Making money morally is the Methodists' new aim, but they are fudging the issue of ethical ...
The Methodist church has set up a company to manage an ethically correct portfolio. It joins the Co-operative Bank and a small, but growing number of organisations that believe they can influence the way corporate Britain behaves by withholding their money from companies involved in alcohol, tobacco, armaments, gambling and pornography. They call it "ethical" investing.

It sounds like a pretty safe bet. Not only does it give the church Brownie points, but it is also unlikely to do much damage to its investments, since studies show that "ethical portfolios" tend to do well. But if the church is really trying to make an ethical statement, its logic is topsy-turvy. By buying a company's shares, you tend to make them more valuable; by selling them, their value decreases. So rather than refusing to buy shares in "unethical" companies, you should invest heavily in them in order to influence them. But you have to buy a heck of lot of shares to make any difference.

Say you are buying stock in Hanson, one of the biggest cigarette manufacturers in the country (it owns what used to be called Imperial Tobacco, maker of Players and Embassy). Its stock market value is about pounds 10bn. To have any significant effect on the company, you would have to pick up at least half a per cent of the company - that would cost you pounds 50m.

The Methodists may well have access to funds on this scale. Presumably, they won't be buying Hanson shares. But would it not be making a stronger ethical statement if it did buy a slug of Hanson and started fighting from within? The Methodists would be one of the dozen biggest shareholders, and Hanson, famous for working "in its shareholders' interests", would have to sit up and listen to them rather than dismissing them as a bunch of ignorant do-gooders.

The church may even be able to get a seat on the board, at which point it would discover all sorts of things about the way Britain's most successful conglomerates works. This would have two advantages. First, it would insert a much-needed ethical thorn into the side of the company. Second, it would teach our clerical folk a good deal about business. An alarming number of pulpit pronouncements show a lack of understanding about the way the world really works. What better way of educating the clerics than to put them inside the lions' den?

What are the disadvantages? Well, Hanson is all very well because it is a conglomerate that could, conceivably, move out of cigarettes. But what of companies that are solely dependent on defence, or alcohol? They are not going to throw away their lifeblood, or put people out of work for the sake of a clear moral conscience. Look at the controversy over Saudi Arabian dissident Mohammad al-Masari: the outrage over his treatment is giving way to the more difficult question, "So who's going to tell the people at Vickers they're losing their jobs because of this guy?"

There is, however, much that a Methodist board member of Vickers could do. He or she could highlight the human rights problems in countries to which it is just starting to sell, for starters. So why won't ethical funds take a positive, instead of a negative, approach to investment?

The answer, I fear, is because they would find themselves concentrating their holdings in a potentially dangerous way. It is more important to safeguard the value of its funds (which could, after all, determine how much pension someone gets) than to go all out on an ethical assault. In other words, ethical funds are a low-risk fudge - and they probably always will be.