Where your money is invested and through which company is a way of voting for a type of ethical and sustainable world you want to live in.
If your money is invested in a standard cash ISA through the likes of Barclays and HSBC, it’s likely being used in part to fund climate change activities, the creation of destructive weapons and more.
The same can go for Stocks and Shares ISAs. With a Stocks and Shares ISA you are basically helping to fund a company itself, which is where it differ to a Cash ISA. If you have money in a generic stocks and shares fund, it’s likely to contain some fast growing but unethical and environmentally harmful companies.
Do you really want to be funding oil exploration in beautiful environments or would you prefer to invest in renewable energy companies, those trying to decarbonise the world or those looking to create new, sustainable solutions to plastic? I know which option I prefer, which is why I am invested in green stocks and shares funds.
This is where your money counts. Investing in ethical stocks and shares ISA can help support businesses looking to have a positive impact whilst bringing a return to your own finances.
So, let’s take a look at the best ethical Stocks and Shares ISAs for your money.
I’d like to take this opportunity to add that I am not, by any stretch, a financial expert and the below doesn’t constitute financial advice. Any money you invest is at your own risk.
Is your ISA ethical?
Do you know how ethical your ISA is?
It’s unlikely you do, and that’s not a problem! I didn’t until I looked into it as it’s not a topic that’s spoken about often.
ISA stands for ‘Individual Savings Account’ and they were introduced by the UK government in the 1990s. The main questions that’s front of mind for many beginner investors is usually whether to open an ISA or not, and if it’ll make them money.
The mechanics of how the ISA actually operates from an ethical standpoint doesn’t come into play for most.
However, with more awareness around ethical ISAs, particularly stocks and shares ISAs, it is possible to invest your money into good causes and reap the rewards financially over the long term.
A cash ISA is a low-risk, tax-free savings account. You deposit money into it and earn a small, fixed percentage interest back over time. Much like your bank current account, the organisation or provider who your cash ISA is with will use the money to invest in other companies and give loans to businesses. They don’t really tell you that, do they?
A Stocks and Shares ISA on the other hand is very different. Yes, it is still a tax-free individual savings account up to a maximum tune of £20,000 a year, but it operates in a different type of way.
When your money is in a Stocks and Shares ISA you are directly funding a company with your money. If you’re invested in a stocks and shares fund, this fund will be made up of many different companies to which your money goes towards. Investing in fund, rather than an individual company, helps to ‘diversify’ your portfolio and lowers the risk.
Importantly for those looking to benefit financially from an ISA, which is why you open one in the first place, stocks and shares ISAs can have much bigger percentage returns. It’s worth saying that it is also possible to lose money.
Quick list of 7 Best Stocks and Shares ISAs for investing ethically
Here’s the quick list of the 7 best places for investing ethically in Stocks and Shares ISA. Keep reading to find out much more detail on what makes an ethical stocks and shares ISA and how to invest your money properly.
What makes an ethical stocks and shares ISA?
Like any other stocks and shares ISA, and even the money in your current account, your finances will be used to invest into other businesses. However, with an ethical stocks and shares ISA, your money is invested into greener, more eco-friendly companies. This is why it’s a type of ethical investing.
As ‘ethical’ is subjective and will be defined in different ways by organisations and investment platforms, it’s difficult to quantify what makes a categorical ethical account but the ethics will come down to two main points:
- The company ethics as a whole
- The investments within the ISA
Generally speaking, an ethical investment fund will avoid companies involved in fossil fuel activities, weapons, arms trade, tobacco and animal exploitation.
Sometimes, like with impact investing, the fund will actively seek out companies having a positive impact, such as those looking to develop renewable energy technology or benefit the environment in some way.
With a little help from the Ethical Consumer magazine, there are a other points you might like to take into account when looking for an ethical ISA:
- Does the company have a published investment criteria?
- Who is the company’s owner or who are they backed by?
- How transparent is the ISA and can you find all the companies invested in within the fund or funds?
- What is the financial performance?
How to invest in a green ISA?
The most common way to invest into an ethical stocks and shares ISA is via an investment platform. We’ll get onto these shortly. Further to this, it’s more likely that you’ll invest into a fund rather than an individual company. Although that’s not to say it isn’t out of the question.
Ethically investing into a fund is the more common approach as it’s a less riskier option for both you and the investment manager and/or platform. As mentioned, funds are diversified and made up of many companies to give you the best chance of return and reduce the chance of losing your money.
Once you sign up to an investment platform, you can then choose the ethical fund to invest in. Some are do-it-yourself for the more confident investors, whereas others are managed funds that are more on-script and contain less free options.
There are several different types of ethical investing, such as ESG, sustainable, socially responsible and impact, as I explain in my ethical investment blog.
Some platforms offer just ethical investing options, such as CIRCA 5000, and other bigger platforms offer a whole host of ethical and unethical funds, such as Hargreaves Lansdown. There are swings and roundabouts to both options.
You can dig into the specifics for each individual fund and see which companies are present, but sometimes you do have to implement a bit of trust if something is labelled as ethical or sustainable. This can present a slight dilemma when truly unethical banks are offering ‘ethical’ funds though.
Luckily, reading research posts such as this and on Ethical Consumer magazine should give you a little more confidence in the reliability of such claims.
7 Best Ethical Stocks and Shares ISA Platforms In The UK
If you’re interested in opening a green stocks and shares ISA, here’s the list you need to look at. Just remember you can only invest in one stocks and shares ISA per tax year.
The below are investment platforms and financial institutions where you can find and invest into ethical ISA funds. All are protected by the Financial Services Compensation Scheme.
CIRCA5000 is one of the greenest investment platforms you can use. The main reason for this is that they are an impact investment platform, meaning they focus on companies who are aiming to have a positive impact on the environment and society.
They organise their funds into themed portfolios (People, Planet and People & Planet) to make it really simple for first time investors. You can’t invest into individual stocks and shares here.
To back their eco credentials up, CIRCA5000 is also a B Certified Corp and you can offset carbon emissions by planting trees through them.
They offer app-only investing and charge just £1 a month for a Stocks and Shares ISA. I personally use their app and you can read my full CIRCA5000 review here. You can also sign up to a Junior ISA here too.
As the name hints at, Clim8 is one of the leading climate-focussed investment apps in the UK empowering you to invest your savings into real climate solutions.
Clim8 target their investments into publicly-listed companies that are actively helping to tackle our climate crisis and bring about positive change. They believe that you can help shape a more sustainable future and improve your own financial situation at the same time.
You can sign up to one of their three types of accounts: Stocks & Shares ISA, General Investment Account and a Stocks & Shares Junior ISA.
Once you sign up, you have the choice of investing in six themes linked to climate change: green energy, climate technology, sustainable food, clean mobility, water systems, and circular economy. All of Clim8’s actively-managed portofolios are aligned with the goals of the Paris Agreement, unlike other traditional funds and so-called ‘green funds’.
You can start off investing with as little as £25. They charge an annual management fee of 0.6% and you can withdraw your money free of charge.
As a company they are transparent and rank highly for environmental and carbon reporting, which demonstrates their ethical and eco-friendly stance.
Abundance Investing’s motto is mobilise your money for good. They want your money to make a difference for the planet and for your pocket. As a Certified B corporation, Abundance also practice what they preach.
Since 2012, they’ve successfully funded 52 projects to the tune of £130.5m and paid £40.6m in returns (at the time of writing in June 2022). Examples of these projects include Orbital Marine Power in Orkney, Islington Greener Futures, helping Iduna install public electric vehicle chargers in Greater Manchester and a solar farm in Warrington!
Their offering is slightly different and you can invest in an Innovative Finance ISA. Still tax free, the IF ISA let’s you build up a portfolio of investments across sectors and projects.
The Big Exchange is a new online ethical investment platform was co-founded by The Big Issue, who remain the largest shareholder at 38%, and 16 other founding partners.
Like CIRCA5000, The Big Exchange focus on impact investing to create a positive influence in the world. They also rate investments by impact with a gold, silver or bronze medal. Their platform offers fund-investing only, which have been carefully put together by fund managers.
For every £100 you invest on the platform, you’ll pay just 25p in fees across the year – that’s 0.25%.
Triodos are a Certified B Corp and the most ethical bank in the UK. Alongside current and savings accounts, they have an investment arm to their business.
Their Stocks & Shares ISA operates a little differently from the others on the list as you can only invest in the Triodos Impact Investment Funds. At least it makes it simple! There are 3 different funds to choose from: pioneer impact, global equities and sterling bond.
There are 106 (at the time of writing) organisations that make up the Triodos impact investment funds and they have a claimed 5 year average return of 9.9-16% – excellent for you and excellent for the world!
I’ve used a Stocks and Shares ISA on Moneybox for a number of years now. I’m a big fan.
Their app has allowed me to easily invest into socially and environmentally responsible funds, such as Old Mutual Global Shares ESG, which has grown nicely. You can’t invest into individually companies here, just funds.
Moneybox have instilled some good environmentally friendly actions throughout their business too. Since 2020, they’ve been offsetting their carbon emissions to become carbon neutral and have signed the UN Climate Neutral Now Initiative.
Moneybox charge a monthly platform fee of 0.45% and you can withdraw your money free of charge. You’ll pay an annual fund cost depending on who you’re invested with which can range from 0.12% to 0.58%.
The biggest investment platform on the list, Hargreaves Lansdown make it easy for users to invest in companies and funds all over the world. They have a big catalogue of both ethical and responsible funds to choose from.
I’m a signed up user of HL and have investments in a couple of ethical funds, including BMO responsible global equity and WHEB sustainability.
It’s worth pointing out that the main owner of HL was a big donator of the Brexit Leave campaign.
Which are the worst ‘ethical’ stocks and shares ISAs NOT to invest in?
- Nutmeg – you’ll find Nutmeg on other ethical stocks and share ISA lists, but don’t be fooled: Nutmeg is 100% owned by JP Morgan Chase, the £100 billion American financial giant involved in so many unethical practices it’s impossible to list.
- Bestinvest – owned by Tilney Smith & Williamson ltd who have a rather sketchy track record of investments into companies with very poor ethical and environmental records.
- Wealthify – 100% owned by Aviva who have invested in companies linked to coal mines, tar sand sites, nuclear arms manufacturing and a lot more too.
- One Family – have subsidiary funds that have shareholdings in the likes of Coca Cola, BP, Royal Dutch Shell, Amazon and Unilever.
- Interactive investor – these guys are based in Manchester but are owned by Antler Holdco ltd, which in turn are majority owned by JC Flowers & Co, who don’t have such a good ethical record in the environment and society.
If you have the chance to invest into individual funds, there are some so-called ‘ethical’ funds that you should avoid.
Those such as:
- Kames Capital (owned by Aegon Holdings, linked to palm oil investing amongst others)
- Jupiter Ecology fund (shares in the likes of GlaxoSmithKlein, Royal Dutch Shell, Amazon, BAE Systems)
- Janus Henderson, which is 100% owned by Blackrock. As you may already know, Blackrock have a terrible record in amazon destruction, palm oil plantations and much more unethical practices. Avoid.
Is opening an ethical stocks and shares ISA difficult?
No, not at all. All you need are a few basic details and you can open a Stocks and Shares ISA in a few minutes.
However, please note that you can only open one stocks and shares ISA per tax year. If you do open more than one ISA of the same type, you may have HM Revenue and Customs getting in touch for you to pay tax on your earnings. It is possible to open, for example, one Cash ISA, one Junior ISA and one Stocks and Shares ISA in the same year.
The good news is that over the years you can accumulate many different types of ISAs if that’s your thing.
The one other rule you need to remember is that you cannot invest more than £20,000 in total across different ISAs. This is your tax-free allowance.
It’s also possible and easy to transfer existing ISAs into a new green account if you’ve previously opened one and are now looking to make your ISA savings more ethical.
Read more about ethical money here…