Archived article: Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Passive investing has surged in popularity over the past decade, as investors are attracted by the lower costs and, often, better performance.
The method makes sense for many people. It facilitates exposure to a large number of holdings and is a hands-off way to make your money work for you. However, because there are so many investments in a fund tracking an index, it can be harder to wrap you head around what you are actually investing in. And sometimes, this might include companies you don’t feel morally comfortable with.
In a recent survey run by AJ Bell with Opinium, just 15% of people said they wouldn’t rule out any investments in a portfolio based on moral grounds. But 28% said they’d consider excluding oil and gas companies, and 33% would consider excluding tobacco companies.
However, if those same people are holding investments in the UK’s most popular index, the FTSE 100, they would be investing pretty heavily in both these industries. Shell and BP together account for almost 10% of the allocation of the FTSE 100, and British American Tobacco is the eighth-largest holding.
Defence companies, which 23% of respondents would consider not investing in, are also included in the FTSE 100’s top 10 constituents, in the form of Rolls-Royce and BAE Systems.
The top holdings in the FTSE 100 based on allocation
| Top 10 FTSE 100 Companies | Weighting |
|---|---|
| Astra Zeneca | 7.1% |
| HSBC | 7.3% |
| Shell | 7.2% |
| Unilever | 5.1% |
| Rolls-Royce | 3.8% |
| RELX | 3.4% |
| British American Tobacco | 3.1% |
| BP | 2.7% |
| BAE Systems | 2.7% |
| GSK | 2.6% |
| Source: FTSE Russell as of 19 August 2025 | |
For some investors, the returns and ease of investing in an index tracking fund might overrule the opposition. However, over the past decade, the FTSE 100 has returned 124%, while the FTSE4Good UK, which uses ESG standards to rank companies, has returned 113%, so the difference has been relatively small. Its top holdings remove defence companies Rolls-Royce Group and BAE, as well as British American Tobacco and BP. Notably, Shell does remain in the FTSE4Good index.
How are FTSE4Good companies decided?
The FTSE says that it uses a rating system to determine which companies are allowed in the index, which includes social, governance, and environmental factors. If companies do not meet a certain threshold, they are excluded from the index. For environmental factors, there are considerations such as climate targets and acknowledgements of impact.
BP, for example, has not been part of the index since its 2010 Gulf of Mexico oil spill. Their chances of returning were likely not helped by its roll back of net zero promises, which dropped from a 40% reduction in carbon emission for oil and gas production by 2030 down to between 20% and 30%. The current website has changed the criteria for this section.
Shell, which is part of the index, aims to be net zero by 2050, but notably has rolled back its goal to reduce its net carbon intensity by 20% by 2030 to now ‘between 15% and 20%’. Perhaps this more subtle change of framing protected Shell’s position. However, Shell represents 49% of the carbon footprint of the index, and holds 77% of the carbon reserves of the entire FTSE4Good UK index, according to LGIM’s ESG report.
These changes and targets can often be vague, which makes coming up with a single system for excluding or including companies from an index complicated. Therein lies the difficulty of ESG investing: for someone who is passionate about the environment and is not looking to invest in oil, investing in the 'responsible’ index doesn’t help you avoid Shell, even though you avoid others. And it can be very difficult to determine which companies are sincere in their efforts, and which plan to quietly roll back a policy a few years later. Keeping track of this creates extra work for investors, removing some of the appeal of passive instruments.
Alternative options for investors
The complexity around it also creates confusion for investor's current products, with 38% of respondents saying they have ‘no idea’ if their current investments hold any companies they don’t agree with on moral grounds. However, 12% reported that if they were aware of those holdings, they would change all of them, with another 23% saying they would change most. For some investors, the lines might be clear, for example they might steadfastly decide they do not want to invest in companies which are in the business of tobacco or gambling. However, others may need to do a bit more digging to determine if they are aligned.
Fortunately, as in most areas of the investment world, there are products that do it for you. On AJ Bell’s Favourite funds list, there are seven options under the responsible listing umbrella, including one passive and six active.
| Fund | Five-year return average (annual) |
|---|---|
| FSSA Asia Focus | 4.8% |
| iShares MSCI World SRI (passive) | 10.8% |
| Janus Henderson UK Responsible Income | 10.3% |
| Liontrust Sustainable Future Global Growth | 5.3% |
| Rathbone Ethical Bond | 0.9% |
| Royal London Sustainable Leaders | 8.6% |
| Trojan Ethical Fund | 5.1% |
| Source: AJ Bell as of 30 October 2025 | |
All these funds will have slightly different screening processes to determine what is appropriate to include. However, by finding a process that aligns closely with your values, it may provide an alternative to trying to choose the investments yourself. Other funds may have more of a direct focus on renewable energy or positive social impact, rather than trying to weed companies out. This could be a way to diversify a portfolio as well, although it is worth noting that many of these funds have struggled in recent years.
If you invest through a fund, it’s also important to understand that you may not be able to find out all the fund’s holdings. By choosing an exchange-traded fund (ETF) instead of a more traditional vehicle, you would get this information as a matter of course.
Hannah Williford: Content Writer
Hannah joined AJ Bell in 2025 as an investment writer. She was previously a journalist at Portfolio Adviser Magazine, reporting on multi-asset, fixed income and equity funds, as well as macroeconomic impacts and regulatory changes...
