Best Ethical Investment Funds 2026

There are a few options to consider if you’re ready to get started investing in ethical companies.

As with all types of investments you’ll need to use one of the following types of accounts to buy, sell or hold on to an ethical fund:

• Stocks and Shares ISA

You can invest up to £20,000 tax-free in a Stocks and Shares ISA each tax year (which runs from April 5 one year to April 6 the next). Setting up an account is simple and most providers allow you to do so online. We’ve rounded up our pick of the Best Stocks and Shares ISAs to help you find a suitable account.

If you’re just getting started with investing our Best Stocks and Shares ISAs for Beginners guide rounds up our pick of the top beginner-friendly platforms.

• General Investment Account (GIA)

Unlike Stocks and Shares ISAs, GIA accounts don’t have an upper limit on how much you can invest.

However, GIA’s don’t have any tax perks so may have to pay capital gains tax (CGT) or dividend tax if you earn profits over a certain amount.

Try our GIA calculator to check how much an account might cost you.

• Self-Invested Personal Pension (SIPP)

A SIPP helps you to invest for retirement.

You can invest up to £60,000 tax-free into your pensions each year (depending on your circumstances).

Take a look at our best personal pensions and SIPPs guide to find out the top-rate providers available now.

Ethical funds can invest in a wide range of companies and industries that have a positive impact on the world. This includes but isn’t limited to:

• Renewable energy: focusing on sustainable energy sources such as solar, wind, hydro, tidal or geothermal power.
• Clean technology: developing technology to combat the climate crisis.
• Sustainable agriculture: meeting food and textile needs without jeopardising access to future generations.
• Resource efficiency: using the Earth’s limited resources in a sustainable way so that they last.
• Health and wellbeing: promoting and improving the quality and longevity of people’s lives.
• Social infrastructure: improving access and the quality of services, including schools, universities, hospitals and social housing.

There is a long-held myth that ethical investments perform worse than non-ethical investments. However, there is increasing evidence to support the notion that ethical investments regularly outperform the returns of non-ethical investments.

Ethical funds returned 19.87% over a 12-month period compared to a 17.89% return from non-ethical funds, according to Moneyfacts research published in 2021.

Similarly, investment firm Morgan Stanley reported that sustainable funds achieved a median performance of 4.7% more than traditional funds over a 5-year period in 2024.

We’ve crunched the numbers using the performance of our top ethical funds and non-ethical funds to see which garnered higher returns.

Ethical funds come with several benefits and drawbacks to consider, including:

Reasons to use

• You can align your investments with your values
• Potentially greater stability because ethical funds adhere to stricter practices
• Your investments can help make a positive impact on the world
• Potentially higher returns because companies are researched more rigorously

Reasons to avoid

• Smaller choice of funds to choose from
• Potentially less diversity as funds will include investments from similar industries
• Potentially higher management fees because they require more rigorous research

Ethical funds aim to give people the opportunity to invest money in companies whose practices match their personal values and beliefs.

They work by excluding investments in companies or industries that may be considered negative or harmful to personal morals or values, for example, weapons manufacturers, tobacco companies or companies that use animal testing.

Companies included in an ethical fund are rigorously researched to ensure that they uphold the moral judgments of investors.

Is an ethical fund the same as a sustainable fund?

Although the names are used interchangeably, ethical funds and sustainable funds are slightly different. Ethical funds focus on aligning people with investments that align with their morals and personal values.

Sustainable funds have a slightly wider focus on investing in companies that demonstrate good practices and policies regarding their environmental impact, social responsibility and internal governance.

These are known as environmental, social and governance (ESG) funds.

Actively ethical funds are managed by a professional who selects investment assets on your behalf.

Generally speaking, active managers conduct rigorous research over a smaller number of companies they invest in. As a result of this, active funds tend to come with a higher management fee.

Passive ethical funds aim to replicate the results of a particular market or index. A passive ethical fund tracks the performance of a stock index and adjusts the companies within the fund to achieve those results.

Since this process is more hands-off, ethical funds usually come with lower management fees.

The returns you earn from an ethical fund can be tax-efficient if you use a Stocks and Shares ISA or a Self-Invested Personal Pension. That’s because any investments held in Stocks and Shares ISA fall under your £20,000 annual ISA allowance. Similarly, you’ll get a £60,000 tax-free allowance each year to invest in a personal pension or SIPP.

Can I include ethical funds in ISAs and SIPPs?

Yes, it is possible to include ethical funds in an ISA or SIPP. Most account providers allow you to add ethical funds using an investment app.

“Greenwashing” is when companies use misleading or false information or actions to give the public the illusion that they’re doing more for the environment than they actually are.

For example, if a company’s products feature the word “natural” or its branding gives the impression that the packaging has been recycled.

Here are some real-life examples:

• McDonalds Paper Straws 2019

In 2019, McDonald’s introduced paper straws that were described as “eco-friendly.”

However, in reality, the straws were not easy to recycle and had to be put into general waste.

• Innocent Drinks Ad Campaign 2022

In 2022, Innocent Drinks released an ad campaign claiming that drinking its smoothies is good for the environment.

However, Innocent is owned by Coca Cola – which in 2021 alone emitted 5.17 million tonnes of carbon dioxide, up 8% from 2020.

The Advertising Standards Agency (ASA) found that the advert was misleading because it gave customers the impression that the drinks had a positive impact on the environment.

The ASA stated that the advert would lead some customers to believe that “purchasing Innocent products was a choice which would have a positive environmental impact when that was not the case.”

• HSBC Ad Campaign 2022

In 2022 HSBC launched an ad campaign claiming to provide $1 trillion to help clients reach net zero and also helping to plant 2 million trees in the UK.

However, the bank failed to mention their contributions to the climate crisis. Which at the time stood at around 65.3 million tonnes of carbon dioxide emissions per year for oil and gas alone.

As such the ASA ruled that HSBC had “omitted material information and were therefore misleading.”