Ethical Investments

choi

I want to try to use an Ethical Investment Portfolio for a sum of £350k
Of particular interest is investments in ethical energy production

But I'd also like to meet the requirements of ESG

I am keen to avoid Greenwashing 

I have been advised by IFAs that the costs will be higher than those for traditional portfolios 
A figure of 0.6% higher was mentioned

I've also been advised that returns may be lower than traditional portfolios and they are likely to be more risky

I have been quoted a range of figures for IFA and other fees

1.6% for traditional portfolio

2.2 % for ethical portfolio

My concern is that the ethical portfolio will struggle to beat inflation after IFA and other fees

And also there could be big drops in value over the early years.

Is there a compromise solution of any kind.

Having come so far I do not want to start worrying about making the wrong decision

MX5huggy

Investing significant proportion of your fund in such a narrow field as Ethical Energy is not a good idea.

ESG generally just takes out really “bad” stuff fossil fuel production, arms, tobacco, alcohol (is that bad?). !!!!!! and again controversially nuclear power. As someone pointed out you still get McDonald’s Coca Cola and airlines. 

Is VW cars ethical? They make more sausages than cars.

it’s the big drops in the later years that are the real problem. 

dunstonh

I have been advised by IFAs that the costs will be higher than those for traditional portfolios 
A figure of 0.6% higher was mentioned

They are usually more expensive but not necessarily that much more.  It really depends on the underlying assets. 

A hybrid portfolio would be a mixture of active and passive funds but your ESG requirements may mean that fewer passive funds can be used and that will put the costs up.

I've also been advised that returns may be lower than traditional portfolios and they are likely to be more risky

Historically that has been the case more often than not.  However, in recent years it may be less so.  I have found our defensive and cautious ESG portfolios have outperformed conventional over the last 3 years but the medium and higher risk conventional ones have outperformed the ESG equivalent.   

I predict that in the future there won't be ESG vs conventional but pretty much everything will be neutral or meets an ESG criteria.

I have been quoted a range of figures for IFA and other fees
1.6% for traditional portfolio
2.2 % for ethical portfolio

IFAs will include OCF, TC & IC in charges disclosure. DIY investors tend to ignore TC&IC.  So, possibly 0.0x%to 0.3x% could be down to TC. 
A lower risk ESG portfolio will have a higher level of neutral investments (such as gilts).  So, you would expect those to have lower charges than a higher risk one.   
However, there is no reason for an ESG portfolio to get that high.  Perhaps the IFA charge is 1.00% p.a. rather than 0.5%.  Perhaps there is a DFM involved.  

My concern is that the ethical portfolio will struggle to beat inflation after IFA and other fees

It shouldn't be a concern unless you are defensive on your investments.

And also there could be big drops in value over the early years.

This is why investing is considered something for the long term.

Is there a compromise solution of any kind.

Compromise in what way?   Charges - yes you can get cheaper.  Even more so if you drop the ESG requirements.   Risk - risk exists in virtually all options and the less risk you take, the less likely you will beat inflation.

Having come so far I do not want to start worrying about making the wrong decision

You have posted many times on this board over a long period and I think you are constantly worried. Almost to the point of it paralysing your decision making.

tranquility1

I'd be looking to turn that £350k into a cool £1m regardless of what it's invested in.  No f's given.

tebbins

tranquility1 said:

I'd be looking to turn that £350k into a cool £1m regardless of what it's invested in.  No f's given.

Many thanks for your wise contribution. As you can see the OP is asking about an ethical, green investment portfolio and are concerned about the possibility of loss indicating a more moderate risk profile.
Bitcoin is incredibly carbon intense and used by criminals and scammers.

Thrugelmir

choi said:

Is there a compromise solution of any kind.

Be prepared to invest in companies that are transitioning themselves towards becoming ESG.  

JohnWinder

have been advised by IFAs that the costs will be higher than those for traditional portfolios 
A figure of 0.6% higher was mentioned

I've had a quick and dirty look at this, comprehensive by no means. Vanguard offer an ESG developed world equity tracker for 0.2%/year, and a similar non-ESG for 0.12%/year.  If eight basis points extra is too much to pay, what about Vanguard's global all cap equity funds? The ESG is 0.24%, and the ugly sister is 0.23%.

grumiofoundation

JohnWinder said:

have been advised by IFAs that the costs will be higher than those for traditional portfolios 
A figure of 0.6% higher was mentioned

I've had a quick and dirty look at this, comprehensive by no means. Vanguard offer an ESG developed world equity tracker for 0.2%/year, and a similar non-ESG for 0.12%/year.  If eight basis points extra is too much to pay, what about Vanguard's global all cap equity funds? The ESG is 0.24%, and the ugly sister is 0.23%.

For clarification do you mean All-world or all-cap? The ESG all-world fund is an ETF not a traditional 'fund' (generally a minor difference I know).  

From the OP's post it may be the case that these options aren't 'ethical' enough and would constitute 'greenwashing'. 

grumiofoundation

choi said:

I want to try to use an Ethical Investment Portfolio for a sum of £350k
Of particular interest is investments in ethical energy production

But I'd also like to meet the requirements of ESG

I am keen to avoid Greenwashing 

I have been advised by IFAs that the costs will be higher than those for traditional portfolios 
A figure of 0.6% higher was mentioned

I've also been advised that returns may be lower than traditional portfolios and they are likely to be more risky

I have been quoted a range of figures for IFA and other fees

1.6% for traditional portfolio

2.2 % for ethical portfolio

My concern is that the ethical portfolio will struggle to beat inflation after IFA and other fees

And also there could be big drops in value over the early years.

Is there a compromise solution of any kind.

Having come so far I do not want to start worrying about making the wrong decision

Key question is your ethical requirements/aims. Overall the risks//complexity/costs of the portfolio will be almost entirely driven by this.

You say "But I'd also like to meet the requirements of ESG" - but what does this mean? There are no across the board ESG requirements, each fund manger/index provider will set their own rules/exclusions.

You can get passive 'ESG' funds that would be far cheaper but would these fulfill your ethical requirements. As said above by Dunstonh if you have more specific requirements then you will have to pay extra for active management and will require more research to be done - either by you or on your behalf by IFA.

In terms of risk/return the returns of the passive options mentioned by JohnWinder above will likely not diverge hugely from the non-ESG equivalent. However once you start going into smaller sectors, such as green energy production etc the risks do increase (as do the costs of active management - looking at ~1% OCF),


Couple of threads you might find interesting:
https://forums.moneysavingexpert.com/discussion/6289460/sustainability-environmentally-friendly-funds-e-g-jupiter-ecology/p1
https://forums.moneysavingexpert.com/discussion/6287661/nutmeg-sri-jisa-advice/p1

JohnWinder

For clarification do you mean All-world or all-cap?

Pretty sure I meant what I wrote, but I certainly wasn't taking note of whether any were ETF's or F's not tradable on an exchange.

grumiofoundation

JohnWinder said:

For clarification do you mean All-world or all-cap?

Pretty sure I meant what I wrote, but I certainly wasn't taking note of whether any were ETF's or F's not tradable on an exchange.

All the funds are All-cap so not the best choice of term to differentiate them is why I asked. 

Worth highlighting that the Vanguard all-cap ETF is 'all-world' (including emerging markets) whereas as the name suggests the developed world ESG fund is developed world only (also is an EM version). 


https://www.vanguardinvestor.co.uk/investments/vanguard-esg-developed-world-all-cap-equity-index-fund-gbp-acc
https://www.vanguardinvestor.co.uk/investments/vanguard-esg-global-all-cap-ucits-etf-usd-distributing