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:
Public markets funds and managers: We run these through up to thirty sets of criteria in seven categories: ESG, SRI, our NI Heart Rating, performance, portfolio construction, management, and expenses. Our director of research and the investment committee oversee NI’s standard, Green Economy, and fossil fuel divestment models. All firm advisors vote on proposed model changes.
Private funds, community investments, and alternative securities. While these are usually limited to accredited investors, they can offer more focused, restorative, and positive impact for people and the planet. Research on these investments takes extra attention, so we assign a lead analyst to each offering, and a committee evaluates them against a nineteen-section due diligence checklist containing up to 149 sets of data points and advisory opinions. The nineteen sections include impact, structure, legal, financials, management, history, references, risks, compliance, strategy, and competition.
The Heart Rating is a great resource available to the public on our website. We measure and rate SRI mutual fund impact strategies such as shareholder activism. We rate the manager research capacity. And we look at each fund’s ESG criteria by examining forty-eight distinct research areas, including CERES Principles, renewable energy, indigenous peoples’ rights, nuclear power/weapons, disclosure, board/executive diversity, fossil fuels, employee benefits/policy, and animal rights.
Simply applying negative screens to a portfolio is probably not a good idea because it may add little real positive impact in the world, other than making you feel like you did something. Forward-looking investors are wisely integrating material ESG criteria into investment analysis as a means of uncovering risks and opportunities. A good due diligence process can help weed out unwise investments but can never eliminate them completely. All investments carry known and unknown risks.
SRI strategies such as the integration of ESG criteria, impact investments, community investments, and shareholder engagement can catalyze the kind of change we hope for in terms of people and the planet—and they are supported by a growing body of studies. A meta-analysis by Hamburg University looking at 2,000 empirical studies finds “80% of the reviewed studies demonstrate that prudent sustainability practices have a positive influence on investment performance.”
We cannot imagine why anyone would intentionally (or even inadvertently) ignore extra-financial analysis and strategy in the investment process. We believe well-rounded financial and non-financial investment analysis can give portfolios an edge while supporting positive change and help to identify risks and opportunities. Because these smart investment strategies can also amplify the positive impact of your money.