Module 9 of 11
Ethical & ESG Investing
Understand the world of ethical, sustainable, and ESG investing, and what it means for vegans.
Section 1 of 5
Why Invest Ethically?
Ethical investing means aligning your investments with your values, not just chasing returns regardless of how they're made.
Three reasons people invest ethically:
1. Values alignment
You don't want to profit from activities you oppose. If you're vegan, why fund factory farms through your pension?
2. Risk management
Companies with poor ethical practices face regulatory, reputational, and legal risks. Avoiding them may protect your portfolio.
3. Impact
Where money flows matters. Collective investor behaviour can influence corporate practices and the broader economy.
The relative importance of these varies by investor, but all three are valid motivations.
Ethical investing combines values alignment, risk management, and positive impact.
Section 2 of 5
Understanding the Terminology
ESG (Environmental, Social, Governance):
Evaluating companies on environmental impact, social practices, and corporate governance. Doesn't necessarily mean excluding bad actors, often just identifies "better" options.
Sustainable/Responsible:
Usually focused on environmental sustainability. May or may not exclude specific industries.
Ethical:
Typically involves explicit exclusions, refusing to invest in certain industries regardless of other factors.
Impact:
Actively seeking investments that create measurable positive outcomes, not just avoiding harm.
SRI (Socially Responsible Investing):
Umbrella term covering various approaches to values-based investing.
Important: These terms aren't standardised. Always check what a fund actually does, not just what it's called.
Labels like 'ESG' and 'ethical' mean different things: always check the actual criteria.
Section 3 of 5
The Problem with Generic ESG for Vegans
Many "ESG" or "sustainable" funds don't adequately address animal welfare.
A company can score highly on ESG while:
- Operating factory farms
- Testing on animals
- Producing meat and dairy
- Manufacturing leather goods
Why? Standard ESG ratings focus heavily on climate, governance, and worker treatment. Animal exploitation is often a tiny consideration, if present at all.
Example: A major meat producer might get good ESG scores for:
- Using renewable energy at processing plants
- Having diversity policies
- Strong governance practices
...while still being fundamentally in the business of animal exploitation.
For vegans: Generic ESG isn't enough. You need funds with explicit animal-related exclusions.
Standard ESG funds often don't exclude animal agriculture: vegans need specific screening.
Section 4 of 5
What True Vegan Screening Looks Like
At Vegan Invest, our screening excludes:
Animal exploitation:
- Factory farming and animal agriculture
- Animal testing (cosmetics, household, most pharmaceutical)
- Fur, leather, wool, silk production
- Animal entertainment
Environmental harm:
- Fossil fuel extraction and production
- Coal mining
- Companies with serious environmental violations
Other ethical concerns:
- Weapons and arms manufacturing
- Tobacco production
- Gambling operations
We use a 5% revenue threshold, stricter than the 10%+ used by many "ethical" funds.
The result: portfolios that genuinely reflect vegan values, not just ESG marketing.
Proper vegan screening explicitly excludes all animal exploitation, not just vague ESG factors.
Section 5 of 5
Does Ethical Investing Cost Returns?
The evidence is encouraging:
Multiple studies show sustainable investments matching or beating conventional returns over long periods. Some specific findings:
- Over 10 years to 2022, sustainable funds outperformed by ~1% per year on average
- Companies with strong ESG practices tend to have better risk management
- Avoiding stranded assets (like fossil fuels) may protect future returns
Why might ethical outperform?
- Better risk management
- Avoiding regulatory and reputational problems
- Capturing growth in sustainable sectors
- More innovative, future-focused companies
The honest answer: Results vary by time period and specific approach. But there's no evidence that ethical investing systematically costs returns, and some evidence it may enhance them.
Either way, the difference is likely small compared to the certainty of values alignment.
Evidence suggests ethical investing can match or beat conventional returns: you don't have to sacrifice performance for values.
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