An introduction to ethical investment

Investment can be a tricky area to get your head around, before you even begin to think about ethics. Only around one third of people in the UK currently hold investments in shares.

This is unsurprising really because, with investments, there is a risk of losing all of your money if companies or projects fail.

The average amount of savings in the UK was around £10,000. It makes sense to have good financial defences before taking investment risks, and most simply cannot afford, or do not choose, to take these risks.

One of the best ways for small investors to reduce risk is to invest in ‘pooled’ funds, each of which will hold shares across many companies. Our guide to ethical investment funds examines pooled funds which claim to be ethical. Some of these have now been around for nearly 40 years in the UK and financial returns from them have generally been much better than money saved in bank accounts.

Nevertheless, it is important to note at the outset that there is another way of thinking about ethical investment. We have been writing about this ‘alternative investment’ approach at Ethical Consumer for thirty years now, which also has been known variously as ‘direct ethical investment’ or ‘positive investment’ over that period.

Direct Ethical Investments

The ‘2020 projects’ column in the table below provides some good examples of what we mean when we talk about direct ethical investments. It shows the kind of projects which have been seeking money this year through three of our favourite positive investment providers. Normally, this kind of investment involves buying shares directly from a small company or social enterprise.

These shares tend not to be tradeable, unlike shares on the UK stock market, and are a much riskier bet than putting money in a pooled fund. Nevertheless, you do get to fund and support only the projects which excite you, and you will have a much more direct relationship with a project once you sign up.

If the projects are successful too, you can enjoy the feeling of having contributed to something important. On one level this approach is not very different from the types of online crowdfunding platforms which structure contributions as investments rather than donations, though the three platforms on the table screen projects to ensure they are ethical before supporting them.

We do have a longer review of Direct Ethical Investment platforms on our website which looks at the wider ecosystem of possibilities for direct project support.

Provider Focus area Some 2020 projects
Ethex Helping investors to make positive investments simply and securely
  • Property development for homeless people in Cornwall
  • Electric car and bike hire firm in Exeter
  • Affordable housing in Brighton
Abundance Investment Mobilising money for good
  • Anaerobic digestion plant for power generation at a Staffordshire farm
  • Solar panels on council-owned rooftops in Berkshire
Energy4All Funding for community-owned renewable energy co-operatives in the UK
  • Two hydro sites for the Highland Community Energy Society in Scotland
  • Rooftop solar panels for the Edinburgh Solar Community Co-operative

Independent financial advisors

We are also planning to look again at our previous review of ethical independent financial advisors. The landscape is changing here too, with more opportunities to use online portals to do research and to buy into ethical funds.

If you have had any good or bad experiences with ethical advice from independent financial advisors, or indeed of using online portals for ethical investment, we’d be interested to hear from you. You can email us at letters@ethicalconsumer.org.