The Next 25 Years – Big Picture Thinking
“Never doubt that a small group of thoughtful committed citizens can change the world: indeed it’s the only thing that ever has.” – Margaret Mead
Responsible investing momentum is strong. For me, and for many of my generation, the future is clear: we are well on our way towards the installation of a vitally important system-level force for good, one that will protect future generations, indeed the planet itself. We have laid the groundwork for a financial system which functions globally to protect people and the planet. It is the realization of a misty dream for me. My purpose in advocating what I called ethical investing, going back nearly 40 years now, was to build a large enough investor presence that demanded a clean and dignified future for all — that such a future would be guaranteed.
We know that universal human dignity and ecological sustainability are not guaranteed. We have recently seen this, during the holocausts brought about by Nazis killing 12 million, the Cultural Revolution killing over 40 million, Stalin’s various gulags and purges killing 12 million, King Leopold II’s rape of the Congo killing 10 million, and so on through the centuries. And it isn’t only disregard for people. In 1985 we discovered a vortex of plastic trash in the Pacific. Yet we did nothing and that vortex is now somewhere between the size of Texas and the United States. In 1896 Svante Arrhenius wrote that burning coal was adding CO2 to the atmosphere and thereby raising the planet’s temperature; we did nothing. We know that God Almighty has not stepped in to prevent such things. We know that a single nation or even a coalition of nations cannot do so. Some sort of planet-wide, pre-existing, powerful and coordinated entity must be found, and must be convinced, to assert sanity. Finance is such an entity, and finance is increasingly populated by investors who give a damn.
“We must continue to stand together to demand that the search for monetary profits not come at the detriment of universal human dignity nor the undermining of ecological sustainability.”
The tide has turned; investors who care about the impact of business-as-usual on the well-being of others now number over 26 percent of global assets under management. These investors use at least one tool in the responsible investor’s toolbox, and in Europe and Australia/New Zealand, over half of funds are so managed. Additionally, one key component to slow investor growth in the adoption of a 100 percent responsibly managed portfolio has been lack of product in key allocation strategies. This is a rapidly fading problem. We now see new products produced at a dizzying rate. Long-short strategies, forest portfolios, hedge funds, private equity – in short we now see plenty of product to build the fully committed portfolio. Soon the partially committed investor will be fully engaged, and the impact will be exponential.
Review the tools in the responsible investor’s toolbox, and it becomes obvious how much impact the field has already had and how much more it will accomplish once sheer numbers gradually integrate their values into the global financial system. First, and probably most undervalued, we apply standards to what we purchase. To understand the impact, consider voting. Whether you vote or not has no impact on most election results. When 50 percent of us vote for companies with corporate responsibility values embedded into their very DNA, markets respond, disclosure increases, stakeholder partnerships become routine and yes, investors feel good.
If you believe that the global financial system has any impact at all on people and the planet, there is no better way to positively affect that dynamic than by applying standards. I began by saying that the application of standards is probably least undervalued. However, the on-going superior performance of what was launched as the Domini 400 Social Index and is now the MSCI KLD 400 Social Index has reduced the risk that standard-setting is abandoned. Within the field we understand why the outperformance: the application of stakeholder standards highlights the quality of management teams and reduces the number of companies run by behind-the-curve individuals.
Our second tool is direct engagement with corporations, governments, NGOs and the public to support and protect programs and policies that fit into our twin goals: universal human dignity and ecological sustainability. Our primary successes come through shareholder dialogue. Shareholders are uniquely capable of bringing non-profit voices into communication with management in an effort to make things better. It may seem like a small thing to label pesticide soaked plants at Home Depot or to gain assurance of better sourcing practices at The Gap, but when you stitch together the quilt of such initiatives spanning the past 35 years or so, with the founding of Interfaith Center on Corporate Responsibility, the core premise of using finance to build a better future is clearly working successfully, one campaign at a time.
Our third tool is direct support for under-capitalized efforts that raise a population or a technology or a premise to the point of being conventionally capitalized. American-based responsible investors have focused their efforts primarily on community development financial institutions, viewing venture capital into new technologies as a part of the first (apply standards) category. However as Europe and the rest of the world used cooperatively based energy or fair trade vehicles more, we have followed suit. Our third leg is now expanded but remains true to its core value of addressing capital vacuums in order to improve lives and extend planetary health.
I have stated that we have entered the systems-level impact our field needs, but there are risks. We must not succumb to a lack of cohesiveness. I ask my investors to buy into only one premise. Do they believe that finance has a role to play in keeping the planet clean and people healthy (in the fullest sense of the word)? If so, then I do not particularly care whether the portfolio they invest in is the one I would have built. Any portfolio that seeks to achieve that goal is influencing the system. To put it another way, a fund that cares only about animal wellness might never get to be a powerhouse in the world of protecting animals, but will add to the number of investors who give-a-darn about the world around them. I count that fund as important to me.
A second risk to our field is the constant tinkering with vocabulary. I’ll continue with a personal issue, but do so with trepidation. It is not that I attempt to stop popular phraseology; rather I mean only to say words have meaning and we have too many words. At present ESG (environmental, social and governance) is a widely used phrase. I avoid it. Governance, or investors’ role, was always represented in my stakeholder model. Twenty-five years ago we were already integrating governance standards into corporate evaluations at KLD Research & Analytics. Who decided to raise investor concerns to the level of people and the planet? Why? I’d rather that investors took their lumps along with suppliers and consumers (other stakeholders). But I do not trash-talk about ESG being a sell-out in my marketing literature. Nonetheless, I see much marketing literature that asserts that ESG is better than and definitively not that old-fashioned Socially Responsible Investing stuff. The field spends far too much time attempting to find a niche when it should be attempting to find a commonality. To this end, the coalescing of the Global Sustainable Investment Alliance, which unites the work done in America, Europe, Australia, Canada, the UK and the Netherlands, and reaches out to Japan, Africa and Latin America, marks a remarkably important step forward, one that is, to my mind, crucial.
During the next 25 years our field will succeed in our efforts to grow into a powerful force for good. We are influential enough today to have shaped an entirely different dialogue between investors and corporations from the one I was born into. Our challenge is to use that influence aggressively, consistently and collegially. We must continue to stand together to demand that the search for monetary profits not come at the detriment of universal human dignity nor the undermining of ecological sustainability. The planet counts on us to do so.
Article by Amy L. Domini, CFA. She is widely recognized as the leading voice for socially responsible investing. Her passion for the field has led her to create three businesses and to write several books. She has been awarded acknowledgements of these efforts, including: Time magazine named her to the Time 100 list of the world’s most influential people in 2005. That year she also received a citation from President Bill Clinton for her work with the United Nations Foundation. In 2008, Ms. Domini was named to Directorship magazine’s Directorship 100, the magazine’s listing of the most influential people on corporate governance. In 2014, she was awarded the Founders Award by New Yorkers Against Gun Violence for her advertising campaign (which ran in The Nation), urging investors to divest guns from their portfolios.She is the founder of Domini Impact Investments (www.domini.com), a mutual fund company with $1.6 billion in assets under management.
Ms. Domini is also founder of The Sustainability Group, which manages private client assets in Boston, MA. She has served on a number of boards, including the National Association of Community Development Loan Funds (now Opportunity Finance Network), an organization whose members work to create funds for grassroots economic development loans; and the Interfaith Center on Corporate Responsibility, the major coordinator of involved shareholders who file proxy resolutions. She is a member of the Boston Security Analysts Society. Ms. Domini holds a B.A. in international and comparative studies from Boston University, and holds the Chartered Financial Analyst designation. In 2006, she was awarded an honorary Doctor of Business Administration degree from Northeastern University College of Law. Yale University’s Berkeley Divinity School presented Ms. Domini with an honorary doctorate in 2007. Ms. Domini is the author of Socially Responsible Investing: Making a Difference and Making Money (Dearborn Trade, 2001) and The Challenges of Wealth (Dow Jones Irwin, 1988), and a coauthor of Investing for Good (Harper Collins, 1993), The Social Investment Almanac (Henry Holt, 1992), and Ethical Investing (Addison-Wesley, 1984). She contributes regularly to Optimist magazine and GreenMoney Journal. She lives in Cambridge, MA with her husband, Mike Thornton.
The responsible investing movement that we have started and shaped has reached the end of the beginning, with a broad and strong foundation that will evolve to provide the superstructure of our society’s continuing struggle to address and solve its greatest challenges. Our efforts are working, and we are being joined in our mission by more investors worldwide every day.
Eight years ago I received the call asking me to consider joining Trillium Asset Management as CEO. Since that time, we have seen more interest than ever in the field of sustainable investing from a wide variety of institutions, mainstream money managers, and families often driven by women and millennials, bringing assets over to impact. But we are also keenly aware that since the election, the new Administration is actively working to dismantle many of the key policy initiatives we have advocated over the last 35 years. So we are at an interesting crossroad. Looking out over the horizon, I see six emerging trends that I believe shed light on the future of sustainable investing.
A report published June by The Investment Integration Project (TIIP) examines the opportunities, challenges, and breakthroughs needed for investors to finance the circular economy. Written by William Burckart (TIIP) and Jamie Butterworth (Circularity Capital), Investing in the New Industrial (R)evolution: Insights for asset owners and managers financing the circular economy details how investors and corporations are incorporating global issues related to the health, food, and energy systems, as well as others, into their investment and production design processes, respectively.
The Global Impact Investing Network (GIIN) 2017 Annual Impact Investor Survey is now available. The survey is based on an analysis of the activities of 209 of the world’s leading impact investing organizations, including fund managers, foundations, banks, development finance institutions, family offices, pension funds, and insurance companies. Survey respondents collectively manage nearly USD $114 billion in impact assets, a figure which serves as the best-available “floor” for the size of the impact investing market.
April 18, 2017 marked the publication of an ambitious new book with the audacious goal of showing how to reverse the warming of the planet through a myriad of innovations, many of them led by business for profit.