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Ethical stocks and shares ISAs

All you need to know about ethical investments

Ella Jukwey
Written by  Ella Jukwey
5 min read
Updated: 07 Nov 2023

If social responsibility is important to you, then you could make a difference with an ethical ISA. Your investment could go towards funding companies that value the environment, sustainability and fair business practice. Our guide explains more….

What is an ethical ISA?

An ethical ISA is an investment account where funds are invested in companies' stocks and shares that align with the investor's personal beliefs. These accounts typically exclude industries like gambling, arms and weapons, tobacco, or fossil fuel extraction. Instead, your money is used to support businesses making a positive impact in the world, often investing in firms working towards a greener environment or supporting better workers’ rights.

Man and woman chatting

Identifying ethical stocks

Ethical stocks generally include companies demonstrating environmental and social responsibility. These businesses often:

  • Treat staff, customers, and suppliers fairly.

  • Work towards a greener planet.

  • Help to stop human suffering.

  • Promote gender equality.

  • Protect wildlife.

  • Uphold workers’ rights.

In contrast, stocks considered unethical typically belong to industries such as alcohol, gambling, arms, tobacco, fur trade, and pornography.

Performance of green investments

As with all investments, future performance is difficult to predict, so it’s not possible to say whether an ethical ISA will generate better returns than a regular fund.

Sustainable funds have historically seen competitive returns and while ruling out non-ethical investments may leave fewer funds to choose from, there are other advantages to ethical investments. 

Ethical investments may be less likely to incur fines as regulators can levy large fines against corporations that breach social or governance rules. They often stay one step ahead of regulators due to constantly introduced legislation.

Managing your ethical ISA

The management of an ethical ISA portfolio can be done in different ways, depending on your preferences. You can manage it yourself, employ a fund manager, or use a robo adviser. Whichever method you choose, stay informed about your investments and ensure they continue to align with your ethical stance.

How to invest ethically

Investing ethically involves several steps:

  1. Pick a cause:

     Decide what matters most to you.

  2. Choose what to avoid:

     Identify the industries and practices you want your money to steer clear of.

  3. Research the fund:

     Understand its policies, track record, and performance.

  4. Diversify your portfolio:

     Spread your investments across different sectors and companies.

Pros and cons of green investing

Like all investment decisions, ethical investing comes with its own set of advantages and disadvantages:

Advantages include:

Disadvantages include:

  • Potential missed returns from companies not aligned with your values

  • Fees associated with ISAs

  • The risk of losing value

Choosing the best ethical investment ISA

When selecting an ethical investment ISA, consider what ethical considerations are most important to you, your level of risk tolerance, how hands-on you want to be, the fees associated with the ISA, the minimum deposit, and the fund's past performance. Remember, thorough research is crucial before investing.

Other useful guides

If you want to learn more about investing, we have a range of guides you can read:

Stocks and shares ISA guide

Self-select ISAs explained

 Should I invest my money or save it?

Compare ethical stocks and shares ISAs with MoneySuperMarket

You can transfer from a regular stocks and shares ISA to an ethical ISA without losing the tax-free status. This allows you to align your investments with your principles without any tax implications. You can also transfer some or all of your ethical investment ISA to a regular stocks and shares ISA without losing your tax-free status.

To stay informed about your investments, refer to Share Action for reports on how your fund manager has voted at annual general meetings. The Financial Services Compensation Scheme (FSCS) also offers investor protection should your investment platform go bust.

You can view ethical stocks and shares ISAs with MoneySuperMarket. We have a range of stocks and shares ISA options from leading UK providers.

Stocks and shares ISAs