Best-selling author and Natural Investments client Vicki Robin recently published a fully revised fourth edition of her classic book, Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence. With more than 1 million copies sold over the past 25 years, this book has guided countless people to take control of their spending, reduce debt, increase savings, and ultimately achieve financial independence. We are honored that Vicki asked us to collaborate on revising the last chapter of this edition, and we are grateful that she was able to take a short break from her book promotion tour to speak with us.
In early November, 2017, my Natural Investments colleagues and I attended the 28th annual SRI (Sustainable, Responsible, Impact Investing) Conference in San Diego. I always get excited about this conference because it is the premier educational and networking event for financial advisors, fund managers, and others connected to our industry. It has become a touchstone for me—not just because of the wonderful people I meet, or the inspiring investment opportunities—but because it helps me reconnect with why we do this work.
When I arrived, I heard that the conference had set a new attendance record, with many of the 800+ attendees being newcomers from Wall Street looking to break into SRI. There were some grumblings that big corporate interests have identified SRI as a growing, profitable business and have been moving in on the SRI space, and the speakers seemed to recognize this. They made it clear that all were welcome, but that we are united by a common purpose: to use the power of our investments for the good of people and planet. It isn’t about financial returns, they said (because we know research has established that SRI performance is competitive), but what we are able to accomplish on the ground, in the real world.
To that end, the United Nations Sustainable Development Goals (SDGs) emerged as a major theme of the conference. World leaders adopted the SDGs in 2015, calling for all sectors of society to work toward gender and racial equity, clean power and water for all, a sustainable economy, and the end of poverty and hunger, among other ambitious goals. For SRI professionals, the SDGs can provide more clarity of purpose than the more nebulous phrase “positive impact,” which can easily be misunderstood or misused by newcomers.
In another area of the conference, dozens of companies staffed booths where attendees could learn more about their services. I saw several of the fund managers I’ve come to know over the years, and received personal updates on how they are investing and what they expect going forward. One of them was a regenerative agriculture fund that invests in conventional farmland and leases it on favorable terms to local farmers, who then convert it to organic production. This fund creates local jobs, improves soils, and fights climate change—while investors can benefit from rent payments and the improving value of the farmland. Although this fund is unique, it’s a great indication of the real world impact our industry is having.
I was struck by how many new funds were represented at the conference. Our industry is indeed growing! One fund occupies a new niche—global real estate investments that have been screened for environmental, social, and governance (ESG) issues. It’s important for investors to own both domestic and international real estate for diversification purposes, yet socially responsible investors have never had a fund dedicated to doing this in a sustainable way. I got the opportunity to meet the fund manager right there in person and learn about how this investment works. Our team will certainly be following up with more research on this new option. I ended up visiting nearly all of the other new funds as well, taking notes and asking friendly yet probing questions to help me get a sense of whether these new products could add value to our clients’ portfolios.
During the conference, my Natural Investments colleagues and I arranged private meetings with several managers to delve deeper into their offerings. We learned about the financial details, but more importantly, we got to know the people behind these investments. That’s why it’s so important to attend this event—it’s the best way to get a real sense of the expertise and integrity of the people we work with. I came away from the conference thoroughly inspired, filled with new information and insights and a renewed sense of purpose for the job I do.
Now that the 2016 presidential election is in the history books with a shocking outcome that few foresaw, the rough outlines of the next few years are starting to become a little clearer. We can reasonably expect a federal government with less interest in protecting voting rights, reproductive rights, and civil rights of historically disadvantaged and targeted communities such as immigrants, Muslims, LBGT people, disabled people, and people of color. We can also expect more interest in increasing fossil fuel production and distribution, stirring up international geopolitical conflicts over trade, territory, and resources, and lowering corporate taxes, among many other priorities. With our values and ideals—and for some, our lives—under what’s likely to feel like a constant siege, it’s natural to react emotionally with outrage or despair. And while it’s important to vent, we must not allow ourselves to be paralyzed into inaction or satisfied with mere talk! This is a moment that calls for us to activate our resources and engage our communities, not just to defend against potential losses, but to build on the gains of the last eight (and more) years. You, dear investor, are in the advantageous position of having resources that can be mobilized to help catalyze much-needed outcomes. With that in mind, here is your action guide for the next administration.
Step One: Lift up communities by investing in them. Lend your money to Community Development Financial Institutions (CDFIs) that specialize in redistributing access to wealth to vital projects in vulnerable communities. For example, investors nationwide can open a High Impact CD at Hope Credit Union, which serves formerly under-banked communities of color in the Mississippi Delta region. While the Standing Rock Sioux blockade of the Dakota Access Pipeline highlights the myriad of challenges that Native Americans face, First Nations Oweesta CDFI is actively redeploying investor capital to create jobs, grow businesses, and secure ancestral lands across Indian Country. The Calvert Foundation offers two initiatives that invest in specific constituencies targeted by the incoming president: Latinos (the Raíces Investment Initiative) and women (the Women Investing in Women Initiative: WIN-WIN). Self-Help Credit Union and Beneficial State Bank take federally insured deposits and reinvest them in affordable housing and small business loans in low-income neighborhoods that are otherwise unlikely to benefit from the new regime. Seek out CDFIs doing similar work in your city or region. And help build a thriving economy right where you live by buying local and investing in local small businesses and nonprofits that you know.
Step Two: Fight climate change by investing in the ongoing green revolution.
Climate change hysteria. Tar sands and fracking. Prices for oil and gasoline on a roller coaster. What in the world is going on with fossil fuels?
I’m no expert on energy, but as a fascinated observer, it’s been increasingly dawning on me that perhaps we are seeing the beginning of the end of an era. Of course, the end of fossil fuels will probably take decades to unfold—though change can also happen with surprising speed. (Think: the ubiquitous smartphone is not even ten years old yet!)
A permanent shift towards a low-carbon economy certainly appears to be underway. A number of key forces are working in concert to fundamentally change how energy is produced and consumed in our modern economies. These include new production technologies, evolving political realities around climate change, increasing energy efficiency, and the rise of renewable energy and electric vehicles. All of these are trends that look to be with us for a long time, inexorably pushing us towards a green energy future and away from polluting fossil fuels.
As a financial advisor focusing on Sustainable, Responsible, and Impact (SRI) investing, over the years, I have spoken with countless people that have questioned the financial performance of SRI investments. These people either believe, or think there’s a good possibility, that investing in SRI means giving up some returns. In my experience, this idea is held by both those attracted to it and those who are not. Why is this? Over the years, many studies and even meta-studies (research analyzing the results of a number of studies on a topic) have shown that SRI is either positive or neutral for performance relative to conventional portfolios. Perhaps our industry has failed to get the good news out. It may also be the case that the mainstream investment industry is spreading mistruths about SRI performance in order to prevent assets from moving to SRI managers. Fortunately, a couple new reports were released earlier this year which shed some new light on this issue, and strongly support our long-held belief that SRI is actually a source of both financial and operational outperformance.
The new reports, Sustainable Signals and Sustainable Reality,
A brand new press release confirms we’ve made it to the finish line, which is really just the beginning: “Website Helps Main Street Take on Wall Street; Local Investing Gains Nationwide Resource.” A team of web developers, graphic designers, media consultants, editors, donors, and colleagues, with yours truly at the helm, has been hard at work for three years, building a unique online resource that’s designed to help investors connect with local small businesses and nonprofits that offer investment opportunities. We’ve created rich, in-depth educational guides tailored to our three primary audiences: investors, entrepreneurs, and community leaders that want to kickstart local investing in their communities. We built a news feed, forums for discussion, and a directory of local investing groups and practitioners nationwide. We also disseminate information through our social media channels and local investing E-newsletter. The purpose of all this is to scale up the local investing movement nationwide. You can check out the fruits of our labors at local-investing.com. Here’s the story of how it came about.
In 2008, while living in Port Townsend, Washington, I was invited to join a newly forming group of citizens that wanted to invest a portion of their money with local businesses. Being a fairly isolated and small town of 9,000—located on a peninsula jutting off of another peninsula, surrounded by water and mountains—Port Townsend has a history of being a tight-knit, relatively self-reliant community. Neighbors are accustomed to working together to get things done, including investing in one another when needed. But when the financial crisis hit, local banks pulled in their credit lines to local businesses just as the off-season arrived. It was an anxious moment for our community and the country as a whole. Our group’s response was to launch the “Local Investing Opportunities Network,” or LION, with the mission of building a more prosperous and resilient local economy by keeping investment money in our community. The word spread, and pretty soon, local business people were hearing about us as an alternative source of funding. Several of them reached out to our members, and the first local investment deals were struck. New businesses were launched, existing businesses were expanded, jobs were created, and relationships built. Local investing created an exciting new community conversation around how neighbors could invest in one another in a mutually beneficial way.
Over the next few years, LION grew, and started receiving some attention from outside our community as a replicable model for local investing. We were written about favorably in two books, Locavesting by Amy Cortese, and Local Dollars, Local Sense by Michael Shuman. Inquiries started coming in from communities around the country, asking how our model worked. I found myself answering many of the same questions over and over again, and wished that there was a high quality online resource that people could consult to learn the basics of local investing. At some point, it clicked in my mind that such a resource really just needed to be created, so why not just do it?
Wall Street is expanding its reach. In the years since the financial crisis, recovering markets and a flood of easy money from the Federal Reserve have encouraged large institutional investors to move into whole new sectors such as rental homes and farmland. Unfortunately, small farmers and homeowners are losing control of their futures while the well-funded newcomers capitalize on their latest opportunity. By introducing profit-maximizing corporate management in these areas, we may see higher prices for food and rent before long. How is Big Money able to boldly expand so soon after what seemed to be a very humbling experience just a few years ago? And what role might sustainable and responsible investors have in responding to this situation?
This fall, the Natural Investments team united for a series of exciting gatherings in the San Francisco area. In our most significant annual tradition, the advisors of NI leave our widely dispersed homes and communities, and come together to help move our industry, and our firm, forward into the future. This year we met at the SOCAP (Social Capital Markets) conference, which offered a fresh perspective on the future of impact investing. Adding in a half-day event focused on local investing before the conference, and a three-day retreat for Natural Investments advisors after the conference, we departed Northern California invigorated and enthusiastic about the work we do and where it’s all headed.
The big week kicked off with the Community Capital Symposium, an event dedicated to advancing the local investing movement. The mission was to empower community-based ventures and locally-focused investors to build thriving communities together. As coordinator for the nonprofit Local Investing Resource Center, I helped organize this event with several leaders in the local investing field and in the city of Oakland, where the event was held. A capacity crowd of over 100 showed up on Labor Day (no small feat on a national holiday!) to learn about how both for- and non-profit entrepreneurs can use existing and new techniques for raising community capital, how investors can find and evaluate local investing opportunities, and how community organizers and activists can help build a “community capital ecosystem.” This ecosystem consists of partnerships between the people (such as local investors and entrepreneurs) and institutions (such as Small Business Development Centers, Economic Development Councils, community colleges, local banks, etc.) that can help connect qualified investment-ready businesses with local financing. By the end of the day, participants were feeling excited about the opportunities to keep investment dollars, and returns, circulating within their own local communities.
The very next day, SOCAP began in San Francisco, bringing together almost 2,000 people from all over the world to advance the field of impact investing.
The big boys are coming out to play! Both Goldman Sachs and Morgan Stanley have announced significant new initiatives aimed at joining the trailblazers in the impact investing world who have been engaged for years in channeling investment monies into companies with a strong positive social and/or environmental impact. It seems likely that they’re hearing from their clients, their younger associates, and their colleagues (Rockefeller Foundation, etc.) that this is an important area, not to be missed out on.
Goldman is putting a toe in the water with its $250 million “social impact” fund, which will provide up-front capital for priorities that aren’t immediate pressing needs, like early childhood education or energy efficient building retrofits, that would nevertheless result in lower costs down the road, while forging some complex metrics to determine how to split the money that’s saved. Goldman CEO Lloyd Blankfein explains, “It’s going to be managed with a view to returning principal and earning a little money for the people who invested in it, so that people do okay in it. We want it to be a combination of people’s better instincts, and their desire not to lose money, to get them over the threshold. If it works, it’ll get bigger and bigger and bigger, and have a life of its own…Anytime you can get natural forces to do what you want to have done, that’s perfect.”
Meanwhile, Morgan Stanley appears to be diving right in, establishing the Morgan Stanley Institute for Sustainable Investing, and setting a goal of having $10 billion in assets in its Investing with Impact Platform within five years. This would be huge, as a comprehensive report published in 2012 pegged total private equity in the US engaged in impact investing at just $4 billion. The Morgan Stanley initiative also includes a separate $1 billion “sustainable communities initiative” being pursued in concert with community advocacy organizations including the Local Initiatives Support Corporation (LISC), and funding for a Sustainable Investing Fellowship at Columbia Business School that includes an internship at Morgan Stanley.
These big players are, of course, stressing the profit potential; they don’t want anyone to think that they have gone soft on making money—and indeed, financial returns have always been a part of social impact investing. The impact may be less important to them than it is to many of us, and so their version of social impact will likely not be as “deep green” as others. However, they should be able to create more scale than prior efforts have, if they are successful. I wish them luck and hope that they get some real institutional buy-in from within, so that these do not go down within the mainstream financial world as “impact investing projects that failed”.
It would be great for everyone if Wall Street got some traction in this area; how can we expect to see investing help change the world for the better if the lion’s share of the money doesn’t get on board?
The S&P 500 index recently hit a new all-time record high, having officially recovered 100% of its financial crisis losses in about five years. This is good news for investors, pension holders, government officials, and corporate management, and congratulations is due for persevering through a market comeback that was far from assured. Yet, as a nation, we are still missing the feel of a truly prosperous and sustainable economy. Post-recession financial gains are far from widely distributed, and many people are worse off than they were five years ago. There’s a growing sense in our society that who benefits from the economy is just as important as the overall level of economic benefits themselves.
Let’s take a quick look at some indicators of economic health. Home values, the biggest component of household wealth, are still 23% below 2004-07 levels. After five years of recovery, the unemployment rate stands at 7.7% compared to a pre-crisis decade of unemployment consistently under 6%. Perhaps worst of all, from 2007 to 2010, the average wealth of the top 20% of American households relative to the bottom 80% expanded by an astounding 41%. Given how much the stock market has risen since 2010, that gap has grown much wider now. How can the stock market recover so well while leaving so many behind? I have observed two major reasons.
The first is that corporate management cut costs aggressively in a fight for survival during the recession.