Why Ethical Investing is Important

Instructor: Yuanxin (Amy) Yang Alcocer

Amy has a master's degree in secondary education and has taught math at a public charter high school.

After reading this lesson, you'll understand why ethical investing is the way to go when it comes to investing your hard earned money. Learn how ethical investing benefits not just you, but others, as well.

Ethical Investing

In this lesson, we'll be talking about ethical investing. We define ethical investing as investing with a view of helping society and not harming anyone. When investing is done in unethical ways, people eventually get hurt. For example, the financial crisis of 2008 was caused by unethical investing. Lenders kept giving out loans left and right without sufficiently checking the credit-worthiness of the borrowers. Also, lenders then sold these loans to other companies. All this lending and selling led to a lot of lenders going bankrupt in 2007 and 2008. Lending essentially froze and almost nobody could get a loan. Even foreign banks had to go to other banks to ask for money to keep operating. This might not sound like people got hurt, but they did. Whereas before, people who qualified could purchase a home, after the crisis, even these people were unable to get loans.

Also, with unethical investing, it is possible to encourage bad practices. If a company who produces a lot of pollution is invested in, it will encourage that company to keep producing the pollution to the detriment of the environment.

In 2016, ethical investing is mostly about being socially responsible and not hurting the environment. Another word for ethical investing today is socially responsible investing.

Questions to Ask

When it comes to ethical investing, ask yourself these questions:

  • Does the company promote ethical values?
  • Will this investing action lead to bigger consequences that could negatively harm society?
  • Is this investment done to help others?
  • What kind of history does the company have when it comes to affecting its community?
  • Does the company have good labor practices?

Choosing Ethical Companies

Once you've found your list of companies that you are interested in investing in, you can then ask yourself the above questions. You'll want your answers to reflect ethical ways. If a company is not doing things in an ethical or socially responsible manner, then that's not a company you should invest in.

For example, say a company you are interested in investing in has a workplace policy that doesn't allow its workers to take needed time off without penalty. After going through your questions, you find that your company didn't have the right answer for good labor practices. Since this is the case, you cross this company off your list. To invest in this company would not be ethical. But, another company has good labor practices. This company promotes based on performance and skill. Everybody, regardless of gender or race, is treated fairly and promoted equally. This company also has a lot of community outreach programs where the homeless are given a chance to learn a new skill that will help them get a job if they choose to do so. This company has all the right answers for your questions. Investing in this company then will be a good ethical choice.

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