The Investment Association, the trade body for open-ended funds, has launched a consultation into the ethical, sustainable and governance (ESG) fund sector.
The consultation will seek to agree a definition for ESG investing, and for the processes associated with investing in that way, including the term impact investing, and negative screening
The consultation will seek to create a voluntary UK standard for ESG funds, which the IA hopes will help investors understand the nature of the product in which they are investing.
Chris Cummings, chief executive of the IA, said: "Social and environmental change is happening faster than ever before. The asset management industry is at a critical juncture in embracing sustainability as a defining feature of the investment landscape.
"With sustainability and responsible investment becoming an increasing priority for today’s investors, this consultation is an important step forward in gathering the views of the industry with the ultimate aim of bringing greater clarity to savers.
"As significant investors, it is our role to help today’s investors achieve both their financial as well as their environmental and social goals."
The IA will also review reporting frameworks used by asset managers to disclose how they embed ESG considerations into their investment process, and the impact their investments have on wider sustainability indicators.
Assets in ethical funds has grown from £4.5bn in 2008 to £16.9bn in the third quarter of 2018, but as a percentage of the industry they have almost stood still, moving from 1.2 per cent to 1.3 per cent, according to Investment Association data.
Mike Fox, head of sustainable investments at Royal London Asset Management, said: "We believe that this initiative will be a significant step in providing clarity and consistency to a fast evolving part of the investment industry."
Moira O’Neill, head of personal finance at Interactive Investor said: "The ethical funds sector has grown and yet disappointingly stayed the same over the last decade, and remains very much the ‘pre-teen’ of the investment industry.
"It’s perhaps no surprise that the sector has failed to make it into adolescence given that there is still no sector for sustainable funds and the industry doesn’t seem to agree on what to call them.
"It makes what should be a straightforward task an uphill struggle, even for experienced analysts. It's a 'chicken and egg' issue which could in part explain why these types of funds are unfortunately not topping our customers’ shopping lists at the moment."