Can you mix Ethics and Profit?
Updated: Jan 29
The wise philosopher, Aristotle wasn’t against the accumulation of wealth. Rather, he saw it as a social good and a positive outcome produced from engaging in productive and useful work. In this way, Aristotle foreshadows the concept of “socially responsible investing” (SRI).
He observed that money was merely a medium of exchange and that true economy resulted from the co-operative activities of the citizens of a society in producing goods and services that were useful and beneficial to each other.
He also believed that the pursuit of wealth, for its own sake, is unnatural, dehumanizing, immoral and likely to lead to unhappiness.
Ethical investors believe that “socially responsible” investing is an investment methodology that stands on its own. In other words, it makes no sense to mix this approach with other approaches.
The futility of combining SRI and SRI-neutral approaches to investing is illustrated by the example of installing jet engines on your energy-efficient sailboat so that you can get to destinations faster. These two objectives are mutually exclusive. Either you want to live a sustainable lifestyle or you want to go places faster – no matter the cost or the resources that are used.
Ethical investing is based on three basic principles:
The first principle is that Profit can serve the Common Good. In other words, the power of profit can be harnessed to achieve ethical and socially responsible outcomes. Therefore, your own ethical and socially responsible goals can be achieved by applying your personal ethical and SRI criteria to a universe of companies that have been selected on the basis of profitability.
The second is the Principle of Sustainability which considers the consequences of a corporation’s activities over the longer term and across all stakeholders. As well, sustainability is measured in terms of equity and social impact, not just in financial terms. For example, you may choose not to invest in a profitable food company because it derives a significant amount of revenue from gambling (until the demerger of the Endeavour Group in June 2021, 30% of Woolworth’s profits came from its hotel and gambling operations).
Thirdly, is the Precautionary Principle. The precautionary principle deals with risk alleviation and can best be summarised by the phrase, “if in doubt, don’t”. This principle recognises that doubts about a decision often arise from conflicting data or a lack of information.
In the face of doubts, an experienced ethical investor will ask such questions as:
What do I need to know to make a decision?
What limits to our knowledge of the potential consequences of a corporation’s activities are acceptable?
What qualitative (and, perhaps immeasurable) factors and questions need to be incorporated into my decision-making framework?
How does my investment support this company towards more ethical and sustainable practices?
Therefore, the exercise of preparing your own ethical investment philosophy is, essentially, an exploration of your own ethics and values. Our Ethical Preferences questionnaire can assist you to create a financial strategy based on your personal ethics and values.
If you need specialist help to prepare your ethical investment philosophy, you can meet with one of the FinancialStrategy.com.au advisers by clicking the link below: