Ethics and Investing

I’m sure most of you guys have heard of a bottled drink called Fanta. For those of you unaware, it’s available around the world in various flavors, usually fruit based (orange, grape, strawberry, etc.) It’s bottled by Coca-Cola on a local level, hence why certain areas have flavors that others don’t. What’s much more interesting is the story about how Fanta was introduced.
Back in 1941 in Nazi Germany, the local Coca-Cola bottler was in a pickle. They wanted to sell Coke, but couldn’t import the syrup because of that pesky World War that was going on. When a local bottler signed their distribution contract with the main company, there was one main stipulation- that the Coca-Cola syrup be purchased directly from the company. The head of the bottler improvised, coming up with his own drink, made from the waste of apple cider production. It sounds gross, but it was wartime so ingredients were kinda scarce. It became pretty popular and eventually, in 1960, the parent company bought the rights to the drink from the German bottler.

Around the same time, IBM started working closely with officials in Nazi Germany. Their purpose though, was a little more gruesome than quenching Nazi thirst. The government used IBM counting machines to help them identify Jews, Gypsies and other unwelcome minorities during national censuses during the 1930s. Once the concentration camps were established, IBM technology was used to manage and identify the inmates. Many historians think the camps couldn’t have handled as much volume of prisoners as they did without IBM’s help.
Every day, each and every one of us make decisions that wrestle with ethics. Most of them are pretty simple decisions. Should I take candy from a baby? (Most definitely. Babies can’t fight back.) Should I go 55 kilometres per hour in a 50 zone? (If you don’t, I will laugh at you.) Should I jaywalk? (Only sissies use crosswalks.) Nobody who’s any sort of normal wrestles with the morality of these decisions.
I have just been informed that taking candy from a baby is actually quite mean. I am clearly a terrible person.
Other decisions in life aren’t quite so simple. Since this is a finance blog, lets focus on investments. As an investor, you’re presented with 4 investing options:
1) Investing in Altria, the parent company of cigarette manufacturer Phillip Morris.
2) Investing in Fortune Brands, the parent company behind alcohol brands such as Jim Beam and Canadian Club.
3) Investing in Exxon or BP, oil companies with a history of environmental damage.
4) Investing in a company that provides very high interest loans, like a payday loan or credit card company.
Feel free to tell us which you would or wouldn’t support in the comments.
One can easily make the argument that these companies do things that are morally questionable. Smoking is bad for you, just ask that dude with a hole in his throat. (On second thought, don’t. You don’t want to hear that guy talk.) In small doses, alcohol can have many benefits, like making members of the opposite sex look more attractive. If it’s abused, it can be one of the most destructive habits a person can have. It’s not very hard to figure out why these companies may be bad for society in general.
But should it be up to the investor to make that call? After all, we elect governments to pass laws, and each of the offending businesses is legal, in this country at least. In fact, government coffers depend on additional taxes levied on cigarettes and booze. Are investors really doing anything wrong if they invest in legal companies? These companies employ thousands of people, donate money to charity, pay their share of taxes and have historically provided some good returns for investors, which enriches the country in general. Are they really as evil as they appear on first glance?
Where do you draw the line with ethical investing? My real job is for a snack food company. The products they sell are not good for you. If not eaten in moderation, they will make you have to purchase two airplane seats on your next flight. Does that make the company I work for bad? Or, are they just supplying a product that should only be eaten sometimes?
At what point does personal responsibility factor into this whole equation? Payday loans and credit cards charge very high interest rates. They also make unsecured loans that can be spent on anything the borrower wants, which is a pretty risky loan to give. Is the company the bad guy? Or should the borrower be the one to figure out this service isn’t in their best interest? It doesn’t take a mathematician to figure out a 25% interest rate is a little high.
Personally, I don’t draw any lines with my investments. In the past, I’ve invested in Canadian cigarette maker Rothmans, along with American beer giant Budweiser, even though I don’t smoke and don’t really care for the taste of beer. I believe that the people who partake in those activities are silly to do so, but it’s not up to me to say whether they should or shouldn’t. Who am I to say what people should or shouldn’t do with their lives? I’m just not that important.
I don’t begrudge anyone who tries to make a statement with their investments, or with their purchases. If you don’t like booze, or gambling, or anything else that’s fun, then feel free to boycott them. I just don’t think those things are so bad.