Ideas to invest ethically this ISA season

Posted by Adrian Lowcock in Portfolio management category on 02 Mar 20

Ethical investing has become hugely popular in the last 5 years, with people such as Greta Thunburg, David Attenborough and the organisation Extinction Rebellion all challenging consumers, companies and the government to do more to fight climate change.

And despite popular misconceptions, investing to benefit the environment and society does not mean having to accept lower returns. Over 3 years the MSCI ACWI ESG Universal index, which represents the worlds largest companies that demonstrate strong environmental, social and governance credentials, has delivered 33.9% compared to 32.8% for the MSCI World*

Invest Ethically

Most fund providers have signed up to the Principles for Responsible Investment, which align their investment practices with the broader objectives of the United National Sustainable Development Goals. These aim to tackle ‘societal, environmental and economic development issues’ and include affordable clean energy and responsible consumption and production. 

ESG risks also bring opportunities for innovation. Electric vehicles look set to disrupt transportation as falling battery costs make them more affordable. Meanwhile, energy generation is becoming cleaner as the falling costs of solar panels and wind turbines make them more competitive.

For exposure to some of these and other ethical themes, we highlight below a few of our preferred ethical funds that could be considered as part of a diversified portfolio.

ASI UK Ethical Equity

Long-standing manager Lesley Duncan follows a strict ethical approach. This involves applying both negative and positive filtering criteria, with a number of companies and industries screened in or out of the universe depending on their impact on the environment or society. We believe the fund is worthy of consideration by anyone who wants to embrace a socially responsible approach to investing in the UK. The ASI UK Ethical Equity fund is Bronze rated by Morningstar our research partner. 

Royal London Sustainable Leaders

Manager Mike Fox has been running this strategy since 2003. He looks to provide above-average capital growth by investing in companies that have a positive effect on the environment, human welfare and quality of life. The fund invests predominantly in the UK but has some exposure to the US and Europe. The portfolio consists of shares in companies involved wholly or in part in the manufacture of products, industrial processes or the provision of services associated with improving the environment and the enhancement of human health and safety. The fund manager also invests in companies whose management are making above-average efforts in corporate responsibility. Morningstar, our research partner, has awarded the Royal London Sustainable Leaders fund a silver rating. 

Stewart Investors Worldwide Sustainability

This global equity fund, co-managed by Nick Edgerton and David Gait, draws on the market-leading research and stable investment team at Stewart Investors. Although the strategy is reasonably new, launched in 2012, the process behind this fund has been in place since the 1990s. Fundamental analysis of companies with a heavy focus on the sustainability of their earnings and business models is core to stock selection. There is also a preference for high-calibre management and healthy balance sheets leading to a bias to defensive growth shares. The Stewart Investors Worldwide Sustainability Fund is also silver rated by our research partners Morning Star. 

*Source FE Analytics, Total Return in Pounds Sterling. 21st February 2017 to 21st February 2020