What is an ethical investment fund?

An ethical investment fund aims to achieve positive returns for investors while effecting positive change for the environment. The choice of investments is influenced by a number of factors, and money is only invested in responsible companies that meet strict social, environmental and ethical criteria.

How do ethical investment funds work?

There are 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 to one another:

  • Exclusion

This investment approach actively avoids investing money in companies that fail to meet certain criteria, or that are engaged in certain activities, such as the manufacture of heavily scrutinised products like firearms or tobacco.

  • 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 companies to invest in, 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, and sometimes a mixture of all three will be used. Ethical investment funds can also be characterised by how strict their criteria are. For example, 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?

Ethical investment funds are increasing in popularity and there are dozens of options to choose from, specialising 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 vegan investors – 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. You can also speak to the scheme administrator for more information.

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 climate-conscious Future World Plan aims to bring positive growth and change. It seeks investment value, quality and stability.

Your money is invested in over 3,000 companies around the world, and any that fail to meet the minimum environmental standards will be excluded from the fund. We’re serious about building a better future – for you and the environment – as we aim to strike a balance between performance and sustainability.

You can find out more about our Future World Plan on our plans page and by watching the video below.

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: 30-09-2018

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