Ethics in Investing
Ethics
Ethics refers to moral principles that control or influence a person’s behavior. In abstract terms, ethics are described as fragrance of wisdom. In practical terms, ethics are moral rules people apply in making decisions. Individual ethics are determined by family and peer influences, experiences, personal values and morals, and situational factors. Though ethics is a personal issue and determined by host of factors, we expect an individual’s ethical behavior to confirm to generally acceptable social norms.
Ethical Investment
Ethical investment or socially responsible investment is broadly defined as “the integration of personal values, social considerations, and economic factors into the investment decision. Financial return remains an important outcome but it is not the sole criterion driving investments; ethical concerns are also included” (Michelson, G., et al). It is said, “There is nothing wrong with making money but it’s how you make the money that counts” (Murray, L.).
There are two major ways of establishing whether an investment is ethical. The first is to apply a negative screen (a “never if” case) whereby certain businesses are avoided, because they are injurious to human health. For example, investing in firms producing or dealing with alcohol, tobacco, and gambling are avoided. The second way is to apply a positive screen (an “only if” case) to those firms that remain possible investment targets; in particular, those identified as engaging in socially responsible practices are seen as more attractive investment options.
What should we do to restrain from unethical practices and promote ethical behavior in investing? We may suggest a long list of prescriptions such as appropriate legal and institutional set ups, enforcement of the rule of law and adherence to the principles of good governance, etc. All these are useful, but most importantly our firm commitment to our ethical values – uprightness and compassion are fundamental. Once, these values guide our investment decisions we may restrain from unethical practices and promote ethical ones.
FAQ’s
What is Ethics?
Moral principles that control or influence a person’s behavior.
What is an Ethical Investment?
The integration of personal values, social considerations, and economic factors into the investment decision.
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