Are ethical investments a good choice?

Making informed decisions is important in every investment strategy. Whether to actively invest your money in ethical or responsible funds is one option to consider. In 2024, more than half of UK adults were interested in investing responsibly. The Financial Conduct Authority (FCA) found awareness was highest amongst males and people aged 55 and over. 

It’s natural to be cautious. You’re right to want to understand where and how your money is invested. This applies to pensions and savings as well as investment funds and buying stocks and shares. In this post, we explain what ethical investments are and why people choose them. We share how they can make a positive impact on people, communities, and the environment. 

Learn how our Independent Financial Advisers can help and guide you when making Savings & Investment decisions.

Why choose ethical investments?

People who opt to invest responsibly are making a choice to proactively seek out investments that match their personal ethics and values and do good in the world. If you feel strongly about putting your money where it will be invested in sustainable practices and benefit communities and the environment, ethical investments could be right for you.

Responsible investing in the UK

Despite growing interest in responsible investing, there is a significant gap between consumer intentions and actual investment behaviour. FCA research shows 72% of UK adults want their investments to do some good’, as well as deliver a financial return. Yet only 18% have ever held a responsible investment. This highlights increasing demand for sustainable investment options and a need for greater awareness, accessibility, and confidence building.

About Greenwashing in financial services

Greenwashing is when financial institutions make misleading or exaggerated claims about the sustainability benefits of their products. Companies that overstate the ESG benefits of savings and investments risk huge fines and reputational damage. In 2024, the FCA introduced the Sustainability Disclosure Requirements (SDR) to improve transparency and prevent greenwashing in sustainable investment products.

At HWIFM, we have stringent checks in place to ensure our clients invest in genuine sustainable funds which meet their needs and values. We want you to make informed decisions about where to invest your hard-earned money.

What is a responsible investment strategy?

When choosing responsible investments, there are several types of funds to consider. Here are four of the most common:

• Eco or green funds: investing in companies or projects that protect the environment and have a low carbon footprint, e.g. renewable energy.
• Negative screening funds: funds that exclude certain types of investment, e.g. weapons manufacturing or the tobacco industry.
• Social impact funds: investing in funds with a positive impact on people and communities, e.g. creating access to clean water in developing countries.
• ESG or sustainable funds: which prioritise environmental, social and governance factors in their management and decisions. At HWIFM, we focus on this type of investment strategy.

What is an ESG investment strategy?

ESG funds consider environmental, social, and governance factors in how money is invested. They aim to achieve financial returns while also being mindful of a company’s impact on society, the environment, and its standards of corporate governance. A client’s personal values, ethics and morals guide how funds are invested.

Investors, regulators, and businesses are using ESG criteria to evaluate long-term performance beyond traditional financial returns.

• Environmental factors focus on how a company impacts the natural environment and manages climate change risks, e.g. carbon emissions, energy efficiency, waste, pollution, and use of natural resources.
• Social factors examine how a company manages its relationships with people, communities, and their health and wellbeing, e.g. customer experience, employee welfare standards, commitment to diversity and inclusion, and human rights.
• Governance factors assess leadership, accountability, corporate oversight, and transparency of decision-making processes, e.g. board structure, executive pay, shareholder rights, and internal controls.

In simple terms, an ESG investment strategy might avoid funds that invest in fossil fuel companies due to their negative environmental impact. Instead, it would focus on funds that create positive social impact and outcomes, investing in companies with a track record of making good, ethical decisions and treating employees with dignity and respect.

What’s the difference between ESG funds and traditional investments?

ESG funds invest in companies that demonstrate strong sustainability practices, ethical behaviours, and responsible management. Traditional investments are heavily weighted towards financial returns.

Ethical investments at HWIFM

In 2024, just over half of adults who had put their money in responsible investments said that they ‘take it at face value’ when a fund says it is responsibly invested. Since then, the introduction of SDR is making it easier to understand the objectives of responsible investment products. ESG and sustainable funds can apply for one of four labels explaining how client money will be invested. While not yet mandatory (qualifying criteria apply), sustainability labels allow our IFAs to drill down into the detail of how funds are invested, so we can match products to client values.

At HWIFM, we start with a risk assessment to identify a client’s sustainability preferences and determine whether an ESG fund is suitable for their investment objectives, risk profile, and ethical values. We take time to discuss any concerns about investing in certain industries and practices across the world. This means we can recommend suitable ESG and sustainable investment solutions while ensuring recommendations remain aligned with financial goals, attitude to risk, and regulatory requirements.

Monitoring your investments

We review all ESG funds on a quarterly basis to ensure they continue to meet their objectives and clients’ needs. Our process involves assessing each fund against its peer group, focusing on key measures such as investment performance, volatility, risk-adjusted returns, and consistency of ESG integration. Monitoring funds regularly helps our IFAs to identify whether a fund remains the right fit for the client.

Talk to us about ethical investments

ESG has become a key factor in sustainable, ethical investing. Investors are more likely to consider how companies are managed, social and environmental outcomes, as well as financial returns when choosing how to invest. Ethical investments are available to everyone. You don’t have to have a large sum of money for your investment to have the desired impact. If responsible, ethical investing is important to you, please make sure to discuss this with your IFA at your next review. In the meantime, please contact us with any immediate queries.