By Ellie Winninghoff
How does a responsible investor cut through a company's green-wash? Focus on performance.
Consider BP, which hyped its solar investments and dubbed itself "beyond petroleum." In 2005, the oil giant had a major accident in Texas City in which 15 workers were killed. And between June 2007 and March 2009, the Occupational Safety and Health Authority issued 760 egregious willful citations to BP across its five refineries in the US. That compared to one egregious citation issued across the other 145 refineries in the US.
"We decided not to approve them [in 2005], " says Domini Social Investments General Counsel Adam Kanzer. "And every year since, when we looked at them, [the accident profile] got worse and worse."
Worker health and safety is one of hundreds of key performance indicators, or KPIs, that Domini uses to assess corporate sustainability. They are part of a broader framework the fund has developed to support its twin goals of universal human dignity and ecological sustainability. The intent is wealth creation for all of a company's stakeholders, not just its shareholders.
In the early 1990s, SRI pioneer Amy Domini, along with Peter Kinder and Steve Lydenberg, started SRI research firm KLD Research & Analytics, Inc. They created the Domini 400 (now the MSCI KLD 400,) an index of socially-screened U.S. companies, and launched the Domini Social Equity Fund (DSEFX) to track the index.
By 2005, when Domini started an international fund, there were more environmental and social data available. Lydenberg joined the mutual fund to lead its new international sustainability research. It was an opportunity to start with a clean slate, and since late 2006 the U.S. fund also has been actively managed using the same newer approach.
How well does a company's core business actually align with Domini's twin goals of universal human dignity and ecological sustainability? That's the first question the fund asks.
There are four categories, ranging from "fundamentally aligned" (companies like renewable energy) to "fundamentally misaligned" (industries like tobacco and nuclear power.) About 90% of companies, however, fall in the middle two categories.
Take mining, which is "partially misaligned." While its commodities are useful to society, Kanzer says, they come with a high social and environmental risk. A mobile phone service firm, which has fewer social and environmental risks, can be "partially aligned," or even "fundamentally aligned," if most of its business is in an emerging market where phones are used to empower poor people.
Domini also wants to understand a company's "stakeholder model," or how it treats "business partners" like employees, suppliers, customers, investors, communities and the ecosystem.