In an age where environmentalism and social responsibility have become a part of the mainstream consciousness, there has been a change within financial markets. The bottom line is no longer the sole decision making factor that investors typically take into account. A recent trend has been to invest in companies that align with your own personal set of beliefs. This phenomenon is known as ethical investing.
Investors who subscribe to this theory have to take into account a number of additional factors when deciding on companies within which to invest their capital. How they make this decision depends entirely on that individuals own ethos, but this typically includes concerns such as the sustainable practices of the company and the relative moral value of the products they produce.
Ethical investors will look to buy stock in companies that strive for positive change over pure profiteering. In other words, ethical investors partner up with ethical firms; like attracts like. Whether this means investing in firms who specialise in the research and development of new technologies, or companies who simply carry out their day to day business in an ethical fashion, these investors will choose stock upon what best represents their world view.
Just as they will be attracted to firms that share common goals with them, ethical investors will be repelled by those that don't. This could be in the form of a geographical bias, by refusing to invest in firms from certain countries because of a poor environmental record. Perhaps the government in that nation is undemocratic, corrupt, or simply ineffectual from a humanitarian standpoint; if they fail to meet the ethical standards of this particular person they will refuse to invest, no matter the potential payoff.
In a similar fashion, ethical investors will shy away from individual firms with similarly unscrupulous track records. This will also tend to include various well known brands with a questionable history of underpaying their overseas labour, and any other business practices judged to be unsavoury in the eyes of the ethical investor.
The fact that life is not a simple question of "good versus evil", especially not in the business world, only serves to complicate matters. Some firms which have previously been deemed to have acted in an unethical way have begun to clean up their act. Does a recent change of heart make up for a history of success built on an immoral foundation? For the ethical investor as a whole, there is no clear cut answer. Just as our own personal code of ethics is largely subjective, some investors will have stricter rules than others about who they will do business with. When talking about the "ethical investor", it is less a case of membership and more an indication of a general movement away from purely financial based decision making.
About the Author
This is a modified article from Mark Lister. To read the complete article visit www.craigsip.com. Craigs Investment Partners Limited (formerly ABN Amro Craigs.) is an NZX Firm that was established in 1984. It is one of New Zealand's largest and most established investment advisory firms. View
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