What ethical and ESG investing means
Ethical and ESG (environmental, social, governance) investing aligns your money with your values — avoiding harmful industries and/or favouring responsible companies. The best approach matches your specific values with genuinely sustainable funds, while keeping costs and diversification sensible. Watch for 'greenwashing' — funds that claim more than they deliver.
1. ESG / sustainable funds
Funds that screen or weight investments on ESG criteria. Best for most ethical investors — a diversified, low-cost ESG fund is a simple core holding. Check what the fund actually screens for.
2. Ethical exclusion funds
Avoid specific sectors (tobacco, weapons, fossil fuels). Best for those who want to exclude particular industries from their portfolio.
3. Impact and thematic funds
Target measurable positive impact (clean energy, social housing) or themes. Best for investors wanting their money to actively support specific causes — often higher risk, so diversify.
4. Ethical ISAs and pensions
Hold ethical funds within a stocks & shares ISA or pension for tax efficiency. Best for aligning your main tax-efficient savings with your values — many providers now offer ESG options.
Avoiding greenwashing
- Check what the fund actually screens for or invests in
- Look at the top holdings, not just the label
- Consider recognised sustainability ratings and disclosures
- Keep costs and diversification sensible
How to invest ethically well
A qualified adviser can match genuinely sustainable investments to your values and goals, avoiding greenwashing. Find an investment adviser through Nesto — free, no obligation.
Frequently asked questions
What is ESG investing?
Investing that considers environmental, social and governance factors — avoiding harmful industries and/or favouring responsible companies.
Do ethical investments perform worse?
Not necessarily — many perform competitively. Returns depend on the funds chosen, not ethics alone.
What is greenwashing?
When a fund claims to be more sustainable than it really is. Check the actual holdings and screening, not just the label.
Can I hold ethical funds in an ISA or pension?
Yes — ethical and ESG funds can sit in a stocks & shares ISA or pension for tax efficiency.
How do I choose genuinely ethical funds?
Look at what they screen for and their top holdings, use recognised ratings, and consider advice to avoid greenwashing.