Next time a conversation with a fellow investor starts to flag, here are two sure ways to jump-start it: Change the subject to the perils of nanotechnology, or change it to social and environmental responsibility.

And if you really want to get things hopping, start talking about both at once.

That's just what Heather Langsner has done. A senior analyst at Innovest Strategic Value Advisors, a New York company that describes itself as "an environmental investment research advisory firm," Langsner not only compiled a nanotech index for value investors, she backed it up with a report that assesses, in part, "the perception risk that may be associated with the environmental, health and safety profile of nanotechnology."

Never mind that the world of nano, still more science than technology, is a bit young to be a preoccupation of value investors. Or that the debate over environmental and health hazards from nanotech applications, while raging in Europe, is much more muted in the U.S. Or that the field of social responsibility is still reeling from The Economist's 11,000-word jeremiad in January, which dismissed it as "morally dubious" and "a license to obfuscate."

Innovest's nanotech report offers serious food for thought for nanotech investors. First off, Langsner scores points for writing a 124-page report without once reaching for the phrase "grey goo" -- the world-smothering result of self-replicating nanorobots run amok (kind of like blogs, only with molecules instead of opinions).

More importantly, Innovest's report analyzes a more immediate risk than grey goo: How likely are emerging technologies to cause consumers to freak out as some did over the perceived health threats of genetically modified organisms, and further, how smart are companies in heading off that threat?

After all, profiting from emerging technologies depends as much on exploiting their promise as avoiding their pitfalls -- how do you get genetically modified seeds to help agriculture without harming nature? Or run a nuclear plant without nuclear meltdowns? Or conduct data mining without privacy invasions? Companies diligent in addressing such questions have done well, while the cavalier have suffered.

"The companies that are first to offset risk through a comprehensive and proactive management strategy are not only more likely to minimize overall perception risk to the market but may generally be better investments over the long term," the report says.

The textbook case of how not to handle controversy is Monsanto ( MON), whose insistence on steamrolling environmental critics stymied sales of its GM seeds throughout the world. Only after a new CEO took a more diplomatic approach in the past few years did sales of Roundup-ready seeds start to take off.

So far, any such danger has been theoretical in the realm of nanotechnology. Innovest is careful to avoid painting doomsday scenarios or suggesting that any environmental or health crises are on the horizon.

But a consumer backlash against nanotech could occur without much prompting. In May, topless protesters bared body-painted slogans in front of an Eddie Bauer ( EBHC) store in Chicago to call attention to its "untested and unstable" clothing. If stain-free pants can inspire such disrobing, think what sort of media frenzy an actual health hazard would trigger.

Media controversies surrounding science inevitably lead to a regulatory response -- just look at stem cells, which are being strictly regulated in the U.S. even before the science has yielded any significant health applications. Some companies are much more prepared than others, Innovest says, to act if and when the lawmakers start eyeing nanotech.

Grappling with the government over toxicity issues is a daily reality for many companies. Just ask the 61 asbestos companies that declared bankruptcy in the face of litigation, or the drug companies that have seen thousands of promising therapies shot down by the FDA on toxicity concerns.

Innovest notes that federal agencies are working on research in several areas that are slated for completion in 2007: how carbon nanotubes might affect the environment or build up in estuaries, what happens when nanoparticles are inhaled, or end up in drinking water, or cross the blood-brain barrier. Yet venture capital firms investing in the area haven't given much due diligence to these questions, Langsner says.

The Innovest 15
Name Symbol
Altair Nanotechnologies ALTI
ApNano N/A
BASF AG BF
Biosante Pharmaceuticals BPA
FEI Company FEIC
Flamel Technologies FLML
General Electric GE
Headwaters HW
JMAR Technologies JMAR
Lumera Corp. LMRA
Nalco Holding Co. NLC
Plug Power PLUG
Spire Corp. SPR
Starpharma Group SPL
Veeco Instruments VECO
Source: Innovest

Among the companies that Innovest added to its index are giants such as General Electric ( GE) and German chemical maker BASF ( BF), as well as equipment makers such as Veeco Instruments ( VECO) and FEI ( FEIC) and smaller companies such as JMAR ( JMAR) and privately held ApNano.

"We found larger-cap companies did pretty well," says Langsner. "They have more resources and more reason to be proactive in setting off risk."

The 14 public companies in the index are up 13% in the past year, compared with a 5% return on the S&P 500 and a 5.8% return on the Nasdaq. Many of the component stocks are likely to be volatile month to month, and Langsner cautions that they were selected on long-term factors.

There are other stock indices devoted to nanotechnology, from the troubled (Merrill Lynch) to the trusty (Lux Research). Innovest's isn't intended to be traded, but it is the result of studying 200 public and 100 private companies and narrowing them down to 15 based on product strategy and risk as well as profit opportunity in areas such as fuel, water and health.

So, while the Innovest 15 may never carry the currency of the Dow 30, it does raise questions that very few investors are thinking about today, but ones that are likely to be unavoidable in the next few years.