Ecology and the ethics of finance

| 10th October 2018
Financial industries and regulators must consider the ethics of investments, particularly when it comes to climate change.

In these private pools of capital that are large enough to have real public consequences, how you make money is as important as how you spend it.

Much ink, and blood, has been spilt on the ethics of a good life, but relatively little on the ethics of good money. The passing of ‘Good Money Week’ and the most recent IPCC report in to climate change seems like a good time to consider what it means to be good with your money. 

Money is all about value, but financiers play the game that money is morally neutral. Look after the profits and the outcomes take care of themselves.

In other words, when it comes to ethics, how you spend money matters more than how you earn and invest it. 

Ethical divestment 

It is certainly the case that we have become highly exercised in how we spend our money ethically. Buying a running shoe is now a political act.  

Everything from tipping to how we grow coffee is increasingly scrutinised through an ethical lens. The message is clear: how you spend your money should reflect your own ethics and tells a story about the morality of society. 

By contrast, how you save and invest is still very much a private matter reflecting personal values of thrift and prudence - or capitalist virtues of risk taking and adventure.

The public ethics of how your money is used by the financial system when you are not spending it have remained taboo. The industry sees itself purely as a guardian of our wealth with less regard for the social usefulness or wellbeing it generates.

This came to a head at my own alma mater, Cambridge University, where half of the investment management team who handle the university’s £6bn + endowment fund recently resigned.

The Financial Times and others reported comments that "the debate around divestment has left staff unable to get on with their jobs of trying to maximise the value of their endowment" - while the University commented on the team "transforming the performance" of the fund allowing the institution to further its social and charitable mission. 

Cognitive dissonance

Both views reflect the cognitive dissonance - the ability of the human brain to hold two conflicting positions simultaneously without losing our marbles - that is endemic across much of the financial system.

In these private pools of capital that are large enough to have real public consequences, how you make money is as important as how you spend it. A fund that is designed to maintain itself ‘in eternity’ should think about the world it is creating for future students through its significant investments in companies that contribute to man-made climate change.

It is not just institutions that have this split morality when it comes to money. Modern tech-based capitalism produces individuals with levels of wealth not seen since the Tsarist empire.

With her usual rapier eloquence Marina Hyde in the Guardian described Jeff Bezos’s attempts to join the human race with his ‘One Day’ inititative as ‘fauxlanthropy’, asking whether a better use of his wealth would be paying his workers a fair wage.

It’s not that finance itself is intrinsically ‘bad’. That’s as faulty as the argument for the neutrality of profit seeking, 'we make the markets and the money we deserve'.

Collective wealth

It may still end in a Marxist meltdown but until then we can re-make capitalism to reflect the morality of the society it serves. We need a system of ethics conscious of the impacts of investment beyond the boundaries of the firm set by traditional accountants. 

The Finance Innovation Lab campaigns for a fairer financial system for people and planet. Its recent report criticised the ‘value neutral’ stance of the Financial Conduct Authority (FCA) as a fallacy, when actually it has ‘values blind spots’.

This prompted the regulator to consider how it should respond to the very real moral challenges presented by man-made climate change, for example.  

Money is created by and helps shape our society. The way it is regulated fundamentally affects the behavior of financial firms in that process. As the recent welcome memorandum from the Department of Work and Pensions demonstrated, it is the legal duty of the guardians of our collective wealth to consider the wider impacts of how it is invested on our behalf. 

Abundance is not alone in thinking that it is not enough to blame the regulators for our ethical shortcomings. We try to make it easier for people to consider the ethical impact of how their money is invested and provide investments that fit with the values of our customers.

I believe that private money is capable of producing public good, and that will be accelerated if it takes place in a financial system whose idea of profit, benefit and value looks beyond short term self interest. 

This Author 

Bruce Davis is managing director of Abundance Investment, which advertises with The Ecologist.

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