This month, the Soil Association has been running its annual Organic September campaign, encouraging people to make small swaps in their weekly shop in favour of food produced with more care for nature, animal welfare and the soil.

It’s a useful prompt for a wider question. Many of us think carefully about what goes in our shopping basket. Far fewer of us know what’s in our investment portfolio, even though it’s likely to have a much bigger impact over our lifetime. If aligning your money with your values matters to you, autumn is a sensible time to check whether your investments actually do what you think they do.

This isn’t a sales pitch for ethical investing. It’s an honest look at what ESG investing can and can’t promise, and how to tell the difference.

First, what ESG investing is (and isn’t)

ESG stands for environmental, social and governance: three broad sets of factors used to assess how a company operates beyond its balance sheet. But “ESG investing” isn’t one thing. It covers several quite different approaches, and knowing which one you’re in matters far more than the label on the tin.

Exclusion (or “negative screening”). The simplest approach: the fund avoids certain industries entirely, such as tobacco, weapons, gambling or fossil fuels. It’s clear and easy to understand. But an exclusion fund isn’t automatically a climate-friendly one. A portfolio that excludes tobacco but still holds oil majors has made a moral choice, but not necessarily a climate one.

Best-in-class. Rather than avoiding whole sectors, these funds invest in the companies judged to be leading their industry on ESG measures. That can mean holding an energy company that’s further ahead on transition than its rivals. Some investors find that pragmatic; others find it uncomfortable. Neither view is wrong, but you should know which you’re signing up for.

Sustainability-focused and improvers. These funds invest in companies that are already sustainable, or in those with a credible plan to become more so. The “improvers” approach reflects a view that capital can help companies change, rather than simply avoiding them.

Impact investing. The most targeted approach. Impact funds aim to achieve a specific, measurable positive outcome, such as renewable energy generation or affordable housing, alongside a financial return, and report on what that money has achieved.

The rules have tightened, and that’s good news for investors

A few years ago, the word “sustainable” on a fund could mean almost anything. That’s changed. The FCA’s Sustainability Disclosure Requirements (SDR) introduced an anti-greenwashing rule applying to all FCA-authorised firms since 31 May 2024, four investment labels for UK retail funds (Focus, Improvers, Impact and Mixed Goals), and restrictions on using words like “sustainable” and “ESG” in fund names since 2 December 2024.

In plain English, anything a regulated firm says about sustainability must be fair, clear, not misleading, and consistent with what the product actually does. That applies to fund managers, platforms and financial planners alike, including us.

There are limits worth knowing, though. The labels are voluntary, so an unlabelled fund isn’t necessarily a poor choice. And the regime doesn’t cover everything: the rules do not yet apply to portfolio management products and services, while distributors must make clear when an overseas-domiciled fund using sustainability terms isn’t subject to the UK SDR regime. A label is a helpful starting point, not a substitute for looking properly.

What ESG investing can’t promise: guaranteed outperformance

Some ESG marketing implies you can do good and do better at the same time, every time. The honest answer is more nuanced.

ESG fund performance relative to the wider market tends to depend heavily on which sectors are in or out of favour. As J.P. Morgan Asset Management puts it, excluding traditional energy companies is likely to lead to outperformance when oil prices are falling, but potential underperformance when energy prices are rising, and the effect is greater where energy makes up a large part of the market.

That matters in the UK, where it does. As of April 2026, a FTSE 100 tracker fund held 19.53% in companies involved in extracting oil, gas or coal. With oil prices driven higher this year by conflict in the Middle East, investors in fossil-fuel-free UK portfolios may well have seen them lag the wider market. That’s not a sign the approach has failed. It’s the approach doing exactly what it says.

Defence has created similar debates. Morningstar’s head of sustainable investing research has noted that sustainability-focused investors have had to rethink the role of defence companies in their portfolios, with some now viewing investment in European defence as consistent with social responsibility. Whether that fits your values is a personal decision, and a good example of why generic labels only go so far.

What the flows tell us

Investor money has been moving out of ESG funds, but the picture is less dramatic than some headlines suggest. UK responsible funds saw net retail outflows in every month of 2025, totalling around £5 billion. Globally, though, much of the outflow came from large UK institutional investors moving from off-the-shelf ESG funds into bespoke ESG accounts that give them more control over their investments. In other words, many sophisticated investors aren’t abandoning values-based investing. They’re demanding it be done more precisely.

There are tentative signs of recovery too. By the end of the second quarter of 2026, global sustainable funds had attracted an estimated $3.7 billion in net inflows, according to Morningstar data. And interest remains high: one Morgan Stanley survey found 88% of individual investors globally are interested in sustainable investing.

Your autumn ESG audit

Get specific about your values. “Ethical” means different things to different people. Is your priority climate? Avoiding particular industries? Supporting positive change? Excluding defence, or not? The clearer you are, the easier it is to find investments that genuinely fit.

Look beneath the name. Check a fund’s top holdings and its stated approach. You may be surprised by what a “sustainable” fund owns, or doesn’t.

Check the label, and what it means. Does the fund carry an SDR label? If so, which one? If not, what does it actually commit to?

Measure performance fairly. Compare an ESG fund against a relevant benchmark over five years or more, and understand which sector movements have driven its results. Check the charges too.

Don’t forget your pension. For many people, their pension is their largest investment, yet it’s often sitting in a default fund they’ve never looked at. Many providers offer ethical or sustainable fund options.

Values and returns, not values instead of returns

Values-based investing works best when it’s part of a properly constructed financial plan, not bolted on as an afterthought. The goal is a portfolio you’re comfortable with on both counts: one that reflects what you care about and remains on track for the things you’re investing for.

If you’d like to explore what a values-aligned portfolio could look like for you, or check whether your current investments reflect your priorities, we’d be glad to discuss it at your next review meeting. Our chartered team will help you understand the options honestly, including the trade-offs, so you can make choices you feel good about.

This article is for general information only and does not constitute financial advice or a recommendation of any particular investment approach. The value of investments can fall as well as rise and you may get back less than you invest. Past performance is not a guide to future returns. Figures correct as of September 2026.