The Business Ethics Blog

This week is “Sin Week” on the Business Ethics Blog. (Why this week? Because my birthday is this week, that’s why.) So, each day this week I’ll post something about a different “sin” industry (pornography, gambling, tobacco, alcohol, prostitution, etc.). In fact, such is the popularity, and range, of sinful-but-profitable activities that I suspect Sin “Week” may turn out to be rather more than a week long. We’ll see.

Now before anyone accuses me of being puritanical based on vocabulary alone, let me assure you that I do not hold all of the industries or products that will be discussed this week actually to be sinful. I myself probably drink more martinis than is healthy for me, and there’s nothing I like better that a fine cigar. And I’m pretty sure that something that could reasonably be called porn (though not all forms of porn) is going to be permissible in a free and just society. I guess if pushed, I’d say there’s not a single industry or product among those I’ll discuss this week that I can write off entirely, from an ethics point of view. None the less, each of them has been subject to serious criticism, and much of that criticism is fully justifiable. Nonetheless, please be sure to take my use of the word “sin” with a big grain of salt.

Today I’ll begin the week with a discussion of so-called “sin stocks.” If you haven’t heard of them, sin stocks are essentially just shares in companies associated with the above-named industries. Investing in sin stocks (on purpose, as a focused activity, rather than just incidentally) is sort of the flip side of the “Socially Responsible Investing” (SRI) coin. SRI funds are investment funds that eschew investment in socially questionable (a.k.a. “sinful”) industries — either on ethical grounds or for fear that such industries are in some way unsustainable.

The core idea behind investing in sin stocks is that, well, sin sells. Sin is popular, and often so attractive that people will spend a lot of money on it, even when there’s little money to go around. Thus, sin is profitable: predictably, and sometimes obscenely, profitable. So if you’re interested in Return on Investment, one reasonably effective strategy may be to put your money in sin. For an informed take on just how profitably, see this article from Canadian Business: Why sin is good: tobacco, alcohol and gaming stocks can add sizzle to your portfolio

So, sin stocks can be profitable. Or not, according to Michael Brush, author of this article at MSN Money: Should you abstain from sin stocks? According to Brush…

…the reality is that investing in sin is no sure bet. In fact, the Vice Fund (VICEX), the Dallas fund that invests unabashedly in gambling, alcohol, tobacco and defense stocks, has dropped more than 10% since its launch last summer. And some areas, such as gaming and tobacco, face higher risk as states view them as easy targets for tax revenue to plug budget shortfalls.

Then there’s the question of definition. Defining “sin” (or, if you want to avoid the theological implications of that word, defining what’s unethical) is a tricky matter, and subject to more than a little disagreement. What’s sinful to one person might be virtuous to another, depending on some crucial value-assumptions. According to MSN’s Michael Brush…

Like the Noah fund, the Ave Maria Catholic Values funds … screens out any companies linked to pornography, birth control and the “anti-family” practice of offering benefits to unmarried domestic partners, says Robert Schwartz of Schwartz Investment Trust, the Detroit firm that manages the $61-million-asset Catholic Values fund. But the fund, whose largest holding is H&R Block … can hold shares in alcohol, gaming and defense stocks, just like the Vice fund.

Is it unethical (or even just ethically dodgy) to invest in sin? If so, a lot of us should be worried. As noted in this WSJ story (In Mutual Funds We Trust ) it’s pretty hard to avoid sin stocks, given the difficulties in figuring out which companies are in what businesses, either directly or indirectly:

But who has a moral compass calibrated finely enough to navigate the complexities of modern corporate conglomerates? Invest in General Motors and you find yourself with a stake in GM’s Hughes subsidiary, which runs the DirecTV satellite service. Which means you are, however tangentially, a shareholder in the vast American porn industry, beaming the Playboy Channel coast to coast.

So, welcome to Sin Week. Pour yourself a drink, sit back, relax, and enjoy….

Relevant Links:
Investing in Sin Stocks (from the Motley Fool)