Breakdown Of Ethicality – When it comes to investing, there are two main types of people – those who invest ethically and those who invest without much regard for their money’s environmental and societal impact. The market has always had different viewpoints about these terms and what they mean to investors.
Depending on how you look at it, ethical investing can be the only way to go or one you should avoid at all costs.
This article seeks to answer the question ‘what is ethicality’ when investing and the different types of the ethical investment approach to consider.
Table of Contents
What Is Ethicality?
So, What is Ethicality? Ethics are rules or standards that govern a person’s behavior or the conduct of others. There are many different types of ethics, ranging from religious beliefs to rules and regulations the government enforces.
That said, when it comes to investing, ethical investing seeks to exclude investments in companies involved in various industries and practices, such as fossil fuels and tobacco, which are considered unethical. This type of investment avoids contributing to social ills while also seeking competitive returns.
Here’s a detailed breakdown of different ethical aspects to consider as an ethical-minded investor.
Bounded ethicality means that the investor is responsible for their investments’ outcome. That is not to say they should be required to have complete oversight over every investment decision, but they should be aware of potential consequences and do what they can to prevent them from happening.
The principle of enlightened self-interest is the belief that an individual should act in their best interest, even if it is not in the best interest of others. Enlightened self-interest is also used to describe the idea that by being ethical, one will prosper and be happy, while those who are unethical will ultimately fail.
For example, if one invests ethically, they can expect to make money, but if someone invests unethically, they may lose money.
Individual and Organizational Ethicality
The level of ethics that an individual or organization exhibits primarily depends on their motivations for making the decision. In general, when people are motivated to decide to benefit themselves or those close to them, they are less likely to be ethically sound.
A person might also invest unethically if they believe that other people in their network will not care about the ethical implications of their actions.
Socially Responsible Investing (SRI)
It aims for the same thing but does not try to compete with other investment strategies; there is no guarantee on return rates because SRI investors do not look at financial metrics like a risk-adjusted or expected rate of return. SRI focuses more on environmental, social, and governance factors instead.
It is essential to keep in mind that every investment will have a different ethical component. You should be aware of what you are buying and what the business you are investing in does.
However, with this being said, it is not your responsibility to tell others what they should invest in. As long as the investment is legal, it is up to the investors themselves if they want to make the decision.