When funds restrict their investments to those companies that are “ethical” or “sustainable”, many investors assume that poor returns will have to be accepted as a trade-off.

But that is not necessarily the case. Royal London Sustainable World Trust is a multi-asset fund, with just over 80pc invested in global shares and UK companies and the rest in corporate bonds and cash. Among its peer group, it ranks second out of 134 funds for return over five years.

The manager, Mike Fox, applies an ethical policy that prevents the fund from investing in a variety of areas. Tobacco companies, companies involved in worker exploitation, and those profiting from countries with poor human rights records are all off limits, among a host of others.

Telegraph Money spoke to Mr Fox about the benefits of choosing well governed companies, and why he won’t invest in Tesla because of Elon Musk. 

How do you pick stocks and decide weightings?

We’re looking for companies that have a positive impact on society, either through their products and services, or through showing leadership in managing their impact. 

Bring those two things together, and that’s the starting point. Then we look at competitive advantages and sustainability of business models.

We run five sustainable funds, ranging from 100pc shares to 100pc bonds, and don’t have overly active asset allocation. We like people to know the weighting will be similar in a year. 

Where does the ethical screen derive from?

It’s very much our own intellectual property. We then have an external advisory committee that oversees the process. 

The idea of a company having a benefit to society is inherently subjective. Take Google - on one hand they’re involved in mobile technology and the knowledge surge, on the other they are involved in a taxation debate.

Whatever a company does, if it doesn’t have good governance we don’t invest in it.

For instance, Tesla recently failed our screen, as the board structure and Elon Musk’s role within the business was not acceptable to us.

Very soon after we screened it out, Mr Musk and Tesla bought a business that Mr Musk was also the chairman of. In a well governed business, that would not be allowed to happen.

Why is good governance important?

Governance hangs on two principles. Whether management is aligned with shareholders’ best interests, and that the board structure is appropriate. It’s hard to argue that the opposite is going to be positive for investment performance, so it has never been a difficult argument to make.

More recently investors have made the connection between bad governance and poor share price performance. It started with the financial crisis, then there was BP, now there is Sports Direct and Volkswagen.

David Fuller's view

I confess to not having heard of Mike Fox before but comments in this article ticked a number of boxes for me, in terms of my own personal interests. Therefore I wanted to mention it to subscribers. 

Here is a PDF of The Telegraph’s article about Mike Fox and the Royal London Sustainable World Trust, which we will add to the Chart Library.