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How to find the right ethical investment for you

Updated 22 December 2022

2min read

Nick Green
Financial Journalist

Most of us like to think we’re doing our bit for the environment, be it recycling or switching to energy-saving light bulbs, but now more than ever, investors are seeing the attraction in this area for their money.

Ethical investments have been available for nearly three decades although it is only recently that they have shaken off their ‘faddish’ reputation and started to make firm strides.

While there is no doubt that consumers are feeling the pinch, the economic malaise hasn’t prevented growing interest in this area. Unlike mainstream investing, choosing the ethical route allows investors to reap the rewards both personally and financially.

Given that the sustainability agenda is closely tied to efficiency, it may come as little surprise that any mention of savings is proving a hit, but much more than that, ethical investing allows you to live according to your core values.  The potential for huge personal returns safe in the knowledge your money is going towards good causes should not be underestimated.

There is a certainly a growing inclination among consumers to oppose those companies we feel are harmful to our society, be that a blue-chip bank or large tobacco firm.

A recent report revealed that some £11.3 billion was invested in the UK’s green and ethical retail funds in 2011 compared to £4 billion in 2001 and today, the UK boasts nearly 100 green and ethical funds, allowing investors to make financial returns with a guilt-free conscience.

It’s a worthy investment even for the very cautious, risk-averse but what is crucial is choosing the right ethical investment path for you.

At present, there’s no such thing as a universally agreed definition for what an ethical investment entails. Some funds simply weed out the baddies such as tobacco, alcohol, animal testing and pornography which is known as “negative screening,” and have proved very effective; in other words they do what they say on the box.

There are others that actively seek out companies working in socially responsible areas such as clean technology, pollution control and healthcare services and it’s important that as consumers we look to draw attention to companies that are creating a sustainable future rather than simply avoiding those carrying out unsustainable activities.

What to consider when choosing an ethical investment?

The consumer, therefore, has a lot to consider when choosing an ethical investment and it is worthwhile having an independent adviser map out an “ethical” profile which weighs up individual risk/ reward strategies. Even those with a very low-risk appetite can find a suitable fund that concentrates on solution-finding companies within this space.

I would recommend starting with the big picture – what do you agree or disagree with? Then narrow it down to what level of risk you’re comfortable with. It pays to carry out research and it’s essential you really involve yourself in the investment and avoid the tendency to let it plod along to ensure you’re getting the most out of it.

Advisers are there to offer you the best possible solutions and investment advice and if you feel that yours is at pains to point out all the negatives or is reluctant to explore this area, you should seek out a more suitable adviser who takes your views on board and respects those.

Anna Sofat

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About the author
Nick Green is a financial journalist writing for Unbiased.co.uk, the site that has helped over 10 million people find financial, business and legal advice. Nick has been writing professionally on money and business topics for over 15 years, and has previously written for leading accountancy firms PKF and BDO.