Harmful & Addictive Products
Domini’s Global Investment Standards establish two long-term goals: universal human dignity and ecological sustainability. Each and every company we review is evaluated, within the context of its core business model, against these objectives. Certain industries, including tobacco manufacturers, military weapons manufacturers and firearms manufacturers, are “fundamentally misaligned” with these goals. In other words, their core business model is antithetical to the type of broad-based wealth creation we are seeking to build through our investments. They are therefore ineligible for our portfolios, no matter how much they give to charity, or how exemplary their environmental records may be.
If capitalism is the best system in the world for distributing products and services as cheaply, broadly and efficiently as possible, then what can be said of using these markets to distribute handguns or nuclear weapons?
Many investors exclude problematic industries because they believe it is immoral to profit from them, or because they wish to achieve consistency with their own personal choices and values. Others may believe that the activities of these industries carry unacceptably high risks that render them unsuitable for their portfolios. Regardless of personal motivation, we believe that it is important for investors to take full responsibility for all implications of their investment decisions — financial, social and ecological — and that by doing so, they can have a tremendous impact on other investors, on the companies they hold, and on our society.
Tobacco, Gambling, Alcohol
Domini does not invest in companies that are significant manufacturers of alcoholic beverages or tobacco products, or significant providers of gambling goods and services.
Certain products — such as tobacco, gambling, and alcohol — are both harmful and addictive. Tobacco is highly addictive, causes more than 400,000 deaths annually in the United States alone, and can cause health problems for those in the vicinity of its users. Alcohol abuse was estimated to have been responsible for some 85,000 deaths in the United States in 2000 and cost the economy an estimated $185 billion in 1998. Approximately 16,000 of the 40,000 automobile fatalities each year in the U.S. are caused by drunk drivers. Pathological gamblers make up an estimated 1% to 2% of the U.S. population, and problem gamblers make up an additional 3%.
These products can play a useful role in society, providing individual pleasure, and in the case of alcohol even health benefits, if appropriately used. However, we believe that putting these products in the hands of large publicly traded corporations dramatically increases the potential for their abuse and their costs to society. Large public corporations are relentlessly driven to innovate and expand their reach, marketing their products as aggressively as possible to as many customers as possible. For these companies, effective marketing often means exploiting customers’ addictions to these products or ignorance of their risks.
Domini does not invest in companies that are significant owners or operators of nuclear power plants.
Although advocates have extolled nuclear power as a safe and clean alternative to fossil fuels, the industry track record reveals major concerns in the areas of safety, transparency and storage. Nuclear power advocates often compare investments in nuclear with renewables, and tout the relative cost efficiency of nuclear power. However, these estimates rarely reflect the costs of the entire nuclear life cycle, including storage, frequent breakdowns, and the risk of catastrophic failures. Claims of nuclear power’s “carbon neutrality” also fail to take into account the carbon footprint of the full nuclear power life cycle, from uranium mining to waste storage. Taking these arguments at face value, however, we still believe the risks of nuclear power outweigh its benefits.
Safety and Transparency
Nuclear power companies have spent years trying to convince the public that nuclear power production is safe. Over the last thirty years, however, there is troubling evidence of cover ups, falsification of data, and near-catastrophic failures, many of which have been underreported. In addition to concerns relating to the operation of nuclear power plants, there are additional concerns relating to the potential impact of external events.
The issue of nuclear waste has never been solved. There are no safe, long-term options for the storage, processing, and disposal of spent nuclear fuel from power plants. Nuclear waste contains long-lived elements. Plutonium-239 has a half-life of 24,000 years. Strontium-90 and cesium-137 have half-lives of about 30 years (a 30-year half-life means that it would take roughly 200 years for radioactivity to decline to 1%). Nuclear fuel rods contain uranium-235, which has a half-life of 700 million years. When we think about the storage of nuclear waste, it is clear that short-term solutions don’t address the life cycle associated with nuclear power. Furthermore, the transportation of nuclear waste poses additional concerns.
In addition, nuclear power raises concerns about the proliferation of nuclear weapons, because the technologies involved in the enrichment of uranium for use in nuclear power plants are essentially identical to those involved in the enrichment of uranium for use in nuclear weapons. (See Domini’s policy on nuclear weapons described below.)
All of the above concerns will only be exacerbated by rapid growth in the nuclear power industry.
Domini has a long-standing policy to avoid investment in companies deriving significant revenues from the manufacture of military weapons or firearms.
Nuclear weapons, the international arms trade, and out-of-control spending on conventional weapons are all of concern to Domini. The achievement of international peace is among the most difficult tasks faced by government. We view the involvement of publicly traded corporations in the production of nuclear and conventional weapons as complicating this task, which should be left to government.
Nuclear weapons and the threat of a nuclear war are one of the greatest threats to humanity and the global environment. As of 2011, the U.S. had a total inventory of 8,500 nuclear weapons, Russia 11,000, France 300, China 240, and the United Kingdom 225. In addition, India, Israel and Pakistan have nuclear arsenals. North Korea and Iran have also reportedly taken steps to develop nuclear weapons technology. (Data is drawn from the Federation of American Scientists’ Nuclear Information Project.)
In addition, the thriving international trade in conventional arms fuels internal and regional conflicts around the world. In 2009 the international arms trade totaled an estimated $58 billion and there were more than 20 internal and regional armed conflicts in the world, including those in Iraq and Afghanistan.
Finally, out-of-control spending on military systems and conflicts also diverts funds from much needed investments on the range of domestic public goods and international aid that are essential for the creation of prosperous, stable nations.
The Military-Industrial Complex
In 1961, in his farewell address to the nation after two terms as President and service as Supreme Commander of the Allied Forces in Europe during World War II, Dwight Eisenhower issued a dire warning about the growth of what he called “the military-industrial complex,” the “conjunction of an immense military establishment and a large arms industry.” Until World War II, there had been no armaments industry in the United States. Eisenhower warned:
“In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.”
We believe that national defense is too important to be tied to publicly traded companies with no allegiance except to their shareholders and next quarter’s returns. Our policy also reflects our deep concerns about the confluence of profit-seeking and war-making. One consequence of a permanent for-profit armaments industry is reflected in the firearms industry’s deft transition from manufacturing guns for military use to military guns for civilian use. In many cases, the cachet of a gun’s use by the military has been used to entice buyers in the more lucrative civilian market.
We believe the growth of the military weapons industry upsets the critical balance between the private and public economy that is necessary for the maintenance of a free society. A large and permanent military arms industry threatens ultimate societal aims, including disarmament, a goal that Eisenhower defined as a “continuing imperative.”
We are also concerned about the production of certain weapons, including landmines, cluster bombs and nuclear weapons that violate international humanitarian law due to the high risk of civilian casualties. Domini’s policy on nuclear power is partially based on concerns about the proliferation of nuclear weapons, because the technologies involved in the enrichment of uranium for nuclear power plants are essentially identical to those involved in the enrichment of uranium for nuclear weapons. In addition, the Domini Funds exclude U.S. Treasuries because a significant portion of funds raised by the sale of treasuries is used to finance our military and the maintenance of our nuclear weapons arsenal.
Domini has a longstanding policy to avoid investment in the manufacturers of weapons. We believe this industry is inherently damaging to society, due to the intersection between a particularly dangerous product and the extraordinary pressures to maximize profits and increase market share—pressures which are exponentially heightened for publicly traded companies.
The tragic shooting that took place in December 2012 at Sandy Hook Elementary School in Newtown, Connecticut galvanized our country and put gun control back on the national agenda. Immediately after, a number of pension funds and educational institutions began a discussion over whether investing in firearms manufacturers is either necessary or appropriate.
Every year, more than 8,000 Americans are killed by guns. Since 1968, nearly 1.4 million Americans have died from civilian gunfire, exceeding American casualties in all wars, from the Revolution through the wars in Iraq and Afghanistan. Over the 30-year period between 1982 and 2012, there were at least 62 mass shootings throughout the country. Seven of them occurred in 2012 alone.
The civilian gun industry in the United States is relatively small, with gun and ammunition sales in the $4-5 billion range annually. Most gun manufacturers are private—they are owned by private equity firms, which pump money into expanding their markets. The ultimate challenge facing the industry today is to expand a market where an estimated 70-80 million Americans already collectively own 300 million firearms.
Facing a declining interest in hunting and an aging population of gun owners, the industry has undertaken a strategy focused on designing and marketing military-style semiautomatic weapons for the civilian market. A detailed study released by the Violence Policy Center, a gun control group, found that “the flood of militarized weapons exemplifies the firearms industry’s strategy of marketing enhanced lethality, or killing power, to stimulate sales.”
Distressingly, but perhaps not surprisingly, much of this marketing has been targeted at children and teens. The New York Times reported, “Threatened by long-term declining participation in shooting sports, the firearms industry has poured millions of dollars into a broad campaign to ensure its future by getting guns into the hands or more, and younger, children.” The editor of Junior Shooters magazine noted that if the industry is to survive, gun enthusiasts must embrace all youth shooting activities, including ones, “using semiautomatic firearms with magazines holding 30-100 rounds.”
Many of our shareholders may be pacifists, or opposed to hunting. Their investment in our funds may be seen as a reflection of these personal commitments. Other Domini Funds shareholders may be hunters or sharpshooters. Their avoidance of gun-makers through their investment in our funds may be seen as a recognition that the stock market is not a safe mechanism to finance the makers of such inherently dangerous products. Either way, our shareholders understand the importance of taking full responsibility for the implications of their investment decisions.
Note on Excluded Industries
Domini will exclude from our portfolios companies significantly involved in the sub-industries of alcohol, tobacco, gambling, weapons manufacturing, and nuclear power. These industries are “fundamentally misaligned” with our Global Investment Standards.
If a company derives more than 10% of revenues from production of alcoholic beverages, tobacco products, or weapons, or from the operation of casinos or the provision of gambling services, or owns more than 10% of a nuclear power plant, its involvement is considered significant and will generally be ineligible for investment.
Companies with less significant involvement in these areas may also be considered ineligible for investment, but are evaluated case by case. In these cases, we consider the absolute size of the involvement, the trend of the company’s involvement, and the prominence of the company’s role in the subindustry, along with the company’s overall social and environmental record in making our decision.
For companies peripherally involved in these subindustries (i.e.,retail sales of alcohol and tobacco, licensing of names to the alcohol, tobacco, and gambling industries, or provision of key parts to these industries), those with more than 50% of revenues from these activities are also generally considered fundamentally misaligned and classified as ineligible for investment.
Those companies with 10% to 50% of revenues from these activities are evaluated case by case. In these cases we consider the absolute size of these revenues and the trend of the company’s involvement in the subindustry, and balance these factors against positives in its overall business model or stakeholder relations.
Certain other businesses are generally excluded from our portfolios, including for-profit companies in the fields of healthcare, primary school education, prisons, and security, as well as major producers of synthetic pesticides and agricultural chemicals.