SOCIAL CAPITAL
What's the latest metric for return on investment? Good corporate behavior. Proponents of socially responsible investing (SRI), like Domini SocialInvestments, belie the conventional wisdom that there's a cost to supporting values other than the bottom line, while the SEC may soon make it easier than ever for investors to separate good behavior from the bad and the ugly.
According to the Social Investment Forum, a nonprofit association, SRI grew at twice the rate of all assets under management in the US between 1997 and 1999. Socially responsible mutual funds have increased in number from 55 in 1995 to 175 in 1999, and in aggregate from $12 billion to $154 billion - and these funds were twice as likely as non-SRI funds to earn Morningstar's top rating last year.
Domini'sSocial Equity Fund, which recently reported an average annual return of 30.2 percent, tracks the Domini 400 Social Index, a group of US companies screened for involvement with alcohol, tobacco, gambling, military weapons, and nuclear power. Qualitative screens bear on community, diversity, employee relations, environmental impact, international labor, and product quality.
So can SRI change the world? Definitely, says Domini Social Investments founder Amy Domini. "In South Africa in the 1980s," she recalls, "the way we invested brought about change." Since then, SRI has impacted R.J. Reynolds' marketing strategy, Nike's labor practices, and, more recently, Home Depot's sale of old-growth timber.
"Environmentalists had been working on Home Depot for years," says Social Investment Forum director Steve Schueth. "Investors filed a shareholder resolution last year, and within six months the company agreed to this deal. We've never won one of these resolutions in a vote, but we can make a strong statement to the board of directors."
Domini's fund was the first to publish its votes on shareholder resolutions online, but the SEC is considering a new rule that will require all funds to post their proxy votes to freedgar.com. "If you saw that your fund was voting against environmental responsibility, you'd switch funds," Domini says. "It will change the way large financial institutions vote and, by extension, the way companies are run."
- Amanda Griscom (agriscom@feedmag.com)
Domini Social Investments: www.domini.com.
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