Safety Last? BP, Toyota, and Massey Energy
Domini avoided investments in BP, Toyota, and Massey Energy: three major companies that experienced devastating public scandals and catastrophes. Our avoidance of these three companies demonstrates that social and environmental standards can make a difference in investment decisions. Such standards can provide early warning signals of major disasters to come.
A look at these companies underlines the importance of evaluating the safety record of publicly traded corporations before making the decision to invest, particularly for energy and transportation companies.
Despite BP's public commitment to alternative energy and its welcome statements on the need to address global warming, we have consistently rejected BP for the Domini Funds based on a pattern of safety and environmental concerns, including a 2005 explosion at BP's Texas City refinery that killed 15 employees and an oil spill and persistent corrosion issues at the company's Prudhoe Bay pipeline operations. Several years ago, we informed a BP representative that they would have to substantially improve their safety record to be approved for our funds. We have also consistently excluded the two other companies involved in the Deepwater Horizon disaster, Transocean and Halliburton, for a variety of social and environmental reasons.
The extensive safety and quality problems that forced Toyota to make its massive worldwide recalls in 2009 severely damaged the reputation of a company that had historically been praised for its quality, employee, and environmental initiatives. However, our research identified a number of negative factors that counterbalanced the positive press that the firm had been receiving. One of our concerns was the company's consistent record of major vehicle recalls in Japan (over 1.887 million in 2004, over 1.88 million in 2005, and about 1.3 million in 2006), as well as a pattern of labor relations problems in the Philippines (anti-union activity) and Japan (abusive "cosmetic subcontracting").
Domini was also among the first in the investment world to uncover Toyota's involvement with the Burmese military regime through a partially owned auto components subsidiary. (See our second-quarter 2008 Social Impact Update for the full story). We helped to lead a three year engagement with the company, ultimately resulting in Toyota’s decision to ask its trading partner to sever this relationship. Finally, in our view, Toyota's sales of energy-efficient hybrids are largely offset by sales of light trucks and SUVs, giving it only an average overall record on fuel efficiency for its fleets.
This pattern of controversies and relatively weak positives has led us to consistently exclude the firm from our portfolios.
The decision not to hold Massey Energy was relatively straightforward, since Domini consistently excludes companies that have substantial involvement in coal mining. Coal emits one of the highest percentages of greenhouse gases per unit of energy produced among the fossil fuels. In addition, as an industry, coal mining firms have a long historical pattern of safety challenges. After a coal mine disaster in 2010 that killed 29 miners, the company was acquired by a competitor.
Key Performance Indicators
Key Performance Indicators are Integral to our research and standards setting process. For each industry, we identify approximately a half dozen key factors that take precedence in our decision making. These indicators focus our analysts on the key sustainability challenges each company faces, within the context of its core business. For example, safety is a key indicator for us for both the automotive industry and for energy companies. A poor safety record may override other positive aspects of a company's social and environmental performance.
Our investment process cannot guarantee that we will avoid all companies with controversies. Many companies that we approve have mixed records where we feel strengths counterbalance concerns. Unanticipated problems and controversies can occur in others. We do believe, however, that it is important to signal our concern about safety and environmental issues to major corporations both by refusing to invest in some and engaging with others, in the hopes that concerted ongoing efforts by concerned investors like ourselves and our peers will over time bring about positive change.