Penny Shepherd, executive director of the UK Social Investment Forum, would like to see this gap closed. She says: "Ethical investment is poised to enter the mainstream and this is an exciting time for those of us who had worked hard to support it.
"We are seeing genuine innovation in the field, with companies like Sun Life launching an ethical unit trust and a "Pro-Life" fund on its way from Ethical Financial. No other area of the financial services industry listens as hard to what consumers want. This represents a move away from generic products - good for all - to those tailor-made for a segment of the market."
Behind this move lie changes in the way ethical funds are managed and their relationships with the companies whose shares they buy for their funds. Corina Litvack, fund manager with Friends Provident, a major ethical fund provider, says: "There are now two approaches. The first relies heavily on negative screening of company behaviour, with fund managers avoiding those involved in unacceptable activities. No pressure is put on their management to change."
The second approach is a longer-term process of "constructive engagement". Ms Litvack adds: "This depends on talking to management, bringing about change over the medium to long-term. Our leverage over company management comes from the amount of their shares we own."
Much of this goes on behind closed doors, Ms Litvack says: "Confidentiality is an issue for management. It took us eight years of talking to one company before they sold a subsidiary we were unhappy with. Another company has introduced a monitoring system to ensure that their suppliers did not use any child labour, but don't want us to reveal their name."
Mark Campanale, of NPI, another leading ethical fund management firm, agrees: "Some of the new ethical funds only use negative screening. The best way to invest your money for real change is with fund managers who are pro-active and try to influence companies in the way they operate."
Some of those involved would like to see this process opened to more public scrutiny. In the US, the annual general meetings of companies are used by shareholders, including fund managers, to put forward resolutions critical of management policy.
Craig Mackenzie, of Friends Provident, says: "This has created a different corporate culture which has turned capitalism in a more responsive direction." Last year 300 shareholder resolutions on ethical issues were put forward at the AGMs of the 500 largest US companies listed on the S&P share index. Of these 100 were withdrawn before a vote, as management voluntarily complied with them.
In contrast, the biggest restriction on shareholder action in the UK are the rules governing the placing of a resolution on the AGM Agenda.
These must be proposed by owners of at least 5 per cent of voting shares, or by 100 shareholders who have each paid an average pounds 100 for their shares.
Simon Baker, manager of Jupiter's Ecology Fund, admits: "This restricts the direct influence we can have on management, except in smaller companies where we can build up a large shareholding." Instead, he thinks lobbying and meeting management to discuss the value of environmental reporting is the best way forward. "Change corporate culture if you want to change the way businesses operate," he says.
With 35 per cent of UK equities owned by pension funds, Rob Harrison, of the Ethical Consumer Magazine, wants to see a change in the law governing the fiduciary duties of the trustees responsible for running these funds.
Mr Harrison says: "At present, these duties are interpreted as meaning that most of the money held in a fund must be invested to maximise returns. This is not beneficial for our society in the long run."
Last week, Unison, the public sector trade union, voted to pursue a socially responsible investment policy in the conduct of its members' pension schemes. David Wild, who proposed the motion at Unison's annual conference, is determined to see the policy implemented. He says: "The Labour movement shies away from the financial world, but I think our involvement in it is essential to bring about long-term change."
Tessa Tennant of NPI agrees with this view: "Ethical investment is a means of empowering ordinary people and letting them shape the future of the world they live in." She points to a community of opinion that has formed on the subject: "From the United Nations to the World Bank and European Union, we are seeing support for the idea of sustainable economic development. What does this amount to? As far as possible leaving the world in the same or better condition than we find it."
Ethical Investment Research Services (Eiris) 0171 7351351;UK Social Investment Forum (UKSIF) 0171 404 1993.; "Ethical Consumer Magazine" 0161 226 2929.
`The Independent' has produced a free 28-page "Guide to Ethical Finances" by Nic Cicutti, the paper's personal finance editor. The guide, sponsored by Friends Provident, has information on all aspects of money and ethics. Call 0800 214 487 for a copy or fill in the coupon on page 4.
SCOTTISH WIDOWS Bank is launching a fixed-rate flexible mortgage, pegged for three or five years. The three-year loan will be fixed at 6.98 per cent, with the five-year option at 6.82 per cent. Redemption penalties apply to the fixed-rate period. There is an option to keep part of the loan on a variable rate, allowing some early repayment. Call 0131 6553974.
QUILTER FUND Management is offering a double discount on its Private Growth Portfolio Fund. Investors in the fund, which is fully PEPable in the three weeks following its launch on July 1, will receive a reduction in its initial charge from 5 to 4 per cent, plus a cut in the annual management charge from 1.5 to 1 per cent for two years. Minimum investment is pounds 5,000, or pounds 100 a month. Call 0800 358 8400.
BANK OF SCOTLAND is offering a one-year bond, paying 7.4 per cent gross on minimum investments of pounds 3,000. Interest can be paid monthly or at maturity. Call 0131 2437077.
YORKSHIRE BANK is offering a tiered one-year Premium Term Bond, paying 7.6 per cent gross on maximum deposits of pounds 50,000. Minimum deposits of pounds 2,000 will receive 6.85 per cent gross. Call 0113 2472410.
LEEDS & HOLBECK Building Society is abolishing charges for ordering foreign currency or travellers' cheques, while customers who take out the society's annual travel insurance policy will receive a pounds 5 WH Smith voucher. Cover for a couple up to 64 years old, including winter sports and business travel, is pounds 87 a year.
WOOLWICH IS cutting the upfront valuation fee of between pounds 140 and pounds 440 for borrowers who remortgage with one of its home loans. This is being done by replacing the existing full mortgage valuation report with a less detailed one which simply covers the suitability of the property for a loan from Woolwich. Details from branches.
WESLEYAN SAVINGS Bank is increasing rates on Wealthsaver Direct, its telephone account. From July 1 the new rate will be 7 per cent gross on deposits above pounds 10,000. Call 0121 2120899.
FINANCIAL DISCOUNTS Direct is offering discounts on a wide range of financial products, including pensions, term assurance, endowments and with-profit bonds. On a typical term policy costing pounds 40 a month, the saving could reach pounds 465. Call 01240 549090.
SAVILLS PRIVATE Finance, a mortgage broker, is offering a three-year discount of 1.9 per cent off an existing variable rate of 8.55 per cent. The rate is also capped, so it will not rise above 6.95 per cent until June 2001. No redemption penalties apply on repayments of up to 25 per cent of the loan, which is available on purchases with a loan-to-value of 95 per cent (90 per cent for remortgages). Call 0171 4099999.