Best Ethical Investment Funds UK – Compare Top Funds 2021

As social, environmental, and diversity issues come to the forefront of our everyday discussions, ethical investing is now more popular than ever.

In this guide, we’ll highlight the 10 best ethical investment funds in the UK for 2021 and explain everything you need to know about socially responsible investing.

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Best Ethical Investment Funds UK 2021 List

Here are the 10 best ethical investment funds in the UK for 2021:

• iShares MSCI KLD 400 Social ETF (DSI) – Best Tech ESG Fund – Invest Now
• SPDR SSGA Gender Diversity Index ETF (SHE) – Best Fund for Gender Diversity Investing – Invest Now
• First Trust Water ETF (FIW) – Best ESG Fund to Invest in Clean Water – Invest Now
• Invesco Solar ETF (TAN) – Best Solar Energy Fund
• iShares ESG MSCI EAFE ETF (ESGD) – Best International Ethical Investment Fund
• SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX) – Best Clean Energy S&P 500 Fund
• Organics ETF (ORG) – Best Organic Food and Products Fund
• Vanguard Health Care ETF (VGHCX) – Best ESG Healthcare Fund
• SerenityShares Impact ETF (ICAN) – Best US Social Impact Fund
• Invesco Powershares Cleantech Portfolio (PZD) – Best Renewable Energy Fund

Best Ethical Investment Funds UK Reviewed

iShares MSCI KLD 400 Social ETF (DSI) – Best Tech ESG Fund

The MSCI KLD 400 Social ETF from iShares is an excellent fund for UK investors looking to invest in ESG without giving up on returns. This fund contains over 400 stocks, mainly from the US, and looks a lot like the S&P 500 index.

It’s biggest holdings are in Microsoft, Google, and Tesla, and it’s rounded out with stocks like Nvidia, Disney, and PayPal. Notably, this fund is heavy on tech and finance companies – so the fund’s performance depends heavily on the fates of these market sectors.

One of the nice things about the DSI ETF is that it’s enormous, with over $2 billion in assets under management. That means that it has relatively high liquidity and low volatility compared to other ETFs in our ethical investment fund list. It also carries an expense ratio of just 0.25%.

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SPDR SSGA Gender Diversity Index ETF (SHE) – Best Fund for Gender Diversity Investing

The SHE ETF is designed to invest primarily in companies that have women in leadership roles – including in the C-suite and on the board of directors. The fund primarily holds large-cap US stocks and it has a selection of 165 different shares from a wide range of market sectors.

One thing to note about this fund is that female representation in US stocks is low across the board, especially compared to the UK. For example, the top company in the SHE fund, PayPal, only has 4 women on its 11-person leadership team.

This fund has largely matched the performance of the S&P 500 since its 2016 inception, and returned 34.2% last year alone. It carries a low management fee of just 0.20%.

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First Trust Water ETF (FIW) – Best ESG Fund to Invest in Clean Water

The First Trust Water ETF is a unique ETF that allows you to invest in water and a sustainable future. The fund holds 36 different companies, all of which focus on making drinking water more widely available or treating wastewater. Top holdings include Pentair PLC, Roper Technologies, and Xylem.

Since the companies inside the FIW fund tend to be small-cap growth stocks, this fund has performed surprisingly well in recent years. It returned 37% over the past year, edging out most major stock indices like the S&P 500. In the past 5 years, it’s returned 21% for investors.

Of course, small funds like this can have a high degree of volatility. It’s also worth noting that the expense ratio of 0.55% is somewhat pricey, even for one of the best ethical investment funds of 2021.

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Invesco Solar ETF (TAN) – Best Solar Energy Fund

The Invesco Solar ETF was one of the top performing ethical investment funds in 2021, returning a whopping 181%. The fund invests in companies that manufacture solar panels, install solar panels, and develop the materials and technologies needed to improve solar energy efficiency. Notably, the fund invests heavily in China as well as in the UK, US, and Europe.

Investors should expect this ETF to be one of the more volatile investment options in the renewable energy space. It only has 55 holdings, and they tend to be small cap stocks with an average valuation of less than $10 billion. After last year’s incredible performance, these shares may consolidate for a while before moving another leg higher.

The TAN ETF has a high 0.69% expense ratio. However, that is more than justified given that the fund beat the broader US stock market by nearly 6x last year.

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iShares ESG MSCI EAFE ETF (ESGD) – Best International Ethical Investment Fund

The iShares ESG MSCI EAFE ETF is an international stock fund that primarily invests in clean energy technology and social responsibility projects in emerging markets. The fund was pummeled by the coronavirus pandemic last year, and many countries with emerging economies simply shut down for the year.

As a result, this fund has a past performance of just 8.6% over the last year and 5.0% over the last 3 years making it a good chouce for a best MSCI World Index ETF The good news is that it has a cheap expense ratio of just 0.20%, and it could pick up steam as countries around the world restart their economies.

The main reason to buy into this ethical investing fund is that it offers excellent diversification. You won’t find any US or UK stocks, so it can complement any existing ESG funds you’re already invested in.

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SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX) – Best Clean Energy S&P 500 Fund

The Fossil Fuel Reserves Free ETF is perhaps the best ethical investment fund in the UK for investors who want a mainstream investment with a sustainability twist. This fund mirrors the S&P 500, except that it eliminates any companies that produce oil and gas or other fossil fuels.

The result is a list of 460 of the biggest US stocks, many of which have their own renewable energy initiatives in place. The largest holdings, like Apple, Amazon, Microsoft, and Google, are the same as for the S&P 500 index.

This fund has matched or even outperformed the S&P 500 over the past three years. That’s not all that surprising given that fossil fuels have been steadily falling out of favor in the marketplace. The 0.25% expense ratio is slightly higher than what you would pay for a standard S&P 500 index ETF, but it’s still relatively inexpensive.

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Organics ETF (ORG) – Best Organic Food and Products Fund

The Organics ETF is a good option for investors who care deeply about organic foods, eliminating animal testing for products, and environmental stewardship. The fund invests in companies that produce 100% organic foods or that help to bring organic beauty and other products to market.

The fund isn’t all that diversified, with just three companies making up nearly 45% of its holdings: Chr. Hansen Holdings, The Hain Celestial Group, and Sprouts Farmers Market. As a result, the fund was very exposed to the coronavirus pandemic last year and took a 22.4% loss in 2020. We expect this fund to perform better as the global economy recovers over the course of this year.

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Vanguard Health Care ETF (VGHCX) – Best ESG Healthcare Fund

The Vanguard Health Care ETF isn’t specifically an ESG fund. Rather, it’s a low cost healthcare stock fund that boasts incredibly strong returns and above-average marks for the sustainability of its holdings.

In fact, this Vanguard fund ranks in the top 8% of similar ETFs for the ESG scores of the stocks it holds. The fund also returned 30.3% last year and beat the S&P 500 over the past 3 years.

The fund invests in a mix of health insurers, pharmaceutical stocks, biotech stocks, and medical equipment manufacturers, with a heavy focus on US stocks. The Vanguard ETF does a nice job of blending small-cap and large-cap stocks, so it offers a fully diversified investment in the key healthcare market sector.

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SerenityShares Impact ETF (ICAN) – Best US Social Impact Fund

The SerenityShares Impact ETF is a relatively small fund that can be somewhat difficult to buy into or sell out of. However, if you’re willing to deal with low liquidity, this fund is a good option for investors who want to take their ethical investing to the next level.

This ETF invests in a hand-picked selection of around 106 US stocks. Most of them are small-cap growth stocks and they are chosen specifically because of their social responsibility and governance initiatives. So, you can be sure when investing in this fund that it takes ESG seriously.

The fund lagged the broader stock market in 2020, returning just over 20%. However, it beat the S&P 500 in 2019.

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Invesco Powershares Cleantech Portfolio (PZD) – Best Renewable Energy Fund

This renewable energy ETF from Invesco invests in a selection of 53 companies, primarily from the US, that derive more than half their revenues from clean energy technology. Top holdings include wind turbine manufacturers like Siemens Gamesa and Vestas Wind Systems.

One of the things we like about this fund is that it’s highly diversified. Only around half of the fund is centered in the US, with the remaining holdings spread throughout Europe. In addition, no single renewable energy stock makes up more than 3% of the overall fund. That ensures you’re protected against volatility and enables you to invest widely across the clean energy market.

The fund rode the sustainable investment wave last year, reporting a gain of 51% for 2020. The expense ratio of 0.65% is somewhat expensive, but the fund is well-managed and offers plenty of liquidity to enter and exit your position.

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What are Ethical Investment Funds?

Ethical investment funds are ETFs, mutual funds, and investment trust funds that invest in companies with strong environmental, social responsibility, and corporate governance initiatives. You can buy and sell any fund on our ethical investment fund list just like you would buy a standard ETF.

Many responsible investment funds have specific themes, so you can match the fund you want to invest in with your personal values. For example, some funds focus specifically on the environment, some on human rights, and others on social and governance projects.

Notably, there are no set ESG criteria to define what companies are ‘ethical’ or not. Some ethical investment fund managers take a strict approach to social responsibility and only invest in companies that commit a certain portion of profits to positive impact projects. Others take a broader view of ethical investments and buy shares of any company that has ongoing ESG initiatives.

Are Ethical Investment Funds a Good Investment?

Ethical investment funds can be a good investment, but it’s important to do your research and know what you’re getting into. These funds range widely from modified index funds to hand-picked selections of individual stocks.

In general, there are a few things to know when evaluating whether an ethical investment fund is a good investment.

First, many ethical funds offer returns that lag the S&P 500, NASDAQ Composite, or FTSE 100 indices. If you are okay with giving up on some potential returns in exchange for investing in values you care about, that’s not a problem. However, it’s important to consider how a fund performs relative to these indices – and to its non-ESG peers in the same market sector – before investing.

Another important thing to know about the best ethical investment funds in the UK is that they often carry higher expense ratios than non-ESG funds. This means that you are paying more in management fees. Typically, the difference isn’t huge and most ethical investment funds have expense ratios of less than 0.75%.

In some cases, ethical investment funds – and particularly environmental sustainability funds – can outperform the broader market. This may be increasingly the case as climate change and emissions reduction efforts come into focus. If renewable energy technology does take off, sustainable funds could be among the biggest market winners.

Best Ethical Investment Funds UK Investment Platforms 2021

In order to invest in ethical funds in the UK, you’ll need a stock broker that offers trading on a wide range of ETFs. When choosing a broker, it’s important to look at the breadth of ESG funds that are available and how much it costs to buy and sell ETFs as opposed to individual stocks.

With that in mind, let’s take a closer look at 2 of the best UK stock brokers you can use to invest in ethical funds in the UK.

1. eToro – Best UK ETF Broker for Ethical Fund Investing

eToro is one of the best trading platforms in the UK if you want to buy into ethical investment funds. This brokerage has more than 200 ETFs available to choose from, including a wide selection of ESG funds. All ETF investments are 100% commission-free, so you don’t have to worry about high trading costs for investing in your values.

Another benefit to using eToro to make ethical investments is that this broker offers copy portfolios. You’ll find dozens of themed portfolios created by professional traders, revolving around investment topics like renewable energy. You can invest in these portfolios in just a single trade, making them just as helpful for building your ethical investment portfolio as traditional ETFs.

This broker also has a number of tools designed for long-term investors. For example, most individual stocks and funds are accompanied by professional analyst research. You can dig into a fund’s holdings and find out how diversified it really is. In addition, eToro has a powerful charting platform that you can use to measure an ETF’s performance against the broader market.

If you want to find other socially responsible investors, eToro has a built-in social trading network. You can easily share ideas about socially responsible investing (SRI) and which companies and funds are performing best. This also offers a chance to get feedback on your investments from more experienced traders.

eToro is regulated by the UK Financial Conduct Authority (FCA) and UK accounts are insured for up to £85,000 by the Financial Services Compensation Scheme. The broker offers 24/5 customer support by phone and email.

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2. Capital.com – Best UK CFD Broker for Trading ESG ETFs

Capital.com is a UK CFD broker with a wide selection of funds, including many ETFs built around renewable energy and sustainable investing. You can quickly screen funds by country, market sector, or investment topic.

The brokerage doesn’t charge any commissions for buying and selling ETF CFDs, and it has some of the lowest spreads for ETF trading in the UK. Another plus for long-term investors is that Capital.com doesn’t charge an inactivity fee.

This brokerage is a particularly strong option for new investors since it offers so many educational resources. For example, Capital.com has a library of videos that walk you through the basics of CFD trading. The brokerage also offers detailed trading guides and a demo account where you can practise investing risk-free.

Capital.com’s trading platform is focused more on technical analysis than on long term investment. You have dozens of technical indicators and a market news feed to analyse short term price action, but you won’t find detailed research reports explaining the funds that this brokerage offers.

Still, Capital.com does provide excellent tools for managing your fund orders and tracking the performance of your portfolio. The broker also has a mobile trading app so you can manage your investments on the go.

The brokerage has outstanding customer support, with representatives available 24/7 by phone, email, and live chat. Capital.com is regulated by the UK FCA.

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Your capital is at risk.

How to Buy the Best Ethical Investment Funds UK

Ready to buy the best ethical investment funds in the UK? We’ll show you how to get started with eToro, which offers 0% commission trading on hundreds of global ETFs.

Step 1: Open an eToro Account

To begin, head to eToro’s website and click ‘Join Now’ to create a new account. Sign up using your email address or your Google or Facebook login.

eToro requires you to verify your identity in order to comply with the FCA’s Know Your Customer (KYC) rules. To complete this step, upload a copy of your passport or driver’s license along with a copy of a recent utility bill or financial statement.

Step 2: Deposit Funds

Next, fund your eToro account. The broker requires a minimum deposit of £160, which you can pay by credit card, debit card, bank transfer, PayPal, Neteller, or Skrill.

Step 3: Buy Your First Ethical Investment Fund

Now you’re ready to buy an ethical investment fund. From the eToro dashboard, search for the ticker symbol of the fund you want to invest in. When it appears in the drop-down menu, click ‘Trade.’

Enter the amount of money you want to invest in the fund. Then choose a stop loss level and take profit level if desired. Once you’re ready, click ‘Open Trade’ to buy the best ethical investment fund in the UK.

Conclusion

Ethical investment funds allow you to invest in the stock market while staying true to your values. These funds can perform just as well as traditional ETFs, and some clean energy funds even outperform the broader market.

Ready to invest in the best ethical investment funds in the UK? Click the link below to sign up for an eToro account and start investing today!

eToro – Invest in Ethical Funds with 0% Commission

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FAQs

Can I invest in an ethical fund through an ISA or SIPP?

Yes, you can invest in an ESG ETF through an ISA (Individual Savings Account) or SIPP (Self-invested Personal Pension). Your plan provider must offer a selection of ethical investment funds.

Is there a management fee for ethical investment funds?

Most ethical investment funds have an annual management fee, also known as an expense ratio. This typically ranges from 0.20% to 0.75% depending on the fund.

Can I invest in the UK stock market through an ethical investment fund?

While many ESG funds are focused on US stocks, you can invest in UK stocks through a sustainable fund. Look for funds that are offered by UK firms and that trade on the London Stock Exchange.

Do ESG funds perform better than traditional ETFs?

ESG funds may perform better or worse than non-ESG funds. Performance depends on the specific holdings within each fund. Over the past year, renewable energy funds beat the broader market, while other ESG funds underperformed the market.

Can I use ethical investment funds to diversify my portfolio?

Many ethical investment funds contain stocks from major indices like the S&P 500 or FTSE 100. If you want to use an ESG fund to diversify your portfolio, make sure the fund’s holdings do not overlap too much with your current investments.