ethical investment

ONE of Robin Cook's first actions as Foreign Secretary was to spell out the importance of ethics in the conduct of policy to Foreign Office staff.

Private investors are also interested in ethics, as shown by the detailed questioning directors at Shell and Lloyds TSB, to name but two, have had to endure from groups of people who are concerned at the links between these companies and oppressive regimes in Nigeria and Indonesia.

Ethical funds which restrict their investment to companies conforming to certain moral criteria are experiencing a boom. In the last 18 months the value of their funds under management nearly doubled and now stands at #1300m.

Is the moral high ground a profitable place to be? The WM Company, which tracks the performance of funds, studied ethical funds over a three-year period and concluded their performance was par for the course, although they tended to be a little more volatile than the average.

Choosing stocks of any kind is difficult enough, and to add a moral dimension makes it even harder. Although the criteria of the 35 ethical funds may differ, all have a panel of advisors who discuss the relevant moral issues and about half use Ethical Investment Research Services (Eiris).

A clear statement of ethical principles can be good business as demonstrated by Anita Roddick whose stand against animal testing has made the Body Shop a symbol of a certain way of thinking and gained valuable publicity at the same time.

Karen Eldridge of Eiris explains the work of the organisation: ''We monitor 1200 British companies and 350 European ones and report on their activities to the ethical funds ''The main areas of concern are the environment, military issues and relations with oppressive regimes. In the past there was a lot of concern about South Africa. We also publish a newsletter and we provide a screening service to larger individual investors.''

Despite this expert assistance, the judgments are often between shades of grey rather than between good and evil, according to Tina Ryatt of Friends Provident.

She says: ''Our policy is to invest in companies which are making a positive contribution to the environment rather than just excluding ones which are doing harm. The issues are never clear cut. Most companies pursue a mixture of positive and negative policies, and the best we can do is to choose ones where the positive outweighs the negative.''

Friends Provident has been a trailblazer, launching the UK's first ethical fund 10 years ago. Now it has more than #800m in its Stewardship Fund and related investment trust, life and pension funds.

Ethical funds tell investors what will and will not be tolerated by publishing summaries of their investment criteria. A full account of the practices adopted by all publicly available ethical finds can be found in Money & Ethics, which is published by Eiris.

For companies engaged in controversial activities, the moral low ground can be an awkward place. Investors in tobacco companies must shudder every time another law suit is raised in the US, with the prospects of billions in compensation and damages knocking chunks off the share price.

Eiris is at 504 Bondway Business Centre, 71 Bondway, London SW8 1SQ; tel: 0171 735 1351.