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September 5th, 2012.


Amy Domini

Socially responsible investing stands on the cusp of enormous growth. The next ten years will bring widespread, even universal, acceptance of the social investment industry's credibility and impact. While this assertion may startle some, just look back over the past decade to quickly see the huge strides we have already made and the tremendous momentum we have built.

Ten years ago the social investment industry was in its toddlerhood. Our industry was so small that each SRI professional knew personally every portfolio manager and every mutual fund asset manager that applied social screens to investments. The greatest struggle we as an industry had was trying to convince investors that they would not necessarily lose money by investing our way. The Domini Social Equity Fund had less than $3 million in assets under management. No major corporations had signed an environmental code of conduct or produced a sustainability report. The sweatshop debate was only just beginning to be brought to the attention of the world by faith based shareholder activists. The majority in South Africa still did not have the vote. If I make extraordinary claims for the near future of the socially responsible investment industry, it is with the somewhat stunned recognition of how much we've achieved.

Today there are scores of SRI mutual funds in over a dozen countries around the world. Just as the removal of trade barriers changes other products, international growth will change mutual fund sales. When free trade reaches the financial services market, all SRI funds will be available to any investor, no matter where she or he lives. The implications are profound, social investors will have literally hundreds of choices. We will select funds or managers within every cultural context and will be able to construct an investment portfolio that reaches into each corner of the world. With this reach, our goal of using finance to assure a future of universal human dignity and environmental sustainability will be within grasp.

In such an environment, SRI will have profound global impact. Recently the Thai Stock Exchange created a SRI fund, so that the California Pension Fund's withdrawal from their stock market would not hurt the better employers. If the Thai experiment works, we can expect many emerging markets to encourage both corporate social responsibility and new investment dollars by following suit.

How extraordinary. Imagine dozens of such funds, allowing investors to geographically focus the good that they do. Specificity of choice is likely to drive global SRI for a decade; our structure will support sound corporate practices in emerging and pre-emerging economies.

Corporate social responsibility research has already become unified in approach, centered on a stakeholder analysis. Over the next decade our industry will be recognized as having made possible, on a global level, accountability research and analysis upon which even corporations and governments will depend. While Wall Street may track the change to Enron, we in SRI know that we have spent a decade calling for greater transparency. As corporate management teams begin to face the fact that tracking corporate impact matters to investors, they will be increasingly eager to report on their activities in a transparent and thorough way. The recent McDonald's sustainability report will be a blueprint for dozens, and then hundreds of U.S. based companies. Those who are not willing to provide reports will come under immediate and widespread suspicion on Wall Street.
Shareholder activism will also become more universal. U.S. based shareholders today represent a formidable market force and will influence the markets abroad so as to allow a true voice in the annual meeting. Activism creates a measurement set of information about an emerging issue. Today the data disclosed on maquiladoras, environmental impact and
sourcing abroad have direct positive impact, while creating a context within which future positive social change can take place. But activism, in the form of holding the power to create meaningful shareholder dialog, is still largely available only when the company is U.S. based. The next decade will see a continuation of trends, already well underway in Europe, towards sustainability reports, legally mandated environmental disclosure, and voluntary compliance with the Global Reporting Initiative. Hopefully, it will also see more democratic shareholder rights for the small investor. Already we see steps in this direction, as BP/Amoco, Talisman Energy, Total, and a dozen other non-U.S. companies have demonstrated.

The growth and demand for investments that get money working for the poor has been fueled in large part by the pledge, "1% for communities." This campaign will continue to create demand, which will lead to the removal of many barriers now faced by community development financial institutions. New classes of bonds and debt instruments will emerge. Equity securities, liquid and tradable, will be developed for the purpose of supporting community development initiatives. Social investment professionals will be the resource for government to turn to, to understand and develop financial incentives for funding healthy communities.

What lies ahead? We will have a say in that. The very presence of Social investors has a great impact on global policy initiatives. As an industry we must demand accountability and transparency on the part of corporations globally. We must work with international organizations as well as with local governments. The United Nations, The World Trade Organization, The International Organization of Securities Commissions, and The International Corporate Governance Network will each play a role in shaping the world; the voice of socially responsible investing must guide them. After all, we represent a model that works.

We stand at a tipping point in history. As I write, the President of the United States has committed us to a permanent war, for how does one ever declare victory over evil? The cover of Business Week cries out, "The Crisis in Corporate Governance: Excessive Pay, Weak Leadership, Corrupt Analysts, Complacent Boards, Questionable Accounting." And yet a single individual took home a Taco Bell product, tested it and proved genetically modified corn had entered the food stream, thereby exposing an industry and halting production. A single nun pointed to the damage caused by mercury in thermometers and changed domestic production almost overnight. We may not win a war against evil, but we can win a war for goodness. Positive social change rests on data, and data is what social investors have given the world. The process has begun. Even in dark times such as these, we see that the power to do good through our investments is working. In ten years, the point will be so obvious as to be beyond question.

Article by Amy Domini, President, Domini Social Investments.
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