Ethical Investing

Opportunities and Challenges of Morally Justified Investments

by Manfred Stüttgen (Author)
©2019 Monographs 144 Pages


Ethical investing is becoming increasingly attractive for investors and banks. Financial performance and reduced risk, social-ecological responsibility and a good consciousness are typically promised. However, which moral rules and considerations should actually guide an investor? This book analyses selection criteria for ethical investing and its underlying theoretical premises. It outlines the opportunities and challenges of an investment style that integrates ethical norms and values into the investment process. Investors and financial advisors will benefit from reading this book that is also a good investment for researchers and analysts in the field of sustainable investing and the ethics of finance.

Table Of Contents

  • Cover
  • Title Page
  • Copyright Page
  • About the author
  • About the book
  • Citability of the eBook
  • Preface
  • Contents
  • 1 Ethical investing. What does it mean?
  • 1.1 Normative issues of investment. A scientific borderland
  • 1.2 Financial and social-ecological dimensions are interconnected
  • 1.3 Historical development and first approaches to moral justification
  • 1.3.1 Faith-based investing for humanity and fair distribution
  • 1.3.2 Politically motivated investments against apartheid and Vietnam War
  • 1.3.3 Social and ecological investments for human beings and the environment
  • 2 Factual challenges for ethical investing
  • 2.1 Investors want to influence the conduct of investment targets
  • 2.2 Interdependencies in ethical investing
  • 2.2.1 The freedom of the investor in choosing a bank and an investment
  • 2.2.2 Responsibility based on the social obligation inherent in ownership
  • 2.2.3 Impact on capital costs and company image
  • 2.2.4 Investment strategies to shape the moral conduct of companies
  • 2.2.5 Control issues and information asymmetries as key challenges
  • 2.3 Investment objectives and conflicting investment objectives
  • 2.3.1 Return, risk, liquidity, and use of funds
  • 2.3.2 Lower return (underperformance) as a test case for morally justified investments
  • 2.4 Normative guidance on ethical investing
  • 2.4.1 Conventional investment advice with ethics as a trending topic in finance
  • 2.4.2 Informative guides with normative moral standards
  • 2.4.3 Appeals to practical reason and moral obligation
  • 2.5 Interim conclusion
  • 3 Justification of moral criteria for investing
  • 3.1 Justification of standards in applied ethics
  • 3.2 Criteria of the Frankfurt-Hohenheim Guidelines (FHG) to assess a company’s moral conduct
  • 3.2.1 Environmental, social, and cultural compatibility as the top criteria
  • 3.2.2 Reconstruction of moral criteria via discourse and consensus
  • 3.2.3 Assessment, weighting, and rating of criteria by investors
  • 3.3 The limited binding force of moral criteria as another key challenge
  • 3.3.1 Limitations of basic theoretical and methodological assumptions
  • 3.3.2 Limitations of discursive justification in the derivation and application of moral criteria
  • 3.3.3 Limitations to the obligatory nature of specific norms and values
  • 3.4 The normative status of the private investor’s investment activity
  • 3.4.1 Differences in the normative status of speculation and investment
  • 3.4.2 Ethical investing as an imperfect duty and as a charitable duty
  • 3.4.3 Ethical investing as a weak positive obligation
  • 3.4.4 Ethical investing as a supererogatory act
  • 3.5 Interim conclusion
  • 4 Considerations by the investor
  • 4.1 Weighing up criteria on the basis of prima facie duties
  • 4.2 Middle-level principles to support orientation in situations of conflict
  • 4.2.1 Personal capability both limits and expands moral duties
  • 4.2.2 Minimizing harm by choosing the lesser evil
  • 4.2.3 Weighing up goods based on a justified hierarchy of values
  • 4.2.4 Pragmatic and dynamic learning process to develop investor competence
  • 4.3 Interim conclusion
  • 5 Opportunities and challenges of ethical investing
  • 6 The Swiss National Bank’s (SNB) investments in equities. A case study
  • 6.1 Public moral criticism of SNB investments
  • 6.2 Investment policy of the SNB and passive investment in a stock index
  • 6.3 Ethical and legal considerations about investing in cluster bombs
  • 6.3.1 Cluster bombs damage human life and are internationally banned
  • 6.3.2 Federal Act on War Material prohibits financing cluster bomb production
  • 6.3.3 Indirect financing is a legal and moral grey area
  • 6.3.4 No moral evaluation of financial goods by the SNB
  • 6.4 Critique of public moral criticism
  • 6.4.1 The primacy of financial goals
  • 6.4.2 The primacy of legality
  • 6.4.3 The primacy of laissez-faire
  • 6.4.4 The plea for a morally reflected practice
  • 6.4.5 Independent commitment of investors or delegation to third parties?
  • List of figures
  • Bibliography
  • Index
  • Index of names

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1 Ethical investing. What does it mean?

Ethical investing is a current trend. Almost every bank and fund provider offers investors a broad spectrum of investment forms that bear the label “ethics” in their product names. What exactly the unprotected term means is often opaque.

Upon closer inspection, however, the critical investor quickly realises that very different matters are subsumed under the umbrella term “ethics”. Usually the investor is promised an investment process that integrates moral criteria. The result of this integration is then presented as an “ethical investment product”. This product typically pledges a contribution to the investor’s good conscience, in addition to an attractive return. There is often talk of clean returns, profits with a meaning, money improvement, double dividends, sustainable investment and good money, green money or sustainable money.

Is “ethical investing” a passing trend, or even a marketing strategy aimed at refurbishing the image of the financial services industry? Or, is it a responsible and effective investment of money, with the aim to direct capital in such a way that those involved promote moral goods and reduce morally objectionable behaviour?

The present study takes this type of reflection as an opportunity to analyse the following key questions.

What moral principles can and should an investor base his investment behaviour on?

What are the opportunities and what are the challenges of the justification and implementation of moral norms in investments?

The answers to these questions are intended to define starting points for a theoretical foundation and practical implementation of ethical investing, whereby moving at the scientific frontier of ethics in finance. The starting point as well as the goal of the present investigation lies in the practice of investing. The study seeks to provide orientation regarding the applied ethical question as to how an investor should behave in a concrete investment situation.

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The following example illustrates the practical relevance as well as the difficulties that this study deals with.

Case study: With invested capital of 23 billion euros, the Versicherungsverein des Bankgewerbes (BVV) is the largest pension fund in Germany. In June 2013, BVV informed the approximately 135,000 insured individuals and pensioners about its investment policy.

“BVV has always taken into account ethical, social, and ecological concerns in the investment process due to its long-term perspective and its obligations towards its members. However, they fall short of the regulatory objectives of return on investment, security and liquidity, which are required as a part of our mandate.”1

The above quotation is intended to illustrate two different ideas as an introduction to the present study. First, in practice, the investment style of a large institutional investor appears to have a moral dimension. In this specific case, the investor even feels obliged to take a quasi-public stance on this dimension. Second, the example illustrates that the obligation to meet the ethical concerns, which are not further explained in this specific case, only has a limited binding effect compared to conventional investment criteria. Both observations are relevant in the context of the present study because they illustrate vividly – even if only anecdotally – possible opportunities and challenges of ethical investing.

The aims of this study are to illustrate the opportunities and challenges of so-called ethical investing systematically, to make them accessible to scientific scrutiny and to analytically reflect on them.

Despite its high level of practical relevance, the subject of this study has rarely been explored systematically. In addition to a dozen popular science guides on ethical investment, there are only a few scientific studies that comprehensively cover the topic. The present study would like to contribute to closing this gap.

1.1 Normative issues of investment. A scientific borderland

For many people, investing money is a worldly act of high practical significance, however, it is often met with little interest. The question of whether financial investments are affected by moral principles and if so, which ones, ←12 | 13→is rarely examined systematically from the point of view of economics and ethics.

Capital market theory as a special field of economics often presents itself as a value-free discipline. It rarely – if ever – reflects on its model assumptions and recommendations from an ethical perspective. Behavioural finance theory has recently integrated findings on the behaviour of investors into its models and thus distances itself from the unrealistic human image of Homo Economicus, which rationally maximises self-interest. Nevertheless, it does not succeed in adequately incorporating ethical questions into its models and discourses.2

Business ethics as a subfield of applied ethics reflects on the conditions and possibilities of moral economic action in a reason-based and normative way.3 As a form of applied ethics, it seeks guidance in solving and evaluating practical moral problems. It also wants to increase the ability of ethical reflection in more complex contexts.4

However, the normative foundations of investor behaviour are a peripheral area of ethics in finance where research is rare. The topic is often dealt with in a non-academic way, in the form of popular scientific advice literature for the investor, providing practical stock market tips, specific product recommendations, contact persons and addresses and, in the better cases, background information on the morally justified purpose of the recommended investment.

In its long history, moral theology usually emphasises the instrumental value of money and warns against worshiping money as an end in itself. It recommends that the wealthy generously practice giving alms to the poor and needy. It also recognises avarice and greed in dealing with money as vices that promote egoism and harm humanity.5 Since the medieval discourses on the morality of a creditor’s interest claims,6 however, the form ←13 | 14→of financial investment has hardly been systematically investigated, except, at most, for the question of the morality of stock market speculation.7

While normative questions of financial investment are rarely analysed in academia, in financial practice there is a clear trend towards investments that bear the label of “ethics” in their name. The phenomenon of ethical investment is also attracting the attention of the media.


ISBN (Hardcover)
Publication date
2019 (August)
Ethical investments ESG sustainable investment funds SRI Frankfurt-Hohenheim Guidelines Investments objectives Return Performance Liquidity Risk Portfolio construction Ethics of finance capital market applied ethics Prima facie duties ethical norms universal obligations
Berlin, Bern, Bruxelles, New York, Oxford, Warszawa, Wien, 2019., 144 pp., 5 fig. b/w

Biographical notes

Manfred Stüttgen (Author)

Manfred Stüttgen helps banks, asset managers and investors improve investment skills. He is a Professor for Banking and Finance at the Lucerne University of Applied Sciences and Arts, Institute of Financial Services Zug IFZ. Prior to this, he was a Managing Director with a leading Swiss bank.


Title: Ethical Investing
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146 pages