Conscience or Compromise, how should ethical investors choose?

Abstract

The main question that this paper seeks to answer is “How should an investor decide between passive and activist approaches to ethical investing?” My assumption is that this question arises from an ethical dilemma. Ethical investors do not want exposure to unethical companies and the tendency is therefore to avoid this exposure as much as possible. After all, the fact that ethical investors think about their ethical exposure is what differentiates them from other investors. There are however good indications that the activist approach may prove fruitful, with the compromise of having greater exposure to companies one deems to be unethical. In order to give a comprehensive answer to this ethical dilemma I will extensively discuss and compare the differing ethical motivations behind the two approaches. I will argue that the two approaches can be compared to positions taken in the debate on consequentialism within ethical theory. The focus will be to examine how the different criticisms raised therein apply to activist and passive investing. In the final part of this paper I will seek to answer the main question by harmonizing the two approaches in a way that gives priority to either one of the two approaches under different circumstances.