The University of East Anglia is to become the first United Kingdom university to pursue an ethical investment policy with its central funds.
The university assembly agreed the step on Monday after a working party recommended that ethical investment is both financially and legally viable.
Finance managers will gradually screen out arms manufacturing companies from the university's main holdings and will consider other ethical issues as they arise.
Finance law prevents the making of investment decisions solely on an ethical basis, but the council concluded that, since some shareholdings might be detrimental to the university, they can be avoided.
Andy Marriott, student union finance officer and a member of the working party, said: "UEA has students and staff from around the globe. It is not the best thing for students coming here, who may have suffered under a repressive state, to see that UEA has been part and parcel of arming that country. This is the crux of our justification."
Penny Shepherd, executive director of the UK Social Investment Forum, believes that organisations are increasingly accepting that their reputation is affected by the investment decisions they make.
She said: "This first adoption by a university illustrates that the concern about ethical investment has spread to the academic community."
UEA formed the working party on ethical investment last March.