Ethical, sustainable and impact funds and their providers

Ethical investing is an umbrella term for all approaches to investing that consider ethical values as well as financial returns¹. In practice that covers a wide range of funds: some screen out industries such as mining or tobacco, some weigh environmental, social and governance (ESG) factors when picking companies, and others deliberately back businesses delivering positive social or environmental impact. The funds are run by the same fund managers as ordinary funds, and are bought in the same ways, through investment platforms, ISAs and pensions.

Since 2024 the UK has had a formal way to tell these funds apart. The Financial Conduct Authority (FCA) introduced four sustainability labels to help investors recognise funds with a specific environmental or social goal, and required UK funds using certain sustainability terms to adopt one of them². Around 145 funds were using or planning to use these labels in the UK as of October 2025⁴. A fund using a label must have at least 70% of its money invested in line with its stated sustainability objective¹.

What ethical, sustainable and impact funds are

An ethical fund starts from the same place as any other fund: a manager pooling investors' money into a spread of shares, bonds and other assets. What marks it out is that the manager also applies a set of values-based rules when choosing what to buy and what to avoid. Which? describes ethical investing as an umbrella term covering every approach that weighs ethical values alongside financial returns¹.

The main approaches differ in what they actually do with your money:

• Avoiding: excluding certain industries, such as mining or tobacco, from the portfolio altogether¹
• Considering: weighing ESG factors, such as a company's environmental record or how it treats staff, alongside financial factors when picking investments¹
• Embracing: actively choosing companies focused on delivering positive social or environmental impact¹

These three styles are the basis of the ACE40 list, a specialist selection of ethical funds that the platform interactive investor describes as choosing the best-performing ethical funds and classifying them by whether they avoid, consider or embrace¹.

Ethical funds are not a separate species of investment. They include ordinary OEICs and unit trusts, ETFs and investment trusts, the closed-ended companies listed on the London Stock Exchange that you can also invest in ethically⁸. Some insurers run ethical funds within with-profits structures: Healthy Investment's Ethical With-profits Fund, for example, aims to provide steady growth over the medium to long term while smoothing out market fluctuations, investing across government and company bonds, UK and global shares, commercial property and cash deposits, and avoiding companies that cannot demonstrate mechanisms to uphold human rights or responsible business practices⁹. Workplace pensions can be ethical too: the master trust Nest offers a choice of six investment funds, including an ethical fund and a Sharia fund¹¹.

One thing worth knowing before choosing on values alone: performance can differ from the wider market. Which? notes that in recent years ethical funds have lagged relative to other funds because of spikes in oil prices that benefited energy companies, which many ethical funds exclude¹. That is a reminder that an ethical fund is still an investment whose value can fall as well as rise, and the usual rules of investment risk and diversification apply in full.

The four FCA sustainability labels and what each one means

The FCA's Sustainability Disclosure Requirements (SDR) are a package of regulations whose aim, in the regulator's own words, is to ensure that "financial products that are marketed as sustainable should do as they claim and have the evidence to back it up"¹². The labels were introduced to help reduce greenwashing and make it easier for investors to find sustainable funds that meet their needs⁵.

There are four labels: Sustainability Impact, Sustainability Focus, Sustainability Improvers and Sustainability Mixed Goals¹. They exist so that a fund calling itself sustainable has to say which of four distinct approaches it takes, rather than leaving the word to do vague work. Quilter describes them as four investment labels for products with sustainability objectives that aim to improve or pursue positive outcomes for people or the planet¹².

Two things about the labels matter to anyone comparing funds:

• They are optional. A fund manager can choose to use a label if the fund meets the FCA's general and label-specific criteria, but no manager is compelled to take one⁵.
• Using certain terms pushes funds towards them. Since 2024 the FCA has required that UK funds wanting to use certain sustainability terms have to adopt one of its sustainable investment labels³.

Adoption is still growing. Which? research found around 145 funds using or planning to use the labels in the UK as of October 2025⁴, against a far larger population of funds using ethical or ESG language. So a label is a positive signal of a specific commitment, not the default state of an ethical fund.

At least 70% invested towards the sustainability goal

The single most concrete rule behind the labels is a minimum alignment threshold. At least 70% of the investments in a fund must meet the sustainability objective set out by the fund's manager¹. Standard Life's guidance puts the same requirement in its own words: the investment policy and strategy must set clear expectations that at least 70% of the fund's investments align to its sustainability objective¹³. Hargreaves Lansdown states it plainly too: to use any of the four labels, at least 70% of the fund must be invested in line with the sustainability objective¹⁴.

The remaining assets have their own rule. The other 30% cannot be in conflict with the objective, although they do not have to meet it exactly¹. So a fund with a climate objective could hold some assets that are neutral on climate, but not ones that directly undermine the goal it has advertised.

The 70% threshold is the same whichever of the four labels a fund uses.

In practice the threshold does two things for an investor. First, it turns a marketing claim into a testable fact: a labelled fund is saying that at least seven pounds in every ten is working towards the stated goal. Second, it caps how much of the fund can sit outside the goal entirely, which was one of the main criticisms of loosely described "green" funds before the rules existed. Which? notes that the FCA's criteria for adopting a label include a requirement that usually at least 70% of the product's assets must be invested in accordance with the chosen sustainability objective⁴.

Focus, Improvers, Impact or Mixed Goals: how each approach differs

The four labels describe four genuinely different investment approaches, and the differences are worth understanding before choosing between them.

Sustainability Focus funds invest in assets meeting a robust, evidence-based standard of sustainability¹. HSBC describes them as funds that invest mainly in assets that focus on sustainability for people or the planet⁶. The companies or assets held are already at the standard the fund points to.

Sustainability Improvers funds invest in assets that have the potential to meet a robust, evidence-based standard of sustainability¹. Bestinvest's description is that these funds invest mainly in assets that may not be sustainable now but aim to improve their sustainability¹⁵. The bet is on improvement over time, often in companies transitioning their operations.

Sustainability Impact funds invest in assets directly making a positive impact¹. Rather than holding things that are already sustainable or becoming so, these funds back activities delivering measurable positive outcomes for people or the planet.

Sustainability Mixed Goals funds invest in a mix of the above styles¹. Standard Life describes these as funds investing mainly in a mix of assets that either focus on sustainability, aim to improve their sustainability over time, or aim to achieve a positive impact for people or the planet¹³.

Focus holds assets already at the standard; Improvers backs those on the way; Impact backs direct positive outcomes; Mixed Goals combines them.

The practical difference shows up in what you can hold. An Improvers fund can invest in a heavy-emitting company with a credible transition plan, where a Focus fund generally could not, because the asset does not yet meet the standard. An Impact fund is the most demanding of all in what it points to. None of the four is stricter or better in itself; they answer different questions about what "sustainable" means for that fund, which is precisely why the FCA separated them.

Where the labels do not apply: overseas funds and pension funds

The labelling regime has boundaries, and they matter when comparing funds. Funds based outside the UK, and different types of funds such as pension funds, are not in scope of the UK sustainable labelling regime⁶. Hargreaves Lansdown makes the same point: overseas funds are not subject to SDR, though the FCA is working to include them within the scope of the rules¹⁴.

This has two consequences for a UK investor:

• An overseas fund sold in the UK can use sustainability language without adopting a label or meeting the 70% threshold, because the regime does not apply to it.
• A pension fund, including the default fund in a workplace pension, sits outside the labels even though many describe themselves as responsible or ethical. Nest's ethical fund, for instance, is a pension fund option, not a labelled product¹¹.

A fund can also be UK-based and still carry no label. Coutts states that its funds do not have a UK sustainable investment label because their responsible investing approach does not align to the criteria, in particular because it does not amount to a sustainability objective or goal of the funds¹⁶. That is an honest statement of where the fund sits, not evidence of greenwashing, and it illustrates why the absence of a label needs interpreting rather than assuming.

The term "ESG" also sits in a weaker position than "sustainable". Which? notes that the requirements for using the term ESG are not as strict as they are for "sustainable", so a fund using it could mean multiple things, and ESG-labelled funds do not need to have a specific sustainability objective in mind as labelled funds do¹. If a specific, measurable commitment is what you are after, the label is the thing to look for.

Reading a fund's sustainability disclosure document

A fund using a sustainability label has to explain itself in writing. Labelled funds have a UK Sustainable Investment Labelling Disclosure Document, which explains the sustainability objective and how the fund aims to achieve it⁶. UK funds with sustainability characteristics are also required to publish a consumer facing disclosure giving details of how the fund implements ESG principles⁵.

Beyond the labels, there is a wider disclosure duty. Every fund and investment trust using language implying they have ethical credentials has to supply a sustainability factsheet setting out their objectives, approach and metrics¹. So even an unlabelged ethical fund should have a document you can read, and if it does not, that is a question to put to the manager or platform.

Where to find these documents:

1. On the platform. Bestinvest states that sustainability disclosures can be found in the documents section of its factsheets for any fund using a sustainability label, with a Sustainability Information Document added under the key features and documents section of the fund's factsheet¹⁵.
2. In the manager's fund documents. Coutts publishes its sustainability information among its important investment documents, including its position on why its funds do not carry a label¹⁶.
3. In the app. HSBC customers can find labelled funds and their disclosure documents when managing funds in its app⁶.

When you read one, the things worth checking are the sustainability objective itself, whether the fund holds at least 70% of assets in line with it, and how the manager measures and reports progress. The general guides to fund documents and fund charges cover the other paperwork a fund produces, and the ongoing charges figure applies to ethical funds exactly as it does to any other.

Greenwashing: the rules on misleading claims

Greenwashing is the gap between what a product claims about its sustainability and what it actually does. The FCA consulted in October 2022 on a package of measures designed to clamp down on greenwashing, including how terms like "ESG", "green" or "sustainable" can be used¹⁷. That package became the Sustainability Disclosure Requirements, which include an anti-greenwashing rule clarifying that sustainability-related claims made by firms must be fair, clear and not misleading¹⁴.

The anti-greenwashing rule came into force on 31 May 2024 and applies to all products and services provided by FCA-regulated companies⁷. It sits on top of a longer-standing principle that a firm must pay due regard to the information needs of its clients and communicate information in a way which is clear, fair and not misleading¹⁸, and FCA rules requiring financial promotions to be fair, clear and not misleading¹⁹. The FSCS, the body that compensates customers of failed financial firms, also publishes guidance on protecting your money from greenwashing¹⁷.

The rules moved from consultation in 2022 to a binding anti-greenwashing rule in 2024.

The rules have already changed behaviour in the market, in both directions. Which? reported that 383 funds across Europe and the UK opted to drop their ESG-related terms altogether in the second quarter of 2025, rather than meet the requirements those terms now carry⁴. In the US, the same period marked the 10th consecutive quarter of withdrawals from ethical funds⁴. Neither fact says anything about whether the funds are good investments; both say the era of loose sustainability language is closing.

For an investor, the practical protections are these:

• A labelled fund has made a specific, evidenced commitment, with at least 70% of assets aligned to a stated objective¹.
• Any sustainability claim by an FCA-regulated firm must be fair, clear, not misleading and backed by evidence⁷.
• If a claim turns out to be misleading, that is a matter for complaint, first to the firm and then to the Financial Ombudsman Service, and mis-sold investments have their own route to redress²⁰.

Who provides ethical and sustainable funds in the UK

Ethical and sustainable funds are offered across the whole of the UK fund industry, by fund managers, insurers, pension providers and platforms. This section describes who operates in the market; it does not rank them, and no rates or performance figures are given.

Fund managers. Fidelity runs sustainable and ESG funds and publishes guidance on the FCA labels and their criteria⁵. Vanguard publishes ESG funds for UK investors and explains that UK-domiciled funds using one of four approaches will use a sustainability label²¹. Coutts, the private bank, publishes its responsible investing position and its reasons for not using labels on its funds¹⁶.

Insurers and friendly societies. Healthy Investment, a friendly society, runs an Ethical With-profits Fund and an Ethical Unit-linked Life Fund, the latter investing between 80 and 90% in a mix of UK and global equities⁹. Standard Life publishes guidance on the labels and their qualifying criteria¹³.

Pension providers. Nest, the workplace pension master trust, offers six investment funds including an ethical fund and a Sharia fund¹¹.

Platforms. Hargreaves Lansdown publishes guidance on the Sustainability Disclosure Requirements and how labelled funds work¹⁴. Bestinvest explains where sustainability disclosures appear on its factsheets¹⁵. HSBC customers can manage labelled funds through its app⁶. Interactive Investor is described by Which? as the only platform to provide a specialist list of recommended sustainable funds, the ACE40¹. Note that a few platforms do not offer investment trusts at all²², so the range of ethical options varies by platform.

Investment trusts. Ethical investment trusts are also available, traded on the London Stock Exchange⁸. UK investment trusts are listed companies based in the UK which meet certain conditions, such as paying out a certain amount of the income they receive from their investments²³.

If you are comparing providers, the pages on fund managers, how investment platforms work and platform fees and charges cover how these firms are paid and what to check. Free, impartial help is available from MoneyHelper, and the FCA's own consumer guidance explains the rules on high-risk investments and sustainability claims.