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Ethical Investing - FAQs

Ethical investing FAQs

We asked our Head of Investments, Rebecca O'Keeffe, to answer questions about ethical investing and how to start investing.

What is your selection process for the ethical long list of investments?

Our starting point was to compile a list of all funds, investment trusts and exchange traded funds available on the interactive investor platform by screening for names that suggested they have some form of ethical, social or governance bias. We then reviewed various industry databases, including SRI Services and Morningstar which monitor for investment styles and sustainability. This gave us a starting point where we had a full list of potential ethical options. This list was then further edited by industry experts at SRI Services, to ensure that the investments are truly robust ethical options.

This list is our ethical long list. We have tried to ensure that the investments listed all have some ethical principles, but investors should do their own independent research to make sure that any choices meet their own personal ethical criteria.

We have strived to create a good starting point for investors, but we will continue to monitor the market for new launches or for managers who have adopted ethical screening into their selection processes and add more ethical investment options to our tradable universe.

We actively welcome challenges from fund managers who believe we have missed out on listing ethical options, or from our customers who may have queries about whether certain investments should or should not be included. Queries can be sent to ethicalinvesting@ii.co.uk

What is the purpose of the list?

The absence of an ethical sector has made it very difficult for investors who are trying to invest sustainably or in investments that do no harm. We have created this list as a starting point for investors who are interested in looking at ethical investing.

Does ii impose its own view on what should be on the ethical list?

No. We screened our tradable universe using commonly used ethical terms and by reference to two independent industry databases, and then consulted further with industry experts. We have created our ACE categories (Avoids, Considers, Embraces) in conjunction with industry experts to identify the general approach taken by the fund manager. However, we have not made any subjective determination as to whether an investment should be on the list or not.

How do I use the table?

Our table has three categories. First, the ii ethical style, which gives a broad approach to the investment style of the fund manager. Second, the Fund EcoMarket (FEM) category, which delivers a more granular approach to the approach taken by the manager. Third, the Morningstar category, which identifies ethically investment styles based on language in the fund prospectus.

Investors may already have a favoured approach – for instance, they may want to do no harm by avoiding certain sectors, or alternatively to choose a fund that is trying to make a substantial impact for change.

Definitions of the style and names used can be found here. Please note: our list and the categories should be seen as a starting point for further research.

Are all the investments listed ethical?

Ethical investing is very personal, so we have deliberately identified the different characteristics of investing for good to allow investors to choose the style they want. However, simply choosing a fund on the basis of a particular style is no guarantee it will match your personal investment criteria, in addition to which it can often be difficult to find a truly ethical option.

For example, investors who are looking to do no harm and screen out the ‘sin stocks and sectors’ from their portfolios may be happy to look at the Avoids ii category or the Negative Ethical category from Fund EcoMarket. However, while some funds avoid oil stocks, others may include them if an underlying company also produces renewable energy. Another example is where environmentally friendly companies need to use certain minerals such as cobalt for electric car batteries or silver for solar panels. These minerals are mined, but mining is a sector that is traditionally perceived as non-ethical. These conflicts are inherent in the ethical investment world.

We have tried to list ethical options so that investors can create a short list for further research and identify those investments that fit in with their own personal beliefs.

How many changes do you expect to the list?

We hope to update continuously the long list of ethical investments as new ESG (ethical, social and governance) investment options become available. We will also be reviewing existing investments on the list to make sure they maintain their ethical criteria.

We would welcome challenges to the list, both from investors and fund managers. Please let us know if you believe that we are missing good ethical options, or where you believe that an investment should not be on the list. Comments and queries can be sent to ethicalinvesting@ii.co.uk

Which ethical investment style is best?

No style is inherently better than the others, however most individuals will have a personal preference. For example if your aim is only to avoid making ‘accidental’ investments into companies that do obvious harm (such as tobacco or weapons producers) then look for ‘Avoids’ style investments; if you are mainly focussed on financial returns but also want your manager to invest as responsibly as possible, then the ‘Considers’ style may work best for you; but if your primary aim is to make a tangible positive impact on the environment or society, you will probably prefer investments in the ‘Embraces’ style category.

Are investments on the list truly ethical, or have they been ‘greenwashed’?

Greenwashing is a term that typically means that something is claiming to be more ethical or environmental than it actually is. Many investment funds claim to have an ethical bias, but we want to make sure that all those on our list are truly ethical at heart and so we have consulted independent ethical expert SRI Services to ensure that all investment options listed are genuinely ethical.

We welcome challenges to the list, both from investors and fund managers. Please let us know if you believe that an investment should not be on the list. Comments and queries can be sent to ethicalinvesting@ii.co.uk

Why are there so few fund managers listed on the ethical list?

We have attempted to identify robust ethical options for the list, irrespective of the fund management group. However, some fund managers actively integrate ethical and ESG criteria into their investment process or have a range of ethical options run by teams focusing on specific ethical criteria, which is likely to result in them having more ethical investment options available. Other fund managers may have bespoke ethical options and have less investments on the list.

Are there any hidden commercial considerations to be aware of?

Our flat-fee pricing means that our investors do not need to have to have any concerns about vested interests of ii. There are never any hidden commercial considerations or other conflicts.

The selection process for all our lists, including the ethical list and any rated lists we have, is rigorous, independent and underpinned by the key principles of transparency, choice and fairness.

Why don't we ask for discounts?

We are happy to obtain discounts from fund management groups, and our aim is to provide the keenest prices in the market. However, we do not allow such commercial considerations to affect the selection process for any of our lists. Investments don’t become ‘ethical’ just because they have additional discounts.

If we are subsequently able to achieve better prices for our customers for any of our investments, then this will be an additional bonus. Even without discounts, the cost of buying a fund is usually cheaper for ii customers than obtaining a discount and paying a percentage-based platform fee elsewhere.

How do flat fees benefit our customers?

Flat fees are typically more advantageous for those customers who already have assets more than £20,000. For those with more substantial assets, the benefit is even more pronounced, enabling investors to save thousands of pounds each year in costs.

For an investor who chooses to invest in low-cost passive funds, it makes no sense to pay a large percentage-based platform fee on top of the small management fee.

Are these recommendations?

No, as an execution-only provider we do not provide advice involving personal recommendations. Our objective is to develop a broad universe of ethical investments from which our customers can choose their own investments.

In our experience, individual investors tend to know their own investment preferences, so will be able to decide on whether to invest in funds and trusts that have a particular style, including those that avoid particular investments and sectors or those that actively embrace new, clean technology or other investments. Investors also have product types they prefer, be they ETFs, funds or investment trusts, and can be be primarily active or passive investors.

Factsheets for each of the investments listed are updated regularly. They contain current performance and valuation metrics, as well as key statistics to help investors make their own judgements.

The ethical investment list does not form a personal recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in the rated investment list may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

How much does it cost to buy any investments on the ethical list?

Our customers pay a monthly fee, depending on the Service Plan they choose. To buy and sell online is usually £7.99 a trade, which we reduce to £3.99 if you choose our Super Investor plan. If you want to make Regular Investments, then it costs just £0.99 for each investment. View our full rates and charges.

What is a fund?

A fund is a pool of investors' money run by a fund manager who invests on behalf of the customer, invested into different assets and professionally managed by the fund manager and their research team. Each investor receives units, which represent a portion of the holdings of the fund.

What is a trust?

Investment trusts are listed companies that invest in the shares of other companies or fixed income securities, unquoted securities or property.

As a listed company its shares are quoted on the London Stock Exchange and the share price is determined by demand and supply.

What is the difference between a fund and a trust?

Investment trusts are closed-ended companies. This means they have a fixed number of shares in issue, unlike Funds that are open-ended investment companies ('OEICs') or Unit Trusts. Investment Trusts are also listed companies and must have an independent board of directors that are obliged to answer to their shareholders.

What is an ETF?

Exchange-traded funds (ETFs) are collective funds that trade on a stock exchange. They are designed to track the movements of an index, commodity or basket of assets. They will do this by taking positions in the underlying securities that make up an index in the same weights that they appear in that index.

ETFs are offered on a vast range of indices and commodities and usually have a lower annual management fee than other types of collective investment fund. They are also bought and sold in the same way as normal shares, but because they are a basket of stocks like a fund, you do not pay stamp duty on the purchase of ETFs, as stamp duty has already been paid on the underlying investments held by the ETF. However, you will be subject to tax on any gains made from your investment in an ETF.

What is the difference between active funds and passive funds?

An actively-managed investment fund has an individual fund manager or a team of managers who make investment decisions for the fund. They seek to deliver a higher return than the relevant market index.

Passive management of a fund intends to track the returns of an index, it doesn't have a fund management team making decisions.

Passive funds typically cost less than actively managed funds.

How can I invest in the investments on the ethical list?

Customers who already have an account with us can simply click on the investment name to get through to the relevant factsheet and then select the buy buttons and login to their account. Customers who do not have an account with us yet can apply for an account. Applications take just a few minutes.

What information do I need to open an account?

To open a Trading Account you must be 18 or over and either a UK, Channel Islands or Isle of Man resident. You will need the following information.

•    Your address details (last three years)
•    Your National Insurance number
•    Your debit card details.

Can I invest in these ethical investments in an ISA or SIPP?

Yes. All these funds can be held in an ISA or a SIPP and being tax-efficient is hugely important over the long term.

If you have a Trading Account with us you don’t pay any more for an ISA.

If you want to open a SIPP there is an additional charge of £10 per month. Click here to check all of our charges.

Can I set up a regular investment and buy these investments monthly?

Yes. Our account allows you to invest regularly for just 99p per investment. This allows you to build up your investment portfolio in a simple, low-cost way to achieve your investment goals. It also ensures that you can balance your returns over the longer term, removing the worry of investing a lump sum.

Click here for more details.

Can I hold other investments in my account?

Yes. Once you have an account with us you can choose to invest across a wide range of investment options including funds, investment trusts, ETFs, equities, including both the UK and a wide range of international markets, and bonds.

We also offer a range of tools and filters to try and make it easy for you to decide what investment options suit you.

Which investment is right for me?

We don’t offer advice and any decision to invest is based on your own personal circumstances, including how long you intend to invest for and the amount of risk you are willing to take.

Each investment has a factsheet detailing its asset allocation and objective.

How can I look at alternative investment options to invest in?

We offer a fund search option that allows you to filter the range of available funds and search options that allow you to explore the whole range of available investments including shares, investment trusts and ETFs.

Risk Warning: The price and value of investments and their income fluctuates: you may get back less than the amount you invested. If you are unsure about the suitability of a particular investment or think that you need a personal recommendation, you should speak to a suitably qualified financial adviser. Please note, the tax treatment of these products depends on the individual circumstances of each customer and may be subject to change in future. If you are uncertain about the tax treatment of the products you should contact HMRC or seek independent tax advice.

Ethical investing
Overview | Ethical Investments | Table definitions | FAQs