A Radical New Way of Thinking About Investing

As frontrunners of the socially responsible investing movement, we at Natural Investments are “resilient investors” who are working off a radical new map of the investing universe. We invite you to navigate your own path across this vast terrain. But before we start exploring the nooks and crannies, let’s take a moment to ask the fundamental question: why invest?

Some would say this is obvious—we invest to build wealth. And what’s the point of building wealth? To be secure? To then build even more security and more wealth? Isn’t that what we all want? Well, no, at least not in the way it’s usually presented. While we take it as a given that most people want to increase their financial assets (at least up to a point) and have some nice things, traditional measurements of personal wealth are inadequate, often ignoring that which gives us the most satisfaction. Economists measure our “standard of living,” but what we’re really after is a higher “quality of life”—and while there is overlap, those two are not the same thing! The point of investing, we’d like to suggest, isn’t just about having more, but about being happy in a full, classical sense.

Let’s look back—back as far as 2500 years—for help in answering these questions. Aristotle, writing in the Nicomachean Ethics, described the point of a well-lived life, the goal we should be aiming for, as “blessedness.” For Aristotle, blessedness meant enjoying family and friends, with a deep feeling of well-being and contentment. In our day, this ideal might suggest a mature experience of knowing one’s mission, succeeding at pursuing that mission, having a solid primary relationship and close friends and family, having sufficient financial resources to live well according to your own standards, to be making a contribution and leaving a legacy one can be proud of, and staying in right relationship to the natural world that sustains life. It’s not about more—it’s about better!

We don’t think of investing as simply a professional, numbers-crunching discipline; for us it’s something much more fundamental. We believe investing should support financial goals (buy a house, start a business) and it should support the bigger and deeper and more profound purpose of a life: Aristotle’s blessedness. Investing can help each of us live a better life, and it can help improve communities and build a better world for all.

To do this, we must first break out of the confines that limit our ideas about wealth. Financial choices are just one part of a continual process of giving and receiving, balancing risk and reward, and exchanging time, energy, and money with those around you. So let’s make room for values and communities, for society and the Earth. And let’s expand our vision to include the interior realms of emotional and spiritual well-being as well, which are enduring elements of healthy human development. By doing so, we are bound to get more relevant, and more life-nourishing results.

(This article is adapted from The Resilient Investor by Hall Brill, Michael Kramer, and Christopher Peck and is part of an ongoing series in our monthly e-newsletter. Subscribe here.)

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Can You Future-Proof Your Life?

Many people are motivated by the desire to be as prepared as possible for an uncertain future, but they recognize that this is no easy task. We encourage you to take a big picture view of the world and consider the many ways that the future could unfold. You’ll want to envision where you would like to be going in both the near-term and in years to come, and to keep abreast of the wide and growing range of investment choices available to you. By thinking in this broad, creative way, resilient investing gives you the tools to design a personalized plan. This will show you where you’re currently investing your time and money, highlight areas that you might be over or under emphasizing, and provide the guidance you’ll need to move forward in your chosen directions.

As you put your plan into action, you’ll notice a newfound sense of calm, one that rests on the knowledge that you’ve taken measured steps to future-proof your life and are ready to ride out the inevitable storms and surprises that come your way. You can’t eliminate risk, but you can dial down your stress levels and have more peace of mind by knowing that you’re prepared. Having a comprehensive and diverse set of investments will provide genuine benefits when one or another market you’ve invested in has a downturn (whether it be a sudden drop in the Dow, a dry spell that decreases yields in your garden or regional food network, or an unexpected health challenge). While it is always painful to suffer a hit in one area, investments in other Zones will likely be doing better and help carry you through.

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2017 Social Impact Report

Corporate Engagements

Natural Investments is involved in a variety of efforts with our industry colleagues that facilitate positive economic, social, and environmental change, including shareholder engagement with companies and public policy advocacy. Some of our efforts in 2017 include:

We signed a letter to the dozen major banks, including Wells Fargo and Citibank, that are financing the Dakota Access Pipeline, urging them to avoid legal liabilities and financial and reputational risks associated with financing the controversial project—and to advocate publicly for the rerouting of the pipeline away from tribal land.

We signed a global investor statement to leading consumer and agriculture companies asking them to adopt zero—deforestation policies for sourcing key agricultural commodities such as palm oil, soy, beef, paper, and lumber. Deforestation in Latin America, which is largely caused by commercial agriculture, is a leading contributor to climate change, and the recent Soy Moratorium in Brazil proves that the rainforest can be protected while expanding agricultural production.

We signed a letter to sixty of the world’s largest banks calling for more robust and relevant climate-related disclosure to be supplied to investors on four key areas: climate-relevant strategy and implementation, climate-related risk assessments and management, low-carbon banking products and services, and banks’ public policy engagements and collaboration with other actors on climate change. Banks have an essential role to play in ensuring that we meet the Paris Climate Agreement goal of “making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.”

We supported shareholder engagements with three top carpet manufacturers—Mohawk, Shaw, and Interface—to encourage them to develop plans for sustainable carpeting redesign to make it more recyclable, to use higher levels of appropriate recycled materials, to develop national recycling goals, to help develop end markets for discarded carpet, and to take at least shared financial responsibility to implement these actions.

We signed a letter to major motion picture studios urging them to eliminate tobacco depictions in youth-rated movies. We believe this is warranted to protect the company’s reputation and consumer base, to avoid legal liabilities, and to eliminate the reputational and potential financial risks caused by the company being associated with this public health issue.

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NI Newsletter Spring 2018

Newsletter Contents

Supporting the Youth-Led Movement for Gun Control by Sylvia Panek

The Rule of Law, Wealth Inequality, and Our Response by Joel Koerner

Post-Disaster Lessons for Resilient Investors by Christopher Peck

Fighting Deregulation with Community Investment by Evan Quirk-Garvan

Your Money: Smart Strategy and Positive Impact by Eric Smith

What’s Up on Wall Street: Q2 2018 by Scott Secrest

Download the NI Spring 2018 newsletter (PDF)

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Post-Disaster Lessons for Resilient Investors

My family and I survived the Northern California firestorm of 2017. We were incredibly fortunate; unlike many our friends and residents in our area, we did not lose our home or livelihood. At the peak moment of fear, the fire came within 3,400 feet of our home. I spent hours wetting the roof, talking with panicked neighbors, and gauging the wind and the smoke. We got ready to evacuate by packing the car, letting our chickens loose, and making peace with the thought of starting over. Thankfully, some can-do neighbors with tractors plowed down the fire front, and we were spared.

Months later, our lives returned to normal. But as a planner, I am surprised at how unprepared we were when disaster arrived. We had planned for this. We’d held meetings with family and neighbors, checked on each other’s stores of water, food, and supplies, and located the water and gas shut-off valves for each home. We had back-up phone numbers of relatives, battery packs for our phones, and emergency radios. But still, we were missing critical elements. I share these insights now, with the hope that they will encourage others to prepare well in advance of fire season.

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Your Money: Smart Strategy and Positive Impact

“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:

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Supporting the Youth-Led Movement for Gun Control

For those of us who remember Columbine, the Parkland massacre and its immediate aftermath evoked a colossal feeling of failure. How could it be that two decades and dozens of mass shootings later, nothing had changed?

But as the days turned to weeks, a steely resolve grew within the Parkland students’ collective trauma. They joined forces with Black and Latino youth organizers across the country that have been laboring for decades— ignored by the mainstream media—to stop the scourge of daily gun violence and police shootings that have ravaged their communities. Together, these young people are growing the resistance movement that our generation did not. Serious gun control discussions are finally on the table in America, thanks to children who are tired of executing active shooter drills in closets or taking different routes home to avoid stray bullets.

As socially responsible investment professionals, not only are we deeply inspired; we have a range of tactics to support these young activists in their quest for commonsense gun control laws—many of which we have been using for years already.

At Natural Investments, none of our client funds hold stock in companies with assault or military weapons. Our Heart Rating process asks mutual funds about their weapons and defense holdings as well. Complete purification of the portfolio is, admittedly, difficult. In fact, Bloomberg published two articles—one for and the other against the effectiveness of divestment—within two days of each other.

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What’s Up on Wall Street: Q2 2018

In an exceptionally volatile quarter for investors, markets ended lower, with US large company stocks down 0.8%, US small company stocks lower by 0.1%, foreign stocks down 1.7%, and domestic bonds lower by 1.5%.

The stock market swooned in February as traders showed alarm about rising US interest rates. The market sell-off was related to the long-anticipated rise—and possible accelerating future rises—in US interest rates (considered a negative for stocks and bonds) as well as concerns that inflation may be brewing. It may not be just coincidence that this reaction happened in the wake of the recent federal tax cuts, which analysts say will stimulate—unnecessarily say some—the US economy, leading to things such as higher interest rates and inflation.

Tax cuts, along with stepped-up government spending (in March Congress passed a $1.3 trillion budget), may serve to overheat the US economy in coming months, though it is an open question as to whether the tax cuts will actually spur economic growth. Following the passage of the tax bill, there was a series of well-publicized employee bonus and capital investment announcements. (Keep in mind bonuses are one-time and not the same as wage increases.) These were meant to show  that big businesses were sharing the bounty of the tax cuts with workers. Since then, however, studies and polls have shown that business investment has not increased as a result of the tax cut—and neither have wages.

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Shareholder Value vs. Stakeholder Value

Shareholder supremacy has roots in a legal dispute between Ford and Dodge.

The term shareholder value is often used as a way to describe the theory that a company is successful if its shareholders are enriched. In and of itself, that theory seems perfectly sensible to most investors and not inherently controversial. Socially responsible investors, however, take issue with the way today’s corporate executives have distorted shareholder value into shareholder supremacy, which they use to justify the pursuit of short-term earnings at all costs—even if it means sacrificing long-term growth, environmental responsibility, and human rights.  

When executive compensation is directly tied to shareholder value, the conflicts become obviously apparent, as was seen in the case of Enron’s spectacular collapse and the subsequent discovery that the company had engaged in years of fraud to boost shareholder value and short-term profits. “Very few people haven’t heard of Enron, but very few people understand what structurally permitted it to take place,” said Dennis Vegas, a former Enron employee who joined labor leaders and progressive activists in lobbying for greater control by workers over their own retirement investments, in a 2002 interview with Mother Jones the year after the company filed for bankruptcy.  When asked whether he considered himself an activist, he said, “I don’t know if that label applies. If that’s being socially responsible, I’ll take that one.”

Corporate executives often justify ethically questionable decision-making with the adage that corporations are legally bound to maximize profits to shareholders. Yet the predominant legal precedent supporting the primacy of shareholder value is a single line in the dicta of a 100-year-old court ruling that pertained to a dispute in a privately held company, according to Lynn Stout, professor of corporate and business law at Cornell and author of The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations and the Public. The dispute arose when Henry Ford learned that Horace and John Dodge, who owned Ford Motor Co. stock, wanted to start a new company to rival Ford. Ford responded by drastically reducing dividends being paid out, instead lowering prices on vehicles and increasing employee wages. The Dodge brothers sued, asserting that the dividends should be paid out. The Michigan Supreme Court split the difference, ruling in favor of increased dividends, but they were not nearly as high as the Dodge brothers had hoped. Henry Ford was still able to pay his employees higher wages and decrease the price of vehicles.

The dicta of the court’s decision said, “A business corporation is organized and carried on primarily for the profit of the stockholders.” The judges who wrote the dicta could hardly have known that today’s publicly held, transnational corporations would lean so heavily on one word“primarily”—to justify so much unethical conduct. These days, a common feature of a company’s incorporation document is the statement that a corporation’s purpose is to do “anything lawful.” The statement leaves the option open for a board to pursue what they see fit at the moment—thereby creating leeway for ethical relativism in perpetuityinstead of being held to stringent policy on what should or should not be allowed in an ever-changing world.

As socially responsible investment advisors, we see an alternative to the primacy of shareholder value: stakeholder value. We interpret this legal precedent to mean that corporations have the right to make a wide variety of choices, including those that negatively affect shareholder value—and that the qualifier of “primarily” leaves open many options. Stakeholder value takes a long-term, holistic view of a company’s successone  that considers stakeholders other than just investors: employees, customers, the state, and the broader community. According to our view, even nature should be considered a stakeholder, since biodiversity, clean water, and healthy soils are all required for business to continue, let alone thrive.

Today we are seeing many positive examples of stakeholder values at work, whether they are B-Corporations (including Natural Investments), or traditionally structured corporations choosing to take a stand. There are companies offering living wages to all employees and demanding that its suppliers end human exploitation in their supply chains. Others are building LEED certified structures, recycling their waste in innovative ways, providing employees with childcare, and working on solutions to other pressing issues. One example that recently crossed my desk is Panasonic, a company that is transitioning to renewable energy through a four-part strategy: Saving (efficiency), Creating (solar and fuel cells), Managing (grid maximization), and Storing (Tesla is using Panasonic batteries in their latest, and most affordable so far, vehicle). Although Panasonic is not a B-Corporation,  its pursuit of renewable energy exemplifies the idea of a “company as a public entity.”

As fossil fuels become more resource intensive to extractand less desirable given their carbon tollrenewable technologies such as those being implemented by Panasonic will, in the long run, provide plenty of shareholder and stakeholder value. To access these long-term and sustainable returns, however, the company must invest resources that could be used to maximize short-term shareholder returns into research and development.

By thinking more broadly, emphasizing long-term benefits for stakeholders instead of short-term profits for shareholders, we can encourage better corporate practices and help create a future where corporate values alignment isn’t just a pipe dream.

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Rethinking the Purpose of Investing

In our combined decades of work as investment advisors, we’ve had the privilege of sitting down and talking deeply with hundreds of clients about what matters most to them. One thing that kept coming up in these conversations is that, although they liked our “invest with your values” approach, they didn’t like thinking about investing very much. We, on the other hand, think that investing is really cool, a focal activity where people make decisions that change their lives and the world. Are we just geeks, or do we see something that others don’t?

Eventually, we realized that most people have a rather narrow image in their minds about what “investing” really means. Do an image search on the word, and you’ll see lots of coins and dollar bills, graphs and charts, bullion bars and Wall Street suits. What generally comes to mind is that investing is done by those who have extra money, in order to turn this into even more money, using the methods promoted by Wall Street. While most of us are interested in becoming more prosperous, this concept of investing leaves many people out of the game, and even for those who do invest this way, it is a cold and abstract prescription that fails to touch on what gives deeper meaning to our lives.

We say that it’s time for a new approach.  Rather than wrinkling up one’s nose and doing “investing” the way we’ve been taught, we’re asking people to take a step back and really think about what a powerful and creative role this activity can play in our lives. This begins with expanding our notion about what investing truly is. Try this on for size: investing is something that we all do by directing our time, attention, energy, or money, in ways that move us toward our future dreams, using a diverse range of strategies.

Let’s start with dismissing the popular notion that investing is an activity that is only available to those with discretionary capital to play with. The fact is, neither the investment, nor the return, must necessarily be in the form of money. Financial investments are just one side of the coin; on the flip side is time, our most precious resource. We can and should bring this to the investing table by being thoughtful in the ways we focus our attention or channel our energy. Throughout this book, we’ll look at ways that the choices you make with your time, attention, and energy are as central to your long-term investments as the ways you work with your money.

Next, we rethink the purpose of investing. As the Beatles so joyously pointed out, money can’t buy us love. Still, the single-minded pursuit of most investors is to increase our financial “net worth,” though our real goals in life are much broader than this. Resilient investing recognizes that we are actually interested in cultivating several types of assets: personal (relationships, community, learning, health, spiritual growth), tangible (home, efficient energy systems, local food supplies, a healthy ecosystem around you), and financial (stocks, bonds, savings). By including all of these valued objectives in our resilient investment plan, we have the opportunity to shape virtually all aspects of our lives.

Finally, it’s important to rethink how we pursue those goals. Are the recommendations proffered by traditional investment books, magazines, and financial services firms the one and only valid methodology? Are there other strategies that you can use to diversify and seek out new opportunities that are largely ignored by Wall Street? And in this volatile, uncertain, complex, and ambiguous world, might it be wise to consider the possibility that strict adherence to traditional, buy-and-hold-on-to-your-hats dogma may leave us vulnerable to systemic risks that threaten to send our economy reeling?

We refer to this notion of spreading our wings into more spacious skies “weaning off Wall Street.” It opens our minds to exploring strategies beyond the one that rules today’s herd, with its all too familiar mantra of “show me the money” and creates space to think about what’s important close to home, how to support a sustainable global economy, and thinking in a visionary way about evolutionary investing.

 

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