Recent announcements by several large fund managers that they were cutting back their socially responsible investment teams sent shockwaves through the ethical investing world. Investors are starting to ask whether ethical investing is a bull-market luxury that really has no place in these straitened economic times.

Yet this is to miss the bigger question of whether ethical funds actually delivered on performance numbers. In traditional ethical funds, consumer staples such as tobacco were excluded, alongside racier oil and armaments stocks, for example. But these funds never had broad appeal. As Matthew Kiernan, founder and chief executive of Inflection Point, a sustainable asset management firm, says: “The unspoken promise from the managers was that your investment will underperform but you can sleep at night. We know that the returns are going to be terrible, but that’s a trade-off you are willing to make.”

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