The Volkswagen emissions scandal could prompt a new wave of interest from investors in scrutinising corporate behaviour and hunting down ‘ethical’ alternatives for their pensions and Isas, experts have argued.

The world’s biggest carmaker VW faces a US fine of $18billion (£12bn) and a meltdown in its brand after being caught cheating emissions tests, designed to reduce pollution, in order to boost their models’ fuel efficiency.

VW has admitted that 11 million cars across the world contain the software used, including Audi A3, VW Jetta, Beetle, Golf, and Passat, all potentially pumping out fumes that are 40 times the legal limit.

The pollution caused by such cars over the last six years could well dwarf all of the UK’s more toxic NOx emissions from power stations, vehicles, industry and agriculture combined.

There could also be a huge knock-on effect on the value of diesel cars on our driveways, which have been outselling petrol models in the UK since 2010 and account for 53 per cent of sales across the EU. Road tax has been cheaper for diesels ever since the 2001 Budget, based on their apparent lower emissions, and Labour also brought in tax breaks favouring diesel company cars.

Lawyers are already talking of raising collective actions against VW on behalf of UK drivers, using the new Consumer Rights Act which comes into force next Thursday.

Now responsible investment organisation Share Action has called for investors to be more vigilant about the car sector as a whole.

Catherine Howarth, chief executive of Share Action, said: “This scandal will inevitably rock the faith of investors and consumers not just in Volkswagen but in the wider auto sector, particularly if it emerges that Volkswagen was not alone. We expect and hope to see tough questioning by institutional investors of car manufacturers and their auditors in the coming year.”

Peter Cameron, associate fund manager at EdenTree, investment arm of the Ecclestiastical insurance group, said: “Volkswagen’s management team has acted irresponsibly. By manipulating the testing, the company has mis-sold cars to unsuspecting customers whose health could have been put at risk.

“If it turns out that the other car manufacturers were involved in similar practices, then we could well see the entire sector lose the trust of shareholders and consumers alike in the same way as the banks since 2008.”

Analysts have also asked whether the revelations will cause irreversible damage to Volkswagen’s previously spotless reputation. Charles Younes, research analyst at FE Trustnet, said: “What has happened has the potential to really affect VW long-term, and in turn the wider German and European auto sector, especially as the American consumer base has traditionally viewed European cars as cleaner than their US counterparts.

“This news will have huge reputational and financial implications – and when you consider that Germans are viewed as above board and there is a level of trust readily given manufactures from that country – the ramifications can continue for years.”

Despite the outcry, many institutional investors are keeping faith with VW. Hermes, the investment house owned by the BT pension scheme, has two funds with notable holdings (both over four per cent) in the carmaker’s corporate bonds.

Fraser Lundie, who manages both funds, argued that VW is still an A-rated company, generating more than $5bn in cash flow and a liquidity of almost $30bn. However, he admitted to keeping an eye on rating agencies to see how they would react to potentially huge fines. “We would expect rating agencies to wait until more details on the size of fines are confirmed, the timing of the fines, and industry data about potential market share losses before acting.”

Mr Lundie predicted that the VW’s credit rating was likely to be downgraded by one notch or two in a worst case scenario.

But many believe the consequences will be far more profound.

Dr Murdo Macdonald, policy officer at the Church of Scotland’s Society, Religion and Technology Project, says the public outrage at VW’s behaviour could just as intense as that seen in the aftermath of the banking crash. He asked: “How can we trust big business, if a huge company like VW - who I think tries to project quite a green image - is being so underhand as to design specific software to give false readings in its emissions?

“For me, it reinforces the message that ethics and economics aren’t two different things - that ethics and values can influence our motives in all kinds of directions, for better or for worse.”

The Kirk conducted extensive research into the ethics of money in 2012. The Special Commission on the Purpose of Economic Activity argued, among other things, that ethical business models such as co-operatives and credit unions should be financially incentivised to boost their share of Scotland’s economy to 10 per cent.

Dr Macdonald said: “We want to say that investment decisions can be influenced by trying to achieve something good in the world with the assets we have - however small they seem.”

The Kirk’s SRT project is now getting involved with national initiatives such as Good Money Week, which starts next weekend.

It is staging free workshops next Saturday morning October 3, at St Andrews and St Georges West Church in Edinburgh, on how consumers can make a positive difference with their money.

Iona will be speaking at the event, which starts at 9.30am and finishes with a free lunch at 1.30pm.