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.
Recently, I went on a business trip to meet with current and potential clients. Perhaps not surprisingly, among all the topics that came up in conversation, one theme consistently stood out: People’s incomes are getting squeezed by a tight jobs market and low interest rates, and they are increasingly looking to their investment portfolios to help boost income and make ends meet.
The main challenge with investing for higher income is that the risks are also higher. With bonds, for example, investors are paid higher interest rates when they lend to borrowers with lower credit quality who are at greater risk of default. Interest rates are at historical lows, making the situation even more challenging. Not only do bonds pay relatively low interest, but if interest rates go up, bond prices will go down, reducing the overall returns. Meanwhile, there’s not a whole lot of room for interest rates to go down and boost bond returns. No wonder investing for income is challenging in this environment!
Many people are turning to stocks for income. Stocks can pay nice dividends, but their value generally fluctuates much more than bonds. Fortunately, reliable dividend-paying stocks tend to be less volatile than non-paying stocks. When it comes to holding stocks or bonds for income, investors must determine how much risk they can tolerate, and adopt a long-term time horizon. Ultimately, diversifying across a range of stocks, bonds, and other investments, such as income producing real estate or real estate investment trusts (REITs), is the best way to lower risk and achieve a reliable investment income.
Creativity can pay off when you consider the income possibilities of non-traditional investments. For example, loaning money directly to local small businesses can generate a solid yield while keeping your investment dollars close to home.
Our very own James Frazier is a movie star! Well, maybe he’s not the only one who can point to an online video with pride, but we’re excited to see him sharing his great work as part of a vibrant community economy in his home town of Port Townsend, Washington. Port Townsend is home to LION: the Local Investing Opportunities Network, which allows local citizens to make loans to local small businesses. The work was featured on Peak Moment TV, which features video journalism on “locally reliant living for challenging times,” and on Treehugger. You can check out James’ star turn — we mean, thoughtful and forward-looking comments — on either of those sites, or right here:
If you believe that positive change in the world must include fundamental changes in our economy and how we do business, and if you believe that the most power we have to affect real change lies right where we live, in our local communities, then you should know about the Business Alliance of Local Living Economies (BALLE, pronounced “ball-ey”).
BALLE is a consortium of business networks spread across the USA and Canada. Each of these networks brings together the green, sustainable, locally-focused businesses of a given region. Each network is independent and autonomous, focusing on the unique resources, culture, and challenges of its area. BALLE acts as a forum for all of these green business networks to share information, encourage each other, and coordinate their agendas.
It sounds simple, but that’s probably where the beauty is. By linking together over 22,000 small businesses across the continent, BALLE has turned what would otherwise be lots of well-intentioned but unconnected green businesses into a force for advancing local, sustainable, human-scale business practices in the world, starting at the grassroots level. According to its website, “BALLE believes that local, independent businesses are among our most potent change agents, uniquely prepared to take on the challenges of the twenty-first century with an agility, sense of place, and relationship-based approach others lack.”
In today’s globalized world, where it seems that big, abstract entities such as nations and corporations dominate the news and control the agenda, why do small, local economies and businesses even matter at all? To name a few reasons:
Having recently returned from SRI in the Rockies, the annual conference for the socially responsible investing industry, I’m eager to report on a topic that generates more energy and excitement each year: Impact Investing. While it might sound like just the latest industry buzzword, impact investing inspires genuine enthusiasm in those of us who focus on the marriage of money and meaning. Perhaps this is because it strikes to the essence of what we strive for: using investments to create an immediate, measurable, and positive social and/ or environmental impact.
It is these concrete, measurable impacts that distinguish impact investments from “traditional” SRI approaches. The classic example of SRI is a fund that invests in the stocks of progressive, sustainability-focused companies. While such a fund plays an important role in many portfolios, simply investing in such funds or companies does not necessarily create any clear changes in how these companies operate, or their impact on the world. Impact investments, on the other hand, are designed to directly contribute to solving the world’s challenges, producing a result that goes beyond the purely financial.
Impact investing is starting to garner attention from the upper echelons of finance.
By James Frazier If the current economic paradigm were a person, he would be someone we’ve known long and well. He believes that the world economy only goes in one direction: up. Any setbacks are viewed as temporary and are met only with single-minded determination to make up the setback and then proceed forward again, full steam ahead. Perpetual growth is needed, he is sure, to maintain or increase standards of living for a growing world population that is also living longer than ever before.
The problem with this thinking is that perpetual growth based on non-renewable resources cannot happen within a finite system like our planet. The paradigm of seemingly perpetual growth has been supported for decades by the extraction of cheap energy and natural resources. Now, the “low hanging fruit” of the energy world has been consumed, and new energy sources such as deep water oil are proving to be more expensive and dangerous than those we’ve relied on until now.
Not surprisingly, then, the cost of economic growth is increasing, bringing down our “net” growth after the rising costs have been subtracted. This is especially true for highly indebted developed nations like ours, since we are collectively paying out interest instead of receiving it. Theoretically, the longer we continue with the existing paradigm, the more expensive new growth will become, until the costs exceed the benefits and we are forced to shift to a new, more sustainable model.
Right now, around the country, groups of citizens both small and large are reclaiming their money as a force for positive social change. Whether as natural investors, local currency groups, the Slow Money Alliance, or others, this grass-roots movement is rapidly evolving, creating the potential for big changes in our basic relationship with money.
One of the values that many of these people share is a passion for their local community. They want to support the local businesses that are owned by, and employ, their neighbors, friends, and family. One great way to do that is to invest in them. Here in my hometown of Port Townsend, Washington, a group called the Local Investing Opportunities Network, or LION, has been successfully helping that happen by connecting local businesses with local investors.
LION members were inspired to come together for a variety of reasons. Some of them have been successfully investing in local businesses for many years, often in ad-hoc groups, and realized that they could have a much greater collective impact by getting organized and working together.
The Earth. A scintillating, heavenly blue orb with conditions miraculously ideal for abundant life. Not until just a few decades ago were we able to behold images of our small jewel of a planet, alone in the infinite depth of space.
Until recently, the Earth must have seemed limitless. Who could stand atop a mountain or at the edge of a great ocean and think otherwise? As well, the Earth’s ability to provide and sustain life seemed limitless. Tales of magnificent herds of bison, and salmon runs so dense that one could cross a river on the backs of fish, serve as a reminder of the abundance that our ancestors once knew.
Since the advent of the modern human species, homo sapiens, perhaps a couple hundred thousand years ago, humans have been incredibly successful. They developed tools and colonized continents, fueled by the food they were able to gather and hunt as they went. The transition to agricultural societies occurred around ten thousand years ago, and laid the groundwork for greater population growth. Around 200 years ago, the Industrial Revolution ushered in the ability to harness the power of nature like never before, and just within the past century have technological advances enabled an unprecedented transformation of human cultures, population, and capabilities. In the relative blink of an eye, we have become the dominant life form on Earth.