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Evaluating Corporations — Our Research Process

You will often hear money managers talk about their extensive due diligence — they dig deep to truly understand the companies whose stock they are purchasing. Our analysts do this too — they spend their days reading regulatory filings, corporate sustainability reports, industry journals, reports issued by human rights and environmental organizations and media coverage. They also reach out to companies and informed stakeholders for further information.

But digging deep is only one key to effective research and decision-making. At Domini, we use Key Performance Indicators (“KPIs”) — a set of factors we have defined for each industry—to guide our analysts toward the most important issues, and help them identify the right investments for our funds. Our indicators focus on the most pressing sustainability issues each company faces, within the context of its business model and its industry.  We will examine other issues as they arise, but our KPIs will generally take precedence in our decision-making.

We tailor our KPIs not only to the industry but to subindustries, making meaningful company-to-company comparisons possible. Domini has identified four to seven subindustries for each of the 24 major industry categories we use. A few sample KPIs are provided below.

 

   Business Alignment Indicators

Stakeholder Relations Indicators

Airlines

  • Average age of fleet
  • % of workforce unionized
  • % of revenues from air freight
  • % of business that is long-haul/international (positive) vs. short-haul/regional (negative)
  • Relationships with labor
  • Major safety incidents, initiatives to improve airplane safety, etc.

Apparel & Toys

  • % of manufacturing outsourced
  • % of sales from educational toy products (positive)
  • Business strategy based on fads (negative for supplier relations)
  • Reporting on supply chain management system
  • Toxics reduction programs

Our focus on safety for the automotive industry and for energy companies led to our avoidance of BP, prior to its disaster in the Gulf of Mexico, and Toyota Motor, prior to a series of safety recalls (See Safety Last?).

Our research staff includes native Japanese and Italian speakers and French and Spanish reading fluency.  These skills enable Domini’s researchers to provide a more expansive review of source materials. This has been particularly important in reviewing Japanese companies because many critical source materials only appear in Japanese and Japan represents a significant portion of the MSCI EAFE, the public benchmark for the Domini International Social Equity Fund. For example, Japanese-language industry publications detailed Toyota Motor’s history of safety recalls years before this became front-page news in the United States.