Ethical investments seek to invest in companies which make a positive contribution to the world and seek to avoid companies which could harm the world, its people or its wildlife. It is difficult for an individual investor to judge whether a particular company is ethical or not. Therefore, most ethical investments are held through a managed investment fund such as a unit trust or life insurance or pension fund.

There are funds which merely exclude investment in specific activities or industries such as tobacco, gambling, alcohol and armaments. Others take a more pro-active stance, actively looking to invest in companies involved in environmentally sound, socially progressive businesses.

In the late 1990s a further change occurred based on the belief that ethical or socially responsible investment should go beyond the 'avoidance' or 'supporting' approaches described above. Often called an 'engagement' or 'influencing' approach, here the investment fund will not apply any screening criteria to its investment choices. Instead, the fund manager undertakes to create a dialogue with a certain number of companies in the portfolio on a specific number of social and environmental issues. The aim is to encourage them to adopt the best business practices.