22 April marked International Mother Earth Day, which aims to raise awareness of the need to protect our planet.
So, if you’re interested in ethical and environmentally friendly investing, now is an ideal time to review your portfolio and think about how you could make your finances greener.
Keep reading to learn four practical steps to take – whether you’re an experienced investor or a beginner – to align your finances with your values.
1. Identify your core values
Before you can develop an ethical and sustainable investment strategy, you need to be clear about what your values are.
You might have heard of ESG investing, which stands for Environmental, Social and Governance investing. This is an investment approach that takes both financial and non-financial factors – such as a company’s eco credentials – into account.
Which of these matter to you most?
- Environmental sustainability – How a company manages its impact on the natural world, including its carbon emissions, energy use, pollution control, and waste management.
- Social justice – How a business cares for its relationship with employees, customers, suppliers and communities. This might include factors such as human rights, and diversity and inclusion.
- Corporate governance – How well a company maintains the quality of its leadership and internal controls, as well as its consideration for factors such as shareholder rights and board diversity.
Once you know where your priorities lie, you might also want to focus on specific causes within that area, such as renewable energy or gender equality.
2. Assess your current investments
Reviewing your existing investments to see if they align with your core values and beliefs is a logical place to start if you want to make your finances more ethical.
Even if you’re relatively new to investing in the stock market, you may already have some wealth invested in ISAs and pensions.
Take a look at your portfolio and identify any areas where you might like to make changes, such as switching to more ethical or environmentally friendly providers and funds.
You can find information about the ESG credentials your investments carry, if any, from sources including:
- ESG ratings providers – Large organisations, such as MSCI and S&P Global ESG, provide comprehensive ESG ratings and data on thousands of companies around the world. This information could help you evaluate a company’s sustainability and ethical performance so that you can make an informed decision.
- Company reports – Publicly listed companies often publish annual sustainability or corporate social responsibility (CSR) reports on their websites. These might shed light on how well your investments stack up against the ESG factors that are most important to you.
- Online ESG data tools – You can use tools like the MSCI ESG Ratings & Climate Search Tool to search for ESG ratings of specific companies online.
If you struggle to find the information you need, it may be worth speaking to a financial planner. They can help you drill down into your investments and make adjustments so that your portfolio better reflects your ethics.
3. Explore ethical and sustainable options
According to figures published by Bloomberg in 2024, global ESG assets surpassed $30 trillion in 2022 and are predicted to hit $40 trillion by 2030, which equates to over 25% of projected assets under management.
This rise in demand for ethical and sustainable options means that you have much more choice when it comes to building a sustainable portfolio than previous generations had.
So, after identifying your values and evaluating how well your current investments align with your ethics, the next step is to explore the different ESG options available.
You might like to consider:
- Individual stocks and shares – If you’re confident in assessing the ESG credentials of specific companies, picking individual stocks and shares in companies with strong sustainability records might be an appealing option. However, remember to diversify your investments to balance the risk in your portfolio.
- Investment funds and trusts – These allow you to invest in multiple businesses at the same time. ESG mutual funds and Exchange-Traded Funds (ETFs) only include companies that have been screened to ensure they meet certain ethical and environmental standards.
- Green bonds and gilts – If you’re new to investing or apprehensive about risk, green bonds and gilts are a relatively low-risk, fixed-income investment that fund environmental projects.
A financial professional can help you diversify your portfolio to ensure that your investments are compatible with both your ethics and your personal financial goals.
4. Educate yourself about potential challenges
Having the peace of mind that your money is invested in companies that uphold your core values may sound attractive.
Yet, before making any changes to your investment strategy, it’s important to be aware of the potential challenges you might face when switching to ESG investments. These include:
- Complex and inconsistent regulations – ESG standards and reporting procedures may vary between regions. This could make it difficult to compare the performance of different companies.
- Greenwashing – Some companies exaggerate or make false claims about their products, services or operations, to boost their ESG credentials. While regulators have made moves to crack down on this practice, it’s essential that you remain vigilant and conduct careful research before investing in any new opportunity.
- Virtue signalling – This is similar to greenwashing, but refers specifically to companies or investors adopting policies solely to appear more ethical or environmentally responsible, when in reality, these do not reflect any particular actions or impact.
Get in touch
If you’d like to learn more about how to align your investments with your values, we can help.
To find out more, please get in touch. Email hello@sovereign-ifa.co.uk or call us on 01454 416653.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Approved by Best Practice IFA Group Ltd on 25/04/2025