Rachel Springall, Finance Expert at Moneyfacts.co.uk, said:

“Consumers may choose on principle to invest in ethical funds so it’s good to see an overall positive return over the past year. However, a return of 3.97% for ethical funds is less than the non-ethical sector of 6.06%, but it is worth keeping in mind that ethical funds have outperformed non-ethical funds overall during previous years. Fund past performance cannot of course guarantee future growth, and as 2022 has already demonstrated its potential for stock market volatility, it will be interesting to see how funds will perform moving forward.

“Throughout the Coronavirus pandemic some fund sectors have been more resilient than others and the past year has been no exception. There were 19 sectors for ethical funds producing positive average growth out of 26 comparable sectors, compared to 18 sectors for non-ethical funds, based on the past years’ Lipper IM data. This will be positive news for investors who are seeking out funds meeting Environmental, Social, and Governance (ESG) criteria, and during 2021 there was continued evidence of demand for responsible investment funds. According to The Investment Association (IMA) inflows to responsible investment funds totalled a record £16 billion, up £4.3 billion during 2020. Towards the end of 2021 there was of course the COP26 summit which covered the importance of increasing green investments.

“The outlook for the stock market is uncertain, so any concerned investors would be wise to seek advice before switching out of any fund sector, as a jumpy premature move may result in missing out on potential recovery. Good advice is essential to any investor to get some peace of mind, particularly at a time when the markets are volatile.”