"I believe that by integrating deeply held personal or ethical concerns into the investment decision-making process, investors can bring about a world that values and supports human dignity and environmental sustainability. Through socially responsible investing, the investor reengineers the equation of success. We want to make money because we want a better life, more security, a legacy for our children.... But socially responsible investors ask that first we do no harm."
— Amy Domini, Socially Responsible Investing
Amy Domini wields power in the financial industry and is on numerous short lists of the most influential people on Wall Street. She is using that power to make the world a better place. Domini wrote the book on values based investing — twice. Her book Ethical Investing was published in 1984. In 2001, she came out with Socially Responsible Investing (Dearborn), offering an updated and broader overview. She created the Domini Social Index in 1989. Her name is on the mutual fund company, Domini Social Equity Fund, which she founded in 1991 after no other mutual fund company would take up the challenge to create a fund for investing in the companies deemed socially responsible by the index. The fund’s goal is to invest in the Domini Social Index selection of 400 socially responsible companies, those companies Domini characterizes as "the better half of corporate citizens."
Boston-based Domini acknowledges the contradictory state of mind she brought to her role as one of the founding leaders of the socially responsible investing movement. "My interest in finance was nonexistent, and also well-laid. My grandfather was a Wall Street guy and wrote the‘Heard on the Street’ column for the Wall Street Journal. He made sure his grandchildren learned the meaning of‘stock’ and‘bond’." At the same time Domini insists she was not interested in finance and did not consciously choose that as a career. Rather, she grew where she found herself, from the photocopy room for the research department of a major brokerage house after college into that brokerage’s career path for a financial professional over the next seven years.
Calling herself a "product of the times," Domini was one of those people who came of age during the height of the civil rights movement, the protests against the Vietnam War, and the first Earth Day. She’d seemed to have left behind her radical roots and 1960s concerns as she worked in the brokerage industry. Questions kept arising. "Did I want to participate in something that at another point in my life I had distrusted so completely?" she asked. Then, as a broker, she encountered the specific requests of client after client, who didn’t want to invest in certain types of companies.
Some clients asked to avoid companies invested in apartheid South Africa. Others didn’t want to invest in weapons or tobacco or mining, often because of some past personal or family experience. She recalls a pivotal moment from 1978 in Socially Responsible Investing. "One day the research department...sent out a recommendation for a company that they thought had good prospects for winning a major military contract.... Most of my fellow brokers were calling their best customers and recommending a purchase of the stock. I felt sick. How far had I fallen that I might consider calling people I was fond of and urging that they make an investment in a killing machine?" Finally, Domini "got it."
What did she get? Like a switch turning on a light bulb, Domini awakened to the larger implications of what the investment world was really doing.
"I realized that there was no available list of companies that were in weapons, for instance. Then I figured if I was interested, probably other people would be too." This train of thought led Domini to write Ethical Investing, an investment guide to integrate personal ethics into the way people ran their money. Throughout the 1980s the movement for corporate divestiture from apartheid South Africa gained steam. She notes that it took fifteen years — from the first call for divestiture in 1971 until 1986 when investors could identify what to divest. During this process, Domini was learning a critical distinction.
"This was not about integrating personal ethics into the way you run your money. It was about...creating a positive social impact. ...So, you’re not only feeling better [about your investment choices], you are actually doing a lot of good." Thus came the idea whose time had come: Socially Responsible Investing. Its credo: "the way we invest matters."
Socially Responsible Investing
Domini had become aware that she was seeing something that the rest of the world was sleeping through. "I realized that the structure of finance is in fact what is building the world. This structure is dictating what nations and people become. It’s all traced back to stocks and bonds.... The investor stands at the juncture between the engine of the world’s economy and the fuel, money. This is the reason that the way we invest today will shape the world we live in tomorrow. ...Finance is the funnel through which the movement of goods and services is dictated."
Acknowledging that capitalism is a way to bring the greatest amount of goods and services to the largest number of people at the lowest cost, it also dawned on her that there are certain goods and services whose easy availability doesn’t enhance society. There are some things that we can consciously decide it’s not in anyone’s best interest to have widely distributed and at the lowest prices — things like guns, armaments, cigarettes, alcohol, gambling.
Domini explains the three core strategies of socially responsible investing (SRI), which she likens to a three-legged stool. "SRI has defined itself as three things. First, it’s about buying the more responsible companies because that helps define companies as responsible. Second, once you become an owner, you are entering into direct conversation, engaging in active dialogue with companies’ management teams to identify areas of improvement and concern, primarily through filing shareholder resolutions. Third, it’s about what I call‘the way you bank.’ By choosing to do business with a community redevelopment bank, you are putting your money to work outside the dominant paradigm. Investors must be the ones to make conscious choices. They must become active voices. SRI brings the most powerful force on the planet — finance — into the task of saving the planet."
According to Susan Davis, President, Capital Missions Company (www.CapitalMissions.com), and herself a masterful creator of socially responsible investor networks (profiled in October, 2001), "Amy’s greatest contribution was her undertaking to both acquire cutting-edge expertise in investment management working for one of America’s outstanding firms and to also acquire expertise in the emerging social investment industry, working as one of the key founders. Putting these two sets of data together, Amy was able to conceptualize and then actualize the Domini Social Index. This index has been the single most important factor in rendering social investing credible to institutional investors."
What is the Domini Social Index?
The Domini Social Index is an objective tracking index that allows investors to compare, apples to apples, how investing in socially responsible companies fares against investing in companies that make up the equivalent benchmark Standard & Poors 500. One of the main barriers to socially responsible investing, according to Domini, was that "everyone" knew you couldn’t make money with this kind of investing. The index was created to track the results of investing in socially responsible companies. At inception, no one knew whether investors would have to forego some percentage of profitable results in order to save the world. Then they learned a surprising lesson. The index has outperformed the S&P 500. Over the ten-year period ending September 30, 2001, the Domini Social Index’s annualized total return has been 13.79 percent, while over the same period, the S&P 500 showed an annualized total return of 12.69 percent. Although Domini is no longer affiliated with the research company, KLD, that oversees the Domini Social Index, the mutual fund she created to parallel the index does license the use of the name from them.
Unfortunately no corporation is perfect. Not one of those corporate citizen behemoths whose powers dwarf whole governments remains completely unsullied. According to Domini, "The research process for reviewing companies on their social responsibility is more disciplined and specific than the public might think. We look at companies through the eyes of all their stakeholders: shareholders, the natural environment, employees, community, customers, suppliers." Research for companies in the Index uses a broad range of 170 yes/no questions with quantifiable answers that can be gleaned objectively by an outside organization looking in. Theoretically this process allows the index researchers to bypass corporate spin doctors whose golden words might influence the outcomes. Once they gather the data, what emerges is a complicated picture of a company that the researchers proceed to evaluate and interpret based on the philosophy of socially responsible investing, beginning with the credo to "do no harm."
Some issues are not effectively addressed in the socially responsible index process according to Domini. Notable examples are the "big box" stores and sweatshops. In the case of sweatshops, often the number one or two concern (along with the environment) for her investors, people don’t want to invest in companies that produce goods from sweatshop labor. However, most of the companies in question don’t run the shops. So, should the investing screen be that you don’t invest in companies that use sweatshop suppliers? Domini contends that means nearly 100 percent of companies are out of bounds. Thus, it’s not a helpful screen. In cases like this, there isn’t what Domini calls "the bright line" that indicates the boundary for principled companies to observe.
For thorny issues that are in process, like the sweatshop issue, there are ways to make things better, albeit slowly. Domini here recommends that investors (who are indeed part owners of the companies) actually get involved and make their concerns clear to the management of the company to try and improve from within. To that end, the Domini Social Investment Fund is involved in a large number of shareholder resolutions. They actively participate in the annual stockholder meetings, and even convene meetings with management to share ideas to improve the most egregious situations
Observes Domini in the pages of her book, "To the extent that becoming a socially responsible investor allows one to become educated and deliberate about making investments, it marks a transformation point. And what is it that the investor is transforming into? An advocate for more responsible corporate practices, a watchdog, a more involved citizen? Yes, probably all three...[they] gain a sense of control of their assets and of extending their reach beyond their portfolios. They embark on a journey of redefining themselves."
At the moment, Domini says, she is fueled by anger. From her unique position, she has gained credibility through the fund and index that bear her name. Yet that does not reduce her anger at injustices done throughout the world in the name of profits; anger at the harm done to our planetary life support systems and the environment; anger for people forced to live and work under horrific conditions. It drives her relentlessly forward. It is a drive to enlighten people and engage them to take actions. In this message, there really is hope.
Socially responsible investors are part owners of companies. As such, according to Domini, this "new owner of the corporations of the world is gaining a voice, an owner that believes that there is a difference between making money and stealing money from our children, our neighbors, our natural environment. As this new owner grows in number and in power, responsible and sustainable business practices will result." Amy Domini remains convinced and committed that socially responsible investors are the best hope for change, shareholder resolution by shareholder resolution.
Bobbye Middendorf is a Chicago-based freelance writer.
Resources
Amy Domini’s most recent book is Socially Responsible Investing: Making a Difference and Making Money’ (Dearborn, 2001). Click here for more information about the Domini family of socially responsible funds.