ii comments on today’s launch of equity funds by Vanguard and Aviva

Our experts take a look at the latest ethical investment funds.

Reflecting a growing interest in ethical and sustainable investing, two fund management groups have today launched equity funds to cater to the burgeoning demand for these solutions. 

Last week, interactive investor reported that an ethical fund had entered its May 2020 top 10 list of most-bought funds for the first time ever – Baillie Gifford Positive Change.

Asset management firm Vanguard today launched two new environmental, social, and governance (ESG) tracker funds: the Vanguard ESG Developed World All Cap Equity Index Fund and the Vanguard ESG Emerging Markets All Cap Equity Index Fund levying an ongoing charge of 0.20% and 0.25% respectively.

Meanwhile, Aviva (LSE:AV.) unveiled the Aviva Investors Climate Transition Global Equity Fund, its second equity fund aimed to support the transition to a low carbon economy as global temperatures continue to rise due to climate change. 

Dzmitry Lipski, Head of Funds Research, interactive investor, says: “The launch of these funds underpins the fact that the demand for ethical investments is becoming too big to ignore.

“The Vanguard launch is a much-needed addition to the limited pool of ethical index funds in particularly underserved areas – although many investors may well be waiting to see if they launch an ethical version of the popular LifeStrategy range. 

“That’s not to say that passive funds don’t present headaches for ethically minded investors – for example, different ethical indices have different interpretations of what constitutes ethical. That said, the same conundrum is just as relevant to active managers – there is a lot of judgement calls involved. As difficult as this may be, it is still crucially important to plug away with and we are likely to see more passive ethical solutions in future from other providers.

“The Aviva Investors Climate Transition Global Equity Fund seeks to tap into the growing efforts to combat climate change which has become a zeitgeist. It is a theme that is likely to appeal to many ethical investors as the Attenborough and The Greta Thunberg effect, continues to push the issue high up the political agenda.

“What constitutes as an ethical investment is hugely subjective, so it is important for investors to look under the bonnet of propositions to ensure it aligns with their values.”

Myron Jobson, Personal Finance Campaigner, interactive investor, adds: “There are a lot of qualitative judgement calls in ethical indices - the point at which a company stops being unethical and starts to become ethical is hugely subjective. And that’s why ethical indices can look quite different to each other.

“The mining and battery sectors are a good example – batteries are an essential component of a greener energy future, and yet the sources of the metals which go into these batteries can be far from ethical or sustainable and simply moving the pollution from your own back yard to someone else’s.

“Oil companies can be another good example – while oil is a long way away from what many would define as ethical, many are investing heavily in clean energy. And let’s not forget Volkswagen’s exit from the MSCI ACWI ESG Index in May 2015, shortly before diesel emission test results were exposed as being rigged. This also demonstrates how ESG failures are often hidden from view – it’s not straightforward, but few worthwhile things are.”

interactive investor ACE approach to ethical investing

To make it easier to find suitable ethical investments, interactive investor publishes an ethical investing long list that is broken down into three ii ACE investment styles: Avoids, Considers and Embraces to help steer investors.

We also launched our ethical ACE 30 rated list, the UK’s first, last year, and an interactive investor ethical growth portfolio in January 2020 for investors who want a ready-made, balanced, multi asset portfolio run within a socially responsible investing framework.