There is an investment movement which is gaining popularity called Socially Responsible Investing (SRI) or Impact Investing. These movements are founded on the idea that you should strive to bring about positive social change in the world with your investment selections. As I’ve said before, stock ownership is a bad strategy for social change and SRI does not work the way it claims.
That being said, I have always had sympathy for Socially Responsible Investing. If we were able to change the world with something as small as which stocks we purchase, I imagine the world would be a better place.
Unfortunately, one reason people can be misled into believing that SRI is a good investment strategy is because of an equivocation fallacy.
Equivocation is where an argument relies on using a particular phrase or word in two different senses throughout the same argument. In the case of the SRI argument, it is the phrase “invest in” which has the equivocation.
The First Sense
In the financial world, we often say phrases like “investing in Energy.” When we say “investing in Energy,” we mean using money to purchase stock in companies in the Energy sector. This is the first sense of the word “invest”: “to put money to use, by purchase or expenditure, in something offering potential profitable returns.”
You know you are using this sense if you can replace the word “invest” with the word “store.” In this first sense, when I invest my money in Energy, I store my money in Energy. I am storing my wealth in the ownership of energy companies.
You can see this use in the following sentences:
|I invest (my money) in companies with low P/E ratios.||I store (my money) in companies with low P/E ratios.|
|I invest my disposable income in books.||I store my disposable income in books.|
|I invest large sums in real estate.||I store large sums in real estate.|
In this sense of the word “invest,” “store” is the right substitute because, in each case, the subject which is spent is hopefully saved in the object purchased. If the companies, books, or real estate manages to maintain its value, you can later sell those objects to recoup your costs.
The speaker need not be right in the belief that the object is a good investment and doesn’t have to have the intention of selling in order to be using this sense. For example, the book collector may want to keep their prize books forever while believing that their books are a good investment. Furthermore, the book collector might believe the books will store value when in fact their new releases lose value while sitting on their bookcase.
The Second Sense
In addition to this first sense, there is another way you can use the phrase “invest in.”
For example, I might say, “I invest my time in a clean house.” This is the second sense of the word “invest”: “to use, give, or devote a resource (time, talent, etc.) as for a purpose or to achieve something.”
It is easiest to understand when you are using this sense by replacing the phrase “invest … in” with the phrase “spend… towards” In this sense, when I invest my time in a clean house, I spend my time towards a clean house. I do not believe I can get my time back, but I believe my time was well spent.
You can see this use in the following sentences:
|I invest (my money) in charity for the poor.||I spend (my money) towards charity for the poor.|
|I invest my disposable income in eating well.||I spend my disposable income toward eating well.|
|I invest large sums in rock climbing.||I spend large sums towards rock climbing.|
In this sense of the word, “spend… towards” is the right substitute because in each case the object of the sentence is consumed in order to achieve a new purpose. The charity, dining, and rock climbing cannot be sold to recoup your costs. The money was spent in an attempt to reach a goal.
Taking a closer look at these examples you can continue to see the vast distinction.
|Original||Sense 1||Sense 2|
|I invest my money in charity for the poor.||I store my money in charity for the poor.
The charity is in your debt and will one day pay you back.
|I spend my money towards charity for the poor.
You did the gracious act of relinquishing ownership to serve the charity’s greater good.
|I invest my disposable income in energy.||I store my disposable income in energy.
You own an energy resource.
|I spend my disposable income towards energy.
You are paying your energy bill.
|I invest my time in a clean house.||I store my time in a clean house.
You believe your cleanliness saves you time.
|I spend my time towards a clean house.
You spend a lot of time cleaning.
|I invest large sums in rock climbing.||I store large sums in rock climbing.
You own a rock climbing gym or equipment.
|I spend large sums toward rock climbing.
You spend a lot of money on rock climbing.
When people talk about socially responsible investing, they say things like “I want to invest in sustainable energy. I invest some of my assets in clean energy funds.”
However, you can see when you really look into the senses of the phrases used that the speaker has fallen prey to an equivocation fallacy.
|Original||Sense 1||Sense 2
|I want to invest in sustainable energy.||I want to store my money in sustainable energy.
You want to profit from the proceeds of sustainable energy companies.
|I want to spend my money toward sustainable energy.
You want to patron sustainable energy companies and/or contribute to sustainable energy research projects.
|I want to invest in minority employment.||I want to store my money in minority employment.
You want to profit from minority employment.
|I want to spend my money toward minority employment.
You want to patron companies that show diversity hiring and/or contribute to charities which support minorities in their job searches.
The second sense of these phrases is clearly the intention of socially responsible investors. Minority employment or sustainable energy are goals they hope to achieve while long thought pieces are often written about forgoing some profits to help further the greater good.
Socially responsible consumption and charitable giving are both obvious ways of spending your money toward a social good. However, just like purchasing investments does not help you invest in charity for the poor, purchasing investments is not how you can empower minority employment.
If you do try to muscle these sentences into the first sense, you are met with awkward intentions. For example, storing your money in minority employment sounds like either slavery or trying to squeeze out extra returns from the very wage disparity you are trying to fight.
Even if you interpret it as purchasing some specific list of companies, it begs the question: Why do you think that is a good store of value? There are plenty of factors which have been shown to grant a return advantage over long time periods. You could claim that utilizing sustainable energy and employing minorities are factors which make for better value storage.
However, if this is the motivation, then the data can decide for us whether it is a good store of value. If the data shows that the hypothesized factor does not demonstrate advanced returns, then that would be the end of the conversation.
If the data proved that companies paying a fair wage, respecting forestation, and furthering racial justice all underperformed, would you still want to invest in them? If so, you have likely fallen prey to an equivocation fallacy.
Instead of changing your investment strategy, you should focus on changing your spending habits and charitable giving to help further the social good you want in the world.
Photo by Mike Enerio on Unsplash