Strategies from Aberdeen Standard Investments, Schroders and Vanguard have been named 'spinner' funds for failing to stick to their ethical criteria in a new report from Castlefield.
In its report Winners and Spinners, the firm said a number of funds give "ethical and sustainable investing a bad name" for investing in tobacco and environmentally damaging extractive companies.
The ethical advisory business also said applying negative screening in isolation and light touch ethical policies are not enough to be classed as an ESG fund, an area that is gaining in popularity and currently has £1.5trn in assets under management.
From its research, Castlefield identified funds that were successfully and unsuccessfully sticking to their ethical criteria, with the top three 'winners' being identified as the £173m FP WHEB Sustainable fund, £365m Liontrust UK Ethical and the £884m Rathbone Ethical Bond fund.
However, the three losers were the €588m Vanguard SRI European Stock fund, £151m Aberdeen Ethical World Equity and £209m Friends Life Stewardship fund.
The common denominator between the three losers was their holding of companies such as Royal Dutch Shell and Rio Tinto.
The Vanguard fund held a 1.5% weighting to British American Tobacco and 3.1% to Royal Dutch Shell, with Castlefield describing the fund's creation as a "box ticking exercise".
"There has been a lack of consideration when creating this passive vehicle. Investors looking for passive SRI options with Vanguard will still be exposed to sectors such as tobacco and fossil fuels.
"In short, the creation of this fund feels more like a box ticking exercise than a real attempt to provide a passive option that meets the needs of those who wish to incorporate their values into their investment decisions."
A spokesperson for Vanguard said: "Vanguard understands that people have a wide variety of deeply felt humanitarian, ethical, environmental, and social concerns, and that some may want to see their beliefs reflected in their investments.
"The Vanguard SRI European Stock fund offers investors the ability to spread risk through broadly diversified exposure to equity markets, at a very low cost.
"The fund employs an indexing investment strategy designed to achieve the performance of the index, by investing in all, or a representative sample of, index securities that satisfy the application of a screening process for socially responsible investing.
"Vanguard selected FTSE as the index provider for this fund after evaluating FTSE's screening process and 'socially responsible' criteria, however, we are not directly involved in decisions to exclude/include specific companies from the fund on an SRI basis. This strict segregation of duties avoids conflict of interest and allows us to focus on meeting the objective of providing a fund return close to the market return through an optimised, passive investment approach."
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