The Challenges of Aligning Our Money With Our Values

On Saturdays, a colleague and I typically meet for coffee. We order ahead, which probably saves us 20 minutes of standing in line. Yet this means they serve the coffee in paper cups. If we were willing to wait in line, we’d get our coffee in more environmentally friendly ceramic cups. Both of us would say we’re concerned about climate change, yet our coffee practice doesn’t align with that value.

This is just one small example of how difficult it can be to align our values and the way we use our money. It’s not unusual for a well-intentioned person, often unconsciously, to embrace a value that is not fully embraced in their spending. Even when we put a lot of thought into it, putting our values into financial action can be a challenge.

This is especially true when it comes to investing. Many investors would like their money to be in firms whose policies and practices support their values. These might include protecting the environment, championing gender equality and diversity, following fair labor practices, supporting human rights, or many other social and environmental concerns.

When we can align our values and our investing, we can reduce our guilt, anxiety, and emotional dissonance and can feel more congruent with our beliefs and our behaviors. An increasingly popular way to do this is through what is called Environmental, Social, and Governance (ESG) investing. Increasing numbers of funds and investment advisors offer ESG investing, so putting your money into this sector is not difficult.

On the surface, ESG investing appears to be a completely worthy goal that helps someone invest in alignment with their values. Yet, as with so many things, it’s just not as simple as it looks.

First, there is no universal agreement about what ESG factors are. One person’s environmentally friendly practice may contradict another person’s vitally important social policy. A huge number of factors need to align for a fund’s ESG filters to meet your own definition of ESG. It’s important to become very clear about your personal views on social issues, environmental policy, corporate governance, and the like before shopping for a fund.

Second, some ESG funds are more about greenwashing than true ESG investing. This is when a company talks the ESG talk but doesn’t walk the ESG walk.

Third, as a category, my experience shows and data suggests that ESG funds tend to have lower returns than a broad market index fund. This can be problematic, especially if, say, a pension fund is doing ESG investing, because it can potentially violate the fiduciary rule to maximize financial returns for investors rather than to promote social or political objectives.

For this reason, you’ll want to seriously consider whether you can afford to give up the extra return that ESG investing may cost you. Someone may have a money script that, absolutely, I need to sacrifice whatever it costs to be in alignment with my values. Yet that is sometimes not practical, and it may conflict with an equally strong belief that it is important to provide wisely for oneself and one’s family.

Fourth, you may choose ESG investing with the idea that, by not investing in companies that don’t hold your values, you’ll deprive them of capital or in some way hurt them financially. Yet ESG investing does not actually impact or hamper the companies that you choose not to own.

Why? The only times a company benefits financially from the sale of stock are when it initially goes public (an IPO or initial public offering) or when it issues additional new shares to raise capital. These are fairly rare events. Most stocks are bought and sold on the secondary market through exchanges like the New York Stock Exchange, so the money moves between the buyers and the sellers. None of it goes to the company. The same is true when companies borrow money through issuing bonds, which aside from the initial issuance are bought and sold on the open market.

True, if no one bought a company’s shares on the secondary market, that would cause its stock price to plummet. The problem is, the demand for the shares of these companies isn’t going away as long as they remain profitable. If you’re concerned about making an impact on companies that are not aligned with your values, the most efficient way to influence those companies is to boycott what they’re selling. ESG investing is not about punishing companies that don’t hold your values. It’s about owning the companies that do align with your values.

Aligning our money and our values is not at all simple. I have no clear “how-to” formulas or easy answers. What matters most is to be intentional and thoughtful in looking at your own values and priorities. This can help you make investing choices that bring your money behavior in line with your values and support a sense of congruence and serenity.

Check out The Financial Therapy Podcast by Rick Kahler concerning this topic.

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