Recently I read a Chinese proverb which said, “To be a good artist you need to be a good person.” Immediately I thought that the same applies to investing: “To be a good investor you need to be a good person.”

With this in mind, I put together a list of questions to help you test your knowledge about the ethical side of investing and consuming. But first some background.

It is important to know the difference between investing and speculation. Speculation is primarily using money with high risk and little certainty of the outcome. In contrast, investing means taking action with a high degree of confidence of protecting your capital and getting a reasonable return.

It is also important to understand what your investing money is being used for. At the very least this means investing in companies with products and services that you believe in and may well use.

Investing without any thought about the consequences of what the company is doing is really just usury—money for money’s sake. With conscious investing we look for two components: confidence and alignment. Confidence in the financial outcome and alignment of the company’s goals with your own.

Some of the questions that you could ask before investing in a company include:

Does the company

• Produce safe and high-quality products that contribute to a better life
• Provide useful, life-affirming services
• Contribute to the local communities in which it is located
• Support the ecosystems on which they depend
• Invest in the health and development of its employees
• Treat their investors as partners in an open and transparent manner
You could start by looking at the company’s web site and reading the management statements contained in the annual reports. After that, you could even write to the company with specific questions. You can think of your self as an investigative reporter who has been asked to write an article on the company.

You may not be able to get all the information that you need, but you will be far ahead of the general investment community in your understanding of the company. This will be true not only regarding the ethical side of the business but also whether it is likely to be a profitable investment. In other words, in taking steps to be a good person by evaluating the ethical side of a business, you will also more likely be a good investor.

Now see how you go with the questionnaire. It looks at the areas of food production, gambling, ethical investing, farmer support, solar energy, greenhouse gases, microcredit banking, and genetically engineered foods.

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Test Your Ethical Investing Knowledge

Answer the following questions to see test your knowledge of ethical investing and consumer activities.

Question 1: What is the 100 kilometre (or the 100 mile) diet?

(a) The preferred diet during an ultramarathon.
(b) The diet used when running more than 100 kilometres per week.
(c) A diet consisting of foods grown or produced within a 100 kilometre range of where you live.

Question 2: Aristocrat Leisure, an Australian company, had sales of $1.1 billion dollars last year, 75% from overseas. The company produces:
(a) Clothing for the high-end leisure market.
(b) Games for children.
(c) Poker machines and related gambling equipment.

Question 3: What is a positive screen?
(a) Electrically-charged window screens for keeping out mosquitos.
(b) Bed nets treated with insecticide used to combat malaria.
(c) Investment selection in a fund or portfolio that favours companies that make a positive or ethical contribution.

Question 4: If you go into a coffee shop and ask for a fair-trade coffee, the owner will:
(a) Become angry because he thinks that you are implying that he is overcharging you.
(b) Start bartering with you.
(c) Serve you coffee that from a plantation where the owners are guaranteed a fair price.

Question 5: What is sliver technology?
(a) High-tech food used by fashion models.
(b) Extremely thin credit cards designed so that you can fit more in your wallet or purse.
(c) Technology developed by the Australian National University and licensed to Origin Energy for producing very thin solar panels that use much less silicon.

Question 6: On a population basis, how much more greenhouse gases are produced in Australia than in Sweden.
(a) About the same.
(b) 2 times more.
(c) 3 times more.

Question 7: What is the Grameen Bank?
(a) A bank established by the World Bank for trading in grain crops.
(b) A sperm bank.
(c) A bank established in Bangladesh which makes very small loans to the poorest people.

Question 8: What is roundup?
(a) Cattle driven together for inspection.
(b) Anything herded together.
(c) A herbicide produced by Monsanto that does not effect the genetically-engineered crops also marketed by Monsanto.

Answers: The correct answer in each case is (c). Here is more background on each question.

Question 1: Food production. World Watch Institute reports that the majority of our food ingredients typically travel between 2,500 and 4,000 kilometres. This is a 25 per cent increase from 1980 alone. The average meal uses up to 17 times more petroleum products, and increases carbon dioxide emissions by the same amount, compared to an entirely local meal.

Some advantages of ‘eating locally’ whenever possible are enjoying fresher and tastier food, supporting your local economy, limiting the effects of transportation costs on the environment and your wallet, avoiding the risk of large-scale food contamination, and ensuring animal welfare

Question 2: Gambling. For the year ending June 2004, according to figures from the Australian National University Centre for Gambling Research, total gambling expenditure within Australia was $16.21 billion. From 1994 to 2004, real per capita expenditure on gambling increased from $684.03 to $1066.95, representing an average annual increase of over 5.6%.

Aristocrat Leisure has a direct interest in seeing gambling increase in Australia and around the world.

Question 3: Ethical investing. There are two approaches to increasing the ethical level of an investment portfolio. The first is a positive or affirmative screen that puts emphasis on companies that make a positive or ethical contribution. The second is a negative or avoidance screen that excludes companies considered to be unethical or not responsible.

Regarding answer (b), every year in Africa Malaria kills one African child every 30 seconds and affects between 300 and 600 million people a year. WHO estimates that insecticide-treated mosquito nets and speedy access to drugs can prevent nine out of 10 malaria deaths.

Question 4: Farmer support. Fair Trade is an organized social movement that works with marginalised producers and workers in order to help them move from a position of vulnerability to security and economic self-sufficiency. Coffee farmers in Fair Trade cooperatives are guaranteed a minimum price of US$1.26 per pound regardless of the volatile market. These fair payments are invested in health care, education, environmental stewardship, and economic independence.

Question 5: Solar energy. The major expense in being able to mass produce solar panels is the use of extremely pure silicon. Sliver technology allows for a 90-95% reductions in the consumption of this silicon compared with conventional silicon solar cells. The technology was developed at ANU and is licensed to Origin Energy. It is anticipated to reduce the cost of power generation by solar cells by around 75%.

Question 6: Greenhouse gases. The greenhouse effect for the earth is caused by certain gases, principally CO2, acting as a blanket and preventing heat from being radiated away from the earth. The more that these gases are produced, the faster the warming will take place. According to the Norwegian organisation Globalis, in 2003 Sweden produced 7.9 tonnes of greenhouse gases per person, which is the 9th lowest country. Australia comes in at position 36 with 26.1 tonnes per person.

Sweden has declared a target of at least a 30% cut in greenhouse gas emissions by 2020. The Australian government has stated that it does not wish to set any long-term targets.

Question 7: Microcredit banking. The Grameen Bank is a microfinance organisation and community development bank started in Bangladesh Muhammad Yunus. It makes very small loans (known as microcredit) to the poorest people without requiring collateral. The system is based on the idea that the poor have skills that are under-utilized. The organization and its founder were jointly awarded the Nobel Peace Prize in 2006.

Approximately 97% of the loan recipients are women and the payback rate is over 98%. More than half of Grameen borrowers in Bangladesh (close to 50 million) have risen out of acute poverty thanks to their loan from the Bank.

Question 8: Genetically engineered foods. Genetically engineered (GE) crops are crops grown from seeds that have had the artificial modification of their genes. Foods that are commonly genetically engineered include corn, soy, wheat and canola and flax (linseed). Monsanto, a US chemical and pesticide company, developed a potent herbicide called roundup. Next, through genetic engineering, they developed soybeans and other seeds that are resistant to Roundup.

The dangers of GE crops include the fact that there is evidence of genes escaping much farther away than anyone predicted so that wild plants and weeds are becoming resistant to the Roundup herbicide. These genetically modified seeds can spread through nature and contaminate non 'GE' environments and future generations in an unforeseeable and uncontrollable way.

Many people are also concerned about the effect on people when they eat GE foods. For instance, a recent study in published in “Archives of Environmental Contamination and Toxicology” showed that laboratory rats fed with a GE maize produced by Monsanto have shown signs of toxicity in kidney and liver. This is the first time that a GE product which has been cleared for use has been shown adverse effects in a laboratory.

Dr Price is the developer of Conscious Investor and can be contacted at johnp@conscious-investor.com