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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.


  1. Sustainable PF

    We’re on the other side of this fence. We do try to make decisions that are both sustainable and balance with our long term goals. Do we always pick the “ethical” route, no. But more often than not, we will. We also balance a lot of those “grey area” decisions with numerous “ethical” ones.

    I can understand the mentality of the investor. I am one. I have held not-so-nice stocks. But let me ask you this …

    When you finish a can of soda, and given an equal distance to a garbage bin or a recycle box – which do you choose? Or, if after eating a sandwich, if the waste disposal is 10 meters away, do you toss the wrapper on the ground?

    We make ethical choices day in and day out. Our preference is to live a sustainable lifestyle and to us that means we don’t just pick and choose when and where to be “on” and when it is ok to turn “off”. We put a lot of thought into things like buying stocks as the decision is much more complex than is picking the garbage vs the recycle box. But at it’s core we think making the “ethical” choice is best for us as a family, and ultimately for the world we live in (and those others who live in it too!). So we make choices that impact things – that’s how it works (Butterfly Effect).

    For us, investment choices are much like many other choices we’re going to have to make. We just don’t ignore the impact of investment choices in the name of the almighty dollar. But we also do not begrudge those who make the opposite choice. Great article Nelson – great to see you on board here @ CFB.

    • Nelson Smith

      Great comment.

      I don’t think about the environment nearly as much as you, even though I do recycle and make sure not to litter. Other than that though, I don’t really think about the environmental impact of my decisions.

      I think ethics is a deeply personal issue. As long as someone isn’t breaking the law, nobody has the right to say whether someone’s choices are good or bad, they’re just different.

      • Sustainable PF

        I’m not in disagreement here Nelson. To each their own – i’m not going to judge. What is right for us is not necessarily right for others. For us, the hard thing is that I see value in investing in companies I may not ethically agree with! Portfolio diversification is important to me and we live in Canada where resources (and banks/telecoms) rule supreme! To totally ignore resource companies is folly IMO. So we may have a small holding, we will try to pick the “cleanest” or “most ethical” – much like SRI indices do – pick the best of the bad so to speak. Then we off set that “damage”, best we can, with lots of companies we are on board with their “ethics”.

        Best we can do. Ultimately, we want to BALANCE our PF with sustainable living and sometimes that means making tough choices.

  2. Echo

    I say there is nothing wrong with investing in a company that you believe will make a lot of profit. That could be anything from an oil company, a hippy wind farm, or a financial services firm that’s fleecing people out of their homes.

    They’re not doing anything illegal, so what’s the problem?

    There’s always going to be the anti-capitalists who take issue with how big corporations are run.

    All of the big North American companies laid off tens of thousands of workers and outsourced their jobs overseas in the 80’s. That turned a lot of people off, but it made the companies more profitable for their shareholders…which of course is the mandate of the business.

    Speaking of morally questionable, did Ashley Madison every end up going public?

    • Nelson Smith

      Nope. Ashley Madison couldn’t get the support from Wall Street. Last I heard they were planning to go through the process again.

    • Ping_a_Glock_can_Kill

      “They’re not doing anything illegal, so what’s the problem?”

      I would just like to point out that the problem is that just because their behavior is legal does not make it moral. It does not follow that legal = moral. Slavery was legal.

      That being said. I am on the line pragmatically as to how much an ethical choice on investment will really make a difference. I am not an idealist and greed is prevalent.

      If I live 40 more years will the way I spend the money I make off of these nasty companies make more of a difference? I think so probably.

      Money does give a certain degree of power.

  3. My University Money

    I actually don’t have a problem investing in tobacco and alcohol companies (I also think various drugs should be legalized, but that’s a whole other debate). I have never smoked in my life (did try chewing tobacco to show how tough I was for awhile, but that didn’t take either), enjoy the occasional beer, and have never tried drugs, but that doesn’t change the fact that we should live in a free country where everyone gets to choose which substances to spend their money on. I have no ethical quandaries about profiting from people’s misuse of money. I’m not forcing anyone to smoke, and if anyone asks me I’ll give them several reasons not to.

    My ethical boundary is investing in companies that take government bailouts. I have hated this ridiculous cash grab. It absolutely sickens me to think of the CEOs laughing away as taxpayer money got poured into their bonus cheques. I cannot support these companies until they pay back the tax payer money they took, and I will continue to backlash against governments that allow it (even though I’m a big Obama fan). When someone chooses to smoke in their own home that doesn’t affect me at all, hence no quandary. When billionaires essentially rob me at gunpoint, I just can’t support that.

  4. Krantcents

    I don’t see this as an ethical issue. Smoking is bad for you, but not illegal. Ford, a number of years ago had a problem with rollovers in their Explorer SUV. When they manufactured it they knew they had a problem, but failed to spend the money to fix it. They took their chances in law suits because it would have been too expensive to fix. To me that is an ethical issue.

  5. FinancialAdviceGame

    I think you hit the nail on the head within your answer to the comment by Sustainable PF, however there are some stipulations as well. Ethics most certainly are a deeply personal and unique aspect involved with all of our decision making. Unfortunately though, sometimes the law is broken by an individuals decision but again I would not go so far as to call them wrong for doing so. Would you steal food to feed your family? I know this is a stretch from your main point, however it is an interesting topic none the less.

  6. Barb Friedberg

    Thought provoking. I still have an aversion to German cars because of the Nazi’s. I think this is probably a bit irrational, since I have no problem investing in cigarette manufacturers. Good article.

  7. Kay Lynn @ Bucksome Boomer

    I think it’s okay to use your personal moral guidelines in money management and that includes investing.

    I wouldn’t buy individual stock from a tobacco manufacturer but I might have as part of a 401K fund.

  8. Chelle

    Well, I do agree you should take away candy from a baby, because babies shouldn’t eat candy. It’s not good for them, all that sugar and red food dye – its probably a choking hazard too.

    I would never invest in a company though that i didn’t think would make the world a better place. Why? Because I want the world to be a better place.

    People invest in companies only because they hope to make some money – but if you invested in something that solved the world’s problems (as opposed to creating more) – life could be a heck of a lot better for a lot of people and I’d imagine you’d do okay financially, maybe even better than you do now.

    To say it’s okay to support these companies because “isn’t against the law” or “it’s their own personal choice”… People don’t choose to be fat. They don’t choose to become alcoholics. No one chooses to have ADHD or depression or cancer.

    There’s a lot of things in life we “choose”, but we make bad choices because no one really understands the consequences of these choices. Worse, we think we make good choices, but it’s not always true (IE: eating low fat foods with splenda is worse for you than eating a full fat chocolate cake made with real sugar)

    When investing in companies that align themslves with evil, you’re just enabling them to get legislation in their favor and continuing to give them the budget to be able to influence millions of people into making bad choices.

    I guess I’m weird, I want the world to not suck and for everyone to be happy. I can’t do it by myself though.

    Oh well, at least I’m supportive in the stealing candy from babies 🙂

  9. Rommel


    Thanks for your response. The community is not yet index by Google because it is just a new site. I hope you can join the community.


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