Top Ethical Investment Funds: A Guide to Navigate Responsible Investing

First on our list is the Impax Environmental Markets fund which is considered one of the largest funds in the UK that focuses on the environment while managing more than half a million pounds.

It has seen outstanding growth and generated significant value for its shareholders.

All of its investments go to companies that have at least 50% of its revenue generated through environmental initiatives. This includes anything from reducing pollution and waste management to investments in energy efficiency and water infrastructure.

This is a wonderful fund for people who care about their finances, but also care about the environment.

The Guinness Sustainable Energy Fund focuses on sustainable energy sources. This includes generation, storage, consumption, and efficiency improvement of sustainable energy sources.

It encompasses pretty much every type of green energy source, including wind, hydro, geothermal, biomass, biofuel, and of course, solar.

It is one of the top-performing ethical funds in the UK of the last decade. This fund focuses not only on environmental sectors but also on human welfare and quality of life.

The Prudential Royal London fund also avoids companies that have 10% or more of their profits coming from animal fur products, gambling, military applications, and pornography.

This fund bypasses sectors such as aerospace and military applications. It invests only in companies that the fund managers find are ethical in their approach to environmental, social, and governance (ESG) policies.

Looking at the investment side, the fund has outperformed the average return of funds in the IA Global sector and proved to have a strong long-term focus.

Baillie Gifford invests in companies that provide solutions to the 260 million children across the globe who do not have access to formal education. Their motive is to reduce the impact of human activity on the environment by investing in companies that can control climate change.

This fund also focuses on medical research companies that follow proactive and preventive approaches and those which finance low-cost healthcare and low-cost goods for the low-income demographic.

By investing in this fund, you invest in companies and sectors that work towards the improvement of education, healthcare, social inclusion, and quality of life for the poorest populations.

Note that it is similar to Baillie Gifford, but it is somewhat more risk-averse, in the sense that it does focus on low-income demographics, but it invests in emerging markets that are not significantly risky.

ESG and ethical investment funds are terms that are often used interchangeably. ESG stands for environmental, social, and governance factors, which are considered when choosing the financial instruments that will form these funds.

Ethical investment funds consider at least one of these factors, but in practice, both terms are often used to refer to the same fund.

These investment funds are not necessarily limited by region or sector but rather choose their portfolio structure based on the ethics of the assets involved.

When building an ethical/ESG fund, financial instruments tied to companies and institutions that have a negative impact on the environment or society will be excluded or minimised. At the same time, those with a positive impact will be pursued and focused on.

Ethical investment funds have seen an increase in popularity. Some of the factors that lead people to build, and choose ethical investment funds are:

• Risk management - Ethical investment funds that consider ESG factors can mitigate risks associated with poor ESG practices, such as environmental disasters or governance scandals, leading to potentially better risk-adjusted returns.

• Regulatory compliance and sustainability- Ethical funds focusing on ESG factors can help investors align with evolving regulations. They avoid companies that may face penalties or restrictions due to non-compliance, reducing regulatory risk in their investment portfolios.

• Long-term returns - Companies that follow regulations can be more sustainable, by avoiding regulatory penalties and maintaining a positive reputation.

• Consumer and employee attraction - Ethical funds can attract socially conscious consumers and top talent, enhancing brand reputation and competitiveness. .

• Societal impact - Investing in ethical funds means fostering a more sustainable and responsible business landscape.

Always keep in mind that no investment guarantees success and ethical funds are no different.

There are several factors that need to be considered when choosing an investment fund, no matter if it's ethical or regular.

Primarily, the credibility and reputation of its fund manager, and the terms and conditions relevant to investors in case of any malfeasance.

Furthermore, you need to consider the credibility of the investment platform, financial institution, or broker you are using to make an investment, as well as their policies and measures that serve to protect you and your data.

The Regulatory Oversight of Funds - Are Ethical Funds More Secure?

In terms of investor protection, ethical funds are neither more, nor less, secure than a regular fund. They fall under the same regulations and oversight as the regular funds.

In the UK specifically, the Financial Conduct Authority (FCA) regulates the financial services industry.

What Happens if an Ethical Fund Goes Out of Business?

The details depend on the financial institution where you held your fund. With that being said, the entire process is identical to any other investment fund.

When a fund is no longer viable or the fund management company decides to close it, the fund enters a liquidation process. The assets are sold and the proceeds are distributed to the investors.

Note that the UK’s regulatory bodies ensure that the fund's closure follows applicable laws and regulations and that investors' rights are protected. These rights include:

• The right to receive their proportionate share of the fund's remaining assets

• The right to be provided with timely and accurate information about the liquidation process

Asset redemption and the transfer of assets are other processes that may come into action. If the liquidated fund is part of a larger fund management company, the assets might be transferred to a similar fund within the same company, keeping your asset exposure. However, the investor can also choose to have their shares redeemed, receiving earnings from the now-liquidated fund.

Keep in mind that there is always a risk when it comes to investing. A diligent investor needs to be aware of the terms and conditions of their investment and must be aware of all redemption and liquidation policies, as well as any associated fees and transfer regulations of their chosen fund.