By Mary Beth Gallagher, Director of Engagement
At Domini, we seek to invest in companies that produce high-quality, safe, and useful products that contribute positively to communities. Our industry-specific key performance indicators (KPIs) are designed to evaluate how companies deliver on this commitment, including whether their products and services are broadly accessible, without discrimination, and advance the right to an adequate standard of living.
We recognize that income inequality and the rising cost of essential goods and services create, not only challenges for individuals and companies, but also systemic risks across society and the broader economy. Inequality contributes to social fragmentation and suppresses long-term economic growth, affecting markets as a whole and, ultimately, the companies across our portfolios.
The case for companies to adopt affordability strategies is strong:
- Demand resilience: Companies risk losing customers if they price their products beyond what customers can afford or are willing to pay. During periods of economic uncertainty, middle- and low-income customers—and other price-sensitive segments—are more likely to reduce or forego discretionary spending.
- Customer attrition and loss of trust: When consumers have a choice of where to shop, they may avoid companies they perceive as unfair, including those with excessive executive compensation or large pay disparities. This is particularly true when paired with rising prices. Research shows 60% of Americans abandon purchases when pricing is unclear, such as when hidden fees are introduced. Customer churn and brand switching can significantly increase customer acquisition costs.
- Business model strength: Business models that depend on hidden fees or regular price increases are unlikely to be sustainable over the long term. Companies are better positioned when they invest in innovation and offer clear value propositions aligned with customer needs.
- Regulatory and legal risk: Companies may face litigation or regulatory penalties related to opaque pricing, hidden fees, or other harmful practices. This diverts capital and management attention away from core business operations.
To inform our expectations, we draw on frameworks such as the SASB Standards and the World Benchmarking Alliance’s Urban Benchmark. Our expectations for companies include:
- Conduct human rights impact assessments focused on affordability and inequality, particularly for essential goods and services. Companies should identify which customer groups are most affected by barriers and engage stakeholders to understand their needs.
- Clearly articulate a company position on affordability, including how products and services remain accessible to low-income and marginalized communities.
- Provide transparent, understandable, and predictable pricing structures. Explain pricing strategies and the rationale behind price increases. This is especially important given the rise of dynamic and algorithmic pricing models.
- Ensure nondiscriminatory pricing practices. Prices should be set in a way that is equitable, fair, and does not disproportionately impact specific groups, including by race, gender, or geography.
- Develop innovations that expand access to affordable, high-quality products. Consider options for reducing costs, such as private labels, while avoiding unintended negative impacts on human rights, such as undue pricing pressure on key suppliers.
- Avoid harmful practices that contribute to cost-of-living challenges, including anti-competitive behavior and predatory pricing.