How to be a Moral Investor

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.

This phenomenon is not limited to the business world. Individual and institutional investors regularly hear themselves exhorted to invest “ethically” or in a “socially responsible” manner. Not coincidentally, these terms have accompanied an expansion of what are called “socially responsible” or “ethical” investment funds. Proponents of these funds claim that they allow people to invest in businesses that are “ethical”—that is, in businesses that avoid certain types of activity while rigorously promoting others.

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 choices’

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.

What the Bishops Say

In terms of authoritative teaching, those charged with the magisterium have said relatively little about ethical investment per se. One exception has been the U.S. Catholic bishops. This is hardly surprising, given that the bishops or their conference staff managed to comment on just about every subject imaginable throughout the 1980s and early 1990s. In the midst of this feverish public policy analysis, the bishops issued a statement titled Socially Responsible Investing in November 1991. Wisely, the document avoids lengthy reflection on the moral status of specific types of investment. Instead, it focuses on the investment of Church-owned stock and other resources while outlining maxims that are applicable to all investment choices.

The “principle of cooperation,” for example, is mentioned several times. By this, the bishops presumably are referring to the classic distinction between material and formal cooperation in evil. Unfortunately, Socially Responsible Investing does not elaborate on this difference in any significant detail. This is a lost opportunity for the bishops to illustrate how this centuries-old principle of Catholic moral teaching can help us resolve moral dilemmas encountered in contemporary commercial life.

More worrying than this omission, however, are the statement’s suggestions about how corporate activities might be morally assessed in the future. A vague reference is made to “networks of others who share similar concerns” as well as “the publications of groups that offer research, advice and assistance in the area of corporate responsibility.”

Underlying these words is an implicit assumption that Catholics may have something to learn from secular approaches to ethical investment. But close attention to these secular perspectives tends, rather, to demonstrate the validity of Catholic moral theologian Germain Grisez’s warning in his The Way of the Lord Jesus, Vol. 2: Living a Christian Life (1993) about such investment schemes: “As in other aspects of investing, one should not be too trusting in this matter, for while certain ethical investment vehicles are advertised as ‘socially responsible,’ the notion of socially responsible here may not reflect a judgment conformed to Christian principles.”

Politically Correct Investing

What should worry anyone who wants to do 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.

This is most apparent in the language pervading ethical investment thinking. David Skinner, author of The Ethical Investor (2001), states, for example, that “[d]ifferent people have different interests and concerns, different ideas and different values.” Apparently, the point of ethical investment is to try to match your values with an appropriate mutual fund.

This is just one manifestation of the “values-talk” that permeates contemporary public discourse. The word “value” was once used only as a verb, meaning “to esteem?” Now it is used primarily as a noun, to denote beliefs. People speak of “my values,” while others have “their values”: The word “values” has been used by Catholic scholars to mean “basic moral goods.” But the secularist values-talk pervading most ethical investment schemes reflects modern moral philosophy’s inability to give a substantive moral account of anything, because such values-talk rejects the existence of a single authoritative source of moral goodness. In short, one “value” is as good as another.

The statement “I have values” is often used to indicate that “I am essentially good.” Such statements are, however, meaningless unless you can discern what those “values” happen to be. But a values-talk culture discourages people from assessing the worth of those beliefs, because it implies that the only important fact is that a person has chosen them. Questioning the correctness of someone’s moral choice is judged (in our nonjudgmental age) to be wrong, because such questioning implies that some beliefs are “not as good” as others or may indeed be positively evil. Put another way, a discussion of good and evil is central to any serious reflection on morality, but values-talk eschews this in favor of a type of relativistic moral leveling.

This becomes clear when we contrast values-talk with Aristotle’s classic virtue-based ethics. The Aristotelian tradition, which resonates with Catholic moral philosophy, holds that virtues are, by definition, not only limited in number but transcend time, place, and culture in their normativeness. Hence, you cannot hold that the habit of courage is a virtue for one person and not for another. Likewise, prudence is a moral habit that may be acquired by anyone, and it is always superior to the vice of foolish reasoning.

Given the extent to which socially responsible investment groups use the language of values-talk, Catholics should be wary of these organizations’ basic understanding of the moral life. The need for wariness is only compounded by the sheer arbitrariness that characterizes the priorities of some ethical investment associations.

Mixed Bag of Morals

The list of concerns promoted by most ethical investment funds is long and not especially coherent. The funds generally refrain, for example, from investing in businesses directly (and sometimes indirectly) involved in armaments, tobacco, gambling, pornography, product-testing involving animal experimentation, inhumane farming, nuclear fission, mining, and countries with oppressive regimes. The same funds also often try to avoid investing in corporations that do not have affirmative action programs. Equally reprehensible, according to many socially responsible investment guidelines, are corporations insufficiently committed to community involvement.

This raises some problems. What, for example, constitutes “sufficient” community involvement? And is manufacturing armaments wrong in itself? Weapons can be used, as we know, to defend victims of military aggression.

The standard list of ethical investment concerns also suggests that many of these “socially responsible” criteria have more to do with fashionable causes than with the objective moral life. Apart from pornography, the list reflects little interest in questions of sexual morality. Ethical investment funds rarely cater to those who believe that marriage is a basic good, that abortion is wrong, and that promoting the gay “lifestyle” amounts to formal cooperation in evil.

In short, a high degree of moral selectivity is apparent in these organizations. Political selectivity is also evident. In the 1980s, for example, ethical investment funds invariably listed South Africa as a country to shun. But why did they not also list other countries with regimes at least as oppressive, such as Cuba, Nicaragua, East Germany, Iraq, Zaire, Zimbabwe, Ethiopia, and Vietnam?

Questionable Criteria

Many of the ethical investment criteria also reflect an unreasonably narrow judgmental scope. Few would consider racial discrimination good. But you do not have to be a racist to object to affirmative action programs. Many perfectly orthodox Catholic thinkers have carefully argued that affirmative action policies are, in fact, unethical because they actually violate principles of justice. It is therefore highly contentious to imply that a corporation that does not engage in affirmative action is acting unethically. And the U.S. Catholic bishops fell into that trap in 1991. By listing corporate promotion of affirmative action programs as an example of “social responsibility,” Socially Responsible Investing confuses supporting the sound principle of opposition to racial discrimination with promoting a controversial policy about which Catholics are free to make their own judgments.

There is also a tendency for so-called socially responsible funds to use the words “ethical” and “environmental” interchangeably. Apart from the obvious problem of automatically associating morality with the claims of anyone describing himself as an environmentalist, there is surely room for prudential judgment here. A genuine ethical question, for example, arises over the use of animals for testing various products. But should we test these products on humans instead? Or let people use the products without testing them at all?

Even more questionable is the fact that some ethical investment groups list “disclosure of information” to the groups themselves as a moral criterion against which corporations should be assessed. There are many good moral reasons why a corporation may choose not to disclose such information, such as its preexisting duties to maintain confidences. Corporations may also think that the survey questions on disclosure forms are poorly framed, that their underlying assumptions are unsubstantiated, or that the ethical categories chosen have more to do with fashionable causes than morality. In such instances, it may even be unethical to respond to such surveys. Whatever the circumstances, labeling a company as unethical because it refuses to complete an unsolicited form is clearly questionable.

Thus, investing in so-called socially responsible funds is no guarantee that the investment is moral. Many such funds promote a somewhat crude, sometimes inadequate, and often erroneous understanding of morality. Naturally, if people want to further particular causes through encouraging us to invest in particular ways, there is nothing to prevent them from doing so. But one may protest their use of the word “ethical” to describe such investments.

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.


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