Ethical investing (or socially responsible investing (SRI); or environmental social and governance investing (ESG); or any of a number of different acronyms) is not just about being a do-gooder. It can make financial sense too. When we compare three funds ranging from squeaky clean to grubby, the numbers look pretty convincing.
Squeaky clean: FTSE4Good Global, which only includes socially responsible businesses
Neutral: FTSE All Share, which tracks the entire investment market – good, bad and ugly
Grubby: The Vice Fund, which invests in tobacco, gambling, booze and weapons
Although the Vice Fund doubled investors’ money in its first five years (2002–2007), those days are long gone. Now it’s the aptly named FTSE4Good which is out in front, beating the benchmark set by the all-encompassing FTSE All Share. It appears you don’t necessarily have to sacrifice returns any more to invest in the future of the planet. But then nothing with the stock market is ever certain.
In October last year, the UN’s Intergovernmental Panel on Climate Change warned we only have 12 years to bring global warming under control and avoid a ‘climate catastrophe’. That means ditching fossil fuels and investing in renewables, ditching companies that pollute in favour of companies with a green track record, and ditching substances like tobacco that only do harm.
If we don’t make these changes, the world’s top scientists reckon we’ll pay for it. So already that’s two epic reasons to invest ethically that are hard to argue with: save the world, make more money (potentially). The third reason? It’s a piece of cake to get involved.
It’s now ridiculously easy to get started with ethical investing. You can do it through an app. You can do it without picking individual shares. And you can even use an ISA to protect your earnings from the taxman. (Remember, you have until 5th April to use your annual savings allowance.)
For a simple, mobile-friendly intro to investing, we recommend Wealthify and Nutmeg. They both have ready-made, socially responsible portfolios to choose from; they both rate well with customers; and they’re both suitable for beginners. For more seasoned investors who want more control, take a look at AJ Bell Youinvest’s fund list and use their ethical filter.
To find out what their customers say and compare more ethical options, check out our independent Best Buys.
*The table above is based on FTSE4Good Global trading at $6817, $8594 and $7729 in 2014, 2018 and 2019; FTSE All Share trading at $3605, $4246 and $3733; and The Vice Fund trading at $29, $32 and $25. Figures taken from first week of January each year, rounded to the nearest whole number as they rise and fall all day anyway and it’s only meant to give you the gist! Plus, past performance doesn’t mean future success.
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