Ethical and Socially Responsible Investing: Why it Can't Be Done

There are a growing number of people who feel ethically bound to only invest in companies that follow solid, ethical, morally upright, and environmentally friendly business practices. They think that by voting with their money, that they will be able to influence companies in to treating their employees better, be better stewards of the environment, and follow ethical business practices. This is a very good idea in theory, but the reality of socially responsible investing is that it just doesn't work.

If you were to invest in one single company, such as Microsoft, there's no way you could keep a close enough eye on all of their business practices to make sure everything they are doing was on the up and up. You could never examine all of their global operations, their intricate human resources policies, their environmental practices, their compensation policies, their investments, partnerships, upcoming products, work environment, and the like. There's just too much effort for any one person or even group of people to be able to accurately look as to whether everything that a company is doing is morally upright. Sure some companies might superficially appear to be more socially responsible than others, but you'll never be able to figure out without a doubt that the company is following ethical business practices.

Of course it would be dangerous to invest in just one company, or even ten companies. If you owned a mutual fund and wanted to be sure that you are investing in socially responsible companies, you would have to examine each and every one of the companies in detail and make sure they are following business practices that you approve of.