Ethos - 'The Swiss foundation for investment in sustainable development' - was launched by two pension schemes in Geneva; the CIA for city employees and CPP for the workforces of 400 local contractors.

The initial im-pulse came from the CIA, where the SFr3,500bn fund's strategy of investing increasingly in equities came under heavy criticism from some board representatives.

Following a search last year among 20 investment managers to see if a portfolio could be created of Swiss equities se-lected not just on financial but also on social and environmental criteria,such an approach did not appear to be available.

But some banks indicated their interest in supporting an investment scheme on these lines. CIA and CPP set about setting up Ethos, which would provide the opportunity for pensions funds and other exempt investors to invest in a fund where the companies being in-vested in have been passed through a filter comprising financial, environmental and social criteria. CIA director Dominque Biedermann explains: "With these criteria we overweight and underweight our holdings in the companies."

Geneva bank Lombard Odier handles the financial assessment of the companies, with Banque Sarasin and the consultants Centre-Info Suisse looking after the sustainable aspects. "The centre is similar to the EIRIS organisation in London," says Biedermann. The portfolio is managed jointly by the two banks, with Lombard Odier handling the risk control elements. A scoring system, called the 'alpha durable', is used to determine the weighting given to the company in the portfolio. Companies can score positive and negative alphas. The exposure to companies involved in armaments, tobacco, nuclear energy and gambling is tightly controlled and can only form a miniscule proportion of their activities.

While the financial criteria are on strict but traditional lines and the environmental on the lines of established audits, the social criteria analyse the management in terms of the the customers, workers, shareholders and the community.

"Ethos is the only foundation for pension funds in Switzerland wihch gives back the voting rights to funds," says Biedermann. The foundation does not vote itself but, before corporate general meetings, provides investors with a rating of the importance of the meeting and a detailed background briefing on financial matters, the company's track record on employment, working with local communities, activities in the third world, examining directors for potential conflicts of interest and so on. "This is new in Switzerland," he adds.

The benchmark Ethos uses is the standard SPI. "The global tracking error is reasonable at 2.2, much the same as an actively managed portfolio," says Biedermann. "So it is not a risky investment from a fund's point of view."

Within a few months of kicking off, Ethos has attracted 20 pension funds and has SFr200m invested in the fund. "We expect to have a 100 members in year's time." Biedermann is certain that in the longer term companies selected on these criteria will out perform the SPI index, because they will prove to have managements who are running companies to the highest standards.