by Amy Domini, founder of Domini Social Investments and of The Sustainability Group
One of the most stubborn problems facing practitioners of responsible investing is the name game. Despite the fact that the practices of any one firm are almost universally accepted practices at all firms, we ourselves choose to confuse the public with a myriad of names. Business schools ‘teach’ nuances implied by the use of differing titles; our own sales literature emphasizes one language while attempting to position this as an advance over other phrases.
While the use of differing vocabulary may signal to the cognoscenti a subtle difference in target market, these subtleties are lost to the mainstream. As an example, Bloomberg Brief, available to Bloomberg subscribers, which virtually the entire mainstream is, offers a weekly Sustainable Finance Brief. This vocabulary, “Sustainable Finance” is one that they are comfortable with. The September 1, 2016 brief opens with a quote from Mathieu Elshout, director of real estate investments at the second-largest Dutch pension fund. “Our pension is worth more in the future in a liveable [sic] world than in a non-sustainable world.”
The stalwart of conventional investment standards, the CFA Institute, demonstrates that it does not differentiate. Our web search for articles on Corporate Social Responsibility (CSR) as it affects investment decision making finds 61 results, many of which contain headlines for Environmental, Social and Governance (ESG) articles or Socially Responsible Investing (SRI) articles, or even Impact Investing, indicating that they consider all to be a single concept. So why are there so many different titles for the approach? Has there been a progression? And should we support the splintering of names?
The current rather uninformed textbook story is that first came “socially responsible investing,” which was a simple divestment approach. Next came ESG investing, which looked for companies with stronger environmental or social stories, but was not actually making any difference in the world. Finally we have evolved to Impact Investing, which actually uses business to make the world a better place. I have absolutely no idea where this weird story line got its start. Those of us who were practitioners thirty years ago have had impact as our purpose throughout the period. We argued that only if investors allowed it, could companies be mindful of the double bottom line. Ergo, we must build an investor base that not only allowed focus on the complete scope of corporate activity but also insists upon it.
During my years with KLD Research & Analytics, we saw our mission as two-fold. Our job was to remove the barriers at the top and to build the demand at the grassroots. We therefore created an index of companies created with social and environmental standards. Though we did not use the ESG phrase, our inclusion of the investor as a stakeholder led us to consider all the issues that have more recently been mysteriously elevated to being deserving of a separate callout, Governance. (My personal preference is to stuff the investor back into the category of people and to stick with people and the planet as our core concerns.) That index did better than the S&P 500. In its new form, the MSCI/KLD 400, it still does better. The track record of the index did in fact move mountains; it undercut the performance-will-be-hurt argument. It made the approach legitimate and called into question the wisdom of Wall Street, too. How is it possible that removing companies from your universe can enhance your return? Is it possible that avoiding problem companies is a good way to make money?
In 1990, what was then called the Domini 400 Social Index was created to be a fixed number of companies (400), of which 250 (give or take) would also be members of the S&P 500. This explicit selection of the “better half” was a tactic to help define the better half. One hundred members of the index were non-S&P 500 companies chosen to increase exposure to industries that the responsible investor might invest in, but which were not amongst the better half of the S&P. For example, responsible investors might willingly own automobile companies, but the S&P automobile companies made weapons, so we sought other ways to gain exposure to that sector. The remaining 50 companies were chosen because they were arguably exemplars of corporate social responsibility. The construction of the index was largely completed during 1989. I can therefore say with certainty that everything ESG is now meant to convey was core to the SRI methodology. CSR, however, is not an investor strategy, but rather the outcome of what investors do. Wikipedia explains, “CSR strategies encourage the company to make a positive impact on the environment and stakeholders including consumers, employees, investors, communities, and others.” But should such strategies exist?
Economist Milton Friedman famously claimed, “a corporation’s responsibility is to make as much money for the stockholders as possible.” This is clearly an over-reach. Stockholders are ultimately human beings. Human beings have many needs and desires. We do not want the pursuit of profits for the person we are when we own a stock to damage the person we are when we breath the air. As investors, we push companies to deliver profits while also assuring that the air stays clean. Responsible corporations must not make money by damaging human life. Investors occupy a powerful position to assure this outcome; investors own the company. I contend that the impact of co-opting all corporations into responsible behavior is an impact of monumental scale, unimaginable without the socially responsible investor.
I return to the name game. What the responsible investment industry calls itself has become too much of a distraction. For all intents and purposes, Triple P (people, the planet, and profits) investing is ethical investing is ESG investing is Sustainable investing is SRI, etc. There are practitioners who ask clients to fill out a self-assessment on issue areas and attempt to tailor a portfolio to emphasize the individual disposition. I do not. My value proposition is this, “Do you believe that finance, that investments, have an important, even essential, role to play if corporations are to operate without destroying ecologies and crushing people?” If your answer to that question is yes, then you should invest with me.
Article by Amy L. Domini, CFA
Ms. Domini is widely recognized as the leading voice for socially responsible investing. Her passion for the field has led her to create three businesses and to write several books. She has been awarded acknowledgements of these efforts, including: Time magazine named her to the Time 100 list of the world’s most influential people in 2005. That year she also received a citation from President Bill Clinton for her work with the United Nations Foundation. In 2008, Ms. Domini was named to Directorship magazine’s Directorship 100, the magazine’s listing of the most influential people on corporate governance. In 2014, she was awarded the Founders Award by New Yorkers Against Gun Violence for her advertising campaign (which ran in The Nation), urging investors to divest guns from their portfolios.
She is the founder of Domini Social Investments (www.domini.com), a mutual fund company with $1.6 billion in assets under management. Ms. Domini is also founder of The Sustainability Group, which manages private client assets in Boston, MA. She has served on a number of boards, including the National Association of Community Development Loan Funds (now Opportunities Finance Network), an organization whose members work to create funds for grassroots economic development loans, and the Interfaith Center on Corporate Responsibility, the major coordinator of involved shareholders who file proxy resolutions.
She is a member of the Boston Security Analysts Society. Ms. Domini holds a B.A. in international and comparative studies from Boston University, and holds the Chartered Financial Analyst designation. In 2006, she was awarded an honorary Doctor of Business Administration degree from Northeastern University College of Law. Yale University’s Berkeley Divinity School presented Ms. Domini with an honorary doctorate in 2007.
Ms. Domini is the author of Socially Responsible Investing: Making a Difference and Making Money (Dearborn Trade, 2001) and The Challenges of Wealth (Dow Jones Irwin, 1988), and a coauthor of Investing for Good (Harper Collins, 1993), The Social Investment Almanac (Henry Holt, 1992), and Ethical Investing (Addison-Wesley, 1984). She contributes regularly to Optimist Magazine and the GreenMoney Journal. She lives in Cambridge, MA with her husband, Mike Thornton.
