A surge in investor consciousness has fuelled the popularity of Ethical and Socially Responsible SIPPs, bringing to the forefront a new wave of responsible investing. 

A Financial Conduct Authority survey reveals a significant shift in investor preferences, with 81% of surveyed adults expressing a desire for their investments to make a positive impact beyond financial returns.¹

Like any other Self-Invested Personal Pension (SIPP), there are benefits and risks, as well as the key considerations and strategies to contemplate when building an impactful and value-driven investment portfolio.

As we navigate the complex world of pensions, these socially responsible SIPPs are leading the way.

Our team of experts at EveryInvestor explores the fundamentals of ethical and socially responsible SIPPs and uncovers the reasons behind their increasing prominence.

What Are the Best Ethical & Socially Responsible SIPPs for Seniors in the UK?

For seniors seeking socially responsible Self-Invested Personal Pensions (SIPPS) in the UK, our top recommendations are Hargreaves Lansdown’s SIPP, Fidelity’s SIPP, and AJ Bell Youinvest. These SIPPs not only offer robust investment options but also are committed to responsible investment principles.

Hargreaves Lansdown’s SIPP, for instance, has a specific portfolio dedicated to ethical investments, supporting companies committed to social and environmental responsibility. Fidelity’s SIPP stands out with its extensive range of ethical funds, enabling seniors to create a portfolio aligned with their personal values.

Similarly, AJ Bell Youinvest provides access to a wide range of socially responsible funds. These SIPPs’ commitment to ESG (Environmental, Social, Governance) factors ensures your investments not only grow but also contribute positively to society and the environment.

What Should I Know About Ethical & Socially Responsible Investment Funds?

This type of SIPP goes beyond seeking financial returns; it involves investing in companies whose primary goal is to use your capital to support positive and socially responsible initiatives.

Investors adopting these strategies intentionally steer clear of companies involved in morally questionable or environmentally harmful activities, such as tobacco, weapons, or deforestation. 

Instead, they prefer businesses that promote clean energy, social welfare, and responsible governance.

What’s an Ethical or SRI (Socially Responsible Investment) SIPP?

An ethical or socially responsible (SRI) SIPP focuses on building an investment portfolio that includes companies with ‘green’ credentials.

This can encompass entire industries, like the clean energy sector, as well as individual companies with strong corporate governance track records. 

These companies prioritise fair treatment of employees, sustainable business practices such as recycling, and efforts to achieve net zero carbon emissions.

Why Are Ethical/SRI SIPPs Becoming More Popular?

Ethical, SRI SIPPs, and other ‘green’ investment platforms are becoming more popular due to a combination of factors.

These include: 

• Addressing global challenges: Investors are increasingly recognising that their capital can be a powerful force for positive change, helping to tackle social and environmental issues – such as poverty, inequality, education, and healthcare. 
• Changing investor preferences: Investors are prioritising social and environmental causes and seek to align their investments with their ethical beliefs and values. 
• Corporate adoption of ESG principles: Big businesses are adopting Environmental, Social, and Governance (ESG) principles² to improve their long-term sustainability and mitigate risks.
• Increased awareness and education: Investors are realising that they do not have to sacrifice profits for social or environmental good and that responsible investing can be both financially rewarding and socially impactful.
• Government support: Policy measures, such as the Green Finance Strategy,³ along with incentives and regulations, can play a crucial role in stimulating the expansion of ethical investing.

 As these trends continue, ethical and SRI SIPPs are likely to become an increasingly integral part of the mainstream retirement savings landscape.

What Are the Benefits of Ethical SIPPs?

The benefits of these SIPPs are far-ranging and allow you to align your values and make a positive impact with investments that are resilient and offer good returns.

Let’s take a closer look: 

• Values alignment: They make it possible for you to stay true to your beliefs, fostering a sense of purpose and meaning in your financial journey.
• Positive impact: By investing in socially responsible ventures, you actively support businesses contributing to a better world, promoting societal and environmental progress.
• Long-term returns: Ethical investments demonstrate resilience over time,⁴ as companies focused on sustainability and sound governance often perform well amidst market fluctuations.

What Are the Risks of Ethical SIPPs?

The risks of ethical SIPPs include greenwashing, misaligning values, and increasing your investment risk by screening out certain sectors.

Key considerations include: 

• Greenwashing: This is when companies paint a positive, but false, image of their environmental efforts to attract ethical investors.⁵ This deceptive practice can undermine the true impact of Ethical SIPPs.
• Subjectivity: There’s no industry benchmark for defining an ‘ethical’ investment. You or your fund manager may have different definitions of what this means, so research is needed to ensure a business or fund’s ethical values align with your own.⁶
• Lack of diversification: Having a diversified portfolio of investment funds is one of the fundamentals of minimising investment risk. By being too rigorous in applying your principles, your portfolio may be more limited than those that take a more conventional approach.⁷

Learn More: The Risks of SIPPs

How to Identify Ethical or Socially Responsible SIPPs

To identify genuine ethical or SRI SIPPs, you should scrutinise companies or funds against specific Environmental, Social, and Governance (ESG) criteria. 

Ask the following questions:

Environmental Criteria

• What kind of energy savings policies does the company have?
• Does it have sustainability initiatives?
• Does the company have a large carbon footprint?
• Does its activities include practices like deforestation?

Social Criteria

• Does the company foster equality and diversity in its workforce?
• Does it engage with the community?
• What does the company’s health and safety record look like?
• Is it associated with controversial products or harmful activities?

Governance

• Is the company transparent in its dealings? 
• Does it have accountable governance structures?
• Does it have a history of ethical violations or poor management?
• Does it have a diverse leadership?

Key Considerations for Choosing Ethical or Socially Responsible SIPPs

When selecting Ethical SIPPs, the key factors to consider largely mirror those for any other SIPP, with the added dimension of aligning investments with your values.

These include:

• Types of investments: You can invest in stocks and shares, listed investment trusts, bonds, exchanged traded funds, and commercial property⁷ among others. With an ethical or SRI SIPP, you just have to make sure your investments align with your values.
• Tax benefits: The same tax benefits apply as with a traditional SIPP – tax relief on contributions, tax-free growth on investments, and a 25% tax-free lump sum on retirement.⁸
• Fees and charges: Costs associated with these SIPPs could be higher as more research has gone into sourcing investments that meet your ethical criteria.

How Can You Compile an Ethical or Socially Responsible SIPP?

Compiling such a SIPP involves several steps to align your investments with your values.

Let’s see how you can create such a pension portfolio. 

What to Consider When Choosing Ethical or Socially Responsible SIPP Options

When choosing these SIPP options, it’s crucial to meticulously evaluate available investments that align with your well-defined values. 

It’s also important to maintain a diversified portfolio to effectively mitigate risk.

Finally, if you’re unsure where to start, seek expert advice to ensure your portfolio aligns with ethical principles while achieving your financial goals.

Considerations include:

• Investment approach: Understand the SIPP’s choice of investment options and assess its compatibility with your values and risk tolerance.
• Define your values: Clarify your core values and prioritise ethical and social issues when selecting investments.
• Diversify your portfolio: Build a diverse portfolio, investing in various industries and asset classes that align with your ethical criteria.
• Seek expert advice: If you’re unsure where to begin or require guidance, consult a financial advisor well versed in ethical investments.

Ethical Investment Option Ideas

Exploring ethical investment options unveils innovative opportunities for investors to champion sustainable initiatives, advance social welfare, and make a positive impact on the world, all while pursuing financial growth.

More and more SIPPs providers are putting together ethical investment lists for their members.

For example:*

• The AJ Bell Responsible Growth Fund¹⁰ is a portfolio of companies with strong ESG credentials.
• Fidelity offers a Sustainable Investment Finder service.¹¹
• Hargreaves Lansdown includes the Responsible Investment Fund¹² as an investment option.

*These examples are for illustrative purposes only and don’t constitute financial advice.

What Other Ethical or Green Investment Options Are Available?

Beyond ethical SIPPs, there are various socially responsible investment options, such as Socially Responsible Mutual Funds, Green Bonds, and Community Investment Funds. 

Each option offers different risk levels and returns, enabling you to tailor your portfolio to align with your unique preferences and objectives.

Common Questions

In Conclusion

Ethical and socially responsible SIPPs offer investors a pathway to grow their retirement savings while making a tangible, positive impact on society and the environment. 

However, navigating potential risks, such as greenwashing and subjective ethical criteria, is vital to ensure the credibility and authenticity of these investments. 

By diligently researching and selecting true ethical or socially responsible SIPPs, you can make responsible investment choices that contribute to a more sustainable and equitable future.