Ethical investing

ii ACE 30 investments table definitions

How to use the ACE 30 investments table

Our ACE 30 table has three categories.

  1. The asset group within which investments can be categorised. This aims to clarify the choices available to private investors. Our 15 asset groups include some dedicated to UK investments: UK equities, UK equity income, UK smaller companies and sterling bonds. Others include broad global investment options: global equities, global equity income, global bonds and property. For those seeking specific regional exposure to equities we have asset groups dedicated to Emerging Markets, Asia, Europe, Japan and the US. There is also a specialist group, which includes commodities. For those seeking a more diversified investment strategy we have a mixed asset group.
  2. The investment category, which includes options that are likely to represent the majority of an investor’s portfolio: core, low-cost and income holdings. The list also includes options designed for more experienced investors or those looking to add some higher-risk diversification to a balanced portfolio: smaller company and adventurous.
  3. The ii ACE ethical style, (Avoids, Considers, Embraces), which gives a broad approach to the ethical investment style of the fund manager.

If you look up our ACE 30 funds on the ethical investments long list, you can find further information about:

  • The Fund EcoMarket (FEM) category, which delivers a more granular approach to the ethical style adopted by the manager.
  • The Morningstar Sustainable Fund Type, which identifies sustainable investments that, by prospectus, either state that they use ESG criteria as a key part of their security-selection process or indicate that they pursue a sustainability-related theme or seek measurable positive impact alongside financial return.

Ethical values are very personal and so is ethical investment. An ethical investment policy that is ideally suited for one person will be inappropriate for another. The information we provide should go some way to help you find funds that suit your personal aims and opinions, however choosing a fund based on its style or approach is no guarantee it will match your personal investment criteria.

For example, investors who are looking to screen out the 'sin stocks' from their portfolios may be happy to look at the Avoids ii ACE category or the Negative Ethical category from Fund EcoMarket. However, while some funds avoid oil stocks, others may include them if the company is believed to be transitioning towards focusing on renewable energy. Another example is where environmentally friendly companies need to use certain metals such as cobalt for electric car batteries or silver for solar panels. These minerals are mined - but mining is a sector that is traditionally perceived as controversial.

These conflicts are inherent in the ethical investment world as some fund policies are more pragmatic than others. Some will balance the pros and cons of different business strategies and focus on themes that can hep support growth and encourage progress, whereas others have more binary in/out policies. Many also blend all of these elements, particularly in the 'considers' category.

Our long list includes funds that publicly state that they have ethical, social, environmental, sustainability screened, themed or responsible investment strategies as well as others we believe to be relevant to this area. We do not impose a view as to whether or not an investment should be on this list or not.

We will continue to monitor the market for new launches and for managers who have formally adopted additional ESG and/or ethical strategies and those who have will be added to our list. Our independent ethical experts at SRI Services will be monitoring this list to ensure its completeness and to help us with the classification of these funds into our ACE styles.

Definitions of the different styles and categories can be found below:

ii ACE ethical style definitions


Funds that focus on excluding companies, sectors or specific business practices in line with the published fund criteria that may focus on ethical, social and/or environmental issues. Funds in this group vary significantly. Some will exclude only a small number or companies (for example perhaps only a small percent of their possible universe), others have extensive exclusions (50% or more of their possible universe). The most common areas of exclusion are tobacco companies, weapons manufacturers and companies that breach internationally agreed standards - some include multiple additional issues. Passive funds typically fall into this group, generally with limited exclusions. 

Pros: Fund managers that screen out unethical companies may give peace of mind to investors who are actively looking to avoid certain sectors.

Cons: There is huge disparity in relation to the range of sectors and companies that are excluded from funds that apply negative screening. Some very ethical funds can exclude over 60% of available investments, while others only avoid 3%. Customers should do further due diligence to ensure any investment option fits with their personal ethical criteria.


Funds that actively consider ethical and/or environmental, social and governance (ESG) issues as part of their investment strategies. Funds in this group vary significantly but typically consider multiple positive and negative issues when deciding where to invest - with many emphasising positive stock selection. Most avoid controversial business practices and focus on sectors, themes and activities that the managers believe to be both financially sound and ethically, socially and/or environmentally beneficial. Many funds also have responsible ownership (stewardship) strategies and aim to improve companies' environmental and/or social practices. 

Pros: Managers who consider ethical issues will often invest in ‘best in sector’ companies that they consider to be operating more sustainably than their peers.

Cons: This is a wide-ranging group covering many different approaches. Each fund manager will consider some ethical criteria as part of their analysis of individual companies, so investors will need to do further research to determine whether a particular fund meets their ethical requirements.


Funds that focus on companies or other investment types (eg infrastructure, property) where delivering positive social and/or environmental outcomes is integral to their existence. These funds often refer to focusing on 'delivering positive impacts' as a major element of their investment strategy and purpose. Alternatively they may simply be entirely invested in a sector (such as renewable energy or social housing) where the potential to help deliver positive benefits is widely recognised. Fund strategies vary and you should be aware that unlike the other two styles additional ethical factors may not always be considered by funds of this kind. 

Pros: The fund manager’s primary aim is to make a tangible, positive impact on the environment or society. They proactively support & 'encourage' companies either through stock selection, responsible engagement, or an impact focus.

Cons: These managers will choose investments based on their ethical criteria above all else - and financial considerations may be secondary to ethical requirements. This may result in the investment being more volatile and less likely to match the performance of standard indices over time.

Fund EcoMarket (FEM) category definitions

Funds which focus on ‘ethical/values based’ negative and/or positive screening based strategies:

  • Ethically Balanced funds combine a wide range of, sometimes complex, positive and negative ethical screening policies as part of their investment strategies and may apply ‘best in sector’ strategies – which means they may invest in most sectors.
  • Negative Ethical funds use clear, sometimes strict and extensive, negative ‘ethical’ screens as their core strategy. They may avoid a significant number of areas on ethical grounds (e.g. armaments, tobacco, gambling) or may focus on avoiding a smaller number of areas.
  • Limited Exclusions (a sub style of Negative Ethical) funds exclude only a tiny fraction of their potential universe (e.g. only avoid tobacco, or the worst UN Global Compact offenders). These funds should not be confused with other ESG/ethical funds that have significantly more comprehensive strategies.
  • Faith Based investments invest in line with specific religious principles (e.g. Shariah Law)

Funds which focus on ‘thematic’ strategies, often alongside screening strategies:

  • Sustainability Themed funds focus on sustainability related issues and opportunities as part of their investment strategy, often alongside ethical criteria. Their focus is often around longer term societal and environmental trends.
  • Environmental Themed funds significantly integrate environmental issues into their investment strategies, sometimes alongside ethical avoidance criteria. Their focus is often around longer term environmental and resource related issues.
  • Social Themed funds focus on ‘people issues’ (such as employment and basic necessities of life). Social themed fund managers focus significantly on societal benefits when analysing companies for investment.

Strategies that may apply to an individual fund or across all fund manager assets:

  • ESG Plus can be a ‘fund theme’ or a ‘corporate’ (fund management company-wide) strategy. Fund managers with strong ESG strategies consider ‘Environmental, Social and Governance’ risks (and opportunities) as part of their investment research process. Applied on its own ESG does not normally indicate that there is additional SRI activity (screening or stewardship/responsible ownership), however the Fund EcoMarket ‘ESG Plus’ listing indicates that that the fund has a strong ESG strategy PLUS addition SRI/ethical/stewardship related activity.
  • Responsible Ownership is a ‘corporate level’ strategy – applying across all or most of a fund manager’s assets. Fund managers with Responsible Ownership or Stewardship strategies work with the companies they invest in to encourage better environmental, social and governance practices – when change is in the best interest of (all) longer term investors. (This strategy often forms a significant part of SRI-screened and themed fund activity.)

Morningstar Sustainable Fund Type definitions

Our data provider, Morningstar, has identified investments that, by prospectus, either state that they use ESG criteria as a key part of their security-selection process or indicate that they pursue a sustainability-related theme or seek measurable positive impact alongside financial return.

  • ESG Focus: Funds committed to using specific ESG (Environmental Social Governance) criteria in security selection. It is common for ESG Focus funds to use exclusionary screens. These typically avoid investing in companies involved in “sin” sectors such as tobacco, gambling, and pornography, as well as weapons and companies that violate international norms and conventions such as the UN Global Compact principles.
  • Impact: Funds aiming to deliver positive and measurable social or environmental impact alongside financial returns. Impact funds are often focused on specific themes, such as low carbon, gender equality, or green bonds. Some use the 17 UN Sustainable Development Goals as a framework for evaluating the overall impact of their portfolios.
  • Sustainable Sector: Funds focused on activities that participate in the green economy. Offerings that focus on “green economy” industries like renewable energy, energy efficiency, environmental services, water infrastructure, sustainable food production, and green real estate are grouped as Sustainable Sector funds.
  • Shariah Focus: Funds focused on compliance with Islamic law for investment practices. Under Islamic law, there are rules that govern the payment of interest and fees, etc.
Risk Warning: The price and value of investments and their income fluctuates: you may get back less than the amount you invested. If you are unsure about the suitability of a particular investment or think that you need a personal recommendation, you should speak to a suitably qualified financial adviser. Please note, the tax treatment of these products depends on the individual circumstances of each customer and may be subject to change in future. If you are uncertain about the tax treatment of the products you should contact HMRC or seek independent tax advice.

Ethical investing
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