Ethical free riding? The double entendre of “dirty hands” in finance, exemplified by ethical investment guidelines

Peter Seele, Ole Alexander Jensen, Casandra Dawn Dalva


In this article we use ethical investment guidelines of sovereign wealth funds as example of financial communication that can be used to describe a phenomenon we suggest to call “ethical free riding”. We build our contribution – a conceptual matrix to identify ethical freeriding – on existing empirical research on ethical investment guidelines to develop the conceptual matrix. On one hand, the published guidelines direct fund managers in deciding which investments to make, based on the fund's ethical standard. On the other hand, the guidelines communicate to shareholders, stakeholders and the public what values and ethical norms the fund adheres to, thereby forgoing investments in highly profitable but ethically questionable assets. In order to explain the function of ethical investment guidelines, we develop a conceptual matrix based on the ‘dirty hands’ allegory. Dirty hands here stand for (a) morally questionable practices in terms of guild, and (b) being active in the sense of getting one's hands dirty. Building on existing research, we argue that while several funds have adopted ethical guidelines, not all funds apply them in their daily business, a harmful fact for funds that do dirty their hands (b) by applying sanctions. Based on examples of different ethical investment guidelines, we develop the concept of “ethical free riding” and discuss how ethically free riding funds hurt other funds that do invest ethically by diminishing the positive effect of the ethical guidelines, and undermine SRI in general, due to their lack of credibility as well as the corrosive quality of free riding. In closing, and based on the matrix, we recommend that violations of the ethical guidelines be met with proactive measures such as active ownership and sanctions.


Sovereign wealth funds; Pension-funds; Ethical investment guidelines; Communication; Socially responsible investment; Finance ethics; Dirty hands; Free riding


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Studies in Communication Sciences | ISSN: 1424-4896