News Analysis: Ethical investing open for business

"Normally during volatile times, ethical funds perform poorly because the universe of stocks is much narrower and they get hit the worse," she says. "They have done reasonably well, but this is not usually the case."

She adds the firm is not seeing a trend from its clients towards ethical investing.

However, as much as $183bn (£114bn) has been pledged by governments worldwide to be pumped into environmentally friendly enterprises.

The UK government plans to slash carbon emissions by 26 per cent of 1990 levels by 2020 and 80 per cent by 2050, while the US has set out to cut emissions by 14 per cent of 2005 levels by 2020 and 83 per cent by 2050.

The huge boost in renewable-energy business – which only accounts for 5 per cent of the global energy mix – to meet these targets will see a major jump in green investing, according to Steven Falci, vice-president of sustainable investments at fund managers KBC Asset Management.

Nick Robins, head of the HSBC climate-change centre of excellence, argues retail funds are due for "another wave of interest" in ethical investing and says ethical investors tend to be more "picky and sticky", riding out slumps in performance.

Mr Robins says investors are increasingly taking a longer-term view of investment and considering corporate governance issues more seriously.

"I don't see any particular risks for ethical investing," he says. "Many of the funds have a good story to tell and are outperforming because they are looking at more strategic investment strategies."

Penny Shepherd, chief executive of UKSif, agrees with The Co-operative that the credit crunch will boost uptake in ethical funds over the next year.

"Our IFA members say they are seeing a greater range of people who are looking at green and ethical investments, and we're going to see this rise."

Daniel McAllister is a freelance journalist