Originally appeared in the Domini Funds 2021 Semi-Annual Report
Sometimes, the path to impact investing starts small. With a cigarette, for example. As you bear the pain of a lost loved one, you wonder: is my money invested in tobacco companies?
The list may grow.
Weapons. Even if you never buy one personally, are your dollars helping to produce thousands?
Pesticides. Your lawn may not use them to grow, but does your money?
Gambling. You may only bet on a game once a year. But is your money feeding addictions that are causing high levels of debt among others?
The list goes on.
The issue becomes not our lack of dislikes — that list grows ever longer — but how we channel our dollars and our dislikes into things we do like; things we can feel good about.
Can you do good by buying stocks? Amy Domini’s answer is yes. In a piece that originally appeared in Kamp Solutions last summer, she calls financial asset management “a vast network of individuals, wired together, responsive immediately to new developments, continuously pricing in the risks and rewards implied by an action taken by a company.”
When used properly, she writes, a system that is ideal for delivering goods and services to people is also perfect for delivering wellbeing on a global scale. All that is needed is an investment adviser that cares, a set of standards that endures, an individual who believes, and a community that builds. Because if enough people come together with a care that’s mutual, the power of small becomes the greatness of all.
Think of it as the “better effect.” When investors choose to invest only in companies that consider the environment and society, the definition of ‘better’ crystalizes. Securities markets of the world can begin to revalue the better-behaving companies, thereby delivering an incentive to corporate management for better behavior — and that kind of better is in all of our best interests.
This evolution of better has been part of Domini’s mission from the beginning. To achieve it, we start with standards; we always have. As a small, independent company, our standards loom large and our deep belief in universal human dignity and ecological sustainability, even larger. We seek investments that promote long-term environmental sustainability as well as universal values of fairness, equality, justice, and respect for human rights.
Our Impact Investment Standards
Universal human dignity and ecological sustainability are the goal. Standards are the path we take to achieve it.
First, we evaluate companies to see if their core business model is aligned with our twin goals. Sometimes our assessment is straightforward because our exclusionary screens lead us to eliminate certain industries all together. Sorry, big tobacco. Hello, renewable energy. But usually, like the world, it’s complicated.
So next, we look at the company’s relations with its key stakeholders. This includes ecosystems; local, national, and global communities; customers; employees; suppliers; investors.
Our Impact Investment Standards focus on key themes that we believe best capture the strength of a corporation’s relations with each of these stakeholders.
Determining which lines of business are fundamentally misaligned with our goals of universal human dignity and ecological sustainability make some investment decisions easy. Divestment from these industries has allowed us to further debate of some of the most important and difficult issues of our time, such as climate change. The following exclusionary screens are applied consistently across all our Funds:
Weapons & Firearms
We have a longstanding policy to avoid investment in manufacturers of weapons, including military weapons and civilian firearms, which can be used to cause incalculable harm. We believe it is irresponsible to combine weapons manufacturing with the pressure to maximize profits.
We exclude companies involved in nuclear weapons production, as well as owners of nuclear power plants. We believe nuclear power technology presents significant risks to human health and safety, as well as the environment. We also have an exclusion on uranium mining.
We exclude companies in the energy sector involved in oil and natural gas exploration and production, coal mining, oil and gas storage, transportation, refining, marketing, and related services due to the urgent need to accelerate the low-carbon transition and address the environmental, social and financial risks of climate change. We also seek to avoid electric utilities with a majority of installed capacity from coal and exclude any utility that has announced or begun construction on new coal plants following the Paris Agreement.
We exclude for-profit prisons and immigration detention centers due to the significant civil and human rights concerns that occur as a result of their business models, particularly for marginalized communities. The for-profit prison model incentivizes imprisoning the greatest number of people for the longest duration at the lowest cost to increase growth and profits.
Tobacco, Alcohol & Gambling
We have never invested in companies that are significant manufacturers of tobacco products, alcoholic beverages, or significant providers of gambling goods and services. For these companies, effective marketing often means exploiting customers’ addictions to their products or lack of awareness of potential risks.
In addition to these industry exclusions, we have generally avoided major producers of synthetic pesticides and agricultural chemicals due to environmental concerns related to this business.
Our standards versus the S&P 500
S&P 500 Index1
The average investor may not know it, but the S&P 500 Index may include companies they don’t want to own, such as a weapons manufacturer. Here, we show what percentage of the S&P 500 we consider eligible for investment.
Small carbon footprint, big impact
As supporters of a greener future, we’re proud to report that the Domini Impact Equity Fund’s portfolio as of December 31, 2020 was 55% less carbon intensive than its benchmark.
TCFD Carbon Intensity2
Our standards lead us to be underweight to more carbon-intensive sectors like Utilities and Energy. These numbers don’t happen by chance; we have developed proprietary key performance indicators (KPIs) to help guide our social and environmental research for all asset classes and sub-industries covered by our Funds. We revise these often to ensure we remain focused on the most relevant and meaningful information.
When standards lead, inspiring outcomes follow
Perhaps the best way to understand our investment standards is to look at some of the companies we’re invested in and how these investments support our goals of universal human dignity and ecological sustainability. Here are some recent highlights and insights.
Domini Impact Equity Fund Investment Highlight: Sunrun
Sunrun is the leading residential solar installer in the U.S., with a demonstrated commitment to expanding access to affordable, clean energy. The company designs, installs, finances, insures, monitors and maintains rooftop solar systems, with little to no upfront cost to homeowners and predictable pricing for 20 years, often providing significant savings over the cost of traditional energy. Sunrun’s intelligent Brightbox battery storage solution helps customers maximize savings by optimizing generation and storage and reducing reliance on electric utilities during times of peak demand. As of 2019, Sunrun estimates that its solar systems have prevented 5.2 million metric tons of greenhouse gas emissions, produced over 7 billion kilowatt-hours of clean energy, and saved customers more than $300 million on electricity bills. Through a long-running partnership with GRID Alternatives, Sunrun has also helped provide access to solar power for thousands of low-income families in underserved communities across the country.
Domini Impact Equity Fund Investment Highlight: Salesforce.com
Salesforce.com Inc. engages in the design and development of cloud-based enterprise software for customer relationship management. The company’s internal diversity and inclusion programs are particularly strong, both in disclosure but also in action. The company discloses diversity data by gender, ethnicity, and by positions within the company (tech, non-tech, and leadership) and conducts equal pay audits annually to address unexplained difference in pay based on gender, race and ethnicity. In 2019, the company adjusted pay for 5% of employees globally to assure pay equity among its employees. The company also has strong gender and racial diversity in its executive team and board of directors, with over 30% representation on each. Sunrun is the leading residential solar installer in the U.S., with a demonstrated commitment to expanding access to affordable, clean energy. The company designs, installs, finances, insures, monitors and maintains rooftop solar systems, with little to no upfront cost to homeowners and predictable pricing for 20 years, often providing significant savings over the cost of traditional energy. Sunrun’s intelligent Brightbox battery storage solution helps customers maximize savings by optimizing generation and storage and reducing reliance on electric utilities during times of peak demand. As of 2019, Sunrun estimates that its solar systems have prevented 5.2 million metric tons of greenhouse gas emissions, produced over 7 billion kilowatt-hours of clean energy, and saved customers more than $300 million on electricity bills. Through a long-running partnership with GRID Alternatives, Sunrun has also helped provide access to solar power for thousands of low-income families in underserved communities across the country.
Domini Impact Bond Fund Investment Highlight: MacArthur Foundation
MacArthur Foundation is a not-for-profit organization headquartered in Chicago, Illinois that provides grants to address some of society’s most pressing challenges with the aim of building a more “just, verdant, and peaceful world.” Throughout its history, the Foundation has awarded more than $7.3 billion to nearly 10,000 organizations and individuals in 117 countries. The Domini Impact Bond Fund is invested in a social bond issued by the Foundation, which will be used to fund organizations and further initiatives that seek to address the economic and social challenges resulting from the COVID-19 pandemic, particularly among communities of color and the nonprofit sector more broadly, as well as to address the systemic issues exposed by the pandemic and the protests in response to police use of violence against persons of color, especially African Americans.
Domini Sustainable Solutions Fund
Our standards, applied to all our Funds, ensure we meet our goals of human dignity and environmental sustainability. On April 1, 2020 (yes, right in the middle of the pandemic), we introduced the Domini Sustainable Solutions Fund. This Fund offers high-conviction exposure to solution-oriented companies around the world helping to address the following sustainability themes:
We anticipated the need for a product that focuses solely on sustainability solutions. Think access to health care, access to food that’s clean and wholesome for the planet, and access to transportation that doesn’t rely on petroleum. For example, Tesla, which is our top portfolio holding in this Fund.
Top Ten Portfolio Holdings (%)3
Small. It’s the new big.
Our standards have allowed us to lead impact investing before impact investing led. When you uphold standards for over 25 years, impact investing becomes more than a trend; it becomes a tradition. One that knows that the secret to making an impact is small. It’s one individual, believing. It’s one community, sharing. It’s one organization, listening. It’s one founder, creating. It’s one Fund, caring. And it’s all of us, coming together with a care that’s mutual in Funds that are too, ready to tell the big financial world, welcome to Domini, where the power of small is the greatness of all.