Harmful & Addictive Products
Domini’s Global Investment Standards establish two long-term goals: universal human dignity and ecological sustainability. Each and every company we review is evaluated, within the context of its core business model, against these objectives. Certain industries, including tobacco manufacturers, military weapons manufacturers and firearms manufacturers, are “fundamentally misaligned” with these goals. In other words, their core business model is antithetical to the type of broad-based wealth creation we are seeking to build through our investments. They are therefore ineligible for our portfolios, no matter how much they give to charity, or how exemplary their environmental records may be.
If capitalism is the best system in the world for distributing products and services as cheaply, broadly and efficiently as possible, then what can be said of using these markets to distribute handguns or nuclear weapons?
Many investors exclude problematic industries because they believe it is immoral to profit from them, or because they wish to achieve consistency with their own personal choices and values. Others may believe that the activities of these industries carry unacceptably high risks that render them unsuitable for their portfolios. Regardless of personal motivation, we believe that it is important for investors to take full responsibility for all implications of their investment decisions — financial, social and ecological — and that by doing so, they can have a tremendous impact on other investors, on the companies they hold, and on our society.
Tobacco, Gambling, Alcohol
Domini does not invest in companies that are significant manufacturers of alcoholic beverages or tobacco products, or significant providers of gambling goods and services.
Certain products — such as tobacco, gambling, and alcohol — are both harmful and addictive. Tobacco is highly addictive, causes more than 400,000 deaths annually in the United States alone, and can cause health problems for those in the vicinity of its users. Alcohol abuse was estimated to have been responsible for some 85,000 deaths in the United States in 2000 and cost the economy an estimated $185 billion in 1998. Approximately 16,000 of the 40,000 automobile fatalities each year in the U.S. are caused by drunk drivers. Pathological gamblers make up an estimated 1% to 2% of the U.S. population, and problem gamblers make up an additional 3%.
These products can play a useful role in society, providing individual pleasure, and in the case of alcohol even health benefits, if appropriately used. However, we believe that putting these products in the hands of large publicly traded corporations dramatically increases the potential for their abuse and their costs to society. Large public corporations are relentlessly driven to innovate and expand their reach, marketing their products as aggressively as possible to as many customers as possible. For these companies, effective marketing often means exploiting customers’ addictions to these products or ignorance of their risks.
Domini does not invest in companies that are significant owners or operators of nuclear power plants.
Although advocates have extolled nuclear power as a safe and clean alternative to fossil fuels, the industry track record reveals major concerns in the areas of safety, transparency and storage. Nuclear power advocates often compare investments in nuclear with renewables, and tout the relative cost efficiency of nuclear power. However, these estimates rarely reflect the costs of the entire nuclear life cycle, including storage, frequent breakdowns, and the risk of catastrophic failures. Claims of nuclear power’s “carbon neutrality” also fail to take into account the carbon footprint of the full nuclear power life cycle, from uranium mining to waste storage. Taking these arguments at face value, however, we still believe the risks of nuclear power outweigh its benefits.
Safety and Transparency
Nuclear power companies have spent years trying to convince the public that nuclear power production is safe. Over the last thirty years, however, there is troubling evidence of cover ups, falsification of data, and near-catastrophic failures, many of which have been underreported. In addition to concerns relating to the operation of nuclear power plants, there are additional concerns relating to the potential impact of external events.
The issue of nuclear waste has never been solved. There are no safe, long-term options for the storage, processing, and disposal of spent nuclear fuel from power plants. Nuclear waste contains long-lived elements. Plutonium-239 has a half-life of 24,000 years. Strontium-90 and cesium-137 have half-lives of about 30 years (a 30-year half-life means that it would take roughly 200 years for radioactivity to decline to 1%). Nuclear fuel rods contain uranium-235, which has a half-life of 700 million years. When we think about the storage of nuclear waste, it is clear that short-term solutions don’t address the life cycle associated with nuclear power. Furthermore, the transportation of nuclear waste poses additional concerns.
In addition, nuclear power raises concerns about the proliferation of nuclear weapons, because the technologies involved in the enrichment of uranium for use in nuclear power plants are essentially identical to those involved in the enrichment of uranium for use in nuclear weapons. (See Domini’s policy on nuclear weapons described below.)
All of the above concerns will only be exacerbated by rapid growth in the nuclear power industry.
Domini has a long-standing policy to avoid investment in companies deriving significant revenues from the manufacture of military weapons or firearms.
Nuclear weapons, the international arms trade, and out-of-control spending on conventional weapons are all of concern to Domini. The achievement of international peace is among the most difficult tasks faced by government. We view the involvement of publicly traded corporations in the production of nuclear and conventional weapons as complicating this task, which should be left to government.
Nuclear weapons and the threat of a nuclear war are one of the greatest threats to humanity and the global environment. As of 2011, the U.S. had a total inventory of 8,500 nuclear weapons, Russia 11,000, France 300, China 240, and the United Kingdom 225. In addition, India, Israel and Pakistan have nuclear arsenals. North Korea and Iran have also reportedly taken steps to develop nuclear weapons technology. (Data is drawn from the Federation of American Scientists’ Nuclear Information Project.)
In addition, the thriving international trade in conventional arms fuels internal and regional conflicts around the world. In 2009 the international arms trade totaled an estimated $58 billion and there were more than 20 internal and regional armed conflicts in the world, including those in Iraq and Afghanistan.
Finally, out-of-control spending on military systems and conflicts also diverts funds from much needed investments on the range of domestic public goods and international aid that are essential for the creation of prosperous, stable nations.
The Military-Industrial Complex
In 1961, in his farewell address to the nation after two terms as President and service as Supreme Commander of the Allied Forces in Europe during World War II, Dwight Eisenhower issued a dire warning about the growth of what he called “the military-industrial complex,” the “conjunction of an immense military establishment and a large arms industry.” Until World War II, there had been no armaments industry in the United States. Eisenhower warned:
“In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.”
We believe that national defense is too important to be tied to publicly traded companies with no allegiance except to their shareholders and next quarter’s returns. Our policy also reflects our deep concerns about the confluence of profit-seeking and war-making. One consequence of a permanent for-profit armaments industry is reflected in the firearms industry’s deft transition from manufacturing guns for military use to military guns for civilian use. In many cases, the cachet of a gun’s use by the military has been used to entice buyers in the more lucrative civilian market.
We believe the growth of the military weapons industry upsets the critical balance between the private and public economy that is necessary for the maintenance of a free society. A large and permanent military arms industry threatens ultimate societal aims, including disarmament, a goal that Eisenhower defined as a “continuing imperative.”
We are also concerned about the production of certain weapons, including landmines, cluster bombs and nuclear weapons that violate international humanitarian law due to the high risk of civilian casualties. Domini’s policy on nuclear power is partially based on concerns about the proliferation of nuclear weapons, because the technologies involved in the enrichment of uranium for nuclear power plants are essentially identical to those involved in the enrichment of uranium for nuclear weapons. In addition, the Domini Funds exclude U.S. Treasuries because a significant portion of funds raised by the sale of treasuries is used to finance our military and the maintenance of our nuclear weapons arsenal.
Domini has a longstanding policy to avoid investment in the manufacturers of weapons. We believe this industry is inherently damaging to society, due to the intersection between a particularly dangerous product and the extraordinary pressures to maximize profits and increase market share—pressures which are exponentially heightened for publicly traded companies.
The tragic shooting that took place in December 2012 at Sandy Hook Elementary School in Newtown, Connecticut galvanized our country and put gun control back on the national agenda. Immediately after, a number of pension funds and educational institutions began a discussion over whether investing in firearms manufacturers is either necessary or appropriate.
Every year, more than 8,000 Americans are killed by guns. Since 1968, nearly 1.4 million Americans have died from civilian gunfire, exceeding American casualties in all wars, from the Revolution through the wars in Iraq and Afghanistan. Over the 30-year period between 1982 and 2012, there were at least 62 mass shootings throughout the country. Seven of them occurred in 2012 alone.
The civilian gun industry in the United States is relatively small, with gun and ammunition sales in the $4-5 billion range annually. Most gun manufacturers are private—they are owned by private equity firms, which pump money into expanding their markets. The ultimate challenge facing the industry today is to expand a market where an estimated 70-80 million Americans already collectively own 300 million firearms.
Facing a declining interest in hunting and an aging population of gun owners, the industry has undertaken a strategy focused on designing and marketing military-style semiautomatic weapons for the civilian market. A detailed study released by the Violence Policy Center, a gun control group, found that “the flood of militarized weapons exemplifies the firearms industry’s strategy of marketing enhanced lethality, or killing power, to stimulate sales.”
Distressingly, but perhaps not surprisingly, much of this marketing has been targeted at children and teens. The New York Times reported, “Threatened by long-term declining participation in shooting sports, the firearms industry has poured millions of dollars into a broad campaign to ensure its future by getting guns into the hands or more, and younger, children.” The editor of Junior Shooters magazine noted that if the industry is to survive, gun enthusiasts must embrace all youth shooting activities, including ones, “using semiautomatic firearms with magazines holding 30-100 rounds.”
Many of our shareholders may be pacifists, or opposed to hunting. Their investment in our funds may be seen as a reflection of these personal commitments. Other Domini Funds shareholders may be hunters or sharpshooters. Their avoidance of gun-makers through their investment in our funds may be seen as a recognition that the stock market is not a safe mechanism to finance the makers of such inherently dangerous products. Either way, our shareholders understand the importance of taking full responsibility for the implications of their investment decisions.
Fossil Fuel Owners and Producers
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.
Companies that are owners and producers of oil, natural gas or coal reserves are now ineligible for investment by our funds.
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.
Note on Excluded Industries
We exclude companies with significant involvement in the production of certain addictive products: tobacco, alcohol, and gambling. The more successful such companies are, the greater the cost they impose on society. This is not a business model we support.
The capital markets are highly effective mechanisms for raising funds for a wide variety of products and services, but we do not believe they are meant to deliver products that have the potential to cause incalculable harm. We therefore exclude corporations substantially involved in nuclear weapons production and military weapons and civilian firearms production, as well as the owners of nuclear power plants. The dangers of weapons of mass destruction and the international arms trade are among the greatest we face today, and we view the spread of nuclear power technology as tied to the proliferation of nuclear weapons, in addition to presenting significant risks to human health and the environment.
We no longer consider eligible for investment companies that are owners and producers of oil or natural gas reserves (typically categorized as companies in the Integrated Oil & Gas or Oil & Gas Exploration & Production industries) and companies substantially involved in coal mining. We have made this decision 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 this, one of the most important and difficult issues of our time.
Major producers of synthetic pesticides and agricultural chemicals are also typically excluded, as are for-profit companies substantially involved in the operation of prisons.
Our threshold for determining when a company is substantially involved in the industries discussed above varies by industry, but is generally determined by such factors as percentage of revenues (generally, 10%), magnitude of involvement (market leadership), or ownership.
Companies with less significant involvement in these areas may also be considered ineligible for investment, but are evaluated case by case. In these cases, we may consider such factors as the absolute size of the involvement, the trend of the company’s involvement, and the prominence of the company’s role in the subindustry, along with the company’s overall social and environmental record in making our decision.