In my last blog post, I discussed three investment strategies – Ecological Carpetbagging, Global Good, and Transition to Community.  Following is a more detailed discussion of each strategy, including examples of investments that fit them.

Ecological Carpetbagging is defined as profiteering through exploitation of human and planetary resources.  This strategy depends upon a relentless pursuit of short-term profits without consideration of the likelihood that these activities could destroy the possibility of long-term economic value.

Examples of Ecological Carpetbagging Investments

Unfortunately, examples are rampant.  In the stock market, the focus on “shareholder value” (a.k.a. quarterly profits and rising stock prices) causes companies to engage in, and investors to overlook, risky behavior.  Recently, we have observed BP and other oil companies taking on riskier and riskier exploration and production activities as oil reserves become increasingly elusive.  The deforestation of the Amazon and other tropical areas in favor of short-term profitable pursuits destroys essential carbon sinks and contributes to global warming.  Hedge funds and investment banks routinely construct opaque, convoluted financial vehicles such as collateralized debt obligations, credit default swaps, and even “longevity swaps” that serve no obvious long-term economic purpose; rather, they purport to distribute risk through financial engineering while revealing little or nothing of the underlying assumptions and profit spreads.

Why Use This Strategy?

One might wonder why anyone would intentionally engage in Ecological Carpetbagging.  I think the main reason is that this type of investing is not typically seen as exploitive.  Instead, we have come to equate these activities with prudent investment management.  Let’s call it what it is: while claiming to value long-term results, we are still fixated with quarterly returns and short-term profits.

Allocation – How Much?

I cannot prescribe for others how much to invest in a particular strategy, but I would like to suggest that allocations to short-term profiteering be aggressively reduced, if not eliminated, in favor of a commitment to long-term economic value that considers the integrated risk of an investment strategy.

Global Good is defined as an investment strategy that seeks to identify industries, sectors, and companies that will survive and even thrive as ecological limits impose transition and transformation on the global economy.  Global Good investing at its most effective requires rigorous risk analysis, a willingness to confront conventional wisdom regarding diversification, and integration of the possibility of zero or negative GDP growth.  Effective Global Good investing is based on the premise that the global economy is not going to disappear or completely break down; however, certain kinds of industries and companies will dominate while others will become obsolete or socially unacceptable.   The stock market does not fully price this kind of risk, so it is up to investors to be discriminating, granular, and specific in their analyses and choices.

Less effective Global Good investing takes a more conventional approach by seeking to track the current stock market, invest in “best of class” in all sectors, and perpetuate faith in growth.

Examples of Global Good Investments

My blog posts here have not had an agenda of promoting my company or anyone else’s.  However, at this point, I must cite our company, Portfolio 21 Investments, as an example of what I consider effective Global Good investing.  We are careful to acknowledge that none of the companies we invest in is completely sustainable.  We instead work to identify beneficial goods and services, and the companies we believe can most effectively provide them in the face of the threats arising from ecological limits.

There is a growing universe of mutual funds and investment management firms that claim to be sustainable investors, applying environmental, social, and governance analysis in their analytical processes.  A fairly comprehensive list can be found at www.socialinvest.org.  I strongly encourage anyone who is interested in Global Good investing through mutual funds or separate account managers to assess the implementation of advisors’ stated strategies.  Read the fund’s annual report and study not only the general statements, but the actual holdings in the fund(s).  Unfortunately, there are many marketing materials and advertisements that promise more than can be delivered.

In addition to publicly traded stocks, there are private funds that are offered to wealthy individuals and institutions.  In general, venture capital and private equity funds invest in companies they expect to grow and enter the global economy.  Some of these private funds have begun to focus on companies that are developing technical innovations and solutions to the threats presented from ecological limits.  For example, the London-based firm Generation Investment Management LLP offers a private fund called Climate Solutions that invests in both public and private companies that are working to solve the problem of global warming.

Why Use This Strategy?

Investing in Global Good is an act of faith — faith in capitalism, innovation, and ingenuity.  It is also, to some extent, the default position for investors with a long-term focus.  It is difficult, if not impossible, to envision a world without stock markets, growth, and capital gains.  Even when we understand the reality of ecological limits, we may still choose to invest in the global economy, trusting that innovative companies that understand the problem are also figuring out ways to prosper in the face of a changing world.  After all, no one knows how the future will play out.  It is therefore reasonable for most investors to commit some portion of their portfolios to the Global Good in its current, albeit evolving, state.

Allocation – How Much?

Most people and institutions are 100% invested in the global economy and could quite easily shift all of their investing to the Global Good strategy. For institutions and wealthy individuals, there are more choices, particularly in innovative private companies. Most individuals are still limited to investing in publicly traded stocks through mutual funds or brokerage accounts. What I find among the clients with whom I have worked for five or more years is a shifting of allocations from Global Good investing to Transition to Community investing (see below).  Some have exited the public stock markets completely, choosing to invest in various types of bonds and community investments.  Again, this is not a prescriptive process or percentage, but more of a process over time.

Transition to Community is defined as investing to build strong local and regional economies in the face of ecological limits.  The biggest difference between Global Good investing and Transition to Community investing is the attitude toward growth and profitability.  No matter how thoughtful and forward thinking a publicly-traded global company may be, it is still part of a system that values share price appreciation most highly.  In contrast, Transition to Community investing, as I define it, remains committed to profitability, while recognizing shareholders as just one constituency.  Employees, community, the environment, customers, and suppliers all contribute to building strong companies and deserve consideration in the allocation of revenues.  There is a subtle, but critical, shift from an emphasis on maximizing profits to allocating revenues — to pay living wage salaries and engage in profit-sharing with employees, to restore and preserve physical resources, to support community activities, and to give customers and suppliers a “fair shake” now and over the long term.  In so doing, Transition to Community investing takes an interest in economic value rather than in short-term profits for shareholders.  It also views risk as an integrated proposition — a function of ecological limits as well as trust, relationships, and transparency.

Examples of Transition to Community Investments

Investment opportunities in this strategy have to date been limited, largely due to securities regulations, and also because the concept of local and regional economies has only recently begun to regain legitimacy as a necessary component, if not an alternative, to the global economy.  Thanks to the efforts of organizations like BALLE (Business Alliance for Local Living Economies), RSF Social Finance, Ecotrust, Slow Money, B Lab, and many others, investors are seeing the qualitative and quantitative attractiveness of investing in one’s local economy or in local economies throughout the world.

Accredited (wealthy) investors have access to a fairly wide variety of investment options that place a high priority on building local/regional economies.  Our company, Portfolio 21 Investments, has co-founded a regional holding company called Upstream 21, as well as a fixed income fund, Local Economies Income Fund, which invests in bonds and other vehicles that support the local economies of the Pacific Northwest.  Ecotrust offers a forest fund that is committed to long-term sustainable management of the forests it owns and operates in the Pacific Northwest.  These are only a sliver of the opportunities available.  Accredited investors should aggressively require that their advisors and managers help them identify and evaluate these opportunities (and should avoid advisors who refuse to do so, for whatever reason).

Non-accredited investors (the vast majority of individuals) can invest in local economies via community banks, some community loan funds (see www.communityinvest.org), and targeted notes such as those issued by the RSF Social Investment Fund and Calvert Foundation.  I encourage all of us to dig deep, ask questions, and request information in support of more local investment options.

Why Use This Strategy?

The most pragmatic reason for Transition to Community investing is risk management.  In the face of ecological limits and the very real possibility of wrenching changes to the global economy, it is no longer prudent to place all of one’s investment eggs in the global basket.  We also need to invest in local self-sufficiency and economic diversification, seeking reasonable returns on invested capital.

Allocation – How Much?

Why not 100%?  For some (relatively few) investors, this is the right percentage at this time.  For most investors, the appropriate allocation to Transition to Community is more than zero and less than 100%.  Finding the right allocation for oneself or one’s organization is a worthy pursuit and a prudent use of one’s time, especially when compared with the fixation on short-term financial returns that has heretofore masqueraded as responsible investing.  In the words of RSF Social Finance President and CEO, Don Shaffer, “Instead of having all your money tied up in a financial system that has become increasingly complex, opaque, and anonymous, based on short–term outcomes, you can now help create an alternative that is direct, transparent, and personal, based on long-term relationships.”

This blog post has been quite matter-of-fact in describing the different options that exist today for investors, but I hope it has provided tangible food for thought.  In the next and final post in this series, I will discuss how shifting investment strategies affect us on a personal level — both in our daily lives and in the way we experience the world.

Leslie E. Christian is Chief Investment Officer and Chief Executive Officer of Portfolio 21 Investments. She has more than 35 years of experience in the investment field, including nine years in New York as a Director with Salomon Brothers Inc. She received her bachelor’s degree from the University of Washington and her MBA in Finance from the University of California, Berkeley. Leslie is Chair of the Board of Upstream 21 Corporation and Portfolio 21 Investments and serves on the RSF Social Finance Investment Advisory Committee.

Untitled painting by the author, John Bloom

Money gets us what we want when we want it, if we have it. Its power seems unquestionable, dominating, and to a degree, subject to the laws of physics. It can move at the speed of electrons and in the form of waves. Cell phone technology seems destined to eliminate the friction from its transactional pathways. The economic value created through these energy fields, which we measure in money, has been compromised by the desire to accumulate. In the stories we tell about money, net worth or wealth is a metric of success that fails to indicate money’s ethical basis — one that ignores the process of how the accumulation happened and what it produced along the way. Storing money has trumped using it as an end in itself, and wealth accrues to the individual without regard to the commonwealth.

It seems absurd to accept as valid the idea of accumulating that which is inherently circulatory in nature: currency. But money, like physics, is subject to the dominant materialist world view. Despite this, a different view is emerging. Just as physicists push the boundaries of science to the metaphysical, so do we need to reframe the boundaries of economic life to include the values of spirit. Just as the stories of good that wealth has done tend to be told in the warmth of human interest and responsibility, we need a new economic story that invites and assumes the presence of our spirit, our capacity for ethical action, in our work with money and with each other — as individuals, as groups, as organizations, as communities.

I have been struggling to understand the state of ethical standards played out by those who apparently created financial instruments designed to fail, sold them to clients who bought them in good faith, then “won” big bets on the instruments failing through derivatives and hedging. Only a market economy that operates devoid of human values other than winning and greed could produce such an endeavor. This is only one of many such examples from current financial practices frequently in the news and in our lives. One good result of the unfolding saga of financial misdealings is an awakening sense that there is something wrong in the system, something deeper and more flawed than policy, something so off human equilibrium that it surfaces as flagrant inequity.

At RSF Social Finance, the way we describe the current condition of mainstream finance is complex, opaque, anonymous, and based on short-term outcomes.  As antidote, we strive for all financial transactions to be direct, transparent, personal, and based on long-term relationships. This is more than just a complementary formulation; it is an approach to healing. It also represents a set of intentions that are the basis of the new economic story and a renewed ethic of social transformation.

One of the aspects of Rudolf Steiner’s work that inspires RSF is his framing of economic thinking in a broader social context that is as transformative as it is challenging to grasp. He developed this approach in response to the self-interested, competitive, and nationalistic forces that gave rise to World War I. In 1922, he proposed that all economics needed to be reconsidered as one world economy, and that political boundaries were irrelevant to the flow of economic life. He presaged the recognition of ecological limits and the altruistic notion that economic activity in any one place affects and is affected by the rest of the world. This is an imagination of circulation rather than accumulation. His version of a world economy was the complete opposite of how corporate “globalization” colonizes the local.

Steiner’s imagination of society, sometimes referred to as threefold commonwealth, divided all social life into three sectors: cultural-spiritual, rights, and economic.  Steiner’s insight and innovation was to say that if the three ideals of the French Revolution — liberty, equality, and fraternity — were each rightfully applied to the appropriate sectors, social life would find its equilibrium, its life-affirming essence, not through conflict, but rather through a new kind of engaged conscious citizenship. Freedom was the guiding principle for the cultural-spiritual; equality that for rights; brotherhood (what we call interdependence or mutuality) for economics. This is a basic framework that has enormous implications for how we practice our daily lives and organize society – particularly in the realm of money. But how does one develop a sense for one’s economic self operating interdependently at the same time as one’s spirit self works in freedom? How can we see each other as equals in forming agreements and at the same moment see each other as not necessarily equal in the realm of thinking (spirit)? This takes discipline, attention, and forgiveness. Steiner was always encouraging self-development, deepened self-awareness, and interest and understanding for each other. Understanding who we are as individuals, and how we create our agreements to work together to help others thrive, is one way to put threefolding into practice.

For better or worse, money is my mirror. As I reflect on my relationship to and uses of it, I see my values (spiritual-cultural) practiced or not, the agreements I have made as between equals or not (rights), and whether I have actually added value to the economy by meeting others’ real needs (economic). Through this reflective process I can own my thoughts and actions and work to change myself. This I am free to do. I am not free to change somebody else. I also participate in our financial system and it is therefore also a part of me — like it or not. It is also reasonable to think that whatever change I can make for myself does actually change the financial system, even if the rules, laws, policies, and those seeking to control them for private benefit make it seem an overwhelming challenge. But, this is part of the new economic story.

What if we practice direct, transparent, personal financial transactions as a way of reestablishing equilibrium in social life, including all three sectors? What if we understood that direct means that we remove layers of intermediation in our economic life and actually bring producers, consumers and distributors together in association to set price and determine best use of natural resources? What if we understood transparency as a process that means all parties to the transactions are operating in full and honest disclosure and thus feel equal in the agreement process? What if our transactions were done in a spirit of interest in and a sense of long-term responsibility for each other? In doing so, might we not transform the way we work with money and bring about social transformation at the same time?

The inquiry here is purposeful beyond a series of leading questions. It is also an invitation to and proposal for a process that is at the heart of the new economic story. The old one has in many ways already failed us by the ecological disasters left in its wake and for want of speaking to our deepest humanity. The new one, threefold in nature, speaks to our longing for meaning, connection, and community in a way that is direct, transparent, and personal — and one that welcomes the presence and practice of spiritual values.

John Bloom is the Director of Organizational Culture at RSF Social Finance. If you enjoyed this post, look for John’s book, The Genius of Money, on steinerbooks.org.

Midway through 2010, we here at RSF continue to be impressed both by the generosity of our donors and the incredible work that their spirit of giving has gone to support. This June, RSF was pleased to make grants totaling $1,085,822.47 to 40 different mission-aligned organizations.  The majority of these grants were recommended through Donor Advised Funds — funds designed to accommodate individuals, groups, families, corporations and trusts.  Donor advisors can make tax-deductible contributions to RSF and then recommend grants to non-profit organizations of their choosing.  While the funds are being held at RSF, we invest the money through our cutting edge Impact Investing Portfolios, which ensure deep-impact, mission-aligned investments.  Featured below is one of our grantees from June, as well as a list of all the organizations that received grants from RSF last month.

Spotlight On: American Hero Quilts

This RSF grantee is a non-profit organization that makes patriotic quilts for injured troops returning from overseas.  The grant that RSF provided will help facilitate this organization’s ability to continue to collect, create and distribute handmade quilts to military hospitals in the United States.  The founder’s dream is that each wounded soldier coming home from war receives a “hug” of appreciation for his or her efforts.  Each quilt is unique, and hundreds of quilts have been distributed since the organization’s inception.  For more information on this grantee and to find out ways that you can contribute to this cause, visit their website at www.americanheroquilts.com.

Ecological Stewardship

Claude Pepin
Collective Heritage Institute
Georges River Land Trust
Global Footprint Network
Institut fur Stromungswissen
Pachamama Alliance
Rainwater Renewal Foundation
Wisconsin Community Fund
World Wildlife Fund
Youth for Environmental Sanity

Education & the Arts

American Committee for the Weizmann Institute
American Hero Quilts
Art Association of Jackson Hole
Associazione per la Pedagogia Steineria
Blue Mountain Clinic
Charter Foundation
Colin Young
Contemplative Mind in Society
The Engage Network
Foundation for the Chapel of Sacred Mirrors
Global Sufficiency Network
Grasshopper Productions
GreatNonProfits
Green Meadow Waldorf School
High Mowing School
Juvenile Diabetes Research Foundation
Marion Institute
Motion
The Nation Institute
New York Media Alliance
Open Learning Exchange
Tucson Waldorf Educational Association
University of Colorado Foundation
Woodland Star Educational Foundation
World Hunger Year

Food & Agriculture

Growing Home
Just Food
Michael Fields Agricultural Institute

Social Finance

B Lab
Hour Exchange Portland
Slow Money
Time Dollar Institute

Other

Doctors Without Borders
Friends for African Development
National Peace Corps

Caitlyn Kowalczyk is Program Assistant for Philanthropic Services at RSF Social Finance.

Farmers Screen test site, Hood River, Oregon (Photo courtesy of Peter Marbach)

In the Pacific Northwest, farmers frequently divert stream and lake water to both irrigate crops and generate hydroelectric power for their operations. Unfortunately, it’s costly to keep these diversion systems clear of debris, and they can also be deadly to fish and other wildlife. The Farmers Irrigation District in Hood River, Oregon, spent 10 years developing a single solution to these interconnected issues: the Farmers Screen. This self-cleaning screen keeps stream-water intake systems clear while protecting wildlife and reducing farmers’ costs. In 2008, the Farmers Screen technology was licensed to the non-profit Farmers Conservation Alliance (FCA) to bring this important product to market.

However, as a start-up operation, FCA was unable to access the capital necessary to implement and install the first Farmers Screens. One of FCA’s many supporters, the Lemelson Foundation, offered a loan guarantee so that RSF could make a program related investing (PRI) loan to FCA for their fish screen project in 2009, with the intention of proving the technology and taking the project to scale. The ultimate goal: make it easier and less expensive for farmers to protect wildlife while meeting their water needs.

“What drew us to FCA was their commitment to building solutions that are both pro-environment and pro-farmer.  The Farmers Screen is a win-win technology that has the potential to unlock what has, to date, been a very adversarial issue,” says Patrick Maloney, Program Director at the Lemelson Foundation.

“FCA was fortunate to receive a PRI from RSF. This rare source of loan funding for non-profits helped us address cash flow issues resulting from the reimbursement basis of our federal grants,” says Julie Davies O’Shea, Executive Director of FCA. Ten Farmers Screens have been installed since RSF made the loan, with remarkable results (see table below). It seems promising that this technology can bring comparable results to areas facing similar challenges around the continent.

The PRI loan to FCA served as a pilot project for the RSF PRI Funds, which offer foundations – who generally lack in-house lending expertise—a streamlined way to make loans that meet their philanthropic program goals. The project’s success helped prove the case for our first PRI Fund in Food & Agriculture, and we are currently reviewing several prospective borrowers who are committed to addressing key social and ecological issues such as rural economic development, access to healthy food in food deserts, urban agriculture, sustainable food production, local food systems, value-added processing, equitable distribution, retail, and food waste management.

Visit rsfsocialfinance.or/pri for more information. If you are interested in applying for a loan from RSF, please contact Ted Levinson, Senior Lending Manager at ted.levinson@rsfsocialfinance.org. If you would like to learn more about how the RSF PRI Funds can help your foundation meet its philanthropic goals, please contact Taryn Goodman, Impact Investing Manager at taryn.goodman@rsfsocialfinance.org.

Taryn Goodman is Impact Investing Manager at RSF Social Finance.

Rocklyn Ashram in Victoria, Australia. The author, Elizabeth U, is seated on the right.

In March, I spent eight days at a yoga ashram in Australia. When I arrived, the director encouraged me to review a list of virtues known as the 18 “Ities,” and choose one to focus on during my stay. I chose “regularity,” encouraged by the notion that one can “relax into the regularity” of the unchanging daily schedule. Similarly, a little regularity applied to my personal finances has opened up a spaciousness in my approach to managing money.

The daily schedule at the ashram was the same every day, with only slight variations on weekends. Wake up at 5:30am. Asana (yoga) practice. Pranayama (breathing) practice. Meditation. Chanting. Breakfast. Karma yoga (work detail). More meditation. Lunch. A couple hours to read or study. Even more meditation. Dinner. Evening program.

It took me a couple days to get the hang of it (where do I go for the next session? how will I get my work assignment? can I really sit perfectly still for a full 40 minutes?), but eventually I did relax into the regularity of the ashram schedule. Freed from the burden of having to decide where to go or what to do, I was able to just be. And from that place of acceptance and flow, I was able to see just how much time and energy I normally devote to figuring out how best to spend my time in order to be more Efficient, Happier, Better.

Since returning to my usual routine at home, I have made an effort to cultivate that sense of spaciousness and acceptance for at least a few moments every day through the discipline of daily meditation practice. And I realized that I had already achieved something similar with regard to how I relate to money.

A peek into my journals from my last visit to Australia, back in 1998, reveals my early attempts at financial discipline. I was living within my means for the first time in my life (rather than depending on my parents), and was obsessed with monitoring my spending. I carefully recorded pages and pages of financial transactions, as if somehow the very act of writing everything down would provide assurance that my relationship with money was okay, that I had enough.

Looking back, I can see that this was the best approach I could come up with at the time, as odd as it may seem now. My current attempts at financial discipline are, thankfully, much less labor intensive. Like regular spiritual practice, the hardest part was making the commitment to start. But once I set up my financial system, it turned out to be much simpler than getting onto the meditation cushion every day, because nearly all of it happens automatically.

I started by assessing a year’s worth of bank and credit card statements. Given that my expenses are relatively stable year-to-year, it was easy to determine my monthly cost of living. Since I am fortunate enough to earn more than I spend, I have historically put the difference into savings or retirement accounts. Thus, income – expenses = savings + retirement. My next step was to determine how to divvy up my savings (which includes my RSF Social Investment Fund account) and retirement contributions every month. Once I sorted out those details, I set up automatic transfers to divert the appropriate amounts to the appropriate accounts at the various financial institutions I’ve chosen to work with.

Now, every month, whether I remember or not, my paycheck gets divided up automatically between my checking, savings, and retirement accounts. Paradoxically, this regular practice of saving has allowed me to relax around my spending, much as the regular ashram schedule allowed me to relax into my own being. I still monitor my checking account balance from time to time, but since I know that I’ve already designated the money in my checking account as fair game in terms of spending, I no longer need to worry about what I’m spending it on. I’ve even started using cash more so that it’s physically impossible to do so. And I have been amazed to watch my spending decrease along with my stress levels around money management. The unexpected consequence is that I’ve been able to increase my savings allotment!

There is one last piece which I have yet to implement fully, and that is to apply more regularity to my giving. I have already set up automatic gifts (recurring on a monthly basis) to some, but not all, of the non-profits I choose to support. I plan to set up regular gifts to the rest, plus automatic contributions to my RSF Donor Advised Fund so that I am ready in the event that an emergency, such as the earthquake in Haiti, or the more current oil spill in the Gulf of Mexico, calls for unexpected gifts.

Although I wasn’t consciously thinking about it in terms of “regularity” when I began to manage my money in the ways I have just outlined, I do think it turned out that way because I’ve been striving to align my own values and beliefs with the way that I work with money. Does your spiritual practice inform the way that you manage and think about your money? Please add to the conversation in the comments section below!

Elizabeth Ü is Manager of Strategic Development at RSF Social Finance.

If you are interested in setting up automatic monthly investment contributions to an RSF Social Investment Fund account, please contact Mark Herrera at mark.herrera@rsfsocialfinance.org or 415.561.6160.

Building on our more than 25 years of experience in social enterprise lending, the Food & Agriculture PRI Fund reduces the barriers to entry for foundations that want to leverage their philanthropic dollars for additional impact through PRIs, but that lack the in-house expertise to source, underwrite, service, and monitor loans. With a minimum investment of $100,000 and a five year term, foundations can receive a 1% annual return through RSF’s PRI Fund, and ultimately, “recycle” their investment toward additional PRIs or grants.

Local and sustainable food system projects serve a variety of foundation mission areas, and it is because of their wide-reaching impacts that RSF has chosen to launch the first of several planned PRI Funds in Food & Agriculture.  RSF PRI Fund borrowers will positively contribute to:

• healthy ecological systems,
• urban and rural economic development,
• safe and equitable labor conditions, and/or
• increased access to healthy food in underserved areas.

Investments in the RSF PRI Fund will be used to provide loans of $50,000 or more to non-profit and for-profit social enterprises addressing key issues in food production, food access, value-added processing, distribution, retail, and waste management. RSF is currently evaluating several prospective borrowers for the fund.

If you are interested in helping to fund the launch of this innovative investment vehicle for local and sustainable food systems, please contact Taryn Goodman, Impact Investing Manager, at 415.561.6195 or taryn.goodman@rsfsocialfinance.org. If you are a potential borrower seeking a loan from the Food & Agriculture PRI Fund, please contact Ted Levinson, Senior Lending Manager, at 415.561.6179 or ted.levinson@rsfsocialfinance.org.