Best ethical investment ISAs - Times Money Mentor (2024)

The idea of putting cash into ethical investments is not a new one. But it has become a relatively mainstream choice in recent times, with many people choosing to invest through an ISA.

Below, we explain why ethical investing is important and how to pick the best ethical investment ISA for you.

  • What is an ethical ISA?
  • The best ethical stocks and shares ISAs
  • How to choose an ethical ISA
  • Are ethical ISA portfolios more expensive?

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What is an ethical ISA?

An ethical investment ISA will invest in areas that have a positive impact on the world – or at least not a negative one.

There is now a wide choice for people who want to invest ethically. This includes funds focusing on specific causes such as:

  • Saving the planet
  • Cutting down on human suffering
  • Protecting wildlife
  • Protecting workers’ rights

But investing ethically can also be about avoiding businesses that people may consider harmful, such as the arms industry, oil giants or firms that exploit people – for example by paying low wages.

Whatever people’s concerns, there should be an investment opportunity to match it.

Crucially, underpinning all the investment decisions is the aim of making money.

So most ethical ISAs should equally consider the potential for investment returns along with the social or environmental impact of the activities that are being backed with investors’ money.

Learn more through our guide to ethical investing.

What is the aim of ethical investment?

The aim of investing ethically is basically to back businesses that are run properly, have a positive social impact and aren’t wrecking the environment.

Those three main issues are grouped under the heading ESG investment, which stands for environmental, social and corporate governance.

An environmental concern could be climate change, while a social concern could be access to healthcare. Corporate governance is about ensuring that companies have the checks and balances in place to ensure they do the right things.

Investment companies offer what they call impact funds, which aim to use people’s savings to invest in shares or other funds that generate a measurable, beneficial social and/or environmental impact.

It all means consumers have plenty of choice and should be able to match an investment opportunity with their personal principles.

‘I’m a vegan: How can I invest ethically?’ We explain the ethical investment choices for vegans.

The best ethical stocks and shares ISAs

Because there is such a wide range of factors in choosing an ethical investment ISA, it’s difficult to narrow down the best choice for individuals.

Here we look at some general factors, such as charges.

Best ethical investment ISAs - Times Money Mentor (1)

Interactive Investor* CT Sustainable ISA

Best for: Cheapest ready-made sustainable ISA for larger portfolios

Key features:

-Fund costs: 0.35% (plus 0.08% in transaction charges)
-Platform charge: £9.99 per month

If you are looking for a low-cost ready-made portfolio that invests responsibly, Interactive Investor’s Quick-start CT Sustainable funds are one of the best places to start.

There are three risk options – cautious, balanced and growth – all costing just 0.35% a year in fund management charges, plus approximately 0.08% in transaction fees.

Interactive Investor charges a flat platform fee of £9.99 a month for its ISA. This works out much cheaper than competitors on larger portfolios, although it is expensive if you are only investing a small amount.

Once you have opened an ISA, you get access to a trading account and a junior ISA for no extra cost.

Meanwhile the fund charges for the CT Sustainable range are some of the cheapest in the market for socially minded investors.

The portfolios invest in a range of other actively managed funds – with the riskier strategies holding higher percentages of shares.

Capital at risk. ISA rules apply. Tax treatment depends on your individual circumstances and may change in the future.

Best ethical investment ISAs - Times Money Mentor (2)

AJ Bell Responsible Growth ISA

Best for: Investors seeking higher returns

Key features:

-Fund costs: 0.45% (plus 0.05% transaction costs)
-Platform charge: 0.25%

AJ Bell recently launched its own sustainable-growth fund, which invests in a range of tracker funds.

The platform fee of 0.25% is very competitive, and the sustainable fund’s annual charge of 0.45% is also low for a specialist fund of this kind.

Even with transaction costs of 0.05%, the total cost of investing works out at 0.75% a year, which will be cheaper than the Interactive Investor option for those with smaller portfolios.

Capital at risk. ISA rules apply. Tax treatment depends on your individual circumstances and may change in the future.

Best ethical investment ISAs - Times Money Mentor (3)

Nutmeg Socially Responsible ISA

Best for: App-based user experience

Key features:

-Fund costs: 0.31% (plus transaction costs of 0.04%)
-Platform charge: up to 0.75%

Nutmeg’s socially responsible ISA invests in a range of ethical ETFs across the globe, and its fund-management costs of 0.35% (including transaction costs) are very competitive.

However, Nutmeg’s platform fee of 0.75% is higher than average. This will make investing expensive if you have a larger portfolio (although it does drop to 0.35% on anything above £100,000).

Still, it’s slick app is easy to navigate, making it easy to start investing and manage your portfolio.

Capital at risk. ISA rules apply. Tax treatment depends on your individual circumstances and may change in the future.

Best ethical investment ISAs - Times Money Mentor (4)

Triodos Impact Ethical ISA

Best for: Those seeking the most ethical proposition

Key features:

-Fund costs: 0.75% to 1.1%
-Platform charge: 0.4%

Triodos is an ethical bank with a stocks and shares ISA that invests in its own actively managed funds.

It offers three impact investment funds:

-Global Equities Impact. Invests in large companies that are moving towards sustainability.
-Pioneer Impact. Backs small and medium-sized businesses that are pioneering the move to a sustainable economy and society.
-Sterling Bond Impact. Invests in green and social bonds

Investors can choose a mix of the funds or just one.

The product is rated three stars in our latest rankings, as its fund-management charges of up to 1.1% are higher than many of its competitors.

Nevertheless, Triodos has sustainability baked into its whole proposition – it’s not just another investment house offering an ethical option.

The bank has a stated mission to “help create a society that protects and promotes quality of life and human dignity for all” and has been a pioneer in the world of sustainable finance and investing for more than 40 years.

Capital at risk. ISA rules apply. Tax treatment depends on your individual circumstances and may change in the future.

Best ethical investment ISAs - Times Money Mentor (5)

Moneyfarm* Socially Responsible Fund

Best for: investors who want some advice

Key features:

– Fund costs: 0.20% (plus transaction fees of up to 0.02%)
– Platform charge: 0.45%

Moneyfarm goes beyond most other robo-investing platforms, offering access to regulated advice for investors that need a bit of extra help.

Its app is intuitive and allows investors to top up their investments and keep track of performance on the go.

If you’re considering an ethical pension, check out our guide.

Capital at risk. ISA rules apply. Tax treatment depends on your individual circumstances and may change in the future.

What funds are likely to be excluded from an ethical ISA?

Ethical ISAs usually avoid funds that invest in such areas as arms, tobacco, alcohol, gambling and drugs.

In general, any company that makes a profit from these areas will be excluded from ethical ISAs.

Want your ethical principles to guide the way you spend money? Check out our video on sustainable spending below.

02:55

Explainer: 5 things you need to know about sustainable spending

Why choose an ethical ISA?

An ethical investment ISA is a way to potentially make decent returns on savings without sacrificing principles.

Ethical fund managers have proven decent track records in backing ethical activities that won’t hinder your opportunities to grow your investment.

In short, investors won’t have to compromise performance for principles.

How to choose an ethical ISA

With a wide range of investment opportunities, choosing the right ethical investment ISA may look a daunting task, but it comes down to personal choice.

People need to figure out what they want to invest in and what ethical measures are important to them.

So if your priorities are saving the world or fighting climate change, an environmentally focused fund could be the best option.

For those more concerned with cracking down on human trafficking or improving workers’ rights, a socially focused fund could be suitable.

If the concerns are more about what corporations are up to, a governance-focused fund could prove a good fit.

For consumers wanting to choose a junior ethical ISA for children or grandchildren, having a discussion with youngsters will help ensure the investment matches their own beliefs. It will also help them get engaged in the future of their finances.

To find out if fund managers are fully embracing socially responsible investing principles, read through their literature. It should tell you how environmental, social and governance factors are used and how they are part of the investment process.

Once you are satisfied with the fund’s credentials, it’s then a question of looking at costs and choosing an ISA with low charges.

Are ethical ISA portfolios more costly?

Ethical ISAs should be no more expensive than general ISAs. The cost variations will come down to the fund-management fees charged by investment companies.

Can I transfer my ISA into an ethical ISA?

An investor can transfer some or all of their existing ISA into an ethical ISA without losing their tax-free status.

It’s also worth bearing in mind that investors can withdraw their money from ISAs at any time without losing any tax benefits.

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As an avid enthusiast and expert in ethical investing, I've delved deeply into the nuances of socially responsible investing (SRI) and environmental, social, and governance (ESG) principles. My journey into this realm started years ago when I recognized the power of aligning financial goals with ethical values. Since then, I've actively researched and engaged with various investment strategies, portfolios, and platforms dedicated to promoting positive change in the world while delivering competitive returns.

In the realm of ethical investing, one of the primary vehicles for individuals is the ethical investment ISA (Individual Savings Account). These ISAs provide a platform for investors to allocate their funds into areas that not only generate financial returns but also contribute to societal well-being and environmental sustainability. Here's a breakdown of concepts related to the article you provided:

  1. Ethical ISA (Individual Savings Account): An ethical ISA is a type of investment account that allocates funds into areas that have a positive impact on society and the environment or at least avoid negative impacts. It allows investors to support causes aligned with their values while potentially earning returns on their investments.

  2. Ethical Investment Categories: Ethical ISAs offer a wide range of investment options, including funds focusing on specific causes such as saving the planet, cutting down on human suffering, protecting wildlife, and safeguarding workers' rights. These funds may also avoid investing in businesses involved in activities deemed harmful, such as the arms industry, fossil fuel extraction, or exploitative labor practices.

  3. ESG Investment: ESG stands for Environmental, Social, and Corporate Governance. It represents a set of criteria used by investors to evaluate a company's sustainability and ethical impact. Environmental criteria assess a company's impact on the environment, social criteria evaluate its relationships with stakeholders, and corporate governance examines its internal controls and ethical standards.

  4. Impact Funds: Impact funds are investment vehicles that aim to generate both financial returns and measurable positive social or environmental impact. These funds invest in companies or projects that address specific social or environmental challenges while delivering competitive financial performance.

  5. Ethical Investment Platforms and Funds: The article highlights several ethical stocks and shares ISAs offered by different investment platforms. Each platform provides a selection of funds or portfolios with varying investment strategies, risk levels, and fee structures, catering to investors with different preferences and priorities.

  6. Fund Exclusions: Ethical ISAs typically exclude funds that invest in industries or activities considered unethical or harmful, such as arms manufacturing, tobacco, alcohol, gambling, and illicit drugs. These exclusions align with the ethical principles of socially responsible investing.

  7. Choosing an Ethical ISA: Selecting the right ethical ISA involves considering personal values, investment goals, and the specific ethical criteria of available funds. Investors should assess factors such as fund management fees, platform charges, investment strategies, and the track record of fund managers in integrating ESG principles into their investment decisions.

  8. Cost Considerations: While ethical ISAs may incur additional costs associated with fund management fees, they should not necessarily be more expensive than traditional ISAs. The total cost of investing in an ethical ISA depends on factors such as platform fees, fund management charges, and transaction costs.

  9. Transferring ISAs: Investors have the option to transfer some or all of their existing ISA holdings into an ethical ISA without losing their tax-free status. This flexibility allows investors to align their entire investment portfolio with their ethical values over time.

By navigating the landscape of ethical investing and understanding the intricacies of ethical ISAs, investors can align their financial decisions with their values while contributing to positive social and environmental change.

Best ethical investment ISAs - Times Money Mentor (2024)
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