July 16, 2010
Safety Last?: BP,
Toyota, and Massey Energy
Domini avoided investments in BP,
Toyota, and Massey Energy: three major companies that have recently experienced
devastating public scandals and catastrophes.
That Domini avoided these three companies demonstrates that social and
environmental standards can make a difference in investment decisions. Such
standards can provide early warning signals for major disasters to come.
A look at these companies underlines the importance of evaluating the
safety record of publicly traded corporations before making the decision to
invest, particularly for energy and transportation companies.
BP
Despite BP’s commitment to alternative energy and its public statements
on the need to address global warming, we have consistently rejected BP for the
Domini Funds based on a pattern of safety and environmental concerns, including
a 2005 explosion at BP’s Texas City refinery that killed 15 employees and an
oil spill and persistent corrosion issues at the company’s Prudhoe Bay pipeline
operations. Several years ago, we informed a BP representative that they would
have to substantially improve their safety record to be approved for our funds.
We have also consistently excluded the two other companies involved in the Deepwater
Horizon disaster, Transocean and Halliburton, for a variety of social
and environmental reasons.
Toyota Motor
The extensive safety
and quality problems that forced Toyota
Motors to make its massive worldwide recalls in 2009 severely damaged the
reputation of a company that had in the past been praised for its quality,
employee, and environmental initiatives. However, our research identified a
number of negative factors that counterbalanced the positive press that the
firm had been receiving. One of our concerns was the company’s consistent
record of major vehicle recalls in Japan (over 1.887 million in 2004, over 1.88
million in 2005, and about 1.3 million in 2006), as well as a pattern of labor
relations problems in the Philippines (anti-union activity) and Japan (abusive
“cosmetic subcontracting”).
Domini was also among the first in the SRI world to uncover Toyota’s
involvement in Burma through a partially owned auto components subsidiary. (See
our second-quarter 2008 Social Impact Update
for the full story). We continue to engage with the company, urging it to end
this relationship. Finally, in
our view, Toyota’s sales of energy-efficient hybrids are largely offset by
sales of light trucks and SUVs, giving it only an average overall record on
fuel efficiency for its fleets.
This pattern of
controversies and relatively weak positives led us to consistently exclude the
firm from our portfolios.
Massey Energy
The decision not to hold Massey Energy was relatively straightforward,
since Domini rarely approves companies that have substantial involvement in
coal mining. Coal emits one of the highest percentages of greenhouse gases per
unit of energy produced among the fossil fuels. In addition, as an industry,
coal mining firms have a long historical pattern of safety challenges. Although
we don’t automatically eliminate all coal companies, we must see an exceptional
record of positive social and environmental initiatives in order for such firms
to qualify for inclusion, a circumstance Domini rarely encounters. Massey
Energy was no exception to this general rule.
Key Performance
Indicators
Integral to our research and standards setting process is the use of “key
performance indicators” For each industry, we identify approximately a half
dozen key business-alignment and stakeholder-relations factors that take
precedence in our decision making. These indicators focus our analysts on the key sustainability challenges each
company faces. For example, safety is a key indicator for us for both the
automotive industry and for energy companies. If a major oil and gas company
has a poor safety record, that factor may well override other positive aspects
of its social and environmental performance. Learn more about how Domini applies
its standards.
Our investment
process by no means guarantees that we will avoid all companies with
controversies. Many companies that we approve have mixed records where we feel
strengths counterbalance concerns. Unanticipated problems and controversies can
occur in others. We do believe, however, that it is important to signal our
concern about safety and environmental issues to major corporations both by
refusing to invest in some and engaging with others, in the hopes that
concerted ongoing efforts by concerned investors like ourselves and our peers
will over time bring about positive change.
You should
consider the Domini Funds' investment objectives, risks, charges and expenses
carefully before investing. View
or order
a copy of the Funds' current prospectus for more complete information on these
and other topics. Please read the prospectus carefully before investing or
sending money.
The
composition of the Funds’ portfolios is subject to change.
DSIL Investment Services, LLC, distributor. 06/10
