Hunter Lovins, President of Natural Capitalism Solutions interviewed by impact investor and entrepreneur Donna Morton.
Most people believe you can invest for value or invest in your values; you cannot have both. Impact investor and entrepreneur Donna Morton interviews Hunter Lovins, president of Natural Capitalism Solutions on how to build public market investment strategies that moves money from harm to healing. This interview looks at why Hunter believes finance is a powerful tool to stem climate change, address extreme poverty and grow the world we want. Hunter also gives us some insights about her new investment firm she co-founded with Donna, Principium Investments. So going beyond CSR, and leaving old school SRI behind, they discuss the new frontiers of impact investing in public markets, integrating ESG and developing divestment and investment strategies for the 21st Century.
Donna: We know your work on sustainability with Fortune 500 companies, your talks and books; what possessed you to want to build a finance company?
Hunter: Finance is the key to the transition to what Bucky Fuller called a world that works for 100 percent of humanity. Without beginning to move money from harm to healing, we will not achieve the transition of which we all dream.
That said, left to my own devices, it would never have occurred to me to help build a finance company. Through my work at the Unreasonable Institute[1], I met Michael Tracy, who was looking to move his 25 years expertise in managing money from traditional investment to impact investment. He and I both met you, Donna, who was a Fellow at Unreasonable. She is also an Ashoka Fellow[2] and Ugunte Fellow[3]. The three of us began conversations that led to working together. We then pulled in various other team members, and during a marvelous week at the SOCAP Conference[4], confirmed our intention to build a truly transformative finance company. Described as “Occupy meets Wall Street,” it springs from our values that finance should serve the real economy, not only flow money as fast as possible to the 80 people who, Oxfam tells us, have as much wealth as the 3.5 billion poorest people on earth[5].
Donna: Why finance?
Hunter: John Fullerton of Capital Institute[6], in his paper “Limits to Investment,”[7] points out that all investment has impact. The planet is being damaged daily by companies making the ordinary investments they believe will enable them to grow and profit. Business as usual is threatening the ability of the planet to sustain life.
If we invest in companies that have committed to behave in more sustainable ways, companies that are conscious of their impacts and are seeking to minimize them, or better, to have positive impacts on health, well being, and the environment, we will do two things to implement a more regenerative economy:
First, we will profit, because there is now a strong business case for behaving more sustainably. Taking early and aggressive action to cut emissions and implement climate protection turns out, as I described in my book The Way Out: Kick-Starting Capitalism to save Our Economic Ass [8], to be very good business. The September 2014 CDP “Climate Action and Profitability” study showed that companies that integrate sustainability into business strategies outperform those who fail to show such leadership. Companies that are managing their carbon emissions and are planning for climate change enjoy 18% higher returns on their investment than companies that aren’t, and 67% higher than companies that refuse to disclose their emissions. These companies are simply better managed, and, all things equal, are more likely to be better investments.
Second, moving money from harm to healing shifts markets. Taking money out of bad things, and putting it into companies that drive better behavior in the world, makes a difference. The Oxford’s Stranded Assets Programme’s Report concluded, “Divestment outflows, even when relatively meagre in the first wave of divestment, can significantly and permanently depress stock price of a target firm if they trigger a change in market norms.
How money is invested—whether by companies, by colleges, or by you—
determines whether we trash the planet or save it.
Donna: Why focus on public markets?
Hunter: Again, all investment has impact. It is important to invest for positive impact in the private markets, as well, but the flows of money in public markets is a place every investor can start. We harness the power of public markets to reward companies that are growing in good ways. We are removing capital from companies, and sectors, that drive harm.
By investing in companies like Unilever[9] that are committing to source 100 percent of their energy from renewable energy and to source 100 percent of their feedstocks from sustainable agriculture, we are enhancing the market power, prestige and capability of the companies that are doing the right thing.
But even more, we are committed to reinvest our profits into start-ups that are building the new economy: the companies that graduate from the Unreasonable Institute and Ashoka-vetted businesses that are delivering ways to regenerate natural systems, cultures, and communities. My friend Jigar Shah says that we need to move $1 trillion a year into clean energy. Only $4.5 billion a year is now going there. Our goal is to be as profitable as we can so that we can recycle those profits to drive even greater impact.
Donna: You organized Principium differently from most finance companies. Why?
Hunter: Over the years I have advised investment houses from Calvert when it was first created, to Portfolio 21, to now Principium. All are excellent organizations, but this one is different.
Women make up the majority of the Principium team. It is diverse in ethnic makeup and nationalities. More, it is committed to the use of systems thinking to craft its strategy.
We built the metrics that guide Principium’s investments from first principles, using John Fullerton’s Regenerative Capitalism as the basis[10]. We integrated these concepts with the company’s shared commitment to social justice, gender equality, protection of indigenous rights, and sustainability. That means that it isn’t just divested from fossil fuels, but also other companies and sectors that do harm: it doesn’t invest in Exxon, nor does it invest in Monsanto. We then blended these non-negotiable core values with Michael Tracy’s 25-year expertise in managing money. We review a company’s fundamentals; the recommendations of analysts; environmental, social, and governance (ESG) performance; and our own knowledge of the strengths and weaknesses of corporate management, to pick the securities we want to own.
The investment committee meets monthly to review the portfolios, shedding any companies that may have fallen short, adding new ones that pass the various evaluations, and continually refining its practices.
Donna: How do you and Principium feel about Divestment versus shareholder activism? Do you offer “Divestment” products?
Hunter: Both are important, but for a small outfit like Principium, the most potent action would be to create what may be the only truly fossil fuel free portfolio, and structure it so that ordinary people can invest in it.
Kudos to the people like my friend Natasha Lamb [11] who are actively lodging shareholder resolutions, and actively voting their shares. But for smaller investors, one action you can take is to ensure that you no longer own any fossil fuel companies. Of all emissions since the industrial revolution, half have been emitted since 1986. As Ellen Dorsey [12] says, if you own fossil fuel stocks, you own climate change.
Nearly two-thirds of carbon dioxide and methane emissions can be attributed to 90 entities. This number comes from a quantitative analysis[13] of the historic fossil fuel and cement production records of the 50 leading investor-owned, 31 state-owned, and 9 nation-state producers of oil, natural gas, coal, and cement. From the beginning of the industrial revolution to 2010, 63 percent of cumulative worldwide emissions of industrial CO2 and methane were put out by the 90 “carbon major” entities. Cumulatively, emissions of 315 GtCO2e have been traced to investor-owned entities, 288 GtCO2e were emitted by state-owned enterprises, and 312 GtCO2e by nation-states. But this is only the beginning: these carbon major entities own fossil fuel reserves that will, if extracted and emitted, make climate catastrophe inevitable. Carbon Tracker’s math says that humanity can emit only 565 more GtCO2e and have a prayer of staying below 2 degrees C warming. But the fossil companies have 2,795 GtCO2e in their proven reserves and are ceaselessly exploring for more. Their business model is to dig up all this fossil carbon and burn it. Unless, we stop them.
Investments in these companies enable them to retain the legitimacy to drive climate change, which many of us believe is the greatest threat to human survival and to the survival of life as we know it on the planet.
I’m out. I simply cannot do the work that I do and own such companies. I moved all of what money I have that does not go to support the work of Natural Capitalism to our truly fossil fuel free portfolio. I also sold my beloved, elderly Porsche and bought a Leaf, which I power from a 5 kW solar array on my ranch.
Donna: What about people who want to invest more directly in private companies, in local businesses or geographic areas like sub Saharan Africa?
Hunter: Unlike most finance companies, our team understands that the private sector needs to work strategically with the NGO community and such public interest financial organizations as credit unions. To make this possible, we are building Impact2X to enable high net worth clients to leverage their assets to support community funds and others to invest in businesses run by under-served entrepreneurs.
Impact2X allows investors to double their impact by making low-interest loans to Community Development Financial Institutions (CDFIs) and Microfinance Institutions (MFIs), which put capital in the hands of the undercapitalized and helps lift people out of poverty.
In partnership with our custodian, Principium extends the below-market borrowing rates available to investors, through a margin account, to CDFIs and MFIs. This enables these institutions to serve entrepreneurs and communities that have been traditionally excluded from the financial system or charged exorbitant rates to participate. This is financial innovation that matters.
Inner cities, Native communities, the rural poor, and women entrepreneurs face barriers to accessing affordable capital. Impact2X can enable innovators marginalized by skin, geography, or gender to change the game. Not only is the current system, which leaves many marginalized people out of the economy, immoral, it robs the world of their creative genius, which we believe is essential to healing what is broken and generating more disruptive innovation globally.
Donna: What will be different in 20 years if you are successful?
Hunter: We will have played a catalytic role in transforming the finance sector. We will have moved billions of dollars ourselves, and inspired others to drive trillions of dollars, globally, out of harmful companies and into the Regenerative Economy: into companies committed to serve people and the planet. We literally will have built an economy in service to life.
What does it take to do this? We just need each one of you to join us.
Disclosure: This interview reflects Hunter’s own personal opinions and does not necessarily reflect the views of Principium Investments. Neither person received any compensation for the interview. Donna Morton is a proud investor in Unilever and a whole portfolio of other great companies through having Principium manage her money.
Article Links:
[1] http://unreasonableinstitute.org/
[2] https://www.ashoka.org/fellows
[3] https://www.ogunte.com/
[4] http://socialcapitalmarkets.net/
[5] https://www.oxfam.org/sites/www.oxfam.org/files/file_attachments/ib-wealth-having-all-wanting-more-190115-en.pdf
[6] http://capitalinstitute.org/
[7] http://www.greattransition.org/publication/limits-to-investment
[8] http://amzn.to/JJtZCc
[9] https://www.unilever.com/sustainable-living/the-sustainable-living-plan/our-strategy/
[10] http://capitalinstitute.org/wp-content/uploads/2015/04/2015-Regenerative-Capitalism-4-20-15-final.pdf
[11] https://www.youtube.com/channel/UCd5jlNgPG1deR0XJ62oSIdw
[12] http://www.institutionalinvestor.com/article/3386594/asset-management-hedge-funds-and-alternatives/environmental-activist-ellen-dorsey-pushes-fossil-fuel-divestment.html#.VcFDQ5NVhBc
[13] http://link.springer.com/article/10.1007/s10584-013-0986-y
Biographies:
Hunter Lovins is President of Natural Capitalism Solutions (NCS,) a Colorado non-profit that educates senior decision makers in the business case for a Regenerative Economy. NCS, helps companies, communities and countries implement more sustainable practices profitably.
Trained as a sociologist and lawyer (JD), Hunter is a professor of sustainable business management at Bard College, and Denver University; and the chief insurgent of the Madrone Project. Named a Master at the Chinese De Tao Academy, she recently helped launch the Institute for Green Investment in Shanghai.
Lovins has consulted for scores of industries and governments worldwide, including International Finance Corporation, Unilever, Walmart, the United Nations and Royal Dutch Shell, as well as sustainability champions Interface, Patagonia and Clif Bar. She has briefed heads of state, leaders of the numerous local governments, the Pentagon, and about 30 other countries, as well as the UN, and the US Congress.
Hunter lectures regularly to audiences around the globe. She has worked in economic development in countries from Afghanistan to New Zealand, served the King of Bhutan on his International Expert Working Group, charged with transforming the global economy. She sits on the steering committee of the Alliance for Sustainability and Prosperity, and Capital Institute Advisory Board. A founding mentor of the Unreasonable Institute, she teaches entrepreneuring and coaches social enterprises around the world. She is a founding partner in Principium, an impact investing firm.
Hunter has written 15 books and hundreds of articles. The Way Out: Kick-Starting Capitalism to Save Our Economic Ass (2012) succeeds her international best-selling book, Natural Capitalism, now used in hundreds of colleges. Her latest, Creating a Lean and Green Business System won the 2014 Shingo Prize for Excellence in Manufacturing Research.
Hunter has worked in sustainability policy since 1972. She was instrumental in creating the fields of Economic Renewal, Green Development, and Sustainable Management. She has helped create several MBA schools and is currently professor of Sustainable Business at Bard MBA. She has won dozens of awards, including the European Sustainability Pioneer award, the Right Livelihood Award (the alternative Nobel) and the 2012 the Rachel Carson Award. In 2013 she was inducted into the Hall of Fame of the International Society of Sustainability Professionals. Time Magazine recognized her as a Millennium Hero for the Planet, and Newsweek called her the Green Business Icon.
Donna Morton, Managing director, Business Strategies
Donna is an Ashoka, Ogunte and Unreasonable fellow and lifelong serial social entrepreneur. Co-founder of Principium Investments – Public market investing in healing and divesting from harm. As part of the portfolio management team, Donna has co-design investment processes that seek alpha through net positive strategies and avoid the risks of carbon assets and loss of social license.
Her other ventures included co-founder of SunDrum; Youth Social Entrepreneurship – Education through Art, Culture and Games; and First Power, a B Corporation with a mission to put clean energy, jobs and equity in the hands of first nations; and she is helping to put carbon taxes on the map in Canada and North America through the Centre for Integral Economics.
Donna has extensive and international experience in sustainability, start-ups and communications and storytelling. Her experience ranges from NGOs, building think tanks, and innovative private companies. Her work has been profiled in Fast Company, The Guardian, and in the “Act for the Planet” TV series, which aired around the world.
Tim: In 2010, we launched ImpactAssets (
