Responsible investment
How to invest responsibly in funds and shares
Important information: investing for longer increases the likelihood of positive returns. Over a period of five years or more, investments usually give you a higher return compared to cash savings. But investments can go down as well as up in value, so you could get back less than you put in.
The information on this page isn't personal advice – ask for financial advice if you’re not sure what’s right for you.
What is responsible investing?
Responsible investing is a catch-all term that encompasses everything from analysing Environmental, Social and Governance (ESG) factors to identify risks and opportunities, to investing in companies that make a positive, measurable impact on the environment and society.
There are many different approaches that sit under the responsible investing umbrella. They can be used on their own or together but should always be used to complement traditional financial analysis.
Learn more about what it means to invest responsibly, and the different approaches you can take.
Approaches to responsible investing
Sustainable investing
You can approach sustainable investing in different ways.
Funds that use one of these four approaches will be marked with a sustainability label.
Funds invest in companies that are environmentally and/or socially sustainable.
Funds invest in companies with the potential to improve their environmental and/or social sustainability over time.
Funds invest in companies that aim to achieve a positive, measurable impact on the environment and/or society.
Funds invest in a mix of companies that are already sustainable, have the potential to become more sustainable, or aim to achieve a positive impact.
Other forms of responsible investing
If sustainable investing isn’t for you, you can take a different approach.
These three alternative approaches aren’t mutually exclusive. In fact, most funds with a sustainability label will generally incorporate ESG Integration, Stewardship and Exclusions.
ESG Integration
Consider the environmental, social and governance risks and opportunities of the companies you invest in as part of your wider research. It could cover a range of different topics – from carbon emissions to data security and employee health and safety – that vary in importance depending on the company's size, location and industry. Our fund and share research includes analysis of how ESG is integrated in investments under coverage.
Stewardship
Interact with a company you invest in to drive positive change. Ordinary shareholders can use their voting power to drive change on issues they care about, but fund managers can often speak with a company's management team directly to make their views heard.
Exclusions
Screen out specific companies or industries that you believe do harm to society, or aren't in line with your moral values. Weapons manufacturers and tobacco companies are common exclusions.
How to invest responsibly
Responsible fund ideas
Discover which funds have made our shortlist and read the latest reviews from our Research Team.
Investing responsibly in shares
Put your principles into practice with our tips on how to analyse shares, across a range of sectors.
HL's commitment to responsible investment
Find out more about how we invest responsibly across our own fund range.
For more information, please see our ESG Investment Policy and Stewardship and Engagement Policy. Other relevant reports, including our Task Force on Climate-Related Financial Disclosures (TCFD) report and Sustainability Accounting Standards Board (SASB) disclosures are below.
FAQs
We meet all the fund managers we invest with, and a number of others, at least once a year, or more frequently where required. ESG has naturally become a bigger part of those conversations over the years. Following each fund manager meeting, we consider whether the manager is fully taking account of the ESG risks applicable to their portfolio, if they’re supported to do so by the fund group they work for, and how they consider climate risk. We communicate our views to investors through our fund updates.
As a signatory of the United Nations-backed Principles for Responsible Investment, we understand the importance of good stewardship and upholding the standards of responsible investing. Our ESG Investment Policy and Stewardship and Engagement Policy outline how we embed ESG into our investment analysis and decision-making processes.
Engagement is central to our stewardship efforts, facilitating a deeper understanding of the material risks and opportunities inherent in the companies and funds we invest in. We conduct ESG risk monitoring across all investment solutions, ensuring adherence to our ESG Investment Policy. If deficiencies are identified as a result of this monitoring, we’ll engage with the appropriate party.
We also carry out thematic engagement covering three core areas: climate change, sustaining positive community relations, and fair remuneration. Where relevant, we also participate in collective engagement initiatives to leverage our influence for greater impact.
Finally, we engage on issues our clients tell us they are passionate about. Our recent ESG investor survey found that HL clients care deeply about deforestation, so we’ve prioritised this topic. More detail on our approach to engagement, as well as engagement case studies, can be found in our Stewardship and Engagement Report.
We don’t think there’s anything inherent about any of the responsible investment approaches that will lead to worse performance than more conventional investments over time. As ever, if you’re investing in a fund, it’s important to invest your money with skilled fund managers who have delivered for investors over the long term.
Some of the responsible investment approaches will cause performance to differ from more conventional investments though. For example, if you exclude areas like oil and gas and tobacco, which are big parts of the UK stock market, your investments could underperform when those areas do well, but do well in comparison to the market when those areas suffer a setback.
Investors increasingly want to know their money is being managed in a responsible way. This has led some fund managers and companies to cut corners and overstate the progress they've made at integrating ESG. But there are several things you can do to make sure those you invest with are walking the walk, as well as talking the talk.
Firstly, if you’re investing in funds, check the fund house your fund manager works for is signed up to industry initiatives, such as the UN-backed Principles for Responsible Investment (PRI). When firms sign up to the PRI, they make a commitment to invest responsibly, incorporate ESG issues into their investment analysis and decision-making processes, and to develop their approach over time. Just visit the PRI website and search the name of a fund house to see if it's signed up.
Many firms produce a responsible investment, ESG or sustainability report, which you'll find on their websites. Assessing the depth and granularity of these reports can be a great way to check if a company is fully embracing ESG.
Finally, look for third-party endorsement. Those who’ve made the most progress may receive recognition for their efforts, such as awards, or fund managers may be asked to provide commentary on their approach in the financial press.
When selecting funds for inclusion on the Wealth Shortlist, we use a mixture of these approaches, combining them with insights gleaned from fund manager meetings, third party data sources and our own proprietary analysis tools.
The Sustainability Disclosure Requirements (SDR) are a package of regulations introduced by the Financial Conduct Authority to stamp out greenwashing and make it easier for investors to find sustainable funds that meet their requirements.
It includes an anti-greenwashing rule, which clarifies that the sustainability-related claims made by firms must be fair, clear and not misleading. It also tightens the rules governing how funds can use sustainability-related terms in their names and marketing.
The regulation introduces four new fund labels: Sustainability Focus, Sustainability Improvers, Sustainability Impact and Sustainability Mixed Goals. Only funds with a label are allowed to use the term ‘sustainability’, or any variation of that word, in their names, and only Sustainability Impact funds can use the term impact.
There are a number of criteria funds must meet in order to use a label. For example, to use any of the four labels, at least 70% of the fund must be invested in line with the sustainability objective. Labelled funds must also make a series of disclosures to help investors understand and compare their sustainability characteristics.
It's important to note that overseas funds are not subject to SDR, but the FCA is working to include them within the scope of the regulation. Our fund factsheets specify when funds aren't covered by SDR.