Many people are motivated by the desire to be as prepared as possible for an uncertain future, but they recognize that this is no easy task. We encourage you to take a big picture view of the world and consider the many ways that the future could unfold. You’ll want to envision where you would like to be going in both the near-term and in years to come, and to keep abreast of the wide and growing range of investment choices available to you. By thinking in this broad, creative way, resilient investinggives you the tools to design a personalized plan. This will show you where you’re currently investing your time and money, highlight areas that you might be over or under emphasizing, and provide the guidance you’ll need to move forward in your chosen directions.
As you put your plan into action, you’ll notice a newfound sense of calm, one that rests on the knowledge that you’ve taken measured steps to future-proof your life and are ready to ride out the inevitable storms and surprises that come your way. You can’t eliminate risk, but you can dial down your stress levels and have more peace of mind by knowing that you’re prepared. Having a comprehensive and diverse set of investments will provide genuine benefits when one or another market you’ve invested in has a downturn (whether it be a sudden drop in the Dow, a dry spell that decreases yields in your garden or regional food network, or an unexpected health challenge). While it is always painful to suffer a hit in one area, investments in other Zones will likely be doing better and help carry you through.
Natural Investments is involved in a variety of efforts with our industry colleagues that facilitate positive economic, social, and environmental change, including shareholder engagement with companies and public policy advocacy. Some of our efforts in 2017 include:
We signed a letter to the dozen major banks, including Wells Fargo and Citibank, that are financing the Dakota Access Pipeline, urging them to avoid legal liabilities and financial and reputational risks associated with financing the controversial project—and to advocate publicly for the rerouting of the pipeline away from tribal land.
We signed a global investor statement to leading consumer and agriculture companies asking them to adopt zero—deforestation policies for sourcing key agricultural commodities such as palm oil, soy, beef, paper, and lumber. Deforestation in Latin America, which is largely caused by commercial agriculture, is a leading contributor to climate change, and the recent Soy Moratorium in Brazil proves that the rainforest can be protected while expanding agricultural production.
We signed a letter to sixty of the world’s largest banks calling for more robust and relevant climate-related disclosure to be supplied to investors on four key areas: climate-relevant strategy and implementation, climate-related risk assessments and management, low-carbon banking products and services, and banks’ public policy engagements and collaboration with other actors on climate change. Banks have an essential role to play in ensuring that we meet the Paris Climate Agreement goal of “making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.”
We supported shareholder engagements with three top carpet manufacturers—Mohawk, Shaw, and Interface—to encourage them to develop plans for sustainable carpeting redesign to make it more recyclable, to use higher levels of appropriate recycled materials, to develop national recycling goals, to help develop end markets for discarded carpet, and to take at least shared financial responsibility to implement these actions.
We signed a letter to major motion picture studios urging them to eliminate tobacco depictions in youth-rated movies. We believe this is warranted to protect the company’s reputation and consumer base, to avoid legal liabilities, and to eliminate the reputational and potential financial risks caused by the company being associated with this public health issue.
The rule of law is the principle that all people and entities are subject to laws that are fairly applied and enforced. No one, according to this principle, is above or outside the reach of the law—neither presidents nor corporations.
Unfortunately, the rule of law in the United States is being undermined. The current president is well known for attacking the federal judiciary in spoken and written word, though federal judges have life tenure, which affords them some degree of immunity from his political ravings. The more alarming shift—with profound, long-term implications for the rule of law—is the current administration’s nomination of partisan extremists to the federal bench and the record pace at which the Senate is confirming many of them. (It should be noted that some of these nominees are so poorly qualified that even Republicans turned their noses).
The extreme politicization of the judicial nomination process has already begun to erode the rule of law in the US. Perhaps the most egregious example of this is the Supreme Court’s 5-4 vote in the infamous Citizens United ruling, which invalidated parts of a federal law that had imposed limits on corporate money in politics.
My family and I survived the Northern California firestorm of 2017. We were incredibly fortunate; unlike many our friends and residents in our area, we did not lose our home or livelihood. At the peak moment of fear, the fire came within 3,400 feet of our home. I spent hours wetting the roof, talking with panicked neighbors, and gauging the wind and the smoke. We got ready to evacuate by packing the car, letting our chickens loose, and making peace with the thought of starting over. Thankfully, some can-do neighbors with tractors plowed down the fire front, and we were spared.
Months later, our lives returned to normal. But as a planner, I am surprised at how unprepared we were when disaster arrived. We had planned for this. We’d held meetings with family and neighbors, checked on each other’s stores of water, food, and supplies, and located the water and gas shut-off valves for each home. We had back-up phone numbers of relatives, battery packs for our phones, and emergency radios. But still, we were missing critical elements. I share these insights now, with the hope that they will encourage others to prepare well in advance of fire season.
“I want my money to have a positive impact in the world but my dad (uncle, mom, broker) said that was a stupid idea. Is it?”
That depends. If what you mean by “a positive impact in the world” is that your broker simply screens out investments in certain companies or industries, well, sorry, yes, that on its own might be a bad idea. That approach could damage a portfolio.
If you’re serious about getting your money to make a real difference for people and the planet by investing in all kinds of good things with smarter financial analyses and strategies, yes, we believe this is a really good idea.
“Ok, but how can I do all that?”
Natural Investments maintains stringent and thoroughly researched investment due diligence standards and procedures. No system is perfect, but we have developed a strong process over the last few decades of work. Here are some of the pillars of our investment strategy:
For those of us who remember Columbine, the Parkland massacre and its immediate aftermath evoked a colossal feeling of failure. How could it be that two decades and dozens of mass shootings later, nothing had changed?
But as the days turned to weeks, a steely resolve grew within the Parkland students’ collective trauma. They joined forces with Black and Latino youth organizers across the country that have been laboring for decades— ignored by the mainstream media—to stop the scourge of daily gun violence and police shootings that have ravaged their communities. Together, these young people are growing the resistance movement that our generation did not. Serious gun control discussions are finally on the table in America, thanks to children who are tired of executing active shooter drills in closets or taking different routes home to avoid stray bullets.
As socially responsible investment professionals, not only are we deeply inspired; we have a range of tactics to support these young activists in their quest for commonsense gun control laws—many of which we have been using for years already.
At Natural Investments, none of our client funds hold stock in companies with assault or military weapons. Our Heart Rating process asks mutual funds about their weapons and defense holdings as well. Complete purification of the portfolio is, admittedly, difficult. In fact, Bloomberg published two articles—one for and the other against the effectiveness of divestment—within two days of each other.
In late March, the Senate passed a bill, with bipartisan support, to roll back key regulations put in place under the former Obama administration as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. With the bill expected to sail through the Republican-controlled House, and President Trump’s stated intention to sign it, some critically important government regulations on the financial industry will soon join the long list of citizen-protection measures to be terminated on the Trump administration’s anti-regulatory chopping block.
When Obama signed Dodd-Frank into law in 2010, the mortgage meltdown that had begun in 2008 was in full swing, the government was bailing out the big banks that had caused the crisis with taxpayer dollars, and Americans were furious enough that legislators were able to push through the most significant changes to financial regulation since the reforms that followed the Great Depression. These include the Volcker rule, which keeps banks from taking speculative investments, and the creation of the Consumer Financial Protection Bureau—which is responsible for regulating consumer financial companies like banks, lenders, and credit unions. The act also created stipulations for banks to create plans to wind themselves down, instead of filing for bankruptcy, in the event of another economic collapse.
The proposed anti-regulation legislation, known as the Crapo bill, goes above and beyond the GOP’s attempt to dismantle Dodd-Frank last summer through the so-called Choice Act.
In an exceptionally volatile quarter for investors, markets ended lower, with US large company stocks down 0.8%, US small company stocks lower by 0.1%, foreign stocks down 1.7%, and domestic bonds lower by 1.5%.
The stock market swooned in February as traders showed alarm about rising US interest rates. The market sell-off was related to the long-anticipated rise—and possible accelerating future rises—in US interest rates (considered a negative for stocks and bonds) as well as concerns that inflation may be brewing. It may not be just coincidence that this reaction happened in the wake of the recent federal tax cuts, which analysts say will stimulate—unnecessarily say some—the US economy, leading to things such as higher interest rates and inflation.
Tax cuts, along with stepped-up government spending (in March Congress passed a $1.3 trillion budget), may serve to overheat the US economy in coming months, though it is an open question as to whether the tax cuts will actually spur economic growth. Following the passage of the tax bill, there was a series of well-publicized employee bonus and capital investment announcements. (Keep in mind bonuses are one-time and not the same as wage increases.) These were meant to show that big businesses were sharing the bounty of the tax cuts with workers. Since then, however, studies and polls have shown that business investment has not increased as a result of the tax cut—and neither have wages.
Carpenter Training Male Apprentice To Use Mechanized Saw
Socially responsible investing (SRI) is a diverse field with various aims, standards, goals, and objectives focused on sustainability, responsibility, and positive impact (SRI, again). The industry includes both corporate and community development dimensions and covers everything from startup innovation, international micro-finance, and ecosystem services to changing corporate policies and practices, advocating for regulatory and legislative improvements, and facilitating evolutionary shifts in the financial system.
As we pointed out in The Resilient Investor, we must embrace change on many levels—personally, locally, and globally—in communities, boardrooms, and nature if we are to adapt to a more complex and uncertain trajectory for human civilization.
While the media and conventional investors may be obsessed with the next tech IPO or tax breaks for major corporations, we keep our focus attuned to our long-term vision of a world in balance, and that includes careful consideration of how we can support the social and racial justice and regenerative environmental activity that will allow us to thrive in these turbulent times. In other words, when investors, including SRI proponents, are focused on exclusively on short-term growth—large companies merging and acquiring others and startups going public from nothing—we will fail to remedy the underlying social issues that stagnate the economy in the long term.
The corporatization of American sucks the profits of commerce out of towns and cities to corporate headquarters in faraway places. Owners and shareholders of these companies are disconnected from these communities, and by and large, their philanthropic activity is far too small to move the needle on the issues they face. This business model is extractive: the higher paying jobs diverted to headquarters, the natural resources are taken away, and the profit leaves the community. Most communities don’t think they have much of a choice, so they spend a ton of time, energy, and money trying to lure major companies to set up operations in their town.
Local politicians look to score quick victories by courting big corporations, since one deal can provide a few hundred or few thousand jobs. But in the long run, this model only creates a boom-and-bust cycle of dependency. Factory-towns-turned-ghost-towns are the devastating result when those big businesses go under or relocate, much like the mining towns of yore.
But what if we focused on import substitution instead of profit extraction—building a community’s capacity to produce its own food, building materials, clothing, and energy, for starters. The economic model of shipping things produced in one place all over the world is displacing us all, and in this survival-of-the-fittest scenario, the class gap widens when those who control the world’s resources attain wealth while more people slip into meaninglessness and poverty.
What if instead, we invested in small-business incubators and development centers, investment-ready coaching and training programs for entrepreneurs? What if we took concrete action to build a better, more just society, instead of just wishing for it or theorizing about it?
As investors, this requires a shift in our fundamental expectation of financial return. For decades, for example, we have often referred to community investments as below-market-rate, wherein investors voluntarily reduce the term of their loan in order to put more of the capital to work. This gets at the core issue of what is “enough” of a return? Most people would argue that keeping up with inflation is a good minimum return standard, but what does that mean in a low-inflation environment like today?
If we take the long view, when a 2-3% return beats bank interest rates, we can and should be investing a lot more money in anything that will alleviate poverty or increase community food, energy, and economic self-reliance. Years ago, the Forum for Sustainable and Responsible Investment (US SIF) ran a “1% for Community” campaign in an effort to encourage all SRI investors to allocate at last 1% of a portfolio to community investments. At the time, it was considered a stretch to create consensus on this, given the lower rates of return. At NI, we took the challenge seriously, and we now allocate 5 – 8% to community investments and mortgages.
With the urgent challenges we face—including a wealth gap reminiscent of the Roman Empire before its fall—we should ask ourselves why we aren’t doing more. We would be wise to remember the lessons of history, which demonstrates that a healthy civilization cannot mismanage its human and natural resources in perpetuity else the society collapses under the weight of its own incompetence and debt.
What if we were to invest 30% for Community and Nature? In order to do so, we would need to arrive at a collective understanding that the return on this investment—the creation of thriving communities and healthy ecosystems—carry inherent, precious value. Such a discussion might sound like folly to investors concerned primarily with short-term returns. But we are coming to the limits of our economic growth and our natural capital. We risk losing everything unless we begin investing in evolutionary strategies that make the system work for everyone and enable nature to provide enough to sustain us.