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How We Apply Our Standards
Defining our Global Investment Standards is the first step Domini takes in creating an investable universe of companies from which our investment portfolios are ultimately created. We then apply those standards systematically to a wide range of companies in various countries and industries.
In applying our standards to these companies we evaluate both the alignment of a company’s business with our Global Investment Standards and the strength of its stakeholder relations, focusing on key indicators in both areas.
Our process takes into account each company’s core business model and its implications for social and environmental sustainability. For example, is an energy company shifting its business model to renewable energy sources? Is an apparel company making the monitoring of labor standards at its vendors a part of its daily business? A company’s business model may fall on a scale ranging from fundamental alignment to fundamental misalignment with our standards.
Depending upon business model alignment, Domini sets corresponding thresholds for the company’s relationships with its key stakeholders. A company that is fundamentally aligned with our standards will have a lower stakeholder relations threshold than one that is partially misaligned. For example, a solar cell manufacturer is considered fundamentally aligned with our standards due to the ecological benefits provided by its core business model. Without severe stakeholder relations challenges, it would probably qualify for inclusion in our portfolios.
Most companies fall in the middle of the spectrum of business alignment, in which case its stakeholder relations play a key role in determining its eligibility. We are not looking for “perfect” companies. Rather, we are seeking to identify the key sustainability challenges and rewards for each company in its business model and its stakeholder relations, and then to assess whether that company is on balance responsibly acknowledging and addressing them.
Companies’ key businesses are fundamentally aligned with Domini’s standards when they pioneer innovative products that address the most pressing problems of our times, or when they pioneer access to wealth-creating, sustainable products for sectors of society or the environment that are currently underserved. Other businesses may be considered partially aligned, partially misaligned, or fundamentally misaligned.
Domini evaluates the relationship of companies with their key stakeholders: the local and national community, global community, customers, ecosystems, employees, investors, and suppliers.
Companies may be considered as having strong, occasionally strong, neutral or mixed, occasionally weak, or weak stakeholder relations. Our analysts review a broad range of materials in their evaluation, including media reports, corporate public documents, reports of nongovernmental organizations, and direct contacts with companies and stakeholder groups, such as labor unions. This research is compiled in a database to allow us to track changes in corporate performance over time.
For each industry or subindustry, the impact of particular corporations is greatest in certain social and environmental areas.
Domini has developed a set of key indicators to guide us in our evaluation of each company. These indicators help to ensure that our decision-making is consistent across a wide range of industries and subindustries, and is focused on the key sustainability challenges we have identified. When emerging issues or significant controversies arise that are not captured by these indicators, we seek to include these issues in our analysis as well.
Domini tailors key indicators not only to each industry but also to subindustries, making meaningful company-to-company comparisons possible. We have found that approximately three key indicators for stakeholder relations and three for business alignment are usually sufficient to identify the most critical issues.
Domini may, at its discretion, choose to change its social or environmental standards, add additional standards, or modify the application of the standards to a Fund at any time, without shareholder approval. This will impact investments held by a Fund, and may cause certain companies, sectors, industries, or countries to be dropped from or added to a Fund’s portfolio. In addition, Domini reserves the right to vary the application of these standards to a Fund, depending, for example, on such factors as asset class, industry and sector representation, market capitalization, investment style, access to quality data on an issuer’s social or environmental performance, and cultural and political factors that may vary by region or country.