Ethical investing and Russia-Ukraine war

More than half of investors are conscious of how their money is invested because of the conflict, interactive investor poll finds.

Over half (54%) of investors have become more conscious of how their money is invested in the wake of the Russia-Ukraine war, according to a new poll by interactive investor, the UK’s second-largest direct to consumer investment platform.

Four in 10 of the sample of 2,058 interactive investor website visitors between the 9 and 10 March 2022 said they were considering investments that align with their moral values as a result of Russia’s invasion of Ukraine. However, almost a third said their moral stance had remained unchanged, while 13% responded ‘don’t know’.

The largest percentage of respondents (42%) believe that the Russia-Ukraine war and the potential escalation of the conflict represent the biggest threat to global stock markets over the next five years, ahead of inflation (23%) and geo-political tensions involving China, Brazil, the Middle East and more broadly (20%). Meanwhile, 7% of respondents cited climate change - five months on from COP26, the UN climate conference held in Glasgow last year.

With society reverting to business as usual – or thereabouts - following the end of the remaining domestic Covid restrictions in England and the significant relaxation of rules in other parts of the UK, only 2% of the sample believe that new waves and/or new variants of Covid-19 pose a risk to global markets over the same time period.

Lee Wild, Head of Equity Strategy, interactive investor, says: “The Russian invasion has had a terrible impact on millions of Ukrainians, and the economic consequences are already being felt around the world. The conflict has made investors think hard about where their money is invested.

“More than half of those who responded to our poll are now more conscious about the destination of their cash, and almost 39% are considering investing more in line with their moral values. There are signs that this is not a temporary trend, but a more permanent shift in attitudes.

“The war in Ukraine is acknowledged not solely as a short-term threat to stock markets, but the biggest threat over the next five years by 42% of respondents. How this change in behaviour manifests itself will only become clear over time, but Europe’s shift away from dependence on Russian gas, oil, and coal will be a running theme long after the bullets stop firing. With billions of euros earmarked for ‘massive investment’ in solar, wind, and hydrogen, it is logical to assume more money will find a home in the renewables sector.

“You could even argue that every fund, now, is in some way, a ‘responsible’ or ethical fund,’ even if they would not have classified themselves as such. Perhaps funds which have never considered the traditional Environmental Social Governance, or ‘ESG’, credentials are now having to face a new reality where, as agents of investors’ capital, they will have to consider more than just the direct financial impact, and risk, alone. We are all having to take responsibility for how our financial decisions impact the world around us.”

More investors are tweaking their portfolio

More investors appear to be tweaking their portfolio in response to the Russia-Ukraine war. Some 55% of respondents said they are making some changes: one in four are upping their stock market exposure; 13% are doing the opposite, while 17% are re-allocating money to more defensive sectors.

In comparison, interactive investor’s inflation poll published last month found that 80% of investors were following the ‘keep calm and do nothing’ mantra in response to rising inflation.

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “As McDonald’s, Coca-Cola, Starbucks, and a number of Western companies have halted business in Russia in opposition of the invasion of Ukraine, investors too have pondered where and how their money is being invested.

“For some investors, the ‘keep calm and do nothing’ mantra is simply out of the question as the thought of unwittingly helping to fund the Russian war machine through the investments they hold is abhorrent to them.

“The fact that almost four in 10 respondents of our survey are actively considering investments that align to their moral values shows that many are no longer comfortable with the ‘ignorance is bliss’ approach to investing.

“The Russia-Ukraine war has usurped inflation and geopolitical tensions more broadly as the biggest threat to global markets over the next five years, with concerns over the impact of climate change and Covid taking a backseat – something few would have predicted a couple of months ago. In past polls, the ‘E’ for environment in ‘ESG’ has been where ethical investors have wanted to focus. But while a sizeable 7% of our respondents think climate change is the biggest threat to finances on a 5-year view, responsible investing from a geopolitical perspective has taken centre stage.

“It goes to show the extent of the dynamism in current affairs, and the knock-on effect on investments. This is why diversification is the name of the game when it comes to investments, reducing potential risks, and increasing potential returns by spreading your investments across different assets.”

Favoured regions among investors

Most of the sample (58%) said they are funnelling spare cash into UK-centric investments, ahead of US (14%) and European (7%) offerings. Meanwhile, 5% of respondents favour Asia and emerging market investment opportunities, respectively, but is little appetite for frontier market (1%). Some 10% of respondents said they are investing in other regions.

interactive investor publishes an ethical investing long list to help investors navigate ethical investing, along with an Ethical Growth Portfolio and an ethical rated list, ACE 40, which is broken down into three ii ethical styles:

Avoids - funds that exclude specific companies, sectors, or business practices, such as tobacco.

Considers - funds that take into account strict environmental, social and governance (ESG) criteria, such as pollution levels.

Embraces - funds that focus on companies that deliver positive social and/or environmental outcomes, such as renewable energy.