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Should your money be ethical?

A row of windmills on the crest of a hill

Investors – or anyone with a savings account or pension – could be unwittingly funding climate change, smoking or the arms trade. But should it matter?

Unless it’s under the bed or in a deposit box, your money doesn’t just sit still: it’s being constantly invested in businesses to generate returns. 

What those businesses do with your money has a very real effect on the world we live in. You could be funding everything from the development of a life saving vaccine, to the manufacturing of deadly weapons.

But what if you only invested in the good – whilst excluding the bad?

Coins against climate change

Since 2017, I’ve been trying to avoid investing in companies that contribute to climate change, a journey I recently wrote about for Which? Money. 

Three years ago I lived in Australia, and the mass death of coral on the Great Barrier Reef seemed a horrifying reminder that time was running out to protect the planet.

Whilst this is a huge endeavour, I saw my job as relatively simple – get my pensions and investments out of fossil fuel companies.

I started by setting up an ‘ethical’ pension and, when I returned to the UK, opened stocks and shares Isas with investment companies Vanguard and Nutmeg.

Both investments have been impressive: they were simple to set up, charge low fees and (touch wood) have been recovering quickly from COVID-19.

But writing about values-driven investing has led me to reconsider. I was appalled to find oil company Royal Dutch Shell among the holdings in Vanguard’s European SRI fund. And my confidence in the data used by Nutmeg to include and exclude companies has been shaken.

Still too difficult

I don’t think my original aim was naive. There are highly regarded investment funds out there that screen out polluting companies, headed by fund managers with decades of experience. 

The problem is, it’s taken me three years and thousands of pages of jargon to find them.

Picking investments should require thought and research. That shouldn’t mean all investors need to be experts, or be capable of reading between the lines of ill-defined and inconsistent industry labels like ‘ethical’, ‘socially responsible’ or ‘Environmental, Social, and Governance’ (ESG).

That’s why Which? is calling for the Financial Conduct Authority to regulate the use of industry labels, so investors have a better idea of where their money is going.

The stakes are high – the fund management industry now offers thousands of funds to values-driven investors. Pension providers are slowly following in their footsteps. Savings accounts may come later, although there’s little on offer at present.

Listen to more about ethical investing in the latest Which? Money Podcast:

Do you care?

Which? thinks investors, as consumers, should know what they’re buying. 

But we’re agnostic about which issues should be prioritised, or whether you should take issues into account at all when it comes to your investments, pensions or savings.

Do you think morals and money should ever mix?

How important is investing ethically to you?
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Have you tried to pick your own investments, to avoid or embrace certain industries?

Let us know in the comments.


Should your money be ethical?

Nice thought, but I think you are being unrealistic.

Where do you draw the line? Isn’t shopping a form of investment? Every time you buy a new mobile phone you are investing in unethical mining, child labour, oil companies, etc. Every time you fly off on holiday or eat avocados from Mexico you are investing in oil companies.

Would you invest in businesses like Microsoft, Apple, Samsung, and Google who claim they are carbon neutral? Samsung who force you to replace their products every 4 years because they stop supporting them. Microsoft who force you to replace computers because they stop supporting them. These businesses don’t count the legacies they leave behind in dumped tech capable of many more years of use. Mining and dumped tech creates hazardous waste that seeps into the land and waterways, then into the sea, not to mention the fatal diseases it inflicts on those who have little choice but to scrape a living from it.

Would you invest in Wales who claim the highest recycling rate in the UK because they burn much of their waste and count the ash as a product for reuse?

Has any financial institution got where they are today by being ethical? I have researched many companies and people at the bottom of some very big umbrellas who hide behind bigger corporations, shell corporations, virtual offices, accountants and lawyers to name but a few. The bigger the business, the worse it gets.

If you want clarity of ethics, you need to start at the bottom of the heap not the top, and make every business and their management open and accountable.

Now that would be a cause worthy of Which? and not another sticking plaster over the end result of confusion.

Sam, I am in favour of anything that allows consumers to make more informed choices.

That said, not very many of us will be lucky enough to earn enough surplus income to require serious investment management.

But for those that do, it would be nice to have the option of “easy access” to more ethical choices. Years ago, I do remember being offered a similar range of choices in respect of one of my pension funds (probably an AVC scheme) and I think I would also have expected some company pension trustees (not least those appointed via my trade union) to be aware of such issues.

I have little option for my income which is dictated by those who supply it. We live in a very complex world and, traditionally, business has been hard nosed and always on the look out to improve capital flow, margins and income. These don’t sit easily with ethics, third world poverty and exploitation of labour, all of which needing to be addressed. On a personal level I can support the organisations who try and make a difference, and live sustainably. I could also buy ethically, if I knew how, but there is a dichotomy between buying the goods and services that make life smooth and comfortable and stopping at each purchase to enquire where the ‘product’ has come from and how it was made or supplied. Modern living doesn’t make this easy. We are offered goods and services at the point of sale with no background other than the name on the box, which we trust, because it has been around for some time. The lead has to come from higher up where there is influence on what we can buy. You can’t expect the poor consumer to do all the spadework here.

People who want to exercise ethical purity in their financial affairs should stay clear of investment funds [unless they know exactly what they include and exclude] and also avoid the stock market both directly and indirectly unless they can be absolutely sure of the chosen company’s policies and practices.

Don’t forget that even arms manufacturers, pharmaceutical companies, fossil fuel and mineral extractors, and tobacco companies, to pick just a few, seem to manage to produce their Corporate Statements of Social Responsibility to general investor and regulatory satisfaction!

Only an outbreak of greed would induce me to go beyond the traditional high street outlets for savings and investment products, such as the building societies, friendly societies and credit unions which by and large circulate funds within their own memberships – although some do offer more commercial investments based on stocks & shares or funds so the ethical investor needs to be careful. There is also the question of what such institutions do with their accumulated surpluses because they are, like pension funds, under a fiduciary duty to secure the best returns for their members.

An alternative is National Savings which I don’t think poses any ethical dilemmas except to the extent that the money is used by the government while it is held pending redemption. The corollary of that, though, is that the investment is underwritten by the government so is ultra secure.

For tax reasons we invested in Time Advance (time-investments.com) who specialise in wind and solar farms. We were prepared to accept low growth for the sake of our consciences – but they have been doing rather well. According German figures, wind and solar are now the cheapest options for power generation, so growth in this sector seems assured.

Don’t forget that, when you buy shares, another investor is selling them to you. There is no net increase in the amount invested in the company, unless you take up a rights offer when the business wants to raise more funds to invest.

George Penaluna says:
14 August 2020

My investments are all in ethical or sustainable funds, but I have had to compromise. I wholeheartedly agree with the Which? campaign that the FCA should create legally binding definitions. It won’t be easy, because the investment industry will fight against it.

Their latest wheeze is ERG, which is mostly greenwash. I discovered that most global sustainable funds top holdings include Amazon, Microsoft, Alphabet (Google), Facebook, Netflix…

The investment industry has recently made truely ethical investing harder by its recent changes. I love Jack Bogle’s (founder of Vanguard) concept of a fair company owned by its investors offering low-cost funds, but being trackers they have to buy every company in the market – including the nasties!

A good source of impartial factual information is at http://www.yourethicalmoney.org/ run by EIRIS, the independent Ethical Investment Research and Information Service.

I’m all for informed decision making. However, the caveat is who decides what is “ethical”? Today’s acceptable can become tomorrow’s unethical, and vice versa. I also am wary about being lectured on what I “should” morally be doing with my money. There is a lot of hectoring in the media recently about what people should think, say and do – I hope Which isnt going to slide down that route.

Justin, I agree. You have to make your own decision about what you regard as ethical and not be led by others.

For more than 20 years, I have been investing via a firm of ethical brokers, originally known as Barchester, now amalgamated with Castlefield. They go to great lengths, both in terms of finding out your ethical issues and in terms of transparency, to make sure you are aware of where your investments are placed. Furthermore, their investment choices have outperformed the market and have meant that my pension pot has grown as fast as I can draw down from it. However, given what the author of the article has said, I intend to do some digging into the companies that my SIPP provider is investing in to make sure there are no surprises

tony says:
14 August 2020

thank YOU, ALFA, for your comments on the “FANGS”. I too have mostly avoided investing in them. Also for pointing out it’s not just investing but avoiding buying tech or flying that contributes more to ethical outcomes in our daily lives.

I was in the fortunate by virtue of my birth-date (75 last year) in being forced to cash in my private pension or I would have forfeited my 25% TFC lump sum. I could only find one firm last year who would accept the balance of my pension without charging a large fee because of IFA/FCA regulatory requirements and so was still in cash when the investing opportunity presented by the COVID slump occurred earlier this year. How do you invest a large sum into funds, investments trusts or EFTAs over a matter of days all the time minimising oils, FANGs, mining and other undesirables. You only have a few seconds available to scan the products top ten holdings if you are going to spread and diversify your investments over different countries/regions/sectors/funds & providers. I managed moderately well by not beating myself over the head for my not very numerous failures.

WHICH has to compare investment platforms, then providers, then compare funds against EFTAs & ITs. Eventually it should grade each individual investment by performance and sundry ethical standards – a more complex task than awarding a “don’t buy” or a “best buy” to an everyday consumer item like a fridge/freezer. But it should try, in my opinion. It can’t predict the next turning point in the economy or alert us when it comes about, but it can provide us with the background information for each of us when we decide to invest, as well as reinforcing the general guidance on investing risks that IS widely available from official and corporate sources.

I am appalled that my pension provider, the Universities Superannuation Scheme, invests heavily in British American Tobacco and other tobacco companies. I think all pension providers should be compelled by law to follow the example of the Medical Research Council, which instructs the managers of its pension scheme ‘not to invest in the shares of those companies whose predominant business revenues come from tobacco related products’. (Note for fact checkers: The USS and MRC websites provide detailed evidence of the policies of their pension schemes).

I really care about human rights, and I think it’s about time we in the UK had a far better choice of consumer goods, far too many of which are made in china and far too often there is no other choice, it’s either chinese or nothing, and our government and our country should not let such a country dominate our consumer market like they do. The chinese government regime will not tolerate Christians practicing their belief and if anyone there tries to set up a Christian church the authorities there will demolish it. And there is so much fuss in the news about the muslims there and in burma being persecuted but never any mention of what happens to Christians there, oh no! So why not provide a guide to non-chinese goods and where to buy such goods. I only want to buy goods which are made in a democracy like we have here in the UK, not stuff made in a brutal fascist state. And isn’t it the case that whenever you buy anything new from china or any other dictator state then you pay a portion of tax to support that regime who brutally persecute and torture innocent citizens?

Mark: If you really care about human rights you seem to have overlooked the rights of all children NOT to be indoctrinated from birth with their parents’ religious beliefs. It is completely selfish for parents to force their own religious beliefs on their children. Are you even AWARE of that human right taken away from most children?

Excuse me, you have overlooked the fact that true Christianity is always a free choice, no-one can be forced into it. And if you really care about children, as I certainly do passionately, then why don’t you also mention how extremely dangerous occult-based stuff is constantly force-fed to vulnerable and extremely precious children on an industrial scale by just about EVERY form of media and by doing so are potentially breeding another whole generation of filthy perverts, as well as suicidal depressives, and suicidal depression is now on the increase among youngsters here in Britain, surprise, surprise! And why do you think that there is now a HUGE increase in kids being extracted from primary schools with serious behavioural problems and being sent to “special units”?! And what about all those evil characters out there who are now running workshops teaching children witchcraft which is extremely dangerous in such ways which secular professionals cannot deal with. That is always overlooked, even by far too many Christians!

I don’t believe this is an appropriate place to continue this kind of conversation. It has very little to do with the subject we are invited to discuss and is contentious and offensive to some people.

My comments ARE about ethics, and I think buying stuff from countries like china is NOT an ethical investment as they brutally persecute innocent people just because of their beliefs which is a blatant breach of basic human rights. And I can’t help noticing how my totally justified comment has been so quickly and arrogantly removed yet the other outrageously bigoted comment, obviously based on a total lack of essential knowledge has been left, the all too familiar standard story, anybody else can have THEIR say and lash out at me all they want but I mustn’t put them right oh, no! Even though what I said was fully justified as it’s a subject I know and have decades of experience of and the secular crowd DON’T! And I absolutely stand by what I said all the way. And the fact that my fully justifiable correcting comment was deleted so quickly makes it look like that there is also fierce anti-Christian prejudice on here too, just like there is all around the world all based on gross ignorance. Far too many claim to be so “ethical” yet are still fiercely prejudiced against totally innocent folk for absolutely NO justifiable reason.

Mark – You are entitled to your opinions and to express them here but I felt your form of expression was likely to be regarded as offensive. The moderators must have agreed as they have removed your comment.

You might be satisfied that everything you have said is fully justified but you have to accept that others might disagree, so the manner in which you give your views is critical.

Many cogent consumer arguments can be advanced for not buying goods from China without provoking controversy by reference to selected faiths when UK society includes many others.

The issue is primarily a humanitarian one and can be discussed in those terms if it is relevant to the topic.

This thread is now well off-topic, so I suggest we draw it to a close.

As a reminder, the topic of this conversation is about what it means to invest ethically, particularly through your pension and savings accounts. While comments along the lines of treating your purchases as investments are broadly on-topic, debating the nature of religion or faith, or of the persecution of people on the basis of their faith or belief structure is not what we’re here for.

There is a new firm starting out called Tumelo, they are looking at addressing some of this and the service looks really interesting. I think which could do more to advise on the ethics of firms as part is the review process, but in the absence of that I use ‘ethical consumer’ which I find to be an excellent service.

Richard Mellish says:
14 August 2020

For some years I have used Ethical Investors http://www.ethicalinvestors.co.uk, who choose funds according to each individual’s personal preferences on a wide range of ethical issues.

I wonder how really “ethical” they really are. I’ve seen outfits like that before, they claim to be so “ethical” but at the same time they’re fiercely anti-Christian, although of course they’ll never admit it publicly but they are. They’re all too often far too quick to falsely accuse Christians of so-called “hatred” without knowing any of the facts involved, so now I’m very wary of those supposedly ethical organisations. Does anyone know where I can buy an analogue wall clock which is NOT made in china? but made in a fair democracy.

For true analogue wall clocks, I’d start by looking in charity and antique shops.

I would recommend a hand-crafted cuckoo clock from the Black Forest in Germany. Many examples are available on-line and they seem to have a lasting popularity through the generations. I am not aware of any ethical undertones.

I’d also suggest going to a local auction (if they are still operating) where decent clocks go cheap. You might find one also going cheep as John suggests. I like tick ticks (not to be confused with tik tok) as a soporific sound, preferably one with a nice chime.

Ethical choices in all our financial transactions is important. Which? Subscibers are likely to be amongst the most privileged and affluent members of a wealthy country. We must recognise that privileged position and not abuse it by making choices that damage the well being of the planet and it’s occupants. The Best buy approach is generally only focussed on financial value. Sustainability is vital, but few services or products have been subjected to thorough life cycle assesments and of those that have very few are truly sustainable, in their social, economic and environmental impact. It is difficult to obtain qualitative information and even more so to find quantitative. My approach for the last 25 years has been to use the ethical advice given in the Ethical Consumer magazine, with the consumer information in Which? Value judgements have to be made as the “Best Buys” rarely coincide, leaving me to decide how great a compromise I’m prepared to make for my purchases.

Andrea Simpson says:
15 August 2020

Saving and investing ethically seems to mean in general accepting lower returns sadly, but I have moved some of my money from traditional funds into Energise Africa, which finances companies providing solar power to various communities in different countries in Africa. The risk is higher, but therefore so are the targeted returns. I am currently considering moving more out and into the Triodos investment funds. For savings I mostly try to deposit my money with building societies and eschew bank accounts as much as I deem I can afford to.

Laura says:
18 August 2020

Already put my investments in more ethical companies, glad I did as they have given good returns over the past few years and seem to have be holding value well even now. I dont see why others cant do the same. the idea that ethical investments mean losing out is no longer a given, such an old fashioned attitude.

Brian says:
20 August 2020

I’m glad to see Sam raising the ethical investment topic in Which. And thanks for raising the issue of the Vanguard SRI fund holdings in Royal Dutch Shell. I approached Vanguard but their reply made no mention of climate change.
I think more and more people will come to see that continuous economic growth is impossible in a finite planet. Successful companies will be planning for such a future. Otherwise the planet is finished. However climate change denial is becoming like an addiction.