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.
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.
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.
One of the most in-depth articles we’ve seen on Impact Investing was recently published in Hawai’i Business, and not surprisingly, it features the work of our own Michael Kramer. Impact Investing has emerged in recent years as one of the highest-profile evolutions of the SRI principle of doing well financially while doing good for people and planet. At the same time, there has been some friction, as some who embrace this new model suggest that SRI is, by contrast, low impact; this article gets at these questions in a more complete way than many.
Much of the piece profiles the Ulupono Initiative, an impact investing project of Pierre Omidyar (the funder behind First Look Media, the independent journalism venture featuring Greg Greenwald, Jeremy Scahill, and Matt Taibbi). Ulupono is actively investing in many initiatives across the Hawai’ian islands; this excerpt captures the essence of the impact investing mindset:
“Pierre has this nomenclature he likes to use,” says Murray Clay, a managing partner at the Ulupono Initiative. “He starts with the idea of ‘charitable giving,’ which he defines as ‘meeting people’s immediate needs.’ So, Meals on Wheels, Habitat for Humanity – people providing food, shelter, cloths, medical care – that’s charitable giving. The next step is ‘philanthropic giving,’ which, unlike charitable giving, is not about meeting immediate physical needs; it’s about solving long-term problems. If you think people aren’t getting good jobs, for example, it might be that better education will help solve that problem over the long term. So, philanthropic giving is about solving those kinds of long-term problems. The next step is either ‘philanthropic investing’ or ‘impact investing.’ Those terms are used interchangeably. The idea is that you’re bringing the for-profit model into play. But, instead of just making money, you’re making money and having impact at the same time to try to solve some of those problems. So, you’re not just measuring returns; you’re measuring returns and impact.”
The article goes on to look at the work of RSF Social Finance (the investing arm of the Rudolph Steiner Foundation) and Natural Investments. Michael fields questions about the relative impact of the Ulupono model and traditional SRI, noting, “The term ‘socially responsible investment’ has been around for more than 30 years; impact investing has only been around for a few years. The folks who champion that term are generally equity people (ed. note: wealthy, or “qualified,” investors) who invest in startups. That certainly creates impact. The issue is: What kind of impact do you want to make?”
SRI’s impact often takes place within the companies held by SRI mutual funds, owned by “regular” investors. The kinds of impact SRI investors have been creating for decades is now expanding rapidly. Michael shares some good news about Bloomberg, the industry-leading financial data provider, which has added sustainability information to their offerings, thus moving some SRI considerations into mainstream investment analysis. In addition:
“The other thing Bloomberg recently released was something called the Carbon Risk Valuation Tool, which is specifically related to climate change and carbon cap and trade.” This service, Kramer explains, helps financial institutions analyze the risk associated with so-called ‘stranded assets,’ enormous investments in fossil-fuel reserves that, because of climate change, may never be extracted. Bloomberg calls this $6 trillion concentration of assets a “carbon bubble” that may trigger another worldwide economic crisis.
“There’s serious business risk to investing in those sectors,” Kramer says, “because those assets will likely become ‘stranded.’ And the fact that this is already being tracked by Bloomberg is a sign that the issues of sustainable investing have become mainstreamed.”
We heartily recommend the full article, which fleshes out the full range of impact investing activities with unusual depth and thoroughness.
The Economist lays it on the line: “Forget China, India, and the internet—economic growth in the next decade will be driven by women.” Indeed, it’s already begun, with women’s incomes worldwide growing from $13 trillion in 2009 to $18 trillion by 2014. That $5 trillion of growth is almost twice the growth in GDP expected from China and India combined during that period, making women the world’s biggest emerging market. Even Goldman Sachs, while not my favorite authority, says, “investing in women is the single best way to reduce inequality and drive economic growth.”
Gender equality in economic structures will both promote economic growth and make the world a better place. While the World Bank wants to “make women more competitive in financial markets,” it misses the vital point that financial markets need to be reframed to value the work that women are already doing. Hence the importance of a new conversation emerging in the investment field: Gender Lens Investing. Gender Lens Investing says that when we acknowledge the competitive advantage that gender inclusiveness brings to business, as well as the remarkable social and financial impacts connected to empowering women economically, we will make better investment decisions and ultimately transform our global economy.
As investors, we strive to thrive in a future that will undoubtedly surprise us. To guide us, we assemble a view of the world that is as unbiased and complete as possible. But this is harder than it seems – our perceptions and points of focus are shaped by our personal experience, cultural context, genetics, and more. We “see what we want to see,” then mistake that view for objective reality. Today’s diversity of media heightens this possibility – we can choose which blogs, websites, sources we wish to visit; generally we choose ones that reinforce our preconceptions.
We have discussed how “scenario planning” is an essential tool to help us question our own assumptions. But as one begins the exercise of thinking deeply about the future, you may discover that some scenarios are harder for you to envision than others. I, for instance, have a certain resonance with scenarios that either extrapolate the future from the way things are now (we’ll keep muddling along), or in which some of the basic structures of modern life (economy and ecology) will collapse.
What I find difficult to lock into is a vision of the future that is both realistic and compelling – neither static, nor dreamy, nor dire. I’ve always thought of myself as an optimistic person; I’ve spent my life seeking out and weaving together the pieces of a sustainable future. So it’s humbling to discover how easily I can fall into a rather grim view of the future. Only recently have I concluded that I need to supplement my information-diet with regular infusions of inspiration!
Fortunately, there are plenty of ways to foster a clearer, more neutrally receptive stance. For me, the starting place is to clear my mind and center in the present moment. This tends to put me into a more heart-centered, receptive state of mind. Physical exercise, preferably out in nature, is always good medicine for me. Simple steps like these bring a sense of calm and gratitude to my work in the world. This feels great and has all sorts of benefits, but it doesn’t get me outside of the mold that I identify as “me,” complete with well-worn points of view and comfortable habits. For that, I need an overarching worldview that helps me make sense of the bigger questions of life: Where did we come from? Where are we going?
I love Thanksgiving; it’s easily my favorite holiday. Some sainted sage once said: “Let’s celebrate thankfulness, with no religious confusion, no commercialization – and eat and eat and eat.” It’s simple gratitude to the core, the perfect design for a holiday. It’s also the High Holy Day for Slow Foodies, who get to scheme for weeks and cook for days, culminating in a leisurely, abundant meal meant to be savored. But Thanksgiving really wins my Gold Medal for being the only holiday meal that spotlights gravy. I LOVE gravy, and the slow foodista that I live with has mastered the high art of broth-crafting, the heart and soul of this culinary epiphany.
I was talking with a client recently about how simple some pleasures are, and how rich they make us feel. It was a few days after Thanksgiving and I was rhapsodic about the broth my sweetheart Genevieve makes, and the resultant gravy I was bathing everything in. The client challenged me to somehow work “gravy” into this upcoming article but as we talked about it, we realized that the simple pleasures are fundamental, underlying so much of what we experience as our “real wealth.” Aha, challenge accepted: “It’ll be all about gravy!” I blurted.
It’s easy to mistake the size of one’s portfolio, the type of car one drives, or the stories we tell ourselves for wealth, but that misses the mark. Real wealth includes tangible things but it’s also, and essentially, the way we feel. The way we feel about life, about our daily experience, about what we eat, what we talk about, the music we listen to, how connected we feel to what’s good.
Clearly real wealth is not a Mercedes or a seven-figure portfolio (even a socially responsible one!), but something subtler, closer to home, more intimate. Perhaps something that reminds us of our childhood, or our grandparents, or maybe something special that was lost and later reclaimed. Did I mention that I really love broth and gravy? It feels deep and nourishing and special and hard to come by, though it’s not difficult to make or even that unusual. But it seems rare, like something that was second nature to your grandmother but which you don’t run across very often.
The crucial role of asset allocation and diversification in conventional investment theory presumes that owning a range of financial instruments (stocks, bonds, CDs, etc.), as well as real estate, is the most prudent path to long-term financial security. For much of the 20th century, conventional wisdom (and historic results) held that the market would reliably rise by 7-10% per year. But starting with the dot-com boom, the good times of soaring stock prices have been followed by the bursting of bubbles. Adding insult to injury for those with well-diversified portfolios, stocks were not alone in this—real estate crashed, bonds gyrated, and interest rates sank to near-zero.
Market volatility can be endured if there are long-term gains, but this hasn’t been the case thus far in the 21st century. From its dot-com peak on March 24, 2000 through April 30, 2013 (a time when headlines were bleating about the markets hitting new highs), the puny gains of the S&P 500 over that period were not enough for investors to break even when inflation is factored in. What has been called “The Lost Decade” for investors (the years 2000-2009 marked the first decade since the Great Depression that investors lost money over 10 years) has stretched to 13 years. Let’s see. . . virtually no overall return, amidst hair-raising volatility, infused with unending tales of corruption. Perhaps it IS time to think about some new strategies.
Total Asset Allocation—which we’re developing as part of our new book—expands the concept of diversification by drawing from three broad classes of assets: personal, financial, and tangible. By climbing out of the box that confines investors to mainstream financial offerings, you’ll discover a big world beyond Wall Street that is much more diverse and interesting, less volatile, and maybe even fun! By moving beyond money alone, you will come to see that the ways you invest your time and energy on a daily basis can be integrated with your financial decisions so that they are all working towards the same goals. So let’s take a brief look at what’s included in each of these asset classes.
There’s a phrase I often use in discussion with clients: “applying the investment advisor’s eye.” What do I mean by this? You probably have a sense of what it means when looking at financial assets, but what about for our personal assets and tangible assets? What types of questions do we ask? How do we think about, analyze, and put in perspective these alternative and non-traditional investments?
Certainly we all know what it means to think critically about these spending-investing decisions like buying a home or financing a college education. What are some elements of this type of thinking that we could apply to decisions about our social and community assets, or the tangible “things” we convert our money into? In general, applying the investment advisor’s eye means being more comprehensive in your thinking: think about the money with some degree of financial sophistication, think about how your decisions affect your family and your community, think about how you are helping or hindering the building of a better world. More specifically, there are four big things we do: we make sure the investment is in line with community and ecological values, we do the math, we evaluate risks, and we think comprehensively to make sure we allocate properly.
The newest GreenBiz column by NI’s Michael Kramer celebrates the latest and most comprehensive move by the Obama administration to channel federal funds toward initiatives that pursue the triple bottom line of social, economic, and environmental performance. Read the whole piece here. A taste:
NII offers two main planks of support for social enterprises:
1. Global Development Innovation Ventures (GDIV): This is a joint $25 million per year initiative of the U.S. Agency for International Development (USAID) and the UK’s Department for International Development. It pilot tests and scales cost-effective development solutions offered not just by governments, but social enterprises, NGOs, corporations and researchers alike, enhancing the potential to reach millions of people with innovative poverty alleviation strategies, such as solar village-scale microgrids in India.
The GDIV complements the Overseas Private Investment Corporation (OPIC), which allocated $333 million last year to bolster private capital solutions by companies, such as Citibank, Marriott, Sun Edison, Deutsche Bank and Wells Fargo, and longstanding social finance organizations, including MicroVest, Grameen Foundation, Habitat for Humanity and the Calvert Foundation.
2. Small Business Investment Company (SBIC) Early Stage Fund: A new round of solicitation for the SBIC Early Stage Investment Fund increases the amount available for investment from $150 million to $200 million annually. The Small Business Administration also raised the amount of SBIC leverage that Impact Investing Funds can receive from $80 million to $150 million and recently expanded the definition of impact investing to include rural communities. This successful program provides leverage guarantees that can triple the amount of private investor capital raised by a company. Some 1,300 companies used this program in 2011.