Investors are increasingly lining up their money with their morals, with ethical investments growing by almost a quarter over the past year.
Managed funds in ethical and sustainable investments grew 24 per cent to $31.6 billion in 2014, according to the Responsible Investment Association Australasia (RIAA).
The sector's capital has doubled over two years as ethical, environmental and social concerns weigh on the minds of investors, RIAA's report says.
"There's a growing understanding from the public that there are ways they can invest their retirement savings in line with their values and beliefs," RIAA chief executive Simon O'Connor said.
He compares the sector to other ethically-driven consumer products like fair trade coffee, and said interest was growing from both retail and institutional investors.
"There's a very good investment case for doing this and responsible investment has become the benchmark of good investment practice," Mr O'Connor said.
"We're seeing that when companies mismanage social and ethical issues it's really damaging their shareholders' value."
According to the report, there are 30 super funds including Cbus and First Estate which have dumped tobacco from their stock portfolios, while Hesta and Local Government Super also divested from selected coal companies.
Mum and dad investors are also shunning "harmful" investments in favour of clean shares.
"I think there's an expectation from average Australians to not invest in industries which breach human rights or pollute the environment, to get good returns on their investments but not contradict their own values," Mr O'Connor said.
Community activism and high profile incidents of corporate mismanagement are key drivers of the growing popularity of ethical investing, he said.
The funds counted in the report operate under guidelines such as "ethical screening" where companies producing gaming, alcohol, weapons or animal testing products are excluded from investments.
Funds may also be invested in "sustainable themed" stocks like renewable and clean energy companies.
The report showed more than $21.3 million went into "deep green" screening investments in 2014, while $8 million was invested in sustainable green technology stocks.
It also said such funds report strong returns, outperforming the ASX300 in the short and long term.
RIAA predicts the sector to boom in the next decade as community awareness about responsible investing options continues to grow.
By Frances Mao