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I am a young man who has recently reached a point of financial stability. I'm starting to think about long-term plans which may one day buy a home, or provide for myself in old age.

This raises the question of savings and investments, which causes me some ethical concerns.

I don't have an issue with investment in its basic form. Providing people money to help them do business, allowing it to grow and gaining interest in gratitude is not an issue for me.

The problem comes when we realise that a lot of the most financially successful businesses succeed due to addiction in their customers. Alcohol, tobacco, gambling, pornography, high interest financial services, and a number of others all rely on customers becoming dependent, unable to keep from buying their services. Because of this dependency, a lot of money is made in ethically questionable businesses, and professional investors (whose job is only to make as much money as possible) will choose to put money into these businesses.

The alternative would be to look in to investing myself. Although without some good practical knowledge, this would resemble gambling, throwing my money at whatever business takes my fancy, hoping for the best.

Being concerned about ethics, how can I go about investments and/or savings? Are there businesses which professionally invest ethically?

AJFaraday
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    The worst addiction is that created by smartphones, their manufacturers, and by everybody engaged in developing the next new app or the next great search engine. So be sure to avoid investing in Apple, Samsung, LG, Intel, Google, Yahoo!, Microsoft, and a whole host of other similar companies. – Dilip Sarwate Aug 25 '15 at 20:02
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    It's curious you should mention that, freemium addiction is certainly an unfair and addictive economy. Although I hope you appreciate the irony involved in you using the internet to make that declaration :) – AJFaraday Aug 25 '15 at 20:04
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    You probably don't want to leave it in a bank, since they're going to be unconstrained about putting your deposits into a subprime mortgage or (say) Altria's commercial paper, and you won't even get the same yield. – user662852 Aug 25 '15 at 20:57
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    And you don't think you will be gambling and hoping for the best having someone else invest and manage your money. If you have such concerns then why not spend the time to learn how to invest your own money? –  Aug 25 '15 at 21:25
  • My bank offer mutual fund for green energy (if you consider it ethical or not since there's a lot of government subsidies). You could look at your bank and see if they offer anything that fits you. – the_lotus Aug 26 '15 at 11:44
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    Congratulations on the realization that capitalism is unethical. If you'd like to do something about this, first, you're going to need a lot of money ;) – HC_ Aug 26 '15 at 17:54
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    Good luck. How many companies give to the United Way? They support Planned Parenthood. Is abortion ethical in your mind? – AbraCadaver Aug 26 '15 at 18:10
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    Worrying about "ethics" in investment while the whole world is "unethical" is a kind of hilarious. What is "ethics"? It was just originally some invented noble excuse for people to conveniently make more money while having a justification, just as a pretext of war. There is no "ethics" or whatsoever for human beings. We are animals, and historically we have been much more bloody than we are now: If people had disputes in ancient times they'd just easily kill each other. Still it doesn't mean we've suddenly become "noble" or whatsoever in nature. It's just that resources are more abundant. – xji Aug 29 '15 at 03:30
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    If you worry about ethics then you'd have to change the whole way this world works, or you can go out into the wild and live on your own. Otherwise as long as you're part of this society then you cannot claim yourself to be really "ethical" in any sense already. – xji Aug 29 '15 at 03:31
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    Not to mention the notion of "getting money from money" of investment itself is incredibly "unethical". The direct result of it is that as soon as one has amassed enough wealth he can just sit back and do nothing and still see his fortunes grow. A son of a billionaire needs not do any work since his birth to inherit massive fortune and still see the fortune grow itself. It's just plainly ridiculous if there were any so-called "ethic" in this world. – xji Aug 29 '15 at 04:09
  • It is equally true to substitute with/without ...."___ some good practical knowledge, this would resemble gambling" – emican Sep 10 '15 at 23:19
  • Kudos for integrating your values into your daily life. Here's an overview of the pros/cons of SRI that I found helpful: https://www.youtube.com/watch?v=weVAN2HxXjk. Keep in mind that it's still important to learn the basics of investing, and stick to low-cost passively-managed index funds, rather than actively managed funds with high fees. – Ian Dunn Mar 26 '20 at 14:36

7 Answers7

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Are there businesses which professionally invest ethically?

Yes. The common term for this is "socially responsible investing". Looking at that page and googling that term should provide you with plenty of pointers to funds to investigate.

Of course, the definitions of "ethical" and "socially responsible" vary from person to person and fund to fund. You'll have to take a look at each fund to see which ones match your principles.

BrenBarn
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    And on the flip side some companies that aren't obviously "unethical" (though I wouldn't call all of the listed industries inherently unethical) can be labeled unethical depending on how far you dig. Is Gap the clothing store unethical? What about their reliance on cheap Chinese labor? Are banks unethical? Credit card companies? investment brokers? What about movie companies that have made movies with nudity in them (but not porn)? What about a green-energy company that had an accounting scandal? There are no clear lines in Ethics, so you have to be really careful when defining guidelines. – David says Reinstate Monica Aug 26 '15 at 02:25
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    @DavidGrinberg - most people into socially responsible investing simply equate that with their baseline political views and don't bother digging deeper. – user2932 Aug 27 '15 at 21:03
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Avoiding tobacco, etc is fairly standard for a fund claiming ethical investing, though it varies. The hard one on your list is loans.

You might want to check out Islamic mutual funds. Charging interest is against Sharia law.

For example: http://www.saturna.com/amana/index.shtml

From their about page:

Our Funds favor companies with low price-to-earnings multiples, strong balance sheets, and proven businesses. They follow a value-oriented approach consistent with Islamic finance principles. Generally, these principles require that investors avoid interest and investments in businesses such as liquor, pornography, gambling, and banks. The Funds avoid bonds and other conventional fixed-income securities.

So, it looks like it's got your list covered.

(Not a recommendation, btw. I know nothing about Amana's performance.)

Edit:

A little more detail of their philosophy from Amana's growth fund page:

Generally, Islamic principles require that investors share in profit and loss, that they receive no usury or interest, and that they do not invest in a business that is prohibited by Islamic principles. Some of the businesses not permitted are liquor, wine, casinos, pornography, insurance, gambling, pork processing, and interest-based banks or finance associations.

The Growth Fund does not make any investments that pay interest. In accordance with Islamic principles, the Fund shall not purchase conventional bonds, debentures, or other interest-paying obligations of indebtedness. Islamic principles discourage speculation, and the Fund tends to hold investments for several years.

Patches
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  • dumb question - if charging interest is against Sharia law, how can they provide returns on investments? Isn't that a form of "interest"? – warren Aug 27 '15 at 20:04
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    @warren no, a return on an investment is fine. It's specific to loaning money. The difference is, say, if you loaned your friend money so he could start a business (and if it goes under he still owes you, or at least you get paid first when the assets are sold off), vs if you gave him the money for a piece of the business he's starting (and if it goes under you lose too, and any assets sold off are split based on your share). Debt vs. Equity. – Patches Aug 27 '15 at 20:21
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    @warren a few years ago I read somewhere on how they get around it for car loans -- you go in on the car with a "lender", and buy it jointly with each of you owning a certain number of shares in the car. Then you buy his shares off of him at a fixed schedule until you own all the shares. Of course the price you're paying for the "lender's" shares is higher than what he put into it, so he can profit from helping you buy the car when you couldn't afford it. A profit which is technically not "interest". :-D – Patches Aug 27 '15 at 20:27
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    Interestingly, those Amana funds not only won't invest in debt or lenders, they also won't invest in companies that are too heavily indebted. They screen out companies with more than debt > 33% of market cap., and accounts receivable > 45% of total assets. Also, apparently Sharia bans speculation, so they invest for the long term. It makes for an interesting value model. – Patches Aug 27 '15 at 20:36
  • Is insurance also against Islamic law? I'd like to know why. – Zenadix Aug 28 '15 at 18:32
  • @Zenadix Apparently:

    "It is widely accepted by Muslim scholars that conventional insurance does not accord with Shariah law. In particular the aspects of gambling and uncertainty in a contract of insurance and interest earnt by the investments of the insurance companies are in direct conflict with the rules of the Shariah." http://www.shariahsolicitors.com/shariah-insurance

     – Patches Aug 28 '15 at 21:17
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Domini offers such a fund.

It might suit you, or it might include things you wish to avoid. I'm not judging your goals, but would suggest that it might be tough to find a fund that has the same values as you. If you choose individual stocks, you might have to do a lot of reading, and decide if it's all or none, i.e. if a company seems to do well, but somehow has an tiny portion in a sector you don't like, do you dismiss them? In the US, Costco, for example, is a warehouse club, and treats employees well. A fair wage, benefits, etc. But they have a liquor store at many locations. Absent the alcohol, would you research every one of their suppliers?

JTP - Apologise to Monica
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Markets are amoral. If you don't buy stock in a company that has high growth/earnings, someone else will. By abstaining you will actually make it cheaper for someone else who is interested in making money.

Investing in "socially responsible" funds will only ensure that you have less money to make a moral difference in the world when you decide to transition from working to philanthropy.

Edit to clarify -- You aren't interested in buying individual stocks directly, that leaves you with two general options:

  1. Buy one of these "socially responsible" funds that will eat your gains away with their relatively high management fees.
  2. Invest in index funds which may catch a few marginally ethical companies in their net but that will give a you a reasonably diversified investment in a particular market sector without paying a high fee for that privilege.

You can make a statement with your investment now, or you can take the better returns and make a difference with your money later.

NL - Apologize to Monica
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    "By abstaining you will actually make it cheaper for someone else who is interested in making money," but you will make it very slightly harder for those companies to raise capital, right, since there will be less demand for their stocks and bonds. – lazarusL Aug 26 '15 at 14:01
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    "you will actually make it cheaper" yes! which means the stock doesn't increase as much making it less desirable to current and future investors. The net change in desirability will approximately be even, and you'll have not given them your money. Sounds net positive to me. – Rick Aug 26 '15 at 16:15
  • So assuming you have no problem buying oil, but you don't want to support Venezuela, so you only buy Saudi oil, will that have a negative impact on the price Venezuela can get for its oil? When there are dollars chasing returns in the market, any profitable venture will be funded, you just ensure that you aren't collecting those returns, and you're stepping aside so someone else can. – NL - Apologize to Monica Aug 26 '15 at 17:29
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    +1, but there are many things we do that are symbolic, not really making a difference. Even if 10% of US investors acted socially responsible, the market wouldn't notice. But for each person, knowing in their heart they didn't support [whatever they are avoiding] is enough. – JTP - Apologise to Monica Aug 27 '15 at 21:32
  • @JoeTaxpayer - I agree completely, and I'm happy to make symbolic gestures of my own. I just wanted to be a contrarian voice offering food for thought. I think if an ethical fund doesn't outperform it's amoral counterparts it isn't making a strong case for the ethics it espouses. In any case, I expect the fruits of wise investing will be greater means to do good in the world, so that's my primary aim. – NL - Apologize to Monica Aug 27 '15 at 22:20
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    @NathanL If you're investing in a company you know is unethical, then you are complicit in that. Hiding behind the argument that 'someone has to' is disingenuous, and frankly wrong. If you invest in a company profiting from slavery, you're investing in slavery. You are the market, and your investment is immoral. Distancing yourself with careful language pithy arguments doesn't change that. – Alexander Troup Aug 28 '15 at 10:19
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    @AlexanderTroup - If I am investing in an index fund that has a tiny percentage of its holdings in a company that makes alcohol, is that the same? Or is it enough that I abstain from purchasing their products and stock directly? Should I actively short that stock to make up the 1/10th of one share that the index fund holds on my behalf? Where is that line? – NL - Apologize to Monica Aug 28 '15 at 13:11
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    @NathanL that answer is vastly more nuanced than "Markets are amoral". In your original answer your implication is that you have no power to make a difference, so you might as well just make money. You did not say "It depends on the fund/company" as you are now.

    What about the example of a publicly traded gambling company. If you don't invest in that company, does it make the company any less likely to succeed?

     – Alexander Troup Aug 31 '15 at 16:15
  • @AlexanderTroup - My answer was given in the context of the question. The OP is clearly not interested in purchasing stocks directly. That leaves funds with high management fees or index funds--with low fees, but that may catch a few marginally ethical companies in their net. – NL - Apologize to Monica Aug 31 '15 at 16:21
  • The fees for SRI indexes don't have to be all that different. FITLX and ESGV have .11% and .12% expense ratios, respectively. That's relatively high compared to FSKAX's .015% and VTSAX's .04%, but still very low compared to an active fund. If you're still concerned about fees, though, you could always just invest 5-10% of your portfolio in an SRI fund, so that you're still making a statement and supporting the movement, but with a relatively small impact on your returns. – Ian Dunn Mar 26 '20 at 14:51
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There are a number of mutual funds which claim to be 'ethical'. Note that your definition of 'ethical' may not match theirs. This should be made clear in the prospectus of whichever mutual fund you are looking at.

You will likely pay for the privilege of investing this way, in higher expenses on the mutual fund.

If I may suggest another option, you may want to consider investing in low-fee mutual funds or ETFs and donating some of the profit to offset the moral issues you see.

ChrisInEdmonton
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There are the Dow Jones Sustainability Indices. I believe the reports used to create them are released to the public. This could be a good place to start.

NL - Apologize to Monica
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Pat
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Peer to peer lending such as Kiva, Lending Club, Funding Circle(small business), SoFi(student loans), Prosper, and various other services provide you with access to the 'basic form' of investing you described in your question.

Other funds:

  • REITs
  • Commodities
  • Country indexes
  • Bond indexes
  • Currencies

You may find the documentary '97% Owned' fascinating as it provides an overview of the monetary system of England, with parallels to US, showing only 3% of money supply is used in exchange of goods and services, 97% is engaged in some form of speculation.

If speculative activities are of concern, you may need to denounce many forms of currency.

Lastly, be careful of taking the term addiction too lightly and deeming something unethical too quickly. You may be surprised to learn there are many people like yourself working at 'unethical' companies changing them within.

mhoran_psprep
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emican
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    I like Kiva as a way of helping others, but it wouldn't be a good way to invest with the goal of increasing your money. They don't charge interest to the borrowers, and there's a small default rate, plus optional donations to Kiva's operating expenses. So, you'd never earn any money, and you'd gradually lose a little bit over time due to inflation and defaults/donations. – Ian Dunn Mar 26 '20 at 14:57