Ethical Investing
Bringing your money and your values together.
Ethical investing is simply investing in a way that reflects your values, not just chasing the highest possible return. Instead of asking only “What might this earn” you also ask “What am I supporting with my money”
There is no single official definition. In broad terms, ethical investing means choosing investments that are not seen as harmful to people or the planet, and in many cases actively support positive environmental or social outcomes.
You will often see related terms such as:
Responsible investing or ESG investing - Focuses on how companies manage Environmental, Social and Governance issues such as climate impact, treatment of staff, and how the business is run.
Ethical funds - Usually start from a values led position and exclude certain activities completely, for example, weapons, tobacco, or thermal coal.
Impact investing - Aims to invest in business projects where a positive social or environmental impact is a central goal, not just a side effect.
Different providers use these labels in slightly different ways, which is one reason this area can feel confusing.
IMPORTANT - The value of investments can go down as well as up, and you may not get back the full amount you invest. Past performance is not a reliable indicator of future results.
This content is for general information only and is not personal financial advice.
What is ethical investing
How ethical investing works in practice
Most ethical or sustainable approaches fall into one or more of these broad styles:
Excluding certain activities - The fund avoids areas that many investors feel uncomfortable with, such as tobacco, controversial weapons, or companies with very high coal or oil exposure.
Favouring better behaved companies - Some strategies still invest across most sectors but try to favour companies that score better on environmental, social, or governance measures than their peers.
Investing for positive impact - Here the aim is to channel money into areas like renewable energy, clean water, healthcare access, or affordable housing, where the investment is designed to create a measurable positive outcome.
Active ownership and stewardship - Investors use their position as shareholders to vote on key issues and to engage with company management about climate plans, working conditions or corporate governance. Many institutional investors see this as a powerful way to drive change.
Any given investment may use a mix of these tools, which is why understanding the detail really matters.
Success stories and positive examples
Ethical and sustainable investing is often criticised, but there are well known examples where investor and consumer pressure have helped push companies and sectors in a more sustainable direction.
These are illustrations only, not recommendations to invest in any company or fund.
Orsted - The Danish energy company Orsted moved from being a coal intensive fossil fuel business to a global leader in offshore wind. Over about a decade it sold its oil and gas assets, slashed coal use, and became one of the worlds most sustainable energy companies with a dramatic reduction in carbon emissions. This transformation attracted investors who were looking for low carbon energy solutions and showed that moving towards renewables can be commercially successful as well as environmentally positive.
Unilever - Unilever, the global consumer goods company, has worked for years to improve sustainable sourcing of raw materials and reduce its environmental footprint. It has linked parts of its growth strategy to sustainability goals, which has helped strengthen its brand with consumers and long term investors who care about responsible supply chains.
The growth of ESG and ethical markets - The ethical and ESG market has grown rapidly. Recent estimates suggest ESG type investments reached around two and a half trillion dollars globally in 2022 and continue to expand, and more than half of UK investors now hold some form of ethical or ESG investment. This growth reflects a wider shift in attitudes. Surveys show that many investors now want their money to support responsible businesses, and a large majority of consumers feel more loyal to companies that take environmental and social issues seriously. Remember, even in positive case studies, investment values can still fall as well as rise, and outcomes depend on many factors.
Greenwashing - what it is and why it matters
As interest in ethical investing has grown, so has concern about greenwashing. Greenwashing is when a company or investment provider overstates how good its environmental or social credentials really are. In other words, the marketing sounds greener or more ethical than the reality.
Examples include:
Funds that use words like sustainable or climate aware but still hold large stakes in high impact fossil fuel companies, without a clear plan for change.
Financial products where targets linked to sustainability are weak or easy to achieve, mainly used to boost reputation.
Companies in several countries that have faced regulatory action or fines for making misleading claims about the ESG qualities of their investments or their climate strategies.
Because of these concerns, regulators are stepping in. In the UK, the Financial Conduct Authority has introduced an anti greenwashing rule that requires sustainability claims to be fair, clear, and not misleading. This rule applies to all regulated firms and sits alongside a labelling regime for some sustainable funds.
The new labels, such as Sustainability Focus, Improvers and Impact, are designed to help investors understand at a glance what a fund is trying to achieve and how it does this. Awareness is growing and many retail investors say simple labels would help them feel more confident in choosing sustainable options.
How you can protect yourself from greenwashing
Here are the practical questions an investor can ask:
What is the goal - Is the investment trying to avoid harm, favour better companies, or create positive impact. If the goal is not clear, that is a warning sign.
What is actually excluded or preferred - Check whether there are clear rules around sectors like fossil fuels, weapons, tobacco or others you care about.
What will I actually own - Look at the top holdings where this is available. Do they match the story in the brochure.
How is progress measured - Are there regular reports on environmental or social outcomes, not only financial returns.
How does this fit with regulation - In the UK, ask whether the product uses an FCA sustainable label and how it complies with anti-greenwashing expectations.
None of this removes risk, but it can help you decide whether you are comfortable with how an ethical investment is run.
Myth Busting
Common beliefs about ethical investing:
Myth 1 - “You always have to accept lower returns”
Reality - Evidence is mixed. Some sustainable strategies have delivered competitive or even stronger performance in certain periods, while others have lagged. Returns still depend on the quality of the underlying investments, costs, and market conditions, not simply on whether a strategy calls itself ethical. Ethical investing is not a guarantee of better results, but it also does not automatically mean worse ones. The usual investment principles still apply.
Myth 2 - “It is only about the environment”
Reality - Climate and carbon get a lot of attention, but ethical and ESG investing also cover topics such as human rights, supply chains, diversity and inclusion, product safety, and corporate culture.
Myth 3 - “All ethical investments look the same”
Reality - Approaches vary widely. One fund might mainly exclude certain sectors. Another might own similar companies to a traditional fund but engage heavily with management. A third might concentrate on a narrow set of green technologies. Two ethical portfolios can look very different and behave differently in markets.
Myth 4 - “It is only for passionate activists or younger investors”
Reality - Interest is strong across age groups. Surveys show that many investors, including those close to retirement, now care how their money is invested and want their savings to be managed responsibly.
Myth 5 - “It does not really change anything”
Reality - No single investment choice will fix global challenges, but capital flowing towards better run, more sustainable businesses can influence how companies behave. At the same time, shareholder engagement and voting can help push boards to improve their environmental and social practices. Many institutional investors now say ESG factors are central when they assess the long term attractiveness of a company.
Again, none of this removes normal investment risk.
What most people want to know about ethical investments
Research in the UK suggests that many investors are interested in ethical or sustainable investing, but there are big gaps in awareness and understanding.
From those studies and from common client questions, the key things people usually want to know are:
Will I still be on track for my goals - People want to understand whether choosing an ethical approach could meaningfully change their ability to retire when they plan to, support family, or meet other life goals.
What are the pros and cons compared with traditional investing - Surveys show many investors specifically ask for clear information about the benefits and drawbacks of sustainable investing, and want real life case studies rather than abstract theory.
How do I know what counts as ethical - There is confusion over terms like ethical, ESG, responsible, sustainable and impact. Many people say jargon is one of the biggest barriers to getting started.
How real is the impact - Investors increasingly want evidence of what their money is doing in the real economy, whether through cleaner energy, better working conditions, or improved governance, not just a label on a fund.
How safe are these investments - Ethical funds still carry market risk. Prices can fall as well as rise, and there is no guarantee that a more sustainable company will perform better financially. Investors want to understand risk in plain language, rather than being sold a feel good story.
What does it cost - Some ethical or impact strategies can be more complex or specialised, which may affect fees. People want to know what they are paying for and whether it provides value.
A good adviser or provider should be able to explain all of this clearly, show how an ethical approach fits into an overall financial plan, and be transparent about any limitations.
Questions to ask before choosing an ethical investment
If you are thinking about this area, you might find these questions helpful when speaking with a regulated financial adviser or investment provider:
What do you mean by ethical or sustainable in this fund or portfolio
What is the main goal of the strategy
Which sectors or activities are excluded, and why
How do you select companies or projects, and what information do you use
How do you measure and report environmental or social impact
Does this investment use an FCA sustainable label, and how does it meet anti greenwashing rules
How does this approach fit with my risk level, time frame and wider financial plan
The right answers for you will depend on your values, circumstances and goals, which is why personalised advice can be important.
