Excerpted from Domini 2019 Annual Report
As a long-term impact investor, we believe that a sustainable world is a prerequisite for sustainable returns. Domini seeks to understand the root causes of the most intractable challenges facing people and our planet and identify system level solutions that enable a healthy planet and society to thrive. Our goal is to invest in companies and institutions that support the health of our environmental, societal and financial systems through our equity and fixed income portfolios.
Companies acting as anchor institutions can play a big role when it comes to building sustainable communities and disrupting the trend of growing inequality. We define anchor institutions as enterprises that have a large and rooted presence in a local area and are motivated to support their communities’ economic growth and well-being through programs, products and services, as well as their roles as employer and purchaser.
Safe, healthy and affordable products and services let consumers succeed with business. Targeted programs offered can complement products and services in a way that both supports communities and grows market share. While traditional functions like providing a living wage, health care, retirement savings and decent working conditions remain essential and core features of a responsible company, anchor institutions may go further, adding value in areas such as education, housing or green space to the communities in which they operate. Requiring these practices of their suppliers as well helps anchor institutions deepen their impact. Finally, these institutions can serve as magnets that attract like-minded institutions and can add to the intangible value of the community. These actions demonstrate how forward-thinking companies can become a pillar of building healthy, thriving communities within which to operate. When successful, anchor institutions create a virtuous cycle, accruing benefits to communities, the company, its investors and society at large.
Domini works to identify these companies and institutions through our proprietary research and standard setting processes, in which we weigh measures of successful anchor institutions in the context of robust, industry-specific key performance indicators. In addition to a quantitative assessment, this process paints a qualitative picture that is more than the sum of its parts: companies that handle specific and discrete issues in a responsible manner demonstrate a forward-looking culture of intentionality and responsibility which we consider reflective of quality management teams.
To help bring the concept of anchor institutions to life, the following are two examples: one is a publicly traded company we invest in our US equity portfolio while the other is a nonprofit hospital that we provide capital to through our bond portfolio.
Banks as Anchor Institutions (Domini Impact Equity Fund)
Banks play a unique and essential role in our society. As demonstrated by the financial crisis of 2008, the risks banks can pose to communities and investors are all too clear; however, institutions also have the opportunity to create significant positive impacts in their communities in which they operate. Providing safe, affordable and high-quality products and services to underserved populations and small businesses is just one example of how this may be the case. Banks that fulfill the vital role of community economic development, we believe, will prosper in the long run as a stable financial system is built on a foundation of fairness and justice for all.
We consider Scotiabank , a mid-sized, Canadian publicly traded bank, to be a strong example. The bank diversified its consumer base into regions of Latin America where 50% of the population and 30% of the purchasing power is concentrated in the lower-income segment of the population, which was underserved by traditional banks. By understanding its community and recognizing gaps in the market’s service of the community’s needs, the bank generated a positive impact while increasing its market share and effectively managing its business.
The bank recognized that account fees act as a major barrier to serving lower-income customers. By eliminating those fees, the bank increased account openings and market share substantially. It also offers micro-lending products to clients that typically have variable and unstable incomes and therefore fall outside the traditional retail banking target market. It has enabled those individuals to start micro businesses while establishing a profitable new business segment within the company. A mobile banking service also supports access for populations without access to bank branches.
In addition to specific products, Scotiabank has invested considerably in financial literacy. In its home country, the bank provides immigrants with pre- and post-arrival support through free and cost-reduced financial services and financial literacy programs. It has also developed financial education workshops for families living in poverty abroad. Each of these efforts indicate that Scotiabank operates with intentionality and a deep cultural commitment to being a catalyst in the communities it serves and strengthens its business as a result.
Healthcare Systems as Anchor Institutions (Domini Impact Bond Fund)
Nonprofit healthcare systems can also fill the role of anchor institutions by providing affordable, broadly accessible, and quality health care as well as addressing a wider variety of unmet needs in underserved communities. The recent trend of consolidation in the healthcare space has led to a decline in local institutions and the loss of the associated local knowledge. However, some institutions continue to stand as an example of what is possible.
Boston Medical Center (“BMC”) is a “safety net hospital.” It has a mission to provide care to individuals regardless of their ability to pay, with a significant portion of its patients being low-income, uninsured, and elderly. The hospital has demonstrated an ability and willingness to look beyond the traditional bounds of healthcare in a way that will deliver better health outcomes and support the community in a holistic way .
BMC, for example, has identified housing and nutrition as major drivers of the success of its mission. A survey revealed that malnutrition is one of the biggest causes of chronic disease in its community. To address this, the hospital established a preventive food kitchen & pantry program. Physicians and nutritionists provide “prescriptions” for supplemental food that promotes physical health, prevents future illness, and facilitates recovery. The pantry provides food prescriptions to thousands of households each month, while the kitchen offers cooking demonstrations and other educational resources to support patients in their long-term health.
BMC is also one of the first hospitals in the country to recognize the social determinants of health 1 and, in its particular case, the role that living conditions play in the health of its community. Given that knowledge, the hospital decided to direct its mandatory community investment of $6.5 million to affordable housing projects in its city, in partnership with local shelters and community development corporations. The initiative includes $1 million each for initiatives to help families fight evictions, create a housing stabilization program for people with complex medical issues, and to support a grocery store within one of its housing developments.
As a final note, the hospital has a best in class program to provide help navigating the health-system in a culturally competent manner, addressing the fact that one third of their patients are non-English speakers. BMC provides on-site medical interpreters for more than a dozen languages and outreach programs to guide the most vulnerable patients through doctor visits and treatment programs. Counselors come from the communities they serve and receive special training to address patients’ specific needs. As in the example of Scotiabank, the collection of efforts made by BMC to understand, serve and support its community evinces a culture of intentionality that in turn provides efficiently delivered health care and enables healthy, sustainable communities .
Both Scotiabank and the Boston Medical Center operate as multi-faceted parts of a community system rather than as a singular, isolated entity. They worked to understand their communities and the challenges they face. They intentionally filled gaps in the market to address those challenges. In doing so, they recognized and addressed the complexity and importance of the creation of community wealth. Companies depend on communities for multiple resources required for their business, such as an educated work force, financially-sound consumers, or roads and infrastructure . Companies that act as anchor institutions, building and supporting community development, allow the company, its investors, its communities and society at large to prosper together .
1 The social determinants of health are the economic and social conditions that influence individual and group differences in health status. https://www.who.int/social_determinants/sdh_definition/en/