• SRI managers are achieving competitive (and often superior) returns even though they limit their investments to those that pass social and environmental screens.

• SRI has grown during Bull and Bear markets.

• SRI shareholder concerns have changed corporate behavior and led to meaningful reforms.

• SRI now offers a sufficiently wide range of choices so investors can diversify across many assets.
  

I have been a cheerleader of SRI, writing a book, speaking and working in the field for 14 years. For those of us who gathered at the first national conference on SRI (about 40 people at a Colorado dude ranch in 1990), our extraordinary growth would have been hard to imagine. This year’s conference, with nearly 500 participants, is a testimony to the fact that SRI is meeting the needs of more and more investors.

But in spite of these achievements, the situation here on Planet Earth seems to be worsening. SRI has not prevented an overwhelming array of social and environmental indicators from reaching the danger zone. I am increasingly concerned that SRI, as it is currently practiced, is not adequate to meet the needs of the 21st century. This is not a time to rest on our laurels. Even if SRI continues to grow and gather more assets, it is not clear that the impact will be great enough. We need to leverage the success we’ve already achieved and move to the next level.

I believe we must come up with a new investment framework aimed at getting us where we want to go – towards a thriving, ecologically-sound, equitable world. This will require us to take some of the spotlight off Wall Street’s markets and to emphasize moving capital directly to individuals, projects, organizations and small businesses that can implement this brighter future.

THE RICKETY STOOL
Early practitioners of SRI used the image of a 3-legged stool to talk about strategies. The first leg was “Screening,” which primarily involves eliminating investments that fail to meet certain social screens (but also is used for positive screening that rewards good behaviors or activities). “Shareholder Activism” is the second leg, which harnesses the voices and votes of investors to change corporate behavior. Finally, the third leg of “Community Investing” directs capital to Community Development Financial Institutions (CDFI’s) that focus primarily on job creation and affordable housing for those who lack access to capital.

According to a study by the Social Investment Forum, there is over $2 trillion invested in these strategies. But nearly all (99%) of it is invested in the secondary markets for corporate stocks or the corporate/government bond market. Community investing (which has been growing rapidly) and direct investing such as social venture capital, where it will do the most good for our common future, are still barely a blip on the screen.

By coming up with “socially responsible” equivalents to mainstream investments, we have ended up keeping money in the same ballpark that Wall Street plays in. But as William McDonough, a leader in the sustainability movement, recently said at SRI in the Rockies, it is s time for us to “swing for the fence.” We may only have a decade or two before major ecosystem collapse.

Sustainability is largely a local effort that must involve individuals and communities. Indeed, much of the innovation, from organic agriculture to renewable energy and green building, has taken place outside the corporate system and is now being co-opted by corporations. To be serious about halting our slide towards ecological and/or social collapse, we must find ways to direct capital to where we will get the highest environmental and social return, both within and outside of Corporate America.

THREE “CRISIS” STRATEGIES
If we were to un-lock our thinking about investing from the way it is done on Wall Street, what sort of strategies would we come up with? Having lots of money to retire will not do us much good if the life-support system of the planet is shattered. I have grouped the challenges facing our world into three categories and propose three broad strategies designed to achieve the goal of reversing these crises and creating a healthy, thriving society.

First, there is an Equity Crisis. The investment solution: Community Investing.

Malnutrition and disease, illiteracy and hopelessness are the harsh facts for much of the human family. A tiny sliver of elites control the vast majority of financial resources. This gap is worsening both within the U.S. and between wealthy and developing nations. It is not OK that billions go without food, water, education or healthcare.

Community investing gets at a major cause of poverty: lack of access to capital. Micro-enterprise loan funds in developing nations, and in the U.S., help the working poor start their own businesses and improve their lives. Many Americans are in need of capital to start new companies or create affordable housing. By directing our savings towards community banks, credit unions and loan funds, we can safely earn interest on our money while making capital available to those who can best utilize it.

Second, there is an Environmental Crisis. The investment solution: Regenerative Investing.

It’s no secret that every natural system on the Earth is being destroyed. Global warming, mass extinctions, soil erosion, water depletion, pollution, etc., etc. Thousands died last summer in Europe from scorching heat. Millions of people have been driven from their homes due to environmental destruction. These are only the early consequences of our carbon-intensive, resource-extractive economy, and there is little prospect for improvement in the near term without radical change in the dominant industries and our own lifestyles.

Regenerative Investing acknowledges that our investment choices shape the world. The fact that we have an energy system dominated by fossil fuels is the result of investment choices made by the last generation. If we are to bequeath a greener future to our children, we need to make greener investment choices. Regenerative Investing takes advantage of the opportunities inherent in this crisis. It harnesses human ingenuity to solve our most pressing dilemmas and expects to receive financial rewards by making far-sighted investments in areas such as clean energy, sustainable agriculture/forestry, recycling and green real estate development. It can be done at every level, from switching to compact fluorescent light bulbs in our home to big dollar venture capital deals.

Third, we have a Decision-making Crisis. The investment solution: Corporate Investing.

Who makes most of the important decisions of our times? Today, corporate energy giants are wrangling over details of an energy bill that will certainly include massive handouts to the fossil fuel and nuclear industries. Halliburton and many other companies have a revolving door with politicians, assuring them of lucrative government contracts. Corporate lobbyists often write key pieces of legislation. We need to reclaim our power!

SRI is the mature approach to using investments to achieve a “triple bottom line”: financial, social and environmental. My message to progressive activists is “Don’t give up on the corporations – change them!” We simply cannot abandon the corporate system; it is the one calling the shots. By using the tools we’ve written about for years – screening and shareholder activism – we have entry to the halls of power. We can us our money as a “carrot” to reward companies that are leading us in positive directions, and wield it as a “stick” to halt destructive practices.

I’ve focused on ways to use investment capital to address these three crises, but of course this is only a piece of the pie. Philanthropy is indispensable. Consumers play a huge role. Changing our spending habits to direct our capital toward locally-owned businesses and “fair trade” production is essential if we want to create healthy economies. Similarly, political activism must work toward electoral reform.

PUTTING IT TOGETHER: NEW PORTFOLIOS FOR THE 21ST CENTURY

Investing can mobilize billions of dollars quickly, but it requires investors to think differently about the future and to allocate assets in a different way than has been done traditionally. Most significantly, it starts to de-emphasize the stock market. Late last century, the stock market went up 10-12% annually over a reasonably long period of time (10-20 years). I am beginning to suspect that, although the next decade or two may continue that trend, there is a possibility that sometime this century, the underpinnings of our economy could unravel. In particular, the deteriorating ecological foundations of life, combined with population forecasts for another doubling, combined with unstable political situations, have all the makings of an unstable future. Can the economic growth engine keep purring? Only time will tell, but it is not too soon to start preparing appropriate investment strategies as the story unfolds.

The first strategy, Community Investing, is used today by very conservative investors. Community investments are usually extremely low-risk and tend to pay interest similar to C.D.’s or short-term bonds. I would like to see some higher risk, but higher yielding community investments so that investors would have more choice.

Currently the Social Investment Forum has a “1% for Community” campaign. This encourages each investor to put at least 1% of his or her assets into community investments. This should only be viewed as a starting point. We need to raise the bar. Judy Wicks, owner of the White Dog Café in Philadelphia and a strong proponent of “local living economies” put her entire portfolio into community investments. She did this before the stock market started its three-year losing streak, so she was quite pleased to have modest but positive returns.

Regenerative Investing is the least developed of the three strategies. Getting money directly into sustainable activities requires a lot of digging and personal involvement. Often the best opportunities are through private channels, not the stock market. This is why I have researched opportunities like growing sustainable hardwood trees on former cattle ranches in Costa Rica, and have launched my own green development project in Paonia. This and several other alternative ventures may result in the creation of new funds specifically for pro-active investments that get money on the ground, where it is needed.

Only the third strategy – Corporate Investing using SRI – is fully developed at this time. It has an unimpeachable track record for fiscal responsibility and social effectiveness. But some criticize SRI because a broad range of companies can fit within established social screens. For example, a recent issue of the Green Money Journal (www.greenmoney.com) featured a debate between Paul Hawken and Amy Domini about whether McDonalds should be included in a socially-screened index (it’s in the Domini Social 400). Ethical conundrums like these are endemic to social screening, but they distract us from a bigger issue: SRI is nearly entirely focused on the secondary market for publicly-traded corporations. We can debate which ones should pass or fail, but this must not keep us from pursuing more direct strategies such as Regenerative and Community Investing that put money to work immediately.

These are some of the thoughts I’ve had about new investment practices for the 21st century. I’d love to hear any feedback you might have.


Hal Brill is President of Natural Investment Services, Inc., a Registered Investment Advisor registered with the SEC, and co-author of Investing with Your Values: Making Money and Making a Difference (Bloomberg/New Society)
Website: www.naturalinvesting.com
Email: hal@naturalinvesting.com
Phone: 970-527-6550


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