When Bono and Bill Gates stood side by side earlier this month at the World Economic Forum in New York it was undoubtedly an unusual sight. Corporate social responsibility and ethics are now established facts of business life, writes Una McCaffrey.

The pairing of the richest man in the world and a living rock legend would be unlikely in any circumstances; at this traditionally stuffy gathering, their brotherly presence was revolutionary.

The significance was not lost on Bono or Bill. They were there because they wanted to make a difference and the only way to do that was to grab some attention. The difference in question centred on the broad and often fluffy issue of ethics or, more specifically, on the notion of corporate social responsibility.

The campaigners wanted to persuade business leaders to boost their levels of spending on global healthcare and disease prevention; Mr Gates's foundation set the example by donating €50 million (£39 million) to organisations working towards the containment of HIV.

The idea was that others would follow his example and follow a more ethical path in future.

The appeal was not a bolt from the blue. Corporate social responsibility and its close relation, ethics, have been creeping up on the business world for several years. The consumer has not escaped the crusade either: ethical or socially responsible investments are now more popular than ever.

UBS Warburg figures quoted by British-based Ethical Investment Research Service show that ethical investment accounts for about 5 per cent of all investment in Britain and about 13 per cent in the US.

Figures from the US-based Social Investment Forum valued US ethical investments at $2.03 trillion (€2.32 trillion) in 2001, up from $1.49 trillion in 1999.

Defining an ethical investment is not as straightforward as it might seem, largely because ethics is a personal thing. In the broadest sense, investing in this way generally involves some reference to the principles of the body managing the fund or the people putting their money into it.

One shareholder may wish to avoid investment in armaments companies, for example, while another may be keener to steer clear of pharmaceutical giants. One man's miracle cure may be another man's environmental or moral disaster waiting to happen, and the investment will take account of those concerns.

The concept first entered the (sub) financial mainstream in the 19th century, when religious groups such as the Methodists and Quakers began to invest in the stock market. It was accepted that these investments would avoid companies that were involved in activities such as gambling or alcohol manufacture, pursuits considered to be iniquitous.

As the century turned, the idea of investing ethically developed along with the world around it. In the 1970s, for example, ethical investors avoided companies associated with the Vietnam War and, later, businesses active in South Africa were on the blacklist.

The European Commission took up the ethical baton last year when it published a green paper entitled Promoting a European Framework for Corporate Social Responsibility. This paper finds that financial institutions are making increasing use of social and environmental checklists to evaluate the risks of loans to, and investments in, companies.

In Britain, pension funds are obliged by law to disclose their ethical policies to shareholders, whether the shareholders are interested or not.

These regulations are in the process of being copied in Germany, and French legislators are heading in a similar direction with employee savings plans.

Last summer, FTSE, the company behind the world-famous FTSE 100 index, went so far as to introduce a new index series called FTSE4good, an effort based entirely on socially responsible investing. Only companies that meet a strictly judged range of socially responsible criteria end up on the final listings.

A few weeks ago, the new series spawned its first bond. Set up by British-based ethical institution Co-operative Bank, the bond is a guaranteed product, a characteristic that matches the needs of cautious investors, who prefer to risk none of their capital, over a five-year term.

While the wisdom of investing in a guaranteed product when markets are low (and thus unlikely to suffer serious falls) is questionable, the Co-operative Bank is confident the appetite for its bond does exist.

Ethical investment options are varied creatures. The FTSE4good bond, for example, applies generally ethical principles to its management but does not place uneven weight on one aspect of ethics, such as religion or environmental concerns. Other products are more strictly defined.

Take the Dublin-domiciled Mellon Ethical European Index Tracker, for example. This fund, another of last month's crop, will follow a European ethical index that has the blessing of none other than the Pope himself.

The ethical screening that applies to this product has been developed by the Osservatorio Finetica, a joint venture between the Vatican University and Italian business school Università Bocconi. The result is that only stocks that abide by defined Catholic principles, as well as wider ethics, will make it into the fund. Companies involved with alcohol, gambling, pornography or birth control need not apply.

A spokeswoman for Mellon Global Investments, the distributor of the fund, says that it is "simply another product-offering" that responds to a growing acceptance of ethical investing in the wider market.

"There's an increasing body of evidence that you're not penalised for investing ethically," she says, pointing to the Domini Social Index, an established ethical benchmark, which has consistently outperformed the S&P 500 over the past 10 years.

The spokeswoman argues that the imposition of several levels of screening on a fund means that stock pickers could be more familiar with a fund's constituent parts than they would be otherwise: good news for shareholders. "Because of the depth of analysis, there's a case that you're reducing the whole operational risk." The fund's managers expect Catholics and non-Catholics to feature among the product's investor base, with investors attracted by values rather than religion.

Despite the Mellon Ethical European Index Tracker being registered in the Republic, it is so far out of bounds for Irish investors. It is not unusual for global ethical funds to be inaccessible from the Irish point of view, a factor that makes it difficult for products of this type to make inroads among the Republic's investment base. Currently, just one Irish institution markets an "ethical fund".

Friends First, a company born out of the 19th-century Quaker movement, offers the Stewardship Fund. This product is described by its managers as "an alternative investment", which offers investors the opportunity "to make a positive contribution to our society, our wildlife and our future, as well as investing for profit". The fund only invests in companies considered to be kind to the world around them, and will avoid organisations known to, among other things, cause pollution, manufacture weapons or exploit developing countries.

At the end of January, less than 20 per cent of the fund was invested in Irish equities.

Moving away from unit-linked products, another Irish ethical investment option is offered by Irish Forestry Services, an organisation that manages forestry assets for about 7,500 investors (see panel).

Since 1969, profits on the occupation of woodlands managed on a commercial basis have been tax-free and it is on this basis that Irish Forestry Services markets "shares" in 10-year investment plans. Investors are offered a 9.6 per cent compound annual return on their injection, which is made in €635 blocks. The company uses shareholder funds to invest in both semi-mature woodland and bare land in the west of Ireland, an exercise aided by Irish and EU grants. At the end of the 10-year investment period, the land is sold to the highest bidder, provided that theparty in question undertakes to replant the land, and the shareholders get their cash.

Mr Paul Brosnan, of Irish Forestry Services, says the idea of the project is to "open forestry to everyone". The company's most recent investment plan opened for interest four days after the World Trade Centre attacks last September, a date seen as inauspicious at the time. The plan turned out to be the largest the company had seen, amounting to more than €2.5 million when it recently closed. A new plan is on the point of being introduced.

Mr Brosnan says that 98 per cent of the forestry investors are Irish, with the remainder scattered around the globe. Research conducted by the company among its products' shareholders shows that environmental concerns were far down the list of reasons for investing - "about 11th," says Mr Brosnan. The rate of return on offer was the top attraction.

This attitude is borne out among independent financial advisers in the Republic. One adviser says he has been asked about ethical investments just three times over the past year.

"It's always a woman," he says, also suggesting that the kind of person who thinks about ethical investment tends not to be someone with much money to invest. Those seeking large returns will always look elsewhere, he says. "Money doesn't care."