Is ethical investment effective?

Fair question, and I should have been clearer, because the meaning is ambiguous. I would say 'ethical investment' has two main meanings: 1) investing money taking into account the ethically-significant consequences of your investment decisions. 2) making investments in the secondary market which avoid companies whose activities seem socially harmful (usually understood to mean companies involved in things like weapons or tobacco) and/or put money into companies who activities seem socially beneficial (usually understood to mean companies involved in things like clean energy or with strong policies on workers' rights or equal opportunities).

I think ethical investment (1) is very much worth thinking about, because a large amount of the influence that most people in richer countries have upon the world is mediated by what they do with their money (spending, investing, donating). My post was about whether ethical investment (2) can be a part of ethical investment (1), and my tentative conclusion is – not really. However, I would say that most people's understanding of ethical investment is ethical investment (2). Trillions of dollars are invested in funds committed to such policies, which suggests to me that many people think they are effective, especially since some of them pay management and other fees to invest in such funds which they could avoid by just investing in some sort of index fund.

Making all companies 2% more ethical would be a great way to spend a measly billion dollars. Not the literal optimum, but a way higher return in utilons than usual. Alas, you can't actually do that by trying to induce a predictable distortion in asset prices.

Depends on what exactly "companies 2% more ethical" means in real life (in near mode). It could mean saving human lives, maybe even more than if you used the 1 billion dollars to build a hospital (which obviously would be considered very altruistic).

Imagine less poison in food, less slave labor, etc.

I completely agree that it is not at all obvious what good and bad effects there are of companies' activities. I think it is very possible that some 'unethical' activites have more positive effects than many activities commonly understood as ethical. It would take a lot of reflection to work out what good and bad effects certain companies have. The point of my post was to ask, before engaging with this question, whether individuals' decisions about their investments in the secondary market have much or any influence on companies. If not, it's not urgent to think through the question about how much good various companies do, at least in terms of what influence this should have on your investment decisions.

This may have been obvious to many people from the start, but it wasn't to me.

Or rather, how the author's unsympathetic perception of popular perceptions ...

(I suspect this author has less idea of what people who care about "ethical investing" actually care about, than I have of what fans of the San Francisco 49ers care about. Broadly, people who dislike X are not able to provide credible descriptions of what people who like X like about it, even if they have accurate models of what those people do as a result of their liking.)

Not only that, but supporting charity is almost certainly more directly beneficial, simply because the primary aim of charity is to help people, while the primary aim of investment is to generate returns, so it would be very surprising if it did better at helping people than charity, at least in the short- and medium-term.

That makes no sense. It sounds like you're saying that charity is always more cost-effective than reducing your negative externalities, while not providing any evidence for this assertion.

'I think it's possible to create genuine incentives for companies to act more ethically if you have a large amount of money to allocate (preferably many billions)'

-'Assets in socially screened portfolios climbed to $3.07 trillion at the start of 2010' So there are already billions invested there. However, it's questionable what is ethical about these investments. First, billions or even trillions might not make much of a difference to prices, according to the logic of the argument I gave above. Second, these funds' criteria about what is ethical are open to question. Third, even if money invested in them makes a small difference, you also end up paying various management and other fees which might be close to wasted money, when you could instead invest directly and, say, give the money you save to charity.

I think it's worth clarifying whether or not there's anything ethical about ethical investment as currently practised, and, if not, what real ethical investment would be. There are already some movements towards this, eg impact investment, although I'm not sure there are yet convincing answers.

'Of course, unless you think you might be able to start a movement towards more people supporting ethical investment, or you're actually a billionaire, chances are your personal impact would be minimal.'

-I'm not certain what you mean by 'minimal'. It could mean two things which are often not distinguished but I think should be. If my $1,000 has a millionth of the impact of someone else's $1 billion, well, that's fair enough, it's a million times less money. I wouldn't see this as a minimal effect; it could be the maximum difference I can make given my resources. Or you could mean that my $1,000 makes no difference at all, whereas over some cut-off point - $1 million, $1 billion or whatever - it would start to make a difference. This is possible but one would have to explain why.

-Even if ethical investment has no different effect from any other type of investment, investment per se might have welfare consequences, in raising the total amount of money available for investment globally.

-I don't think there's much doubt that ethical investment is part of a wider set of attitudes which have led many companies to some combination of changing their policies and changing their self-presentation to fit better with common ideas of what ethical and unethical practices are. Large amounts of money in ethical investments may powerfully signal to companies that they should respond to the attitudes expressed in those investments even if there is no direct effect on asset prices.

I have doubts about how much difference this has made, although I am very uncertain and don't know enough about it. The first doubt is about how far companies have changed their practices rather than just their self-presentation. The second doubt is over how far the changes they have made are in fact changes for the good. eg it could be the case that higher wages and better working conditions for people in poorer countries leads to fewer people there being employed (I don't know if this is the case, it's just an example)

'supporting charity is almost certainly more directly beneficial, simply because the primary aim of charity is to help people, while the primary aim of investment is to generate returns'

-I don't know if we agree or disagree here. I think the fact that the primary aim of charity is to help people does not make it almost certainly more beneficial. People working in and donating to charities might have false beliefs about the good that charitable work does. If no-one actually knows what good a charity does, and no feedback mechanism exists to put an end to charities that do harm or no good (since, eg, the people served by the charities are totally disconnected from the people who fund them), there is no reason why many or most charities could not be totally ineffective or harmful. The pursuit of returns, on the other hand, could be a powerful force driving companies to be beneficial if they generate those returns only by offering people things they value enough to pay for. I think you might agree with me given your comment that investment might be more beneficial in the long-term.