Best Ethical Investment Funds UK for 2024
When we do our shopping for everyday necessities like groceries, clothing, or even a new phone, we make micro-decisions on whether these items were produced in a way that aligns with our own views on ethics. To some, it might be important, for example, that their clothing was not produced in a sweatshop. Others might prefer to buy vegetables and fruits that are produced locally and without excessive use of pesticides.
Just like ethics plays a role in the choices people make as consumers, it can also play a role in the choices they make as investors. In a way, buying a company’s products and investing in its stock have similar effects: the company is supported in continuing its operations.
Where investors allocate their capital matters, which is why ethical investment funds are the topic of this article. This article will explain what exactly ethical investment funds are, provide a list of a few ethical investment funds to watch, and discuss the advantages and disadvantages of investing in them.
Table of Contents
What are Ethical Investment Funds?
An Exchange-Traded Fund (ETF) can be seen as a bundle of stocks that investors can buy in a single transaction. The companies that issue these funds tend to offer a wide range of ETFs, as each ETF is different in its selection criteria. One ETF might be focused on the top 500 companies in the US by market capitalisation. Another might be focused on companies within a specific market sector, like telecommunications.
Ethical investment funds, then, are ETFs where the issuer has included companies based on whether they meet certain ethical standards. The starting point of such a fund is often to exclude ‘sin stocks’, which are businesses that deal with activities like smoking, weapons, or gambling.
A term that is quickly becoming unavoidable when talking about ethical investing is ESG investing. ESG stands for Environment, Social, and Governance. These are three pillars that pertain to sustainability and pollution, the treatment of people, and the way a company is run, respectively. Many ethical investment funds will mention the term and give stocks certain ratings according to these factors.
Best Ethical Investment Funds to Watch
With the explanation of what exactly ethical investment funds are out of the way, it is time to move on to the list of some of the best ethical investment funds to watch. It is important to note that ‘best’ is always subjective, especially when it comes to a complicated topic like ethics. It would be prudent for investors interested in ethics to perform their own research, and for that, this list can be a starting point.
- iShares Dow Jones Global Sustainability Screened ETF (IGSG) – Global Companies Fund Screened for Ethics and Sustainability
- First Trust NASDAQ Clean Edge Green Energy Index Fund ETF (#QCLN) – U.S. Green Energy Technology Sector Fund
- iShares ESG Aware MSCI EAFE ETF (#ESGD.US) – U.S. Exclusionary Global Companies Fund Tilted Towards ESG Factors
- iShares Global Clean Energy UCITS ETF (DNRG) – Global Green Energy Technology Fund
iShares Dow Jones Global Sustainability Screened ETF – Global Companies Fund Screened for Ethics and Sustainability
The aim of the iShares Dow Jones Global Sustainability Screened ETF, which was established in 2011, is to give investors exposure to the world’s largest companies from the Dow Jones global index, with a focus on sustainability. Each stock has been screened for its ESG characteristics, and stocks from companies that generate revenue from alcohol, tobacco, gambling, armaments, firearms, and adult entertainment have been excluded.
The fund’s ten largest holdings, in order, are Microsoft, NVIDIA, Google, UnitedHealth, Visa, Taiwan Semiconductor Manufacturing, Mastercard, ASML, Tencent, and AbbVie. Microsoft accounts for roughly 11% of the fund’s capital, and AbbVie for roughly 1.24%. In total, there are nearly 600 companies included in this ETF.
The stocks in this ETF fall into many stock sectors, though Information Technology is the most well-represented, accounting for roughly 31% of the fund’s capital allocation. The next three sectors by size are Financials (~16%), Health Care (~16%), and Industrials (~9%).
The fund trades under the ticker symbol ‘IGSG’ on the London and Berne stock exchanges, as well as Euronext. On the Frankfurt stock exchange, the ticker symbol is ‘IUSL’. On the Bolsa Mexicana de Valores the ticker symbol is ‘IGSU’.
First Trust NASDAQ Clean Edge Green Energy Index Fund ETF – U.S. Green Energy Technology Sector Fund
The First Trust NASDAQ Clean Edge Green Energy Index Fund ETF should certainly be of note to investors with an interest in green energy technology. This fund tracks an index of U.S. listed companies that are engaged in all parts of the logistical chain of green energy production, from manufacturing to installation. This includes companies that deal with solar power, wind power, batteries and fuel cells, and electric vehicles, among other things.
The fund was established in 2014 and currently contains a portfolio of 62 different companies. The fund’s largest holding is Tesla, which accounts for roughly 9.3% of the fund’s capital. The next nine holdings in order are ON Semiconductors, Albemarle, Enphase Energy, Rivian Automotive, SolarEdge Technologies, First Solar, Lucid Group, Wolfspeed, and Plug Power, with Plug Power accounting for roughly 3%.
In terms of sectors, Renewable Energy Equipment is at the top, with ~22% of the fund’s capital invested into companies within this sector. The next four sectors by size are Automobiles (~18%), Semiconductors (~18%), Alternative Electricity (~11%), and Diversified Chemicals (~10%).
The fund trades under the ticker symbol ‘QCLN’ on the Toronto Stock Exchange. This ETF can be traded with Admirals using CFDs (contracts for difference). This means you can trade long and short.
iShares ESG Aware MSCI EAFE ETF – U.S. Exclusionary Global Companies Fund Tilted Towards ESG Factors
The iShares ESG Aware MSCI EAFE ETF gives investors exposure to large and medium-sized companies by market capitalization in Europe, Australia, and Asia. It essentially follows the MSCI EAFE index, but tilts more heavily towards companies that have favourable ESG ratings.
The ETF is composed of more than 400 companies, with the ten largest by allocation being Nestlé, ASML, Novo Nordisk, LVMH, Shell, AstraZeneca, Roche, Novartis, SAP, and Toyota. Nestlé has an allocation of 2.24%, and Toyota accounts for 1.09% of the fund’s capital.
These companies are spread over many sectors of the economy, with most of the fund’s capital going to companies within the Finance sector (~18%). The next three sectors by size of allocation are Industrials (~15%), Healthcare (~12%), and Consumer Discretionary Goods (~12%).
The fund was launched in 2016 and trades on the NASDAQ exchange under the ticker symbol ‘ESGD’. This ETF can be traded with Admirals using CFDs (contracts for difference). This means you can trade long and short.
iShares Global Clean Energy UCITS ETF – Global Green Energy Technology Fund
The aim of the iShares Global Clean Energy UCITS ETF is to give investors a way into the clean energy sector. Both in terms of the production of clean energy and the provision of equipment and technology involved in the production of clean energy. The fund contains companies from both developed and emerging markets, including the U.S., China, Japan, South Korea, Brazil, and several European countries, among others.
The fund excludes companies that are above a certain threshold of carbon emissions. This means there are no fossil fuel giants in the fund’s portfolio, even though they might have green energy initiatives. Learn more in the Best Carbon Credit Stocks article.
The top ten companies by capital allocation in this fund are First Solar, SolarEdge Technologies, Enphase Energy, Consolidated Edison, Vestas Wind Systems, Iberdrola, Orsted, China Yangtze Power, Plug Power, and EDP Energias de Portugal. First Solar accounts for roughly 8% of the fund’s capital, and EDP Energias de Portugal for roughly 2.5%.
The lion’s share of the fund capital is allocated to companies within the utilities sector, accounting for nearly 50% of the total. The next two relevant sectors are Information Technology (~28%), and Industrials (~20%).
The fund trades under the ticker symbol ‘INRG’ on the London and Italian stock exchanges, as well as the Swiss Six stock exchange and the Bolsa Institucional de Valores. On the Frankfurt stock exchange, the ticker symbol is ‘IQQH’.
How to Invest in Ethical Investment Funds
With Admirals, you can invest in global stocks and ETFs with the following commissions:
- UK stocks – 0.1% of trade value, 1 GBP minimum commission.
- US stocks – From $0.02 per share, 1 USD minimum commission.
- Germany and France stocks - 0.1% of trade value, 1 EUR minimum commission.
You can learn more about investing commissions on the Admirals Contract Specification page.
You can search for global stocks from the Invest.MT5 web platform and invest in four steps:
- Open an account with Admirals.
- Click on Trade on one of your live or demo trading accounts to open the web platform.
- Search for your symbol at the top of the search window.
- Click Create New Order in the bottom window to open a trading ticket to input your trade size, stop loss and take profit level.
Why Invest in Ethical Investment Funds?
So, why would an investor choose to invest in ethical investment funds? This is one of several fundamental questions every investor needs to consider when building their investing portfolio. This is because global capital is increasingly being allocated with at least some form of ethics in mind.
Investing ethically doesn’t just feel good; it also looks good, and large investment firms know this. More and more large financial institutions and companies are directing their capital according to ethical standards, which is a factor that will play a role in the performance of ethical investment funds going forward, including those listed in this article.
As a potential downside of investing in ethical investment funds, consider the following: by deciding to forego certain companies based on their ethical views, an investor is by definition restricting themselves. This means that they could miss out on growing companies that operate in taboo sectors like the tobacco industry or lethal weapons.
But meeting ethical standards and performing well financially are not mutually exclusive. In fact, a view that is increasing in popularity within the world of finance is that values like sustainability, social equity, and proper governance will increasingly determine a company’s success in the future.
Stakeholders, investors, consumers, watchdog organizations, and concerned citizens, among others, put pressure on and criticize businesses that fail to adjust their operations to certain ethical standards. Most companies want to appease these participants, as a company’s public image plays a role in the amount of capital that investment firms are willing to invest in it.
FAQs on Best Ethical Investment Funds
Should I invest in an ethical fund?
The decision of whether to invest in an ethical investment fund always lies with the individual investor. Firstly, it might be good for them to establish precisely what their ethical views are. Is the investor opposed to the production of firearms, for example? Or maybe the amount of pollution a company produces in terms of CO2 emissions or chemical waste is a key factor? Once the investor knows what their preferences are, they can perform targeted research to find a fitting investment fund for their situation.
Does Vanguard have any ethical funds?
Yes, Vanguard has several ethical investment funds available for investors to buy. Some of these are ETFs, and some of these are mutual funds. The keyword to look for is ‘ESG’. This term refers to some form of ethical criteria being used to select which companies are included in the fund. ESG doesn’t have a strict definition, however, so what one fund issuer considers enough to label a fund ESG might be different from the next fund issuer. It is always a good idea for investors to look further into the specifics of the particular fund they are interested in and see which companies it holds. Then the investor can also make their own assessment of whether these companies align with their ethical views.
How do I choose an ethical fund?
In the end, each investor needs to assess their own stances on certain social and environmental issues. One investor might decide to value sustainability and efforts to limit global warming as the single most important factor in their investment decisions. Another investor might, at some point, look into how their phone was produced and conclude that they do not want to support some companies that operate factories in third-world countries with poor working conditions. Whether these topics matter comes down to the investor’s personal beliefs.
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