The New Mainstream? Investing with Social and Environmental Conscience
Note: In honor of Social Venture Network’s 25-year anniversary, the network is inducting 25 of its most innovative and influential leaders into its hall of fame Nov. 13 at Gotham Hall in New York City. To recognize these sustainable business pioneers, SVN’s news program, ‘Sustainable Solutions,’ is interviewing the hall-of-famers to celebrate their accomplishments and learn what more needs to be done. Read the whole series here
A woman named by Time Magazine as one of the most Influential People in the World has a hunch that a major shift is underfoot on Wall Street. And if Amy Domini, founder of Domini Social Investments, is correct, then her magnum opus is about to be achieved.
Amy, who is best known for creating an alternative financial index that takes into account social and environmental risks, says assessing financial investments based on social and environmental criteria is about to go mainstream.
She bases her prediction on the influence she says academia has on financial asset management. “What happens in academia matters on Wall Street,” according to Amy.
It was a paper written by Harry Markowitz in 1952 that introduced the need for a diverse portfolio to mitigate risk, a theory that continues to guide Wall Street today.
Yet recently, a string of papers stemming from top universities including Harvard, Stanford and Chicago are suggesting that when investors look beyond a company’s earning potential to how they treat people and the planet, the investments perform better.
“We already knew (this), because the Domini 400 Index told us that,” says Amy, referring to her alternative index that has outperformed the S&P 500 over the long term since its inception in 1990.
“Now, you’ve got the academic world saying ‘this could be a new tool that Wall Street has ignored,’ and that will push Wall Street.
“I think we will see this mainstreaming, as it’s called in my industry, happen quite rapidly because when Wall Street sees an advantage, they take an advantage.”
Amy says the shift is already underway, pointing to the global firm UBS Securities, which asks all of its analysts to understand environmental and social risks in the investments they’re making, as well as how management is addressing those risks.
The same goes for major insurance group Munich RE, which only purchases bonds after examining how companies are addressing environmental and human rights.
Governments are also increasingly mandating disclosure. The approach is being championed in 24 countries including Denmark, which requires companies to disclose Corporate Social Responsibility (CSR) activities and use of environmental resources. In Ecuador, mining companies must maintain records on consumption of materials and present an annual environmental audit.
“All these companies around the world are now having to do these things, and that’s going to affect the way management behaves,” Amy says.
Amy predicts we will see significant impact from this shift in the future, as she believes more than half of Wall Street will begin examining environmental and human dignity risks in their investments.
“My greatest hope is that I’m correct, that there is mainstreaming bearing down on us very quickly, and I see that building up very rapidly around me, and that this mainstreaming puts tremendous pressure on all of these companies to provide a better framework for the way they interact with people and the planet,” she says.
“I want to live to see it. This is what I’ve been here to do. And it’s right there within grasp.”
This article written by AxiomNews.ca is part of a Social Venture Network series featuring its Hall of Fame honorees.