Ethical investing
Lesson 10 of 12 in our free Investing Basics guide: a 5-minute money game with the key points below.
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Quick facts
- Carbon emissions → Environmental. Environmental — impact on the planet.
- Fair pay and working conditions → Social. Social — how a company treats people.
- How independent the board of directors is → Governance. Governance — how the company is run.
- Water pollution → Environmental. Environmental.
- Executive pay vs staff pay → Governance. Governance — decisions about how the company is run and rewarded.
- Red flag: “100% eco-friendly, zero impact on nature” — Vague, absolute claims with no evidence are classic greenwashing.
- Red flag: “— and because it's ethical, it's totally risk-free!” — Ethical doesn't mean safe. Investment risk still applies.
- Red flag: “Holdings list available on request only.” — If you can't easily see what's inside, you can't check the claims.
- Myth: “All 'sustainable' funds follow the same rules.” — Approaches vary hugely — some exclude industries, some invest in 'improvers'. Check the details.
- Fact: “The UK regulator has rules to tackle misleading sustainability claims.” — The FCA has anti-greenwashing rules — but still read what the fund holds.
- Myth: “ESG funds are protected from losses.” — They're investments. Values don't change the maths of risk.