In the fevered dash for the highest possible returns, most investors are blind to the social and environmental behaviour of the companies in which they hold shares.
Socially responsible investing, long derided as the realm of "ageing hippies and tree-huggers", is increasing in popularity in both the US and Britain. Some investment professionals believe it is just a matter of time before it catches on here.
This approach, also called ethical investing, means choosing stocks that meet specific social and political criteria. The most well-regarded company attributes may include: positive environmental impact; equal employment policies; investment in the community; and concerned, diligent management.
The negative aspects may be an association with tobacco, arms, environmental destruction, pornography, animal abuse, third world exploitation or child labour.
Increasing popularity: Since 1997, it is estimated that US assets in professionally managed social investment funds have doubled and now account for nearly 13 per cent of the total.
In Britain, these funds are also popular and there are currently 34 to 38 ethical investment funds available there, said investment broker Mr Ray McNicholas. Unfortunately, the current sterling differential limits Irish investment in British-based funds, he said.
Currently, there is only one ethical fund available in the Republic - the Friends First Stewardship Fund.
Three years ago, Mr McNicholas founded Ethical Financial in Blackrock. This brokerage specialises in socially responsible investing. Mr McNicholas believes the market is not big enough here yet, but he is sure it will change over time. "There is a possibility that Standard Life and Norwich Union will offer ethical investments, as they already have such funds in the UK," he said.
Although an investor may have the best intentions, they may not be suited to ethical investments. "It is not always wise to go ethical because it's purely an equity fund and that doesn't suit everyone," said Mr McNicholas.
About half of Ethical Financial's clients are interested in socially responsible investing. The minimum premium on an ethical life assurance plan is £20 (€25.39) a month and a pension plan £50 a month, he said.
Of course, there is a cost for principle-driven investments. "Ethical investment funds charge approximately 1.125 per cent, while other funds cost 0.75 per cent. The higher cost is due to the amount of research that must be taken to weed out unsuitable companies," he said.
Principles or profit? Socially responsible investors tend to take their role as a shareholder more seriously than those who are simply in it for profit. For example, earlier this year retailer, Home Depot, changed its wood purchasing policy due to pressure from shareholders. Almost 12 per cent of shareholders voted to phase out the sale of old growth wood at Home Depot stores. As a result, the world's largest home improvement retailer decided to cease selling wood from environmentally sensitive areas by the end of 2002. In addition to ethical investment's feel-good factor, investors may make a profit.
Many ethically-minded companies are well-run, avoid adverse litigation, strikes and boycotts of their products. This activity is often reflected positively in their financial performances, said Friends First.
Its Stewardship Fund's marketing material, claims investors do not have to sacrifice their principles in order to make a profit.
Some ethical funds' performances have proved naysayers wrong through their consistently superior returns. American fund tracking service, Morningstar, reports that a socially responsible investing fund is twice as likely to have earned a five-star rating as a fund that is not invested socially responsibly. However, many funds' recent successes in the United States were gained through the demonisation of tobacco companies.
Since its introduction here in 1997, the Friends Stewardship Pension has grown by more than 85 per cent. The Friends Stewardship Life Fund has grown by almost 160 per cent since 1990.
American ethical fund, the Citizens Index Fund, has surpassed the Standard & Poor's 500 by more than 25 per cent since its inception in 1995. The Domini 400 Social Index has consistently outperformed or matched the index. Of course, similar to regular funds, past performance is no guarantee of future returns.
An incompatible mix: By its very nature, investment is not a charitable act as individuals hope to make, not lose, money from their choices.
Some investment managers here and abroad believe that social responsibility and investment strategies do not mix. A US fund manager, Mr Burton Morgan, has been reported as saying ethical investing is "stupid" because charity and investment do not mix. The Morgan SinShares fund actually traded on society's vices by investing in shares related to gambling, smoking and drinking. The fund was renamed Morgan FunShares three years ago to broaden its investment scope.
Other managers take a more practical view. Bank of Ireland Asset Management's Mr Mark Cunningham said an ethical approach "limits the investment universe" and may therefore reduce returns. He doesn't see much personal demand for ethical investment products here. However, charities and religious orders will place restrictions on how their funds may be invested.
Mr Cunningham believes ethical investing will not take hold here in the near future. "Irish society is getting less and less philanthropic and charitable. We're more concerned with material wealth and chasing the dollar," he said.
A survey conducted by the National College of Ireland last year found that charitable donations remained static despite the economic boom.
According to Reaching Out: Charitable Giving and Volunteering in the Republic of Ireland there were no significant changes in the proportion donating in 1997/1998 compared with 1992 and 1994.
There is, of course, a significant difference between charitable donations and investing in a socially aware way.
Mr McNicholas does not believe ethical funds will replace other investment products. The majority of his clients have a mix of ethical and more traditional investments and he believes that will continue. "That way they're making some kind of a statement and saying I want to vote for this." he said.
