Lesson 1 of 5 · 11 min
Why ethics matters in investing
Capital markets only work if investors trust them, and laws alone cannot create that trust, so individuals and firms need ethical principles and a habit of applying them.
In short
- Ethics is a set of moral principles that guides behaviour when it affects other people; core principles include honesty, fairness, diligence and care and respect for others.
- Efficient markets move capital to its most productive use. They depend on trust: investors who distrust the system invest less or demand a higher risk premium.
- Legal is not the same as ethical. Laws set a minimum and cannot cover every situation; ethics asks what is right, not merely what is allowed.
- Professionals should use an ethical decision-making framework and consider the effect of their actions on market sustainability, not just profit and loss.
- In firms, a culture of integrity led by senior management matters most; a written code of ethics is necessary but not sufficient.
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