Ethical Investing: A Game Changer for Athletes Seeking Risk-Adjusted Returns

KEY POINTS

• Ethical investing delivers impressive risk-adjusted returns, with top-ranked ethical companies outperforming traditional benchmarks.

• Athletes can leverage ethical investing to grow their wealth while aligning with personal values and avoiding reputational risks.

• Implementing a long/short strategy in ethical investments offers a diversified approach, mitigating market fluctuations and enhancing long-term gains.

Athletes often find themselves at a crossroads when it comes to managing their wealth. Having earned significant incomes during their playing careers, many seek avenues to grow and sustain their wealth post-retirement. Traditionally, investments have been focused on maximizing returns, often overlooking the broader implications of those investments. But as global awareness shifts towards sustainability and fairness, ethical investing has emerged as a viable strategy that not only supports moral values but can also deliver impressive financial results.

For athletes, in particular, ethical investing presents a unique opportunity. With their influence, visibility, and access to capital, they can champion social causes while securing strong, risk-adjusted returns. Ethical investing is no longer just a feel-good choice; it’s a sound financial decision backed by data.

The Rise of Ethical Investing

Ethical investing, often grouped under the umbrella of Environmental, Social, and Governance (ESG) principles, has garnered considerable attention in recent years. However, the approach highlighted by research from Just Capital shows a more refined way of looking at ethical investments. The organization has surveyed thousands of Americans since 2018, asking them to rank what they value most in companies. The result is a non-partisan, value-driven ranking system based not only on climate change but also on treating workers fairly, good customer service, and job creation.

The key findings are compelling. Companies that rank high in ethical considerations — such as Hewlett-Packard Enterprise, Bank of America, Accenture, and Intel — have demonstrated better risk-adjusted returns compared to lower-ranked companies. In fact, if an investor had allocated money into the top 10% of these "just" companies (on an equal-weighted basis, rebalancing every year to reflect the latest scores), they would have seen a return of 131% from 2018 to mid-2024, compared to 128% from the S&P 500, which was buoyed by tech stocks. Meanwhile, investing in the bottom 10% of ranked companies would have returned only 47%.

Performance of the most and least "just" stocks (As ranked by Just Capital; Daily; Jan. 1, 2018, to June 28, 2024)

This data challenges the traditional notion that prioritizing ethical concerns leads to lower returns. Instead, it illustrates that companies which treat their workers and customers well, among other values, are also more profitable in the long term.

Why Ethical Investing Makes Sense for Athletes

Athletes have more than just capital to invest; they have personal brands, influence, and a desire to make an impact beyond their sports careers. Ethical investing aligns with these goals in a number of important ways:

1. Leveraging Influence for Social Good

Athletes like LeBron James, Serena Williams, and Michael Jordan have become powerful voices advocating for social change. By directing their investments toward ethical companies, they are not only growing their wealth but also supporting businesses that share their values. This creates a synergistic effect — athletes influence public discourse while supporting companies that are better positioned to drive positive change.

2. Mitigating Reputational Risk

As public figures, athletes are always under scrutiny. Investments in companies that engage in unethical practices — such as poor labor conditions or environmental harm — can tarnish an athlete’s reputation. Ethical investing helps mitigate this risk. For instance, athletes who invest in companies known for treating their workers well are far less likely to face backlash if those companies come under public scrutiny.

3. Stable, Long-Term Returns

As the data from Just Capital shows, investing in ethically-ranked companies doesn’t mean sacrificing financial performance. In fact, ethical companies often exhibit more stable long-term returns. This is because companies that treat employees well tend to have higher productivity and lower turnover, while companies that focus on sustainable business models are better positioned to navigate regulatory challenges.

Athletes, who often have long post-retirement lives to plan for, need stable, long-term returns to ensure their financial security. Ethical investing offers just that, while also giving them a chance to invest in companies they admire.

4. Diversification through Long/Short Strategies

Another appealing aspect for athletes is the ability to implement long/short investment strategies, as highlighted by Just Capital’s data. This involves going long on top-performing ethical companies while shorting the lowest-ranked companies. Such a strategy allows for better risk management and potentially higher risk-adjusted returns. For athletes, this could offer a more diversified investment portfolio, ensuring they are prepared for market fluctuations while maintaining a focus on ethics.

Overcoming Common Misconceptions About Ethical Investing

There are still many myths surrounding ethical investing, particularly when it comes to returns. Some believe that ethical investments may underperform, or that they require a trade-off between values and profits. However, several studies, including those from Just Capital, suggest otherwise. Ethical investments can outperform or, at the very least, match traditional investment strategies in terms of returns.

Another misconception is that ethical investing is limited to certain sectors, such as renewable energy or tech. In reality, top-ranked ethical companies come from a variety of sectors. For example, Bank of America and Marathon Petroleum are both ranked in the top 10% by Just Capital, showcasing that it’s not just about "green" industries but about overall corporate responsibility.

Moreover, ethical investing doesn’t have to be about ticking ESG boxes. Just Capital’s approach, for instance, places more weight on worker treatment and community engagement than on environmental metrics alone. This nuanced approach is particularly appealing for athletes who are keen on supporting companies that align with their social values, not just environmental ones.

How Athletes Can Get Started with Ethical Investing

1. Identify Values

Athletes should begin by identifying what matters most to them — whether that’s workers’ rights, sustainability, diversity, or community involvement. Aligning these personal values with investment choices is the first step toward ethical investing.

2. Research Ethical Investment Opportunities

There are now multiple platforms and funds that offer access to ethical investment opportunities. Some funds are actively managed to ensure they only include companies that meet specific ethical criteria, while others allow for more targeted investment in high-ranking ethical companies.

3. Consider a Long/Short Strategy

Given the clear data supporting the outperformance of top-ranked ethical companies and the underperformance of poorly ranked ones, athletes should consider a long/short strategy. By investing long in companies that excel in ethical rankings and shorting those that perform poorly, they can capitalize on both sides of the market.

4. Consult Experts

Many wealth managers and investment advisors now specialize in ethical investing. Athletes should consider consulting with experts who can tailor investment strategies that meet both financial and ethical goals.

Conclusion

Ethical investing is more than a trend; it's a viable and attractive strategy for athletes looking to grow their wealth while staying true to their values. With data demonstrating that ethically ranked companies deliver impressive risk-adjusted returns, athletes have a unique opportunity to lead the charge in socially responsible investing. Not only does it make financial sense, but it also positions athletes as champions for positive change — in their post-sport careers and beyond.

As the world continues to focus on fairness, sustainability, and responsibility, ethical investing will only grow in prominence. For athletes, it's the ideal strategy to align their financial futures with their influence and values.

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I really appreciate you reading my note today.

Cheers,

Irg

Irg’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice. You should always do your own research and consult advisors on these subjects. This work may feature assets and entities in which the author has invested.

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