Whether you’re saving for retirement, a house deposit, or putting money away for your children’s future, there are a number of decisions to make when you start investing.
How much do you need to save? How quickly might you need access to your money? What level of risk are you willing to take for the chance of a greater return?
But have you also considered the impact your savings might be having on the world around you?
In broad terms, ethical investing means putting your money into companies or funds that improve people’s lives and avoiding companies that are more likely to have a negative impact, such as arms manufacturers.
As most of us invest indirectly through ISAs, or pension schemes, how can we know where our money is going?
And do ethical investments perform as well as traditional funds operating without restrictions?
This guide tells you everything you need to know to make sure your savings are not only working for you, but they are also helping to make the world a better place in line with your values.
What is ethical investing?
Ethical investing dates back to the 19th century, when churches and religious organisations wanted to invest in stock markets without funding activities contrary to their beliefs. For example, the Methodists would avoid gambling firms and alcohol producers.
Over time the term has grown to encompass not just avoiding firms with a negative impact such as tobacco producers and weapons manufacturers, but also focusing on companies that are more likely to have a positive impact in areas such as climate change, gender equality and workers’ rights.
Your own idea of ethical investments may also vary according to your personal values - for example, a vegan may wish to avoid investing in a burger chain or meat processing firm.
What’s the difference between ethical and traditional investment?
Traditional funds have no restrictions on where they invest money - this is where your stocks and shares ISA or pension is most likely to be invested unless you have specifically opted for an ethical investment strategy.
Are there different types of ethical investments?
Ethical investing is an umbrella term that includes environmental, social and governance issues (ESG).
Environmental considerations may include a firm’s greenhouse gas emissions, how it manages waste, its energy efficiency and whether it contributes to deforestation or air and water pollution.
Social issues include diversity, workers’ rights and health and safety in the supply chain. For example, a high street retailer would be assessed on conditions in factories it uses in the developing world.
Governance would cover executive pay, and whether diversity and equality are reflected in senior positions.
There are a number of different ways to invest ethically. TSB has teamed up with online investment platform Wealthify, which offers five plans that invest in a range of different ethical funds. More information can be found here Investing with Wealthify | Stocks & Shares | TSB Bank
Who decides whether a company is an ethical investment?
There is no fixed definition of an ethical investment, and different investors will have different ethical criteria within the broad definition outlined above.
Wealthify’s ethical plans will only invest your money in funds that have signed up to the Principles of Responsible Investing, a set of global standards supported by the United Nations.
How do ethical investments perform compared to traditional investments?
The number of ethical funds has been growing in recent years, so it can be difficult to compare Investment performance over the longer term.
However, there is no reason for an ethical investment to perform worse than a traditional fund.
A 2020 study of 745 sustainable funds and 4,150 traditional funds by global research firm Morningstar found the sustainable funds had delivered stronger returns over the previous ten years.
Past performance does not indicate future returns, and the value of investments can go down as well as up, so before you invest anywhere, make sure it is the right method of saving for you.
Can I choose my own investments?
Buying shares directly may help ensure your money is only invested in companies totally in line with your values, but it is labour intensive and potentially risky, especially if you are not an experienced investor.
Wealthify offers a choice of five different ethical plans, depending on your appetite for risk.
How do I get started?
You can open an ethical stocks ISA or investment account with Wealthify.
For more information, and the next steps to take, visit: Investing with Wealthify | Stocks & Shares | TSB Bank
TSB acts as an introducer for the investment products (Stocks & Shares ISA, General Investment Account, Junior ISA) of Wealthify. Neither TSB or Wealthify give you any advice or recommendations about these products - it’s up to you to decide whether the product is right for you.
TSB and Wealthify operate on a 50/50 revenue share arrangement of the management fees after costs. There will be no additional costs for you, the customer. All fees are the same if you went direct to Wealthify. Both TSB and Wealthify are authorised and regulated by the Financial Conduct Authority.
Please remember, investments are designed for the long term and unlike TSB’s savings products, the value of your investments can go down as well as up, and you could get back less than you invested.
The tax treatment of your investment will depend on your individual circumstances and may change in the future.