Ethical Investing: What It Actually Costs to Put Your Values in Your Portfolio
I have heard so much about "responsible investing," "ESG funds" and "sustainable capital" over the last few years that I have started to get suspicious. When so
By Buying America Editorial · Sat Aug 29 2026 · Investing
I have heard so much about "responsible investing," "ESG funds" and "sustainable capital" over the last few years that I have started to get suspicious. When something becomes this fashionable in finance, especially when it arrives wrapped in aggressive marketing and promises of doing good while you make money, my natural skepticism kicks in. Not because I am against corporate or environmental responsibility, but because I have seen too many times how the financial system takes noble concepts and turns them into commercial products. Like it or not, capital has no morals.
We are asking a shark to go vegetarian
We are trying to combine two ideas that contradict each other. On one side we have a capitalist system whose nature is the relentless pursuit of maximum return. On the other, we want that same system to adopt ethical criteria that, by definition, can limit those returns. It is like asking a shark to go vegetarian: it can try, but it goes against its nature.
"In business, look at the facts, not the words." And the facts show us that when capital faces the choice between profitability and ethics, it has historically chosen the first. I do not say that cynically; I say it recognizing the nature of the system we operate in.
Capital, by its own nature, is amoral. It has no conscience and no intrinsic values. It simply seeks to reproduce and grow. Like power, it tends to concentrate and to find the paths of least resistance to multiply. This is not a criticism of capitalism as such, but an observation of how it works.
Greenwashing is not only a corporate habit
We can watch funds that market themselves as ethical end up invested in companies that, under closer scrutiny, do not really meet the criteria they promise. Greenwashing is not just a marketing tactic used by individual companies; it is a phenomenon that runs through the whole financial ecosystem, and through other industries too.
Take, for example, ESG funds that hold oil companies in their portfolios because those companies have implemented sustainability initiatives, while they continue to extract fossil fuels. Let me ask you directly: does that make sense to you? It is like putting a tobacco company in a health fund because it makes cigarettes with an improved filter.
Michael Jensen, in his work on agency theory, argued that you cannot maximize multiple objectives simultaneously. When a fund says it is pursuing both competitive returns and positive social impact, it is promising something that in many cases is mathematically inconsistent.
Sophisticated marketing on top of the same old index
Let us be honest: most ethical investments are exercises in sophisticated marketing. I am not saying all of them are, but the vast majority simply take the same companies from the traditional index, remove a few of the most obviously controversial ones (tobacco, weapons and so on), and package the result as responsible.
The practice reminds me of watching the same managers who promoted ESG funds hold direct investments in companies that violated every ethical criterion they publicly defended. The inconsistency was obvious, but it was justified with the argument that different vehicles have different objectives.
The problem is that we are applying subjective criteria — what counts as ethical — to a system that runs on objective ones, meaning return. Is it more ethical to invest in a technology company that exploits workers in developing countries but has a smaller carbon footprint, or in a local manufacturer that pays good wages but pollutes more? The answers vary depending on who gives them.
Milton Friedman said that "the social responsibility of business is to increase its profits." (I hope never to have to quote Friedman again, and I promise you I will never claim that the market regulates itself with an invisible hand.) Harsh as that view may sound — perhaps because it is — it reflects an understanding of how the capitalist system actually works, without the moral ornaments we add afterwards.
What investing with your values actually costs
If we really want to address the ethical question in investing, we need to be more honest about the limits of the current system and more creative about the real alternatives. That is not today's topic, and we will get to how the middle class might be rebuilt another time.
Back to today: first, let us accept that genuine ethical investing probably means accepting lower returns in some cases. If you are willing to earn, say, 8% a year instead of 18% in order to avoid industries you consider harmful, that is a real ethical decision. But do not let anyone convince you that you can consistently do good and make more money at the same time.
Three routes more honest than a label
A more honest alternative is direct investment in local companies you know, whose values and practices you can verify personally. Instead of buying an ESG fund — better nothing at all — that invests in hundreds of companies you will never be able to verify, consider investing in your neighbor's business, the one that treats its employees well and operates responsibly in your city.
There is also the option of separating investment decisions from decisions about helping others entirely. Invest looking for the best risk-adjusted return you can get, and then use part of those gains to support the causes you believe in directly.
That separation removes the built-in contradiction and will let you be more effective on both fronts.
Another real route is investing in tangible assets with direct local impact: land you keep out of real estate speculation, properties you rent at fair prices, or businesses that create jobs in your community. These investments let you keep direct control over the ethical impact of your capital. And to be clear, I mention all of this assuming you have a real interest in measuring what your money actually does when you invest it.
The intelligent diversification I will keep advocating in these pieces applies here too: if 80% of your portfolio pursues pure profitability and 20% pursues real ethical impact, assuming lower returns, at least you know exactly what you are doing with every peso.
Why this gets harder across a border
If you are investing into the United States from Canada or anywhere else abroad, notice which of these routes the distance takes away from you. The label on a fund is the easiest thing in the world to buy from another country. Verifying a business personally — walking in, meeting the people who run it, seeing how they treat their employees — is the hardest.
That is worth saying plainly, because the cross-border investor is precisely the one most exposed to buying a story instead of a business. The further you are from an operation, the more you depend on someone else's description of it, and a sustainability label is a description written by the party selling you the product. If verification is the honest route, then distance is a cost you have to price in, not a reason to fall back on the label.
The system does not change because we put a nice sticker on it
The capitalist system is not going to change its nature because we buy funds with pretty labels. But we can be smarter about how we operate inside it, recognizing its limits and finding ways to align our values with our financial decisions.
In the end, real ethical investing requires personal commitment, direct research and, frequently, a willingness to sacrifice some profitability for moral consistency. It is not sexy, it cannot be easily packaged as a financial product, and it definitely does not generate the fees fund managers are looking for. But it is real.
So let me ask you: are you willing to pay the real price of investing according to your values, or do you prefer the comfort of believing you can have it all without sacrifices?
By Diego Alcalá
This article is an English adaptation of the Spanish original published on Comprando América: Inversiones éticas.