What is an ethical investment fund?

An ethical investment fund aims to achieve positive change and positive returns. The choice of investments is influenced by a number of factors, with your money only going into companies that meet a strict social, environmental, or cultural criteria.

How do ethical investment funds work?

There’s different approaches to ethical investment, and the strategy an ethical investment fund takes depends upon its investment criteria. Here’s an outline of the three main approaches and how they differ:

Exclusion

This investment approach actively avoids companies that fail to meet certain criteria, or that are engaged in certain activities (firearm manufacturing, tobacco companies etc).

Preference

In this investment approach specific sectors are not avoided. Instead the money manager will assess each sector, and search for the best-in-class dependent upon their criteria.

Engagement

This investment approach involves actively engaging with companies, in order to promote socially responsible business practices.

Sometimes a fund manager will employ just one of these strategies, sometimes a mix of all three. An ethical investment fund that has strict exclusions in place is referred to as having a ‘dark green’ ethical approach, while funds which focus more on engagement are typically referred to as ‘light green’.

What are the different types of ethical investment fund?

There’s dozens of ethical funds out there that specialise in different areas. Some come in the shape of an ISA, others in the shape of a pension, and exactly what they invest in can differ significantly.

Some ethical funds will exclude producers and retailers of meat, poultry, fish and dairy - making them a particularly good fit for vegans - while others will avoid any companies that engage in human rights abuses. If you’ve got specific investment concerns then it’s always wise to look through a fund’s factsheet, as this will tell you more about how your money will be invested.

Where can you invest in an ethical investment fund?

Most big investment companies will offer some sort of ethical or eco-friendly fund - including PensionBee.

Our Future World Plan invests in companies generating revenue through low-carbon activities. It seeks investment value, quality and stability, with a special focus put on the businesses that are environmentally friendly. Your money is invested across the globe in over 3000 companies, and any that fail to meet the minimum environmental standards will be excluded altogether from the fund. It’s serious about building a better future - for you and the environment - as it aims to strike the perfect balance between performance and sustainability.

You can dig into more details on our plans page.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

Last edited: 12-10-2016

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