How to be a Moral Investor

Faith-based or morally responsible investing is exploding, as more than 60 million Catholics and millions of other religious U.S. citizens attempt to align their morals and values with their investment decisions.
by Samuel Gregg | Source: SpireStocks.com
While religious concerns have long been a factor in investing, the upsurge in interest is largely fueled by investors reassessing their priorities after the high-flying 1990’s, and more recently, by a general disillusionment with the unethical practices of many popular mutual funds. Financial advisors report that today, people are looking for more meaning in their lives, and hope to make a positive difference in the world as a result of their investment activities.

The interest in faith-based investing has captured the attention of money managers, and resulted in many more avenues for investment as well as new, more sophisticated research techniques. As a result, more U.S. citizens, than ever, have the awareness and the opportunity to put their money behind their beliefs.
Over the past 20 years, the language of business life has become replete with ethical phraseology. Words such as "social responsibility," "business ethics," and "triple bottom line" bounce around in MBA classes, in corporate boardrooms, and even on stock trading floors.

In many respects, this attention to the morality of investment choices should be welcomed. The Catholic Church has always taught that our free choices for the good contribute to our fulfillment as persons and even to our salvation. Conversely, when we choose things that are not so good, we foster our moral disintegration, possibly leading to our eternal separation from God. Pope John Paul II himself reminds us in his 1991 encyclical on social teaching, Centesimus Annus, that the choice to invest in one area rather than another is always "a moral and cultural choice."

But the difficulty for Catholics-indeed, for anyone seriously concerned with the moral life-is that for all the emphasis on social responsibility sweeping the financial world, most ethical investment strategies reflect the general moral incoherence associated with what Princeton University professor Robert P. George poignantly describes as "orthodox secularism." This makes it all the more urgent for Catholic scholars to apply the Church's moral teaching to the question of investment in our free economy, instead of producing pale imitations of the utilitarian approaches advocated by most self-described business ethicists.

There is a centuries-old principle of Catholic moral teaching which can help us resolve moral dilemmas encountered in contemporary commercial life. What should worry anyone who wants to be good and avoid evil in his or her investment decisions are the philosophically problematic premises that underlie many ethical investment schemes. The first concerns their acquiescence in and promotion of a relativistic approach to morality.

A Truly Catholic Investment Ethic

The moral principles that should inform and direct our investment choices are no different from those that should inform and direct our other choices. Apart from helping us to participate in basic moral goods, our investments should be directed by maxims such as the Pauline principle (one should not do evil even if good may come of it!) and the Golden Rule (do to others as you would have them do to you).

Catholics should also know that the Church has declared that certain acts are always wrong. Intentions may be noble, people may claim to be acting in good conscience, and circumstances may mitigate personal responsibility; nonetheless, certain acts (e.g., adultery) are always evil. The negative moral precepts of the Church's teaching, as Veritatis Splendor-John Paul II's 1993 encyclical on the Church's moral teaching-reminds us, do not allow for legitimate exception.

Therefore, an appropriate starting point for developing an authentically Catholic investment ethic may be to focus on how to avoid evil when making investment choices. This reflects the fact that, as Socially Responsible Investing sagely notes, "given the realities of mergers, buyouts and conglomeration...it is increasingly likely that most investments will be in companies whose policies or products make the holding of their stock a 'mixed investment.'" Most corporations are likely to be associated in some way-however remote-with activities or policies that conflict with right reason.

The issue, however, is not whether we should attempt to "weigh" the harm of investing in one company against the harm of investing in another-for example, in a corporation that financially contributes to abortion providers, as opposed to one that provides spousal benefits to employees living in active homosexual partnerships. This is the irrational approach typically advocated by consequentialists and other utilitarians.

Rather, accepting the reality of mixed investments forces us to ask whether our investment will amount to a formal or a material cooperation in evil. We should reflect on this distinction before considering whether our investment in, or withdrawal from, a business will foster positive changes in a corporation's policies or activities.

Formal cooperation in another's evil act is always wrong. This occurs when the person cooperating intends to help the other do what is wrong.

Anyone who directs, encourages, approves, commands, or actively defends another's immoral act formally cooperates in that immoral act. Material cooperation, by contrast, means making it possible for another person to commit an evil act without intending the evil ourselves. In other words, we do not intend but merely foresee the connection between what we do and the wrongful act. We bear some responsibility for the other person's evil deeds and we must consider whether we are justified in accepting the evil side effects.

Though this formal/material distinction may sound complicated, it does help us to assess the correct moral choice when faced with different investments. Formal cooperation would occur, for instance, if a shareholder intended his investment to facilitate the prosperity of a company that uses slave labor in order to cut costs. Such cooperation is immoral, even though the shareholder may not personally force anyone to work for him without pay.

Material cooperation, on the other hand, may sometimes be acceptable, although only in limited circumstances. If it involves very close cooperation, it can be objectionable. An example would be a shareholder whose regular failure to vote at shareholder meetings allows the directors of the company to uphold a policy of donating money to abortion clinics. This would convey the strong impression that the shareholder agrees with, or does not strongly disagree with, the evil being done, and thus give rise to scandal.

Other kinds of material cooperation might be less culpable. One example might be placing money into a mutual fund that, in turn, invests a small amount of its resources in a corporation with a subsidiary that manufactures, among other things, contraceptive devices. The evil of such cooperation might be so remote that it could be seen as unproblematic. But we might also rule out such an investment by deciding that our refusal to invest in the fund would be an effective witness against the subsidiary's activity.

Making the Right Decision

So how do we establish whether cooperation in such cases is morally justified? In simple terms, we need to compare the reasons for cooperating to those for not cooperating.

Refusal to cooperate might, for example, perversely result in weakening internal opposition to the efforts of those who want to donate corporate funds to a range of immoral causes. On the other hand, materially cooperating-even remotely-in a company's immoral policies might contribute to our own moral disintegration. It might make us less sensitive to the wrongs of such policies. We might even become inclined to cooperate with evil acts more closely, perhaps even formally, in the future. Our cooperation might also tempt others who might perceive that the wrong is not so very evil in our eyes. The greater the risk of corrupting ourselves, or of giving others the impression that we have no strong objection to an evil policy or activity, the more serious the reason for not investing in organizations, that engage in such activities. Sometimes it is possible for investors to avoid cooperation relatively easily by directing their money to companies involved in less problematic projects. If the same good can be done by investing in Company A, which does not involve any cooperation in evil, or by investing in Company B, which does, then a compelling reason exists to invest in Company A.

Clearly, reflecting on the intricacies of formal versus material cooperation in evil is important when considering investment choices. But two other points must also be considered. First, as Grisez observes, "[a]n individual's responsibility is limited by his or her ability to know about alternative possibilities and to choose reasonably among them." This insight is especially pertinent to the investment world, since it is impossible to know everything about every potential investment available in the world's free and rapidly globalizing economies.

But the reality of limitations on our knowledge should not blind us to the second additional point: Moral responsibility for what we invest in ultimately flows from what we formally choose and accept. When our investment helps others to do wrong, we are morally responsible. Hence, when it comes to investments, Catholics should remember that the maxim "Let the buyer beware" involves more than just protecting ourselves against fraud. It also concerns the moral health of our souls.


Samuel Gregg is a moral philosopher and the director of the Center for Economic Personalism at the Acton Institute for the Study of Religion and Liberty.



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Published by: andrea copley
Date: 2011-01-23 15:30:11
On Catholic Radio I heard BP Oil uses human fetus' in research and development. Haven't found a second source to vallidate this point. Can you help? Thanks. andrea

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