The FCA has been urged to launch an urgent review of the UK ethical investment sector as high-profile funds such as L&G Future World and Vanguard SRI products are revealed to have notable exposure to sectors like tobacco, gambling and defence. Wealth manager SCM Direct examined a number of areas of the ethical investing space, including fund holdings and the classification of ethical funds on direct-to-consumer platforms. It argued the misclassified funds are being mis-sold to the UK public.
The ESG sector has been accused of being akin to the Wild West. Already, Fidelity has removed the “socially responsible” funds search category on its platform after the report revealed it created a shortlist of 49 funds despite only two – the FT Sustainable Water and Waste and Fidelity FIRST ESG All Country World funds – having any explicit reference to being specifically tailored towards ESG in their key information documents.
Elsewhere the report raised concerns about funds touting themselves as socially responsible while still having exposure to sin stocks. The L&G Future World ESG UK Index was named as the worst fund for exposure to tobacco, alcohol, gaming and defence sectors despite its “ethical” label. The passive fund has a 5.25% weighting in Diageo and 3.05% in British American Tobacco. It had smaller weightings in companies like gambling business William Hill and