Three Paths to a Better World: An Interview with Amy Domini

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.