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.

There are now investing firms that have created mutual funds which invest in socially responsible companies. Is this a solution to the burden of research? In most cases, it is not. There’s a chance that what they think is socially responsible and what you think is socially responsible are two different things. They still have that burden of research, and it’s just far too much for any one investment firm to do. Chances are they are not looking at the companies in their funds in a very great amount of detail and putting them under scrutiny, so the problem remains.

So if it’s impossible to invest in companies through stocks and mutual funds, about money market accounts, savings accounts, and other investments? Here’s the problem: once you let the money leave your hands, you lose control over it and have no idea where it’s going. The money you put with a bank could be loaned out to any number of companies, and now you won’t even know what companies your money is being loaned out to.

There’s just no way to guarantee that the money you are investing is used in a socially responsible manner, and that’s okay! No one should expect you to be able to keep a close eye on the intricate details of all the companies that you invest in. You don’t have to use your investments to try to foster social change. That’s what social movements and politics are for.

The only thing that you could be doing morally wrong when it comes to investing is placing your money in an investment that intentionally follows morally challenged business practices, such investing in a number of pay day loan companies or a company that has a major history of recklessly polluting the environment, but if you’re not doing anything like that, just don’t worry about it.



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