Cognitive dissonance undermines our ethical values

The only people you ever heard from, without exception, despised the Iron Lady. Everybody competed to pour more scorn and vitriol on her. They all couldn’t wait to vote her out and used every by-election and opinion poll to underline how unpopular her government and policies were.

Then a general election would come round, and the people would keep hating her right up to the moment they got into the polling booth, where I can only assume they panicked, terrified by the unknown, and voted Tory after all.

Mrs Thatcher never lost a general election, only being forced from office after a mutiny among key members of her cabinet achieved what the electorate had spent a decade deciding not to do.

This sort of cognitive dissonance fascinates me.

People will behave in ways contradictory to what they apparently believe or know to be right. You’ve probably heard that smoking can be bad for you. I’m pretty sure the 10m adults in the UK who smoke have heard that too, but they continue with their habit regardless.

And so it is with ethical investment. Consumers will grumble about the practices of investment banks and chase some mythical ideal of balancing profits and morality, but as soon as their own money is at stake I suspect most are not that bothered where it is invested. Or at least they are more bothered about how much it is returning.

The general public will say they want to embrace ethics; they will make all the right noises about actually caring. But when it comes to the crunch, as long as they see profits they will be happy to turn a blind eye to whatever injustice has been perpetrated in the cause of funding their retirement, school fees or whatever.

We asked advisers for their priorities when it comes to choosing funds in our Intelligence survey last month. Not one said ethical credentials.

The general public will say they want to embrace ethics; they will make all the right noises about actually caring.

When we asked whether their clients were bothered where their money was invested, only about one in five said they were.

The rest were split between not being concerned at all, not having thought about it or – the most popular answer – ‘they are concerned but they prefer to prioritise profits’. A handful did not even ask their clients’ opinion.

This indifference shouldn’t come as a surprise, but given the attention devoted to socially responsible investment, it might. Ethical investing enjoys a disproportionate amount of column inches in both the press and product marketing and even gets its own dedicated week, giving it the same importance in the calendar as British sausages, and seven times the significance of disability awareness, which only gets one day.

In reality, ethical investment has a small, but devoted market. But even within that, I would question the model’s value. It seems to be largely undermined by most investors’ oversimplified interpretation of what ethics are.

Of course different companies have different ethical standards, just as much as different people do. Some will draw the line at investing in arms, while others are happy to, but won’t sanction companies with dubious environmental credentials.

The strictest will not permit investment in supermarkets, which – by selling wine, cigarettes, scratchcards and so-called lads’ mags – can be argued to be profiting from alcohol, tobacco, gambling and pornography.

But how many of the people investing in ethical funds even look into this inconsistency? I’m sure the overwhelming majority of those that do take an interest probably don’t look beyond the ‘ethical’ label, which is applied as if it is a constant definition, set in stone.

It feels like most are just looking to tick a box in order to make themselves feel better and alleviate the guilt they associate with making money. They can scratch this itch by sticking some or all of their cash into a simplistic vision of an ideal captured by the loose term ‘ethical’, They are not interested in actually finding out where their money has gone, seemingly content to delude themselves that it is entirely tied up in fairtrade kaftan looms in the Himalayan foothills.

Even if an investor has done their homework and ensured the criteria matches up to their own principles, if they invest through any mainstream provider they will effectively be giving money to an organisation that uses other funds to invest in guns, blood diamonds and human trafficking.

I exaggerate, but the point remains. Ethical investors – genuine ethical investors and not just those who claim to be until push comes to shove – need to engage with the process. Those who are more interested in just making money would do well to admit that to themselves.

Investors need to start caring or stop pretending to or eventually the charade will be seen through and the entire concept will go the way of Mrs T.