The Virtue Bubble Is About to Burst. Good Riddance.

There are costs to living a virtuous life; It requires going without. This is true psychologically, because sacrifice gives virtue meaning. But it's also true mathematically. You pay a price when you constrain who you will buy from, who you will work for, and what you will invest in. When times are good, the costs of a virtuous life may not seem too high, but eventually the bill comes due.

That reckoning is now. We may be seeing the end of the virtue economy bubble. And that's not necessarily bad, because the virtue economy wasn't making the world a better place. It may have even been making it worse.

The idea of letting your values guide your financial life has been growing over the last decade, and really took off during the pandemic. The amount of money in Environmental, Social, Governance (ESG) funds was expected to reach $41 trillion this year.

According to a recent survey from Charles Schwab, 73% of surveyed participants claimed personal values have become a bigger factor in how they make life decisions in the last two years; 82% say their values impact their investing; 76% said when they make a purchase “the values of the company who made the product are an important consideration”, and an astonishing 59% of respondents say they’d take a lower salary to work at a company that shared their values.

But how much those same people are truly willing to pay for satisfying their values is unclear. When it came to investing, a company’s performance was rated first among considerations in the survey; so did price when it came to shopping. Virtue may have been ranking so high in recent years because there wasn't a big cost to virtuous economic decisions — stocks were rising and inflation was almost nonexistent. Times have changed.