limits your ability to do good.

And to be clear, I care deeply about this issue. Guns are the number one cause of death for children in this country, surpassing car accidents and cancer. Wanting to reduce gun violence is not up for debate here. The question is whether your investment portfolio is an effective way to act on it.

The Problem With “Ethical” Rubrics

So-called socially responsible portfolios are built on arbitrary scoring systems, not moral clarity.

Take a widely marketed ESG fund like the Vanguard ESG U.S. Stock ETF (ESGV). On the surface, it sounds exactly like what a values-driven investor would want: “Excludes stocks of companies that do not meet certain labor, human rights, environmental, and anti-corruption standards.” The bone I have to pick is with the word" “certain.” A better word might be arbritary. Because when you look at the methodology, it’s hard to follow and frankly, disappointing.

ESGV doesn’t ask, “Is this company good?” It asks, “Is this company slightly better than its peers on a specific set of metrics?”

The fund tracks an index that:

• Excludes companies involved in certain activities (like weapons, tobacco, or thermal coal)

• Includes massive corporations with documented labor violations, environmental damage, or political lobbying, so long as they score well relative to competitors.

• Weights companies based on disclosure quality and policies, not outcomes.

In other words, a company isn’t rewarded for doing less harm. It’s rewarded for checking the right boxes.

A fossil fuel company with polished sustainability reporting can score higher than a smaller industrial firm that lacks the resources to play the ESG ratings game. A tech company can rank well on “governance” while fueling surveillance, data exploitation, or union busting because those things don’t always show up cleanly in the rubric.

This is how you end up with portfolios labeled “green” or “ethical” that still hold companies many investors would find deeply objectionable if they looked past the label.

JPMorgan Chase vs. Wells Fargo

Let’s dig into it. What gets labeled “good enough” to go in an index that is marketed to people concerned with bad-acting corporations is messy and frustratingly opaque.

In ESG frameworks used by funds like that Vanguard ETF, JPMorgan Chase has historically been included, while Wells Fargo has often been excluded or underweighted following its governance scandals. The two companies are identical in many ways: both are massive U.S. banks, both finance fossil fuel projects, both have paid billions in fines to compensate for various scandals and misconduct, and both are systemically important institutions.

However, in the world of Socially Responsible/ESG investing, these companies are treated differently because Wells Fargo’s fake accounts scandal triggered governance red flags, and the ESG scoring systems penalize recent, visible scandals. JPMorgan avoided a single, headline-grabbing governance failure of the same kind…until now. There was a recent New York Times investigation that uncovered years of JPMorgan ignoring red flags in Jeffrey Epstein’s bank accounts related to human trafficking. If you invested your money in an ESG fund to avoid bad actors, it would not make you feel good to know you have been investing in this company.

What might happen is that you move your money out of that fund (selling it, triggering taxes, and potentially not investing in the stock market at all, for months or years, until you feel comfortable again). That’s why this is so devastating to the ESG narrative. What’s being rewarded here is reputational management, as well as timing. A bank that commits fraud badly and publicly gets kicked out. A bank that does controversial things successfully, consistently, quietly, and at scale stays in business.

Once you see that, it becomes much harder to believe that investing as a small shareholder is a meaningful form of activism.

The Impact of Divesting is a Rounding Error

Let’s say I have a million-dollar investment portfolio and I decide that the only way I will feel comfortable investing is if none of my money is invested in gun manufacturers or automatic weapons suppliers. So I do my own research and I decide that the five public companies listed below are ones that I want absolutely nothing to do with. These are just five that I picked; there are absolutely plenty more companies that you could argue aid in the proliferation of manufacturing and distributing guns. But what about Walmart? Walmart sells guns, but Walmart also provides jobs and healthcare to thousands of Americans living below the poverty line. Let’s not throw the babies out with the proverbial bathwater.

Weapons Manufacturers and Approximate Weight in the S&P 500

• General Dynamics (GD): ~0.2–0.3%

• RTX Corporation (Raytheon) (RTX): ~0.39%

• Lockheed Martin (LMT): ~0.15–0.20%

• Smith & Wesson (SWBI): ~0.00070%

• Sturm, Ruger & Company (RGR): ~0.00116%

With modern trading technology, it’s easy to exclude these companies from your portfolio. Or you could invest in a fund that markets itself as excluding weapons altogether, like the Ariel Fund.

Even if we add up the approximate weight of these five large public defense contractors, they collectively make up less than 1 percent of the S&P 500. So if you put $1 million into an S&P 500 index fund, roughly $10,000 of it would be allocated to direct weapons manufacturers.

Are these companies going to miss your $10,000? No.

Is your divestment going to affect their access to capital? No.

Is it going to change their behavior? Also no.

This is the core mismatch in ethical investing at an individual scale. The emotional weight of the decision far exceeds its economic impact.

The strongest counterargument is that ethical investing isn’t really about divestment, it’s about engagement. Proxy voting. Shareholder resolutions. Influencing corporate behavior from the inside. In theory, that’s compelling. In practice, for individual investors using off-the-shelf ESG funds, that influence is indirect, diluted, and largely symbolic. You are not directing the engagement strategy. You are outsourcing it to index providers and asset managers whose incentives are to track benchmarks, minimize tracking error, and avoid controversy, not to take principled stands that meaningfully jeopardize returns.

For every dollar I choose to divest from gun companies, someone on the opposite end of the political spectrum is investing that same dollar to make the opposite point. So don’t spend time handwringing about divestment if you’re a small investor, and by small, I mean under ten million dollars.

The Opportunity Cost We Don’t Like to Talk About

Ethical investing does provide a benefit. It just isn’t a public one. It makes the investor feel good. It offers a sense of moral cleanliness and personal alignment. You get to look at your portfolio and feel like it reflects your values.

There’s nothing wrong with that, but we should be honest about what’s happening. The primary beneficiary of ethical investing, at least at this scale, is the person holding the portfolio. The personal satisfaction is real. The impact largely is not.

That doesn’t make people’s desire to invest ethically wrong, and it doesn’t make giving to causes you care about futile. But if the primary goal is emotional relief, you’ll give in ways that feel soothing instead of ways that are effective. Pure generosity is quieter, more disciplined, and much less interested in how it makes you look or feel.

What I recommend to clients who want to invest ethically—particularly those concerned about exposure to industries like weapons manufacturing—is to separate investing from impact. I encourage them to invest for long-term growth and make a direct impact by donating to organizations that are doing meaningful work. I’m a pragmatist, and as a financial planner, I want to see tangible, measurable results. My concern with ethical investing is that its methodology is wishy-washy and its impact is difficult to verify.

Too often, I see people who could meaningfully grow their net worth avoid investing in the stock market altogether because they’ve been told it makes them a bad person, when in reality, growing wealth can increase their ability to do good.

There’s an argument that small activist investors can spark a massive movement that eventually forces real change. That’s a big leap. I would hate to see someone opt out of the stock market just to maybe, potentially, be a tiny part of a movement that might one day influence people with enough capital to matter. If you want to align your money with your values and your politics, the most reliable way to do that is to build wealth first, by owning small pieces of many companies and participating in the U.S. stock market. Then use that wealth to back causes, candidates, or policies that reflect your values.

This is the part that worries me most as a financial planner. I regularly see people, especially younger investors, delay or avoid investing altogether because they’ve absorbed the idea that they must choose between accumulating wealth and upholding their values.

That is a false choice, and an expensive one.

By opting out of broad market investing, you give up one of the most reliable tools for long-term wealth building. And the tragedy is that the money you could have grown, and later deployed meaningfully, never gets the chance to exist.

The Organic Label Problem

That said, I don’t think there’s anything inherently wrong with ethical investing. The problem is how the label gets used. It reminds me of the organic food designation: there’s endless debate about what “organic” really means and the regulations often favor large producers that can afford certification, not the small farms that are already farming responsibly but can’t justify the cost of the audit. The label becomes more about optics and compliance than actual outcomes.

Ethical investing can fall into the same trap. Once it turns into a purity test, it stops being useful and starts becoming performative.

If you fundamentally cannot stomach investing in a large corporation because of ethical concerns, you should at least be honest about how deeply entangled these companies are in everyday life. Take a company like Procter & Gamble or Chevron. If you buy almost anything from a drugstore, you’re almost certainly giving money to P&G. If you drive a car and buy motor oil, you’re very likely supporting Chevron. Avoiding them entirely is close to impossible unless you opt out of modern life altogether.

At that point, refusing to invest in them doesn’t meaningfully change your ethical footprint—it just limits your own ability to build long-term wealth. You’re still participating as a consumer, just without the upside of ownership.

There’s a fantastic satirical piece from McSweeney’s that encapsulates my point exactly.

I Work for an Evil Company, but Outside Work, I'm Actually a Really Good Person

And when it comes to making things even, I put my money where my mouth is. I might make more than 99 percent of all Americans, but I also make sure to donate almost 1 percent of my salary to nonprofits. This way, I can wear their company tote bag to my local food coop. Did I mention I shop at a local food coop? It’s quite literally the least I could do. - Emily Bressler

Do Good and Build Wealth

I strive to make good choices as often as possible. For instance, I shop for groceries at my local grocery store, Mr. Coco, because I read an article about the family that runs it, and I want that store to exist in my neighborhood forever. My $48 for groceries will go a lot further in my community if I spend it at Mr. Coco instead of forking it over to Whole Foods and the Bezos Industrial Complex. Now, does that mean I make my life harder and avoid Amazon/Whole Foods altogether? No! If I’m having a party tonight and I need 100 cocktail shrimp and I forgot to order ahead of time, then I’m going to Whole Foods, and I’m not going to wring my hands about it.

I try to spend as much money as possible on businesses I do care about and ones that I want to endure—like independent bookstores. I’ll wait for the few extra days when I want to read something and walk to one of the local bookstores, or I’ll order from Bookshop.org. But that isn’t always realistic if I need a book for research for an article or presentation I’m working on tonight. I’ll use my Kindle and reluctantly give some of my money to the Amazon corporation.

So, yes, sometimes I pay massive corporations for speed and convenience, allowing me to continue running my life and business as smoothly as possible. And when this happens, I don’t assign myself a moral failing. I give myself a little grace and my hope is that you do as well.

This is all to say, don’t sacrifice your own financial stability to virtue signal. You need to make enough money to care for your needs, so then you can put your money where your mouth is. If you are the type of investor who cares about how companies impact their communities and the planet, I want you to be a rich and powerful person! We need more of you!

A portfolio that you have paid money to slap a label of “socially responsible” or “ESG” is like a Potemkin village. It’s a false sense of doing some good, which hides something more sinister, that we are happy to sit in our apartments full of crap made my people in terrible conditions while we get to go to cocktail parties and wave our hands about the fabulous porfolio we’ve constructed that makes us a better person than everyone else in the room because it doesn’t invest in companies that do one very specific artibtrary thing. Donating your money or time to companies, individuals, and organizations you believe in is a more effective way to make a difference than a corporate stock boycott.

Parting Shot: Your portfolio should not be a protest sign.

1. I’m defining “most people” and folks with investment portfolios of ten million dollars or less.