Ethical Investment Red Flags
The Ethical Investment Series which I published at the end of last year has turned into some of my most popular blogs. I followed it up with two newsletters showing you exactly how to read a fund fact sheet line-by-line, then an FAQ answering your questions about costs, returns and where to start (if you haven’t signed up, you are missing out on gold!).
Today I talk you through some red flags that I have been pondering. So much of the ethical world is a bit wishy-washy, people want to do their best but companies are hedging their bets, trying to please everybody and perhaps obfuscating the truth.
Remember you are powerful, your actions mean something and can cause change. Ethical investment is worth the time and effort.
With that in mind, what are we looking for?
Red Flag No. 1: Vague and Undefined Language
Phrases like ‘environmentally conscious’, ‘sustainable approach’ or ‘ESG considerations’ without any specifics.
What are their parameters? What does ‘conscious’ mean? How often and deep is their ESG analysis?
Look for clear statements such as ‘excludes fossil fuel extraction’, ‘actively engages with top 10 holdings on diversity in the boardroom’ or ‘holdings must score 7+ on MSCI ESG rating’.
Red Flag No. 2: Best-In-Class With No ‘Class’ Definition.
Phrases like ‘Invests in best-in-class companies’.
Best in what class? The best oil tobacco company is still a tobacco company.
Look for clear class definitions and even better, clear sector exclusions alongside the best-in-class claim.
Red Flag No. 3: Engagement Without Accountability
Phrases like ‘we engage with companies to improve practices’.
Do they actually vote against management? What happens if the engagement fails? Will they divest? How often and how deep are the discussions?
Look for clear examples like ‘we voted against 12 company resolutions on human rights issues in 2025’ or ‘we divested from two companies after unsuccessful 2-year engagement’.
Red Flag No. 4: Contradictory Holdings
A fund claiming climate focus that holds major airlines, cruise lines or fossil fuel companies
The actions aren’t matching the words.
Look for coherent holdings that align with stated values. For instance, a fund marketing itself as 'climate-focused' but holding Shell, BP and ExxonMobil in its top 10 holdings should raise questions (unless their explicit strategy is engagement with fossil fuel companies).
Red Flag No. 5: The Transitioning Excuse
Phrases like ‘we invest in companies transitioning to sustainable practices’.
Is this an excuse to hold big, profitable companies indefinitely because they have a 2050 net-zero pledge?
Look for a clear explanation of what ‘transitioning’ means, timelines and how companies are held accountable.
How Do I Assess These Ethical Investing Red Flags?
This information can be found in the fund’s prospectus - which is not the marketing page. You will have to dig a little deeper but they are absolutely available for you to read before you engage with them.
In the fund fact sheet you will be able to find a list of holdings which is worth at least glancing over. They may also publish engagement reports and voting records.
These prospectuses and fund fact sheets can look a little scary at first (loads of numbers generally stresses me out) but as you read a few you get a feel for the ones which are grounded in something proper and those which are wishy washy.
It can be worth googling ‘[fund name] + controversy’ and see if anything juicy comes up.
Do Your Best
Finally, nothing you do will be perfect. Absolutely nothing. All of this, every last bit, is a balance. So try not to get caught up in it.
You’re not reading this if you’re a billionaire, you’re reading this because you feel a bit confused and possibly stressed about what you should do with your money but you also know you want to do good in the world - please know that you deserve stability and wealth.
Make the best decision that you can right now and know that if you learn more, you can know better and do better.
I am so interested in any ethical investing questions that you have - I can see from the engagement that this is something you’re actively interested in too so absolutely send them over!
Love Eleanor. Xxx
