Green Investing in the UK: A Comprehensive Guide
Green investing has been rising in popularity in the UK. When investors choose to focus on this methodology, they tend to prioritise aligning their financial goals with environmental and social goals as well. The aim is to try and build long-term returns while also positively impacting the environmental, social, and governance industries. To create this comprehensive guide, we used insights and research from reputable financial institutions such as MSCI (Morgan Stanley Capital International), Sustainalytics and leading financial experts.
This content is for informational purposes only and should not be construed as investment advice.
Table of Contents
Green Investments:
- Serve as an opportunity for UK investors to diversify their portfolios while having a positive impact on ESG (environmental, social and governance) factors.
- Contributes to reducing carbon emissions, increasing sustainable infrastructure, and the growth of innovative climate-friendly solutions.
- Aims to align financial returns with a positive impact on the world. Green investments can include green bonds, stocks and ETFs (exchange traded funds).
Understanding Green Investing
Below, we cover some of the core principles of green investing. Essentially, green investors try and build a portfolio that not only has the ability to generate long-term returns but also has a positive impact on the world.
Many investors do this by focusing on the ESG rating of a stock or fund. ESG stands for environmental, social and governance. By focusing on companies with a high ESG rating, investors can invest while:
- Having a positive impact on the environment
- Ensuring fairness and safety in social working conditions
- Create proper transparency through effective corporate governance.
Environmental Impact Assessment
The UK Sustainable Investment and Finance Association (UKSIF) defines green investing as investing in different assets with long-term financial returns, while also emphasising the ESG performance of a company or fund. To measure this impact, the government introduced the Environmental Impact Assessment. This tool determines whether a company is acting environmentally responsible or not.
Financial Returns and Risk Management
Interestingly, research from financial services firm Morningstar showed that investments in companies that focus on ESG have lower volatility and higher risk-adjusted returns compared to other traditional investment products. While the past is not a reliable indicator of future returns it does provide interesting insights into the possibilities of green investing.
Integration with Traditional Investment Strategies
Green investing can serve as a way to diversify an investor's portfolio. Traditionally, investors may have only invested in traditional oil and gas companies or technology companies. By focusing on green investing, it opens a diverse range of other sectors such as renewable energy companies and more.
Financial Products and Services
There are various green investment products available for investors. This includes green bonds, as well as highly rated ESG stocks and funds. For UK investors, there is a wide range of ESG funds in the UK.
Top ESG Funds by Fund Size and Performance
The selection of ESG funds ranges from companies with high ESG scores to ETFs (exchange traded funds) that only contain companies with high corporate social responsibility (CSR). In 2024, Morningstar provided a list of the best-performing sustainable funds over the last five years. The L&B Global Technology Index and the SVS Sanlam North American Equity Fund B were the best performers, with returns of respectively 24.37% and 15.72% over a 5-year period.
ESG Ratings and Expense Ratios
Sources like Morningstar's Sustainalytics and MSCI give clear insights into ESG scores and other environmental and social metrics. Using these scores and ratings, investors can see to what extent companies or funds engage in sustainability.
Expense ratios are an important metric when investing in ESG funds. These are annual fees that are charged by the fund. Issuers of these funds require a certain fee for the management of investor capital.
Green Bonds in the UK
Besides the large number of green equity products you can invest in, green bonds are another option. Instead of buying a part of a company, as one does when purchasing a stock, investors can purchase green bonds. A bond is a debt security in which the investor is providing capital to the issuer of the bond in return for a fixed interest rate known as the coupon payment.
Companies issuing bonds use this money to finance their operations and will pay you back the principal amount and the coupon payment at the maturity date of the bond. Bondholders have a higher priority of being paid back first than stockholders, in case the company defaults.
In the United Kingdom, the largest issuer of green bonds is the government itself. The UK government finances green projects by issuing green bonds. According to data from the Statista Research Department, other big issuers are Walter Utilities and DS Smith. In 2022-2023, the UK’s Green Financing Programme raised more than ten billion pounds in green bonds and gilts.
Coupon Rate and Maturity Date
Coupon rates and the maturity date are important terms in the world of bonds. The coupon rate is the yearly interest rate that is paid to the bondholders. This is a certain percentage of the face value of the bond. The maturity date is the date at which the bond expires. When the bond reaches maturity, the complete face value plus the last interest payment is paid.
Alignment with Green Bond Principles
The Green Bond Principles are a set of measures and guidelines for green bonds to follow. It makes sure that all the information regarding the bonds is transparent and trustworthy.
Company Research and Sustainable Infrastructure
There are many companies in the UK, along with the UK government, that are actively involved in different forms of green investments.
Project Overview and Carbon Emission Reduction
A significant number of UK-based companies invest in ESG practices. The projects are designed to lower carbon footprints and to help increase the sustainability of their business practices. Since 2021, 30 of the 100 largest companies in the UK have committed to a net-zero carbon emissions by 2050.
The London-based firm Unilever is one of the companies that invests in ESG. They engage in sustainable practices by decreasing their emissions and increasing the usage of recycled products. They plan to reduce virgin plastic use by 30% and 40% in the years 2026 and 2028. They have also planned to try and get rid of all their plastic packaging from recycled products by 2030.
Socio-economic Benefits and Government Funding
The socio-economic benefits of green behaviour can be a boon for a company. By engaging in these environmentally friendly activities, companies can frequently generate additional job opportunities. This indirectly contributes to the economic growth of the country and is just one reason the UK government has been focused on green investments.
The government is an important part of these projects and for companies to succeed. Many UK companies typically receive grants and tax incentives that support and promote corporate social responsibility and the innovation of climate-friendly technologies.
Sustainable Infrastructure Projects in the UK
Currently, the UK government is also investing in sustainable infrastructure projects. For instance, the recently finished Thames Tideway Tunnel helps to make the country more sustainable. The project focused on modernising London’s sewage system. The initiative helped to prevent millions of tonnes of sewage from getting into the Thames. The total cost of this project was around 5 billion pounds.
Also, the Hornsea Three wind farm project has been a big sustainability project for the UK government. It aims to deliver up to £8.5 billion to the local, national and global economy and generate enough electricity to provide 2.5 million UK homes.
Carbon Emission Reduction and Socio-Economic Benefits
These sustainable infrastructure projects positively impact carbon emission reduction and socio-economic benefits. The Hornsea Two project has the ability to generate tons of renewable energy so that the non-renewable energy sources do not have to be exhausted any further. Also, the Thames Tideway Tunnel reduces the pollution of the Thames water, increasing water quality and biodiversity.
Green Technology and Electric Vehicles
Many green technology and electric vehicle companies are operating in the UK. These companies can provide green investors with opportunities to fulfil their green investing philosophy.
Green Technology Companies in the UK
Let's have a look at some of the green technology companies in the UK economy.
Company Overview and Market Capitalisation (£ million)
Among the companies that focus on ESG goals, many are technology companies. These companies try to positively impact the environment by using innovation and the development of technology. The entire green economy is estimated at more than 172 billion pounds in 2024 in the UK. This is the market capitalisation of the companies and funds that meet the Green Economy Mark criteria.
One of the companies that is noteworthy as a green technology company is Ceres Power. It develops certain fuel cell technology that helps with energy efficiency and lowers reliance on fossil fuels. Ceres Power currently has a market capitalisation of around £151.47 million.
Patent Portfolio and Revenue from Green Products/Services
Green technology companies protect their innovative technology solutions by getting patents on their innovations. With large patent portfolios, they ensure that solutions cannot be used by other companies. Ceres Power already holds more than 190 patent,s according to Crunchbase.
Electric Vehicles in the UK
There are many electric vehicle operators in the UK that score highly on ESG ratings.
Model Overview and Range (miles)
As part of reaching higher sustainability, the usage of electric transportation is increasing. Consumers are starting to realise that driving gas and diesel may not be the most climate-friendly and sustainable option. Many traditional car companies such as BMW, Mercedes, Ford and others are creating and selling a large number of electric vehicles.
This is also why a switch to electric vehicles such as the Tesla Model 3 has increased, as Tesla is purely an electric vehicle (EV) car maker. The range of this model is around 360 miles per charge. Another popular model is the Kia e-Niro which ranges around 250 miles per charge.
Purchase Incentives and Charging Infrastructure Availability
The UK government started creating incentive programs for buying electric vehicles. In 2021, they implemented grants for buying electric vehicles. Buyers get a £1500 discount on cars that are priced below £32,000. Moreover, the government is investing strongly in charging stations in order to increase the quality of charging infrastructure.
In 2024, more than 64,000 public charging devices were available, showcasing the improved adoption of electric driving in the country.
Green Consumer Goods and Sustainable Agriculture
While electric vehicle companies tend to garner most attention when looking at green investments, everyday consumer products can also be included as well as agricultural practices. .
Product Overview and Eco-labels (e.g., Fairtrade, Rainforest Alliance)
Consumers started using green products in the last decade because of environmental and social concerns. Fairtrade and Rainforest Alliance are examples of eco-labels that try to set standards for companies to increase transparency about the product and how it is created.
Recycled Content (%) and Carbon Footprint (tCO2e)
More companies are focusing on using recycled plastics in their products and packaging. The government also motivates companies to recycle products by making packaging that contains at least 30% recycled materials, not chargeable for tax. This reduces the carbon footprint, an important metric in determining the environmental impact.
Organic Certification (e.g., Soil Association) and Carbon Sequestration Potential
Sustainable agricultural practices are another point of interest nowadays. Farmers can get certified by the Soil Association, which ensures that those farms are following organic standards. This implies not using harmful chemicals, fertilisers, and pesticides. Not using these products helps the soil health, directly increasing the carbon sequestration.
Water Usage Efficiency and Biodiversity Impact
Finally, water efficiency and biodiversity practices are important to enhance sustainable agriculture. Using innovative methods such as drip irrigation and the harvesting of rainwater helps reduce the waste of water. Furthermore, farmers plant hedgerows and wildflowers around their crop fields to increase biodiversity.
UK Government Policies and Support Schemes
There are various government policies and support schemes that help to contribute to a greener economy.
Policy Name and Target Year
Throughout the article, we have already listed some of the policies that the UK government implemented to support green and sustainable behaviour by companies. To support green investing, the policies have to align with the main goal of net-zero emissions in 2050.
For example, the Green Finance Strategy helps to reach higher transparency in financial disclosures of green companies. Also, the Climate Change Act has been around for a while and was created to reduce emissions, encouraging investments in sustainable operating companies.
Financial Incentives and Regulatory Measures
The government is encouraging companies to adopt more sustainable practices by offering them financial incentives. The Enterprise Investment Scheme and the tax advantages on green bonds, are there to make people invest their money more sustainably and in companies that are trying to innovate.
In terms of regulation, the Task Force on Climate-related Financial Disclosures is becoming more relevant. It is a set of recommendations about financial disclosures and the environmental impact of the company. It has been incorporated into regulations throughout the world.
Impact Assessment and Public Engagement
Impact assessment is used to assess which policies have a positive impact. Also, public engagement is very important in reaching certain sustainability goals. There are multiple initiatives that try to involve citizens in sustainable practices and collaborate with companies and the government.
How to Start Green Investing
Investors can research green companies online and may already be familiar with companies such as Ceres Power and Tesla - a few we have highlighted in this guide. Another option is through ETFs.
An ETF, or exchange-traded fund, is an investment product that trades on a stock exchange like regular shares. The fund holds a basket of different stocks, giving the investor broad diversification to a variety of stocks, but with just one single investment.
With the Admiral Markets Invest.MT5 account, there are many different ESG ETFs available that UK investors have access to. For example, by searching for ESG on the Admiral Markets Contract Specification page (which lists all the instruments available), investors can find ETFs that invest in companies with high ESG ratings.
With Admiral Markets, you can invest in over 4,500 stocks and ETFs (exchange-traded funds) from some of the largest stock exchanges in the world, with the following commissions:
- UK stocks and ETFs – 0.1% of trade value, 1 GBP minimum commission.
- US stocks and ETFs – From $0.02 per share, 1 USD minimum commission.
- France/Germany stocks and ETFs - 0.1% of trade value, 1 EUR minimum commission.
You can learn more about investing commissions on the Admiral Markets Contract Specification page. You can search for global stocks and ETFs from the Admiral Markets MT5 web platform and invest in four steps:
- Open an account with Admiral Markets.
- 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.
Conclusion
Green investing's main goal is to try and generate long-term financial returns while also focusing on ways to improve the planet through ESG factors. Green investing helps to diversify portfolios and reduce the volatility in a portfolio. Investors can choose to invest in companies focused on becoming greener and having a high ESG rating.
Another option is to invest in ETFs that hold a variety of different stocks that are involved in green investments and have high ESG ratings. With the Admiral Markets demo account, you can invest in a virtual environment first before going live. This can help to practice an investment strategy and experience the ups and downs of investing.
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