Putting their money where their beliefs are

AMERICA is the land of minorities, and every one of them ferociously asserts its right to its own identity. One way of expressing this is through investment, and that is partly why ethical investing - or Socially Responsible Investing as it is known in the United States - is taking on increasingly ethnic and religious overtones.

Take the Ave Maria Catholic Value Fund set up by Thomas Monaghan, the founder of the Domino's Pizza chain. Launched this year, the fund caused a stir when it announced that it would not invest in companies such as Avon and Walt Disney which paid benefits to partners of people in unmarried relationships, whether heterosexual or homosexual.

No good Catholic, the fund believes, can support anything that discourages marriages. Indeed, Monaghan claims that his fund places more emphasis on moral issues than the average Catholic fund.

'First and foremost, we avoid investment in any companies with any direct involvement in abortion,' he says.

That includes manufacturers of abortion-inducing drugs and contraceptives, anyone who distributes those products, hospitals where abortions are performed, insurers that provide cover for abortions, and any company that gives money to groups such as Planned Parenthood.

It is a far cry from the original ethical investment funds, set up in the 1970s in protest at the Vietnam War. 'The early funds were children of the 1960s and 1970s,' says Luc Lampriere, executive editor of the Global Ethics Monitor website (www.globalethicsmonitor.com), part of Agence France Presse, which covers the ethical investment sector worldwide for institutions and corporations. 'They were designed to avoid war investment.'

But unlike Europe, where funds are designed for broad appeal, American ethical funds are becoming increasingly specialised, he says.

The Interfaith Center on Corporate Responsibility, for instance, represents Protestant, Roman Catholic and Jewish institutional investors, each of which has its own definition of exactly what is considered ethical.

Sometimes this is a simply a slant on a broader issue such as environmentalism. 'Taking care of God's creation is really important,' says Jeffrey Petersen, head of another Catholic Fund.

Meanwhile, the number of Muslim funds has doubled in the past year. They tend to avoid companies involved in alcohol, tobacco, pornography and charging interest (usury is banned by Islam).

Fundamentalist Christian funds are also gaining ground and, interestingly, their list of companies to avoid tends to be similar to the Muslim funds.

Indeed, it is proving such a potent marketing technique that the whole process has filtered beyond fund level to individual investing. Gabelli Asset Management, a large fund management firm, for instance, allows people to specify their own preferences.

'Clients can have their assets invested in accordance with their own personal social guidelines without sacrificing performance,' says Christopher Desmarai, a fund manager at the company. 'They can have customised portfolios whether they are Catholic, Islamic, Jewish or concerned with a socially responsible agenda.'

But, says Lampriere, in the mainstream of ethical investing the field is becoming blurred because the huge institutional investors are increasingly behaving like ethical investors.

Institutions such as Calpers, the massive California public employees' pension fund, has led the way with a form of investor activism that favours companies with good corporate governance. Its intervention along with Calstrs, the California State Teachers' Retirement System, led to the resignation last week of New York Stock Exchange chief Richard Grasso, who faced fierce criticism over his $140m pay package.

With the spate of corporate scandals in the US, big investors can no longer avoid the issue. The more mainstream institutional investors insist on high corporate standards, the more they overlap with existing ethical funds.

Not that there is much likelihood of Calpers taking on a religious, or even ethnic, slant in the near future. 'They're Californians, which means it would have to be multi-denominational so no one would feel left out, probably with strong Buddhist overtones, involving yoga, surfing and vegetarianism,' quipped one fund manager.

Meanwhile, the anti-abortion, anti-war, anti-corporate corruption, Christian/Jewish/Muslim environmentalist with a dislike of drinking and gambling - not to mention unmarried couples - is increasingly well catered for by the US investment industry.