Everyone wants their stocks and shares investments to generate positive returns, but for ethically minded individuals that isn’t enough – they want their investments not only to generate positive economic returns, but also to generate a positive impact for society. To that end, socially responsible investors look for investment cases that are able to demonstrate not only strong returns, but that are also run in an ethical manner and generate a positive social or environmental impact.
In that regard, investors are taking an increasing interest, and becoming increasingly savvy, in the most pressing environmental, social and governance (“ESG” in short) issues of today, such as climate change, approach to diversity and inclusion, community engagement and ethical corporate governance, or rather, that there is a corporate structure in place to oversee the business activities related to these issues.
| What is an ethical ISA? | An ethical investment ISA, is a Stocks and Shares Individual Savings Account that bases its investment choices on ethical criteria |
| How do Ethical Stocks and Shares ISA perform? | ESG funds have historically performed similarly to traditional counterparts |
| How do I choose an ethical ISA? | You can set up a Stocks & Shares ISA and decide with an investment consultant which ESG factors are most important for you when choosing ethical stocks and shares |
What is an ethical ISA
As the name suggests, an ethical investment ISA, is a Stocks and Shares Individual Savings Account that bases its investment choices on ethical criteria, such as transparency of performance against recognized environmental or social indicators, governance structure, or compliance with legislation or international sustainability frameworks.
There are now more choices of ethical stocks and shares than ever before – increasing attention on ESG topics on the part of consumers and regulators are pushing companies to meet increasingly stringent standards for performance in terms of sustainability. As a result, there are a plethora of ESG investment ratings and indices that provide wide-ranging and clear evaluation criteria to help build socially responsible portfolios.
Whatever the key driver behind your choice in ethical ISAs may be, there is an ethical investment opportunity that meets your ethical criteria. Most ethical ISAs will seek to strike a balance between stocks and shares that perform well and generate returns economically as well as those that rate well when evaluated under ESG performance criteria.
What do you invest in with ethical ISA
With an ethical ISA in Moneyfarm, you are able to invest in ESG funds, or directly in stocks and shares from our socially responsible portfolios, which select funds including some of the most forward-thinking and impactful companies in the world, in the most tax-efficient way possible. When composing the investment portfolio or your ethical ISA, you can either choose directly from our globally diversified portfolio of investment vehicles, or enlist the help of our financial advisors to come up with the best mix of funds, stocks or shares that fit your needs and goals.
Examples of Ethical Stocks and Shares ISAs
You can set up an ethical Stocks and Shares ISA with most banks or investment firms, though sometimes the funds that you can choose from are limited. Moneyfarm can help you set up the best ethical stocks and shares ISA for you, choosing from our ESG funds containing thousands of different assets.
How do Ethical Stocks and Shares ISA perform?
A common misconception that ethical investing has yet to overcome is that ESG funds do not perform as well as funds that do not take into consideration environmental, social or governance criteria. In today’s financial market, where demand for financial products that meet these criteria has skyrocketed, the number of sustainable investment options to choose from all but guarantees that this is not the case.
Pros and Cons of Ethical Stocks and Shares ISA
As previously mentioned, one of the pros of ethical stocks and shares ISAs, as well as ethical investing in general, is their consistent, positive performance over long term investments. Integrating ESG factors into your investment portfolio can help minimise the risk exposure of your investments. Not to mention ethical stocks and shares ISAs are a good way to match investment strategy with personal convictions, so you don’t have to sacrifice one for the other.
On the other hand, it’s true that by subscribing to an ethical investment approach, you are inevitably limiting your amount of investment options, since you’re applying a set of screening criteria to restrict the pool of potential investment cases to start from when building your portfolio.
Can I lose money with an ethical ISA?
With any type of investment, whether ethically motivated or not, there is always a degree of risk that your investment doesn’t generate a positive return. While it’s true that ethical Stocks and Shares ISAs limit risk exposure by considering factors that are not strictly economic, there will always be the possibility that a stock or share of your portfolio does not perform well.
That said, if the past is any indicator of what to expect in the future, ethical stocks and shares have proven to be more resilient during adverse market conditions, and are more likely to generate stronger returns in the long run than their traditional counterparts.
Are ethical ISAs more expensive?
With Moneyfarm, you can cover management fees through one low monthly fee, which covers continuous ESG screening and management of your portfolio and the help of an investment consultant. Find out more about Moneyfarm’s tiered fees for ethical ISA management and invest with peace of mind.
How to choose an ethical ISA
Choosing the best ISA for you can be harder than it looks. There are many different types of ISAs to choose from, and when it comes to ethical ISAs, there are even more ethical funds. If you’ve already set up another type of ISA that doesn’t fit with your financial planning or personal convictions, with Moneyfarm you can transfer ISA funds to an ethical ISA to invest in line with your principles.
Once you’ve set up your ethical ISA, you can decide which ESG factors are most important for you and choose the ethical stocks and shares of the ISA accordingly, enlisting the help of an investment consultant where you need it.
FAQ
What are the advantages of investing in ethical ISAs?
Ethical stocks and shares ISAs have historically provided for consistent, positive performance for long-term investment strategies.
What are the drawbacks of investing in ethical ISAs?
Taking an ethical investment approach limits investment options, as it implies the application of of screening criteria to restrict the pool of potential investment cases.
What do you invest in with ethical ISA?
Ethical ISAs invest in ESG funds, or directly in stocks and shares of socially responsible companies.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
