3

Are there corporations in which I can invest with a clear conscience? I would like to save money for the pension and invest in the stock market, but I am not sure which companies act sustainably, committed to environmental protection, pay fair wages, do no animal testing and so on. I realize that perhaps I will not achieve the highest return with this strategy, but ethically correct action is more important to me than good profitability. At best, I would like to invest in an ethically correct ETF.

closed as primarily opinion-based by Bob Baerker, Chris W. Rea, Pete B., Nathan L, JoeTaxpayer Sep 4 '18 at 18:18

Many good questions generate some degree of opinion based on expert experience, but answers to this question will tend to be almost entirely based on opinions, rather than facts, references, or specific expertise. If this question can be reworded to fit the rules in the help center, please edit the question.

  • 8
    There are several funds that use (or attempt to) some measure of corporate citizenship when choosing investments. However, because ethics interacts with so many different questions (and on some of those, there isn't even consensus on which action is the "more ethical", let alone which are more important), you will have to choose carefully to find one which matches your own priorities. – Ben Voigt Sep 2 '18 at 20:35
  • 2
    This is impossible to answer without knowing specifically what bothers your conscience. You might do better to ask whether there are funds that invest according to particular ethical principles, and whether any of those are a close match to yours. – jamesqf Sep 3 '18 at 18:40
  • There are ETFs that only invest in "sustainable and ethically fair" companies, but on closer inspection companies were also represented in the ETF, which in my opinion are neither sustainable nor ethically correct. – andreas Sep 3 '18 at 18:42
  • I realize that perhaps I will not achieve the highest return with this strategy, From the evidence I recall seeing, there is actually very little difference in returns between socially responsible mutual funds and index funds. A bigger possible issue to worry about is that if you have the opportunity to buy stocks in a tax-advantaged way, your employer may only offer a very limited set of tax-advantaged options, none of which may be screened on any ethical criteria. – Ben Crowell Sep 3 '18 at 22:43
  • In my opinion, it is a clear competitive advantage to outsource parts to low-wage countries and not to value (and thus have lower costs) environmental protection. What other reasons would a company have to behave like this? – andreas Sep 3 '18 at 22:48
2

This is a good question, not just because corporations have been known to have environmentally destructive practices.

However, no two ethical questions, even just about pollution, are really the same. There might be some computer company gaining ground near you, and they might be looking for investors. You go and talk to them, and they say "our company does not pollute the environment", but then with a little digging you find out that they conduct all their business practices through companies that do. There isn't always a way to find out if what a company does goes against the type of world you want to live in, you have to do the research yourself. Now is probably the easiest time in the history of finance to find this type of information out.

And then there is another problem: isn't the overall prospect for success (i.e., returns on stocks and other financial instruments) also in a way an ethical concept as well as a selfish one? There are a lot of risky financial products out in the world of investing.

  • Why should buying stocks be selfish? Of course, you have your own profit in mind, but as a shareholder (and thus a partner in the company) you indirectely create jobs, don't you? – andreas Sep 3 '18 at 10:21
  • 3
    that's kind of what i was getting at, when you buy a stock you are supporting a company's operations, ideally both you and the company benefit from the transaction. However, buying stocks has little to do with "job creation", that aspect of a company just depends on the survival of it, its ability to remain productive, which buying a stock indirectly contributes to. The other thing that i think is good to consider is whether a service a company provides is really helpful to people, does the company fulfill a need or is it just creating one? Are jobs inherently good, or are some parasitic? – thinksinbinary Sep 3 '18 at 14:55
5

To be listed, a company must explain its operations in considerable detail in its prospectus. You may read these at your leisure and determine whether those operations and motivations are aligned with your beliefs and interests. I don't believe it's possible to answer this question any more specifically than that - your conscience is your own and doesn't align with anyone else's; it's up to you to determine whether a business' actions agree with your principles or not.

5

One problem to consider with this is that a company may meet 95% of your conscience requirements but may be missing something. Only you can decide what compromises you are willing to make, if any. There are many great investments all over the conscience spectrum.

The bigger problem I see with your question is that business is very global now. Even if you find a company that meets your requirements it is likely they do business and support one or more business that do not. How important is it to you and to what level do you take this conscience investing approach? If I like company A and they do everything I look for as a conscience investor but they source materials from company B that pollutes the environment and uses cheap foreign labor then is company A really all that great?

There are socially responsible ETFs, a Google search will return plenty of information. I would suggest something like that versus digging into each company individually.

  • of course i mostly agree with you but i don't think warren buffett and benjamin graham's approach to investigating a company is outdated cuz of the internet, and "socially responsible" can still be just a way to draw in the many people who question ethical behaviors of corporations now adays. I personally don't make the ethical question too large in my mind when investing, i just avoid investing in companies that do the most atrocious kinds of polluting like dumping heavy metals into rivers. I'm personally too cynical to worry about how i can make the world better with my money. – thinksinbinary Sep 3 '18 at 15:05
  • @thinksinbinary I agree with you but it also depends on how far someone wants to take their conscience investing. I believe that many companies are basically good but there are plenty of people that are either more skeptical or have stricter standards than I do for their investments. – homer150mw Sep 4 '18 at 9:30
1

+Andi, I’m sorry I can’t put this comment where I wanted to, because I don’t have 50 reputation points.

After your opening questions, which have been so well answered by others, you asked a couple more in response to +thinksinbinary.

To your question: “Why should buying stocks be selfish?” You gave yourself a good answer with the first part of your next sentence: “you have to have your own profit in mind”.

Regarding “indirectly creating jobs” : if you contribute to a company’s initial offering (IO) you could perhaps claim some high-ground, but if you buy shares through the stock market you should understand that any existing jobs have already been created (ie nothing to do with you) and any future jobs will also have nothing to do with you.

It is nice to be ethically concerned, but it is even better to be see clearly what you are doing, where you are going and how you are REALLY impacting on your world.

I have seen hypocrites who fancied themselves as “ethical”, and I have seen others who don’t fancy themselves at all, but who are in fact most ethical.

Warren Buffett has no problem investing in Coca Cola. He sees the product for what it is - a popular, unhealthy, sugar drink that BILLIONS of people love. It has been a good investment for him. He makes billions of dollars and gives generously to ethical organisations all around the world. He is comfortable with that. He doesn’t view his activities as incompatible.

It’s really nice to want to invest in companies that are “ethical”; however, as others here have pointed out, you need to find your own way in this. By all means avoid companies that are unethical by your assessment, but also be wary of those that present themselves as “ethical”, but may not be, and are not there in your interest. The majority of companies, no matter where they fit on the philosophical spectrum, are destined to ultimately disappear. If you continue to trust such companies to the end, regardless of their claims about sustainability and being nice to animals, they will take your money with them when they go.

It is very difficult for shareholders to get a fair return even when they prioritise doing so. When you say “ethically correct action is more important to me than good profitability” it sounds beautiful but you need to be careful that you do not mistake “good profitability” with “no profitability” or “negative profitability”. In the latter cases you will likely do better with your money by donating to your local food kitchen. That way, at least you’ll know where it has gone.

When you say you would like to invest in an ethically correct ETF it sounds like you want someone else to do the deciding on the careful balance between ethics and profit. Be careful with that. In the business of investing there are few shortcuts except giving your money away. There will always be others who say they can do better with it than you.

In the investment world, as elsewhere, you need to work assiduously at becoming the master of your own destiny.

  • It is not just that I want to give the decision of what is ethically correct or not to someone, but that I also want to achieve a certain degree of diversification in my portfolio, which is why an ETF in my opinion would be quite useful. – andreas Sep 4 '18 at 7:18
  • 1
    The idea of diversification is good but the idea of using an ethical ETF to achieve it is questionable. Out of 312 “socially responsible” ETFs (listed at etfdb.com) only 20 have outperformed the S&P 500 YTD, and that is before deducting expenses and fees. This represents 95% chance of loss. I would rather punt on my own effort, and risk the (lack of) diversification. – LynM Sep 14 '18 at 6:13
  • You're probably right. I would like to save a share savings plan monthly with a small sum, which is why an ETF would pay off due to comparatively lower fees. – andreas Sep 17 '18 at 9:47

Not the answer you're looking for? Browse other questions tagged or ask your own question.