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Ethical Investing: Ethical Investors and Managers

Published online by Cambridge University Press:  23 January 2015

Richard Hudson
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Abstract:

“Ethical investing” is interpreted in the following paper to be the use of non-financial normative criteria by investors in the choice of securities for their portfolios.

Ethical investors may aim at fulfilling duties they feel they have, possibly including increasing the amount of good in society through the consequences of their buying and selling behavior. The main duties are those of not-profiting from bad corporate behavior and of punishing bad (or rewarding good) firms. The main consequence desired is that managers manage corporations in a more ethical manner. But ethical investors (as opposed to some other kinds of investors who are also interested in normative issues) also aim at receiving returns based on the market risk of their investments.

If the aim of managers is to maximize shareholder wealth, then ethical investors can fulfill their duties or achieve their desired consequences only if their trading activities affect shareholder wealth, i.e., share price. A theoretical argument is presented to show that this trading activity will not affect share price or return. In addition, reference is made to results of empirical studies which show that ethical stocks yield market returns, i.e., that the share price of ethical firms is unaffected by the actions of ethical investors.

If the trading activity of ethical investors fails to affect share price and return, then these investors fail to fulfill any of their goals or to achieve their ends.

Type
Articles
Information
Business Ethics Quarterly , Volume 15 , Issue 4 , October 2005 , pp. 641 - 657
Copyright
Copyright © Society for Business Ethics 2005

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