‘Sustainable investing’ describes investment options that focus significantly on environmental and social issues, alongside financial considerations, as part of their strategy.
These options largely emerged out the ethical investment fund area, which were first available to individual investors in 1984. The first retail ‘green’ fund was launched in 1988.
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.
There is significant overlap between strategies in this area, however in broad terms ethical funds tend to focus more on values related issues, like armaments and animal welfare – and sustainable funds tend to take a more forward looking approach to environmental and social (sustainability) issues.
Ethical funds also tend to have more exclusions, and sustainable funds tend to focus more on positive selection – seeking assets with beneficial characteristics. Both select (or or don’t select) assets because of what they do or make, alongside financial considerations. As part of this both also 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’) and – whilst opinions may vary – tend not to hold assets that cause significant harm.
Both align with the view that it matters where we invest.
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).
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.
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.
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.
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 includes an extensive glossary. Some key definitions are below:
‘sustainability issue’
topic, concern, risk and/or opportunity considered by fund managers to be sustainability related
NOTE These are primarily environmental or social issues; however, governance is also important. These are
expected to be articulated in a fund’s sustainability policy and strategy.
‘sustainability’
responding responsibly to the finite nature of environmental resources with regard to the needs of
current and future generations
NOTE 1 A sustainable activity is one that can continue indefinitely as it is not dependent on the use of resources
that cannot be replaced.
NOTE 2 In the context of sustainable investment, sustainability comprises both environmental and social
considerations. This interpretation is derived from the 1987 United Nations Brundtland Commission Report [7].
3) Global Impact Investing Network, What you need to know about impact investing. Available from
https://thegiin.org/publication/post/about-impact-investing.
‘sustainability objective’
statement of intention to undertake activities with the aim of directly or indirectly improving or
pursuing positive environmental and/or social outcomes
[SOURCE: FCA Sustainability Disclosure Requirements, PS23/16, Annex A [2]]
‘sustainable investment’
alignment of an investment strategy to forward looking environmental and/or social sustainability
objectives alongside financial goals
NOTE Assets are selected based on the products or services they offer and/or other sustainability attributes.
‘sustainable investing’
process of undertaking sustainable investment (3.23)
‘sustainable investment fund’
fund that is managed in line with a sustainable investment strategy
Additional terms are described in the ‘SRI Services glossary’ here.