Chapter 8
Ethical Investing – Put Your Ethics Where Your Money Is!
By Lizabeth England
Investing money has always concerned those who want to be financially responsible. Now, more than ever, investing one’s money is a social responsibility as well. In this chapter, students will learn about some of the issues for ethical investing. The topics chosen will give an overview of some of the rewards and challenges of responsible financial investments. The activities will provide teachers with some tools for teaching about ethical investing. The extensions to the lessons offer opportunities for further study and analysis for those who are particularly interested in the topic of ethical investments. A list of useful terms and expressions gives students definitions of key terms. The list of Internet resources offers information and resources for in-depth study and discussion.
Companies and individuals in the 21st century will use their money to make more money. However, there are ethical ways of doing this. In this chapter, we will look at some ways in which professional investors help companies and individuals to make ethical decisions about where they will invest their money.
Ethical investing means allocating financial resources, taking into consideration both economic and social criteria, with the goals of maximizing the potential financial and social returns to both the investor and the investee.
What Is Needed For Ethical Investments?
In order to make sure that you are making an ethical investment, you need three types of resources:
- A certified professional financial analyst
- Information about the company or companies in which you are considering investing
- Criteria to guide you in choosing ethical investments
The information below will help you discuss this topic.
Certified Professional Financial Analysts
Financial analysts, like all professionals, must be recognized as competent by a professional group (usually peers) who certify their skills as being minimally competent in order to do the work they are paid to do. In the United States financial analysts or professional investors are certified and licensed.
Standards of practice are established and used by financial analysts for certification purposes. A professional standards commission or association guides certification and licensure of individuals who want to be financial analysts.
The commission or association is guided by a set of rules: Standards of Practice. One example of such a list of standards, with descriptions of how to use the Standards, appears on this web site: http://www.aimr.org/ethics/practice/standards.html. In addition, there is a handbook that guides financial analysts in their work. This handbook is available at the same site.
In order to make ethical decisions about investments; people need professional financial analysts who advise them on making investment decisions. Those individuals, in turn, are guided by standards, as described above.
However, people need more than good advice in order to know how and where to invest money in a socially responsible way. They need current and accurate information about investments.
In order to make ethical investments; we need information and knowledge about the stock market, the companies that sell stocks, and how they use invested money.
The Internet has become a powerful worldwide tool for ethical investments. Anyone in the world who has access to the World Wide Web can get detailed and up-to-the-second information on any and all factors that influence socially responsible investing.
What do we learn about socially responsible investing on the World Wide Web? The following list of important factors about ethical investments answers that question:
Even offhand comments made by high-profile leaders in a given region or locality can influence the stock market in that region and beyond. Such comments are likely to be important to the ethically conscious investor.
Criteria for Ethical Investing
Ethical investing means that we should select investments that meet two criteria:
When choosing a company or organization in which to invest, we should consider these criteria. If we were concerned about ethical investments, we would, for example, probably not invest in a company that sells cigarettes because the product violates criterion #2 above: cigarette smoking has been shown to cause illness and death. Some investors would consider this to be unethical.
- The companies are performing well as financial investments
- The companies’ products do not cause illness, disease or death; destroy or damage the environment; or treat people with disrespect
How to Choose Ethical Investments
Now that we know what we need in order to make decisions about ethical investments, how do we go about choosing the company or companies in which to invest money?
First, we focus primarily on the effects of the company’s products and services. For example, if the company’s products or services cause people to be healthy, improve the environment and empower people, we know that these are highly ethical companies. We might want to invest in these companies if they also meet the second criterion. We would not invest in a company only on the basis of its ethics, but on the basis of ethics in combination with its financial performance.
Second, we would list the benefits of investing in a company: How might our money support ethical causes? For example, if our investment in a coffee company were to improve the standard of living of the farmers working in the country or region where the company operates, we might want to invest in that coffee company.
These criteria for evaluating companies are highly inclusive. If we look carefully, we can find some opportunities for investments that will perform well and benefit society.