There has never been a better time to go green with your investments, with the 10 point plan for a green industrial revolution having been launched in the UK in November 2020.
As the UK focus their energy on becoming a global leader in green technologies, new and potentially profitable investment opportunities have taken shape, offering investors an ethical standard of investing without taking a hit to their profits. In fact, in some cases, ethical funds are now outperforming traditional funds, with the environmental, social and governance (ESG) category on track for a record-breaking year
I’ve taken the time to take a comprehensive look at the best ethical investment funds on offer, identifying the socially responsible funds that are the best performers in recent years so you can invest in line with the future of the planet. I’ve also taken the time to match your fund with the best socially responsible investing apps to offer ESG funds.
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As with all investing, your money is at risk. The value of your portfolio can go down as well as up and you could get back less than you put in. The tax treatment of your investment will depend on your individual circumstances and may change in the future. You should seek financial advice if you are unsure about investing.
What is ESG?
ESG stands for Environmental, Social, and Governance and is a list of criteria utilised by fund managers to measure the ethical impact of companies that they are considering for inclusion in ethical funds. When measuring a company’s ethical impact, fund managers will take into consideration factors such as the amount of waste a company produces, the amount of energy it uses, measures to tackle race and gender inequality, investments in local communities, shareholder rights, and how transparent it is with its public reporting.
Environmental, Social and Governance (ESG) works to encourage companies to find ways to positively impact their environment and society in order to take advantage of financing opportunities on the stock market.
- Environmental – The impact that companies have on climate action and waste management, water stewardship, energy resources management and reduction of air and water pollution.
- Social – The way companies manage issues of human rights, consumer privacy, data security, health and safety and gender equality.
- Governance – The effectiveness of the board’s management of a company including ownership structure, financial reporting and organisational culture.
Importantly, investment managers of ESG funds should avoid including companies involved in poor environmental performance, questionable labour market practices, gambling, arms, animal testing, and oil companies regardless of their market performance.
Royal London Sustainable Leaders Fund
Royal London Sustainable Leaders Fund was the top-performing ethical fund in the UK for the last decade, returning an impressive 195% in that time frame. Whilst the fund offers a diverse portfolio in any economic sector, it limits its investments in companies that benefit the environment, human welfare, and quality of life whilst achieving capital growth over the medium term of 3-5 years. The fund manager, Mike Fox, aims to only include companies that obtain less than 10% of their profits from entities such as military applications, animal fur products, pornography and gambling.
The Royal London’s Sustainable Leaders Fund comprises of around 40 stocks, mostly in industrial, financial, healthcare and technology including 5.09% Prudential, 4.39% Unilever, and 4.25% AstraZeneca stock. It is made up of 81.98% UK Equities with the next biggest asset class being 11.62% North American Equities.
Best Buy Platform for Royal London’s Sustainable Leaders Fund
Interactive Investor already have our top spot for the best trading platform for investing in funds. They offer investors a comprehensive range of accounts to choose from including a Stocks and Shares ISA, all available with one flat monthly fee. With Interactive Investor you can keep track of your fund’s performance at any time of the day or night on their interactive web-based trading platform, or alternatively from their intuitive mobile app.
You can find further information on the Royal London’s Sustainable Leaders Fund on the Interactive Investor website including yield history and investment strategy as well as how this fund performs against similar funds in its sector.
- Platform Cost: £9.99 per month
- Fund Cost: 1.16%
Liontrust Sustainable Future Global Growth Fund
Liontrust Sustainable Fund is a great option for investors looking to invest for long term growth (5 years or more) in ethical investing. It provides a higher risk option with an established strategy in the multi-asset space. This fund includes allocations in 90-95% equity, 10% collective investment schemes, with almost two-thirds of the portfolio invested in the US.
Liontrust launched their Sustainable Futures range of funds with the expectation that companies helping to improve people’s quality of life will not only help build a more sustainable future for our planet but will thrive in the process. The fund has focused on companies with long term transformative themes whilst swerving companies that have a negative impact on society and the environment.
Over the past five years, this fund has achieved 114% growth, significantly higher than the industry average.
Best Buy Platform for Liontrust Sustainable Future Global Growth Fund
Fidelity Investments offer commission-free US stocks and ETFs alongside outstanding research and an easy to use and well-designed trading platform for investing. Their range of products includes a Stocks and Shares ISA, Junior ISA, Junior SIPP Investment Account and SIPP. We do find the fee structure at Fidelity more favourable to larger investment pots, and indeed Fidelity Wealth is an additional service aimed at customers who have accounts of over £250,000 and who could benefit from a personal relationship manager to provide guidance on investments. Fidelity Wealth clients can also benefit from low service fees as well as a host of other benefits.
You can find further information on the Liontrust Fund on the Fidelity website.
- Platform cost: £45 fixed fee for accounts £0 to £7,499.99
- 0.35% fixed fee for account £7,500 to £249,999.99
- 0.20% £250,000 to £1 million
- Fund Cost: 0.89%
BMO Responsible Global Equity Fund
BMO Responsible Global Equity Fund has returned a staggering 240% in the last ten years, cementing its place as the third most successful ethical fund on the globe. This £560 million investment vehicle, focuses its efforts on companies that contribute towards ESG and avoiding companies that are involved in alcohol, gambling, nuclear power, oil, gas or coal. Of the 1,000 companies that could feasibly be included in the fund, there are 51 with a position, including giants like Apple, Mastercard and Microsoft.
The BMO Responsible Global Equity Fund is focused on providing long term capital growth by investing primarily in technology in the US. It is considered a higher risk fund with the potential for higher returns.
Best Buy Platform for BMO Responsible Global Equity Fund
AJ Bell Youinvest
AJ Bell Youinvest offer investors a fully interactive and streamlined investment platform for both new and seasoned investors with a good range of investment options when it comes to impact investing. They provide outstanding customer service, and over 70 active and passive funds as well as plenty of guides and tools. The range of accounts include SIPP, Stocks and Shares ISA, Dealing Account, Junior Stocks and Shares ISA, Junior Dealing Account and Junior SIPP.
- Platform cost: 0.25%
- Fund cost: 0.79%
Baillie Gifford Positive Change Fund
Baillie Gifford Positive Change Fund has returned 113.86% since its launch in 2017. This ranks them second out of 330 funds. Baillie Gifford uses four impact themes to measure the contribution that the companies they invest in are making towards providing for a more sustainable future.
Social Inclusion – Baillie Gifford aims to address the 260 million children who currently don’t have access to formal education by investing in companies that provide solutions to this with their products and services. One of the companies in the fund that provides accessibility of information is Alphabet, the parent company of Google, which uses high altitude balloons to provide internet access.
Environment and Resource – Baillie Gifford looks to reduce the impact of human activity on the environment by investing in companies that can increase resource efficiency such as renewable energy firm Orstead in order to tackle climate change.
Healthcare & Quality of Life – Baillie Gifford invests heavily in medical research companies in order to encourage healthcare to be a proactive entity rather than reactive. They believe this can lead to further understanding in the prevention of diseases as well as the advancement of medical treatments.
Base of the Pyramid – This focuses on the lives of the 4 billion people currently living on low income by investing in companies that provide financing for startups, low-cost healthcare, and low-cost goods to this demographic.
Best Buy Platform for Baillie Gifford Positive Change Fund
Interactive Investor have just one flat monthly fee which gives you access to a complete suite of accounts including a Stocks and Shares ISA, Junior Cash ISA, Junior Stocks and Shares ISA, SIPP, Cash Savings Account and Company Account. Their intuitive and easy to use mobile app and web trading platform have won awards for their great interface as well as in-depth market research. With low-cost trading fees and free regular investing model, this platform is already on our list of best trading platforms.
You can find further information on the Baillie Gifford Positive Change Fund on the Interactive Investor website.
- Platform cost: £9.99 per month
- Fund cost: 0.76%
Impax Environmental Markets
Impax Environmental Markets is one of the largest environment focused investment trusts in the UK with £634 million under management. The last five years have seen the fund generate returns of 107 percent for the shareholders, with all investments going into companies that generate at least 50 per cent of their revenue from environmental initiatives, including reduction of pollution, energy efficiency, sustainable food, water infrastructure and waste management.
There are currently 65 businesses making up the fund with its top two being PTC, a digitalisation company making up 2.8% of the fund, and Rayonier, a sustainable forestry management company that makes up 2.7 per cent of the fund.
Best Buy Platform for Impax Environmental Markets
Interactive Investor have yet again demonstrated their extensive suite of funds to choose from with the inclusion of Impax Environmental. Dzmitry Lipski, Head of Fund Research, interactive investor, says: “We like the Impax Environmental Markets investment trust, which is the UK’s largest environmental investment trust. The trust targets long-term capital growth by investing in companies offering solutions to environmental challenges, with a particular focus on alternative energy and energy efficiency, water treatment and pollution control, and waste technology and resource management (which includes sustainable food, agriculture and forestry).
You can find further information on the Impax Environmental Markets fund on the Interactive Investor website.
- Platform cost: £9.99 per month
- Fund cost: 1.02%
Guinness Sustainable Energy Fund
For investors who are looking for ways to invest their money in sustainable energy sources, Guinness Sustainable Energy Fund offers such an opportunity whilst outperforming 98.5% of other funds in the IA Global sector. In the past five years, it has achieved returns of 93.85% whilst giving investors exposure to companies involved in the generation, storage, efficiency and consumption of sustainable energy sources including solar, wind, hydro, geothermal, biofuels and biomass.
Guinness Sustainable Energy Fund comprises of 30 holdings with 88.44% international equities, 7.40% UK equities, and 4.16% cash and equivalent with a high-risk factor of 6 out of 7.
Best Buy Platform for Guinness Sustainable Energy Fund
Hargreaves Lansdown is one of the biggest investment platforms in the UK with a massive range of investment funds, ETFs and shares to choose from. They also provide access to professional investment advice, as well as varying degrees of support for investors including pre-selected portfolios and help with investment strategies.
Hargreaves Lansdown doesn’t charge a platform fee, although their trading fees can be a little steep when compared to other trading platforms. In terms of accounts of offer, they have a Stocks and Shares ISA, a Share Dealing Account, SIPP, Lifetime ISA, Active Savings, Junior Stocks and Shares ISA, Junior SIPP and Junior Investment account.
You can find further information on the Guinness Sustainable Energy Fund on the Hargreaves Lansdown website.
- Platform cost: £0
- Fund cost: 0.74%
Best Investment Platform for ESG Investing
CIRCA5000 (Previously tickr)
Whilst CIRCA5000 may not have the funds that are listed above, they are the only investment platform that exclusively offers ethical investing. They have experienced huge success since their launch, especially with socially conscious millennial investors looking for simple processes and a slick modern interface.
CIRCA5000 are also offering £5 completely free when you sign up using this link.
ESG Funds FAQs
Will ethical investing help save the planet?
Investing in ESG funds used to be seen as a virtuous way to invest but investors would expect to take a hit to their returns. However, the pandemic has changed this and ESG investing is not only profitable but has encouraged companies to take climate change into account, meaning socially responsible investors can invest in their future, at the same time as investing in the future of our planet.
How do I invest in ethical funds?
Ethical funds are now offered by a vast majority of investment platforms. However, the list above will give you an idea of the best funds, and where to find them. Opening an account takes moments and can be done solely online, after which time you will be free to purchase the number of shares you want in the ESG fund of your choice.