Should ethics play a part in your investing?

Ethics are personal, yet can play a big part in investing.

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By now I'm sure you've read about the troubles that Fairfax Media Limited (ASX: FXJ) have reported about Retail Food Group Limited (ASX: RFG). If you haven't, then I suggest you check out some of the articles we've written about it such as this and this.

One of the big questions to arise from all of this is whether the way Retail Food Group treats its franchisees is morally right, even if there's no legal questions.

We live in a capitalist economy, companies are first and foremost going to do what they can to earn profit and grow for shareholders. How far they should go to grow profit is a difficult question.

For Retail Food Group it could be argued that it may have been wiser to treat the franchisees better and consequently perhaps that would have meant more profit. If the franchisees stay in business, are given support to grow sales and so on then everyone wins.

Ethical investing is becoming more prevalent. The idea is that society is generally starting to shun companies that don't pay attention to their community, the environment, animals or other issues. If those companies lose customers then they'll lose profits and by default ethical investing could produce stronger returns, instead of just being a moral choice.

Indeed, the opposite could also be said. Instead of avoiding the bad companies, ethical investors could purposefully choose the good companies that display better-than-average traits of trying to improve the world.

One business looking to grow with this factor is Australian Ethical Investment Limited (ASX: AEF). It has an ethical charter which hasn't changed since 1986. It aims to seek out companies which provide for and support the development of sustainable land use and food production, the preservation of endangered eco-systems, activities which contribute to human happiness, dignity and education.

On the flip side Australian Ethical Investment avoids shares that pollute land, air or water, destroy or waste non-recurring resources, discriminate by way of race, religion, or sex in employment, marketing, or advertising practices.

Of course, every investor has a different set of ethics so unless you construct your own ethical portfolio it's impossible to align to your exact ethics, but it's certainly worth thinking about how sustainable practices will affect investment choices and consumer preferences.

Foolish takeaway

I think investors do need to be mindful of ethics when it comes to investing. There a lot of different factors at play, but most technological advancements are moving towards a more sustainable future, which should be good for everyone involved.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Retail Food Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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