Ethical and thematic investing
Summary
- Ethical and thematic investing helps align your money with your values and long-term global trends
- Options like ESG funds and ETFs make it easier than ever to invest in causes you care about, while still aiming for strong returns
- Getting started is simple – choose what matters to you, pick a fund or portfolio, and review it regularly
What is ethical investing?
Investing ethically means choosing to allocate all or some of your investments based on moral, social, religious or environmental values.
An example would be an ETF that excludes certain industries, such as tobacco, weapons and fossil fuels. As an individual investor, it can be difficult to ensure harmful industries aren’t included in a fund, as it might be made up of thousands of investments.
In response to demand, fund managers are increasing their provision of particular ethical investment options, tailored towards different values. This can be anything from a fund focussed on clean energy solutions, to a Shariah fund that is compliant with Islamic Law.
What is thematic investing?
Investing in a particular thematic refers to long-term trends – think clean energy, AI, space innovation. A lot of thematic investment trends are focussed on ethical themes such as climate and tech innovation, but this isn’t a guarantee.
ETFs that cover thematics have seen a recent surge in popularity, thanks to availability of lower cost investment options and ever-growing trends in innovation.
ESG, SRI and impact investing: What’s the difference?
There are a few terms and acronyms you might see associated with ESG or thematic funds:
- ESG (Environmental, Social, Governance) – This term refers to the framework used to assess the sustainable and ethical commitment of a particular company. You might see this tagged onto the end of a fund name, which indicates it meets the criteria of this framework.
- SRI (Socially Responsible Investment) – This term refers to the social responsibility of an investment. Again, this could be an assessment of a particular company or an ETF made up of these companies than comply with this framework .
Why do people choose ethical or thematic investing?
There are a few reasons people might choose ethical or thematic investing:
- To align their investments with personal values and drive positive change – think climate progress, healthcare equality, conflict resolution
- A belief that these investments will outperform other investments over time. For example, a sustainable and innovative sector might see more significant growth and demand, as global regulations tighten
- An opportunity to invest in exciting future trends like AI and space innovation
How can you access ethical and thematic investments?
If you’re looking to invest in ethical or thematic investments, there are a few vehicles you can use:
- ETFs & Funds – Such as an ESG focussed multi-asset fund or AI ETF
- Stock Picking – Choosing individual companies that align with interests, principles or frameworks
- Robo-advisors – Some offer ethical or thematic portfolios, and preference setting to suit different needs
- Fund ESG/SRI Ratings – Some platforms offer a rating system to help investors identify a fund's ethical commitments
Understand the basics of investment portfolio management.
How to get started with ethical and thematic investing
If you’re interested in getting started:
- Think about what aligns with your values and interests
- Look for the right investment fund or asset class for you
- Start small and aim for diverse exposure
- Reassess your portfolio annually and make sure it still aligns with your values and goals
When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than your original investment. Chip does not offer financial advice and this should not be considered as a personal recommendation. Chip does not provide tax advice and does not offer pensions.
