On September 20-21, 2018, the UConn Business and Human Rights Initiative hosted a Symposium on Finding the Human Face of Finance. Amy Domini, Founder and Chair of Domini Impact Investments, delivered the keynote address. Her remarks are reprinted here.
“How Responsible Investors Have Enabled Business to be a Solution for Human Suffering”
I want to thank the Business and Human Rights Initiative at the University of Connecticut and Professor Stephen Park for giving me the opportunity today to discuss the ways in which business and human rights intersect and what impactful investing has done to make things better. I’d also like to acknowledge Senator Dodd, who wrote the legislation to enable financial markets to demand information on issues we care about, like CEO compensation and payments to certain foreign governments by companies. I’d like to start by asking you to imagine a moment from my childhood.
Cowboy shows were still popular when I was growing up. One scene was replayed in almost every episode. It had variations, but always the essential elements remained. Generally there was a vulnerable person or family, often a grandmother, mother, and three young children in a wagon or stagecoach being drawn by two or four strong horses. Something would cause the horses to stampede without purpose. This spelled disaster for the helpless family hugging each other in terror. Then Cowboy Bob would gallop up alongside the lead horse and, in a magnificent display of heroic athletic ability, manage to either pull the beast to a more moderate pace or actually mount it and steer the wagon to safety.
When I began my work I felt that the profit motive of capitalism had created a terrible stampede. We did not know exactly where this ride would end but we knew that the lack of purpose spelled disaster. And where was Cowboy Bob? Government? No, we have no global government. The consumer? No, consumers are suckers. More people will smoke tomorrow than smoke today. Where, oh where, was Cowboy Bob?
Throughout history unrestrained capitalism was largely a negative force, but primarily because it had no guidance. In Europe, companies, such as the Hudson’s Bay Company, the (British) East India Company or the Royal African Company were formed and afforded military mandates allowing them to carry out the work of grabbing hope, prosperity and freedom from native people. Our own country was built in a rush to grab gold, spices and sugar, on the backs of slaves, on the lands of Native Americans. Whole cultures were annihilated in the path of manifest destiny. Thriving civilizations were systematically dismantled, all in the name of the new American dream.
This was still the mindset at the turn of the 19th century, Capitalism in the name of God and Country, commerce and prestige.
Over these next few minutes I hope to convince you that business was on a bad path and to introduce you to the world of responsible, impactful and ethical investors. I’ll discuss what we base our tactics and arguments on, how we move the needle, and what tremendous results we have seen. For today the world truly benefits from corporations that emphasize human rights and ecological sustainability and in return, global forces such as government and multilateral coalitions have formed to support and strengthen the virtuous cycle.
I will argue that many companies do cause harm to people, both through the products they sell and through the way they operate. I will argue that investors are a powerful voice and that impactful investing moves the needle in the right direction, nudging companies to behave better. And finally, I will argue that the tide has already turned. Business leaders now embrace the concept of using their position to improve the human condition while still striving to increase the bottom line.
But first, let’s remind ourselves of how the lure of profits leads to heinous behavior.
Lead. The Massachusetts Bay Colony passed a law in 1723 outlawing the making of rum with lead equipment, since it was poisoning consumers. In other words we have known the clear and present danger of lead for centuries. And for decades we have known the dangers lead paint poses to children’s brain development. So then, with nearly 300 years of legal canon regulating lead in the production of consumable liquids, and over 40 years of scientific research on the effects of lead consumption on children, how did we arrive at the crisis in Flint? The simple answer is: profit won the day.
Tobacco. Tobacco’s danger was well documented by 1939; yet today, according to the World Health Organization, tobacco causes more deaths than from AIDS, malaria and tuberculosis combined. Still industry fights on. As recently as eight years ago the world’s largest tobacco companies sued Australia for violating trade treaties when that nation attempted to pass a law stating that cigarettes must be sold in plain unmarked packages. Big tobacco lost, but the extremes to which they would go had been was made clear.
Asbestos. In 1930 Metropolitan Life Insurance Company produced a study showing that half the men working at John Manville Company’s asbestos plants for more than three years would develop lung disease. Yet it wasn’t until the late 1990s that groundbreaking work by the medical community and trial lawyers bankrupted the industry and forced business, at least in America, to use more expensive, but safer, materials to get the job done.
Lead, tobacco and asbestos are persistent but in some ways, historical issues, so let’s move on to a more modern, present day problem.
Plastic. Our Stolen Future was published in 1996, almost two decades ago. The book brought to the public’s attention the many studies indicating that plastics leach microscopic components that mimic estrogen in our bodies. This creates long-term health damage. Twenty two years later, this July, the American Academy of Pediatrics, alarmed by the effects on children of casual plastic use, issued guidelines. To protect children from dangerous results such as altered brain development and previously rare changes to the development of sex organs. Among the recommendations we find: “Avoid microwaving food or beverages plastic and don’t put plastic food containers in the dishwasher.”
In addition to poisoning of our families, plastic waste is degrading our entire eco-system. A 2017 study concluded that 60% of the 9.1 billion tons of plastic produced since 1950 still exists. There is a trash vortex the size of Texas in the central North Pacific Ocean. Toxin-containing plastic micro particles threaten the plankton and smaller sea life that produce 70% of the oxygen on earth. Have these companies robbed us of a basic human right?
There is also the problem that some products may be fine for human consumption but the delivery of the product is not.
Sweatshops. It is generally thought that clothing is a benign, even good product. Yet the profit motive leads to human abuses. You and I innocently think we are hip, ordering the cool new look before our friends even know it is cool. Companies must be able to spot a trend and deliver thousands of that cool new thing in 36 hours. They do so by maintaining rickety factories with largely temporary work forces. When the Rana Plaza fell, 1,134 people died. The construction was so shoddy that it took only 90 seconds to collapse. Was this a freak accident? Customers want to be the first to flash the latest in lace trim pockets or faded fronts on their blue jeans. The buyers, companies you shop with, comply at all costs. Who amongst us feels our retailers should bear no blame?
Slavery. About 46 million people are slaves today. Philippine fishing vessels purchase kidnapped men and boys, take them to sea to work until they prove too ill or damaged and the fortunate ones are left at a distant port. Brazilian iron ore companies keep the working men in armed camps, allowing guards to shoot those who try to escape. Where is it written that global ore markets should ignore the source?
For Profit Prisons. In the United States we have roughly 2.2 million people incarcerated and an additional roughly 50,000 juveniles in detention. We have the highest proportion of our population incarcerated of any nation on earth. And, here in the United States we have for-profit prisons. Do we doubt that their role, continually lobbying for mandatory sentences, juvenile “justice” and extended quarantine for immigrants plays a role?
Slaughter. In the southern part of Sudan wander two million homeless as another two million have fled to neighboring lands. A war particularly noted for its reliance on rape and butchery as means of controlling the desperate masses. Who amongst us believes that this has nothing to do with big oil?
Human Trafficking. The casino industry has caused much damage and hardship on the lives broken by gambling addiction. To drive through the smaller cities in Nevada is to see dozens of pawn shops selling bicycles and lawn chairs, an explicit image of what families lose to the addicted member. But there is a far darker side. Who amongst us believes that the rampant prostitution found at casinos is not bolstered by sex trafficking?
Yes folks, we have a problem. But the human spirit is strong. For while these dying products and services struggle on, destroying lives as they go, literally thousands of new companies are emerging and hundreds of old ones are shape shifting into solution-oriented ones.
In the new ideas arena, technology is bringing the world to the potential, if we accept it, of tremendous joy and fulfillment. 3-D printers can be shipped with buckets of mushroom spores mixed with bean sprouts into areas facing famine. Within days a truck load of supplies can feed tens of thousands of people. The equivalent of a robot worm wiggles through the arteries and capillaries of a human undergoing surgery, sending light and data into the target and back to the surgeon’s team. A highway in China is being built with solar panels that use ancient cooling techniques borrowed from the Persians who built their ice making towers in the dessert two thousand years ago. Because the panels are cool, they can far more efficiently carry power long distances, charge the cars that drive over them, and reduce the dedication of nature’s space for energy manufacturing.
We live in a world of tremendous contrast.
I have spent these past few minutes trying to convince you that many companies do damage, create human rights abuses and that they do this both by selling harmful products and by the way they manage their own affairs. I now turn to why this is so and why my field has been so important in turning the tide.
There is no magic reason for capitalism as we know it today, with huge companies that have far more cash on hand than most countries. Capitalism simply became universal because it was so good at providing the majority with food, clothing, shelter and comforts of humankind. And corporate capitalism needs profits to come to life. An entrepreneur has an idea, solicits backing and a Wall Street firm steps in and finds partners who then gain a share of the company. These share owners expect financial returns. They own a share of the company. They can sell the share of the company they own. Today Wall Street facilitates the transaction, but in the era of the Hudson Bay Company the system was the same.
This system worked without many rules for centuries until, in 1929, it failed spectacularly. The stock market crash of 1929 made it abundantly clear that the word ‘profit’ had to be better defined. Once it was, through the creation of the Securities Exchange Commission and regulations about reporting profit properly, the system has rolled along ever since without much of a hiccup.
Within this construct, who, or what, can bring balance to the profit priority? How do we continue to benefit from corporate capitalism while also creating a universal mandate to respect human rights? This planet does not have a single source of governance. No one government can dictate corporate behavior globally. Where, oh where is the Cowboy Bob of my youth?
Early on, as a financial advisor, I recognized that there is an answer. While there is no interconnected global government, there is a sophisticated power base that lies within global financial services. At any given moment financial assets with a value of trillions of dollars are being monitored, exchanged, governed and monetized. The reach and power of financial markets is beyond any other mechanism on the planet. They are the most magnificent governance structure humankind could ever have imagined.
For me, this was the light bulb moment. Use the power of investors. My goal was clear, infiltrate the belly of the beast we call Wall Street; build a presence for good from within. Ethical investors would be our Cowboy Bob.
If only, back in 1934, the SEC had mandated disclosure of benefit to citizens of the nation, along with benefit to shareowners. Reporting that says, for instance, “we made $14 billion in profits but cost taxpayers $15 billion in hospital bills, would completely re-price the stocks of companies and the priorities of corporate management. Well better late than never.
This became my life’s work. Build up a component of investors who attempt to calculate the cost or benefit of a year’s operation of the company. If only a fraction of investors did this, I, along with my growing number of cohorts, calculated, it would move the needle.
My colleagues and I developed an alternative matrix for evaluation. How many women sit on your board or among the top five (by pay) managers? How much carbon does your operation produce? Do you publish detailed corporate responsibility reports? What is the differential between the CEO compensation and that of the median worker?
When I started, I had no idea what this line of reasoning would mean for a portfolio. It made sense that avoiding problems would help, but who really knew? Well it is now documented that my kind of questions, and there are about two hundred of them, have the unintended benefit of providing a clear vision into the quality of management. This is a huge value-added to security analysis and propelled Environmental and Social analysis into the mainstream.
But before I knew it would also help pick good stocks, I had my message. Do you believe that it is right to make money from the destruction of our future? If not, join me. And it worked. At first it was just individual investors, and then came small foundations, some churches, and so on.
Those who joined me believe, as I do, that data creates knowledge, and knowledge creates action. We saw what 84 years of the SEC’s data collection had done. Simply stating the company must lay out the assets and liabilities, the profits and losses, the opinion of the watchdog accountant, and the resumes of those who run the firm meant that over time, the disclosures had led to rigorous attention to those details and only those details.
At this juncture, I’d be remiss to overlook our American definition of fiduciary obligation. To unfairly shorten a story that could well fill days, suffice it to say most asset managers rely on the definition now stated by the Department of Labor. “The primary responsibility of fiduciaries is to run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses.” I know I am being a bit peevish, but I point out that it does not say, “Remember that the beneficiary is a living breathing human, so take into consideration of greater picture, not simply, Will there be money to retire?,” but also, “Will there be breathable air available at that time?”
Both the SEC and the DOL ignored human outcomes and cared only about the money. It was early days, but I knew. This would be my path. Insert the voice of ethics into the financial services industry, rewrite the rules for disclosure, and broaden the American definition of fiduciary responsibility. It had to be done. I invented something. I wrote a book about it. I called it Ethical Investing, I told people let’s do three things:
- First, let's pick stocks that are ahead of the curve on the issues we care about, on the environment and human dignity. That way we will create market demand for an alternative accounting system to the one we were using then. We'll build a means of accounting for the true cost to people and the planet picked up in the name of corporate profits.
- Second, let's remember that owners of a share of a company have the right to go to the annual meeting and discuss non-routine items with the company's management and the board. Let's use that right to talk about racism, pollution, climate charge and other things we care about.
- Third, let's funnel money into less traditional investment areas, areas that push the envelope in terms of financing good things. Let's make deposits at community development credit unions, let's make loans to finance micro-credit--loans of $30, $40 or $50 to an entrepreneur in an emerging economy. Let's finance new greener technologies.
The book was published in 1984. 1986 was the year of the crescendo of divestment of American companies doing business in South Africa. Blacks couldn’t vote there, and the world was outraged. One tactic was to humiliate the South African government by making them pariahs; companies using their slave labor were also pariahs. Portfolios were purged of companies doing business there. And I had written the book and so was the expert, called upon to defend my argument, to defend the thought that the way you invest matters.
That left me a passionate advocate. I knew I had to remove barriers at the top and inspire grassroots at the bottom. When I found my voice 27 million people were living in virtual slavery in South Africa, and that was wrong. But today they vote. That’s a heady feeling.
During the following decades, our investment results were tracked, and found to add value. The fear of not making money became the fear of losing an advantage in making money. So although investor responsibility as a concept did not get much attention at first, it does today. Our efforts have led to dramatic and liberating results.
By 2005 we had grown to the point that the United Nations commissioned the then second largest law firm in the world, Freshfields Bruckhaus Deringer, to produce A Legal Framework for the Integration of Environmental Social and Governance Issues into Institutional Investment. The Freshfields legal opinion, as the document came to be known, stated that in every jurisdiction in the world, with the possible exception of the United States, what I’ll call “my” way was not only legal but necessary.
That same year the then UN Secretary-General Kofi Annan also invited the world’s largest investors to join a process to develop Principles for Responsible Investment. With his urging, these enormous asset managers included the integration of human rights outcomes into their ordinary research approach and launched their initiative in April 2006. In 2011 the United Nations, published guidelines that create a framework within which businesses could consider the implications of their actions. This was followed, in 2015, with the Sustainable Development Goals, again laid out by the U.N. The SDGs cover social issues including poverty, hunger, global warming and social justice, 17 in all.
Of these three initiatives, the first, UN PRI, is a pledge by the financial community, the second, the Guidelines, by corporations, and the third, the SDGs, by nations.
The Organization for Economic Co-operation and Development (OECD) took notice. OECD has 36 member countries and makes up most of the developed world. Today, OECD nations, with the exception of the United States, mandate consideration of human and ecological factors be considered by fiduciaries when they invest.
I return to the UN PRI. When my fund company is invited to compete for consideration by a European or Japanese pension plan, the first question is “are you a member of the UN Principals for Responsible Investing?” If I cannot check that box, there is no need to fill out the rest of the form.
What does that mean? It means that all asset managers globally either give up on getting the world’s largest clients or sign. Every big firm on Wall Street has signed. There are more than 1,750 signatories from over 50 countries representing approximately $70 trillion. That’s $70 trillion that has made the commitment to incorporate the planet and its people into investment analysis and decision-making processes and to seek appropriate disclosure on such issues.
Impact Investors made it happen. Now corporate leadership has twin goals aligned. Behave responsibly and make a profit. Both are what the owners on Wall Street now demand, regardless of behind-the-curve guidance from our Department of Labor.
As a result of the strong push for corporate transparency, 4,900, or 80 percent of large and mid-cap companies around the world published reports relating to their corporate social responsibility during 2017.
Quarterly earnings reports used to be pretty dry for me. Boy has that has all changed. Now companies routinely address people and the planet at these formerly profit oriented events. As an example, these (slightly shortened) comments come from Jon Moeller, CEO of Proctor & Gamble:
- “We are using reclaimed beach plastic for Head & Shoulders bottles.
- Environmental sustainability improvement was achieved by moving our manufacturing and distribution closer to the consumer.
- Since 2010, our plant sites have reduced water usage by 24%.
- The sustainability efforts I recited earlier obviously go hand in glove with our productivity efforts, contributing significantly to reductions in cost.“
This trend is gaining in strength and momentum. 193 countries agreed to work towards achieving the 17 Sustainable Development Goals of the UN by 2030. Now therefore, companies report initiatives they have undertaken which help achieve the goals, even though the U.S. was not one of the 193. Many report using UN SDG as our framework. In fact, you may visit www.domini.com to find our most recent Impact Report.
Perhaps the most exciting development is the surge of growth of a new spirit. Now we see companies that exist to make human lives better, either through the products they make or through the way they make them, or better.
Domini Impact Investments holds a high impact pool of these. Listen to some of the tales we find.
- A Canadian energy company that runs small hydroelectric facilities, frequently located on lands owned by first nations, has developed revenue-sharing agreements and employment advantages to members of each nation it approaches. The company puts community needs first in developing energy sources.
- A Japanese bank was founded when entrepreneurs noted that there were no bank loans available to female business owners. They built the now $12 billion bank by specializing in making commercial and mortgage loans to women.
- South African based insurance and financial services company operates in 34 African countries. With unique expertise in bringing people previously outside of a monetary system into it, the company pursues a stated goal of black empowerment and leadership.
- A French medical testing company built to provide testing and diagnostics to extremely remote populations, ones that do not have the luxury of carrying a blood or urine sample to a nearby hospital. In response to World Health Organization goals, the company focuses its efforts on HIV/AIDS, tuberculosis and malaria, infectious diseases and emerging viruses.
Companies now address human rights routinely and, in some cases, very effectively. That energy was permitted and unleashed by responsible investors, like those I work for, plodding along and removing barriers for decades.
Call us what you will, impact investors, responsible investors, ethical investors; it all adds to the force that millions of small investors have brought into the mainstream. Through our collective and individual actions, we have brought international agencies, governments, and the entire financial services industry into play for the dual purpose of assuring universal human dignity and ecological sustainability.
Believe me, I never in my wildest dreams thought that I’d see the level of acceptance, even assumption, of my ideas when I started down this path. But once I had that light bulb moment, I never looked back.
Just for fun, I close with some recent statement from the new generation of business leaders:
- A spokesperson at Sanofi in response to comments made by Roseanne Barr, which she blamed on having taken Ambien. “While all pharmaceutical treatments have side effects, racism is not a known side effect of any Sanofi medication.”
- Brad Smith, CEO of Microsoft on repealing Dreamers, “If Congress fails to act, our company will exercise its legal rights properly to help protect our employees. If the government seeks to deport any one of them, we will provide and pay for their legal counsel. We will also file an amicus brief and explore whether we can directly intervene in any such case. In short, if Dreamers who are our employees are in court, we will be by their side.”
- Dick’s Sporting Goods CEO Edward Stack, of the gunman at the Marjory Stoneman Douglas High School, "We did everything by the book. We did everything that the law required and still he was able to buy a gun. When we looked at that, we said, ‘The systems that are in place across the board just aren’t effective enough to keep us from selling someone a gun like that.’" When asked whether there is a chance the company will reverse its position on the newly announced ban, Stack replied, "Never."
- Following President Trump’s response to the events in Charlottesville, Merck CEO Kenneth Frazier’s resigned from the President’s Manufacturing Jobs Initiative, stating, “America’s leaders must honor our fundamental values by clearly rejecting expressions of hatred, bigotry and group supremacy, which run counter to the American ideal that all people are created equal.”
Wow. We have moved the dialog from Commerce and Prestige to “all people are created equal.” Our business leaders are increasingly totally on board. We have come a long way over this past century. Our definition of what business means and what the role of companies ought to be has quite literally changed the lives of millions. It wasn’t going to happen as long as accounting only pertained to shareholder profits; it wasn’t going to happen until shareholders got involved in the struggle. I am grateful for having had the opportunity to have been a part of it. Many of you are entering the stage in life where you, too, will have a light bulb moment. When you do, follow it. The journey will be wonderful. Thank you for listening to these comments and for your own personal commitments to remember the vulnerable as you go about building your own lives.