Working with a financial planner can help you to gain a greater understanding of responsible investment solutions, including their risks and potential rewards. This is becoming increasingly important as more individuals look to invest in a more sustainable way, with an ever-increasing range of options, some of which are less transparent than others. Having the support and expertise of a financial planner ensures that the investment solution selected meets your wishes and fits into your overall financial plan.

Recent societal changes surrounding environmental and sustainability issues have strengthened the link between personal financial planning and responsible investing. Increasingly, people aspire to invest for their own future, or that of future generations, while also making a positive impact on the world around them. It is therefore becoming more important to understand the various ways to invest responsibly, and how these can help you to achieve your goals, but also the risks and potential limitations involved.

Investors should be aware of the plethora of terms used and how they differ. These include ESG (Environmental, Social, Governance) which constitutes the metrics used to measure a company's non-financial risks alongside traditional financial metrics, and sustainability, which is the broad goal of long-term viability. Responsible investing involves ethical considerations, often overlapping with both ESG and sustainability, but emphasising value alignment (i.e. avoiding harmful industries) beyond just performance metrics.

How are specific industries screened out of ESG funds?

Industries that are often screened out of responsible investment funds include alcohol, weapons, gambling, and tobacco.

Many investors assume ESG funds fully exclude these categories, however it is rarely that simple. As an example, defence spending has soared amid global geopolitical tensions, and analysis by MSCI in 2025 indicates most sustainable funds still have exposure to weapons. The data suggests that 77% of Article 8 and 66% of Article 9 funds (under the EUs Sustainable Finance Disclosure Regulation) have some exposure to controversial or conventional weapons with average exposures of 3.7% and 3.3% respectively. While 90% of these funds exclude controversial weapons (such as cluster munitions or chemical weapons), conventional weapons like tanks and firearms are often included.

Tobacco and alcohol can be just as complex. Investors can remove companies directly involved with these industries, or apply revenue limits, such as excluding firms with over 5% of their revenue from sales or production. As you start to consider the full supply chain of these products, it becomes more nuanced. For example, packaging companies can derive significant revenue from alcohol companies. These indirect links are therefore important to be aware of.

It is vital that ESG-focused investors are able to cut through the noise. They need to fully ascertain what they are investing in, and the criteria used for screening or reducing harmful exposures in portfolios. It is crucial to have a firm idea of whether you would like (or whether it is possible) to reduce, or completely exclude, certain areas from your investment portfolio.

Understanding risk and reward

An integral part of financial planning is understanding risk and reward and the relationship between them, in the context of achieving an individual’s financial goals and aspirations. One of the very first steps we take when meeting with any new client is to determine what their goals and aspirations are in life; this ultimately influences the direction in which we advise them to invest.

The emergence of ESG investing has reshaped this dynamic between risk and reward, introducing non-financial factors into the mix. Nonetheless, investors will still be seeking long term financial returns. A 2025 article found that sustainable funds had a median return of 12.5%, compared to that of 9.2% from traditional funds in the first half of 2025, suggesting that you do not necessarily need to forego performance when it comes to responsible investing. Indeed, overall studies suggest that over a time horizon of many years, responsible models tend to perform similarly to a more traditional approach.

However, investors should be prepared for years when non-traditional styles of investing perform comparatively worse than the market, for example, when excluded industries might perform particularly well. An example of this is in 2022, when global energy prices spiked due to supply shocks resulting from the Russo-Ukraine war. Oil and gas companies profited, and some ESG funds excluding these companies consequently underperformed traditional funds. Conversely, there may be periods when ESG funds outperform, such as in 2020 when airline stocks plummeted and were excluded from some funds.

Challenges and Considerations

ESG investing has grown significantly. A recent survey by Morgan Stanley indicated that more than 50% of private investors planned to increase allocations to sustainable investments over the next year. However, challenges such as greenwashing, where companies overstate their sustainability, remain. This can mean that sometimes investments do not have the desired positive impact. To avoid this, investors should conduct due diligence by reviewing company sustainability reports, checking third party ESG ratings, and being cautious of vague claims which are not backed up by evidence of sustainable practices.

Next steps

If you are keen to invest responsibly, speaking to a financial planner first can help you understand fully how it works, and how it differs from traditional investing.

We can advise on a range of investment solutions which can incorporate responsible investing alongside your financial planning. These solutions place greater emphasis on environmental, social and governance themes, allowing you to invest for your future whilst simultaneously having a positive impact on the world. If you are interested to learn more, please get in touch.

Buzzacott Financial Planning is authorised and regulated by the Financial Conduct Authority. This article has been prepared to keep readers abreast of current developments. Professional advice should be taken in light of your circumstances before any action is taken or refrained from. The value of investments, and the income from them, may go down as well as up and investors may not get back the amount originally invested.