A newly published study by a New York based research organization concludes that large institutional pension funds can make ethical choices about investments without significant loss of earnings or increase in risk.

The Council on Economic Priorities, a nonprofit research group that has focused on issues of corporate accountability, was asked by the California State and Consumer Services Agency to look at the ramifications of ethical investing for two large state pension funds. In particular, the state agency was concerned about investments in corporations doing business in South Africa and about corporate equal employment records.

With aggregate assets of $17 billion, the Public Employees' Retirement System and the State Teachers' Retirement System are two of the largest state pension funds in the country. The California agency administers the two funds.

Over the past several years, the rights and risks involved in using pension fund investment to influence corporate conduct has become an increasingly debated topic. Pension funds control approximately 20 percent of all stocks traded on the New York Stock Exchange and approximately 40 percent of all listed corporate bonds.

Using a computer model to compare "the best equity portfolios that can be constructed -- after excluding various companies -- with the optimum portfolio, given no exclusion" the study found what it called statistically insignificant differences.

"The universe of still available securities remains large enough to construct a highly efficient portfolio," the study concluded.

On the other hand the groups recommendations to the California agency stopped short of urging the funds to throw out any investments in corporations whose conduct falls short of some standard. Noting the difficulty in affecting corporate behavior by divestiture, the study suggested trying other methods first.

Those methods include posing questions to management or urging management to change policies; using pension fund shareholder votes to try to influence corporate behavior; taking concerted action with other shareholders, including litigations; and making public the pension funds' concerns.

The study also suggested that the funds might solicit opinions from workers and retirees covered by the funds about the funds' course of action.