Investing in Community and Nature
Socially responsible investing (SRI) is a diverse field with various aims, standards, goals, and objectives focused on sustainability, responsibility, and positive impact (SRI, again). The industry includes both corporate and community development dimensions and covers everything from startup innovation, international micro-finance, and ecosystem services to changing corporate policies and practices, advocating for regulatory and legislative improvements, and facilitating evolutionary shifts in the financial system.
As we pointed out in The Resilient Investor, we must embrace change on many levels—personally, locally, and globally—in communities, boardrooms, and nature if we are to adapt to a more complex and uncertain trajectory for human civilization.
While the media and conventional investors may be obsessed with the next tech IPO or tax breaks for major corporations, we keep our focus attuned to our long-term vision of a world in balance, and that includes careful consideration of how we can support the social and racial justice and regenerative environmental activity that will allow us to thrive in these turbulent times. In other words, when investors, including SRI proponents, are focused on exclusively on short-term growth—large companies merging and acquiring others and startups going public from nothing—we will fail to remedy the underlying social issues that stagnate the economy in the long term.The corporatization of American sucks the profits of commerce out of towns and cities to corporate headquarters in faraway places. Owners and shareholders of these companies are disconnected from these communities, and by and large, their philanthropic activity is far too small to move the needle on the issues they face. This business model is extractive: the higher paying jobs diverted to headquarters, the natural resources are taken away, and the profit leaves the community. Most communities don’t think they have much of a choice, so they spend a ton of time, energy, and money trying to lure major companies to set up operations in their town.
Local politicians look to score quick victories by courting big corporations, since one deal can provide a few hundred or few thousand jobs. But in the long run, this model only creates a boom-and-bust cycle of dependency. Factory-towns-turned-ghost-towns are the devastating result when those big businesses go under or relocate, much like the mining towns of yore.
But what if we focused on import substitution instead of profit extraction—building a community’s capacity to produce its own food, building materials, clothing, and energy, for starters. The economic model of shipping things produced in one place all over the world is displacing us all, and in this survival-of-the-fittest scenario, the class gap widens when those who control the world’s resources attain wealth while more people slip into meaninglessness and poverty.
What if instead, we invested in small-business incubators and development centers, investment-ready coaching and training programs for entrepreneurs? What if we took concrete action to build a better, more just society, instead of just wishing for it or theorizing about it?
As investors, this requires a shift in our fundamental expectation of financial return. For decades, for example, we have often referred to community investments as below-market-rate, wherein investors voluntarily reduce the term of their loan in order to put more of the capital to work. This gets at the core issue of what is “enough” of a return? Most people would argue that keeping up with inflation is a good minimum return standard, but what does that mean in a low-inflation environment like today?
If we take the long view, when a 2-3% return beats bank interest rates, we can and should be investing a lot more money in anything that will alleviate poverty or increase community food, energy, and economic self-reliance. Years ago, the Forum for Sustainable and Responsible Investment (US SIF) ran a “1% for Community” campaign in an effort to encourage all SRI investors to allocate at last 1% of a portfolio to community investments. At the time, it was considered a stretch to create consensus on this, given the lower rates of return. At NI, we took the challenge seriously, and we now allocate 5 – 8% to community investments and mortgages.
With the urgent challenges we face—including a wealth gap reminiscent of the Roman Empire before its fall—we should ask ourselves why we aren’t doing more. We would be wise to remember the lessons of history, which demonstrates that a healthy civilization cannot mismanage its human and natural resources in perpetuity else the society collapses under the weight of its own incompetence and debt.
What if we were to invest 30% for Community and Nature? In order to do so, we would need to arrive at a collective understanding that the return on this investment—the creation of thriving communities and healthy ecosystems—carry inherent, precious value. Such a discussion might sound like folly to investors concerned primarily with short-term returns. But we are coming to the limits of our economic growth and our natural capital. We risk losing everything unless we begin investing in evolutionary strategies that make the system work for everyone and enable nature to provide enough to sustain us.