20/20 Hindsight: A Profile of Amy Domini

Named by Time Magazine as one of the 100 most influential people in the world in 2005, Amy Domini is the founder and CEO of the consistently innovative Domini Social Investments, a $1.8 billion socially responsible investment firm.

A product of the civil rights movement and the Vietnam War, Amy Domini grew up with the flower-child ethos of goodwill. Personal ethics were important to her as a stockbroker, prompting her to write "Ethical Investing" in 1984, where she questioned why people would invest in corporations that undermined their individual goals. She soon began to see her investment style as part of a larger movement and herself as a leader within that movement, providing the disjointed socially responsible investing community with a sense of structure and solidarity. Together with her partners Peter Kinder and Steve Lydenberg , she formed the Domini 400 Social Index , comprised of 400 U.S. corporations selected for a range of social and environmental criteria, and the Domini Social Equity Fund , which tracks this index.

"When I started Domini Social Investments, I had no idea of how difficult it would be to operate in the mutual fund industry," Domini says, "This industry is highly regulated and our shareholders deserve nothing less than excellent service." The industry was also largely untapped and the future of socially responsible investing met with skepticism. "I am largely glad that I did not know then what I know now since I might have been afraid to try, and that would have been a terrible mistake."



When she started the firm in the early 1980's, Domini spent much of her time explaining what socially responsible investing meant.{/quotes} Back then people associated it with South Africa , and more recently, wind-farms . But today Domini says, "The public definitely understands that we are about investing in companies that offer a solution. Further, corporations themselves are so much more willing to provide fairly in-depth information on a broad range of non-financial issues," something she never would have encountered 25 years ago.

Domini attributes the recent surge in popularity of socially responsible investing to a global village where there can be no compartmentalizing of actions. "When I choose to purchase gasoline for the tank of my car, I am, at some level, aware that I am partaking of a structure that leads to terrible human rights abuses and possibly fatal environmental consequences," she explains. "In such a world people are seeking a way that they can make a difference, and understand very easily that the way you invest matters."

Since the firm's founding, socially responsible investing has been gaining momentum on a global scale. Domini notes the funds that have formed within China and Korea, her invitations to conferences in Brazil and Argentina, and California's recent decision to divest from the Sudan . "Socially responsible investing is now moving into the next phase," she speculates. "Mandates for social responsibility in the investment decision-making process have rolled out through pension funds all over Europe." Her vision for the future of Socially Responsible Investing comprises a growth in product offering and selection that leads to a day when all investments consider the social impact of using money responsibly.

Domini believes that this goal is not merely beneficial to the global community, but also to the individual investor. She argues that a portfolio of securities biased by certain social criteria has an advantage over a non-biased portfolio, as "evaluating a company's social and environmental impact leads the investor to make investments in companies with stronger more positive corporate cultures and is, in a way, an evaluation of the management of that company." A socially biased portfolio is thus an investment in forward-thinking management teams.

The obvious drawback of an ethically skewed portfolio is the inherent sector bias. "When investing with criteria that relate to the environment or human dignity, one is almost certainly going to find fewer opportunities in the natural resource extraction fields," Domini admits, "However, most people purchase stocks in a more active way and can easily compensate for the sector bias." With socially responsible investing expanding globally, regional and country specific biases become a concern as well. The Domini European Social Equity Fund has difficulty identifying socially responsible companies based in Russia, for example. But Domini stresses that the tendency toward high quality management teams generally outweighs sector constraints.

In additional to the internal obstacles, there exist external obstacles. "Ten years ago performance was a factor because as a young industry, socially responsible investing did not have a strong enough track record to pacify investors," Domini says. But with the proliferation of corporate social responsibility things have changed, "Today the challenge is getting people to 'connect the dots', and see that their investment decisions impact the world."

The proliferation of socially responsible investment firms is a challenge in itself, causing Domini Social Investments to no longer be the only game in town. Fees in the retail market remain consistent, however pressure from pension funds compels the firm to develop lower cost products. Domini sees the competition as vital to the CSR movement because it leads to greater transparency and accountability, as well as corporations that are eager to be part of the solution. "This may cost me something in that I don't have a corner on the market," she acknowledges, "but I gain so much more that I cannot feel anything but deep satisfaction with the amount of competition that exists."

When asked about the next steps for her firm, Domini discusses the firm's recent self-analysis, which determined that all equity products would be managed in a quantitative fashion . By January 2007, the Domini Pac-Asia Social Equity Fund and the Domini Eur-Asia Social Equity Fund will be added to the U.S. equity and European equity portfolio, and from then on Domini plans to continue to roll out new funds addressing geographic areas, each with the responsible standards for investment characteristic of the firm and the quantitative investment approach utilized for the stock selection process.

"The financial services industry is tremendous," says Domini. She explains that the five largest economies combined (European Union, USA, Canada, Japan, and China) only represented $34 trillion out of $293 trillion worth of outstanding derivatives at the end of June 2006. "Finance is much larger than countries and much more powerful. If investors of the world fail to recognize that finance is driving everything, then sustainable environment and human dignity cannot be achieved. I therefore view socially responsible investing as the most comprehensive and direct way of improving our world and our society."