Choosing Ethical Stocks and Shares ISAs

POSTED ON Tuesday, 25 February, 2020

Choosing ethical Investment ISAs mean you can put your money where your mouth is, by investing your cash in line with your principles. But how do you choose the best place for your investment? 

ISAs are accounts with a tax-free wrapper allowing you to enjoy tax-free returns from investments. Ethical ISA funds are used to invest in unit trusts, gilts, the stock exchange, life assurance and other ventures along those lines.

With the advent of the climate change crisis dominating the headlines, more and more people are trying to live the most ethical, eco-friendly way possible to minimise their impact on the planet. This includes the type of unit trusts, gilts, stocks and ventures that people are looking to invest in.

What makes the ISA “Ethical”?

Ethical Investment ISAs are accounts which specifically invest your money in socially responsible stocks and shares.

By choosing an ethical investment ISA, you can enjoy tax-free returns on your investments which align with your principles.

Depending on the provider you choose for your Ethical Investment ISA, the following industries will generally be excluded from investment opportunities:

  1. Tobacco
  2. Alcohol
  3. Pornography
  4. Gambling
  5. Fur trade
  6. Armaments
  7. Oil companies
  8. Mining companies
  9. Fire arms manufacturers

This is due to a variety of concerns about these industries and companies ranging from environmental and human rights considerations. These are considered to be harmful for the environment or society, so they’re excluded from investments from Ethical Stocks and Shares accounts.

Some might not necessarily exclude all of these – but rather will examine each individual investment opportunity and company in order to make a decision about an investment. For example, while an investor might be apprehensive about putting money behind an oil company, should that company be working on alternative energy solutions then this might make it a consideration.

I want to open an Ethical Investment ISA. What Do I Need to Consider?

When choosing an account, you need to answer the basic question of what matters to you. What are the values which you want to put your money behind? Are you specifically concerned about human rights? Or about animal rights? Or perhaps you are passionate about environmental issues.

Decide what your priorities are – then go shopping.

There are a great range of accounts out there, with lots of different options – meaning whether you have really strong views on one specific issue, or you just want to generally know your money is making positive change in the world, there will be an account for you.

Is an Ethical Investment ISA or an Ethical Cash ISA for me?

If you are willing and able to leave your funds in an ISA for longer periods of time, such as five years, then an Ethical investment ISA is a good fit for you. If you will need access to your cash sooner, a fixed-rate or Instant Access Cash ISA might be better suited to your needs.

Like all other investment ISAs, when putting money away you need to be aware that the stock market will fluctuate. This means you could end up getting less money back than you invested if your stock performs poorly.

How Many Ethical Stocks and Shares ISAs can I have?

Since you can only open one Ethical ISA per tax year, it’s a good idea to shop around before you choose the account and provider which is right for you.

But you can hold more than one Ethical Investment ISA, as long as you haven’t opened more than one a year. So if you invested in an Ethical Stocks and Shares ISA in the 2019/2020 tax year, you can open a totally new one in tax year 2020/2021.

Read more about Ethical Investment ISAs