Best Ethical Investment Funds: Our Top Picks In 2020

Ethical investment funds have been available for well over 20 years, but with recent world events there has been a new surge in interest in sustainable investing.

With climate change becoming increasingly a focus for world governments, investment managers are being put under pressure to support initiatives that provide positive solutions to mitigate the impact of the human activity on our planet.

In the last 12 months as well as campaigners such as Greta Thunberg and Extinction Rebellion who have caught the headlines in waking people up to the real impact of climate change, more people are recognizing that changing weather patterns which have led to the recent devastating fires in Australia, recent unprecedented locust plagues in east Africa and Pakistan, flooding at record levels across the world and the ongoing plastic pollution challenge are a present reality that requires action.

With the world in the midst of a global pandemic many funds that are run on environmental, social and governance (ESG) principles have seen record inflows of investment in the last 6 months.

We have highlighted our selected top ethical sustainable investment fund picks that are worth considering:

1. Legal & General World Climate Change Equity Factors Index Fund

L&G has a range of investment funds with a future world philosophy for clients who want to express a conviction on environmental, social and governance issues (ESG) at the same time achieving financial success.

If you are a fan of passive investing, then The Future World Climate Change Equity Factors Index Fund is a tracker fund which aims to provide a combination of growth and income by tracking the performance of the FTSE All World ex CW Climate Balanced Factor Index may be one to consider. The fund gives greater weight to companies that score well against four selected stock values (value, low volatility and small size) and that meet positive carbon and environmental criteria.

The fund has an ongoing charge of 0.60% pa.

There are no tables for this criteria

 

2. Royal London Sustainable Leaders

This fund is fast becoming one of the UK’s most popular funds with £1.7bn invested run by Citywire AAA rated fund manager Mike Fox.

 “This is a suitable core UK ethical fund for investors wanting to improve their portfolio’s ESG profile,” says Adrian Lowcock, head of personal investing at Willis Owen.

The fund invests in UK equities but can also invest up to 20% in overseas equities.

The Sustainable Leaders fund’s strong record extends over 10 years, as it has delivered a total return including dividends of 182%, while the index has risen 85% and competitors in the IA UK All Companies sector have generated an average of 97%.

The perspective of the Royal London sustainable management team is that ‘Our premise is in ten years’ time all investing will be sustainable investing, because you cannot optimise your risk-return without embedding sustainability into your investment decisions.’

This fund has been particularly popular in the last 6 months with investors with record inflows of £400m.

Invest From
£25 per month or £100 single
Fund

Sustainable Leaders

Income Yield
1.82%*
Income Paid Bi-annually
ISA, SIPP & Direct Investment

Why we like it:  A consistent performer this popular £1.7bn fund run by triple A Citywire rated fund manager Mike Fox works on a “best ideas” basis with 40 to 50 company holdings . The fund applies both negative and positive screening. Sectors considered more favourably include healthcare and technology, whereas areas such as commodities are generally avoided. There is also a focus on long-term themes and trends such as infrastructure and changing demographics. The fund has reasonable ongoing charges of 0.76% pa for an actively managed fund. The fund is available through the Hargreaves Lansdown Platform.

*Historic yield correct as at 30/4/2020

Important information: Please remember the value of your investment and any income from it may fall as well as rise and is not guaranteed. You may get back less than you invest.

 

3. Impax Environmental Markets

Launched in 2002 Impax Environmental Markets is one of the UK’s largest environmental focused investment trusts which aims to enable investors to benefit from growth of more efficient delivery of services such as energy, water and waste.

“The current pandemic has served to highlight many of the existential issues that Impax has highlighted over the years, such as the breakdown in the food supply change and strain on digital/ technology,”

“COVID-19 has provided us with real-life insight into the potential risks facing us as we transition to a more sustainable economy.” John Foster, Fund manager.

It mainly invests in quoted companies which provide, utilise, implement or advise on technology based systems, products and services in areas such as alternative energy, water treatment, pollution control, waste technology and resource management (which includes sustainable food, agriculture and forestry).

In their ESG policy they state that:

  • Capital markets will be shaped profoundly by global sustainability challenges including climate change, environmental pollution, natural resource constraints, demographic and human capital issues such as diversity, inclusion and gender equity.
  • These trends will drive growth for well-positioned companies and create risks for those unable or unwilling to adapt.
  • Fundamental analysis which incorporates long-term risks, including environmental, social and governance (ESG) factors, enhances investment decisions.

The fund has an ongoing charge of 1.02% pa.

Invest From
£25 per month or £100 single
Fund

Impax Environmental Markets

Income Yield
1.04%*
Income Paid Annually
ISA, SIPP & Direct Investment

Why we like it: Launched in 2002 this fund is the UK’s largest environmental investment trust. The fund has a focus on investing in companies that offer solutions in; clean energy & energy efficiency; water treatment and pollution control; waste technology and natural resource management; sustainable food. The fund managers are focused on being invested in companies that can come out well from the COVID-19 pandemic. The fund is available through the Hargreaves Lansdown Platform.

*Historic yield correct as at 30/4/2020

Important information: Please remember the value of your investment and any income from it may fall as well as rise and is not guaranteed. You may get back less than you invest.

 

4. Stewart Investors Worldwide Sustainability

Launched in 2012 this fund invests in shares in companies around the world which are positioned to benefit from and contribute to the sustainable development of the countries in which they operate.

“This is a good ‘one-stop’ fund for sustainability. Whilst there are different interpretations of ESG this fund is broad enough to suit a wide range of investors. The fund operates strongly as a global equity fund via market-leading research and a stable investment team. Sustainability of earnings and business models is core to the fund.” Adrian Lowcock, Head of Personal Investing at Willis Owen.

The investment managers base decisions around sutainability around 3 key points:

  • Identifying companies that manage sustainability risks and opportunities with a positive sustainability impact;
  • Inclusion of environmental, social and corporate governance matters in investment research;
  • Engaging directly with companies on identified sustainability issues.

Its managers Nick Edgerton and highly regarded Asia investor David Gait have a long record of investing in this way, and with a global focus the fund aims to avoid capital losses by investing in high quality companies which take a long term view.

The fund has an ongoing charge of 0.91% pa.

Invest From
£25 per month or £100 single
Fund

Worldwide Sustainability

Income Yield
0.68%*
Income Paid Bi-annually
ISA, SIPP & Direct Investment

Why we like it: The Stewart Investors Worldwide Sustainability Fund invests in global equities and demands positive sustainable engagement from the companies it invests in. With a focus on capital growth the two fund managers have a long track record in sustainable investment,  where emphasis is placed on high-quality companies with solid financials that are steadily growing earnings from sustainable business models.   The fund is available through the Hargreaves Lansdown Platform.

*Historic yield correct as at 30/4/2020

Important information: Please remember the value of your investment and any income from it may fall as well as rise and is not guaranteed. You may get back less than you invest.

 

5. Baillie Gifford Positive Change

This is a relatively new fund launched in January 2017 but has demonstrated strong performance in this short time. The fund invests in a portfolio of 25 to 50 gloabal high quality companies which can deliver positive change in one of four areas:

  • Social inclusion and education
  • Environment & resource needs
  • Healthcare & quality of life
  • Base of the pyramid (addressing the needs of the world’s poorest populations)

The fund has made the news recently as it is one of the major backers behind the the US biotechnology company “Moderna” which has sent stock markets rallying with news of a promising early trial for its experimental Covid-19 vaccine.

The funds largest exposure is to the health care sector (35%), while its top 10 holdings include Tesla, Alphabet, and Taiwan Semiconductor Manufacturing Company.

The fund has an ongoing charge of 0.53% pa.

Invest From
£25 per month or £100 single
Fund

Positive Change

Income Yield
0.40%*
Income Paid Annually
ISA, SIPP & Direct Investment

Why we like it: A low cost ethical fund (0.53% pa ongoing charge) with the objective of the Fund to invest at least 90% in shares of Companies anywhere in the world whose products or behaviour make a positive impact on society and or the environment. Investment will target critical areas such as; education; social inclusion; healthcare, and the environment. The fund has done well to date with fund managers Julia Angeles, Kate Fox, Kirsty Gibson, Lee Qian and Will Sutcliffe gaining top Citywire AAA ratings for the best three-year total return to the end of March for a sterling fund in the Morningstar Global sector.  The fund is available through the Hargreaves Lansdown Platform.

*Historic yield correct as at 30/4/2020

Important information: Please remember the value of your investment and any income from it may fall as well as rise and is not guaranteed. You may get back less than you invest.

 

The rise of sustainable Investing

In the past investing with your concience often came with a health warning to expect lower investment returns compared to conventional funds. However it is perfectly possible to make a profit and to invest with a concience at the same time.

The global Covid-19 pandemic is making people rethink to – In recent research carried out by HSBC, they found that whe analyzing data within the stockmarket turmoil, shares of companies focused on climate change or ESG issues – environmental, social and governance – outperformed as the virus spread.

HSBC Research found that in the three months after the  10 December 2019 ( the date of the first recorded COVID-19 case in China) – climate stocks outperformed global equities by 7.6 %, while high ESG-rated stocks have outperformed by 3.7 per cent.

“A key part of environmental, social and governance is looking at how companies serve society, and what this may mean for the future. When crises manifest – particularly with social and environmental causes and implications, including COVID-19 – we see ESG issues as a defensive characteristic. Investors should consider the materiality of these issues and assess how well businesses manage the associated risks and opportunities”.

Ashim Paun, Co-Head, ESG Research at HSBC

In a Harvard study it was found that companies with good ratings on sustainability issues most relevant to their industries, significantly outperformed companies with poor ratings on these issues.

In research carried out by HSBC  it was found that  ESG issues make up an estimated average of 43% of the key medium-term financial performance drivers. This rises to an average of 50% for emerging markets and this is even higher for sectors like mining, automotive and capital goods.

What is ESG investing?

Investors are increasingly becoming more interested in the environmental, social and governance (ESG) standards of the companies they invest in.

Fund managers in the sustainable, ethical and socially responsible investing (SRI) space put these concerns at the heart of their investment processes  looking to generate financial returns and benefit society at the same time.

Peter Michaelis, head of the Liontrust Sustainable Investment team, helps to provide clarification about the sustainable methods fund managers use.

“The first is negative screening, which, as it suggests, avoids certain industries because of the negative or damaging effects of their products. Examples include weapons and tobacco.

Mr Michaelis explains: “Another approach is to invest in sustainable themes. This is known as positive screening, as it sees funds focusing on what they want to invest in, rather than what they want to cut out.

“Such funds may concentrate on a single theme such as renewable energy while others have multiple sustainability themes that can include healthcare, resource efficiency, and education.

“Many cling to the perception that ethical investment is about what you can’t do, whereas we think it’s about what you can do.”

ESG is a recognized way of measuring company sustainability not just from one ethical stance but 3:

  • Environmental – looking at how companies make an impact on climate change, how they deal with waste and its management, water stewardship, management of energy resources and mitigation of air and water pollution
  • Social – This looks at how companies engage with their staff, customers and communities with regard to human rights; consumer privacy; data security; health and safety and gender equality.
  • Governance – This addresses how well companies manage their businesses through the board and its executive remuneration structure; the ownership structure of the company; the processes used to report financially and the culture within the organisation.

Important Risk Information:

This website contains information only and does not constitute advice or a personal recommendation in any way whatsoever. The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. The tax efficiency of ISAs is based on current tax law and there is no guarantee that tax rules will stay the same in the future.

Different types of investment carry different levels of risk and may not be suitable for all investors. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment and should read the product literature. If you are in any doubt as to the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.



Written by Editorial Team ,
9th June 2020