Why Market Index Funds and Passive Investing are Unsustainable From The Sustainable Investor's Handbook, now available on Amazon: https://www.amazon.com/dp/0648082911Passive investing via market index funds has gained in popularity due to low fees and access to a basket of stocks with a small amount of capital. Since 2009 global stock markets have generally risen and therefore index funds (which are 100% long only) have mostly outperformed active managers. Index fund examples comprise US large cap stocks, e.g. from Standard & Poor’s S&P500 (SPY), Dow Jones Industrial Average (DOW) and the NASDAQ 100 (QQQQ). International equivalents include the Australian Stock Exchange Top 200 (ASX 200) and the UK’s FTSE 100. Passively managed (index) funds performing as well as hedge and mutual funds, which has often been the case, has also led to greater index-tracking investments by roboadvisors and traditional wealth managers. The amount of money invested in index funds is enormous. The SPDR S&P 500 has close to a quarter of a trillion dollars in assets under management. Vanguard and Fidelity, the two largest mutual fund providers, together have $4 trillion in fund assets. In contrast the largest hedge fund in the world, Bridgewater associates, has $100 Billion, which is less than Vanguard’s 5th biggest mutual fund. Index Funds are cheap and easily accessible. However, investing in (most) index funds means that you do not care what you are investing in, and therefore you are likely investing contrary to your values, in controversial industries such as weapons manufacturing, tobacco, and the nuclear industry. Maintaining investments and stock prices of companies that are not contributing towards, and maybe taking away from sustainability objectives, allows large companies to ignore the majority of their investors’ sustainable development objectives, because a good portion of equity in the company is held by passive index fund managers whose mandate does not use any sustainable development criteria. Not investing sustainably perpetuates the status quo of company decision-making. It maintains manager focus on safe “proven” paths to obtain profit and avoids socially or environmentally responsible decisions. Furthermore, it does not align company objectives with investor values (which are often hidden) or assist with providing goods and services that contribute to sustainable development. Although more and more companies include sustainability reports in their Investor Relationship tool kit, social inequity and environmental damage are steadily increasing and passive investments are contributing to this damage. Investing in mutual fund indices without regard to sustainability through, at a minimum, sector exclusion, perpetuates investment and reward to industries and companies that are making the lives of others or the environment significantly worse. If you do not know what you are investing in, or if you invest in general index funds, then you are effectively saying that you do not care what you’re rewarding with your money. For example, as of July 2016, more than forty-five companies in the S&P 500 were in industries directly involved with either weapons manufacturing, defence, or oil and gas. At the same time, however, more than 75 percent of people worldwide list climate change and terrorist/war activities as being two of the most important issues the world faces. So, while more than 60 percent of investors worldwide are invested through index funds in companies (through government retirement programs or direct investments) that either benefit from war and instability or are leading contributors to carbon dioxide production, 75% of people care about these issues as their Top two concerns! It’s difficult to see how investing in the status quo will lead to change, despite how much people may be “worried” about these key issues. The Sustainability Rank method seeks to address this challenge by redefining value investing. Value investing has been described as buying securities that appear underpriced by some form of fundamental analysis. The discount of the market price to the intrinsic value is what Benjamin Graham called in his book, The Intelligent Investor, the "margin of safety”. Subsequently Warren Buffett, Benjamin Graham’s most famous proteges and one of the world’s most experienced value investors, described value investing as simply investing. Everything else is speculation: “We think the very term ‘value investing’ is redundant. What is ‘investing’ if it is not the act of seeking value at least sufficient to justify the amount paid? Consciously paying more for a stock than its calculated value — in the hope that it can soon be sold for a still-higher price — should be labeled speculation (which is neither illegal, immoral nor — in our view — financially fattening).” Warren Buffett, Berkshire Hathaway[1]. Value investing should be about investing on your values, which is the focus of this book and the Sustainability Rank method described herein. The Sustainable Investor's Handbook available on Amazon: https://www.amazon.com/dp/0648082911[1] Berkshire Hathaway, 1992 Letter to Shareholders, http://www.berkshirehathaway.com/letters/1992.html. Accessed May 5, 2017.