Amy Domini is President of the Domini Social Equity Fund.
She is also a trustee with the Loring, Wolcott & Coolidge Office
in Boston, MA, which serves as an advisor to socially responsible
investors. In collaboration with Peter Kinder and Steven Lydenberg,
she created the Domini 400 Social Index in 1990, which uses a comprehensive
screen to evaluate corporate investments based on their performance
in areas such as environmental responsibility, community giving,
employee relations and product quality. She is also the co-author
(with Kinder) of Ethical Investing and (with Kinder and
Lydenberg) The Social Investment Almanac and Investing
for Good.
In February 1998, she was interviewed by NICA Fund outreach
coordinator editor Sheldon Rampton.
How would you define socially responsible
investing?
The field of socially responsible investing deals with the fact that
investors grease the wheels of finance, which in turn greases the wheels
of providing the world with food, clothing, shelter, education and so
forth. "Socially responsible" investing tries to intentionally
use our influence as investors for good.
I usually refer to three companion movements, three important arenas
of socially responsible investing. Those are (1) "screened"
investing, (2) shareholder activism, and (3) community economic development.
These three categories are integrated into the pool of funds managed by
people who call themselves socially responsible investors.
A screen is a criterion applied to a universe of potential
investments that helps winnow the candidates. More specifically, a social
screen is the expression of an investor's social, ethical or religious
concern in a form that permits an investment manager to apply it in the
investment decision-making process.
Sometimes people think the purpose of such a screen is to punish undesirable
corporate behavior, for example by withholding investments from tobacco
companies. In reality, the primary impact of social screening is that
it creates a conversation, creates the vocabulary that companies and investors
use in talking to each other. The research that goes into screening an
investment opportunity creates a dialogue with corporations that would
not take place if the screen were not used to select stocks.
Shareholder activism, on the other hand, involves advocacy
from within a company in which the investor has already made an investment.
The clients I serve typically acquire a portfolio of screened stocks,
and shareholder activism comes with that, because my office at the very
least votes on shareholder resolutions.
WCCN's lending activities in Nicaragua fall into the third category of
community economic development, which offers financing
directly to the communities being served, often foregoing the conventional
corporate protections which have tended to be barriers to holding corporations
accountable.
How do people become involved in socially
responsible investing?
I think concerns about community development are the early genesis for
many people. The specific concerns vary depending on the individual, but
whether the cause that moves you is children or the elderly, your own
neighborhood or people who live in Burma, it is the concept of "What
is my investment doing to them?" that very often spurs people to
become socially responsible investors.
Paradoxically, the mechanisms through which people can make community
development investments are not yet very well developed in comparison
to the rest of the field of socially responsible investing. It's easier
for people who have an interest in screened investing to find 25 or 30
choices, study their options, and decide which way they want to go. For
somebody with an interest in community economic development, it's not
that easy to find the landscape mapped out for them.
I think that those infrastructure questions are one of the challenges
that lie ahead for community development loan funds. If, for example,
WCCN's loan fund had a system in place that enabled you to take $500 in
a six-month loan from somebody, you'd get lots and lots of loans. There's
a reason that the "XYZ money market fund" has $2 billion and
you don't. They're easy to invest in, and you're not.
Other aspects of the way community loan funds are structured also create
barriers for investors. I can go online and buy 100 shares of Coca Cola
in 20 minutes. Anyone can. But I can't do that with your loan fund. I
have to call you on the phone, wait for the mail, fill out everything
in duplicate, send things back and forth and so on.
How do you see community development loan
funds fitting into the rest of the picture?
At Loring, Wolcott & Coolidge, I manage portfolios for high net worth
individuals. Typically they will come and say, "We are progressive,
we are thoughtful, and we want to use every tool at our disposal to be
helpful in trying to construct a just and sustainable future. We already
know where we want to give our money philanthropically to that end, but
that's just our giving dollars. What about our investing dollars?"
What I do is help them set up a game plan, a strategy. It will include
stocks and bonds that meet certain social criteria, but many high net
worth individuals also like to have a certain amount of money that's not
in the stock market. They don't need the money, and they like to have
a very direct link with addressing a concern that particularly speaks
to them, whether it's their backyard, or microentrepreneurs, or women-owned
businesses or environmental approaches. A portfolio of community development
loans or deposits into community development credit unions often meets
those needs.
In exchange for that direct link to their cause, investors in community
development also pay a cost, because community development loans are riskier
and yield lower financial returns than other types of investments. The
main thing is the opportunity cost, the financial returns that you sacrifice
by making these types of investments. Typically I advise people to split
the community development portfolio, usually half and half, between insured
and uninsured investments. The insured deposits include community investments
at South Shore Bank or whatever, and community development loan funds
represent the other half.
Some people have juxtaposed community development lending against the
other types of socially responsible investing, arguing for example that
screened investments are ineffective at influencing corporate behavior
and therefore are not truly socially responsible. I disagree with this
interpretation. If you wanted to argue in the opposite direction, you
could make the case that community development investing represents a
drop in the bucket compared to the enormous potential of corporate America
to dominate everybody's life worldwide, and you would conclude that the
model of community development investing is flawed and that screened investing
is the only worthwhile approach.
In reality, all three approaches to socially responsible investment have
value to those of us who believe that there is something important in
controlling money, that doing so will somehow help us move toward a just
and sustainable future.
What factors have influenced your decision
to invest in WCCN's lending program?
Your program is fairly unique as an investment opportunity because of
its international angle. We have made investments in other international
funds as well, such as the Acción Bridge Fund. I've also used the
Ecumenical Development Cooperative Society (EDCS) because some people
want to invest in Africa.
I'm sure I would find it more difficult to choose between funds if I
were trying to evaluate 50 loan funds. I can only pray that I have that
challenge someday.
Our interest in WCCN's lending program developed because Nicaragua turns
out to be a place that interests a great many of my clients. Many of them
bore witness during the war or worked on campaigns. I actually get a lot
of feedback from my clients about what's going on in Nicaragua. Also,
Equal Exchange is based here locally in Boston, so I know what goes on
in terms of Nicaragua's coffee crop, and I see the full circle as it moves
from producer to consumer.
If I had to do the same thing in Bolivia, it would be a lot harder, because
Bolivia isn't a country that has had so much interaction with so many
progressives. In your case, I probably get as much feedback on what you're
doing as I get about any loan fund in America.
It might be worth underscoring that your investors are not choosing WCCN
because they have ten investments, and oh, it seems nice to have one with
you as well. It's not the most aggressive way to make big bucks, but clearly
that's not their goal. If it were, they wouldn't have come to you in the
first place. They choose to invest with you because of the work that you're
doing, and their own personal involvement with and commitment to that
work, so you're offering something that's very important and special to
them. I think many loan funds forget how tremendously rewarding it is
for an investor to be part of what you're doing.
One of our most delighted responses was in 1994 when you helped launch
the Banco del Campo [a bank for small farmers created by the Nicaraguan
Union of Small Farmers and Ranchers (UNAG)]. That was very satisfying.
We had an investor who had made a particularly large commitment for that,
and she was very pleased that the program went through as planned. We've
done a couple of your coffee crop loans. I forward your newsletter to
investors, and they love it.
I wish there were one of you in 75 other places, but there isn't. I think
the history of a war-torn nation being rebuilt in part through investors
of goodwill located thousands of miles away makes you a very dramatic
example of the future potential for community development investing.
