Excerpted and adapted from The Resilient Investor by Hal Brill, Michael Kramer, and Christopher Peck
The world in which we live is volatile, uncertain, complex and ambiguous. There’s an unfathomable intertwining of relationships that underlie the global economy and the physical world, making predictions virtually impossible. As financial advisors, it hasn’t been easy for us to overcome our desire for certainty about where the world is heading. But once we acknowledged that the world may not be sitting on the most solid of foundations, and that our clients hold a range of views about our possible futures, it became essential to explore strategies that speak to both emerging innovations and local resilience.
Even a few years ago, such a multifaceted approach would have been impractical, as there were few opportunities to invest in alternative strategies. Today, we are energized by the explosion of socially responsible investing (SRI) options
Hope Credit Union mortgage client and first-time homeowner Melbatine Hunter. Photo courtesy Hope Credit Union.
As institutions that give profits back to their members rather than to shareholders, credit unions are usually a better banking option than megabanks. However, choosing a credit union is no guarantee that our money is being used most effectively in your communities. There are low-impact credit unions, just like there are low-impact banks.
On May 24, President Trump signed legislation to roll back critically important regulations on the financial industry. The consumer protection measures, which were put in place under the former Obama administration as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, have now joined the long list of public-interest regulations to be terminated by this administration.
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 Oceti Sakowin Camp in Cannon Ball, North Dakota, where the Standing Rock Sioux and other water protectors lived as they fought to stop the Energy Transfer Company from routing the Dakota Access Pipeline through sovereign Sioux land.
How Socially Responsible Investors Supported the Dakota Access Pipeline Protests
The Dakota Access pipeline (DAPL) starts in the Bakken oil fields of North Dakota and runs nearly 1,200 miles to its terminus in Illinois, where it connects to additional pipeline infrastructure that carries the oil to refineries as far south as Texas. Along the way it crosses hundreds of streams, rivers, and other waterways, including the Missouri River less than a half-mile upstream from the Standing Rock Sioux Tribe reservation.
The project was completed and oil started flowing in June of 2017, after a prolonged protest by the Standing Rock Sioux Tribe, who were joined by water protectors from more than 100 indigenous tribal nations from across the Americas, as well as non-native allies from around the world. As the water protectors decried the violation of tribal sovereignty, the desecration of sacred sites, and the imminent threat to their only source of clean drinking water, they faced attack dogs, tear gas, rubber bullets, and water cannons in sub-freezing temperatures. These protests and concurrent lawsuits were documented by citizen journalists and eventually picked up by major news outlets.
One aspect of the stand-off that did not receive much media coverage was the role that socially responsible investors played in supporting the Standing Rock Sioux in their fight against the pipeline. At the November 2017 SRI conference, remarks by Rebecca Adamson, founder of First Peoples Worldwide (an indigenous-led grant-making organization that focuses on funding local development projects in indigenous communities while creating bridges between their communities and corporations, governments, academics, NGOs and investors in their regions) were presented by Susan White, co-chair of the Investors and Indigenous Peoples Working Group (a coalition of socially-responsible investors and others dedicated to supporting indigenous peoples rights) and Sydney Morris, chair of the Calvert Advisory Council. They provided a compelling account of the behind-the-scenes support socially responsible investors lent to the cause and the results of subsequent advocacy efforts undertaken by SRI groups:
In August 2016, the tribe asked First Peoples Worldwide and the Investors and Indigenous Peoples Working Group to lead an investor strategy aimed at diverting financing from DAPL. Investors worth more than $1.7 trillion signed a statement supporting the tribe’s request for a reroute.
Shareholder resolutions requesting better disclosure of environmental and social risks (from companies invested in the pipeline project) received record-breaking vote counts: Marathon Petroleum (38%), Enbridge (30%), and Wells Fargo (19%).
Energy Transfer Partners (the lead developer of the Dakota Access Pipeline project) stock is down more than 60% since its 2014 highs.
More than 500 NGOs and over 700,000 signatures catalyzed consumer bank account closures worth over $4 billion. Three banks divested from DAPL (BNP Paribas, DNB and ING), twelve of seventeen banks met with the tribe, and ten banks signed a statement requesting changes to the Equator Principle, (an ESG risk management framework used by ninety banks worldwide) in response to investor and civil society pressure. The fight against the DAPL has placed the costs of social risk front and center on the financial industry’s radar.
In response, First Peoples Worldwide created a seminal research effort now underway with the University of Colorado’s Leeds Business School and the American Indian Law Clinic. The first case study will be titled DAPL: Social Costs and Material Loss. Leeds Business School and the American Indian Law Clinic have formed a collaborative: First Peoples Investor Engagement Program. FPIEP has dedicated faculty and graduate students who will continue the work on quantifying social risk, designing market-based strategies for upholding Indigenous rights, harnessing the activist infrastructure that emerged from DAPL for future campaigns, and offering the Shareholder Advocacy Leadership Training to tribal leaders.
Although the Standing Rock protest did not stop the construction of the pipeline, it did catalyze these and other significant advances—not least a greatly increased awareness about the continuing impacts of colonialism on First Nations people. In 2018, the Investors and Indigenous Peoples’ Working Group (of which Natural Investments is a participant) will continue to advocate for the rights of indigenous peoples. The working group will push for companies to adopt Indigenous Peoples’ Free, Prior and Informed Consent (FPIC) policies and to cease activities that harm Indigenous lands, communities, and cultures. It will also focus on building investor, corporate, and U.S. government support for the United Nations Declaration on the Rights of Indigenous Peoples. And the group is committed to identifying opportunities, including strategic partnerships and investor support, to advance Indigenous community economic development initiatives.
“The SRI community made our voices heard, and we thank you,” said White and Morris, as they concluded their talk at the SRI Conference. Their eloquent presentation affirmed and deepened the commitment of Natural Investments to advance the rights of Indigenous peoples around the world through the powerful lever of impact investing.
In January I had the privilege of visiting with one of the micro-credit lenders that Natural Investments clients help to fund. We had a trip planned to Panama, so I decided to take the opportunity to meet with PROCAJA, the on-the-ground lending agency that chooses recipients for small loans funded through Envest Microfinance which some of our clients are invested in.
I met the PROCAJA team in the small town of Ocu. The people at the branch were very gracious as they got us up to speed on how they are structured and the types of clients they serve. As with most Envest-funded programs, loans are generally under $1000 and are targeted to individuals who are starting or growing a small business.
Also in keeping with other micro-credit programs, they’re very successful in getting these loans repaid. Unlike many banks, they use a very hands-on approach. In addition to the standard visit with the person requesting the loan, to assess their current business and their plans, the recipients needs to get neighbors to vouch for them; this creates a natural community of support and accountability. After the loan is made, regular follow up visits track how things are going and identify ways to improve. All this ongoing support, including financial training if needed, leads to the failure rate being much lower then at most banks, which often provide no follow up or support.
After this overview at the branch of office we went to visit four people who are currently using microcredit loans to build nancial stability.
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.
In mid-September, I travelled to San Francisco to participate in the annual Social Capital Markets conference known as SoCap. In its ninth year, SoCap describes itself as the place “where the global community using business as a force for social change gathers to listen to each other, and to learn, and to get things done.” I last attended SoCap three years ago, and was pleased to see how much the event has grown and evolved in that span of time. There were over 2500 people in attendance, from 60 different countries. They represented impact investment funds, international community development organizations, regenerative agriculture projects, and social enterprises, all focused on addressing critical issues like global poverty alleviation, social justice, and climate change, and the conversations were inspiring. Important questions were asked, and moving calls to action were made.
As we’ve seen Impact Investing begin to move dramatically into the mainstream, I was heartened to hear SoCap bring to the fore the priority of ensuring that the social and environmental goals at the heart of Impact Investing don’t become overshadowed by the drive of the extractive economic model currently dominating our financial system. With a huge focus on inclusive strategies for investing, there was deep attention given to addressing racial and gender inequities within our capital system, and how to transition from an Extractive Economy to a Regenerative one.
It’s us. We’re responsible. Well, not us directly exactly, but our internal combustion engines and our land clearing and the flatulent animals we love to eat and our need to be somewhere other than where we are right now. I’m talking about the most important issue of our time of course, the intractable and undeniable problem of climate change. The scientists call it anthropogenic climate change; ACC in Acronym.
For years many of us have been thinking and writing and doing what we can to reduce emissions of greenhouse gases: eating local food, driving less while driving an efficient car, making our homes more energy efficient. Ten years ago I even wrote in this newsletter about how we could store all of that extra atmospheric carbon in the soil and how good that would be for agriculture and ecosystems and water as well as bringing the climate back to what our grandparents knew. Collectively all these ideas are known as “mitigation.”
But a new strategy has emerged, recognizing that all of those years of thinking and writing didn’t actually generate much doing. So now it’s time to consider “adaptation.” How can we adapt? Thankfully someone has been working on this, and I’m delighted that it’s happening right in my backyard.
This article from NI’s Andy Loving was originally published in the February 2015 edition of the Green Money Journal. It offers some much-needed perspective on the recent surge of mainstream investment interest in ESG measures, which is often celebrated as being synonymous with SRI and its historic goals. Andy begs to differ.
I have spent my 20-year career as a financial advisor working with people who want their faith and their values to be reflected in their use and investment of their money. From the beginning, I have been a socially responsible investing advisor to organize money for social change, while serving the needs and commitments of my clients.
But today’s social investing marketplace is increasingly driven by ESG (Environmental, Social, Governance) investments. The social investing “tent” has indeed gotten much bigger and, in the process, many strongly held values that my clients and I have seen as so important now seem unimportant, or at least less important, to many in the industry. Growth often results in increasing diversity, which can be a good thing. But in the changes in the social investing industry, certain values and priorities have been de-emphasized to the point that the character of the industry is significantly changed.
Information in the recently published 10th edition of the US SIF Trends Report on SRI documents concerns. The headline news of the Trends Report is, of course, the 76 percent increase over two years of U.S.-domiciled assets under management using SRI strategies. The jump from $3.74 trillion in 2012 to $6.57 trillion in 2014 was startling, encouraging and almost unbelievable. But of that more recent number, $6.2 trillion were assets where ESG factors only were being incorporated into investment decisions. There was no involvement in shareholder activism and community/impact investing.
These numbers indicate that many mainline money managers now believe ESG factors can and do influence the financial bottom line, making ESG material to profit maximization. The mainline Wall Street firms are finally believing what the SRI industry has been saying for decades.
The report also contains information about two other important areas of activity – shareholder advocacy and community investing/impact investing – where the news is not quite so encouraging.
Financial Advisor magazine recently ran an in-depth article on Slow Money, the nationwide network that channels capital into local food systems. We’ve featured the Slow Money movement in our newsletter and on this blog since its inception, and several Natural Investments advisors have been enthusiastic supporters of its national and regional groups, so it was no surprise to see two of our team featured in this article.
Carrie vanWinkle helped form Slow Food Kentucky, where over 80 members now meet three times a year to connect small food operations with potential investors. After building a personal relationship, members arrange loans directly with the farmers, at interest rates of 3-5%.
“I think people sometimes come into Slow Money––or local investing more broadly––with the right intentions, but they get caught up in financial return rather than the whole return, which is financial-plus,” Carrie says. The 3% to 5% loan rate “seems to be a pretty fair rate of return in today’s environment.”
The national Slow Money network also helps those with no local group to find avenues to do “regenerative investing” (see this recent post for more on this emerging high-impact field). NI’s Malaika Maphalala did just that for a client in Vermont who made a significant loan at 5% interest to Coyote Creek Farm, a grass-fed beef and chicken/egg operation in Texas. As reported by Financial Advisor:
Coyote Creek would be part of the regenerative portfolio, and Maphalala took it upon herself to do due diligence on its expansion plans. “It took years to come to fruition, but I followed the process on my clients’ behalf to make sure it was investment ready,” says Maphalala, who’s been active in the Slow Money Northwest chapter in Portland. . . . “The couple is dependent on earnings from their investments,” Maphalala says. “Because they’re retirees, in the impact sector it’s very important that investments be real safe regarding reliable annual returns.”
In addition to investments in the form of direct loans, Slow Money is also creating a parallel model that leverages philanthropic donations to grow local food systems. Woody Tasch, Slow Money founder, notes that this “would relax some of our transaction mentality and build on the idea that we’re trying to build something over 25 years. . . . Instead of thinking about this as return-agnostic investing, you can think about this as super-positive return philanthropy.”