Few people, as they rail against the injustices of the world, consider that their pension funds or unit trust investments, may be supporting those guilty of the very deeds they deplore.

In an increasingly complex world, it is hard enough for most individuals to keep track of their returns never mind whether their investments include firms which are destroying the rain forest or exploiting child labour.

But the growth of ethical funds in recent years provides ordinary investors with the chance to avoid firms involved in activities they may find particularly repugnant. Conscience, however, often carries a cost.

Although managers of ethical funds claim they often do better than ordinary ones because they have to vet each company's business more closely, the narrower range of investment options may affect performance.

But this has not stopped their popularity increasing in Britain.

"Interest generally in ethical investment has grown," says Ms Karen Eldridge, head of client services at Eiris, a British-based research company which provides a screening service for ethical funds including those in Ireland.

Eiris vets around 1,000 British companies and a further 500 companies located elsewhere in Europe, assessing them in 30 different areas of interest to investors to see how they measure up. The company can provide clients who wish to avoid arms manufacturers with a definitive list of firms not involved in this activity or it can screen a portfolio to filter out stocks that the investor deems undesirable.

Ms Eldridge says that nowadays ethical investors are most concerned about firms involved in armaments or animal testing or those with subsidiaries operating in countries with oppressive regimes. The environment is another major area of concern as is the way companies treat their suppliers, particularly in developing countries where issues such as the exploitation of child labour may arise.

While most investors considering an ethical fund would be happy to exclude companies guilty of such exploitation, deciding on other ethical investment criteria can prove more complex. Animal testing for cosmetics is widely banned but some funds do not exclude companies that use animals in pharmaceutical testing.

"We have taken this view because we feel that the use of animals in testing pharmaceuticals is almost inevitable and the vast majority of people, when ill, would be prepared to take drugs that have been tested on animals," Bank of Ireland Asset Management (BIAM) says.

"In contrast, we believe that the testing of cosmetics, soap and toiletries on animals is neither necessary nor acceptable and, therefore, exclude companies involved in such activities from our ethical portfolios."

Alcohol is also a difficult issue and many investors, who enjoy a drink in moderation, might be reluctant to see drink companies on their funds' banned list although clearly many lives are ruined by alcohol or alcohol-related illness.

There are now some 38 ethical funds open to private investors in Britain but only two in Ireland.

Friends First, formerly known as Friends Provident, is the only institution to run Irish-based ethical funds. It runs one unit fund and one pension fund and both are fully invested in equities.

Irish stocks account for around one-third of the portfolio, British equities for a further third and European and US shares for the remainder.

"The fund seeks to invest in companies which make a positive contribution to society and avoid those which harm the world's natural environment, its people or its wildlife," says Mr Pramit Ghose, investment director at Friends First in Ireland.

The criteria governing investment are very strict. The fund cannot invest in companies involved in the manufacture of tobacco, armaments or alcohol. Other issues such as how firms treat their staff, equal opportunities, the end use of products and the environment are also taken into consideration.

Mr Ghose says the fund attempts to take a pragmatic view and if a firm engages in an activity which does not meet its criteria, but this represents just a very small part of the company's overall business, it may be allowed onto the list. "Not every company can be 100 per cent pure," he admits.

Among the Irish stocks included in the ethical portfolio are building materials group CRH, fruit and vegetable importer Fyffes and pharmaceutical distributor United Drug.

The decision as to what stocks the fund may invest in is taken by a series of committees. A sub-committee of the Friends First board in Dublin decides which Irish equities meet the fund's criteria while committees in London determine which international stocks match requirements.

In Ireland, the fund is not allowed to invest in either of the two main banking groups. This is not because it sees them as unethical but because it cannot determine which companies they loan to and it is also forbidden from investing in Irish Life because it has no control over the investments its fund management arm may make.

But the narrow range of companies that the fund can invest in has had an impact on returns. In particular, the lack of exposure to the two main banking stocks, among the top performers in the Irish market in the last few years, has held back performance of late.

Nonetheless, the fund was the top performer in the Irish market in 1992 and recent returns are impressive given the constraints.

In the year to March, the fund enjoyed a return of 40 per cent while it has grown by 14.1 per cent per annum over the past five years. By comparison, the average fund returned 48.8 per cent in the 12 months to March and gained 18.7 per cent per annum in the period since 1993.

But interest in ethical investment in Ireland remains muted. Just £3 million is under management in the Friends First ethical unit fund, in a country with more than £45 billion of investment funds under management.

Aside from the Friends First offering, the investment arms of the three main Irish banks run ethical funds which are open to tax-exempt investors. This excludes the ordinary private investor and the main groups taking advantage of such funds are religious orders and charities.

Typically, the investment criteria for such funds would exclude firms involved in armaments, tobacco, gambling or the manufacture of birth-control products.

In addition, trustees of pension funds which are managed on a segregated basis can tailor the investment policy of the fund, excluding certain stocks if they choose. But in reality, this does not often occur, says Mr Sean Hawkshaw, chairman of the investment committee of the Irish Association of Pension Funds (IAPF).

He also notes that most Irish pension fund managers operate their own ethical criteria, avoiding stocks that breach generally accepted standards.

"Irish fund managers typically apply quite reasonable ethical standards to the stocks they invest in," Mr Hawkshaw says, adding that a fund's trustees can ask questions if they have a problem with any particular investment.