Client demand for investments that do more than generate a return keeps rising, and advisers are expected to be able to discuss it with confidence. Alternative investments offer some of the most direct routes to green and ethical outcomes, but they also demand careful scrutiny of the claims being made.
This guide looks at the main types of green and ethical alternatives, how to test sustainability claims and how to position them within a suitability-led recommendation.
What Is Green and Ethical Investing?
The term covers a broad range of approaches. At one end, clients simply exclude sectors they object to, such as tobacco, weapons or fossil fuels. At the other, capital is directed at businesses and projects designed to deliver measurable environmental or social benefits, often called impact investing.
ESG stands for environmental, social and governance, and describes the factors used to assess how a company manages issues such as emissions, labour practices and board oversight.
Why Alternatives Suit Sustainable Mandates
Listed markets offer plenty of ESG funds, but alternatives can provide a more direct link between capital and outcome. With a specific renewable energy project or sustainable development, the client can see what is being funded. Alternatives may also offer:
- Tangible assets such as solar farms, wind turbines or energy-efficient buildings
- Long-term contracted income in some infrastructure projects
- Diversification away from public equity and bond markets
Types of Green and Ethical Alternatives
Renewable Energy Projects
Solar, wind, hydro and battery storage are among the most established green alternatives. Some sell electricity under long-term agreements, which can support predictable revenue. Returns still depend on energy prices, weather, construction delays and government policy.
Sustainable Property
Energy-efficient residential and commercial property, and the refurbishment of older buildings to higher standards, can offer environmental benefits and appeal to tenants and buyers. The usual property risks apply, including valuations, demand and development risk.
Green Bonds and Loan Notes
Some companies raise funds for environmental projects through green bonds or loan notes, with proceeds ringfenced for defined purposes. They pay a fixed return like other debt, so issuer creditworthiness remains central.
Natural Capital and Forestry
Forestry, land restoration and similar projects can generate returns through timber, carbon credits or land value. They are typically long-term and illiquid.
Testing Sustainability Claims
Greenwashing, presenting an investment as more sustainable than it is, is a live regulatory concern. In the UK the FCA has introduced an anti-greenwashing rule and its Sustainability Disclosure Requirements (SDR) to make claims clearer and more accountable, which makes it important for advisers to be able to evidence what they have relied on.
Questions to ask the provider:
- What specific environmental or social outcome is targeted?
- How is that impact measured and reported?
- Is there independent verification or certification?
- Do the claims stand up when you read the detailed documents?
Impact Is Not a Substitute for Suitability
A strong environmental story does not reduce financial risk. The same rigour applies as to any alternative: issuer track record, security of income, liquidity, fees and fit within the wider portfolio. Many green alternatives are illiquid and restricted to certified high net worth or sophisticated investors, so categorisation, capacity for loss and Consumer Duty outcomes should be evidenced on file. Spreading capital across projects and asset types helps manage risk.
Conclusion
Green and ethical alternatives let advisers help clients align capital with their values while seeking returns from tangible, real-world assets. The discipline is to look past the label, understand exactly what is funded and apply the same standards you would to any recommendation.
IFAs and wealth managers can explore our sustainable opportunities on the Green and Ethical page, or get in touch to find out more.
Professional audience only: This content is intended for IFAs, wealth managers and other professional intermediaries. Target Wealth Group is a B2B business and we do not deal with retail investors.
Risk warning: This article is for information only and does not constitute financial advice or an offer to invest. Many alternative investments are high risk and illiquid, are not covered by the Financial Services Compensation Scheme (FSCS), and you could lose some or all of the money you invest. Past performance is not a reliable indicator of future results. Please read our full risk warning and seek independent financial advice if you are unsure.
