Responsible Investment

Important: The value of investments can fall as well as rise, so you could get back less than you invest, especially over the short term. The information shown is not personal advice. You should seek advice if you’re not sure an investment is right for you.

But investing can be about so much more than just trying to make money. Investing responsibly allows you to use your investments to benefit society, as well as yourself. And there are lots of ways to go about it. ESG is just one of these – it allows you to invest while taking account of Environmental, Social and Governance risks, as well as the usual financial considerations.

We explain the main approaches to Responsible Investment below. Remember they’re not mutually exclusive, so several could apply to a particular fund.

Fund managers focused on stewardship engage with the companies they invest in to make sure their voices are heard on issues that are important to investors.

They might use their bargaining power to push positive change, like cost-cutting measures, or changes to a company’s senior management. They might also lobby companies on environmental, social and governance issues, from encouraging them to reduce waste to making sure they treat their suppliers, customers and employees fairly.

Managers of ESG integrated funds consider environmental, social and governance factors as part of their wider research. Their main goal is to invest in companies with the strongest prospects, but they think ESG factors play an important part in the long-term performance of a company.

Taking ESG factors into account can help avoid potential issues. For example, a mining company might be less likely to face bad press if they have robust environmental and safety policies in place.

Exclusions-based funds, also known as 'ethical' or 'negatively-screened' funds, won’t invest in companies, industries or countries that don’t meet their moral criteria. Companies that damage the environment, like those in the mining and oil & gas industries, are often excluded, as are weapons manufacturers, and tobacco companies. The exact restrictions will vary from fund to fund though.

Sustainability-focused funds try to make money by investing in companies that are more sustainable than their competitors or that are likely to benefit from the growing need for more sustainable goods and services.

Impact funds go one step further. They measure and report back on the positive impact they set out to make on the environment and society. They might invest in companies that save a quantifiable amount of water, or avoid producing a certain amount of carbon dioxide.