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May 01, 2000
Domini Social Index At Ten Years Old
On the tenth anniversary of its socially screened stock index, Kinder, Lydenberg, Domini & Co. has
much to celebrate. So do social investors.
SocialFunds.com --
Ten years ago, social investing as we know it was in its infancy, there were no benchmarks for
assessing the performance of socially screened portfolios, and critics charged that social
investors could expect inferior returns. The Domini Social Index has played a strong role in
silencing such critics and bringing social investing into the 21st century.
 Today the Domini Social 400 Index (DSI
400) celebrates ten years as the leading benchmark for socially and environmentally responsible
investing. The DSI was launched on May 1, 1990 by Kinder, Lydenberg, Domini & Co., a Boston-based
firm that provides social research to financial professionals and institutional investors.
But a decade ago, even the most ardent supporters of social investing could not have predicted
the impressive performance of the DSI, not to mention the strong growth in social investments in
general. The DSI has led the Standard & Poor's (S&P) 500, a comparable index of the unscreened
companies, for five years in a row, as well as for seven of the last nine years.
"It seems
odd to say this now, but we never set out to beat the S&P 500," said Peter Kinder, President of
KLD. "Over the years, however, the DSI 400's consistently strong performance through market ups and
downs has become one of the central pieces of evidence rebutting the canard that social investors
must sacrifice profits for their principles."
The DSI closed out the calendar year 1999
with a gain of 24.49 percent, while the S&P climbed 20.98 percent in 1999. Over the past three
years, the DSI posted nearly 5 percent more than the S&P each year, growing an average of 32.30
percent annually while the S&P had a 27.55 percent average annual return over the same period.
In constructing the DSI, KLD evaluated companies in terms of environmental impact,
employee relations, diversity, and any role in alcohol, tobacco, gambling, nuclear power, and
military weapons. About half of the S&P 500 companies passed KLD's screening process, while another
150 companies were added to mirror the cross-section of industries present in the stock market for
a total of 400 holdings.
The DSI is market-capitalization-weighted, which means that the
composition of the index reflects the relative value of the companies in it, leading to many more
shares of some stocks being held than others. The portfolio has a very low turnover, averaging just
6-8 percent per year, merely due to corporate buyouts or new positions on the social issues
addressed.
Many of the same critics that had dire predictions for social investments ten
years ago have suggested that "overexposure" in semiconductor and technology stocks relative to the
S&P has led to DSI's success. But the 1999 data behind the DSI gain reveals a far more complex
picture, including the significant benefit of "underexposure" in the tobacco, drug,
defense/aerospace, and utilities industries.
"The real question ought to be why it is that
so many companies that get screened out of socially responsible investment portfolios also tend to
perform weakly," said Kinder. "The tech firms included in the DSI 400 are noteworthy for having
younger management teams, which, in many cases, are prepared to embrace more progressive policies
and practices than is the case in old-line 'smokestack' industries."
The DSI's tenth
anniversary is a momentous right-of-passage for socially responsible investing, representing ten
years of outstanding growth and development in the industry. With KLD's forward-thinking research
and leadership, social investors can hope for ten more.
©
SRI World Group, Inc. All Rights Reserved.
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