Interview: Evaluating Companies, Then and Now

A Conversation with Lionella Pezza, Director of Impact Research

Excerpted from our 2022 Impact Report

Domini participated in the pioneering of sustainable investing. How has the process of evaluating companies evolved over the years?

Back then, getting the data needed to do environ- mental and social research was a big challenge . Thanks to early industry pioneers and consumer pressure, among other factors, there’s much more information available today . The vast majority of companies publish corporate social responsibility reports providing their sustainability data . The difficulty we face now is how to sift through all the data in a meaningful way . To guide our research and stay focused on what matters, Domini has developed our own key performance indicators (KPIs) . KPIs for the retailing industry, for example, include data points related to supply chain management, such as labor rights, environmental stewardship, and safety, while KPIs for the banking industry include financing of affordable housing and foreclosure avoidance programs .

“Forward-looking, innovative companies and business leaders will recognize the needs of our planet and humankind.”

What changes do you see coming in terms of how companies disclose sustainability information? What other changes do you expect?

I think what is expected of companies is at a tipping point—both in terms of disclosure and, more fundamentally, their business models . We can see this change in expectations in the recent proposal by the U.S. Securities and Exchange Commission that would require companies to disclose certain climate-related risks and other information, with an emphasis on boosting transparency in corporate net zero emission goals. A proposed rule in the European Union would require companies to meet stricter due diligence obligations with respect to human rights and the environment.

Not far below the surface of these twin developments lie fundamental questions about the day-to-day operations of various industries and the changes that will be necessary if they are to move forward in this new world. Minor adjustments won’t be enough. Certain industries and companies will need to take stock of the full implications of their core business models and be willing to embrace change. Forward-looking, innovative companies and business leaders will recognize the needs of our planet and humankind, transition their business models to address our key sustainability challenges, and will likely be best positioned to prosper in the future.

Lionella Pezza, our Director of Research, shares an overview of Domini’s research process.