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January
18, 2001
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Picking Responsible Stocks
| The Domini Effect |
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When Amy Domini speaks, large corporations listen. Domini isn't a high-ranking treasury official or a powerful CEO or a distinguished economics professor. She runs an investment fund that has spent the past decade telling companies that "business as usual" may not be good enough. The Domini Social Equity Fund—which buys stock in companies dedicated to safe and useful products, good employment practices, and environmental preservation—has become one of the most visible success stories in the growing field of Socially Responsible Investing (SRI). According to the Social Investment Forum, a research organization in Washington, D.C., there are now more than 200 funds that focus on SRI and have trillions of dollars to invest. Their view is that making money is only part of a corporation's responsibility. Caring for consumers, workers, the community, and the environment all count as well. "When you buy stock, you're buying the company," Domini explains. "And as the owner of the company, you could say, 'Fatten my wallet by degrading public safety or health.' Or you could say, 'My company should be more concerned with these issues.' "This fund is about sticking to who you are and what you care about. It's rediscovering the importance of individuals taking stands." |
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Making money in the stock market and making a positive difference in the world around you may not seem to go together. But a growing number of investors are finding that they don't have to choose between profit and conscience. How can socially responsible investing lead to personal profits and better business practices?
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| Strength in Numbers |
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The more than $2 billion that the Domini Fund invests in major U.S. companies gives a significant voice to Domini's individual investors, whose share may be as little as $250. As a mutual fund, Domini pools these smaller investments and buys large quantities of stock in 400 different companies. And while you'll find corporate giants like AT&T, Microsoft, and Starbucks in the Domini portfoliio, they've all had to meet a set of socially responsible standards.
Domini and other SRI funds have also made a name for themselves by making money. In fact, from 1997-1999, the stocks picked by Domini outperformed the 500 large companies that make up the famous Standard and Poor's index:
Last year told a different story as the fund—with its large number of technology stocks—dropped almost 15% in value, compared to a 9% decline in the S&P 500. Still, Domini continued to attract new investors. From a total value of $250 million in 1997, the fund reached $2 billion in 2000.
And Domini is not alone in its overall success. Funds such as Pax World and Parnassus also have consistently made money for their investors.
"Our investors want to make good returns as well as invest in socially responsible companies," Parnassus president Jerome Dodson told CNN. "If you want to make a [charitable] donation, I'm all in favor of it, but that's not the reason to buy a mutual fund."
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| Successful Screening |
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Nowadays, SRI funds use a variety of "screens" to determine if a company qualifies as socially responsible. Many refuse to invest in corporations that produce tobacco products or alcoholic beverages. The Domini Fund also excludes gambling operations, as well as makers of nuclear power and military weapons. For those companies in which it ultimately invests, this fund takes a hard look at the following areas:
That list expanded a few years ago, as Amy Domini began hearing investor complaints about overseas "sweatshops" that were producing shoes and clothing for many American companies. Workers, many of them children, were required to labor long hours in poor conditions for very low pay.
Domini says these concerns become a starting point in trying to get big companies to change. "We had a great many shareholders write us about Nike and say we shouldn't be invested in sweatshops. When Coca-Cola meets its shareholders, we are able to talk to them about diversity issues and the class action suits and claims against the company. "But we try to focus on the potential positive issues—when companies show a better diversity record or a better record of using manufacturers overseas." Domini says this approach is making an impact. "Companies had a much more patronizing attitude 15 years ago. Now they're starting to take note and even become proactive." |
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The SRI movement took off during the 1980s when opponents of South Africa's apartheid policy—the segregation of blacks and whites—targeted international companies doing business there. Investors were urged to get rid of their stock until these companies left South Africa. The mounting economic pressure on the South African government is credited with helping to end apartheid.
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