How to invest in an ethical ISA
With Isa deadline day approaching, it's time to weigh up the options – including investment ethics
For many people profit isn't everything when it comes to investing. Increasing numbers of people are also concerned with making sure their money isn't being used to fund unethical or immoral industries. For example, a survey by Triodos Bank has found that more than one in 10 investors plan to remove any investments involving fossil fuels from their portfolios over the next year.
It is possible that your money is funding all sorts of industries you wouldn't knowingly touch with a barge pole. Some of Britain's most popular investments are doing seriously dubious things with your money. Well-known funds have holdings that cover animal testing, oil production, tobacco firms and even arms trading.
So, how can you make sure your investments are ethical? The simplest thing to do is to invest in ethical funds. These are marketed as only investing in socially responsible companies and are generally more environmentally friendly and ethical than the rest of the market. But, they aren't perfect. There are no hard and fast rules on what makes an ethical fund good. It is up to the fund firm to decide what ethical stance they take.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
UK funds do not have to divulge everything that they invest in – only their top 10 holdings. Unfortunately, this means you can never be 100 per cent certain about what your money is doing, even if it is in an ethical fund. For example, many investors were shocked to discover that their ethical funds held BP during the Gulf of Mexico oil spill.
If you really want to take a moral stance with your investments then you will need to invest in individual companies whose work you approve of.
What about your cash?
While you are thinking about making sure your invested money isn't being used to make AK-47s or test make-up on rabbits, you may also want to think about what your cash savings are funding. Over the past few years the dark deeds of many of our high street banks have been brought to light. HSBC helps the rich dodge their tax bills, Co-op Bank had to admit to a £1.5bn hole in its accounts, and Barclays was found to have manipulated interbank lending rates for its own gain.
As a result of all the scandals many people don't want to leave their savings with the duplicitous banks lining the high street. So, where else can you put your cash?
If you want complete control, a decent interest rate and to know exactly what your money is funding peer-to-peer lending is an option. With Funding Circle you can lend your money to businesses that you choose, so you'll know exactly what they are doing with your money, and you can earn up to 6.5 per cent interest annually. Just be aware that peer-to-peer lending isn't covered by the Financial Services Compensation Scheme so it is more risky than keeping your money in a bank.
If you don't want to take on that risk then deposit your savings with an ethical bank. Ecology Building Society used its deposits to offer mortgages for properties and projects that respect the environment. Alternatively, Triodos Bank uses its customers' savings to fund companies involved in organic farming, renewable energy, recycling and nature conservation projects.
Just be aware of the old saying – no good deed goes unpunished. Aside from peer-to-peer lending, most ethical investing or savings options won't deliver anywhere near as big a return as you would get with the shadier options out there. If you are looking to make a decent profit you'll need to keep your ethics away from your investments.
Sign up for Today's Best Articles in your inbox
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
-
7 beautiful towns to visit in Switzerland during the holidays
The Week Recommends Find bliss in these charming Swiss locales that blend the traditional with the modern
By Catherine Garcia, The Week US Published
-
The Week contest: Werewolf bill
Puzzles and Quizzes
By The Week US Published
-
'This needs to be a bigger deal'
Instant Opinion Opinion, comment and editorials of the day
By Justin Klawans, The Week US Published
-
When will mortgage rates finally start coming down?
The Explainer Much to potential homebuyers' chagrin, mortgage rates are still elevated
By Becca Stanek, The Week US Published
-
Changes are coming for 401(k)s and IRAs in 2025. Here's what to know.
The Explainer News about part-time workers, auto-enrollment and penalties for inherited IRAs
By Becca Stanek, The Week US Published
-
Can 'slow shopping' help you spend less this holiday season?
The explainer You may feel pressured to act fast in order to get the best deals — but this can lead to superfluous spending
By Becca Stanek, The Week US Published
-
4 tips to save as health care costs rise
The Explainer Co-pays, prescription medications and unexpected medical bills can really add up
By Becca Stanek, The Week US Published
-
3 tips to lower your household bills
The Explainer Prices on everything from eggs to auto insurance to rent have increased — but there are ways to make your bills more manageable
By Becca Stanek, The Week US Published
-
How to minimize capital gains tax on investments
The Explainer It can take a chunk out of your profits
By Becca Stanek, The Week US Published
-
How to handle financial anxiety ahead of the holiday season
The explainer Between travel, gifts and seasonal sales, it will be tempting to stretch your budget
By Becca Stanek, The Week US Published
-
What are high-deductible health insurance plans, and when do they make sense?
The Explainer Recent years have seen a growth of HDHPs, which offer lower monthly premiums but require customers to pay more out of pocket for care
By Becca Stanek, The Week US Published