What is sustainable investing?

‘Sustainable investing’ describes investment options that focus significantly on environmental and social issues, alongside financial considerations, as part of their strategy.

In many respects these options emerged from the ethical investment fund area, which were first available to individual investors in 1984. The first retail ‘green’ fund was launched in 1988. Both considered environmental and social issues.

Early funds trail blazed the concept that individual investors who want to reflect their personal preferences, opinions and hopes for the future when investing should be able to do so. They also recognised the need for change, and growth opportunties.

There is often significant overlap between strategies, but it is important to understand that they are different.

Sustainable funds tend to be forward looking, and invest in assets that provide or support solutions to environmental and or social challenges.
Ethical funds tend to focus more on personal values related issues.
Ethical funds tend to have more of a focus on exclusions, where as sustainable funds tend to focus more on positive selection – seeking assets with beneficial characteristics. (Many strategies do both.)
Both sustainable and ethical options select (or or don’t select) assets because of what they do or make, alongside financial considerations, and tend not to invest in assets causing significant harm to people or the planet.
Both also tend to consider ‘ESG’ – environmental, social and governance issues, risks and opportunities – including ‘how’ a business operates and is managed. Both may invest across a range of industries (ie not just ‘energy’)
Both may have ‘responsible ownership’ or ‘stewardship’ strategies.
Opinions and strategies vary – so it is important to read the information fund managers publish.

Sustainable investing today

There are now rules in the UK that set out whether or not a fund can call itself ‘sustainable’, or use the term ‘sustainable’, ‘sustainability’ or ‘impact’ in its name. These are published in the FCA’s Sustainability Disclosure Requirements (SDR) in November 2023.

These rules require, (UK) sustainable funds to help deliver positive real world sustainability outcomes, through where assets are invested and how they operate. There are of course many different ways investors can directly or indirectly help to deliver positive real world outcomes – so the rules do not describe exactly what a fund should do.

Relevant funds must also disclose additional information and have the option to adopt an SDR label. The SDR fund labelling rules primary purpose is to help people find sustainable funds.

This area is however a little confusing at present because not all fund and product options are ‘in scope‘ – covered by – the new SDR rules. Portfolios and overseas funds are currently out of scope – although all of the investment industry is required to ensure clients are not misled. The ‘anti greenwash’ rule, which is part of SDR, describes this further.

In addition, many funds that focus on sustainability have chosen not to use an SDR label because of the complexity of the new rules. Such options are often referred to as ‘Unlabelled with sustainability characteristics‘. Our SDR page explains further.

European rules of this kind are governed by the SFDR, which like SDR continues to evolve.

For further information see our Glossary page.

Sustainable investment in practice

Sustainable investment strategies (irrespective of SDR status) are a combination of the product specific issues the strategy considers, and the approach(es) applied to those issues. In other words ‘what‘ the strategy considers and ‘how‘ issues are dealt with.

There are many different sustainability related issues, risks and opportunities, and different people and fund managers chose to respond to different aspects, which is why sustainable investing is a highly diverse area. Advisers, portfolio managers and potential clients should always look closely at investment fund and fund management company policies and strategies – as these work together.

Helping you to understand sustainable investing options

This is why we include both ‘product’ and ‘corporate’ options on the Fund EcoMarket database.

Although strategies very, they can be clustered into client friendly groups – to help describe key differences.

The Fund EcoMarket ‘SRI Styles‘ categories are designed to help users recognise key similarities and differences between options. This includes, for example, whether it focuses on environmental, social or ethical issues – or a combination. The SRI Stylefinder questionnaire is designed to help users identify their preferred styles.

These are however only a basic starting point to be considered alongside the product and corporation specific information on the database. It is also important not to confuse this information with the FCA’s SDR Labels.

Understanding good practice in sustainable investing

In March 2025 the British Standards Institute (BSI) published a free to dowload ‘publicly available specification’ for retail sustainable funds: ‘PAS 7342:2025 Sustainable investment funds. Design, implementation, monitoring and communication of sustainability attributes’.

This is a technical specification that describes in some detail ‘what good looks like’ in retail sustainable fund investing and is helpful for those wanting to understand this area.

The PAS standard (PAS 7342) was jointly sponsored by government (DESNZ) and industry. SRI Services’ founder Julia Dreblow was it’s technical author.