Ethical alternative to the likes of Black Rock, Vanguard, Fidelity etc

Welshwonder_2

Hi, does anyone have suggestions for an alternative to an auto-enrolled pension which is invested by the employer in Black Rock? My daughter (29 with health issues) earns very little from a part time job , wants security for her pension but hates what Black Rock and the like are doing to the world. She asked me to look into alternatives and I just don't know where to start - so suggestions would be gratefully received. Thank you

El_Torro

The firs thing to look at is what the employer's platform can invest in. They may have options for ethical funds, though probably not a wide choice. This will narrow down the options considerably. 

Out of interest, what are Black Rock and the like doing to the world exactly? I don't claim that general multi asset funds are a force for good, though I'm not sure if they're particularly bad.

Welshwonder_2

Thank you

Not too sure where to start with Black Rock

They are now heavily greenwashing themselves but basically today's super investment companies are too big & too powerful. Investors have a duty to maximise returns to their clients of course so if it is more profitable to do something that harms the environment it is also the most profitable to invest in.
Google " Black Rock: the secret world power (I am not allowed to post links)

Deforestation is a huge issue:
"From 2014 to 2019, global tree cover loss increased by 43%. An area of tree cover the size of the United Kingdom has been lost every year between 2014 and 2018.  Black Rock more than anyone have and still are causing Amazon Rainforest destruction"
"BlackRock, Vanguard, and State Street have either abstained from or voted against corporate shareholder resolutions to fight deforestation a total of 16 times."
And
"By evaluating BlackRock’s holdings in 167 publicly listed companies active in palm oil, cattle, pulp and paper, rubber, soy and timber between 2015 and 2018,5 this research documents BlackRock’s substantial exposure to deforestation and land conflict risks" 
Google  "FOE Doubling Down on Deforestation"

My daughter just wants to be part of the solution, not the problem, and the largest pension funds really have funded the environmental destruction we all face now.  She's not able to research this herself as she struggles just to work part time & is constantly tired, so I said I'd help, but understanding the alternatives is proving way beyond me.

Thanks again

gm0

Don't be confused between the fund management company offering the wrapper (fund) and the investments inside.  For sure fund managers do a good or a bad job of holding companies to account at AGMs and such.  And as financial companies within global capitalism there is plenty to criticise about many of them.  Vanguard a better choice over BlackRock for me.  I use several though as for my purposes I want to do that.

But what you are investing in is more the issue than the plumbing of investing.  By plumbing I mean fund managers, exchanges, registries, settlement firms - all of whom may have corporate structures, people or geographic operations which push somebodies political buttons.  More important is the actual investments in the fund.

Once inside the funds you get to whether Apple. Facebook, Shell or Nestle or Unilever or BNFL or Rolls Royce or an online casino or BAT (tobacco) are acceptably ethical to you.  Each would have their detractors from various perspectives about what they do and where and how they do it and its impact on the world.

A given employer scheme offers a limited range. 

It may offer a "slightly more ethical" fund with some missing shares (knockouts).  I used ours.  Recognising it was the most ethical choice available in that scheme.  Not very ethical but you do what you can when you can.  Many schemes offer "islamic" which is another take around finance/lending -  on what should not be invested in - from the low level ethicals which take out gambling and arms dealing and such like.

It is unusual to have sector funds to pick and choose by industry in a workplace pension but I guess it can happen sometimes.

This low level kind of ESG/ethical investing tends to be minimal impact.  It's not that good or bad for your investing (due to not being very different from just investing in global stocks).  And the excluded companies - cigarettes say - don't much care.  Enough people buy BAT for their healthy cashflows and dividend - selling cancer sticks to the foolish and the addicted.  We can choose not to invest in it.  I try not to.  But getting tobacco finally removed from sale would be done by a different political route if it ever is achieved.

People very naturally have their own take on what ethical means and this makes packaging strongly ethical funds that a lot of people would find, like and buy - much more tricky in practice.   Even the current ones fall foul of this.

Individual companies may have more and less ethical activities and be getting better or worse.  And whether this should be encouraged (be better), or punished (deinvest) is also to political taste - as is whether they should remain on the naughty step (is it greenwashing or a genuine investment towards a solution - in whose opinion?  Set a % revenue or investment threshold and they then meet it - is that then greenwashing or now OK -  and so on.

Example:

Nuclear weapons firm = weapons  = arms industry - typically excluded as unethical because = weapons

Nuclear technology firm = "dual use" = including low carbon energy.  Can be weapons related.  So excluded.

I would want that one "in" - because of global energy transition to lower carbon sources in a mix that keeps the lights on. 
Others who hate nuclear energy old or new and wish to exclude it from the "solution" (which is a segment but not all of the greens - just those who haven't accepted the maths and logic that it is likely needed in the overall mix). They would say it is *always* unethical come what may and thus "out".  Neither position is "right" in an absolute sense for all circumstances and the choices we make.  It's subjective opinion on paths forward and appropriate incentives to set. 

When I buy an ethical fund typically some companies I would be happy with are on the naughty step because of dual use.   I also buy regular global equities, geographic and thematic funds and do not obsess over this particular detail - recognising those funds bring in tiny amounts of things I don't really want either - but I don't have a simple way to do it other than building my own stock list.

Which is possible.  You can ignore funds and invest only in specific companies that meet your personal ethical standards. 
And go and buy individual bonds and shares of said companies.  And monitor them for their ongoing good behaviour. 

This is usually quite a *bad* decision from the perspective of "safe investing" for the individual small investor - unless you are extremely lucky with your much smaller number of stock choices.   You could do brilliantly, or make much bigger losses than someone smeared across a bigger range of companies.

The anti-capitalism crew would not like that solution either. If sincere in following their belief system then they would self exclude from investing within the current global capitalism economic system anyway. It is unlikely to offer them a product they find at all acceptable unless of course they wear their beliefs but lightly upon their sleeve - something which may have happened once or twice already within declared to be marxist or maoist utopias in the making

So use the ethical fund if available. If there isn't one.  Lobby employer scheme trustees for that choice to be added. 

Or sweep money out periodically (partial transfer) to a personal pension vehicle where you can choose ethical/ESG choices or sector funds as you see fit to more easily avoid the things you don't like.

Do take a look at how Vanguard came to be the company structure it is. It may suit you better than a BlackRock even if you think they should be doing more to "force" companies to do more on various agendas.  Still one of the less ugly puppies in the litter.

Cornish_mum

I invest for my kids in the vanguard ESG fund, it’s basically the global tracker minus a few sectors; not perfect but an improvement on the standard. From my reading the major holdings are in tech/IT, pharma, banking etc. There are true green investment firms too but they’re very high risk IMO, as very undiversified, but might be a good fit for your daughter. My employer does an ethical fund for our pensions (by employee demand),

Best of luck CM

Welshwonder_2

gm0 said:

Don't be confused between the fund management company offering the wrapper (fund) and the investments inside.  For sure fund managers do a good or a bad job of holding companies to account at AGMs and such.  And as financial companies within global capitalism there is plenty to criticise about many of them.  Vanguard a better choice over BlackRock for me.  I use several though as for my purposes I want to do that.

But what you are investing in is more the issue than the plumbing of investing.  By plumbing I mean fund managers, exchanges, registries, settlement firms - all of whom may have corporate structures, people or geographic operations which push somebodies political buttons.  More important is the actual investments in the fund.

Once inside the funds you get to whether Apple. Facebook, Shell or Nestle or Unilever or BNFL or Rolls Royce or an online casino or BAT (tobacco) are acceptably ethical to you.  Each would have their detractors from various perspectives about what they do and where and how they do it and its impact on the world.

A given employer scheme offers a limited range. 

It may offer a "slightly more ethical" fund with some missing shares (knockouts).  I used ours.  Recognising it was the most ethical choice available in that scheme.  Not very ethical but you do what you can when you can.  Many schemes offer "islamic" which is another take around finance/lending -  on what should not be invested in - from the low level ethicals which take out gambling and arms dealing and such like.

It is unusual to have sector funds to pick and choose by industry in a workplace pension but I guess it can happen sometimes.

This low level kind of ESG/ethical investing tends to be minimal impact.  It's not that good or bad for your investing (due to not being very different from just investing in global stocks).  And the excluded companies - cigarettes say - don't much care.  Enough people buy BAT for their healthy cashflows and dividend - selling cancer sticks to the foolish and the addicted.  We can choose not to invest in it.  I try not to.  But getting tobacco finally removed from sale would be done by a different political route if it ever is achieved.

People very naturally have their own take on what ethical means and this makes packaging strongly ethical funds that a lot of people would find, like and buy - much more tricky in practice.   Even the current ones fall foul of this.

Individual companies may have more and less ethical activities and be getting better or worse.  And whether this should be encouraged (be better), or punished (deinvest) is also to political taste - as is whether they should remain on the naughty step (is it greenwashing or a genuine investment towards a solution - in whose opinion?  Set a % revenue or investment threshold and they then meet it - is that then greenwashing or now OK -  and so on.

Example:

Nuclear weapons firm = weapons  = arms industry - typically excluded as unethical because = weapons

Nuclear technology firm = "dual use" = including low carbon energy.  Can be weapons related.  So excluded.

I would want that one "in" - because of global energy transition to lower carbon sources in a mix that keeps the lights on. 
Others who hate nuclear energy old or new and wish to exclude it from the "solution" (which is a segment but not all of the greens - just those who haven't accepted the maths and logic that it is likely needed in the overall mix). They would say it is *always* unethical come what may and thus "out".  Neither position is "right" in an absolute sense for all circumstances and the choices we make.  It's subjective opinion on paths forward and appropriate incentives to set. 

When I buy an ethical fund typically some companies I would be happy with are on the naughty step because of dual use.   I also buy regular global equities, geographic and thematic funds and do not obsess over this particular detail - recognising those funds bring in tiny amounts of things I don't really want either - but I don't have a simple way to do it other than building my own stock list.

Which is possible.  You can ignore funds and invest only in specific companies that meet your personal ethical standards. 
And go and buy individual bonds and shares of said companies.  And monitor them for their ongoing good behaviour. 

This is usually quite a *bad* decision from the perspective of "safe investing" for the individual small investor - unless you are extremely lucky with your much smaller number of stock choices.   You could do brilliantly, or make much bigger losses than someone smeared across a bigger range of companies.

The anti-capitalism crew would not like that solution either. If sincere in following their belief system then they would self exclude from investing within the current global capitalism economic system anyway. It is unlikely to offer them a product they find at all acceptable unless of course they wear their beliefs but lightly upon their sleeve - something which may have happened once or twice already within declared to be marxist or maoist utopias in the making

So use the ethical fund if available. If there isn't one.  Lobby employer scheme trustees for that choice to be added. 

Or sweep money out periodically (partial transfer) to a personal pension vehicle where you can choose ethical/ESG choices or sector funds as you see fit to more easily avoid the things you don't like.

Do take a look at how Vanguard came to be the company structure it is. It may suit you better than a BlackRock even if you think they should be doing more to "force" companies to do more on various agendas.  Still one of the less ugly puppies in the litter.

Seriously difficult stuff, thank you for your post. I was hoping someone would say Oh yes - look at Co op they have a great scheme or something - but googling found nothing. She really earns a pittance, just above UC levels, so I guess for now she needs there isn't much alternative realistically But thank you

Scarum

Check this site, more to this resource than the name when you delve deeper.

https://fossilfreefunds.org/

Pat38493

Have a look at this site

https://diyinvestoruk.blogspot.com/p/my-ebooks.html

This guy is a pensions blogger and author and I think he has been experimenting with ethical funds for some of his funds.

leosayer

The first step is find out what funds your daughter's pension can be invested in.

The next step is to rid yourself of the notion that Blackrock is all bad. They run many sustainable funds including global impact and those supporting the circular economy, sustainable energy, nutrition etc. Are those greenwashing? Are those harming the environment?

The next step is to understand what environmental factors are important to your daughter and how she wants her funds to be invested. This short guide from Vanguard might help you/her work out what she wants:

https://investor.vanguard.com/investor-resources-education/article/4-kinds-of-esg-funds-what-you-need-to-know
It's also worth remembering that investment funds are part owners of the companies they invest in meaning that they can influence their direction of travel by voting and engaging with the company. Hence, a sustainable investor might choose to own BP or Shell so they can encourage them transition to Net Zero.

penners324

Your daughter's company is very unlikely to switch the pension provider for just her pension. The extra admin this causes is not worth it.

She may be able to persuade them to look at other suppliers but most offer very similar fund options. 

But as stated by other posters, she needs ro look at what fund choices she has in the pension and switch the fund.

Which pension company does her employer use?

Linton

Welshwonder_2 said:

Thank you

Not too sure where to start with Black Rock

They are now heavily greenwashing themselves but basically today's super investment companies are too big & too powerful. Investors have a duty to maximise returns to their clients of course so if it is more profitable to do something that harms the environment it is also the most profitable to invest in.
Google " Black Rock: the secret world power (I am not allowed to post links)

Deforestation is a huge issue:
"From 2014 to 2019, global tree cover loss increased by 43%. An area of tree cover the size of the United Kingdom has been lost every year between 2014 and 2018.  Black Rock more than anyone have and still are causing Amazon Rainforest destruction"
"BlackRock, Vanguard, and State Street have either abstained from or voted against corporate shareholder resolutions to fight deforestation a total of 16 times."
And
"By evaluating BlackRock’s holdings in 167 publicly listed companies active in palm oil, cattle, pulp and paper, rubber, soy and timber between 2015 and 2018,5 this research documents BlackRock’s substantial exposure to deforestation and land conflict risks" 
Google  "FOE Doubling Down on Deforestation"

My daughter just wants to be part of the solution, not the problem, and the largest pension funds really have funded the environmental destruction we all face now.  She's not able to research this herself as she struggles just to work part time & is constantly tired, so I said I'd help, but understanding the alternatives is proving way beyond me.

Thanks again

You seem to misunderstand what fund managers like BlackRock/Fidelity/Vanguard/HSBC etc do. 

They buy shares in individual companies and package them into funds that are suitable for private investors. When someone buys a share they buy it from someone who wants to sell. In the vast majority of circumstances the underlying companies get no benefit whatsoever. The money that is invested almost entirely  goes to the seller with a very small % going in fees.

So BlackRock etc as fund managers are not paying for environmental destruction etc.  The underlying companies are generally perfectly capable of paying for it themselves from the profits they make from selling their products to consumers around the world.

If you want to do something practical to stop environmental destruct you should not buy things whose production causes it. Buying or not buying shares in established companies will make no difference whatsoever.