The report, which is intended as a guide for charity trustees, found that a quarter of common investment funds carry out some screening, but they still do not do enough to cover charities' socially responsible investment needs.
Widely used negative screens by common investment funds block investments linked with gambling, armaments, alcohol and pornography. A third of the funds also avoid tobacco investments.
Report author Sam Collin, who is charity adviser to the Eiris/UKSIF Charity Project, said that charities should invest in companies that are taking positive action rather than just avoiding those involved in negative activities. "Common investment funds could easily buy stocks in something such as the clean energy sector," she said.
Collin acknowledged that the purpose of common investment funds made it difficult for providers to exclude a range of stocks, but insisted fund managers could exclude or include certain funds if they could prove this would not affect returns.
"There may even be ways of using technology to segregate the fund so that it can meet each charities' investment needs," she added.
Ruth Murphy, director of charities business development at Newton Investment Management, commented that, although it was unlikely any single common investment fund would satisfy the demands of charities with a whole range of relevant ethical policies, "it would not be sensible, for reasons of diversification, to see a great proliferation of small common investment funds with niche policies launched to satisfy small groups of charities".
She added: "It is a question of finding the right balance between policy fit and performance."
Meanwhile, Peter Thomson, chief executive of Taylor Young Investment Management, claimed there was a "distinct lack of consensus" on what constitutes an appropriate SRI policy.
"This makes it difficult for common investment funds to do anything other than tinker at the edges of SRI," he said. "If fund managers do any more than that, they face serious benchmarking issues.
"It would be a very brave fund manager who took a unilateral SRI decision and adjusted the benchmark accordingly. If a charity wanted that level of SRI engagement, it would have pursued a bespoke mandate in the first place."