What is ethical investing?
Ethical investing is an umbrella term for all approaches to investing that consider ethical values as well as financial returns.
The term also covers issues including, but not limited to, climate change, workers’ rights, gender equality, and transparency.
Traditionally, ethical investing meant not investing in certain companies that contravened your beliefs. But it can also include focusing on companies that make a positive real-world impact, or investing in firms in order to help them reduce their negative impacts.
Please note: the content contained in this article is for information purposes only and does not constitute financial or investment advice.
How to find a sustainable investment fund
Investment funds enable you to invest in hundreds or potentially thousands of companies at once, and there are many designed with sustainability in mind.
Every fund and investment trust using language to imply they have ethical credentials has to supply a ‘sustainability factsheet’ which sets out their objectives, approach and metrics.
You can find these funds by looking out for one of four labels:
- Sustainability impact – funds that invest in assets directly making a positive impact.
- Sustainability focus – funds that invest in assets meeting a robust, evidence-based standard of sustainability.
- Sustainability improvers – funds that invest in assets that have the potential to meet a robust, evidence-based standard of sustainability.
- Sustainability mixed goals – funds with this label invest in a mix of the above styles.
At least 70% of the investments in a fund must meet the sustainability objective set out by the fund’s manager, which must fall into one of the above four categories.
The remaining 30% of assets can’t be in conflict with the objective, although they don’t have to meet it exactly. For example, a fund might need cash or other assets to be able to pay out when someone wants to withdraw their money from the fund.
You can also check how the fund manager has voted at company annual general meetings on decisions ranging from working conditions to energy commitments.
Share Action often reports on this, and many fund managers publish their voting decisions.
The problem with ‘sustainable’ ETFs
ETFs are a type of fund that usually invests across an entire index (like the FTSE 100), and are usually cheaper than other funds known as mutual funds.
This means many ETFs take a long-established index then apply ESG criteria, which can leave you lining the pockets of the usual suspects, such as Amazon and Apple.
Active fund managers can be more picky, going beyond indices, and have more flexibility to remove holdings if they see fit, such as because a company has been involved in a controversy.
It is possible to invest in ‘active ETFs’, which are tracker funds that track a custom-made index of suitable firms.
- Find out more: what is an ETF?
What does ESG mean?
You might see funds using the term ‘ESG’, which is an abbreviation of environmental, social and governance. The requirements for using the term are not as strict as they are for ‘sustainable’, so a fund using it could mean multiple things.
For example, an ESG-labelled fund may remove the lowest scoring 20% on their checklist of ESG characteristic such as environmental damage, but that doesn’t mean the remaining 80% of companies have a positive impact.
ESG-labelled funds don’t need to have a specific sustainability objective in mind, as the sustainable label funds do.
Other ways to invest ethically
Working with a financial adviser
If you’ve got limited time or investment experience, you could ask an independent financial adviser (IFA) to choose investments for you, at a cost. You can use an IFA that’s part of the UK Sustainable Investment and Finance Association.
A cheaper alternative is to use a robo-adviser platform that offers a portfolio of funds based on your attitude to risk.
Picking shares
You could buy shares in individual companies with which you agree.
Building a balanced portfolio this way is very labour intensive, but gives you complete control over where your money goes.
Bear in mind that investment platforms tend to charge transaction costs each time you buy or sell a share, so frequent tinkering can damage returns.
Bonds, gilts and cash
There are a number of fixed-income investments, such as bonds, available for more risk-averse investors, and these include green and ethical bonds.
The UK government now issues green gilts, where proceeds are directed towards a range of environmental projects.
- Find out more: Britain’s greenest banks
Will ethical investments make you money?
There are no guarantees in investing, so you might not make money from ethical investments just as you might not make money from any standard investment.
Investing in line with your morals won’t necessarily make you worse off than investing in a standard fund, but it could do in certain market environments. For example, in recent years ethical funds have lagged relative to other funds because of spikes in oil prices that have benefitted energy companies. But, if the share prices energy companies took a major hit, sustainable funds would be better insulated from those impacts.
To see how a specific ethical investment compares, look at the individual company, fund or investment trust you’re considering investing in and compare with the sector it’s in – for instance, UK equities funds.
Do make sure that your portfolio is sufficiently balanced to shield you from market downturns. Also check you’re not paying over the odds in fund fees.
- Find out more: compare investment platform fees and charges
What are the best investment platforms for ethical investors?
Not all investment platforms give investors the same amount of resources to choose investments that line up with their morals.
Some tools available to help you see what’s going on inside of funds are filters that narrow down available investments to those making ESG claims or showing the top 10 holdings of funds so you can see the types of company they invest in.
A couple of platforms have additional features that aren’t found elsewhere. Interactive Investor is the only platform to provide a specialist list of recommended sustainable funds – the ACE40. This chooses the best-performing ethical funds and classifies them into whether they ‘avoid’ certain industries like mining or tobacco, ‘consider’ ESG factors, or ‘embrace’ companies focused on delivering positive social or environmental impact.
Aviva also has the Investment Preference Tool, which allows you to choose which types of company – for example, high-impact fossil fuels or unfair employment practices – to exclude from the funds.
You can take a look at our individual brand reviews of investment platforms to see what tools are on offer with each provider – although we haven’t reviewed the impact of the platforms themselves this time. You can find detailed research in this area by Ethical Consumer.
- Find out more: best investment platforms in the UK 2026
