Should we be ashamed of our stock market?

In the run up to COP26, fingers have been pointed at different countries, and their shameful environmental statistics. Apparently, Australia is keen on coal mining still, the US loves to consume petrol and the Russia likes natural gas a bit too much.

The UK seems to be the place for companies with dubious responsibility credentials to have their shares quoted. We’re the country which helps these companies raise money so that they can sell cigarettes to people elsewhere and extract crude oil and fossil fuel reserves.

The FTSE 100 index is probably the best known stock market index to UK investors. As well as its value being reported on the news every day, it’s the basis for many of our investments, with the media encouraging us to replace expensive managed funds with cheap index tracking funds.

The FTSE 100 includes some well-known companies, like:

  • BAT and Imperial Brands (both tobacco)
  • BP and Shell (fossil fuels)
  • Rio Tinto, BHP, Glencore, Anglo American (all mining)
  • Flutter, Entain (both gambling)
  • BAE (defence/attack!)

There are some other companies with dubious business models in the index too.

In response to the demand for ESG (Environmental, Social and Governance) investing criteria, the FTSE has launched some alternative indices. The FTSE4Good index is based on the UK stockmarket, and is designed for investors seeking to invest in companies that demonstrate good sustainability practices. The index is also intended to encourage positive change in corporate behaviour.

A quick look at the index shows that it still includes BP and Shell, as well as Rio Tinto and BHP. It seems that FTSE’s understanding of “responsible” is different to many ethical investors.

The message is that investing responsibly is not easy, and, it’s fair to say, it can’t be done cheaply. If you want your investments to be aligned with your personal views, you’ll need to work with someone to ensure that they understand your views before they can pick funds or stocks for you.

Over in the US, we have begun to see the rise of personalised index investing, which has only become possible as a result of improvements in technology. This approach allows an investor to pick stocks by starting with an index and then taking out the companies that don’t align with their values. We’ve yet to see this approach become available in the UK, but I suspect the UK will follow the US in the next few years. Your personalised FTSE 100 index may end up being very different than the conventional version. But you will at least be able to invest only in those UK companies which act responsibly.

In the meantime, the best approach remains to take advice from an expert. We’ll be happy to provide guidance on how to build a portfolio of responsible investments.

Oliver Wise

This guide is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
The value of investments may go down as well as up and you may get back less than you invest.

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