Dear Fellow Shareholders,

The year ending July 31, 2011, was a good one for the financial markets. Investors in stocks and bonds benefited from expanding corporate profits, low inflation, and low interest rates.

The growth of markets did not, however, translate into the economic benefits to Main Street that a standard economic analysis might have predicted. For although large companies have been making profits and accumulating plenty of cash, they have been reluctant to hire. And while the population might have seen some rise in the value of their retirement plans, they continued to suffer ever lower valuations for their homes. These factors drove consumer confidence to a thirty-year low.

The lack of confidence was in part due to fear. In an environment of mortgage foreclosures, layoffs, and global turmoil, that was to be expected. But consumers were also stuck with a surge in prices of things not captured in the classic inflation figures. Healthcare costs for a family of four doubled in less than nine years, while average weekly earnings fell 1.4 percent and the cost of food rose 4.2% over the past year.

But the most crushing increase was the increased cost of gas at the pump. Gas prices have doubled over the past two years. That means that gasoline purchases are coming at the expense of more discretionary purchases. As a nation we have chosen — through policies that subsidize private automobile ownership over complex and reliable rail systems — to force our families to give up a better vacation, a healthier diet, routine dental checkups, and a host of other discretionary purchases in favor of the needed automobile.

Compare this with Europe, where fast, clean, frequent passenger trains are readily available. Germany and France have each cut their oil consumption by 25 percent over the last 25 years.

As noted above, there are many contributing aspects to the reduced proportion of the American family’s budget for discretionary purchases. But the price of energy is particularly unfair. There are alternatives to a carbon-based fuel system. Had we invested billions decades ago to subsidize clean alternatives to carbon fuels, we would have cheaper renewable energy, a cleaner planet, fewer environmentally related diseases, and less greenhouse gas emissions today.

Amory Lovins of the Rocky Mountain Institute has argued for years that the United States has more energy than it needs. He proposes a myriad of means to reduce overall energy usage. He points out that from 1977 through 1985, America, like Germany, understood that dependence on oil was a risk, so we instituted several initiatives to curb it. And it worked. During those years, Lovins points out, our GDP rose by twenty-seven percent while oil usage fell by 17 percent.

Socially responsible investors have long understood that it isn’t enough to avoid investing in the worst industries. We must use every tool at our disposal to promote energy efficiency, new and cleaner sources of energy, greater disclosure by energy producers of safety efforts and environmental impact, and greater efforts by every industry to be a part of the solution. We use social and environmental standards to select our stocks, and we use activism to engage energy companies directly about the most pressing issues they face.

This Annual Report is dedicated to energy. We hope that you find our efforts give you some new ideas and some hope that we can still become an energy-efficient nation.

Thank you for your continuing interest in Domini Social Investments and in the field of responsible investing.

Very truly yours,

Amy Domini
amy@domini.com