The Progressive Investor’s Action Guide for the Next Administration

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.

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Conversations from the 2016 Social Capital Markets Conference

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.

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Kaua’i Island Utility Cooperative shows us how it’s done

As Hawaii considers the ramifications of a contentious sale of its major utility companies to giant Florida-based utility company NextEra, Kaua’i Island Utility Cooperative (KIUC) stands out as an alternative model of utility ownership, and is leading the way in expanding renewable energy production.  In early September, I visited with Jim Kelly of the KIUC to learn more about the cooperative and its approach.

As a cooperative, the utility provider is entirely owned by its members—its employees and customers—who actively participate in setting policies and making decisions. With a strong commitment to renewables, KIUC has utilized multiple strategies to increase its green energy capacity. From Power Purchase Agreements made with owners of large renewable energy facilities—including a solar array owned by Greenbacker Renewable Energy, a company in which many NI clients are investors—to directly investing in the construction of member-owned facilities, the cooperative is well on its way to achieving its goal of 50% renewables by 2023.

With the completion this year of its second 12 megawatt solar facility in Anahola,

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New Insights on SRI Performance

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,

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A Visit with Vitality Farms

I recently made a visit to Oregon and took the opportunity to tour some of the farm properties held by Farmland LP, an organic farmland fund in which we have a number of clients invested. Farmland LP acquires conventional farmland and converts it to certified organic, sustainable farmland, and its partner, Vitality Farms, manages the farming and livestock operations on their properties. Recently named one of the World’s 50 Most Innovative Companies by Fast Company, Farmland LP owns about 7000 acres of farmland in Northern California and Oregon.  Nearly 1500 of those acres are in Oregon just outside of Corvallis, an hour and a half from Portland. I drove out to spend the afternoon with Jason Bradford, Managing Partner at Farmland LP and Owner/Manager of Vitality Farms. It was the highlight of my trip! We toured multiple properties so I could see firsthand the wide variety of organic production currently underway after five years of infrastructure development and farming operations.

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Incinerators Burn Local Economic Development

This is a local tale, but it is just such close-to-home decisions, multiplied across the country and around the world, that will shape the future resiliency of our societies; therein lies a lesson for us all.

A sign of evolutionary times, Hawaii County Mayor Billy Kenoi recently cancelled the $100 million waste-to-energy incinerator project that would have replaced the island’s nearing-capacity landfill in Hilo. While three bids had been accepted as finalists for the project, the Mayor indicated that the recent 50% drop in oil prices made the project financially untenable, given the price the utility was willing to pay for power and the cost of producing the electricity (yes, strangely, the power purchase contracts were tied to the price of oil).

But the problems with the idea run deeper than this.  The financial formula for corporate-scale incinerators relies on a high volume of waste to burn; meanwhile, the stated goal of local and state sustainability plans is to reduce waste to zero through reduction, recycling, and reuse strategies.. While making energy from our waste is perhaps a half-step in the right direction, to many residents, the incineration facility, which would be the largest infrastructure facility in Hawaii County history, is clearly a remnant of old-style thinking about waste, one that presumes we’ll always have a huge pile of it to dispose of.

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Bigger SRI tent holds problems along with possibilities

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.

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Utility death spirals and the future of energy

“Utility Death Spiral?” This provocative title jumped off the agenda page at the recent SRI Conference. What could that mean? Well, with a title like that, I knew I had to attend, though the session description’s litany of tech terms—gigawatts, levelized cost of energy, photovoltaic grid parity, net metering time of use—had my eyes going a little blurry. Spending an hour with a bunch of energy nerds turned out to be the standout presentation of the year for me.

A year ago, Amory Lovins and the team at Rocky Mountain Institute (RMI) released a report called “The Economics of Grid Defection” that highlighted the forces and timing that will drive commercial and residential electricity users to unplug from the grid. Lo and behold, the time is almost here that solar photovoltaic (PV) in combination with new battery technology is/will be cheaper than staying plugged in to the grid. Wow, that changes things! Ever since the initial boom in the 1970’s, PV systems with batteries have been only appropriate for far-off-grid folks, people who lived a mile or more from an electric line. But now, with the cost of PV panels dropping dramatically, coupled with the slow but accelerating reduction in the price of batteries, even someone living in a city house that’s already connected to the grid might choose to unplug. In some parts of Hawaii, the time has already passed—folks there are unplugging, not just to “go green” but to “save green.” In California and New York the report’s most optimistic scenarios suggest it could make economic sense to “defect from the grid” in as little as two years! In places with lower electric rates, including Kentucky and Texas, the time frame is much longer, though well within the thirty-year planning scope of electric utility infrastructure development.

A key factor that will drive “grid defection” is the ongoing monthly cost to stay connected to the utility and the grid. In our current net-metering model, once businesses and homeowners are generating sufficient electricity to cover their own use, then they are using the grid as a giant battery. When the sun is shining the PV system is pumping energy into the grid, and when it’s dark the user is pulling energy out. As the cost of using the grid as a battery increases and the prices for an actual, at-home battery system decreases, users start to look at using their own batteries to perform the same function. If it costs $10 a month to have the convenience of the grid, for example, but it only costs $5 a month to finance a battery pack at your house, well, you can see the appeal—especially if utility fees rise as their customer base shrinks.

What does all this mean for investors?

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The next wave of socially responsible investors is here

For years people have saved and invested for important life goals such as education, retirement or simply to growth their financial wealth. At the same time, many have been in a position to make charitable donations to organizations with which they share particular goals and values. Maybe it’s the environment, social justice or women’s issues – good causes abound.

We have always known that we can do good with our money by providing funding to important causes – and thereby we can direct our money to positive uses. But we’ve long been spoon-fed the idea by the financial services industry that we cannot successfully invest our money in ways that are positive as well. Is it really a necessity to sink investment dollars into companies which pollute our environment, stoke global warming, and avoid diversity in their boardrooms and women in executive positions?

To talk with most financial advisors, you would think so. 2014 may be the year in which investing fundamentally evolves. Women and Millennials are the disrupters. The opportunity to express one’s values – be they social, environmental or political – and to amplify one’s impact by expressing those values through investment dollars is becoming the vibrant new investment landscape.

Economists estimate that by 2030, women will control two-thirds of wealth in the United States. About half of affluent women report an interested in environmentally or socially responsible investments, as compared to just one-third of men.

At the same time Millennials are realizing their earning potential in many existing and emerging industries. Ninety percent of today’s MBAs are willing to exchange some financial benefits for a strong commitment to social good, according to Ourtime.org. And 79 percent of Millennials seek to work at a company that is socially responsible, according to CatchAFire.

Treading lightly on the earth and care for our fellow travelers are becoming meaningful, more widely-held views. Daily buying patterns have been favoring organics, fair-trade products, recycled materials and the like in recent years. People are logically extending their values into their economic behavior.

In the canyons of Wall Street, investing for impact has been eschewed as a niche market, not a pursuit for serious investors. But, there has been no conclusive or even suggestive research to show that investing in companies with positive practices can be expected to diminish returns. In fact, companies can avoid many potential risks by adhering to sound environmental practices and opening their doors to diversity in their ranks and boardrooms.

The next wave of investors is here.

This article was first published in the February 2014 edition of Information Press, San Luis Obispo, CA

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Slow Money Inspires NI Advisors

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.”

Read the whole article here.

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