Climate Change

July 18, 2017

Warmer oceans are causing changes so strange, even scientists are scratching their heads. For three years, starting in late 2013, the eastern Pacific Ocean experienced a persistent warm water mass dubbed ‘the blob.’ The blob formed off the west coast of North America, causing record-high temperatures. Warm-water sharks and tuna were spotted off Alaska and tropical sea life reached the Californian coast. The largest toxic bloom of algae on record, stretching the entire West Coast of the United States, shut down crab fishing, costing local economies over $48 million.  Disappearances of important parts of the food chain, like nutritious shrimp-like krill, caused mass die offs of sea life, including otters, whales, fish, and birds. Emaciated seals and sea lions washed ashore by the hundreds, starving at 20 times the yearly average and sickened by the neurotoxic algae. 

This dire scene could be a preview of a world where climate change has advanced, and some research suggests this situation may have been exacerbated by human-induced warming.  However, this winter the warm water mass finally dissipated and ecosystems appeared to stabilize. But one weird exception is confounding marine biologists, grossing out beach-goers, and dismaying fisherman. 

Pyrosomes- squishy, hollow sea creatures native to equatorial waters- are swarming the Pacific coast of North America by the tens of thousands. These translucent invertebrates look like bumpy pinkish sea cucumbers- some types can grow up to 60 feet but they are usually around six inches long.  Their name comes from the Greek for ‘fire-body’ because they are bioluminescent. Pyrosomes cluster in large groups and are ‘colonial:’ each individual is made up of many small multicellular animals called zooids.

Pyrosomes were previously rare (and strange) enough to be nicknamed the “unicorn of the sea”- they usually stay in deep waters up to 700 meters in the open ocean and aren’t well studied. But now these animals are so thick for several hundred feet in the water table that scientists are concerned when they finally decompose they will deplete oxygen in the surrounding water.

The invasion began this winter when pyrosomes appeared in unprecedented swarms from Northern California all the way to Alaska. During one University of Oregon research expedition this May, a net scooped up 60,000 in five minutes. And no one knows why they’re here.

Scientist haven’t determined where the ‘fire-bodies’ came from, when they will go away or what their effect will be.  Pyrosomes filter-feed on phytoplankton, which is also a staple food for krill, and could potentially disrupt food chains.  The unusually warm waters may have caused pyrosomes to flourish far out of their range, but no one knows for sure.  And while the pyrosome swarm is still barely understood, scientists are concerned this startling change signals greater disruptions occurring.

In fishing grounds from Oregon to Alaska, fishermen’s hooks and net are clogged with the tubular bodies of pyrosomes. Many are having a hard time pulling up anything else, crippling fishing operations. Researchers report that any time they or fishermen go out, there are pyrosomes “as far as the eye can see.” The impact on local fishing economies could be significant.

This strange phenomenon is a striking illustration of the unforeseen effects of climate change and the dramatic disruptions ecosystem shifts cause. Whether the pyrosomes’ appearance is a direct result of anthropogenic warming or not, we can expect more bizarre and troubling consequences of climate change, even if we can’t predict them.

June 13, 2017

Although the U.S. government has announced its intention to withdraw from the Paris Agreement, progress on emission reductions will continue. The U.S.’s withdrawal from the Agreement sacrifices the country’s ability to lead on groundbreaking climate policy. However, it does not prevent us from continuing to innovate and reduce emissions in the U.S. These tasks have now been moved from the federal purview to cities, states, and corporations. The shift may even engage more diverse and numerous stakeholders in the process of slowing climate change.

Many of these constituents have already stepped up to fill the void in setting and adhering to environmental standards in service of new low-carbon industries and jobs. Stakeholders are taking matters into their own hands, with one coalition of cities, states, universities, and corporations named “We are Still In”, helmed by Michael Bloomberg, petitioning to join the Paris Agreement as non-state actors. The former New York City mayor announced that he is confident the U.S. can meet its emissions reduction pledge without federal policy. Another group of twelve states including New York and California, which collectively produce 30% of the U.S.’s annual GDP and 18% of its carbon dioxide emissions, formed an alliance also pledging to meet the Paris emissions reductions goals. Last Tuesday, Hawaii was the first state to formally pass a law committing to those goals. We expect to continue seeing next steps on emissions reductions and environmental protection emerging from private sector innovation, allied with measures at the state and local level.

Abroad, the U.S.’s withdrawal could have counterintuitive consequences. Many of the remaining 195 signatory countries – including the rest of the G7 countries – have re-affirmed or doubled down on their commitment to the emissions reduction pledges. Regional powers like China and India may step into positions of leadership on climate, furthering progress on coal-use reduction and sustainability measures. Earlier this year China announced plans to invest $361 billion in renewable energy by 2020. This global picture provides myriad opportunities for forward-thinking American companies and investors.

Back home, market trends and developments in energy and efficiency will have significant bearing on emissions outcomes. According to Shin Furuya, Vice President for Responsible Investment Research at Domini, the fundamental economics of energy have started to shift. Some industries are taking steps toward decoupling from fossil fuel, notably the auto industry, largely due to disruptive innovation in battery technology. Bloomberg analysts have predicted the shift to electric vehicles could drastically reduce the demand for oil within the next ten years. Last year, battery prices fell by 35% and the installed capacity of solar power in the U.S. doubled. On a larger scale, industries and asset managers are incorporating understandings of climate change risks to a new, comprehensive degree. Sustainability has been recognized a strategic business consideration, rather than a fleeting trend.

The U.S.’s emissions reporting obligations under the Paris accord will continue until November 4, 2020, the date of official exit. After that point, a new administration could re-join the accord. In the meantime, there will be many opportunities for the private sector to lead through their emissions reduction work. The reality of the U.S. withdrawal from the Paris Agreement is that it will not halt the progress toward combating climate change.

Domini has signed the “We Are Still In” pledge alongside 1,219 state and local officials, businesses, investors and universities, signaling our continued commitment to the emissions reduction goals of the Paris Agreement and the fight against climate change. Read the full pledge at

March 22, 2017

Hillary Marshall, Senior Research Associate, Responsible Investment Research

In July 2010, the United Nations General Assembly explicitly recognized the human right to water and sanitation. This notion has formally been incorporated into United Nations Sustainable Development Goal 6. Protecting and restoring water-related ecosystems and improving water quality by reducing pollution are crucial components of this goal.

Seven years later, however, this basic human right still needs protection at the legislative level here in the United States.

The 1977 Surface Mining Control and Reclamation Act was strengthened under President Obama at the end of 2016 with the Stream Protection Rule, a regulation that essentially restricted coal companies from dumping mining waste into streams and waterways. At the time, the Interior Department stated this rule would protect 6,000 miles of streams and 52,000 acres of forests by keeping coal mining debris away from waterways.

However, on February 2, 2017, the Senate voted to repeal the Stream Protection Rule, and two weeks later, President Trump signed the repeal into law.

March 22 is officially recognized by the United Nations as World Water Day, with a specific focus this year on wastewater. Water pollution is a serious and ongoing threat to the environment and the health of surrounding communities. Since Domini’s inception, coal-mining companies have been excluded from our portfolios by our Impact Investment Standards. The abundance of factors connecting coal mining to water pollution and climate change are just some of the many reasons Domini has never invested in these companies.

Today, on World Water Day, we acknowledge the immense influence humans have on the fragility of the global water system and, as investors, recognize the responsibility that we have to help protect it.

March 16, 2017

Adam Kanzer, Managing Director, Director of Corporate Engagement and Public Policy 

In January, more than 630 investors and corporations signed a statement asking the incoming administration and Congress to continue moving us toward a low carbon economy, and not to walk away from the historic agreement on climate change reached in Paris last year.

You can find the statement at Alongside our name, you will find the names of some of the largest companies in the world. Today, that statement has grown to include over 1,000 companies and investors headquartered in 46 states.

Perhaps even more importantly, more than 200 major companies have made public commitments to set “science-based targets” for reducing their greenhouse gas emissions. This means that they will seek absolute reductions in line with what climate science demands, while continuing to grow their companies. These commitments replace climate goals that improve efficiency but may not actually reduce emissions as companies grow.

These climate commitments are not based on political ideology, but on a pragmatic, hard-nosed look at reality. These companies—among the largest in the world—have done the math, and they see the risk. As a recent Scientific American article proclaimed, “physics doesn’t care who was elected president.” Commitments based on an accurate understanding of reality will remain.

Just last week, one of the world’s largest money managers installed a statue of a defiant little girl, facing down the famed Wall Street bull. They did this to raise awareness of the need to increase the number of women on corporate boards. They did not do this solely out of the goodness of their hearts. They did this because they recognize that diversity is good for business.

All of this reinforces a core belief we have always held: small things matter. When we look back over the course of our history, we see that movements are made of individuals.  We can all applaud the billionaire philanthropist or private equity investor looking to make a real impact, but those investors are riding the crest of a wave. Looking back, we see one small investor after another merely seeking to build a college fund or a retirement account that reflects their concern for human rights and environmental sustainability.

For many, it began with a small voice that said “I don’t feel right investing in that company.” These are the change-makers that brought us to a world where the largest companies in the world now monitor their supply chains for child labor and environmental abuses.

Many of these corporate commitments began with a call from a responsible investor, explaining how business can be strengthened by taking sustainability seriously. Investors large and small helped to make the case to company after company, year after year, and our voices are being heard. There is much more work to do, but there is also much to celebrate.

Every day, the news seems to give us more cause for alarm. But this is not the time to flinch or to turn back. We have been here through Democratic and Republican administrations, doing what we do—using social and environmental standards to select our investments, engaging companies to move them in the right direction, and finding ways to make a direct impact for communities in need.

We are working to ensure that the capital markets serve society, and not the other way around. We are part of a community of responsible investors that is larger, stronger, more innovative, and more effective than it was ten or twenty years ago, and we have more allies than ever before.

Your investment portfolio may seem like a small thing. When it is invested responsibly, however, it can serve as one more link in a chain of accountability that will not be broken.

July 02, 2016

For many years, Domini has incorporated concerns about the environmental risks of companies owning and producing fossil fuels into our investment standards. Over time, we have gradually eliminated an increasing number of these firms from our holdings as our concerns about a variety of environmental and safety issues, including climate change, have increased.

We have never held coal-mining companies, and have historically approved very few major integrated oil companies. In recent years, we have excluded the few integrated oil companies that we had previously approved, and eliminated an increasing number of the smaller oil and gas companies from our list of eligible investments, due to concerns over safety or the environment.

We had historically favored companies focused on the production of natural gas because it burns more cleanly than oil. But as innovation took hold and hydraulic fracturing became widely used, we began to differentiate between the records of these natural gas companies. Due to increasing concerns about methane emissions, safety and community health issues, we gradually reduced the number of natural gas companies approved, until we divested from this segment of the energy industry entirely.

We exclude companies that are substantial owners and producers of oil or natural gas reserves and are included in the Integrated Oil & Gas or Oil & Gas Exploration & Production Industries as defined by the Global Industry Classification System (GICS), as well as companies significantly involved in coal mining.

We have made each of these decisions in light of the financial, environmental and moral concerns associated with fossil fuels and in recognition that an increasing portion of the responsible investment community has found divestment a productive avenue to further debate on climate change, one of the most important and difficult issues of our time.

May 31, 2016

This past December marked a historic moment in the fight against climate change, as the world came together in Paris to address what is perhaps the most significant challenge our global community has ever faced. Representatives from 195 nations reached a landmark agreement that provides a framework for universal long-term action on climate change. Although the agreement is not legally binding, it achieves a historic degree of global unity around the need to avoid catastrophic climate change.

The Paris Agreement sends a strong, unified message to businesses and investors around the world that the time for relying on fossil fuels for economic growth is over. We hope that this will spark a new wave of investments and public policies that help to accelerate the shift to renewables around the world and across the value chain—from system manufacturers and electricity generators, to financiers and consumers.

In our essay, we take a closer look at some of the ways the Domini Funds are helping to promote a clean-energy future. This includes investments in manufacturers of wind- and solar-power systems, utilities generating electricity from renewable sources, banks financing renewable projects, corporations purchasing renewable energy to cover electricity consumption, green bonds, and more. We also discuss how we our using our voice as investors to talk to companies about their commitments to address climate change.

Domini Funds shareholders are playing a role in the world’s crucial transition to renewable energy. Click here to learn more about our Environmental Sustainability Story. 

April 06, 2016

This past December marked a historic moment in the fight against climate change, as the world came together in Paris to address what is perhaps the most significant challenge our global community has ever faced. Representatives from 195 nations reached a landmark agreement that provides a framework for universal long-term action on climate change. Although the agreement is not legally binding, it achieves a historic degree of global unity around the need to avoid catastrophic climate change.

The Paris Agreement sends a strong, unified message to businesses and investors around the world that the time for relying on fossil fuels for economic growth is over. We hope that this will spark a new wave of investments and public policies that help to accelerate the shift to renewables around the world and across the value chain—from system manufacturers and electricity generators, to financiers and consumers.

In our just-released Semi-Annual Report, we take a closer look at some of the ways the Domini Funds are helping to promote a clean-energy future. This includes investments in manufacturers of wind- and solar-power systems, utilities generating electricity from renewable sources, banks financing renewable projects, corporations purchasing renewable energy to cover electricity consumption, green bonds, and more. We also discuss how we our using our voice as investors to talk to companies about their commitments to address climate change.

Domini Funds shareholders are playing a role in the world’s crucial transition to renewable energy. Click here to learn more about key issues we seek to address in our approach. 

February 11, 2016

Fixed-income investments provide an important opportunity to create public goods, address a wide range of economic disparities in our society, and to fill certain capital gaps – funding needs that have often received insufficient attention from investors. We seek to address some of these disparities through the investments of the Domini Social Bond Fund, while simultaneously seeking to achieve competitive returns for our Fund’s investors.

The following provides an overview of the social and environmental objectives of the Fund, particularly those addressing access to healthcare, climate change and affordable housing.

Standard Setting by Asset Class

Stock ownership offers the opportunity to set standards for corporate behavior and to influence management through the exercise of shareholder rights. Fixed income investments offer a different set of opportunities for long-term, lasting impact.

If you think of a bond as a loan, the key questions for responsible lenders should be: To whom am I loaning my money and for what purpose? Despite some of the complex details of the fixed income markets, we believe these are the threshold questions that responsible investors should ask.

Domini’s Global Investment Standards are directed towards two long-term goals: universal human dignity and the preservation and enrichment of the environment. The standards applied to the Domini Social Bond Fund’s portfolio focus on three key themes:

  • Increasing access to capital for those historically underserved by the mainstream financial community
  • Creating public goods for those most in need
  • Filling capital gaps left by current financial practice

These three themes flow from our belief that healthy economies must be built on a strong foundation of fairness and opportunity for all.

We look to diversify our holdings in the Fund across a broad range of social issues, including affordable housing, small business development, education, community revitalization, rural economic development, the environment, and health care.

Below, we provide examples of several types of fixed income investments and the standards we utilize to select the Fund’s holdings.  

Financing Governments

Governments around the world issue bonds (or “debt”) to finance a wide variety of public goods including education, infrastructure, national defense, the judiciary and social welfare. Although sovereign debt is issued to finance such public goods, debt raised by governments with a history of corruption can be misallocated and misused at the expense of the well-being of the nation and their own citizens.

We therefore use indicators of political freedom and corruption, including Transparency International’s global corruption index, to eliminate from consideration certain countries’ bonds. We use these threshold indicators to help us to identify a country’s ability and willingness to utilize the proceeds of these offerings for proper purposes.

In addition, we will not invest in debt issued by certain “tax haven” jurisdictions -- countries characterized by low or no taxes, financial secrecy laws, and light regulation. Tax havens can help to facilitate criminal activity, including allowing dictators to shelter embezzled funds, and wide scale tax avoidance by corporations and wealthy individuals. Tax havens foster global economic inequality, which is destabilizing to the financial markets and to society.

We do not invest in U.S. Treasuries or Russian government debt, as these instruments partially finance the maintenance of these countries’ nuclear weapons arsenals. The United States and Russia possess over 90% of the world’s nuclear warheads. We believe they carry a special obligation to eliminate this global threat.

Municipal Bonds

We generally consider municipal bonds – debt issued by states, cities or counties or other quasi-public organizations-- to be closely aligned with our investment objectives, particularly when they are issued by jurisdictions with below-average resources. They can help to finance the creation of substantial public goods, such as transportation infrastructure, educational facilities, brownfield redevelopment, technical assistance for small enterprises, and other services needed to close the gap between these localities and the rest of society.

Municipal bonds can also help to ensure broad access to environmentally beneficial technologies to all members of society. We therefore look to invest in municipal bonds that generate environmentally positive impacts for underserved communities. Municipal issuers have a key role to play in terms of climate adaptation, disaster prevention and recovery. We are seeking to purchase these types of bonds as well.

We will seek to avoid purchasing the relatively few government-issued bonds that are explicitly issued to finance the development of projects, such as nuclear power plants or casinos, which are fundamentally misaligned with our investment objectives.

Affordable Housing

The Domini Social Bond Fund has maintained a long-term commitment to affordable housing, which the Fund supports primarily through the purchase of securities backed by pools of mortgages.

Fannie Mae and Freddie Mac, two U.S. government-sponsored entities, play a particularly prominent role in increasing access to affordable housing and sustaining the housing recovery in this country. Among the range of debt instruments they offer, those targeted to low income neighborhoods, low-income borrowers, multi-family housing or specific community revitalization projects have a particularly direct social impact. Also, these institutions have specific programs to help homeowners stay in their homes or otherwise avoid foreclosure. These efforts have helped to stabilize neighborhoods, home prices, and the housing market.

Green Bonds

Green Bonds are designed to finance projects and activities that address climate change or serve other environmentally beneficial purposes.  These environmentally themed bonds are rapidly growing as a new asset class, with issuers including supranational banks, governments, and corporate entities. The market for green bonds more than tripled in 2014, rising from only $3-5 billion per year between 2007 and 2012 to $39 billion in 2014.

Today, we are cautiously optimistic about the development of this new asset class. The stakes are high, however, as this market develops. We are concerned, for example, that an overly aggressive use of the word “green” could conceal environmentally harmful impacts, threatening the credibility of this important avenue for financing critical unmet environmental needs. We therefore established our own guidelines to identify appropriate green bonds for the Fund, considering the social and environmental record of the issuer as well as the specific purpose of the bond.  

Our Approach to Green Bonds

The following are some of the key questions Domini asks when evaluating green bonds:

  • Who benefits from the proceeds of the bond? We favor investments that generate positive impacts for people and communities in need, with a special focus on vulnerable groups, including low-income populations, minorities, and immigrants.
  • Can the proceeds from the bond contribute to innovations that address serious sustainability challenges? We favor investments such as those mitigating the impacts of fossil fuels in energy-intensive industries, promoting energy efficiency, or otherwise addressing environmental and social justice issues.
  • What is the quality of the issuer’s relations with communities, customers, employees, suppliers and the environment? Does the issuer maintain credible due diligence processes to address environmental and social risks?

We will seek to avoid the following:

  • Bonds that finance projects with substantial sustainability concerns such as first-generation biofuels, waste-to-energy plants using toxic substances, or projects that prolong fossil fuel dependence such as carbon capture sequestration or refurbishment of coal power plants.
  • Bonds issued to finance nuclear power, activities related to the mining of coal or uranium, or the production of weapons, tobacco, alcohol or gambling.​

Green Buildings

Significant capital will be needed to finance the transition to a low carbon economy and adapt to the physical impacts of climate change. For example, while current investments in clean energy alone are approximately $250 billion per year, the International Energy Agency has estimated that limiting the increase in global temperature to two degrees Celsius above preindustrial levels requires average additional investments in clean energy of at least $1 trillion per year between now and 2050.

We believe that the real estate industry is in a unique position to reduce greenhouse gas emissions through energy efficiency improvements that are low cost and that create value within the underlying asset. We have therefore purchased several bonds designed to finance green buildings. In particular, we are looking for the U.S. Green Building Council’s LEED (Leadership in Energy and Environmental Design) certification, a comprehensive green building certification program that recognizes best-in-class building strategies and practices.

February 11, 2016

The Domini Social Bond Fund seeks to play a positive role in the economic development of communities, focusing on key themes, including affordable housing, education and climate mitigation. In the fourth quarter, securities Domini characterizes as “high impact” represented 15.5% of the Fund’s total portfolio, including the following examples.

Affordable Housing

The Fund has maintained a long-term commitment to affordable housing, primarily through the purchase of securities backed by pools of mortgages. In particular, we favor Fannie Mae’s DUS bonds backed by a substantial percentage of units or loans to construct or refinance low-income and very low-income family housing. In our judgement, “substantial” means above 50% of units for low income, and above 30% of units for very low-income residents.

Public Health

The Fund owns a number of bonds focused on providing high quality healthcare to low-income and at-risk populations. One such bond is issued by City of Hope, a nonprofit public benefits corporation operating a specialty hospital and a number of research facilities and medical schools with a focus on cancer, diabetes treatments and HIV/AIDs prevention.

Climate Mitigation

In November, the Fund purchased bonds issued by Southern Power Company to finance existing or planned solar and wind power generation facilities in the U.S. Although this bond raised some controversy – Southern Power’s corporate parent is a large user of coal and owns nuclear power plants - the issuer, Southern Power Company, derives 9GW of its total power output from renewables and gas burning facilities and does not burn coal or deal in nuclear power. Although the parent company is ineligible for our portfolios, we chose to purchase this bond due to the urgent need to finance renewable energy and stabilize the global climate. Our purchase is also a sign of support for other utilities, which are responsible for over 30% of greenhouse gas emissions in the U.S., to transition their generation mix to lower-carbon fuel sources.

January 31, 2016

In December, representatives of 195 nations met in Paris to respond to the challenge of climate change — perhaps the most significant challenge the global community has ever faced. Although Paris did not produce a binding agreement, it achieved a historic degree of global unity around a single goal — limiting global warming to 2 degrees centigrade above preindustrial levels, with an aspirational goal of 1.5 degrees, the level many scientists believe is a safer ceiling to prevent catastrophic warming.

Many criticized the accord as inadequate to the challenge, but there is no question in our minds that it will move us all in the right direction, around a common goal. We believe we are seeing the beginning of the end for the dominance of fossil fuels.

In this report, we will address one aspect of the set of challenges presented by climate change — electricity generation — with a focus on solar and wind, two of the cleanest and most promising forms of renewable energy.

The cost of producing electricity from wind and solar has dropped significantly over the last five to ten years, and has started to reach price parity with the grid in various markets, including thirty countries and twenty U.S. states. Deutsche Bank predicts that by the end of 2017, solar energy will be at grid parity for most of the world. These trends, of course, will also depend on government subsidies and technological innovation. Today, wind and solar, combined, currently account for only about five percent of U.S. electricity generation. In comparison, renewable energy accounted for more than 25 percent of electricity consumption in the European Union, as of 2013.

Below, we provide a brief survey of some notable companies that are advancing the shift to renewable electricity generation around the world and across the value chain from manufacturers to electricity generators, financiers (banks and other investors, including yourselves), and consumers.

Wind Energy

The Domini International Social Equity Fund is invested in some of the largest wind turbine manufacturers in the world, including “pure-play” turbine manufacturers as well as companies that offer a larger portfolio of renewable energy technologies, including solar power, hydropower and biomass.

Vestas (Denmark) is one of the world’s largest manufacturers of wind turbines, with a 12 percent global market share in 2014. In 2015, the company installed its products in 34 countries on five continents. Vestas makes the largest turbine in the world, standing 720 feet tall, more than twice the height of the Statue of Liberty. It produces enough electricity to power 7,500 average European homes, or 3,000 American homes, per year. Its great height allows wind farms to take advantage of faster wind speeds that occur at higher elevations.

China has become the world’s largest market for wind power. The Chinese government has pledged to produce 15 percent of all electricity from renewables by 2020. In 2015, the country installed over 28 gigawatts of new wind energy capacity and is aggressively expanding its investments in renewables. As a result, Vestas’ market dominance has recently been challenged by Xinjiang Goldwind Science & Technology (China, not currently held, but eligible for investment by the Domini Funds).

Companies like Gamesa Corp Tecnologica SA (Spain), have concentrated on pushing the envelope in terms of technology, developing turbines that work in low winds, high altitudes, cold climates and deep offshore. Gamesa has been a longtime leader in the field, largely spurred by incentives offered by the Spanish government. More recently, government reforms have cut subsidies and slowed its growth, but the company maintains significant market share in India and Latin America (especially Mexico) and has a foothold in China as well. The company was one of the earliest movers into emerging market countries.

Nordex Se (Germany) focuses on onshore turbines and has lately been designing turbines that are suitable for less windy sites (the “low wind” sector). Onshore wind is considered to be a leading area for the wind sector. The company has developed models with tall towers and long, slender blades, a better design for low wind. The company also has a significant presence in emerging markets, contributing to energy transitions most notably in Pakistan and Turkey.

Others companies, such as Siemens (Germany), have concentrated on affordability and convenience through well-proven designs and economies of scale. Offshore wind farms have grown in popularity because they’re typically built out of sight, and the wind blows harder and more consistently at sea. For many years running, Siemens has been the leading manufacturer of offshore wind turbines. In 2014, the company accounted for 76 percent of new global capacity installed offshore and had a 9.5 percent market share of the global wind turbine market. For all their advantages, however, offshore wind farms are approximately twice as expensive as onshore wind farms. Siemens has focused on lowering the costs of offshore wind power and advancing the efficiency of turbine-to- grid connections. In addition to its wind power products, Siemens also develops small hydropower plants and sells solar power components.

Solar Energy

There are two distinct models for providing electricity from solar energy: centralized grid (often advocated by utility-scale users) and distributed grid, which often involves residential, community and commercial-scale users. Distributed energy systems are comprised of small-scale energy- generating devices (like rooftop solar panels) that allow for electricity to be produced onsite and consumed immediately, without drawing from the electrical grid. First Solar (United States) is primarily involved in the utility-scale solar market, as well as the commercial scale market, rather than rooftop solar installations. Utility scale solar refers to large-scale grid-connected solar installations.

First Solar has developed some of the largest solar farms in the world, and is the only major manufacturer of cadmium telluride solar panels in the United States. Although conventional silicon solar cells represent more than 90 percent of the solar power market, cadmium telluride panels offer advantages of lower cost and improved performance in high temperature environments such as desert areas, which is often the preferred site for large-scale solar photovoltaic (PV) arrays. Domini has engaged in discussions with First Solar’s management about oversight of working conditions in its global manufacturing operations and supply chains, and its political activities. Recently, we convinced the company to begin public disclosure of its political contributions. Notably, the company chose to prohibit its trade associations from using its dues to make contributions to political candidates. SolarCity Corp., the largest residential solar installer in the United States,

designs, installs and leases rooftop solar systems. For a 20-year commitment, SolarCity will install panels with no money down. SolarCity’s business model benefits from net metering, which allows homeowners with panels to sell back to the grid any excess electricity they don’t use. This helps offset the cost of power when the sun isn’t shining. The company also partners with other businesses, such as Home Depot and Best Buy, to promote residential solar PV systems. The company’s focus is on marketing, financing and installing panels — not making them. It does, however, plan to open a manufacturing plant in Buffalo, New York, in 2016/17 to produce panels using a new type of silicon-based photovoltaic technology designed to produce more efficient panels at lower cost. We have been in contact with SolarCity to discuss their recent partnership with Grid Alternatives, a non-profit organization working to increase access to clean energy for disadvantaged communities throughout the United States.

Bringing Wind and Solar to Scale

Moving one step down the value chain, we come to companies that help to bring the electricity generated by solar panels and wind turbines to scale, by integrating these devices with the electrical grid. SMA Solar Technologies AG (Germany) is the world market leader for solar inverters, a device that converts the direct current (DC) generated by photovoltaic cells into alternating current (AC), which can be fed into the electrical grid or can be consumed at home.

Along with cost parity, one of the most persistent challenges the wind and solar industries are working to overcome is variability, which is creating the need for some level of backup power to offset times when the sun isn’t shining or the wind isn’t blowing. One solution to this problem is to diversify the sources of energy over a wider area by expanding the number of solar and wind installations. An individual wind farm can be extremely volatile, but groups of wind farms spread out over thousands of miles help to ensure that there is consistent power.

Improvements in batteries and other storage technologies are another way to counter wind and solar’s intermittency. Many companies are working on solutions. Tesla Motors Inc., (not currently held, but eligible for investment by the Domini Funds) best known for its electric vehicles, is the current technological leader in lithium batteries. The company is working on developing batteries for residential and industrial uses. In May 2015, the company introduced the Powerwall, a low-cost home battery pack designed to capture and store energy from wind turbines or solar panels. The reserves can be drawn on when sunlight is low, during power cuts or at peak demand times, when electricity costs are highest.

The company also unveiled the Powerpack, a battery block designed to help utilities smooth out their supply of wind and solar energy or to feed energy into the grid when demand increases. Although the technology is very new, Tesla’s ever-ambitious founder Elon Musk believes that “two billion Powerpacks could store enough electricity to meet the entire world’s needs.” The company is currently building a battery factory with 1GW annual production capacity in Nevada to meet future needs for energy storage along with electric vehicles.

Electricity Generation

Unless you live entirely “off the grid”, you purchase your electricity from a utility that generates energy from a diverse portfolio of sources, ranging from coal to nuclear and wind. Utilities produce more than 30 percent of greenhouse gas emissions in the United States, relying on coal for roughly 40 percent of their total energy requirements. As of 2014, coal burned for electricity generation accounted for 93 percent of all coal consumed for energy in the United States. We seek to avoid investment in any utility that derives the majority of its power from coal, and do not invest in utilities that are owners or operators of nuclear power plants, due to our serious concerns about safety, waste storage and the link between nuclear power and nuclear weapons globally.

Consolidated Edison, more commonly known as “ConEd”, the dominant utility in New York, develops, constructs, owns and operates renewable energy infrastructure projects throughout the country. At year-end 2014, Con Edison Development had 446 MW of solar and wind projects in operation. At the end of 2015, ConEd reports that it is the sixth largest owner of operating solar capacity in North America.

Meridian Energy (New Zealand) is the largest electricity generator in New Zealand. Most of the company’s energy is generated via large-scale hydropower. Meridian has also developed ten wind farms in Australia and New Zealand, which generate enough electricity to power around 152,000 homes each year.

Financing Renewable Energy

In 2015, $329.3 billion was invested in clean energy globally, a 4 percent increase over 2014. This investment was primarily directed to large-scale projects, including a number of major offshore wind farms. The International Energy Agency estimates that an additional $36 trillion in clean energy investment is needed through 2050 — or an average of $1 trillion more per year — if we are to have an 80 percent chance of maintaining the 2°C warming limit.

We are therefore very interested in identifying notable renewable energy investors for our funds, such as Banco Santander (Spain), which was one of the largest financiers of renewable energy in the world in 2015. ING Groep (Netherlands) has financed several large renewable energy deals including Westermeerwind, a Dutch lake shore wind project that will provide enough energy for 160,000 homes a year. As of 2014, 43 percent of ING’s project financing was directed to renewable energy (wind, solar, hydro and geothermal power). In our view, 43 percent represents a substantial commitment to renewables. In November 2015, the company chose to end financing for new coal-fired power plants and thermal coal mines worldwide. Muenchener Rueckversicheregungs-Gesellschaft AG (MunichRe, Germany), a leading reinsurance group, has been offering innovative insurance products specialized in renewable energy to meet increased demands, including performance guarantee insurance for long- term renewable energy contracts. The company has been outspoken about the risks of climate change for many years.

There are several other banks, including Goldman Sachs and JPMorgan Chase, that have made significant commitments to renewable energy, but are currently ineligible for investment by our funds due to unrelated concerns. In the past, when JPMorgan Chase was held by the Domini Social Equity Fund, we helped to convince the bank to hire its first Director of Environmental Affairs, and to adopt a comprehensive policy addressing climate change. We were pleased to see the bank’s recent announcement that it will no longer finance new coal mines around the world and will end support for new coal-fired power plants in “high income” OECD countries. A growing number of banks have made similar commitments. Domini has been participating in meetings with Citigroup (not currently approved for the Domini Funds) regarding its $100 billion commitment over the next ten years to clean energy investments. We also continue to participate in a multi-year dialogue with PNC Bank (United States), about its approach to climate risk. The discussions, which began with concerns about the bank’s past involvement in mountaintop removal coal mining, include the direct participation of the company’s CEO.

Investors in the Domini Social Bond Fund are also playing a role in financing the transition to a low-carbon economy. We are particularly excited about the growth of the market for “green bonds”, which are bonds designed to finance projects and activities that address climate change or serve other environmentally beneficial purposes. These environmentally themed bonds are rapidly growing as a new asset class, with issuers including supranational banks, governments, and corporate entities. The market for green bonds more than tripled in 2014, rising from only $3-5 billion per year between 2007 and 2012 to $39 billion in 2014. When evaluating potential green bonds for our fund, we favor investments such as those mitigating the impacts of fossil fuels in energy- intensive industries, promoting energy efficiency, or otherwise addressing environmental and social justice issues.

In November, the Fund purchased a bond issued by Southern Power Company to finance existing or planned solar and wind power generation facilities in the United States. Southern Power Company derives 9GW of its total power output from renewables and gas burning facilities and does not burn coal or deal in nuclear power. Although Southern Company, the issuer’s parent company, is ineligible for our portfolios because it is a large user of coal and owns nuclear power plants, we chose to purchase this bond due to the urgent need to finance renewable energy and stabilize the global climate. Our purchase is also a sign of support for other utilities that choose to transition their generation mix to lower-carbon fuel sources.

Purchasing Renewable Energy

Corporations in all industries can help to mitigate climate change and future carbon pricing risks by making commitments to convert their energy usage to renewables.

In 2012, the New York Times reported that internet companies are enormous users of electricity, primarily to power and cool their data centers. Data centers, which are typically run at maximum capacity to meet consumer demands for 24/7 access to information, used roughly 2 percent of all the electricity in the United States, according to the Times.

According to the most recent Bloomberg New Energy Finance Report, Google (Alphabet, Inc.) is the largest corporate purchaser of renewable energy globally, followed by Amazon. Facebook and Apple were also highlighted as “key players.” Google has signed long-term purchase agreements for renewable energy covering 28 percent of its total electricity consumption. The company also obtains green power from the grid and on- site renewables, making the total share of renewables in its mix over 37 percent. The company wants all of its consumption to be from renewables by 2025. As of 2016, Google also maintained a substantial portfolio of investments in renewable energy projects, providing almost $2.5 billion to fund wind and solar projects with a potential to generate over 2.9GW, enough to power 500,000 homes.

We recently signed an investor letter to Google’s CEO, raising concerns about the company’s investment in the Turkana Wind Project in Kenya, a project that is being developed on communal land, allegedly without the full knowledge and consent of local indigenous pastoralist tribes. We are seeking to open dialogue with the company about its consideration of indigenous peoples’ rights.

As of April 2015, approximately 25 percent of the power consumed by Amazon’s global infrastructure came from renewable sources, and the company intends to reach 40 percent by the end of 2016. Amazon contracted for 80MW of solar and 458MW of wind in 2015. We welcome Amazon’s renewable energy commitments and its decision to disclose this data, but continue to pursue a shareholder proposal asking the company to produce a more comprehensive sustainability report on an annual basis.

Approximately 35 percent of the electricity used to power Apple’s data centers is derived from renewable sources. The company has also made ambitious commitments to green its supply chain. In October 2015, Apple announced the construction of 40 megawatts of solar projects in the Sichuan Province of China, producing “more than the total amount of electricity used by Apple’s offices and retail stores in China, making Apple’s operations carbon neutral in China.” In addition to other investments in solar energy in China, Apple is also working to encourage its manufacturing partners to become more energy efficient and to use clean energy for their operations. As a result, Apple reports that it is “powering 100 percent of its operations in China and the U.S., and more than 87 percent of its worldwide operations, with renewable energy.”

                                                                                        * * *

Investing in renewable energy is more than simply buying shares in companies that make solar cells or wind turbines. Each of these technologies depends upon the entire range of companies discussed above, as well as sensible public policies to hasten the decarbonization of our electricity grids.

Climate change presents the most dramatic risks and opportunities for investors in the 21st century. Investing in renewable energy production and consumption is an important aspect of Domini’s long-standing commitment to fight climate change. This report only focuses on one facet of our approach to climate change, however, an issue that drives many of our investment decisions, across industries. Climate change is also a persistent theme in our engagement with companies on many issues, including political accountability and deforestation, and with policy makers.