Oxford City Council’s money could soon only be invested in banks and companies deemed ethical.
The council is considering introducing an ethical investment policy to dictate where it is right to put its funds.
But members have been warned that the authority might not earn as much from interest and investments if it is too picky.
The scrutiny finance panel has asked officers to look into the idea after a meeting at Oxford Town Hall last week.
Panel chairman Craig Simmons, the Green Party group leader on the council, said after the meeting: “We don’t currently have an ethical investment strategy and I think that’s quite shocking when the council makes great claims to be socially responsible.”
He added: “This is a substantial first step in the right direction.”
The council’s funds are mostly invested in banks, building societies, money market funds and other local authorities.
In the current financial year, the council has made average investments of about £70m.
A report by finance officers ahead of the meeting said that members would need to clearly define what “ethical” meant.
It added that avoiding investment in gambling, tobacco, alcohol, oil, gas, mining and armament firms would rule out 31 per cent of the UK Stock Market.
The report warned restrictions on investments could have a significant effect on investment income.
But Jean Fooks, the Liberal Democrat group leader on the council, said she thought that there should be a policy in place.
She said: “I don’t accept that investing in ethical companies would mean we won’t do as well.”
Speaking after the meeting, she added that she would not want to see the council put money into industries like tobacco, armaments and gambling. She said: “Anything that harms people or the planet, we obviously should not be keen on investing in.”
Oxfordshire County Council, and Cherwell, South Oxfordshire, Vale of White Horse, and West Oxfordshire district councils do not have such a policy.
Ed Turner, the city council’s executive board member for finance, said the council did not directly invest in any companies considered unethical.
But the Labour councillor said there was a shortage of banks considered ethical.
He said: “We are very open minded to whatever suggestions the panel comes up with. As a council we want to act as ethically as we can.”