Quick Answer
Most UK ethical funds exclude fossil fuels, controversial weapons, tobacco, gambling and adult entertainment. Stricter funds also exclude alcohol, animal testing, nuclear power and high-carbon utilities. Exact exclusions, revenue thresholds and definitions vary by fund — and the new FCA SDR labels ("Focus", "Improvers", "Impact", "Mixed Goals") give a useful clue to how strict the screening is.
When clients ask me which sectors ethical funds avoid, the honest answer is: it depends on the fund. There is no single industry-wide list. What you actually get is a spectrum — from light-touch ESG screens through to strict values-based exclusions.
That said, certain sectors come up again and again. Below is what is most common in the UK market today, and where funds tend to differ.
The Most Commonly Excluded Sectors
The chart below shows roughly how often each sector is excluded across mainstream UK ethical and SDR-labelled funds. Figures are indicative and based on aggregated published screening policies — not a guarantee of any specific fund's holdings.
How Often Each Sector Is Excluded (Indicative)
Indicative aggregation from publicly disclosed UK fund screening policies. Always check individual fund documentation.
| Sector | Why it's typically excluded | How common |
|---|---|---|
| Fossil fuels (coal, oil, gas) | Climate impact, stranded asset risk | Almost universal in UK ethical funds |
| Controversial weapons | Cluster munitions, landmines, chemical weapons (UN treaty banned) | Almost universal |
| Tobacco | Health harm, regulatory pressure | Standard in most ethical funds |
| Gambling | Social harm and addiction | Common, threshold-based (e.g. >5% revenue) |
| Adult entertainment | Reputational and ethical concerns | Common, threshold-based |
| Animal testing (non-medical) | Animal welfare | Common in stricter funds |
| Nuclear power | Waste, safety — debated | Variable; some 'green' funds now include it |
| Alcohol | Health and social harm | Less common; mainly in faith-based funds |
| Conventional weapons | Defence sector exposure | Variable; some ESG funds permit |
| High-carbon utilities | Transition risk | Common in 'Focus'-labelled funds |
Why Exclusions Vary So Much
Two funds described as "ethical" can hold very different companies. The differences usually come down to four things:
- Revenue thresholds: Some funds exclude any company earning more than 5% or 10% of revenue from a restricted activity. Stricter funds use a 0% threshold.
- Definitions: "Fossil fuels" can mean only direct extraction, or it can extend to refining, distribution and supporting services.
- Approach: Funds may apply hard exclusions, or use ESG integration plus engagement (staying invested to influence change).
- SDR label: Funds carrying an FCA "Focus" or "Impact" label tend to apply stricter, more transparent screens than "Improvers" or "Mixed Goals".
Common Areas of Confusion
An 'ESG' fund is not the same as an 'ethical' fund — ESG funds may still hold sectors you'd expect to be excluded.
Index-tracking ESG funds often retain small allocations to oil majors via 'best-in-class' selection.
Some 'sustainable' funds permit nuclear, while strict ethical funds exclude it.
Defence has been reframed by some managers as defensible post-2022 — exclusions are being revisited.
Animal welfare exclusions usually permit pharmaceutical animal testing required by regulators.
Many funds engage rather than exclude — sometimes more effective, sometimes less aligned with personal values.
How to Check a Fund's Exclusions
- 1
Read the fund prospectus and KIID
Both documents must, by FCA rules, summarise investment policy and any sustainability characteristics.
- 2
Review the manager's exclusions or screening policy
Sustainable and ethical fund managers publish detailed screening criteria, including thresholds and definitions.
- 3
Check the SDR label (where applicable)
From 2024, FCA-authorised sustainability-labelled funds must justify how they meet the criteria for 'Focus', 'Improvers', 'Impact' or 'Mixed Goals'.
- 4
Look at the latest holdings list
Scan the top 20–30 holdings to confirm the policy is reflected in practice. If something looks out of step with the stated policy, ask the provider.
Where Advice Helps
In practice, most clients I speak to don't want to read fund prospectuses themselves — they want help mapping their personal "non-negotiables" to a portfolio that genuinely reflects them while staying properly diversified. That's where an FCA-regulated adviser can save a lot of time and avoid subtle mismatches between what a fund says and what it actually holds.
This article is general information, not personalised financial advice. Investment decisions should reflect your own circumstances, capacity for loss, and long-term goals.
FAQs
What sectors do ethical funds exclude in the UK?
Most UK ethical funds exclude fossil fuels, controversial weapons, tobacco, gambling and adult entertainment. Stricter funds also exclude alcohol, animal testing, nuclear power and high-carbon utilities.
Do all ethical funds exclude fossil fuels?
Most do for direct extraction, but some ESG-integrated funds still hold transitioning energy companies. SDR 'Focus' and 'Impact' funds tend to have the strictest exclusions.
Do ethical funds exclude defence companies?
Almost all exclude controversial weapons. Conventional defence is treated inconsistently — some ESG funds now permit it, others continue to exclude it entirely.
What is a revenue threshold in fund exclusions?
A maximum percentage of revenue a company can earn from a restricted activity before being excluded — typically 0%, 5% or 10% depending on fund strictness.
How can I check what a specific fund excludes?
Read the prospectus, KIID and the manager's published screening policy. Sustainability-labelled funds must disclose criteria under the FCA's Sustainability Disclosure Requirements.