Investing, in the more innocent days of capitalism, was about managing a simple trade-off: if you wanted higher returns, you had to take on more risk. The risk-return equation still holds, but the trade-offs have become much more complicated in the new globalised economy buffeted by 9-11, corporate governance, and the Enron implosion. So much so that companies that traditionally enjoyed a cozy, wink-wink nudge-nudge relationship with Wall Street are now having to actually make their annual reports readable. So, you have blue chips like General Electric, American Express, and even IBM scurrying to prove that there's no Enron inside them.

While the demand for accounting transparency is a recent phenomenon, it should quickly become a sine qua non for companies that care about their market cap, making way for the next big concern in investor circles: socially responsible investing. What the repeated scams in stockmarkets worldwide have done over the last two decades is to strengthen the hands of a certain kind of investor who-while pretty much profit-motivated-wants to put his money where his heart is. Therefore, these investors will not invest in companies that are not socially, environmentally or morally responsible.

But why should a capital market like India, where transparency is not even a promise and global interest minimal, be concerned about this new breed of investors? Because ''good'' money is beginning to influence whatever little that is flowing into markets like India. A case in point is the California Public Employees' Retirement System (Calpers). On February 20, it came out with a first-of-its-kind model for investing in emerging markets. It looks beyond traditional investment factors such as financial attractiveness, and considers transparency, political stability and labour practices and standards.

The review bans investment into four Asian countries: Indonesia, Malaysia, Philippines, and Thailand. The good news is that India doesn't figure on this list. The bad news? It doesn't figure either on the list of emerging markets where Calpers (it lost $140 million in Enron) fund managers have been allowed to invest. And some of these countries are Argentina, Brazil, Chile, Mexico, Poland, and even Turkey. The message to corporations is loud and clear: they simply have to clean up their act. Be it financial reporting, labour policies, social citizenship, corruption, abortion policies, racial discrimination, or even choice of industry.

Companies that dismiss ethical investors as hopeless idealists or, worse, an aberration, would do so at their own cost. In the last seven years in the US, assets under ethical funds have ballooned from $639 billion to $2.03 trillion. That's a huge number in itself, but for the sake of comparison consider that the total assets under management in the US in 2001 were about $20 trillion. (Interestingly, good money does not necessarily mean bad returns. The Domini Social Index, comprising 400 ''screened'' stocks, outperformed the S&P 500 for most part of the 90s.)

So, a good 10 per cent of some of the biggest investors is already seeking more than just returns from their investment. Institutions like universities, pension funds, insurance companies, and private trusts are wielding their money in three ways: one, deciding which companies to invest in; two, influencing company behaviour through voting power; and, three, funding agencies that do community development.

This year, such American shareholders plan to get some corporates to behave. Nike, for example, will be asked to raise its subcontractor labour standards; Eli Lilly and Merck will feel the pressure to rein in the prices of their prescription drugs; and Philip Morris will be asked to spend more of its charity money on lung cancer victims.

The options before Indian companies are straightforward. They can either adopt global best practices and get some of this ethical money and goodwill or continue their way and risk not just public alienation, but investor ire. If that thing about money making the world go round is true, then Calpers probably already has corporations sitting up and taking note.