Social investing seeks to make world better place

By John Waggoner
USA Today

•	Taking stock Domini Social Equity's top holdings, as of March 31: Microsoft, 4.8 percent. American International Group, 3.3 percent. Cisco Systems, 2.8 percent. Johnson & Johnson, 2.7 percent. Procter & Gamble, 2.4 percent. Coca-Cola, 2.2 percent. Verizon, 1.8 percent. Merck, 1.8 percent. Wells Fargo, 1.7 percent.

Since its inception in the early 1980s, social investing has expanded to include an array of issues that concern investors: alcohol, guns, abortion and labor. Assets in socially screened investments of all types total $2.1 trillion, according to the Social Investment Forum, a trade group.

USA Today's John Waggoner spoke with Amy Domini, founder and CEO of Domini Social Investments, a pioneer of social investing.

Domini Social Equity fund screens out companies that pollute or derive income from weapons, alcohol, gambling or nuclear power. It seeks companies with good labor relations and good records as corporate citizens.

Q: How did you get interested in social investing?

A: Finance is what I have a passion for. I started out photocopying for a brokerage firm and ended up as a broker. I found people saying, "I don't buy weapons," or, "I'm in Audubon, I don't want to buy paper companies."

So I started teaching ethical investing in 1980 at Cambridge Adult Education. I couldn't find any books or background on it. And when the Cambridge Adult Education catalog came out, I got a call from an editor at a publishing firm who thought it was a great book idea.

When "Ethical Investing" was published, it was a personal turning point. Just as the South Africa apartheid debate was heating up, I was thrown into it. I didn't expect corporate responsibility to take off. But what started as investing in a personal ethical framework turned into changing the world.

Q: Boycotting a company's stock may not hurt the company, because many others will often buy that stock and keep its price high. What good does social investing do?

A: It creates a dialogue on how a company interacts with society. The vocabulary I have been using is "exit" and "voice." When you ask someone why they became a social investor, they point to a stock they don't want to own. The exit strategy is that the nature of the industry is so problematic that it's more of a societal question than a financial one. You can't make a tobacco company good for public health. You can't justify for-profit armament companies. Making arms and selling them to central Africa is at conflict with what's in the best interest of society.

The voice strategy you try to use with companies where influence can change them. For example, we're invested in McDonald's. People hate McDonald's. But we go to them and say, "Cattle farming is creating deforestation." They have agreed not to grow beef in areas that were formerly forested. They're a company that responds to changes.

Q: What do you think is the worst industry now?

A: Weapons manufacturing. The miracle of capitalism is that it distributes goods and services to as many people as possible at the lowest possible price. I think weapons are products that we want some restraints over. With things that depend on major government contracts, there is always the risk of influence peddling. In this environment, where the budget has ballooned for weapons purchases, there's a lot of potential for abuse.

Q: What company has done the best turnaround, from an ethical point of view?

A: The Gap. They are making a very good effort to meet with activists to come to standards about where they buy products. And Procter & Gamble has come out with a pledge to purchase fair-trade coffee.

Q: How do you feel about funds that screen according to fundamentalist religious criteria?

A: I'm comfortable with the different voices in the industry. One area where I'm not comfortable is where they screen out people. Some will not own companies that support the rights of gays or lesbians. I don't feel that's congruent with building a better world. My discomfort comes when they say that there are certain types of people who shouldn't exist. I can't go there.

Q: Can you have a socially screened international fund? How do you deal with a company that pays locals $20 a day but has people lined up around the block for the job?

A: International is a tough challenge. But it's where the power of voice comes in. We enter into direct communication with companies on select issues.

For example, we have been in dialogue with companies over the sweatshop issue, but the only ones who say they are working with us are The Gap.

We have to come up with modern-day Sullivan principles (the principles that guided investment in apartheid-era South Africa).

Q: Has the rash of corporate scandals helped social investing?

A: Certainly, the Enron-type scandals have helped social investing. And we're in a lot of 401(k) plans that have dropped funds involved in the fund-trading scandal. We've seen an increase in new deposits. And we're seeing funds putting up proxy-voting guidelines, in part to differentiate themselves from funds involved in the scandal.