When you’re investing using ESG (environmental, social, and governance) criteria, fund labels can be confusing. They might leave you unsure about which ESG factors are considered or what impact your investments will have.
ESG investing is an approach to investing that considers more than just a company’s financial performance. It assesses numerous factors to understand how responsibly a company operates across three pillars:
- Environmental: How a company manages its impact on the planet, including emissions, energy use, waste, and climate-related risks.
- Social: How it treats employees, customers, suppliers, and communities, including issues such as working conditions, diversity, and human rights.
- Governance: How the company is managed, including leadership, transparency, executive pay, shareholder rights, and business ethics.
The goal of ESG investing is to identify companies that are aligned with your values, while also potentially delivering long-term returns in line with your wider investment strategy.
ESG investing is becoming more popular. According to a report in ESG Today (5 May 2026), research suggests that 90% of investors across North America, Europe, and Asia Pacific are interested in sustainable investing. Indeed, two-thirds said they plan to increase their sustainable investment allocation.
ESG labels aim to make investment objectives clearer for investors
The Financial Conduct Authority (FCA) introduced four ESG investment fund labels in 2024, aiming to make it easier for investors to compare different ESG funds.
Before this, there were no clear definitions for fund labels, which could make it difficult to determine their objectives and potential impact. There were also concerns about greenwashing – where vague or misleading language is used to overstate a fund’s ESG credentials.
The FCA regime provides four labels that funds can only use if they meet certain criteria, including a requirement for at least 70% of the fund’s gross value to be invested in line with its sustainability objective.
The four labels are:
- Sustainability Focus: For funds investing in assets that are already environmentally or socially sustainable based on evidence-based standards. These funds might invest in companies providing healthcare products or using energy efficiently.
- Sustainability Improvers: For funds investing in assets that have the potential to improve their environmental or social sustainability over time. Companies within these funds might have a clear path to reduce their carbon emissions or have committed to improving social standards.
- Sustainability Impact: For funds aiming to achieve a positive, measurable impact on the environment or society. Measurable goals may include increasing renewable energy generation or supporting social housing.
- Sustainability Mixed Goals: For funds that invest using a combination of the three approaches above.
The introduction of these ESG labels could help you select ESG investments with greater confidence.
The importance of looking beyond ESG labels
An ESG label can be a useful starting point, but it doesn’t tell you everything about a fund or whether it’s right for you
An ESG fund will not necessarily exclude every company, industry, or activity that you personally disagree with. So, before investing, it’s worth looking beyond the label and understanding what the fund is trying to achieve, what it invests in, what it excludes, and how it manages and measures progress towards its sustainability objective.
This can help you decide whether its approach genuinely matches your own priorities.
It’s also important to consider the financial side of the investment. Think about whether the fund fits with your overall investment strategy and objectives, as well as factors such as investment fees, the fund’s risk profile, and past performance.
Looking beyond the ESG label can help you make a more informed decision about whether a particular fund is right for you.
If you’d like our support when reviewing different investment opportunities, including those that consider ESG factors, please get in touch.
Please note: This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
