It’s crucial for those of us who want to create a better world to pay close attention to how we spend and invest our money—we vote with our money as well as with ballots.  Socially responsible investment managers often overlay a qualitative analysis of corporate policies, practices, and impacts onto the traditional quantitative analysis of profit potential. It is a process of identifying and investing in companies that meet certain standards of Corporate Social Responsibility (CSR). U.S. socially responsible investment assets grew faster than the rest of the investment world over the last decade, and there is now over $2 trillion dollars invested with some type of social screen.

Amy Domini is a true visionary and leader of the Socially Responsible Investment (SRI) community who has written numerous books on the topic including the groundbreaking Ethical Investing, way back in 1984. She helped launch the Domini 400 Social Index in 1990 and more recently founded Domini Social Investments, which manages nearly $2 billion dollars in the Domini Social Equity Fund and new European Social Equity Fund.

CLIFF - The Domini 400 Social Index now has a 15 year track record. Why do you think it has outperformed the S&P 500 over the long term?

AMY - The Domini 400 Social Index, which is maintained by KLD Research and Analytics, has outperformed the S&P 500 since inception in May 1990 (493% vs. 427% through 12/31/05). That's a particularly extraordinary statement when you consider that during the past five years we have suffered from many disappointing government policies. In the first place, the period saw soaring oil prices that led to enormous windfall profits in an industry that we in social investing largely avoid. Next, accelerated spending on weapon systems led to higher stock prices in that industry, which we avoid. The removal of risks and liabilities from many numbers of dirty industries ranging from utilities to tobacco and natural resource extraction led to a rally in these industries, also avoided by social investors. All this happened during a time when a complete compression of the price to earning ratio of conventional growth companies, such as is frequently preferred by social investors, was taking place.

So why the long-term success? Those of us within the social investment industry know that the research process is extremely detailed and paints a particularly telling story of a corporation. The underlying culture and the quality of management emerge through the research process. At the end of the day, I believe that this is what has led to the overall out performance of the Domini Social 400 Social Index vs. the S&P 500. We have based the portfolio toward high quality management teams and companies with strong and positive corporate cultures. These are widely viewed as highly important to corporate performance and extremely difficult to identify. Socially responsible investing, through its screening methodology, has found a way to identify these important factors.

CLIFF - Where do you think most of the growth in SRI assets will come from in the future, small boutique SRI firms or large firms with small SRI groups?

AMY - Until the present time, most of the growth of SRI assets has come from smaller firms still managed by their founders who have elected to specialize in this field. As one of those, I can say that it is difficult for me to imagine having been able to manage responsible portfolios for responsible investors without having gone off on my own. After all, larger firms sell themselves on a methodology and approach which has proven successful for them in the past. Until now, they have had no real incentive to transition to SRI.

Today we see a shift. Larger firms are entering the field, particularly in Europe. A driver has been the demand by a few large pensions for this capacity, and financial services firms have rushed to meet the need. But financial services companies are now global. Goldman Sachs may develop a team and capacity to service European pension funds, but once established that team will be aggressively used elsewhere. In the future, I believe that large firms will be a real factor in the SRI industry.

CLIFF - What are the latest issue(s) on your radar, inside and outside SRI?

AMY - … I find that I have become increasingly political. Over and over again I am struck by the enormous corporate welfare system we already have in this nation, and by its explosive growth under the current Congress. I've come to feel like government is just too important a participant in shaping the future for me to ignore it completely. Domini Social Investments has been filing resolutions asking companies about their lobbying dollars. This is just one small step toward addressing the larger issues. I now speak of the taxpayer as a stakeholder when I talk to audiences. After all, when corporations externalize costs, it is the public that picks them up….

CLIFF - Of course we must mention the very exciting Time magazine award you won last year, being named as one of the 100 most influential people in the world in 2005. How has it changed your life both personally and professionally?

AMY - Well thank you. It was indeed startling to see myself in the company of so many powerful people, but it has not much changed my life on a personal level. I still can't seem to influence my sons to clean their rooms. Professionally it did have one immediate impact and that was that I was invited to write a book, which is now underway. The basic thesis is that several small tweaks to the way funds are managed or governed would lead to tremendous societal benefits.

The most extraordinary part of being named one of the 100 most influential people in the world was that nobody else from the field of finance was named on the list. It is tremendous validation of the role that responsible investors have played. We have made enough of a difference that Time magazine sees it and acknowledges it in this way. I have always been a lightning rod for my industry and this award acknowledges all that we, as compatriots, have accomplished.

(Note:  Socially responsible investing incorporates three strategies that work together to promote socially and environmentally responsible business practices and, in turn, encourage improvements in the quality of life throughout society:

Screening is the practice of evaluating investment portfolios or mutual funds based on social and/or environmental criteria. Generally, social investors seek to own profitable companies that make positive contributions to society. "Buy" lists may include enterprises with, for example, good employer-employee relations, strong environmental practices, products that are safe and useful, and operations that respect human rights around the world. Conversely, many social investors avoid investing in companies whose products and business practices are harmful to individuals, communities or the environment.

Shareholder Advocacy involves actions many socially aware investors take in their role as owners of corporate America. These efforts include dialoguing with companies on issues of social or environmental concern as well as filing, co-filing, and voting on shareholder resolutions. Proxy resolutions on social issues and corporate-governance issues generally aim to improve company policies and practices, encouraging management to exercise good corporate citizenship while promoting long-term shareholder value and financial performance.

Community investing directs capital from investors and lenders to communities that are underserved by traditional financial services. It provides access to credit, equity, capital, and basic banking products that these communities would otherwise lack. In the US and around the world, community investing makes it possible for local organizations to provide financial services to low-income individuals and to supply capital for small businesses and vital community services, such as affordable housing, child care and healthcare.)
 

Excerpted from GreenMoney Journey: www.greenmoney.com; cliff@greenmoney.com.  See also www.socialinvest.org