Personal Finance: Your money where your mouth is?

The arrival of genetically modified foods will mean a whole new range of dilemmas to be faced by ethical investors

Savers with a conscience have long been able to choose specialist funds which avoid areas like tobacco manufacture or the arms industry. But rapid advances in genetic engineering have created a whole new area of concern for ethical investors, and one which the fund management industry has only begun to get to grips with.

Some campaigners say issues such as cloning or genetically modified food will raise the same strength of passion which only nuclear power has been able to inspire in the past.

Karen Eldridge, of Eiris, an ethical investment research specialist, says: "Genetic engineering is an issue that people are very concerned about right now, and it doesn't look as if it's going to go away.

"It is very important that each ethical investor thinks through what their own concerns are, and finds the fund that best matches those. The food angle seems to be the issue that is drawing most attention from the public now."

Many of the healthcare companies involved in genetic engineering are already banned from ethical funds because they use animal testing. But this indicator is no help in weeding out companies which make or sell food containing ingredients such as genetically modified soya.

A recent MORI poll found that over three-quarters of the people surveyed wanted to see genetically modified food banned, and that nearly two-thirds would not want to eat it themselves.

To help deal with issues like these, Eiris has proposed a set of criteria setting out what it believes is acceptable practice. About half the ethical funds on the market already use Eiris criteria in other areas, such as pollution control, when setting their investment policy.

Eiris has identified 36 companies or groups in the 900-strong FTSE All- Share Index which use genetically modified ingredients in the food they make, or the own-brand foods they sell.

Of these, only seven - including Asda, Iceland and United Biscuits - have what Eiris believes is "good" or "exceptional" policy. "Good" means they use non-modified ingredients for over 50 per cent of their relevant lines, and label all genetically modified ingredients on packaging.

Ms Eldridge says: "If the supermarkets are selling own-brand products that contain genetically modified soya, then what is their policy on that? Do they label them up properly? Now that this issue is in the public eye, I think ethical fund managers will be looking at it more."

Twenty-three of the 36 companies involved in this sector, including Unilever, got a "poor" rating from Eiris, some for refusing to answer the organisation's questions. For those which did answer, this rating means they use non- modified ingredients for less than 10 per cent of relevant lines, and label genetically modified ingredients only when required to do so by law.

By far the biggest ethical fund in the UK is Friends Provident's Stewardship fund, which has over pounds 800m under management. Richard Singleton, a member of the company's ethical unit, accepts that fund managers still have a great deal of work to do on genetic engineering.

Mr Singleton says: "There is a possibility that genetic engineering will turn out to be very good. So to simply say `Gosh this is terrible' is the wrong reaction.

"On the other hand, it is perfectly possible that we will have some form of modification that is very effective for its intended purpose, but which has other completely unforeseen consequences. We research these issues, but think it is far too early to draw a line."

The Stewardship fund's own practice at present is not to buy shares in companies which practice animal testing, which effectively bars genetic engineering for medical purposes too.

As far as food technology is concerned, Mr Singleton says Stewardship would avoid any company which did no more than meet the basic legal requirements. The only exception to this would be a case where there were overwhelming positive factors elsewhere in the company's behaviour.

Mr Singleton says: "If a company does not appear to have any understanding that there is concern about this subject and could not care less, that would almost certainly be a cause for exclusion. Essentially, that means doing no more than the legal minimum."

Eiris says there are already three companies in the All-Share index which genetically engineer organisms to treat crops, 37 companies which genetically engineer organisms for use in laboratories or factories, and one which has patented gene sequences of its own.