Years ago I spoke of the need for social investors to enter "into the belly of the beast," to use the awesome power of the financial services industry to make possible a world of universal human dignity and ecological sustainability. Today this is actually happening: Sell-side firms like Citigroup, UBS, and Société Générale are beginning to incorporate coverage of environmental, social and corporate governance issues with their traditional financial analysis, and to recognize that these factors can have real impact on a company's long-term profitability.
Looking into the future is daunting, but it requires an exciting shift in perspective. The task demands that we soar above the haze of the moment and catch sight of the mountains that poke through the clouds. When I envision the future of socially responsible investing, I see four enormous peaks, which only a few years ago were not even visible on our horizon.
I see that our field has begun to move into the mainstream, and that the mainstream is starting to come our way as well. Second, a global movement of responsible investors is emerging, with a set of common purposes. Third, our industry's influence is growing, not only in the market but also in public policy. Finally, we are seeing an increasing realization that it is the misuse of finance, not capitalism itself that sows misery and ensures poverty for millions.
Each of these four mountains offers us important opportunities, with the capacity to forever change the way we work. Taken as a whole, the outlook is very good.
Reaching the Mainstream
Years ago I spoke of the need for social investors to enter "into the belly of the beast," to use the awesome power of the financial services industry to make possible a world of universal human dignity and ecological sustainability.
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Today this is actually happening: Sell-side firms like Citigroup, UBS, and Société Générale are beginning to incorporate coverage of environmental, social and corporate governance issues with their traditional financial analysis, and to recognize that these factors can have real impact on a company's long-term profitability. Some of the world's most powerful banks and institutional investors have partnered with us on the UN's Principles for Responsible Investment and the Investor Network on Climate Risk. Our methodologies and our messages are now fully established as both powerful and appropriate. Most importantly, financial giants are accepting our desired outcomes. Who now can doubt that we are in the belly of the beast?
Social investing has grown in stature and acceptance to a point where we can now anticipate making a critical difference in the world. The extent of that impact, of course, depends in part on the assets that we represent. While our industry, in gauging our progress, rightly counts every dollar of the trillion-plus that are managed with some element of screening, activism, or community investment, the dollars that are truly being invested for change are still quite few.
Over the next 15 years, our ability to effect real change will, in part, depend on our success in attracting mainstream investors. At the same time, as social investing becomes more "mainstream," we must ensure that our commitment to a sustainable future guides this process. If we can continue to demonstrate that investments can have a positive impact on the world - that investment decisions matter for the future of our planet - then we will become the mainstream, and the culture of capitalism will be fundamentally transformed.
Going Global
In a world where social problems ignore national borders, where environmental challenges are planetary in scope, where companies increasingly face global competition, and where financial markets seem to be evolving into a single market, the work of responsible investing has become global as well. Increasingly, we must evaluate industries, companies, and businesses across countries and across cultures, and we must do so without watering down our standards.
In our research, we ask companies questions that they are not used to being asked, about issues that they've never before been told are important. In the U.S. and increasingly in Western Europe, simply putting issues on the table can positively affect management's decision making. We are also finding that research can have even more of an impact in emerging nations.
As our work becomes more global, so does our industry. Social investors in Europe and Asia, growing out of different investment cultures, will continue to challenge our methodologies and our research decisions. They will raise the level of competition in our industry, and the quality of our offerings.
In the coming years, social investors in the U.S. will compete against a flood of credible and well-financed offerings, from overseas providers as well as from mainstream domestic firms. In order to flourish, we must compete on (and effectively communicate) our core values, especially those that differentiate us - not just the thoughtfulness of our investment standards and the depth of our research, but our shareholder activism and our investments in community development.
As our work becomes more global, we must also build strong, cooperative relationships with international and local advocacy groups with specialized knowledge of important issues. These groups are essential as we maintain our investment standards in markets where companies are less transparent and research is more difficult.
In investigating corporate relationships with Burma's brutal military regime, for example, one of Domini's Japanese-speaking analysts, with the help of advocacy groups in Japan, discovered that a company controlled by Toyota Motors has for years had a very substantial business relationship with the Burmese military. He later confirmed this with Toyota. This information, about a company widely held in our field, was not commonly known.
Increasing our Influence
The past 27 years has seen a political movement in the U.S. that goes far beyond traditional conservative values of fiscal responsibility and limited government. Today's radical right-wingers have done their best to make corporate power and the rights of the wealthy paramount.
They have fought against the reality of climate change, outsourced American jobs in the name of "free trade," bound developing nations to onerous and ultimately destructive financial terms, and have even argued that child labor is a necessary stage in a country's development. They have directly attacked our own work by trying to make proxy filings more difficult, by rolling back Community Reinvestment Act standards, and by seeking to limit the constitutional right to a day in court.
Why do you suppose there have been no lawsuits over the use of mercury in vaccines? The answer is that Congress, acting on behalf of the big pharma manufacturers, created a Vaccine Court where plaintiffs are not permitted to have paid legal representation. Who does that help? Only the giant companies that aim to eliminate any way for society to limit their "externalities" - the massive social and environmental costs that they impose on the rest of us.
The elections of 2006 revealed that the tide is turning. With the leadership of key Congressional committees changing hands, many of the values we have fought to keep alive will be of keen interest to legislators. Social investors can play an important role in making corporations accountable for their externalities, overseeing corporations' 10-K reporting, and directing more money to the important work of community development financial institutions. Perhaps we can even help ensure that "accounting to investors" means being responsible not just to shareholders but to the taxpayers who make it possible for corporations to earn every penny they receive.
That new accounting, almost by definition, will lead companies to begin managing a host of externalities that now go unmanaged, unreported, and largely unmentioned (except by us): human rights, labor standards, carbon emissions, product safety, forestry practices, diversity of workforces and corporate boards, and more.
Focusing on Finance
As adversaries on the right have criticized social investors as ineffectual, deluded, or anti-capitalist, many of us have felt the discomfort of being cast, by detractors from the left, as supporters of a bankrupt and corrupt system of capitalism. Yet even as the excesses of corporate power have been revealed, the public has come to realize that it is the irresponsible use of finance and not the capitalist system itself that is the problem.
Over the past few years, the world has begun to notice the unholy alliance between Wall Street and large corporations, and the enormous excesses that it has produced. CEOs serving brief terms before being ousted are routinely awarded severance packages in the tens of millions. Hedge funds and private equity funds are shredding valuable old companies to enrich a handful of insiders. Accounting scandals, investment banking scandals, lobbying scandals: Wall Street and the corporate boardroom are exposed.
Meanwhile, the evolving values of consumers and shareholders have begun to infiltrate the corporate structure. Organics, for instance, have gone mainstream: Supermarkets now tout their "locally grown" products. Whole regions of Argentina and Mexico have converted to organic production - and though this industrial-scale organic agriculture may be problematic, it is a miracle for children who are no longer exposed to pesticides. Some of the world's largest companies, including many who still don't meet social investors' standards, now compete on their "green" credentials: their "ecomagination," their commitment to constructing green stores and selling energy-efficient light bulbs, their commitment to moving "beyond petroleum."
Social investors were not surprised when Muhammad Yunus won the Nobel Peace Prize, but much of the world had never heard of him. Now, micro lending is known to anyone who reads the newspaper. We have begun to roll up micro loans into tradable securities, bonds that within the decade will open vast new resources to the small entrepreneur. We are demonstrating that the role of investors, and of capital, in solving social problems, can be a crucial one.
As we look ahead to the next 15 years, it is encouraging to consider how far we have come in the last 15. The modern era of social investing began with opposition to the apartheid regime in South Africa. In 1992, with South Africa newly independent, many thought that the sun was setting on social investing. Yet today we are firmly established and rapidly expanding around the world.
We have the ability to build a financial services structure that actually supports the creation of universal human dignity and ecological sustainability. As a new generation of leadership carries our efforts forward, we cannot allow ourselves the luxury of taking our eyes off the ball. Moving mainstream, going global, achieving political influence, and building on our connections with the grassroots - we are ready to emerge as a powerful and important force that changes the world.
Article by Amy Domini. Amy is the Founder and CEO of Domini Social Investments and author of several books including Socially Responsible Investing. In 2005, Time magazine named her to the Time 100 list of the world's most influential people. For more information go to http://www.domini.com
