Friday, March 16, 2007

Ethics and Investing or How I Make Money and Sleep at Night

Generally I come across as a fairly ethical person. I don't believe in hitting people (except in self defense), being cruel to someone or destroying the environment. Yet my wife and I will gladly invest in a stock (EIT.UN) that owns some of the biggest green house gas emitters in this country. Am I alright with this? Yes. How? Now that's a good question.

Investing is the strange word for most people where all the normal rules go out the window. A person may believe in non violent conflict resolution yet hold a mutual fund that owns companies that build guns for the US war in Iraq. How can this contradiction exist? We often don't get into the details of our own holdings. As long as they are performing well, we tend to just ignore them entirely.

Yet in my case I am aware of most of my holdings and I still don't feel bad or have a problem with it. Why? Because I know that investing is one of those weird worlds where ownership matters. If I really dislike something a company I own is doing I will send them a note and vote accordingly at the Annual General Meeting. Companies are accountable to their shareholders, if you are one you at least have the chance of getting your issues to the table. If I don't own them, then they will just ignore me entirely.

So the next time someone tells you they invest in 'ethical funds', have some fun and point out what they are missing by not buying shares in these 'bad' companies.

5 comments:

Investoid said...

While I also don't really have any problems investing in any type of company, I don't really believe that companies are accountable to shareholders in practice.

There is plenty of evidence in both Canada and the US (Enron, Worldcom, Nortel, Hollinger, etc., etc.) of companies who are willing to break rules at the expense of their shareholders and regular employees. Furthermore, many AGMs are ruled by executives and the existing boards. This is particularly a problem with Canadian companies and their infamous dual share structures.

You only need to look at the increasing demand in 'activist' investing, whereby pension funds and/or individual investors with large stakes are able to change the ways of companies. This goes to show you that you need to be big enough for boards and management to listen.

I'm not saying that every company is like that, but I believe it's more the rule than the exception.

Anonymous said...

no offense but this blog posting reads like the article posted by moneysense editor talking about how he invests in unethical companies. but hey whatever.

middleclassmillionaire said...

good post. I was going to write on a similar item soon. In my opinion if you don't agree ethically with the company don't buy their products...not their stock.

pragmatic said...

Ethical investing is subjective and therefore a grey area. Although I don't consider myself an 'ethical' investor per se, I have always found it difficult to invest in cigarette companies. But investing in liquor and gambling companies, for example, doesn't really bother me.

Greenhouse emissions? I think that is the popular media topic du jour led by some questionable science and the the semi-demagogue, Mr. Gore. (Who incidentally has flowin in private jets that cause 4 times more pollution than a regular airliner per person, and who's house uses more energy in a month than the average american home!).

Anyways, In the end, ethical investing is up to the individual. Some people have problems with tobacco. Well, don't invest in it. Some people have problems with Walmart...well don't invest in it. I think the beauty of our capital system is that we have a choice and when enough people make the choice against something, companies usually respond or cease to exist.

One arguement I've hear about ethical investing is that you can invest for profit, but then donate a portion to some greater cause of your choosing. That to me makes a lot of sense too.

Canadian Dream said...

Pragmatic,

Thanks for the great comment. I totally agree with "ethical investing is up to the individual." Basically do what you personally think is right.

Investoid,

I don't have an illusions about AGM's and a single small stock investor. I merely pointed out owning some stock will give you a tiny chance to be heard. Which is better than nothing.

CD