Can you ethically invest in unethical companies?

There is one situation when you can ethically invest in an unethical company - to use your investor power to change their behavior.

Most probably that's not easy unless you happen to have a couple billions lying around (or a particularly undervalued unethical company at hand).

A bit part of the problem is that you don't get to vote the shares held by your mutual funds. The fund manager gets those votes and he/she is obligated to vote solely on the basis of profit motive. And because of 401(k) and 403(b), the vast majority of the workforce is at least partially invested in mutual funds. Most employer-based retirement plans do not offer the option to invest in individual stocks.

Here in Australia employers have to offer several choices of investment plans for superannuation, and ethical mutual funds have sprung up as a result. You can pretty much invest ethically if you want. You're still stuck with the problem that you don't get to define what "ethical" means though, you usually have to accept the mutual fund manager's definition.

The other problem with ethical investing in a constrained universe of stocks is whether you are inadvertently increasing risk (i.e. price variance to benchmark) by the selection constraint. I'm not up with the latest research, but by the early 2000s there were sufficient ethical funds in the U.S. to pretty much ameliorate that risk and I'd be surprised if it was a real factor today for the U.S. (I don't have the latest data for Australia.)

I won't in a company I don't want to succeed. I don't want to have conflicted motives about wanting to see an organization succeed or fail.

But that's pragmatism more than ethics - I don't want to be in a position where, say, advocating publicly that smoking is bad makes me lose money on tobacco shares.