Portfolio Dilemma: how do I invest for ‘good’?
An investor wonders how to match their portfolio to their principles.
23rd October 2026 09:51
by Dave Baxter from interactive investor
Sally asks: I like the idea of my investments doing good in the world, but don’t know where to start looking. Should I be using ESG (environmental, social and governance) funds, or is there another way?
Investing is a highly personal endeavour, given that we differ by our goals and our attitude to risk.
That’s especially the case when it comes to the idea of investing to do “good”.
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It’s important to first take a close look at your personal values and how they might align with your investment choices.
Some people wish to avoid sectors or companies they view as carrying out harmful activities, be that tobacco stocks, defence or big oil.
Some might even have qualms about the big tech companies and their social impact.
Meanwhile, some investors might want to back companies that actively seek to change the world for the better.
Whatever your preference, there are many options on offer, but also some big considerations to weigh up.
Understanding the funds
Environmental, social and governance (ESG) investing has lost some of its shine in recent years, largely because of some poor returns in the wake of the Covid-19 pandemic.
But many funds still seek to take an ESG approach – if in very different ways.
Buying a tracker fund has been a starting point for many in the last decade, and passive funds with an ESG or sustainable tilt do exist.
Those who worry about the presence of oil companies like Shell (LSE:SHEL) and BP (LSE:BP.) in the FTSE 100 can use names like the Amundi MSCI UK IMI SRIClmtPrsAlgdETFDR£C GBP (LSE:FT1K).
The fund, whose name is admittedly a mouthful, tracks one of the indices from MSCI’s SRI range, and these invest in the companies in a market that score best by certain ESG metrics.
This range is generally viewed as applying a stricter methodology than other ESG indices and being more selective about what you end up buying.
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To name a few examples in other regions, we have the iShares MSCI USA SRI ETF USD Acc GBP (LSE:SUUS), its stablemates the iShares MSCI World SRI ETF USD Dist (LSE:SUWS) and iShares MSCI Japan SRI ETF GBP (LSE:SUJA), plus the UBS MSCI EMU Socially Resp ETF EUR dis GBP (LSE:UB39) and the Xtrackers MSCI EM ESG ETF 1C GBP (LSE:XESE).
We highlight these as options that use the MSCI SRI range and remain competitive on price.
They can be quite different from conventional trackers – the UK fund has no exposure to BP or Shell, while the US fund excludes most of the so-called Magnificent Seven shares.
These might offer a low-maintenance way to take exposure to the main equity markets while dodging some of the companies investors view as harmful.
However such indices are a blunt tool, given that they invest based on a broad set of rules.
Investors might still end up with exposure to some companies they dislike, given that the funds choose the “best” names from potentially undesirable sectors.
The UK fund has a small exposure to Rio Tinto Ordinary Shares (LSE:RIO), for one.
It’s also worth noting that excluding large parts of the market can leave these funds pretty concentrated.
The US fund has just 147 holdings, and around 10.5% of its portfolio in NVIDIA Corp (NASDAQ:NVDA) alone.
The funds can also end up performing very differently to conventional trackers: the iShares MSCI USA SRI ETF has returned around 64% over the five years to 19 October 2026 versus around 81% from the iShares MSCI USA ETF USD Acc GBP (LSE:CU1).
Investors should therefore ask whether these funds are different enough – and the cost at which such difference can come.
Getting granular
If a more targeted approach is what you desire, many ESG-minded active funds do exist.
To name just a few options, there’s Liontrust Sust Fut Glbl Gr 2 Net Acc (3003006), WS Montanaro Better World A GBP Acc (BJRCFP1) and Baillie Gifford Positive Change B Acc (BYVGKV5).
Broad funds like these often target a handful of themes – but do sometimes end up having a decent level of exposure to the world’s biggest companies, to the US and to the tech sector.
The Liontrust fund has around a third of its portfolio in tech, with its top holdings including Taiwan Semiconductor Manufacturing Co Ltd ADR (NYSE:TSM), Alphabet Inc Class A (NASDAQ:GOOGL), ASML Holding NV (EURONEXT:ASML) and Broadcom Inc (NASDAQ:AVGO).
The Baillie Gifford fund has some of the same top holdings, plus names like Illumina Inc (NASDAQ:ILMN) and Ecolab Inc (NYSE:ECL).
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The Montanaro fund has a very different mix of top positions, with not a single tech giant in its top 10.
Instead we get names like Veeva Systems Inc Class A (NYSE:VEEV), Balchem Corp (NASDAQ:BCPC), Watts Water Technologies Inc Class A (NYSE:WTS) and Halma (LSE:HLMA).
There are plenty of other options available, from FP WHEB Sustainability Impact C (B8HPRW4) to Impax Environmental Mkts (IE) GBP X Acc (BYQNSD9) (although Impax’s investment trust did fall to the US activist Saba earlier this year).
But it’s important to inspect a fund’s holdings and read any commentaries to better understand what themes the fund targets, and whether they align with what you want.
Unfortunately, as mentioned, it has been a trying few years for ESG portfolios.
If we look at an especially bad time frame, over five years the Montanaro fund has lost around 25.7%.
The WHEB fund is down by around 6%, while Baillie Gifford Positive Change has made a positive return of 2.5%.
The Liontrust and Impax funds have fared better but are well behind the 73.9% return from the MSCI World index.
...ever more granular
Another idea is to back sector funds, or to hunt in sectors for stocks yourself.
Trusts like International Biotechnology Ord (LSE:IBT) and Worldwide Healthcare Ord (LSE:WWH) are involved in sectors looking to help people live longer, while clean energy exchange-traded funds (ETFs) focus directly on the energy transition.
Such ETFs can be very volatile and vary by how well they target a theme.
But looking at their portfolios might provide some inspiration for your own stock picks.
The poster child here is the iShares Global Clean Engy Trns ETF $ Acc GBP (LSE:INRA), which became extremely popular in the pandemic but then experienced some substantial performance woes.
Given how personal ESG is to each individual, it could make sense to even choose your own stocks.
But it’s still important to diversify – and to appreciate that your returns may differ significantly from those of the main market.
If you have a question you’d like to be considered in our Portfolio Dilemma series, we’d love to hear from you. Please contact: editorial@ii.co.uk
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
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