How Do You Decide What is an Ethical Stock or ETF to Invest In?

Many investors would like to do the “right thing” with their hard earned money. But how do you decide what exactly is an ethical stock or ETF in which to invest? Like most things ethical the decision is fraught with complications.

Are Stocks that Lead to Poor Health Unethical?

Are Tobacco Company Shares an Ethical Investment?

Many investors won’t buy stock in companies that make or distribute

cigarettes. They feel for personal or professional reasons that the health risks of smoking tobacco are very high.

Other investors make their decision purely from a financial point of view.
Some see the high profits made in the recent past. One tobacco company, for example, climbed from 1985 a share to 2400 a share in two years, a 20% gain. They want to buy into that kind of growth.

Other investors see the lawsuits, particularly in the USA, charging that tobacco companies should be responsible for the health care costs for their customers. Those investors shy away from tobacco stocks.

What about Soda Pop? Are Shares in Coke and Pepsi Ethical Choices?

There is a surge of bubbly brown liquid unrest roiling up about to break across the USA shores and it’s about cola. Actually it’s about all sweetened (and even some unsweetened) carbonated beverages.

There is no doubt to anyone living outside the USA that the United States is facing an unusually high level of obesity and of childhood obesity. Many living in the USA are starting to ask if the problem is soda pop and in particular the large volumes of soda consumed each year.

What, as an investor, is the ethical answer here. Having a 120-calorie glass of soda pop once a month is likely not a major cause of obesity. Drinking a Double Big Gulp daily, that apparently holds 64 fluid ounces, might be a major factor in weight gain. (That is 1.89 L of pop.)

NY City is actually testing a by-law to limit sales of sugar-sweetened sodas to a maximum size of 475 ml per serving purchased. One of the major reasons cited is that they are concerned that people are drinking too much sweetened pop.

Does an investor buy stock in a soda pop producing company on the assumption that people will be moderate in their consumption and stay healthy? Or does the investor have to take an ethical pass on the stock rather than contribute to the premature deaths of thousands of people who can’t resist the lure of one more sip?

Is KFC/Yum Brands More or Less Ethical to Invest in than, say, McDonald’s?

Speaking of obesity what about “fast food” restaurants? (I find fast food a strange term: I get my food faster when ordering dim sum off the carts than when ordering a burger at the local chain restaurant.)

If fast food restaurants are responsible directly or indirectly for obesity, malnutrition, or chronically high salt consumption, is it ethical to buy their stocks?

Yum Brands is one of the fastest growing chains in China. (Think KFC.) But does that mean they are spreading their USA recipes around the globe? Not necessarily. KFC stores in China sell black bean wraps. In Singapore at McDonald’s you could get chicken, ginger, chillies, and onions in a rice congee.

So an investor must decide whether fast food stocks are ethical even without knowing exactly what the end products are and how they will be consumed.

Surely Packaged Vegetable and Fruit Businesses Must be Ethical Investments?

The more you try to get a grip on an ethical investment, the more bits dis-attach and float away. Surely canned vegetables and fruits don’t lead to obesity? But do they lead to excess salt consumption? And what about the possibility that a chemical (BPA) is leaching from the can lining into the foods?

Stocks that Benefit from Charging Outrageous Interest Rates to the non-Rich

At first glance, financial institution stocks and ETFs might seem like a more ethical choice. After all, they don’t poison anyone or expand anyone’s waistline, as a general rule.

But what about the incredibly high interest rates charged by many of the credit cards sponsored by most financial institutions? Is it right to invest in a company that charges a hapless minimum-wager 19.98% per year on their $2000 balance, while offering only 0.25% before fees on that same person’s savings?

The same question arises about higher-risk mortgage companies and cheque cashing, pay-day loan brokers.

Even the big 5 banks might look a bit squirmy if put under the hand lens. Where do they get the right to charge $20 or more for a person to have their own money in the bank? $2 to get a statement once a month telling them what the bank says went in and out of their own account? $1.25 to make a withdrawal from your own account? Are these the same institutions that used to give customers toasters for opening an account? What happened to putting your money in the bank to make money?

And that’s not even looking at the types of businesses banks are supporting with commercial loans. Which brings us to:

Stocks that Denude the Earth and Destroy Natural Ecosystems

Well, gold is going up, so you can invest in that, right? It’s clean. It’s shiny. It’s harmless, even if swallowed. Unless of course you rely on the water supply that is contaminated with cyanide and mercury from mining operations. There can also be significant damage to ecosystems caused by mining for gold.

Strip mines have a well-known reputation for causing habitat destruction. Mining the oil sands is very controversial.

Petroleum production is another ethical quagmire. Most humans rely on petroleum fuels and products created from oil and natural gas. Yet most of those same people are not terribly happy with the techniques necessary to produce oil and gas. Can you spell frac’ing? If you live near a shale gas extraction plant, you probably can all too well from writing it on your protest signs.

Forestry is essential for generating the wood, pulp and paper and other wood products most people use and enjoy. The results of forestry, though, make us uneasy. So much so that it’s not unusual for logging companies to leave a strip of trees near roads to make the clear-cutting a few hundred yards further in less apparent. (There are also practical reasons for this in snowy areas.)

Smelting and manufacturing industries often bring out their share of protestors. They create too much noise, fumes, or truck traffic. They increase local water usage past desirable levels. Sometimes they even smell too good to suit neighbouring residents!
Even agricultural companies have their enemies. The wide scale use of pesticides and fertilizers alarms some people. The monoculture of seemingly endless fields of the same crop upsets others. The possibility of problems from genetic modifications to seeds and plants, and even animals, makes discussions heated.

Aquaculture is equally challenged. What if those domestic salmon escape and mingle with their wild brethren. Will diseases be spread or valuable genetic variations diluted?

Who Chooses What’s Ethical?

You can see why choosing investments based on ethics is a very personal process. We each have some sort of ethical rules we live by, even if I might question yours and you would definitely question mine.

I don’t see any short cut to ethical investing. You’ll have to review each investment you choose to purchase and ask yourself how it lines up with your beliefs.

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Are there any stocks or ETFs that you feel are too unethical to even consider? Please share your experiences with a comment.

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