Newton Investment Management is to launch a sustainable bond fund.
This is the third new sustainable investment fund brought to market by Newton this year, though it is the first focused on bonds.
The Newton Sustainable Sterling Bond fund will only invest in the bonds of companies that are compliant with the United Nations (UN) sustainable development goals.
Additionally Newton will avoid investments in any company that derives 10 per cent or more of its revenue from tobacco.
The fund will be permitted to invest up to 50 per cent in bonds with a credit rating below investment grade, i.e. high yield.
The fund can also invest in gilts, that is, UK government bonds, up to 35 per cent of the fund.
Julian Lyne, chief commercial officer at Newton, said: "Our approach to sustainable investing, which has been core to Newton since we launched 40 years ago, stems from our belief that companies that operate in a sustainable manner and optimise their resources will ultimately benefit shareholders and bondholders over the long term.
"The fund complements our recently expanded sustainable range. With this new fund, and throughout the sustainable range, we use ESG analysis to positively identify companies with robust business models which effectively incorporate sustainability into their core business and strategy.
"This investment philosophy ensures we provide our clients with exposure to high-quality sustainable securities with strong long-term investment opportunities."
Darius McDermott, managing director at Chelsea Financial Services, said he has yet to see a material pick-up in demand from clients for funds that invest in an ethical or sustainable way.
He said his preferred Ethical Bond fund is that run by Bryn Jones.
Mr Jones, who runs the £1.1bn Rathbones Ethical Bond fund, has said he will not invest in government bonds, as he does not consider governments that maintain armies to be ethical.