Myths about ethical investing

We debunk some of the biggest misconceptions around ethical investing, so you can see that it’s an easy way for you to stay true to your values while still giving you the opportunity to generate returns.
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Many of us have causes we’re passionate about, whether that’s saving the planet or fighting for equality for all. But besides from proudly shouting about these issues in a bid to raise awareness, one of the best ways to show companies that you mean business is by putting your money where your mouth is.

If you’ve committed to living a more ethical lifestyle, you’re probably already doing this in a number of ways. Maybe you only buy toiletries, cosmetics, and cleaning products from brands that don’t test on animals, or you choose local suppliers when it comes to the food you eat.

But did you know that you can also use your money to support these ‘good egg’ businesses in other less conventional ways? This is where ethical investing comes into play.

If you’re looking to start investing but think you need to push aside your beliefs to do so, you might be happy to know that simply isn’t the case. Many investing platforms – like Wealthify – offer Plans that ensure your hard-earned money is being used to help support organisations that are committed to having a positive impact on society and the environment.

For us, this means our Ethical Investment Plans exclude* companies that are involved in the creation, distribution, or promotion of:

  • Tobacco
  • Gambling
  • Weapons
  • Adult entertainment

Our Ethical Plans also include companies that show commitment to achieving the highest standards of practice when it comes to environmental impact, social justice and corporate ethics.

Sadly, there are many myths about ethical investing and whether it makes a difference – both to the world and your wallet. Luckily, we’ve done the research and debunked some of the biggest misconceptions, so you have all the information you need to invest with a conscience.

Ethical companies don’t perform as well

It’s not surprising that this is one of the biggest concerns for potential investors. After all, the reason you invest in the first place is for the possibility to make a return. But investing in businesses that are committed to doing good doesn’t mean you need to pick between your conscience and the potential performance of your investments.

With any investing, returns aren’t guaranteed, and it is true that it costs a little more to only invest in ethical companies, as more research and monitoring is needed. This could obviously have an impact compared to investing with no consideration of the ethical approach of a company. However, a study from the research group Morningstar in 2020 concluded that many sustainable funds had “outperformed their traditional peers over multiple time horizons”. They came to this conclusion by examining 745 sustainable funds and 4,150 traditional funds.1

It’s more complicated to do

Knowing which companies are ethical can be tricky – especially because the term ‘ethical’ is so hard to define and can mean different things to different people. For example, many cosmetic companies have always claimed that they are ‘cruelty-free’ because animal testing is banned in some countries they operate in (such as Europe), but they still sold their products in China where animal testing was required by law until as recently as May 2021.2

Ensuring you invest in the right companies is simple if you choose an investment platform that does their due diligence. For example, at Wealthify we have our own ethical code of practice, which means our investment team regularly monitors the funds in our Ethical Plans to ensure they maintain the standards that we (and our customers) expect. You can find out more about this in our Ethical Plan FAQs.

It doesn’t make enough of a difference

Too often, people are reluctant to take action because they think they’re a small fish in a large pond and won’t make a substantial impact on the world. But if we all thought like that, then nothing would ever change. If more people invest in companies that are included in Ethical Investment Plans, this sends a very clear message to businesses about the type of companies people want to put their money into. This could lead to more organisations changing their practices in future.

With people shouting about the importance of preventing climate change, treating employees fairly and equally, and other vital issues that we should all care about, many businesses are already taking much-needed steps to do better.

And if that’s not enough to put your mind at ease, research from Make My Money Matter, Aviva, and Route2 revealed that having a green pension is 21 times more powerful at cutting your carbon footprint than giving up flying, becoming a vegetarian, and switching to a renewal energy provider combined.3 And yes – to answer your next question, we offer an Ethical option for all of our Plans at Wealthify, including our Personal Pensions.

Ethical investing is only a fad

Ethical investing might have only just started to gain traction, but it’s not a new concept. In fact, you may be surprised to learn that the UK’s first ever ethical fund was released back in the 80s – in 1984, in fact.4 Yes, the 80s weren’t just a time for big hair and new wave music!

In 2019 it was actually reported that investment in green and ethical funds in the UK had jumped to over £23.5 billion. This estimate was up significantly from the 2018 figure of just over £19 billion.5 A study from October 2020 also reveals that over a fifth of investors (22%) were motivated to start exploring investing in ethical funds due to Covid-19, and over a third (39%) said they felt that ethical investments are the key to addressing climate change to avoid future pandemics happening.6

Not only that, but issues like climate change will only get worse if we don’t all do our bit to slow it down. If this type of investing were to increase in popularity, it could cause even more organisations to go green – giving you even more choice of ethical funds to invest in.

What isn’t an ethical investing myth?

Now that we’ve debunked some of the biggest ethical investing myths, let’s look at one statement that is actually correct:

It costs more to invest ethically

Yes, it does cost more to be an ethical investor (as we’ve already touched upon) but living ethically does often come at a slightly higher price. When you use an investing platform – whether you’re choosing your investments yourself or having the provider take care of them for you, like Wealthify does – you will be charged regular fees. And when you invest in ethical funds, these fees are often a bit higher.

So, what is the reason behind this? Turns out there’s a pretty good one. Investing ethically simply involves a greater amount of work. Fund managers need to take a more active approach, and that means they spend a lot more of their time conducting research and monitoring the activities of ethical funds, such as checking to ensure that they maintain their ESG score (by the way, ESG stands for ‘Environmental, Social, and Governance’). However, this means that when you invest ethically, you can do so with confidence.

If you’re ready to dip your toe into the world of ethical investing, why not give Wealthify a try? We offer 5 Ethical Plans (including Stocks and Shares ISAs and Personal Pensions) with different risk levels (from Cautious to Adventurous), and we will manage your investments for you – meaning you don’t need to be an expert to start doing good with your money.

*Please note: when it comes to being involved in these activities, there is a 10% leeway for the organisations that are included in our Ethical Plans.

Please remember the value of your investments can go down as well as up, and you could get back less than invested.

 

  1. https://www.theguardian.com/money/2020/jun/13/ethical-investments-are-outperforming-traditional-funds  
  2. https://www.veganfoodandliving.com/news/china-ends-mandatory-animal-testing/ 
  3. https://www.moneymarketing.co.uk/news/greening-pension-most-effective-action-against-climate-change/  
  4. https://www.theguardian.com/money/2005/sep/24/moneysupplement4 
  5. https://eirisfoundation.org/mission-and-money-aligned-charities-and-responsible-investment-2-2/ 
  6. https://www.triodos.co.uk/press-releases/2020/covid-19-pandemic-fuels-demand-for-impact-investments  
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