Does this actually make a diffence, from game-theoretical perspective? It seems to me that if substantial amount of investors start to bias in a certain direction, it will only create an opportunity for active investors to earn money by betting in the other direction, and these active investors will "fix" the "bad" price. Maybe it's not a coincidence those indices perform as well as the rest of the market, as you observed?

These active investors don't even have to realize their strategy is based on going against nice guys -- they might be led purely by statistical performance.

I'm not trying to be needlessly cynical. I like effective altruism for example. I'm just not sure stock market is a good battleground for ethics.

There's a solid piece about this from Clifford Asness over at AQR https://www.aqr.com/Insights/Perspectives/Virtue-is-its-Own-...

I don't disagree with his thought experiement/model. Quite ironic though. Only five years ago I doubt Cliff would have invested time in thinking about this (I did work for him). The fact that AQR is paying attention and feels the need to express themselves on the topic speaks volumes.

There is research suggesting that "sin" or "vice" stocks outperform, as many people refuse to touch them, therefor creating an artificially lower demand which corrects itself by those who don't have the ethical dilemmas being able to pick up greater amounts of undervalued shares.

https://www.robeco.com/en/insights/2017/09/research-reveals-...

That link says the opposite -- that the vice premium disappears once you factor in their unusual capital structure.

Essentially, sin stocks are unusually well managed because they can't be used for empire-building by crappy executives.

It depends if the people are betting that climate change is real and these companies will start to be treated differently are correct. Could be another 4 years before changes happen...

I agree. If a smart investor notices that a company business model stops working the moment governments pass legislation introducing carbon markets, it's a good investment strategy to short the stock. But notice that it's the government that is doing the heavy lifting here, investors are just diligently passing the shock from the future so resources are not wasted.

If there is a climate catastrophe going to happen, but no government is going to punish companies responsible, it won't make sense to try to do that for yourself -- in the same way bad corporations are freeriding on climate, bad investors are freeriding on your efforts to punish such corporations.

We are beyond that point. Climate change is real - I think most sophisticated investors have done enough due-diligence to come to that conclusion, despite all the uncertainties.

Investors and traders eat uncertainty for breakfast, lunch and dinner. It doesn’t stop them from making trading decisions. It’s what keeps market ticking.

By choosing the ethical investment you are in a sense becoming an active investor betting against none ethical investments.

Trying to reason about whether the stock market is a good battleground. If you know I wouldn't want to buy your investment, surely that lowers how much you'd value it, as does the potential for having to pay a premium on bonds. As a CEO your share based compensation starts to look less attractive as does the whole idea of presiding over a company potentially on the wrong did of history. So I wouldn't say its a pointless battle.

Lets take Uber, on one level its worth billions, but it makes no money, if everyone avoided the stock and debt it would run into problems pretty quickly. It is worth billions only because sufficient people believe it is/ will be worth that much, if enough people avoid it, it isn't going to be worth that.

I'll just note that social/environmental funds like this generally only go for the REALLY REALLY bad folks out there that aren't supergiants.

Some of the top holdings of that fund are - Nestle Exxon Johnson & Johnson Facebook etc etc

It's a good step but you're not actually divesting yourself from fucks like Nestle.

I would say the bigger problem is that everyone has different ethics and what makes a company evil.

When you get to the level of those companies, surely they're going to do something evil. I'm not even sure what you're referring to with Nestle (baby milk?).

Id prefer to have it based on something more solid like carbon intensity or no oil or something actually measurable by us and the offending companies, rather than nebulous 'ethics'.

Nestle kind of goes above and beyond in this regard... Messing with access to potable water is certainly relevant to climate change

https://en.wikipedia.org/wiki/Nestl%C3%A9#Controversy_and_cr...

It's not causing climate change, though. That's saying nothing of their ethics, or how the impact their activities are having particularly with the accelerating climate emergency, but it's a matter of critical focus that we stop CO2 emissions, not divest companies that are unethical (admirable, but entirely separate).

For what it's worth, that is precisely how this effort will be gaslit. Divide and conquer.

Gaslighting is where an abuser says and does unexpected things that make the abused doubt their perceptions and sanity. I learned about it in film class in college. Suddenly people are using the term to describe all sorts of actions that don’t seem to fit that mold (but that involve some sort of ill intent). What gives?

I think it's interesting that an environmentally focused fund would exclude tobacco and guns, since neither have anything to do with the environment. That seems more like a partisan political statement/motivation than a focus on environment.

I'd go a step further and point out that this fund holds Nestle and Exxon... So it's not really even worried about environmental concerns, it's purely a political statement.

The S in ESG actually stands for social, not sustainable. Tobacco and guns are arguably detrimental to society.

Ah, well that helps explain their motivations. It is a bit odd though that they are still holding major companies that have significant negative environmental and social impacts though. At some level, it's just virtue signalling with no meat. Either you care enough to divest your holdings in significant polluters, or you don't.

That’s great. Collectively, individual investors have tremendous power. Money talks volumes.

> Last year I switched from MSCI World Index to MSCI World Custom ESG Index.

The S is for social, not sustainable. Other, more climate focused MSCI options: MSCI World low carbon leaders, MSCI World ex-fossil.

Disadvantage of "low carbon leaders": this index only adjusts weights, it doesn't actually exclude Exonn-Mobil for example. It just reduces exposure.

Disadvantage of "ex fossil": only excludes companies with fossil fuel reserves, does nothing towards airlines for example.

This makes me wonder: How hard would it be for companies to offer slightly customized funds? For example if I wanted to invest in S&P500 minus XOM. I might need to pay higher fees, but it's probably doable.

(The reason I want that is partly boycotting environmentally unfriendly companies, partly a belief that they will not grow anymore, for the reasons mentioned in the article.)

Lovely way to create new arbitrage opportunities for others.