We are global investors, seeking to apply our standards consistently across markets. For certain markets that present unique sustainability challenges, however, we have developed specialized standards to guide our ESG research and review process. This paper outlines the factors we consider when evaluating the eligibility of companies for our portfolios that operate in Burma (Myanmar). We hope that it will help to illustrate how Domini addresses these key challenges, as well as provide guidance to other investors and corporations.
While the democratic transition in Burma (Myanmar) is widely welcomed and foreign investments are critically needed, challenges remain. The country remains a high risk environment for business operations due to weak human rights protections, weak environmental regulations and weak institutional governance.
Domini’s policy is to assess each company’s involvement in Burma, on a case-by-case basis. In this analysis, we consider ten severe categories of human rights violations and governance concerns, paying particular attention to certain high risk sectors and business activities. We also evaluate positive actions companies are taking in Burma to advance democratic reform and improve lives.
For many years, Domini’s policy was to exclude from our mutual fund portfolios any companies with significant involvement in Burma, a country run by a military regime that held its democratically elected leader under house arrest. By avoiding investment in companies doing business in Burma, and encouraging companies to leave, we sought to highlight the critical importance of democracy to both human rights and long-term investment returns, avoid a variety of human rights risks, and apply leverage to an unjust regime.
We were proactive in addressing these concerns as well. For example, our research on Toyota Motor uncovered previously unknown connections between a key trading affiliate and the Burmese military regime. Although we have consistently excluded the company from our funds, we helped to lead a three-year engagement by responsible investors, culminating in the company’s announcement in 2010 that its trading affiliate had divested itself from the joint venture.
In 2011, following a historic election that brought long-imprisoned democratic leader Aung San Suu Kyi to the Burmese parliament, the U.S. government began the process of lifting long-standing economic sanctions, and corporations announced that they would soon resume business there.
The U.S. State Department developed a set of reporting requirements to ensure that companies doing business in Burma disclose sufficient information to allow the U.S. government to evaluate their impact on human rights and democratic reform. In 2012, Domini participated in an in-person meeting with National Security Council (NSC) directors to share our concerns, including: the continued imprisonment of political prisoners; weak rule of law, including a weak judicial system; continuing violence against ethnic minorities; and the potential financing of notorious human-rights violators. We then worked independently and with other members of the EIRIS Conflict Risk Network to develop and submit concrete recommendations1 to inform that reporting process. Although the State Department adopted at least two of our recommendations, our most important concerns regarding public transparency in several key areas were not addressed. Leading companies, however, chose to issue public reports, which served as a basis for engagement with responsible investors and a framework for accountability.
In October 2016, as a final step in the process of lifting sanctions, the US government announced that it would no longer require US firms operating in Burma to report on their human rights risk assessments, a decision that faced strong objections from various human rights organizations due to an array of ongoing serious human rights violations, as reported by the US State Department.2
Challenges Facing the Democratic Transition
As investors evaluate corporate activity in Burma, it is important to understand that, despite important steps towards democracy, very serious challenges remain. All corporate activity in Burma should be evaluated against the backdrop of the following ongoing human rights violations:
These violations are compounded by a number of governance concerns, including:
Despite what appears to be a green light from the U.S. State Department, these concerns will continue to present material legal, operational and reputational risks to businesses operating in Burma including the ongoing potential for:
• Violations of the U.S. Foreign Corrupt Practices Act
• Violations of the regulations prohibiting the importation of goods made with child or forced labor
• Consumer boycotts
• Complicity in severe human rights violations.
The potential failure of democratic reform in Burma represents even greater risks to its citizens and the region, risks that also carry economic import.
Based on these observations, it is important to consider any business operations in Burma with enhanced due diligence. At the same time, it is also true that foreign investment is a key to economic development for the country, providing access to essential products and services, and needed improvements to the country’s infrastructure.
We believe that responsible investors can play an important role in Burma’s progress towards democracy and prosperity by shifting from a strategy of avoidance and divestment to one of careful scrutiny and engagement.
For Domini, this means that we will devote particular scrutiny to a select group of high risk sectors and business operations. In recognition of the difficulty in addressing these problems, and the critical need for foreign investment, we will also seek to incorporate into our analysis positive actions companies are taking to advance democracy and human rights in Burma.
High Risk Sectors/Areas of Business
We consider the following sectors highest risk, requiring the closest scrutiny:
Energy, particularly fossil fuel exploration and production operations,6 including oil-field service providers and wholesale trading companies where a government stake or ownership is required in the projects. Investors should pay particularly close attention to operations where joint ventures with government entities are required, as the risk of corruption is particularly high.7
Infrastructure Projects raise the possibility of corruption, land grabs, forced migration or displacement, and labor rights concerns. Companies should undertake careful and transparent environmental and societal impact assessments before undertaking such projects, and be prepared to discuss these assessments with investors.
Agricultural projects raise risks of child labor, land grabs, and forced migration or displacement. Again, companies should undertake careful and transparent environmental and societal impact assessments prior to investment and on an ongoing basis. 8
Information and Communications Technology (ICT). While this sector provides critical services needed to advance both democracy and economic development, companies and investors should pay careful attention to risks of government censorship and surveillance, including requirements in government contracts to customize services to enable censorship and surveillance.9 Domini encourages companies to comply with guidelines developed by the Global Network Initiative to address these risks.10
Materials & Wholesale Trading. Investors should pay particular attention to timber, minerals and gems such as ruby and sapphire, for potential environmental and human rights violations. 11
Key Factors to Consider when Evaluating Business Involvement
Each of the high-risk industries present important opportunities for the people of Burma and, therefore, for investors. Without proper attention to the concerns noted above, however, these opportunities can be transformed into long-term, intransigent risks. Careful and responsible judgment is called for, and can make an important difference. Domini recommends the following four key factors to consider when evaluating corporate operations in Burma:
Positive Efforts to Promote Democratic Transition and Improve Lives
Foreign investment is necessary, but not sufficient, to further advance democratic reform in Burma and to improve the lives of the Burmese people. A company’s proactive efforts to address the challenges discussed above can be just as important as the products and services it provides. In particular, we encourage companies to engage in the following:
- Participate in, or support, institutional capacity building, through active involvement in multi-stakeholder collaborations. In particular, reforms are needed to strengthen Burma’s legal systems, including independence of the judiciary, environmental protection, and labor rights, including legal protections for labor unions.
- Provide education or vocational training to employees and local communities.
- Provide access to products and services to disadvantaged communities.
- Promote international human rights standards for its supply chain and other partners in Burma.
- Mitigation and Remediation. According to the UN Guiding Principles on Business and Human Rights, companies have an obligation to mitigate and remediate potentially adverse human rights impacts and to monitor progress in key areas of concern.
Companies seeking to do business in Burma face an array of difficult human rights, environmental and governance challenges. As investors, Domini encourages companies to engage in robust human rights impact assessments prior to entry and, if they do choose to enter, to continue to engage and report on how they are addressing these ongoing challenges. Investors with an understanding of these issues can help to advance democratic reforms while mitigating risk to their portfolios.
Peace and prosperity for the people of Burma is in the best long-term interests of investors and corporations. This can only be achieved by a functioning democracy supported by a fair economic system.
We hope that this description of our evaluation process will help to communicate our expectations to corporations while assisting other responsible investors seeking broad-based wealth creation for society as well as their clients.
1 Domini’s letter to the State Department regarding Reporting Requirements on Responsible Investment in Burma (Oct. 3, 2012), available at: http://www.reginfo.gov/public/do/DownloadDocument?objectID=38146500; EIRIS CRN letter re: same (Oct. 4, 2012), available at: https://business-humanrights.org/sites/default/files/media/burma_reporting_requirements_-_investor_comment_4_oct_2012.pdf Domini is represented on the EIRIS CRN advisory board.
2 U.S. Department of State 2015 Country Report on Human Rights Practices in Burma (April 13, 2016), available at http://www.state.gov/j/drl/rls/hrrpt/2015/eap/252751.htm
3 Attention has focused on the Rohingya population in Rakhine State (formerly known as Arakan state), near the Bangladeshi border, with recurring reports of rape, massacres, torture and extrajudicial executions. See, e.g, Burma: Satellite Images Show Fire-Damaged Villages (Human Rights Watch, Oct. 31, 2016), available at: https://www.hrw.org/news/2016/10/31/burma-satellite-images-show-fire-damaged-villages; Dispatches: Burma’s Rohingya Muslims in Desperate Straits (Human Rights Watch, April 26, 2016), available at: https://www.hrw.org/news/2016/04/26/dispatches-burmas-rohingya-muslims-desperate-straits; Myanmar: Kofi Annan to head Commission on Rakhine state (Amnesty International, Aug. 24, 2016), available at: https://www.amnesty.org/en/latest/news/2016/08/kofi-annan-to-head-commission-on-rakhine-state/. Abuses and violence against Karen and Kachin groups has also been reported. See, e.g.,The Farmer Becomes the Criminal: Human Rights and Land Confiscation in Karen State (Human Rights Watch, Nov. 3, 2016), available at: https://www.hrw.org/report/2016/11/03/farmer-becomes-criminal/human-rights-and-land-confiscation-karen-state. See also, Indigenous Peoples’ Rights and Business in Myanmar (Myanmar Centre for Responsible Business, Feb. 8, 2016), available at: http://www.myanmar-responsiblebusiness.org/publications/indigenous-peoples-rights-and-business-in-myanmar.html
4 The Farmer Becomes the Criminal: Human Rights and Land Confiscation in Karen State (Human Rights Watch, Nov. 3, 2016), available at: https://www.hrw.org/report/2016/11/03/farmer-becomes-criminal/human-rights-and-land-confiscation-karen-state
5 See, generally, Human Rights Watch: https://www.hrw.org/asia/burma.
6 Review Domini’s policy on fossil fuel exploration and production at http://domini.com/responsible-investing/key-issues/our-position-fossil-fuel-owners-and-producers
7 See Myanmar Oil & Gas Sector-Wide Impact Assessment (SWIA) (Myanmar Centre for Responsible Business), available at: http://www.myanmar-responsiblebusiness.org/swia/oil-and-gas.html
8 Burma: Farmers Targets of Land Grabs (Human Rights Watch, Nov. 3, 2016), available at: https://www.hrw.org/news/2016/11/03/burma-farmers-targets-land-grabs
9 See, Sector-Wide Impact Assessment of Myanmar’s ICT Sector (Myanmar Centre for Responsible Business), available at: http://www.myanmar-responsiblebusiness.org/swia/ict.html
10 http://globalnetworkinitiative.org/ Domini is a founder, and is represented on the Board, of the Global Network Initiative.
11 See, Myanmar Mining Sector-Wide Impact Assessment (SWIA)(Myanmar Centre for Responsible Business), available at: http://www.myanmar-responsiblebusiness.org/swia/mining.html; See, also, Burma’s Gem Trade and Human Rights Abuses (Human Rights Watch, July 29, 2008), available at: https://www.hrw.org/news/2008/07/29/burmas-gem-trade-and-human-rights-abuses.
12 From Red to Green Flags - Respecting Human Rights in High-Risk Countries (Institute for Human Rights and Business, (April 27, 2011) available at: https://www.ihrb.org/focus-areas/commodities/report-from-red-to-green-flags; Business and Human Rights Guide for Companies in Burma (Myanmar Centre for Responsible Business, April 7, 2015), available at: http://www.myanmar-responsiblebusiness.org/news/business-and-human-rights-guide.html
14 http://www.ungpreporting.org/ Domini is represented on the Eminent Persons Group that has advised on the development of the framework.
Originally Appeared in Domini Funds' 2017 Semi-Annual Report
In a tightly interconnected world, investors can no longer afford to ignore the social and environmental costs of business as usual. For decades, responsible investors have joined with civil society organizations, corporations and public institutions to address working conditions in global supply chains and, although problems persist, we’ve made significant headway.
Twenty years ago, companies argued that they carried no responsibility for working conditions in factories they did not own. We no longer hear that argument. While it is true that these human rights abuses occur at factories and fields owned by third-parties, global companies can exercise significant influence. According to the United Nations’ Guiding Principles on Business and Human Rights, adopted in 2011, global businesses are obligated to identify these problems and do what they can to address them.
Around the world, approximately 150 million people leave their countries each year in search of economic opportunities elsewhere, often passing through the hands of unscrupulous recruiters with every incentive to take advantage of their vulnerable situation. Many workers find themselves working months on the job simply to pay off exorbitant recruitment fees. In other words, they are working for no pay at all. This is known as ‘bonded labor’ – a form of forced labor where a person is working to pay off a debt. It is considered the most common, and least known, form of modern slavery.
The International Labor Organization estimates that almost 21 million people are trapped in conditions of forced labor, generating over $150 billion for other parties. More than 75% of these workers work within the private sector, particularly in industries such as agriculture, construction and manufacturing.
Migrant workers are among the most vulnerable members of the global workforce and are subject to multiple forms of abuse across industries.
While attention has been paid to conditions in the factory or on the farm, less attention has been paid to the path migrant workers take to get to the workplace, and the unique risks they face. Today, that is changing.
What Can Investors Do?
Our experience teaches us that investors can have significant influence over corporate practices.
Domini has worked closely with the Interfaith Center on Corporate Responsibility (ICCR), a coalition of faith-based and socially responsible investors, since our inception. ICCR has launched a “No Fees Initiative” to address unethical recruitment practices, based on three pillars:
1. No Fees: Workers should not be obligated to pay for their job and should be immediately reimbursed for any fees charged. If a worker is indebted to her recruiter, she can effectively work months without pay. She may even feel honor-bound to repay these unjust debts. According to a 2014 US Department of Labor-funded study, “92 percent of the migrant workers in Malaysia’s electronics industry had paid recruitment fees and…92% of that group had paid fees that exceeded legal or industry standards.”
2. Workers should be provided with contracts in their own language: If a worker’s contract is written in another language, he can’t agree to the terms of his employment, and he can’t understand his legal rights.
3. No passport retention: If a worker cannot retain her passport or other identify documents, then she is unable to go home.
These are the most common factors that hold these workers in debt bondage, often without their awareness.
According to Know the Chain, a project led by Humanity United that ranks companies in the apparel, tech and food and beverage sectors on their responses to forced labor issues, corporate awareness of unethical recruitment practices is very low. For example, in the tech sector, out of twenty companies reviewed, “only four of the companies demonstrate awareness of the risks of forced labor that can arise from the use of recruitment agencies.” Know the Chain awarded the industry an average of 20 points out of 100 on recruitment issues.
Investors have important opportunities to raise awareness of the problem, set expectations and engage with companies to eradicate these practices.
The Corporate Response
Many of us first learned about the extreme conditions migrant workers can face after a series of articles broke in the Guardian and the Associated Press in 2014 and 2015, uncovering slavery in the Thai shrimp supply chain. Our research department spotted the issue early, leading to decisions to continue excluding Thai Union and Charoen Pokphand (CP) Foods, two Thai companies at the heart of the controversy, from the Domini Funds. We made those decisions before these stories broke.
Often, we are unable to obtain reliable information about labor issues from the companies themselves. In the absence of corporate reporting, we must rely on what we know about these industries and the regions where they operate. Reliable NGOs can be an invaluable source of information. In this case, a report published by Finnwatch in 2013 highlighted problems identified by interviewed workers including accusations of low wages, child labor, a large migrant workforce, and unpaid compensation and leave. The report stated that about half of Thai Union Manufacturing’s (TUM) employees were Thai citizens and the rest were migrant workers from Myanmar and Cambodia. Finnwatch reported that violations of migrants’ rights are common in Thailand. The NGO also reported the company’s denial of these allegations.
Under the spotlight of public attention, conditions are changing. Large consumer-facing brands like Costco and (William) Morrisons (United Kingdom) are taking action as part of the Shrimp Sustainable Supply Chain Task Force, a multi-stakeholder alliance which aims to tackle forced labor and human trafficking in Thailand’s seafood supply chain. The ability to track workers far out at sea is one critical piece of the problem they are trying to solve. CP Foods and Thai Union are also engaged, and working to improve their practices.
Unfortunately, the flawed recruitment system that produced those horrifying conditions also serves a wide range of industries. And in those industries as well, several long-term Domini Funds holdings have taken leadership.
HP Inc. reports that it was the first IT company to develop its own foreign migrant worker standard, a standard that addresses each of the three pillars of ICCR’s initiative. But the company took a step further that gets much closer to the root of the problem: HP is the first company in its industry to require direct employment of foreign migrant workers in its supply chain. Its policy, and the audit tools it has developed to enforce them, were developed in collaboration with Verité, a well-respected international nonprofit that promotes safe, fair, and legal working conditions, with particular expertise in combatting forced labor in supply chains.
When a person works in a factory, but is employed by the labor agency that recruited them, they are at far greater risk of exploitation. According to Verité, “HP’s standard requiring direct hiring will remove a key obstacle to ethical treatment of migrant workers. The standard sets a new bar and will likely result in substantial financial benefit to foreign migrant workers in HP’s supply chain, and we hope other companies will adopt similar policies.” We agree, and are raising this issue with other companies. Direct employment may be the solution to this problem, but we will need to overcome objections from factory owners and others that argue that it is too expensive or burdensome for small suppliers to adopt.
Companies realize that they need to work collaboratively to find solutions to these endemic problems. Leading companies in the electronics industry have turned to the Electronics Industry Citizenship Coalition (EICC). EICC members share a common code of conduct for their supply chains and a common factory audit process. Thanks to the leadership of companies like HP, the EICC code of conduct now addresses unethical recruitment practices.
Another important collaborative effort cuts across industries. The Coca-Cola Company, HP Inc., Hewlett Packard Enterprise, IKEA and Unilever launched the Leadership Group for Responsible Recruitment, focused on promoting ethical recruitment and combating the exploitation of migrant workers in global supply chains across industries. Walmart and Marks & Spencer (M&S) have joined the initiative, which is supported by the Institute for Human Rights and Business, ICCR, the International Organization for Migration and Verité. The Leadership Group is working to champion the “Employer Pays Principle”, which states that no worker should pay for a job – those costs should be borne by the employer.
Case Study: Turning Words into Deeds
In many instances, Domini has acted as a catalyst for change, helping to set a company on a new course that may produce substantial benefits in the future. Apple is a case in point.
In 2004, when we first reached out to Apple, the company was silent about working conditions in its supply chain, and did not have a policy to protect the rights of these workers. We changed that. After months of dialogue with Domini, Apple adopted a strong code of conduct, committing it to uphold core labor rights in its global supply chain.
Only words on paper. But when a corporation adopts a policy, it works to implement it. That code provided the foundation upon which to build a labor standards program. The company soon began public reporting, to ensure a degree of public accountability. Public reporting is needed to ensure effective implementation of these kinds of policies, and to educate others about the kinds of problems that are found, the tactics that work and those that don’t. It is also a necessary mechanism for building trust with investors, consumers and other stakeholders, a valuable asset for any global brand. Our engagement also provided the foundation for a dialogue we have maintained with the company ever since.
Today, Apple is far more transparent about problems in its supply chain, and actively works to address them. Visit www.apple.com and click on “Supplier Responsibility” to read the story of Rechel Ragas, a factory worker recruited from the Philippines to Taiwan in search of higher wages. Apple reports that “to secure a factory position there, Rechel had to use a job broker agency that charged her more money than she made in an entire year working in her home country.” When Apple uncovered these fees – fees that were legal, but violated Apple’s policies – it ensured that she received full reimbursement. As a result, she was able to return home six months earlier than she had planned. Apple is the only company we are aware of that discloses the amount of recruitment fees it has reimbursed to workers: $25.6 million since 2008, including $4.7 million in 2015.
The company has not solved all of the problems it has found in its supply chain. We don’t demand perfection – not because we don’t want to see it, but because we don’t expect to find it. We do expect companies to acknowledge these challenges and demonstrate how they are meeting them.
Apple has come a long way since 2004 and, although we would never claim that our efforts were responsible for all of this hard work, we believe we have had an impact.
We applaud the EICC’s efforts to address unethical recruitment issues, but still believe the industry should be doing more. On behalf of a group of institutional investors affiliated with ICCR, we wrote to IBM and Motorola Solutions with a series of questions about how they ensure that workers in their supply chains are free of these abuses. We also signed letters to Broadcom, Canon, Cisco, EMC, Hitachi, Johnson Controls, Medtronic, Microsoft, Qualcomm, Texas Instruments and Xerox.
We followed our letter to Motorola with a shareholder proposal on the topic, which prompted a constructive conversation with the company. Motorola Solutions has policies in place to address these issues, and as an EICC member, has adopted a “no fees” commitment. The company tells us that it is actively working through the EICC to develop more effective responses to these unethical recruitment practices. We recognize these efforts, but believe that investors have insufficient information to gauge how well the company is addressing these serious risks to workers. Our proposal seeks to rectify that by requesting an annual report disclosing the company’s efforts to ensure that its global supply chain is free of forced or bonded labor, including any efforts to reimburse workers for recruitment fees that were paid in violation of company policies. We look forward to continuing our dialogue with the company.
Out of twenty apparel companies, Know the Chain found only seven that were aware of the risks of exploitation to migrant workers. They found only two companies that encouraged the direct hiring of workers in their supply chain.
Adidas (Germany) received the top ranking in Know the Chain’s 2016 survey, and the top score for worker recruitment practices. Know the Chain praised Adidas’ “strong awareness” of the risks facing migrant workers and listed a number of leading practices. Of particular importance, if an agency is involved in the recruitment process, Adidas requires that workers sign contracts directly with the factory, not with the recruitment firm. The company requires suppliers to disclose the recruitment firms it uses, and to monitor all recruiters. The Adidas Group publishes a list of names and addresses for its primary factories, subcontractors and licensees, a practice adopted by many leading companies in the apparel and electronics sectors.
We recently met with Gap to discuss its approach to these issues, including the possibility of adopting a direct employment policy, and wrote to Ralph Lauren, Michael Kors (where we ultimately submitted a shareholder proposal), Nike, L Brands (Victoria’s Secret, Bath & Body Works) and Coach.
Ralph Lauren reports that it is working towards a “recruitment fee–free” environment for all workers. The company reported to Know the Chain that an audit had uncovered that a group of new Bangladeshi workers had recently started work in one of its supplier facilities in Jordan, and had paid recruitment fees. The factory is now fully reimbursing the 33 workers affected over a period of 3 months.
These kinds of reports should help to illustrate a basic point – these problems are out there to be found and addressed. No company’s supply chain is immune. Our letter prompted a constructive conversation with the company, which we look forward to continuing. We appreciate the company’s recognition of the plight of migrant workers and are encouraging clearer commitments and more transparent reporting.
Another long-term Domini holding that has taken leadership on these issues is Unilever (Netherlands, United Kingdom). The company ranks first on Know the Chain’s benchmark for the food and beverage sector, because of its commitment to traceability. The company’s commitment to eradicating modern slavery and human trafficking is impressive given that it reportedly has 76,000 suppliers. Unilever is working to reduce the number of recruiters used by factories. It reports that it uses very limited numbers of recruiters in North America, Europe and South America, but larger numbers in Asia and Africa.
Consider how you might handle the daily struggles these migrant workers take on, day after day. They are working far from home for people that speak another language. They may not be in the job they thought they bargained for. Those in the fishing industry may never have seen the sea before. Many find that their paycheck is considerably less than expected, but they have no option but to keep working -- they have family back home depending on them.
We invest in companies that can make a significant difference in the lives of migrant workers. That means that we can make a significant difference, as long as we refuse to turn a blind eye, and we persist in raising these concerns and pressing each company that recognizes the issue to do more.
We apply social, environmental and governance standards to all of our investments, believing they help identify opportunities to provide competitive returns to our fund shareholders while also helping to create a more just and sustainable global economic system.
We are very pleased to announce that the Domini Impact International Equity Fund Investor share class (DOMIX) received an Overall Morningstar rating of four-stars as of February 28, 2017, based on risk-adjusted return. The Fund’s Class A (DOMAX)* and Institutional (DOMOX) share classes received an Overall Morningstar rating of five-stars as of February 28, 2017, based on risk-adjusted return.
The Fund's Investor, Class A and Institutional Shares received five stars for the last 3 and 5 years rated against 275 and 223 U.S. domiciled Foreign Large Value funds, respectively, and three stars for the past 10 years, rated against 139 U.S. domiciled Foreign Large Value funds.
*The Fund’s Class A shares are intended for investors who invest through a financial advisor. They carry a front-end sales charge (load) of up to 4.75% that is paid to the advisor buying the Fund on behalf of the investor. If you do not invest through a financial advisor, please refer to the Investor shares. The Fund’s Class A shares (load waived) received an Overall Morningstar Rating of five stars as of 2/28/17.
For each fund with at least a three-year history, Morningstar calculates a Morningstar RatingTM based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a funds' monthly performance (including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a fund is derived from a weighted average of the performance figures associated with its three-, five-, and ten-year (if applicable) Morningstar Rating metrics. Fees have been waived or expenses advanced during the period on which the Fund's ranking is based, which may have had a material effect on the total return or yield for that period, and therefore the rating for the period.
Past performance is no guarantee of future results. Investment return, principal value, and yield will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Investing internationally involves special risks, including currency fluctuations, political and economic instability, increased volatility and differing securities regulations and accounting standards. The Fund may focus its investments in certain regions or industries, thereby increasing its potential vulnerability to market volatility. You may lose money.
Although the Fund's Investor shares are no-load, certain fees and expenses apply to a continued investment and are described in the prospectus. The composition of the Fund's portfolio is subject to change.
©2017 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.
In January, more than 630 investors and corporations signed a statement asking the incoming administration and Congress to continue moving us toward a low carbon economy, and not to walk away from the historic agreement on climate change reached in Paris last year.
You can find the statement at lowcarbonusa.org. Alongside our name, you will find the names of some of the largest companies in the world. Today, that statement has grown to include over 1,000 companies and investors headquartered in 46 states.
Perhaps even more importantly, more than 200 major companies have made public commitments to set “science-based targets” for reducing their greenhouse gas emissions. This means that they will seek absolute reductions in line with what climate science demands, while continuing to grow their companies. These commitments replace climate goals that improve efficiency but may not actually reduce emissions as companies grow.
These climate commitments are not based on political ideology, but on a pragmatic, hard-nosed look at reality. These companies—among the largest in the world—have done the math, and they see the risk. As a recent Scientific American article proclaimed, “physics doesn’t care who was elected president.” Commitments based on an accurate understanding of reality will remain.
Just last week, one of the world’s largest money managers installed a statue of a defiant little girl, facing down the famed Wall Street bull. They did this to raise awareness of the need to increase the number of women on corporate boards. They did not do this solely out of the goodness of their hearts. They did this because they recognize that diversity is good for business.
All of this reinforces a core belief we have always held: small things matter. When we look back over the course of our history, we see that movements are made of individuals. We can all applaud the billionaire philanthropist or private equity investor looking to make a real impact, but those investors are riding the crest of a wave. Looking back, we see one small investor after another merely seeking to build a college fund or a retirement account that reflects their concern for human rights and environmental sustainability.
For many, it began with a small voice that said “I don’t feel right investing in that company.” These are the change-makers that brought us to a world where the largest companies in the world now monitor their supply chains for child labor and environmental abuses.
Many of these corporate commitments began with a call from a responsible investor, explaining how business can be strengthened by taking sustainability seriously. Investors large and small helped to make the case to company after company, year after year, and our voices are being heard. There is much more work to do, but there is also much to celebrate.
Every day, the news seems to give us more cause for alarm. But this is not the time to flinch or to turn back. We have been here through Democratic and Republican administrations, doing what we do—using social and environmental standards to select our investments, engaging companies to move them in the right direction, and finding ways to make a direct impact for communities in need.
We are working to ensure that the capital markets serve society, and not the other way around. We are part of a community of responsible investors that is larger, stronger, more innovative, and more effective than it was ten or twenty years ago, and we have more allies than ever before.
Your investment portfolio may seem like a small thing. When it is invested responsibly, however, it can serve as one more link in a chain of accountability that will not be broken.
In June, Bloomberg Markets interviewed Domini’s Tessie Petion, VP of Responsible Investment Research & MIS, to discuss how Domini’s ESG (environmental, social and governance) criteria helps their investors avoid volatile companies, such as the drug maker Valeant. Bloomberg noted that Valeant was once a provider of generic drugs and contraceptives in emerging markets and began cutting its research and development budget rapidly acquiring over 100 companies within five years. In the interview, Ms. Petion noted that Valeant’s focus had shifted from the development of lifesaving drugs to a strategy of financial engineering, and therefore no longer aligned with Domini’s investment approach. Domini excluded the company from eligibility for investment in its mutual funds in October 2014 and watched from the sidelines as Valeant stock price subsequently crashed.
For many years, Domini has incorporated concerns about the environmental risks of companies owning and producing fossil fuels into our investment standards. Over time, we have gradually eliminated an increasing number of these firms from our holdings as our concerns about a variety of environmental and safety issues, including climate change, have increased.
We have never held coal-mining companies, and have historically approved very few major integrated oil companies. In recent years, we have excluded the few integrated oil companies that we had previously approved, and eliminated an increasing number of the smaller oil and gas companies from our list of eligible investments, due to concerns over safety or the environment.
We had historically favored companies focused on the production of natural gas because it burns more cleanly than oil. But as innovation took hold and hydraulic fracturing became widely used, we began to differentiate between the records of these natural gas companies. Due to increasing concerns about methane emissions, safety and community health issues, we gradually reduced the number of natural gas companies approved, until we divested from this segment of the energy industry entirely.
We exclude companies that are substantial owners and producers of oil or natural gas reserves and are included in the Integrated Oil & Gas or Oil & Gas Exploration & Production Industries as defined by the Global Industry Classification System (GICS), as well as companies significantly involved in coal mining.
We have made each of these decisions in light of the financial, environmental and moral concerns associated with fossil fuels and in recognition that an increasing portion of the responsible investment community has found divestment a productive avenue to further debate on climate change, one of the most important and difficult issues of our time.
Corporate tax avoidance has been an important component of our engagement and policy work for several years. The United Nations’ backed Principles for Responsible Investment is a global network of investors responsible for $60 trillion in assets. After expressions of interest from a significant number of its members, PRI established a Taskforce on Tax, including Domini, to develop guidance to help investors engage with corporations on global tax strategies. In the fourth quarter, the PRI published the result of this work, and in the first quarter hosted a roundtable discussion with a group of six non-US corporations to discuss the guidance. We were very encouraged by the constructive nature of the meeting and look forward to continuing our work with the Taskforce.
Although our engagement work has historically focused on corporations, leveraging our rights as shareholders, we are also interested in opportunities to deepen the impact of the Domini Social Bond Fund through engagements with issuers and standard setters. To date, these engagements have focused on green bonds, designed to finance projects and activities that address climate change or serve other environmentally beneficial purposes.
In January, we spoke with Morgan Stanley to discuss their inaugural green bonds to fund renewable energy and energy efficiency projects, and highlighted the importance of greater transparency in the green bond market.
We attended a meeting with California State Treasurer John Chiang to discuss green bond evaluation approaches, best practices, and policy incentives to grow municipal green bond issuances. The State is planning on issuing green bonds to address water stress and climate change impacts in the region. We provided feedback on California’s 2014 green bond and hope to continue our dialogue with the State.
We were also delighted to join the US Green City Bonds Coalition to promote low-carbon and climate resilient infrastructure investments through the development of municipal green bonds.
In the fourth quarter, we participated in a Ceres-organized introductory meeting with S&P Global Ratings (formerly, Standard & Poor’s Rating Services) to discuss the inclusion of climate risks into its oil and gas company credit ratings.
This past December marked a historic moment in the fight against climate change, as the world came together in Paris to address what is perhaps the most significant challenge our global community has ever faced. Representatives from 195 nations reached a landmark agreement that provides a framework for universal long-term action on climate change. Although the agreement is not legally binding, it achieves a historic degree of global unity around the need to avoid catastrophic climate change.
The Paris Agreement sends a strong, unified message to businesses and investors around the world that the time for relying on fossil fuels for economic growth is over. We hope that this will spark a new wave of investments and public policies that help to accelerate the shift to renewables around the world and across the value chain—from system manufacturers and electricity generators, to financiers and consumers.
In our essay, we take a closer look at some of the ways the Domini Funds are helping to promote a clean-energy future. This includes investments in manufacturers of wind- and solar-power systems, utilities generating electricity from renewable sources, banks financing renewable projects, corporations purchasing renewable energy to cover electricity consumption, green bonds, and more. We also discuss how we our using our voice as investors to talk to companies about their commitments to address climate change.
Domini Funds shareholders are playing a role in the world’s crucial transition to renewable energy. Click here to learn more about our Environmental Sustainability Story.
As a woman working at Domini Social Investments, it can be easy to disregard the pressing issue of gender diversity practices in the workplace. Domini was founded by a woman-Amy Domini-who continues to serve as Chair. Our CEO, CFO, and General Counsel are all women. More than half of the firm’s employees are women. When I attend meetings in the office, most often I am surrounded by more women than men. Although this reality is normal for me, it is especially rare for the financial industry. Recent trends suggest we are in the midst of change, but more assurance is necessary. This is especially true for diversity at the board level.
In 2009, the SEC approved rules for enhanced disclosure about risk, compensation and corporate governance in proxy statements and other corporate reports. Among these new requirements, the SEC required companies to disclose “the consideration of diversity in the process by which candidates for director are considered for nomination.” If a policy does exist, “how this policy is implemented, as well as how the nominating committee (or the board) assesses the effectiveness of its policy” is also required. While this was an important addition to disclosure requirements, the final ruling was a missed opportunity. Companies and shareholders alike are hurt by the fact that the SEC left it up to companies to define “diversity” for themselves. Not surprisingly, many companies define the term broadly, to include educational background, experience, viewpoint, etc.
In 2015, a number of large pension funds petitioned the SEC to require companies to provide investors with information on each nominee’s gender, race and ethnicity, in addition to the skills, experiences and attributes needed to fulfill the corporation’s mission. Early this year, Mary Jo White, Chair of the SEC, said she shared these concerns, and has directed her staff to look into it. This is a hopeful sign. Despite these remarks, last month, a number of lawmakers publicly criticized Chair White, for taking too long to propose new rules for diversity disclosure.
Increased diversity at the board level promotes effective corporate governance. The number of studies that support this conclusion continues to rise with each passing year. Companies with diverse leadership are more likely to avoid group-think and have the potential to better understand customer needs, anticipate new societal trends and emerging issues, and foster cooperation with their workforce and communities.
Since its inception, Domini has advocated for greater gender and racial diversity on corporate boards, and we have a long history of engaging with companies on the issue. However, in order to obtain useful and comparable diversity reporting from all companies, the implementation of explicit guidelines by the SEC is crucial. As boards increasingly become more diverse, we all stand to benefit.