By Hal Brill, Managing Partner of Natural Investments
It is with much warmth and gratitude that I offer these thoughts as we sail into a future that will confront us with unfathomable changes. Cliff Feigenbaum was my roommate at the 1992 SRI in the Rockies conference, and although the difference in the length of our hair made us appear quite the “odd couple” (which years later led to an interesting experience years crossing the Canadian border to another conference – but that’s another story!), we became fast friends and helped each other grow professionally, culminating in writing the “Investing With Your Values” book together. So I’ll start with a hearty high-five, GreenMoney Journal!
Cliff has rewarded our friendship by giving me the impossible assignment of envisioning the future of Socially Responsible Investing as our planet takes its next 20 orbits around the sun. Given the precarious state of our society and economy, how will our field evolve?
The inspiration for SRI (the original acronym now reworked into Sustainable and Responsible Investing) has been told many times. It springs from the simple but profound realization that what we do with our money matters. It matters a great deal. People innately have the “natural” desire to walk our talk, to align our actions with our values. My father Jack Brill’s first book, “Investing from the Heart”, written an appropriate 20 years ago (1992) was very much about that – encouraging investors to seek out investments that they could feel good about while still investing wisely. Cliff and I later coined the term “natural investing” to contrast with traditional, “unnatural” investing, which dismisses all but financial metrics.
This worked well for the true believers, but we needed to offer reassurance that investing this way was not lunacy, and, we needed a lot more investment options than the 12 SRI mutual funds that we could find to profile back in ‘92. Voila, the roaring 90’s and traumatic 00’s brought us tons of new funds. Solid tools like the Domini Social 400 Index and the Moskowitz Prize have given us some real gravitas in the investment world. SRI financial advisors could now talk to clients with confidence, showing them that not only was it possible to construct an entire diversified portfolio of SRI investments, but that their financial performance would be competitive. Two other legs of the SRI stool – shareholder activism and community investing – have grown in clout, changing corporate behavior and strengthening local economies.
Looking forward, I resonate with the evolutionary worldview that the integral philosopher Ken Wilbur has mapped. We’ll grow something like a tree, where the early branches get thicker and more solid, but up top there is new growth that is seeking out the light and weathering the storms. Wilbur calls this “transcend and include”. We’ll continue to deploy the well-tested strategies of screening and activism, but the leading edge of investors will be innovating at a furious pace. We may even see some cloning, where branches break away from the old SRI tree and start their own forests. We’re already seeing this with “impact investing” and “local investing”.
Books on each of these topics have come out this year; the authors helping to carve out new niches. Some are trying to distance themselves from SRI in a way that feels a little like teenagers asserting their independence from their parents; but this is a natural part of the evolutionary process. Both of these branches will continue to grow because they are tapping into impulses that have not been seen at the forefront of SRI, even though they are in fact integral components of what we already do.
Here at Natural Investments, we have been pondering the directions that SRI will take, given the precarious state of our economy and planet. We’ve been squeezing in some time to write a new book for 2013, tentatively titled “The Resilient Investor”. In it we assert that investors should engage in the practice of “scenario planning”, looking at how the world might change and how to be prepared for a wide range of outcomes. We know that the future can’t be predicted, but we think it’s essential to explore the possibilities of where we might be headed, and then design one’s portfolio based on one’s view of the world. Our most exciting discovery is that the tools pioneered by SRI are of utmost relevance for any investor wanting to prepare for multiple scenarios.
One possible scenario is that there could be some sort of systemic failure of our ecological, social or economic systems. The dystopian blockbuster Hunger Games paints a stark picture of what such a world could become. But the belief that things are heading downhill is far from limited to sci-fi writers; many of our most progressive voices have long warned that we need to be prepared to live in a world that fails to deliver the goods in the ways we’ve become accustomed to. Portfolio 21 has produced an educational piece called “Peak: Investing at the Edge of Ecological Limits”. The proposition that exponential economic growth can continue indefinitely on a finite planet is now being addressed head on by a few mainstream investors such as Jeremy Grantham.
If you can imagine that this “breakdown” scenario has at least some possibility of occurring in the next 20 years, then what sort of financial moves could you take to prepare? You’ll be procuring more of your basic needs from the local economy; community investing is a way to strengthen your personal support system. Converting some of your financial assets into tangible assets, such as renewable energy systems and food production, would be a prudent move. Devote more of your time to getting to know your neighbors and working towards “Transition Town” strategies, and expand your own skill set so you’ll have more to offer the community.
On the other hand, the global economy has shown amazing resilience through the years. Many of us who thought the whole thing would collapse long ago are still amazed that the world keeps muddling along. The consensus is that we won’t be eating our neighbors to survive – we’ll find a way to live within our limits and be wise enough not to destroy our society.
In the “muddle through” scenarios, the traditional tools of SRI make the most sense. You will want to participate in the global economy, and you’ll want your money to earn a market rate of return. SRI can do that! An enlightened investor will realize that there are two scenarios for muddling. We can limp along with a downwards bias (“muddle through DOWN”), or we can “muddle through UP,” using the SRI tool chest to forge a healthier world that provides for the needs of all people without destroying the planet. To move up, it’s imperative to engage in shareholder activism, as well as policy work to bring about a more just and sustainable economy. (Thanks to The Forum for Sustainable and Responsible Investment [http://www.ussif.org ] for stepping up to this role!) SRI’s most high-profile tool, screening investments for various social/environmental criteria, is due for an upgrade. By 2032, we will have outgrown today’s ESG metrics that measure environmental, social and governance factors. It is necessary to go further by looking at the core mission of companies, and develop methodologies that identify and reward innovators who are raising the bar, while moving away from companies who may have good practices but whose products and services are not raising the bar.
The fourth scenario can be the most difficult to imagine, but also has to be given a certain probability of occurring. What if humanity rises to the challenges of our times and unleashes our full creative energies towards building a better world? Can we boldly dare to consider a “breakthrough” scenario, even when we’re dragged down by the dysfunctional morass of our current affairs?
I believe we can, and thanks to our amazing communications technology, millions of people are getting turned on to the ideas that could turn things around and bring us to an enlightened future. The Bioneers is one place I’ve always turned to for inspiration, like learning about biomimicry and using mushrooms to solve toxic waste problems. There are now 15,000 talks available through the TED conference website, which has grown into an app that people access on their phones to enjoy a daily infusion of inspiration. The rise of Impact Investing stems from this desire to put the goal of making positive change, above everything else. Investing in the “breakthrough” scenario requires just that – putting your money towards new systems and technologies. It is taking the “affirmative screening” tool pioneered by SRI and turning it loose to seek out the most impactful, regenerative opportunities.
So, how will the next generation of financial advisors put all this together for their clients in 2032? During the next 20 years we will be pushing up against many limits, in the atmosphere, the biosphere and the economy. We’ve already seen many people lose faith in the stock market. Over the coming decades, this process of weaning off Wall Street is likely to continue. Most investors will continue to invest a portion of their money there, but an expanded definition of what diversification and asset allocation are all about will take shape during these precarious times:
It will finally be possible, and common, for ordinary investors to put a chunk of their money into their own local economies, achieving a combination of financial and social/lifestyle returns that is impossible for Wall Street to match. As Michael Shuman points out in “Local Dollars, Local Sense”, the lack of local opportunities for today’s investors means they are shut out from investing in half of our economy.
Investments in the global economy will utilize ESG criteria… period! It is the only complete way to analyze investments, so it will be the new mainstream method. The body of evidence showing that these criteria are relevant for investors will become unassailable, and virtually all corporations will disclose the information needed by investors to fully evaluate how they are able to adapt to a world marked by climate chaos and resource limitations.
A growing segment of the investment world will put some of their assets into regenerative, high impact investments. The challenges of our times are awakening the vast creative potential of humanity. Investors will be caught up in the excitement of fixing our planet, and will put some of their money into great ideas, a strategy that many of the super-rich already practice. They will know that they are taking measured risks, but they will also know that the quest for the highest social and environmental returns could produce an occasional financial, and societal home run.
Finally, I believe that we are living in a time when consciousness itself is evolving. Our work as financial advisors is changing from one where we talk only about money, to a deeper conversation about the meaning of our lives. Those who choose to enter our field will need the capacity to easily shift from talking about the economy and their client’s material reality, to engaging in a process that helps people feel into their hearts and take action with their money and their time to fulfill their deepest life path desires. Our next generation will be clear about their values and what sort of world they want to create with their investments. We must provide the tools for them to shape the future as it unfolds in ways that none of us can imagine today.
Article by Hal Brill, Managing Partner of Natural Investments, LLC, a nationwide Registered Investment Advisor specializing in Sustainable & Responsible Investing (http://www.naturalinvestments.com ). He is the co-author of “Investing With Your Values: Making Money and Making a Difference”. Hal lives with his wife Allison in Paonia, Colorado, where they are building a straw-clay solar home, starting an organic hops farm, and working to protect their agricultural valley from gas and oil drilling.
