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GreenMoney Interviews: Amy Domini
Cliff Feigenbaum

One of the enjoyable parts of the GreenMoney Journal is interviewing leaders in the socially responsible investing and business world.

This time it is Amy Domini. Amy is a true visionary and leader of the SRI community who has written numerous books on the topic including the groundbreaking "Ethical Investing," way back in 1984. She helped launch the Domini 400 Social Index in 1990 and more recently founded Domini Social Investments, which manages nearly $2 billion dollars in the Domini Social Equity Fund and new European Social Equity Fund. Of course there is more to say about someone of her stature but let's see what she has say…

CLIFF - What are the latest issue(s) on your radar, inside and outside SRI?

AMY - On the hopeful side, one of the largely overlooked international movements that has captured my attention is the Slow Food Movement. Founded in 1998 by Carlo Petrini, this movement strives to stand for everything that fast food does not stand for. The Slow Food Movement supports local economies, sustainable agriculture, heritage crops and animals, and a pleasant lifestyle. In Europe the slow movement has become enormously popular. It is estimated that 140 thousand people showed up this past year at the Slow Food Festival held in Italy in September. Several cities are now competing to be "slow cities." These cities do not allow private motorized vehicles in their centers and take every opportunity to make themselves over into a truly pleasant experience for residence and visitors alike. What appeals to me particularly about this slow movement is that it teaches the lessons of social responsibility and investment, but catches the public imagination in a way that appeals to a very broad audience.

On the more negative side, I find that I have become increasingly political. Over and over again I am struck by the enormous corporate welfare system we already have in this nation, and by its explosive growth under the current Congress. I've come to feel like government is just too important a participant in shaping the future for me to ignore it completely. Domini Social Investments has been filing resolutions asking companies about their lobbying dollars. This is just one small step toward addressing the larger issues. I now speak of the taxpayer as a stakeholder when I talk to audiences. After all, when corporations externalize costs, it is the public that picks them up.

CLIFF - Tell us more about Domini's new European Fund? Why did you start it now?

AMY - In addition to managing mutual funds I also have a private client business. I find that my clients are often good indicators of trends that are strong and in place. Many of them had begun over the last couple of years to ask me how they could invest in Europe. Naturally, these are people with a certain amount of wealth, and when they travel to Europe they see that in many ways everyday life is more pleasant there than it is here in the United States. At some base level, one wants to be invested in the best places and they would ask for a European option.

As I began to look more into Europe as an opportunity, everything reinforced the thought. Europe takes a leadership role in so many different areas. While our health care industry is focused on lifestyle enhancements, theirs is focused on disease prevention. While our transportation is focused on bigger and less efficient cars, theirs is focused on alternative fuels, public transportation and smaller automobiles. The European social safety net is well regarded and is applied broadly through society so that corporations have always had a page in their annual report dedicated to reporting to the community. Even the accounting system presumes that the accounts are being kept for a broad stakeholder class rather than just for the shareholders of the company. The lack of ability to force shareholder dialogue with a very small investment was one deterrent to opening a European fund, but there are associations of investors who come together and with their larger pool are able to address this second need that social investors have. Finally, corporate accountability research is broadly available in Europe and is quite sophisticated. I felt that I could "deliver the goods" to my shareholders. Early results indicate that the idea is well accepted. We have had very steady inflows to the fund since the day it opened.

CLIFF - The Domini 400 Social Index now has a 15 year track record. Why do you think it has outperformed the S&P 500 over the long term?

AMY - The Domini 400 Social Index, which is maintained by KLD Research and Analytics, has outperformed the S&P 500 since inception in May 1990 (493% vs. 427% through 12/31/05). That's a particularly extraordinary statement when you consider that during the past five years we have suffered from many disappointing government policies. In the first place, the period saw soaring oil prices that led to enormous windfall profits in an industry that we in social investing largely avoid. Next, accelerated spending on weapon systems led to higher stock prices in that industry, which we avoid. The removal of risks and liabilities from many numbers of dirty industries ranging from utilities to tobacco and natural resource extraction led to a rally in these industries, also avoided by social investors. All this happened during a time when a complete compression of the price to earning ratio of conventional growth companies, such as is frequently preferred by social investors, was taking place.

So why the long-term success? Those of us within the social investment industry know that the research process is extremely detailed and paints a particularly telling story of a corporation. The underlying culture and the quality of management emerge through the research process. At the end of the day, I believe that this is what has led to the overall out performance of the Domini Social 400 Social Index vs. the S&P 500. We have based the portfolio toward high quality management teams and companies with strong and positive corporate cultures. These are widely viewed as highly important to corporate performance and extremely difficult to identify. Socially responsible investing, through its screening methodology, has found a way to identify these important factors.

CLIFF - Where do you think most of the growth in SRI assets will come from in the future, small boutique SRI firms or large firms with small SRI groups?

AMY - Until the present time, most of the growth of SRI assets has come from smaller firms still managed by their founders who have elected to specialize in this field. As one of those, I can say that it is difficult for me to imagine having been able to manage responsible portfolios for responsible investors without having gone off on my own. After all, larger firms sell themselves on a methodology and approach which has proven successful for them in the past. Until now, they have had no real incentive to transition to SRI.

Today we see a shift. Larger firms are entering the field, particularly in Europe. A driver has been the demand by a few large pensions for this capacity, and financial services firms have rushed to meet the need. But financial services companies are now global. Goldman Sachs may develop a team and capacity to service European pension funds, but once established that team will be aggressively used elsewhere. In the future, I believe that large firms will be a real factor in the SRI industry.

CLIFF - Of course we must mention the very exciting Time Magazine award you won last year, being named as one of the 100 most influential people in the world in 2005. How has it changed your life both personally and professionally?

AMY - Well thank you. It was indeed startling to see myself in the company of so many powerful people, but it has not much changed my life on a personal level. I still can't seem to influence my sons to clean their rooms. Professionally it did have one immediate impact and that was that I was invited to write a book, which is now underway. The basic thesis is that several small tweaks to the way funds are managed or governed would lead to tremendous societal benefits.

The most extraordinary part of being named one of the 100 most influential people in the world was that nobody else from the field of finance was named on the list. It is tremendous validation of the role that responsible investors have played. We have made enough of a difference that Time Magazine sees it and acknowledges it in this way. I have always been a lightning rod for my industry and this award acknowledges all that we, as compatriots, have accomplished. Subscribe to Green Money

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