Money Goals

What is ethical investing?

Oct 3, 2023

If you want to match your financial goals with your ethical values, Loqbox has you covered with a deep dive into the world of ‘ethical investing’. Not only can you grow your wealth, but by investing ethically you can also help to build a better world and a more responsible future. Let's unpack the what, why, and how of ethical investing in the UK.

What is ethical investing?

Ethical investing, also known as ‘socially responsible investing’ (SRI) or ‘sustainable investing’, is about putting your investments where your values are, rather than purely chasing profits. This means investing in companies that share your principles on environmental, social, and governance (ESG) standards.

A company’s environmental standards include how renewable its resources are, its carbon footprint, and how much pollution it generates. Social justice principles look at diversity and inclusivity, and how a company’s customers are treated. Governance, on the other hand, considers a company’s structure, pay parity, and how its employees are treated.

Whether it's renewable energy, fair labour practices, or supporting local communities, ethical investing is all about making a positive impact while securing your own financial future. By investing ethically you can choose not to give your money to industries that cause harm, like tobacco or arms.

What are the benefits of ethical investing?

Investing in ethical companies, whether in the UK or wider, isn't just a feel-good strategy — it's a smart one too. Companies with strong ethical principles, which have sustainability at their heart, can be sensible prospects for long-term investments. 

In fact, ethical investing is increasingly popular with younger generations, meaning that there could be strong growth for many years still to come.

It also helps to diversify your portfolio by tapping into industries with high growth potential. Companies with strong ESG standards can attract things like government subsidies, which might give them the edge over less responsible businesses. And let's not forget the psychological boost of knowing your money is supporting causes you believe in. 

Is there a downside to ethical investing?

There is little evidence to suggest that investing ethically performs less well than other forms of investment. As with any investment strategy, ethical investing has potential drawbacks. As an investor, you limit your options by focusing only on companies with high ESG standards. This could mean that you restrict the diversity of your portfolio. 

Ethical companies set very high standards for themselves, and therefore have to stand by strict criteria. This can work against financial growth, where less responsible businesses are able to cut corners and potentially save money by ignoring ESG standards. Ethical businesses may have higher overheads as they invest in a sustainable future. 

How do I start ethical investing in the UK?

Ready to take the plunge into ethical investing? Remember, investing ethically is a journey, so take your time to make informed choices. Here are some simple steps to start you off and point you in the right direction: 

Set your values

Start by defining your values and priorities. Draw lines in the sand where you are (or aren’t) willing to compromise. For example, would you invest in companies that don’t currently have strong ESG standards but are working to change their ethics? Are you willing to invest in companies on that journey, or just those who already have watertight credentials?

Do your research

Look for ethical investments that align with your beliefs. It’s possible to find pre-selected ethical investment portfolios. But you need to decide how much you’re willing to ‘outsource’ your ethics. Understand the latest ethical terms and practices, and keep your eyes peeled. Some seemingly ethical processes can actually have negative knock-on effects.

Make a plan (and stick to it)

What are you investing for? A retirement fund or a deposit on a house? What’s your timescale? If it’s for a relatively short-term goal (in the next five years) then it’s important to know that investing isn’t a get-rich-quick scheme. Successful investments can take 10+ years. 

You can also lose money through investing, so ask yourself how much can you afford to lose? Ethical investing, like any investment, is risky. You could end up with less than you started with, so make a realistic plan and stick with it.

Monitor your investments

Keep an eye on your investments. It’s important to understand how they develop and how the industry evolves. It’s suggested that you check in with your ethical investments at least once every few months (every ‘quarter’ of the year). 

The more you understand your investments, the better chance you have of spotting and  avoiding problems, or benefiting from opportunities. 

What are the best ethical investment funds?

When it comes to ethical investments, the UK offers a number of funds tailored to various preferences, with a wide range of sectors, from clean energy to healthcare. Some popular names include Triodos Sustainable Equity Fund*, Liontrust Sustainable Future Fund*, and Royal London Sustainable World Trust*.

It’s important that you check the latest information when considering an ethical investment fund. If you’re not sure, seek professional advice to understand the current financial landscape. If you want pre-made ethical portfolios, you can check out platforms like Wealthify*.

*Note: We are not affiliated with these funds, they are just some starting points for you to explore investing in ESG.

What’s the future of ethical investing?

As more investors demand transparency, sustainability, and social responsibility, more companies will feel the pressure to meet ESG standards. This could mean more options for ethical investors to thrive and create positive change. So the future of ethical investing looks bright. Let’s hope that’s true for our environment and society too! 

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