Nine out of 10 funds marketed as ethical or socially responsible in the UK would be banned from doing so if they were sold in Belgium or France.
This is because they do not meet a minimum set of European transparency standards which Belgian and French trade organisations have made a compulsory requirement for funds marketing themselves as ethical or socially responsible (SRI).
If they do not comply, Belgian and French funds are forcibly stripped of their ethical branding.
The standards were created in 2008 by the European Sustainable Investment Forum (Eurosif), an independent pan-European think-tank. They have been updated three times since and are designed to make finding out whether SRI funds really do what they say on the tin easier for investors.
Some 500 out of the 900 SRI funds across Europe are fully compliant, but only nine of these are UK funds.
Qualifying investments are allowed to display the Eurosif SRI transparency badge on their factsheets, which indicates they provide concise and easy to read information, sufficient detail on their investment process, and that they disclose 100 per cent of their portfolio holdings at least every six months.
But because the Investment Management Association (IMA), the trade body that looks after investments in the UK, does not acknowledge Eurosif or its guidelines, it means most ethical funds marketed to UK investors do not disclose this level of information, and can get away with keeping most of the companies they are investing in a secret.
It has also emerged that Eurosif has dropped a number of UK funds from its compliant list as they were failing to keep up with the guidelines being updated. Rathbone's Ethical Bond fund was among the funds relegated, but it is continuing to use the Eurosif logo on its factsheets, regardless.
On 7 October, David Holloway, marketing director at Rathbones, told us: "Eurosif didn't tell us we couldn't use the logo anymore. Our re-application is pending as we only submitted it two days ago."
But the next day, Simon Howard, chief executive at the UK Sustainable Investment Forum (UKSIF), the UK subsidiary of Eurosif, confirmed that Rathbones had only submitted its re-application after its phone call with Investors Chronicle. He said: "Fund houses should not be using the logo on factsheets if their application is pending. The Rathbone Ethical Bond was removed from our list a few months ago, but it submitted a fresh application today (8 October)."
François Passant, executive director at Eurosif, said: "I'd love it if the IMA made this compulsory for their ethical members because it would help make UK ethical funds more user-friendly."
But a spokesperson from the IMA declined to comment on why it doesn't make members in its ethical sector comply with Eurosif transparency rules, and said: "It's up to ethical funds themselves to decide how they operate."
And Mr. Howard added: "Making fund houses jump through hoops could stifle innovation, which is why the UK has a more inclusive approach to ethical investing."