How can individual investors play a role in "regime change," the latest political buzz phrase? So-called socially responsible investing claims as its greatest success and the seminal event of the movement its boycott in the 1980s of companies doing business in South Africa. Let's put aside for a different column the role of social investors in toppling apartheid (tease: next to nothing). We do know that today's version of social investing, with its myopic obsession on excluding companies that its screens adjudge to be social miscreants fails miserably in putting pressure on countries to reform, either politically or economically; no individual company has enough impact to make much of a difference.

What are the alternatives? In a prior column, I discussed the incipient movement to identify companies that invest in countries that wink and nod at terrorism. This shifts the focus from exclusion, which does little but assuage the anxiety of individual client investors, to transparency, which impacts all of a company's stakeholders.

The $133 billion California Public Employee's Retirement System takes another approach. For a second year, CalPERS, one of the world's leading advocates of corporate governance reform, has announced its list of emerging market countries in which it will avoid investments. Based on research provided by Wilshire Associates of Santa Monica, CalPERS evaluates a slew of market and non-market considerations including civil liberties, press freedom, political stability, judicial independence and accounting standards. This year's boycott list excludes investments in twelve countries including export giant China and some of the world's best performing markets such as Russia and Egypt.

The economic impact of CalPERS black list is insignificant. Although the mega-pension fund can move markets in the US, it has less than $2 billion invested in emerging markets. But it is considering dramatically increasing such investments. And the fund's worldwide prominence, particularly in the area of corporate governance, has turned it into a bell-weather for some international fund managers.

The list has also turned foreign governments into nervous Nellies. After CalPERS exxed Malaysia last year, government officials censured the fund. "Our record on human rights is good," whined the deputy prime minister. The Thai market plunged nearly 4% after it was listed. Government officials pleaded for time, saying, "There should be sufficient channels in which we are given appropriate opportunities to show that Thailand has complied with good-practice standards, as we have every intention to do." India, Jordan, Sri Lanka, Colombia, Venezuela, Morocco, Indonesia, Pakistan and the Philippines, the other 2003 no-no countries, have all contacted CalPERS to find out what steps would be necessary to get in its good graces.

From a market performance standpoint, CalPERS' list has yet to prove its worth. For example, black listed Indonesia soared 27% last year while the Thai market went up 20%. On the other hand, the Argentine and Turkish markets, given a seal of emerging market approval, tanked 51% and 34% respectively. Almost every emerging market on CalPERS must-avoid list at least matched major western indices. As one wag put it, the question for investors is not whether the dog has fleas but whether the price of the dog takes the fleas into consideration.

Of course the real value of CalPERS' ratings is not as a timer of notoriously unpredictable emerging markets but as a club for transparency and change. "There is a relationship between economic growth and underlying conditions in a country," argues California state treasurer Phil Angelides in defense of the investment boycotts. "We are long-term investors. There are certain countries that don't have the requisite stability to put our money at risk. It makes sense to set some minimum thresholds."

Part of what CalPERS is trying to do is to force western accounting and indeed political standards on other countries. That's a dubious goal in today's dicey, anti-American climate. Its critics also point out that CalPERS uses haphazard standards in determining which country passes and fails. Why is it pulling out of much of South-East Asia but not economically insolvent Argentina and repressive Turkey? "They [CalPERS] are making a political decision, one that is not only subjective but questionable," comments Mark Konyn, Asia director of Dresdner RCM Global Investors.

Well, one has to start somewhere. "This is a living document subject to ongoing change," responds William Crist, president of CalPERS' Board of Administration.

CalPERS is actually following in a tradition blazed less ceremoniously by the conservative Heritage Foundation. Each year in cooperation with the Wall Street Journal, Heritage releases an "Index of Economic Freedom." The index has emerged as a popular measure of economic freedom around the world, which roughly (with notable exceptions) correlates with political freedom. It evaluates 161 countries on 10 broad variables including wages and prices and trade policy. Not surprisingly, many on CalPERS' black list rate low on the economic freedom index. In its ratings released last fall, Russia came in 135th, China 127th, India 119th and Egypt 104th.

There are some intriguing differences between CalPERS and Heritage. Turkey, which CalPERS gives a pass, ranked a dismal 119th in the Economic Freedom Index. On the other hand, countries that are free market oriented but politically authoritarian, such as Thailand ranked 40th and Jordan 62nd, are on CalPERS boycott list. CalPERS might do well to consider adopting a broader range of criteria including some standards included in the Economic Freedom Index.

Obviously, no single list is fool or manipulation proof. These are only tools, weapons if you will in an enduring campaign for more openness and reform. In the case of CalPERS, its boycott not only encourages accountability, it is backed by the capitalist club of money. It's a sign of real hope that one of the world's most influential funds is willing to walk its talk when it comes to meaningful regime change. Perhaps other pension funds, public and private, might have the wherewithal, indeed the guts, to follow in CalPERS footsteps.