In 1980, when Amy Domini was working as a stockbroker, she began to notice that some of her clients weren't happy to invest in certain companies, such as large defense contractors and tobacco companies, whose policies they disagreed with. They questioned whether it was possible to pursue their investment objectives without violating their conscience.

 

One of Amy's clients, an avid birdwatcher, sought Amy's advice on what to do with a large paper company she held that endangered the birds she loved by using a highly toxic defoliant in the process of manufacturing paper. Another investor refused to hold the stocks of large defense contractors. Others wanted to avoid tobacco companies. Amy began to realize that a new way of looking at investments was emerging, and she realized how much sense it made. It didn't take her long to become a passionate proponent of socially responsible investing.

 

Amy wasn't the only one thinking along these lines. Many individuals had already made the connection between their investments and their personal beliefs, and sought to invest in companies they respected while avoiding those companies that violated their principles. A handful of mutual funds already existed to screen for ethical concerns and community development financial institutions were developing ways to use their capital to reinvest in their local communities. Shareholder activists affiliated with the Interfaith Center on Corporate Responsibility had years of experience using their shares to influence corporate behavior. But the community of professionals dedicated to what became known as "socially responsible investing" was small, and efforts were isolated. In 1984, Amy wrote Ethical Investing, one of the first attempts to understand what these various strategies meant, and how they could complement each other.

 

Amy realized that what social investors needed was a benchmark — something akin to traditional investment benchmarks like the Standard & Poor's 500 or the Dow Jones Industrial Average that could be used to determine whether there was a cost or a benefit, in dollars and cents, to invest this way. For example, would an investor who chose not to invest in tobacco companies or major polluters, preferring companies with better environmental and human rights records, perform better or worse than investors who did not consider these factors? She saw this uncertainty as the primary obstacle to the growth of socially responsible investing.

 

In 1989, she and her partners Peter Kinder and Steve Lydenberg began work on the the Domini 400 Social Index*,^SM an index of 400 primarily large-cap U.S. corporations, roughly comparable to the S&P 500, selected based on a wide range of social and environmental standards. When it was launched in 1990, it was the first index of its kind. A year later, they launched the Domini Social Equity Fund to provide investors with a fund that tracks the Index.

 

They didn't know what the results would be. It seemed logical that companies with better social and environmental records would perform at least as well as polluters and firms with poor employee relations — probably better — but there was simply no evidence one way or the other. Wall Street analysts told them it would never work: Including social and environmental considerations into investment decisions would limit the investment universe, and therefore limit returns. They didn't acknowledge that traditional money managers are paid large sums of money to do just that — limit their investment universe to a profitable portfolio of stocks.

 

Analysis of the long-term record of the Domini 400 Social Index* has shown that social and environmental standards have led to strong individual stock selection and potentially higher returns.

 

In 2006, the Fund received its shareholders’ approval to change from a strategy of passive index investing to active management. Because the Index is weighted by market capitalization, the management of the Fund could not shift the Fund’s portfolio concentration from one industry to another or from one stock to another to enhance performance.

 

At Domini, we use our shareholders’ investments to encourage greater corporate responsibility, both by using social and environmental standards to select our holdings and by directly engaging corporate management through proxy voting and shareholder dialogues. Since 1994, we have engaged numerous corporations in discussions on a wide range of issues, from sweatshops to the environment. In 1999, we became the first mutual fund manager in the country to publish its proxy votes, so that our investors could hold us accountable for the positions we are taking. We petitioned the Securities and Exchange Commission for the rule that now requires all mutual funds to disclose their votes, and their voting guidelines.

 

We have also learned that it is possible to profitably use our investments to help rebuild those communities that have not benefited from our nation's economic growth. We believe that healthy economies are built from the bottom up, and that prudent investors should look for ways to invest in the economic development of struggling communities. We have therefore developed investment vehicles that work to rebuild our nation's underserved communities. Through an innovative partnership with ShoreBank, the nation's oldest and largest community development bank, we developed the Domini Money Market Account^SMand the Domini Social Bond Fund.^SM 

 

Beginning in 2005, we began offering investment products that enable social investors to make a global impact with their investment dollars. The Domini European Social Equity Fund,^SM Domini PacAsia Social Equity Fund,^SM and Domini European PacAsia Social Equity Fund^SM allow investors to diversify their portfolios, take advantage of overseas economic growth, and promote human dignity and environmental performance.

 

Socially responsible investing has come a long way in the past twenty years. It is now widely recognized that social investors use three basic tools, often in tandem, to achieve their social and financial goals — application of social and environmental standards, shareholder advocacy, and community investing. We are guided by the knowledge that it is possible to earn a competitive return while using our investments to make a difference in the world. It is no longer necessary to choose between your principles and your investments.

 

 

*Domini 400 Social Index(SM) is a service mark of KLD Research & Analytics, Co. (KLD)

 

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