How can I compare ethical investing products?
19 July 2021
Question by Joy
I am a beginner investor and would like to invest in a "socially responsible" Stocks & Shares ISA. I have looked into the Nutmeg and Wealthify funds, having found out about them through the Money Saving Expert website. Is there information about any other such providers on your website? And do you have any advice about how to compare the "socially responsible" criteria on the different funds?
Answered by Boring Money
Great to hear that you're eager start investing, and are particularly interested in ethical/socially responsible investing.
This is an area of the investment world that has been seeing a lot of interest recently. More platforms are introducing ethical ESG (Environmental, Social and Governance) options for their customers to choose from.
Why invest ethically?
There are many naysayers who dislike ethical investing because they feel that, while being a nice tree-hugging hippy thing to do, your investment returns will be poorer for it. However with the UN’s Intergovernmental Panel on Climate Change warning in October 2018, that we only have 12 years to bring global warming under control and avoid a 'climate catastrophe' - the support for ethical is growing.
As is the performance of the ethical options which already exist. If we look at three different funds ranging from ethical to not-so-ethical, we can see that ethical performance has been on the up ever since 2014. (For more detail - take a look at our full article).
FTSE4Good Global - which only includes socially responsible businesses
FTSE All Share - which tracks the entire investment market: good, bad and ugly
The Vice Fund - which invests in tobacco, gambling, booze and weapons
While the Vice Fund doubled investors’ money in its first five years (2002–2007), by the start of 2019 the FTSE4Good was the leading fund of these three. It even beat the benchmark set by the all-encompassing FTSE All Share.
This just goes to show the naysayers, that you don’t have to sacrifice returns anymore to invest in the future of the planet. But then again, nothing with the stock market is ever certain.
More info on ethical investing
As we are pretty interested in ethical investing here at Boring Money (having written a report all about it in 2018), our Best Buys page and a few of our articles might be helpful to you. Why not take a look at:
Our Best Buys page - use our 'ethical investments' filter to whittle down the list providers to just those who market their own ethical options. As of April 2019, the only providers on our Best Buys page who offer ethical options are: Vanguard, Nutmeg, Wealthify, PensionBee, Barclays Smart Investor, Wealthsimple, and Moola.
Of these ethical options, we review all seven as suitable for beginner investors. However you can filter them again, using other filters such as: 'Low cost for small portfolios (<50k)' and 'Start with £100 or less', to find the best providers for you to explore further.
Ethical Investing: What is it? And who’s doing it?
Holly's blog: Ethical investing. Fad or the future?
Good vs Evil: You'd be a fool to rule out ethical investing
How to compare 'socially responsible' criteria
There is a lot of confusion about what counts as 'socially responsible', ‘ethical’ or 'ESG'. Some of this is due to the fact that one person’s ethics are not always in line with another’s.
Negative screening - Most investors think of ethical investing as just blacklisting certain types of companies or industries from their portfolio - according to our research, consumers most want to avoid: arms, tobacco, gambling and pornography.
Impact investing – where money is actively funnelled towards certain projects to support positive change – is less recognised, but once offered to people it is more popular than blacklisting. Our survey respondents named healthcare, green energy and sustainable agriculture as the areas they most wanted to see their money put to positive use.
Unfortunately, because of the relative youth of ethical investing, and all the confusion over how to define 'ethical' options, there is currently no easy way to compare the ethical options out there. Beyond reading up on them and doing your homework, there's no quick way to see at a glance how one ethical investing option differs from another. You just need to comb through the details yourself, and see how these ethical options measure up to your ideas of what 'ethical investing' means.
This being said, Morningstar are working toward creating a tool which could be really helpful for investors who'd like to do this. And we are hoping to have the functionality to help readers compare ethical investing products in the future. Unfortunately though, these projects are still in development.
Meanwhile, some investment platforms such as Fidelity, do offer investors helpful info to help them find out more about the ethical funds on their platform.
Take a look at the bottom of this page, to see the top 10 most bought and sold ESG funds on the Fidelity website in February 2019: www.fidelity.co.uk/funds/esg-investing
Hope this helps!