The Moral Investor: A growing tide of investors are looking for socially responsible ways to make money
SALT LAKE CITY — In the 1980s, Amy Domini was working as a Boston stockbroker when she realized something that surprised her: while all of her clients were interested in making a profit, many had ethical boundaries which kept them from investing in certain businesses.
Some clients avoided tobacco companies, for example, because a loved one had died of lung cancer. Others wouldn't invest in lumber companies because of a love of birding.
Such was the impetus for the Domini 400, the first index of “socially responsible” stocks. Think S&P 500 with investment decisions based on social, environmental and corporate governance criteria. Launched in 1990, the index added momentum to the budding investment philosophy called socially responsible investing (SRI), also known as sustainable investing.
Amy Domini, who has been called "The First Lady of Sustainable Investing", speaks with the conviction of a pioneer. “We were forging new ground,” she says in a video on her website. "Oh, Wall Street thought we were completely nuts. They didn’t think we could ever get the same kind of returns while including ethical standards in our investment decisions. And they didn’t think investors, at the end of the day, really cared.”
As for the million-dollar question?
Over the twenty-two years since its inception, the Domini index, now known as the MSCI KLD 400 Social Index, has managed to keep pace with the S&P 500. In fact, over that period, it has delivered an average annual return of 9.6 percent, versus 8.9 percent for the S&P, according to Bloomberg.
Where your treasure is
Religion played a fundamental role in the birth of SRI in America. Years before the Revolutionary War, Methodists and Quakers were formally shunning investments in the liquor, tobacco and slave trades.
John Wesley, one of the founders of Methodism, invoked scripture to frame a gospel of ethical investing. In his mid-18th century sermon, The Use of Money, Wesley told followers that “we ought to gain all we can gain, but this it is certain we ought not to do; we ought not to gain money at the expense of life, nor at the expense of our health.”
Ethical investing found a new wave of adherents during the political ferment of the 1960s and 70s. The Civil Rights Movement, Vietnam and the proposed Equal Rights Amendment all contributed to a wider questioning of both government policies and certain business practices.
By 1995, SRI assets under management (AUM) comprised nine percent of the U.S. total, or $639 billion. In 2010, SRI investing pushed past the $3 trillion mark, rising to 12 percent of all assets under management ($25 trillion).
A Tipping Point?
Growing from nine percent to 12 percent over 15 years qualifies as modest growth. Yet, several qualitative factors point to a possible tipping point for SRI. The financial crisis, Occupy Wall Street, and the debate surrounding Bain Capital and redistribution all have people paying more attention to how money is made.
Such a person is 64-year-old Gray Woodward, a retired teacher from Raleigh, North Carolina. Four years ago, a series of conversations with a fellow community volunteer started her down the road of sustainable investing.
“Four years ago, I’d never thought about it,” Woodward says. “I knew nothing about it. Then I learned about it and got to thinking, ‘Gosh, how do I feel about owning Exxon Mobil?’”