With the new global economy comes a new social responsibility: Just because you can invest in the unstable Sudan just as easily as you can in South Carolina doesn't mean you should, says a growing chorus of politicians, pension managers and security analysts.

It's called "terror-free" investing, and the shareholder activism behind it is similar to the rationale driving the "green" investing trend -- convince enough pension managers and investors to divest from companies that do business with terror-sponsoring states, and eventually the companies are pressured into considering the social and geo-political ramifications of their operations.

"This is the next frontier of investing," said Pennsylvania, Treasurer Robin L. Wiessmann, who manages the state's investments and is one of many board members who oversee the pension portfolios of the state's current and future retirees.

"There's no question it's complicated," she said. "But you know what? The world of investing is complicated."

It's complicated on a number of levels. The notion of indirectly sanctioning a country via investment pressure has been around for years -- many state legislatures, at the urging of activist groups, have passed resolutions requiring the state to divest from companies that do business with Sudan, a response to the genocide and humanitarian crisis in Darfur. (In Pennsylvania, House bill 1140 would "prohibit [the] investment of state funds in certain private business entities doing business in Sudan.")

In January, Ms. Wiessmann announced that the state would withdraw the $1.2 million that had been invested in China Petroleum & Chemical Corp., and was considering doing the same with its holdings in Weatherford International and Schlumberger Ltd.

Those are direct investments. But the vast majority of most pension or institutional investments are in "passive" funds -- mutual funds and index funds that do the investing for you. So while the divestitures make a political statement, their effectiveness as a tool for changing global behavior was limited.

As a result, according to a 2007 report from the hawkish Center for Security Policy and its "divest terror initiative," America's top 100 pension systems invest between 15 and 23 percent of their portfolio in "companies that do business with terrorist-sponsoring states." Most of those companies are doing business with Iran.

So how can large pensions divest not only of their active investments, but also their passive ones? Conflict Securities Advisory Group (whose CEO, Roger W. Robinson, Jr., also has ties to CSP) now tracks a database of more than 600 companies that do business in Syria, Iran, North Korea, Cuba and Sudan. Of those, 300 to 350 are on a "no-buy" list. Using that database, the advisory group is partnering with London-based FTSE Group to offer a series of index funds that are 100 percent terror-free -- available both to government investments and individual investors.

"It's increasingly evident that Americans and other investors are seeking to align their values with their investment dollars," Mr. Robinson said, citing a poll that said Americans favor the idea of "terror free" investing.

Just as the "green" investing trend is driven by a wide coalition of environmentally conscious shareholders, the "terror-free" trend is riding on the backs of some odd bedfellows -- conservatives think-tanks, liberals who see the method as a way to sanction the Middle East nonmilitarily, politically active pension and endowment fund board members, even Jewish organizations that support divestment from companies friendly with Iran's ruling political regime.

But there are critics, too -- a primary one is the National Foreign Trade Council, which sued in Illinois, challenging (victoriously) the constitutionality of a state law requiring divestment of pension funds from Sudanese-connected companies.

Many state lawmakers "are genuinely motivated to try to do a good thing," said William A. Reinsch, president of the trade council. "But these things cause collateral damage," he said, potentially depriving pensioners of money, and damaging international trade -- perhaps to the point that, someday, London and Hong Kong, not New York City, will be the world's leading financial center.

Plus, "they don't achieve their objective" of indirectly sanctioning African and Middle Eastern companies, because even if the investment strategy were convincing enough to force a company out of, say, the Sudan, another company would simply step into the product void.

Constitutionally, the funds are treading carefully, especially when dealing with state pension money -- the federal government alone, and not the states, are responsible for foreign policy decisions, the courts have ruled.

But in December, President Bush signed the Sudan Accountability and Divestment Act, giving states pension boards safe harbor from lawsuits related to terror-free investment laws.