‘I want my money to make a difference’: Is it possible to get ethical funds into an Isa and how do you do it?
- The amount put into responsible funds trebled to £10bn last year
- They invest in firms with a good record on issues such as climate change
- The FTSE4Good index has beaten FTSE 100 over one, three, five and ten years
Having investments need not trouble your conscience. There has been a surge in so-called responsible funds that promise to ensure that your money is put to good use.
You can get a decent return on your savings and use them to back firms with a good record on issues such as climate change; or righteous causes, rather than the oil and tobacco industries that have delivered big profits at the expense of other issues.
The amount put into responsible funds trebled to £10billion last year
You can get a decent return on your savings and use them to back firms with a good record on issues such as climate change; or righteous causes, rather than the oil and tobacco industries
The pandemic has hit many investments, yet most funds that adhere to responsible environmental, social and governance (ESG) practices have provided better returns than mainstream rivals.
The FTSE4Good index of ethical stocks has now beaten the FTSE 100 index of leading UK stocks over one, three, five and ten years.
The MSCI World SRI Index for socially responsible funds has beaten the MSCI World Index over the same periods.
The Baillie Gifford Positive Change fund, which holds £2.3billion of saver’s money, has been a best-seller at investment platforms.
It invests in firms globally that make a big contribution to solving environmental and social issues and has turned a £10,000 investment into £17,350 in the past 12 months, £22,460 in three years.
Much of its success is due to its shares in Moderna – a biotech firm that has produced a Covid vaccine – which have soared by more than 400 per cent in the past 12 months.
It also owns Tesla, the electric carmaker, which rose 695 per cent over the year.
Hargreaves Lansdown reports that Stewart Investors Asia Pacific Leaders Sustainability is in the top ten most popular funds held by investors with Isa portfolios worth over £1million.
This fund backs companies that benefit from and contribute to the sustainable development of the countries they operate in.
It has turned a £10,000 investment into £13,455 in a year and £17,738 over five years.
A survey found 60 per cent of investors say the ‘E’ for environmental in ESG is most important when choosing investments.
I want my money to make a difference
Sarah Quinlan, 56, wants her investments to have a positive impact on the world
Sarah Quinlan, 56, wants her investments to have a positive impact on the world.
She says: ‘I own funds in my Isa and pension that reflect my passion for improving our environment and society.
‘I avoid oil, tobacco and fast-fashion firms, for example, due to bad treatment of workers.’
The retired banker who lives in Suffolk with her partner, says investing ethically can be hard: ‘China is a producer of solar panels which reduce reliance on fossil fuels, for example.
But investing in the country is not an ethical choice due to its appalling human rights record.’
Sarah, who spends her time running her rental properties, holds the Premier Miton Ethical fund in her Isa. Its top ten holdings include pharmaceutical firms and technology stocks.
In the past five years it has turned a £10,000 investment into £16,550.
She is also interested in a new fund from her Isa provider, the AJ Bell Responsible Growth.
Sarah saves with Triodos bank, which puts profits back into communities. She says: ‘Using savings to do some good in the world is important to investors.’
Darius McDermott, at Fund Calibre, tips the Ninety One Global Environment fund which only invests in firms that contribute to the decarbonisation of the world economy. It has turned £10,000 into £15,880 in a year.
Investors can also choose low-cost tracker funds to access ESG-friendly companies. McDermott tips L&G Future World Climate Change Equity Factors fund and Amundi Index MSCI Global Climate Change.
Choosing ethical funds is not just about investing in firms already making moral choices.
Fund managers often talk to companies with poor ESG credentials to get them to improve. Where necessary, they can use their shareholder votes to get changes actioned, whether that be more diversity in boardrooms or better sustainable packaging.
Some funds just avoid the oil, tobacco or gambling sectors.
However, it is important to find out just how a fund invests. Sometimes ESG is used to sugar-coat bad practice or ‘greenwashing’.
Some investment platforms offer ratings to help with this.
The Big Exchange, co-founded by The Big Issue group, only offers funds making a positive difference. Investors, who can save from £25 a month, mostly buy its packages of up to ten funds.
Interactive Investor offers the ACE 40 – a list of responsible funds. At EQi, funds are independently rated according to how they tackle ESG factors.
Options are included on best-buy fund lists from brands such as AJ Bell and Hargreaves Lansdown.
Fund Calibre lists a small number of responsible funds.
Myron Jobson, of investment platform Interactive Investor, says: ‘The only way to invest in a manner that truly aligns with your core beliefs is to find investments, funds and investment trusts that best align with your own values.’