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Chapter 10 Investments A plant growing out of a stack of gold coins. iStockphoto/Thinkstock Learning Objectives After completing this chapter, you...

Reviewing the investments in your portfolio, you realize that the carbon footprint connected to your investments is relatively large, but your oil company stock also pays for the family holidays each year. The company’s website also says that it uses a high proportion of its profits to invest in green and renewable fuels of the future. Do you keep the stock or sell? Why? What principles did you apply in making this decision? Also, how does one check the credibility of the company and its website?

Consider the ethical perspective of a particular group to which you currently belong or previously belonged, would the group keep or sell the stock? Why?

Chapter 10 Investments A plant growing out of a stack of gold coins. iStockphoto/Thinkstock Learning Objectives After completing this chapter, you should be able to: Describe various ethical investments. Describe which investments are criticized by ethicists. Explain the basic ethics of saving and investing. Outline the problems involved in corporate investments. 10.1 Introduction Ethically minded investors throughout the ages have been concerned about where their money is invested and from where they make their returns. John Wesley (1703 1791), the founder of Methodism, argued that Christians should not invest in anything that could harm people, such as the slave trade. Later, religiously motivated campaigns also targeted alcohol, tobacco, and drug companies. There have been several notable campaigns in the 20th century: A woman wearing a "Boycott Nestl " shirt sits in front of a wall with "Boycott Nestl " painted on it. The wall also has a variety of Nestle products painted on it, all resting on top of a row of skulls. Pat Roque/AP In this 2009 photo, a Filipina worker encourages boycotting Nestl products, including a variety of milk substitutes. In the 1930s, the Nazis waged a racist campaign against German Jewish businesses. In retaliation, Jews around the world boycotted German products. In the 1960s, Martin Luther King Jr. instigated a campaign against the Montgomery City Lines bus company for its treatment of Black riders. In the 1970s and 1980s, antiapartheid groups encouraged boycotting of companies involved in trade with South Africa. Since the 1980s, consumer activists have led boycotts against Nestl for its aggressive marketing of infant formula in developing countries and the use of bonded and child labor in some of its cocoa plantations. In each of these cases there is a choice: We can invest in goods and services that reflect our ethical considerations, or We can simply aim for high rates of return with our investments and ignore ethics. In letting ethics influence their choices, investors hope to send a moral message to the market. Consumers today are more aware of commercial scandals, unethical marketing, and misleading advertising than ever before (Bibb, 2010, pp.158 59). We can now search the Internet for product reviews from customers and professional groups and make better decisions about our purchases and investments. With just a little research, the opportunities are there for anyone to make ethics a factor in investment decisions. At first, the idea of ethical investments was met with a good deal of skepticism about how well they would perform financially. However, ethical investments have done reasonably well on average, holding their own against traditional investments. This chapter will explain types of ethical investments and how ethics factors into even the most basic investment decisions. 10.2
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Ethical Investing Investing is a thoroughly capitalist enterprise, since capitalism involves investing in a given business to improve its productivity. An investor channels his or her money into what will hopefully be a productive enterprise: a business, a real estate investment, stocks and commodities, or valuable items such as fine art or gold. A profitable investment either earns the investor immediate income, such as through dividend payments, or goes up in price. We begin by looking at various types of ethical investing. The need for ethical investments emerged from a broader movement to encourage corporations to become more ethical and to satisfy investors' consciences that they were putting their money into good practices. There are several terms used to describe ethical investments, which we discuss here. Features of Ethical Investing Ethical investing involves using an ethical model to screen companies to invest in. The model may be influenced by religious considerations, such as supporting one's denomination, or by political considerations, such as supporting liberal or conservative causes. Ethical investing commonly involves avoiding stocks related to armaments, tobacco, the sex industry, and alcohol, as well as incorporating stocks in ethical companies such as alternative energy companies. Ethical investing also draws on the more particular ethical convictions that the individual investor has, such as not investing in mining stocks or agrochemical companies. A benefit of ethical investing is that the investment can truly reflect the beliefs of the investor. For instance, an investment manager may avoid putting money into governments that do not respect human rights or into companies that habitually pollute. Ethical investing has the potential for elevating moral priorities within the business world. Businesses are more likely to be ethical if they attract investors who are seeking ethically minded corporations; in turn, ethically minded investors can have an influence on corporate culture and ethics. A major challenge for ethical investing involves the issue of relativism: An ethical investment to one person may be an unethical investment to another. Recall that moral relativism is the theory that one person's notion of good can differ from another's. For example, a religious-minded investor may encourage making certain investments that a secular-minded investor would not touch. Ethicists want to create some common moral standards that we all accept, such as one that says it is wrong to invest in companies that have poor safety records or whose products cause ill health. But the ethical status of some business activities is not entirely clear. Take genetically modified foods, for example, which are widely criticized for potentially harmful effects on human health and the environment. The two sides in this dispute may agree to disagree, but the average investor may be confused as to the right course of action. Another major challenge in ethical investing involves difficulties in detecting morally questionable practices of businesses that might be hidden from public view. An ethical investor may easily avoid so-called sinful stocks, such as tobacco companies, whose very products are morally questionable. But many activities in the business world are less open to public scrutiny. For instance, an otherwise good company may move revenues into low-tax countries and hence avoid paying high rates of tax in host countries. The average investor may not have the proper data to make the right investment decision. Sustainable Investing Another type of ethical investing is sustainable investing, which occurs when investments are made to encourage socially responsible businesses to engage in environmentally sustainable projects. Investors might, for example, fund efforts to support local organic farming or help a business shift away from nonrenewable fossil fuels. Too often, venture capital can be withdrawn from an investment before a worthwhile project has truly got going. Sustainable investing seeks to remove that fear. Loans for sustainable investing typically go through
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This is called an ethical dilemma which occurs because of the paradoxical situation one is caught
in .Knowing very well that the firm in which the investment is made has very high carbon

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