“Morality is not the doctrine of how we may make ourselves happy, but how we make ourselves worthy of happiness.” - Immanuel Kant
In a connected, globalized and diverse world, every move that we make has a further consequence. Aware of that or not, to “sleep well during the nights”, people with high morality would try to act ethically in every aspect of their lives, including their investment. But can we actually change something in the policies of big companies and make them follow stakeholder’s desire by investing just in certain companies? Or are we fighting windmills? Is ethical investment really ethical?
This article provides an insight of the ethics of investing, proposes some ethical questions you should think about before investing, and reveals some interesting facts about the subject.
Is ethical investment really ethical?
First of all, let us dig into the meaning of two notions: morality and ethics. While morality represents the standards that an individual or a group has about what is right or wrong, ethics concerns the discipline that examines one’s moral standards or the moral standards of a society to evaluate their reasonableness and their implications for one’s life. As we all come from different families and cultural backgrounds, what one might consider entirely unethical, someone else might show acceptance to. The proper application of ethics to investments is highly subjective and can rise some difficult questions for both individual investors and regulatory agencies.
The proper application of ethics to investments is highly subjective and can rise some difficult questions for both individual investors and regulatory agencies.
There are several distinguished ethical issues that each investor should think about before investing:
* Do you want to win at someone else’s expense?
Although there are inevitably both winners and losers in a free-market economy, we can choose the side we want to help. For instance, some consider that investing in monopolies contributes to unhealthy business competition, which is viewed as unethical.
* Do you want your investments to be sustainable?
It is long perceived that heavy industries such as energy and manufacturing are contributing to pollution and the destruction of the nature and wildlife. Ethical investors would favor companies that respect the regulations, implement green changes and advertise environmentally-friendly behavior.
In the graph below you can see that Italy has the leading position in sustainable investments, followed by France and Switzerland.
Sustainability themed responsible investments (SRI) in million euros. Source: Statista.
* Do you want to support “Sin” industries, or industries that are by-default “bad”?
Tobacco companies, casinos, pornography or alcoholic beverages are already considered to provide goods and services that are bad for the society. Even though these industries try to raise the consciousness of consumers, many might not want to invest their money in it in the first place.
Recently, as people have started to emphasize the importance of Corporate Social Responsibility and the necessity to unite for the mutual benefit, ESG has become a criteria for conscious investors to distinguish the standards for a company’s operations, given the environmental, social and governance criteria. Nowadays, many brokerage firms and advisors offer products that employ ESG criteria.
The graph below reflects how the environmental, social and governmental (ESG) investment strategy in Europe evolved from 2005 to 2017 (in million euros). In 2013 we encountered the highest ethical investment score, with a considerable decline in 2015. Fortunately, nowadays the ESG investments continue to increase.
The bottom line is that ethics is morally subjective by nature and there is no absolute standard for how and where we should invest. In the end, each one makes its own decision, given all the information and his/her beliefs.