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Investing Ethical: Harder Than You Think

In: Ethical Discourse in Finance

Author

Listed:
  • Hans-Peter Burghof

    (University of Hohenheim)

  • Marcel Gehrung

    (University of Hohenheim)

Abstract

In this chapter, the authors use fundamental insights of modern capital market theory to find out if, and under which conditions, ethical investments can be expected to generate economic effects in line with ethical investors’ intentions. The authors distinguish between three different forms of ethical investments: direct investments, the use of specialised intermediaries, and market investments through, e.g., ethical funds. With regard to market investments, ethical investments should have no direct impact if they do not change the price of capital. Some authors assume that ethical investments should outperform the market, as the criteria depicts an unpriced risk factor. Others state that ethical investments should underperform the market, as investors are willing to support the respective projects with cheap capital. The main tenor of the empirical results on the topic is that both are wrong: the high degree of market perfection neutralises the good intentions of ethical investors. Thus, to have a direct impact, ethical investors must employ different and, presumably, costlier means.

Suggested Citation

  • Hans-Peter Burghof & Marcel Gehrung, 2021. "Investing Ethical: Harder Than You Think," Palgrave Studies in Impact Finance, in: Marizah Minhat & Nazam Dzolkarnaini (ed.), Ethical Discourse in Finance, chapter 0, pages 149-168, Palgrave Macmillan.
    • Handle: RePEc:pal:psifcp:978-3-030-81596-7_8
    DOI: 10.1007/978-3-030-81596-7_8
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