“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:
There is no question that the political world is wildly turbulent these days. If you are like me, you may often fall prey to the depressing news coming out of Washington, D.C. Every day it seems like some environmental regulation is being rolled back, the government is oppressing a new group, or that we are on the brink of a budgetary crisis. All of this is before we even talk about global warming. So what is a progressive investor to do?
I was recently reminded of a line that President Bill Clinton likes to use, which is to look at “trendline not headlines.” In today’s world, there couldn’t be better advice. In the age of clickbait headlines, social media frenzy, and scary sound bite news, this can be hard to keep in mind—but the trendline does tell a more accurate story.
So let’s take a dive into some trend lines and see what is actually happening.
Recent catastrophes provide an opportunity to practice a future-planning mindset.
It’s obvious that significant Earth changes are occurring these days—in the past month alone, we’ve seen several major earthquakes, ravaging fires, devastating hurricanes, and torrential flooding. When we wrote The Resilient Investor a few years ago, we anticipated future volatility and uncertainty due to climate change and other factors, but we didn’t know how immediately prescient our insights would be. The September trifecta of superstorms in the Atlantic provided a stark reminder that as resilient investors, we must incorporate disaster mitigation, in addition to disaster preparation, into our financial analysis and planning—for there are few places in the world that will be truly “safe” from the impacts of climate change.
To this end, our top priority must be a bold adjustment in how we produce and consume energy. The good news is that businesses and local governments had already begun to take steps in this direction before our current, climate-change-denying Administration took power. In fact, despite a near-total absence of leadership by the federal government, Americans are on target to meet he 2025 CO2 reduction targets set by the Paris agreement (1800 million tons of CO2); by the end of 2016, we were halfway there. Carbon-based utility generation is down 25% already, ten coal plants are closing, and many states are setting aggressive renewable energy goals.
Both stock and bond markets finished the quarter with solid gains. Large company stocks in the U.S. were up 3.1%, while smaller companies gained 2.5%. Foreign stocks were in the black as well, up 6.1%. Bonds advanced 1.4%, even as the Fed raised interest rates.
Federal Reserve officials forged ahead with another interest rate hike in June, the third in six months, and maintained their outlook for one more hike this year. The Fed announcement struck a careful balance between showing resolve to continue increasing interest rates toward more historically normal levels, and acknowledging concern over unexpectedly low inflation this year. While we may think of inflation as a bad thing, the Fed sees benefits in it—in the right measure.
In June I participated in the inaugural Conscious CompanyGlobal Leaders Forum, a gathering of about 200 business executives who are interested in evolving themselves as a conscious leaders. They share a goal of bringing deeper awareness to bear inside companies to change how business is done, and to create positive, meaningful ripple effects in the bigger world.
As you might guess, some of the attendees were from recognizable companies like Google, Patagonia, Clif Bar, GoPro, and Seventh Generation. Economic innovators like Kat Taylor from Beneficial State Bank, and mission-oriented CEO Vincent Siciliano with New Resource Bank were there. Game changing leaders from BALLE, Bioneers, Social Ventures Network, Oxfam, B Lab, and American Sustainable Business Council attended as well, along with many chapter heads and members of the Conscious Capitalism national network, NEXUS, and Village Capital.
I struggle with climate change. It’s so hard to come to grips with the enormity and complexity of this global challenge, and even harder to know what to do. It turns out that Project Drawdown is just the thing I was looking for, to help me find some focus and optimism when the challenge is so immense.
Project Drawdown founder Paul Hawken, a well-known environmentalist, entrepreneur, and author, has had his own struggles with climate change. As far back as 2001, he started looking for the best approaches for addressing this central issue of our times. While he found high-minded strategies geared toward action by governments and multinational corporations, what he was after didn’t exist: a compilation of real world solutions that speak to us all.
In 2013, Paul began to assemble a coalition of more than two hundred scientists, researchers, fellows, writers, economists, financial analysts, architects, companies, agencies, NGOs, activists, and other experts. It’s an impressive team, and they’ve produced a book and website that highlights eighty of the most viable ways to “draw down” carbon from the atmosphere. By pursuing a wide array of strategies, we can not only slow the increases, but also begin to reduce the concentration of carbon dioxide and other disruptive chemicals enough to stabilize the climate.
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.
Quakers are often given credit for being pioneers in the formative era of Socially Responsible Investment. As I was reading an array of early SRI publications, it was easy to see that Quaker traditions and practices have played an important role in this movement’s history. While you may not have the same faith as the thinkers and authors quoted here, the lessons and insights are applicable regardless of your spiritual background or belief.
When we remember that many of the concerns we are trying to address through our investments are global issues (climate change, deforestation, gender equity and LGBT rights, supply chain/human rights, etc.), it becomes even more important to broaden our understanding. While Quakers come from the Judeo-Christian tradition, universalism is a commonly held belief among Friends, as Quakers are often called. There is diversity among Quakers, and an openness and curiosity about others is central. As Tom Head wrote in Envisioning a Moral Economy, “To study well the other faith traditions through which all humankind knows and experiences the sacred is especially important in our era of globalization.” (Footnote 1)
Quakers are one of the three historic Peace Churches, believing there is “that of God” in all people. This has inspired a strong history, still continuing today, of social justice advocacy on pressing topics of the day, from slavery to women’s rights, prison reform, and armament issues. As early as 1688, Quaker meetings in the United States were corresponding and discussing the ethical issue of profiting from the slave trade, and in 1758 the Philadelphia yearly meeting unanimously issued a proclamation forbidding its members from participating in the slave trade.
Could you imagine a church/mosque/temple in 2017 forbidding its members to profit from the fossil fuel industry? Or forbidding its members from investing in and working with predatory or discriminatory financial institutions?
After the election, I left the country. Many people had a similar instinct, but no, my doing so wasn’t out of disgust over the election results. It was planned long before, in response to an invitation to speak in Deauville, France at the annual global Womens Forum for the Economy and Society (also known as “Davos for women”). This was quite an affair: 1200 powerful political, business, media, and NGO women from around the world all focused on economic development and improving the status of women. The theme this year was “The Sharing Economy,” which as you know is an Evolutionary investment strategy in The Resilient Investor, so I fit right in despite being one of the only men in attendance.
The timing was good for my presence at the event—resilience is resonating well with people, not just because of global instability, but also because the current political situation, in particular Brexit and the American presidential election. There was even a “What America’s Choice Means for Women” panel at the event that featured Star Jones of The View and Leah Daughtry, the chair of the Democratic National Convention Committee, discussing the battles on the horizon.
So what does resilience mean in this political environment?
In November, several of our Natural Investments team attended the Conference on Sustainable, Responsible, Impact Investing in Colorado. In the wake of the Trump’s victory, many of us felt initially devastated and depressed but we quickly found ourselves galvanized and inspired by each other and the recognition that our work as social and environmental activists will be all the more important in the coming years. One of the most inspiring presentations at the conference was a talk given by the authors of The New Grand Strategy—a powerful economic and investment plan for America’s future that identifies sustainability as the organizing logic for the nation. Remarkably, this vision came out of the Pentagon and is expected to be an important influence on America’s future under the Trump administration and beyond.
The story of the New Grand Strategy began in 2008, when Admiral Eric Olson, the Commander of U.S. Special Operations, was frustrated that the military was engaged in seemingly endless wars. The U.S. first crafted a so-called Grand Strategy during World War II, with fascism being identified as the primary global threat; it was adapted later in response to the Russia and the rise of communism. Olson recognized that the old Grand Strategy was no longer working to America’s advantage and wanting to get U.S. soldiers “out from under the sound of the guns”, he directed Colonel Mark “Puck” Mckleby and Navy Captain Wayne Porter to develop a proposal or “narrative” for a fresh guiding strategy for US global operations.
Through their lens as military officers it was clear that national security is no longer simply about threats from other countries and maintaining our primacy over these threatening forces via force and power. They realized that the world actually operates more as an ecology in an open system, and that the “big wicked problem” of our times is the widespread lack of sustainability within that system.