By Amy Domini, founder of Domini Social Investments and partner in The Sustainability Group
The forty-five year arc of positive impact, resultant from the actions of responsible investors, is evident today in human rights, ecological improvements, in the behavior of government and non-governmental organizations, and has brought true empowerment to the smallest investor. I date the modern era from the decision, at the behest of shareholder activists, to elect a black man, the Reverend Leon Sullivan, to the board of directors of General Motors. It began in 1970 when Ralph Nader and a group of Washington DC-based lawyers filed nine resolutions with the company, one of which asked for greater racial and environmental voices on the board.
Prior to that point, and throughout history, investors have shaped economic enterprises in such a way as to create a community good, and the actions of the so-called, Campaign to Make General Motors Responsible, were not the first to attempt to make positive outcomes through shareholder actions. But this group launched a thousand ships. From this initiative, we can trace the tactics of shareholder activists, the strategies of divestment campaigns, the support for non-traditional economic models, and the panoply of what we now call impact investing.
To begin with, this group of shareholder activists addressed the core two issues: people and the planet. They reasoned, as we still do, that the voices of leadership of a company must include those with a diversity of expertise, that companies have a diversity of impacts and that leadership must consider these when making management decisions. From this campaign, grew a great corporate board member, the Reverend Leon Sullivan. He argued that it was necessary to measure progress that General Motors and other companies doing business in South Africa were making. He argued that the data should be measurable with a number or a yes/no answer and that they should indicate something meaningful. In building the research methodology at Kinder, Lydenberg & Domini we used these two points as key to our own research. Today they are universally imbedded in the corporate responsibility research process globally.
It is worth pausing here to acknowledge the single most important and certainly the most powerful positive social change brought about by the once called, ‘socially responsible’ or even ‘ethical’ investor. Relatively standardized, on-going, corporate responsibility reporting is a given today. For those operating during the era of the Sullivan Principals, it was too distant to be a concept. Nothing has moved so many behaviors, not law, not consumer behavior, not ‘doing the right thing’ on the part of the elite, nothing has created the mechanism of permanent ongoing improvement in the human condition by corporations and society as this global reporting. Rarely does the small investor, making an IRA decision, have the chance to serve the future of the planet along with her own self-betterment so completely. From the simple acorn of tracking corporate largesse in South Africa, grew this mighty oak.
The campaign over corporate behavior in South Africa gained steam when the Sullivan Principals began to prove that American companies were not building a new, Apartheid-free, South Africa. Disappointing as this proof was to its designers, it was now obvious to all that American companies were aiding and abetting a strengthening of the system of a nation that denied the vote to the vast majority of its citizens. Now the divestment movement began in earnest. It was a big one. In 1984 the decision to divest was the decision to drop 162 companies and 48 percent of the Standard & Poor’s 500 index. No divestment movement since then has come anything close to having that sort of proportion of the investable universe removed. And
recall that this was in the era when overseas companies were a good deal more difficult to purchase and most American investors favored the large capitalization American companies that the S&P 500 represented.
This effort, and the worldwide distain for South African leadership that resulted, provided the lever that was needed. The government of South Africa negotiated with Black leadership to bring about an election. The full participation of citizens would be included. Most importantly, Nelson Mandela, who had spent 27 years in prison for his support for a true democracy in his homeland, was a part of the elections. Though the election did not take place until April 27, 1994, from the time the election was set, the outcome was certain. In fact, I have in my files, responses from shareholders in the Domini Social Equity Fund to my letter of inquiry. Should we remove the boycott or wait for the vote? The vast majority urged us to drop the boycott as a declaration of support for the success of the vote.
Looking back over the years, it is now clear that this strong and unified initiative might well have faded into the history books had it not resulted in a relatively small cadre of committed investors and the template for expanding corporate accountability research. Without the fire of the South African debate, the field ran the risk of becoming a menu of divestment choices. Indeed, several mutual funds started with narrow goals, such as animal rights, women in leadership, and alternative energy. But they failed to collect the assets to really grow them into a movement. No, the public understood that the value proposition was this, “I believe that the way I invest can make a better world.” It was not about how, but what.
Given that there were newsletters and funds, asset managers and endowments, that embraced this simpler message, Steve Lydenberg, Peter Kinder and I set out to strengthen them. Our idea was simple. We would deliver the tools they needed to make the concept that “the way you invest matters” universally accepted. For this we saw meeting three barriers to success head on. The first two have been overcome; the third will need to be overcome with every new generation of investor.
The barriers we saw were these: 1. There was an assumption that money would be lost if managers took a look at “extra-financial” issues. This then meant that to do so would be a violation of their fiduciary responsibility. 2. The values were hard to organize. One couldn’t rate the value of a baby born without eyes versus the enforced labor in factories far off the beaten track. In short, research needed to be developed and shaped in such a way as to make conclusions possible. 3. There continues to be a concern about what is the “best” way to bring about change. Should we focus only on philanthropy? On government solutions? Was investing really just opting in to a broken system? KLD Research & Analytics was created to remove these barriers.
The history of the firm could be a book in itself. Suffice it to say that the construction of what was initially called the Domini 400 Social Index and is now called MSCI KLD 400 Index has removed barrier number 1. The development of a data-based system, called SOCRATES, and the firm’s commitment to sharing methodology with like groups globally has removed barrier number 2. The growth of the availability and use of corporate accountability research tools had demonstrated absolutely that a void has been filled. Only the socially responsible investor asked for, even fought for, the data that makes ongoing social improvement a part of the corporate-human dialog. Number 3 was answered for our generation. Only we could have created the most important impact, permanent data collection.
Through the past thirty years, several important efforts have grown awareness in the role that investors have in bringing about a world with universal human dignity and ecological sustainability. We fought over fair access to jobs in Northern Ireland, over the military control of Burma, the genocide in Sudan. We launched climate awareness efforts and studies about the role of women in leadership. The field grew abroad more rapidly than domestically.
The United Nations took an interest. From it grew standards for money management firms and a statement of fiduciary obligation that would give comfort to fiduciaries everywhere. Exchanges in South Africa, Malaysia, Brazil and others mandated disclosure of a broader impact of listed companies on society. Companies adapted, publishing corporate sustainability reports and naming chief sustainability officers.
Meanwhile, the ever-changing vocabulary of our field continued. It astonished me to learn that business schools now teach that first there was socially responsible investing, which was avoiding alcohol, tobacco, etc. It was never that. I should know, I wrote the first book, Ethical Investing, with Peter Kinder. In it we pointed out that we were investors, not ‘divestors’, so the core of our efforts were to find purchases. We applied this to all purchases, across all asset classes, venture capital, commodities, all of them.
I first heard the phrase “impact investing” about 15 years ago in Europe. The Europeans meant direct investment in venture capital ideas that would make the world better. It took a while for me to understand that they saw this as not the same thing as “buy what you want to own.” But as the idea caught hold in the United States, impact investing became synonymous with making direct, generally venture, investments into companies that make something that was really good for empowering people or making a more verdant land. I didn’t like it. It ignorantly ignored the tremendous progress ethical investors had made.
Finally came “impact investing across all asset classes.” I believe that this is where we want to be. It acknowledges that some classes provide narrow bore, but potentially marvelous solutions, such as low cost potable water through venture capital, while other assets provide wide bore, but visible only to intellectually engaged investors, such as responsibility reporting through equity purchasing. Still others are quite specific, like removing gun accessories from stores. Most importantly impact investing across all asset classes has the effect of honoring our past and bringing our parts together in a single fabric of making the world a better place, of acknowledging that investors to have a voice, and it should be a positive voice in each investor’s own area of strength.
Article by Amy Domini, partner in The Sustainability Group in Boston where she manages roughly $1.1 billion in liquid assets for high net worth families. Additionally she is the founder of Domini Social Investments (www.domini.com), a New York City based mutual fund family with $1.6 billion under management. She is widely recognized as the leading voice for socially responsible investing. In 2005 she was named to the Time magazine 100 list of the world’s most influential people, and in 2009 Time listed her as one of 25 “Responsibility Pioneers”. In 2005, President Clinton honored her at the inaugural meeting of the Clinton Global Initiative.
Ms. Domini co-authored the groundbreaking book, Ethical Investing in 1984. Since then she has authored or co-authored several books. Her articles have been widely published and she is a regular contributor to The Intelligent Optimist magazine. Ms. Domini serves or has served on several boards and holds the Chartered Financial Analyst designation.
Ms. Domini holds a B.A. in international and comparative studies from Boston University. She is the recipient of two honorary degrees: a Doctor of Business Administration, from Northeastern University College of Law and a Doctor of Humane Letters by the Berkeley Divinity School at Yale.
