Guilt-Edged Investment

Guilt-edged investment is a colloquial term for any investment which may violate ethical standards and for which the investor should feel some remorse. This does not necessarily imply that the investment violates any law, nor does this term indicate that people selling these investments feel any guilt. Instead, a guilt-edged investment typically involves taking advantage of another individual for the financial gain of the investor.

Guilt-edged investment is a play on the term gilt-edged investment, which refers to British government bonds known for their gilded edges. Gilt bonds have historically been considered among the highest quality and safest investments available. Guilt-edged investments, on the other hand, occupy a space between the legally permissible and the ethically unacceptable. The term is misleading in many cases where the investor who benefits may not feel any remorse over their profits.

Investments of this sort have long inspired arguments over the ethical responsibility that investors have toward others. Does the social contract that permits an individual access to open markets require that they adhere to any standard beyond legality? If one side of a business transaction pays a price, in their own health or financial well-being, does the profiting party owe them anything? If the profiting party holds information potentially harmful to the counterparty, are they obligated to disclose it? Answers to these question range from the barest expectation of moral behavior from a participant in any open market to a refusal to enter into any investment without full knowledge of its social, economic and environmental consequences. Investors leaning toward the latter end of the spectrum now have the opportunity to invest in socially-responsible investment (SRI) funds.

Perhaps the classic example of an ethically questionable but legal investment is the ownership of tobacco stock. The underlying product is unquestionably damaging to individuals’ health and imposes social and economic costs on all of us. Without addressing these costs, Warren Buffett has said that he loves the sector as an investment thanks to unmatched customer brand loyalty, customer retention rates and profit margins. Buffett’s comments ignore the feeling of guilt that an investor might experience from investing in tobacco. Perhaps an investor should feel no guilt for buying tobacco shares. After all, one investor’s decision to buy or not to buy tobacco shares does not add to social misery brought about by tobacco products. It can, however, lead to personal profit resulting from the suffering of others.