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GreenMoney Journal - publishing since 1992
Fall 2010 issue
Socially Responsible Investing – Better Companies, Better Communities
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Notes From the Leading Edge of Social Finance
Don Shaffer
The era of Wall Street domination is over.
It may take ten years, or fifty years, but the signs are clear. A relative few committed investors
are driving the shift to an entirely new approach to working with money.
If today's
capital markets can be described as complex, opaque, and anonymous - based on short-term outcomes,
we are beginning to see more and more financial transactions that are direct, transparent, and
personal-based on long-term relationships.- Exotic hedge funds - out.
- Investments
that contribute directly to community health and self-reliance - in.
In the years to come,
there will be significant growth of…- Small-scale community banks
- Holding companies
for privately held, triple-bottom-line businesses
- New funds that re-define venture capital
and the notion of "exit strategy"
And much more…
Who will be the most powerful change
agents in this emerging financial system?
Women, including these three who have personally
inspired me:
Judy Wicks first coined the term "living" return, as opposed
to maximum return. Owner and founder of Philadelphia's 25-yearold White Dog Café and cofounder of
the Business Alliance for Local Living Economies (BALLE), Judy is a role model and national leader
in the local, living economies movement. She is also president of White Dog Community Enterprises,
a non-profit 501c3 dedicated to building a local food system and living economy in the greater
Philadelphia region. For more information go to
http://www.smallisbeautiful.org/publications/wicks_06.html
Leslie Christian
has re-imagined the purpose of a corporation as the Chair of Upstream 21, an innovative
holding company model designed to build natural, social, and economic capital within communities.
Right in the corporate charter, Leslie and her colleagues defined the "best interests" of Upstream
21 to include consideration of employees, the environment, long-term as well as short-term
interests of shareholders, customers and suppliers, and the communities in which the company and
its subsidiaries operate. For more information go to http://www.upstream21.com
Penelope Douglas is a pioneer in channeling funds to small businesses in
low-income communities. Co-Founder and President of Pacific Community Ventures, Penelope launched
PCV's community development investment assistance model. She also founded the first community
venture fund on the west coast, and was founding chair of Juma Ventures, a nonprofit organization
that develops and operates businesses designed to provide job opportunities to economically
disadvantaged teens. For more information go to http://www.pacificcommunityventures.com
We can only hope that more women reach the leadership ranks of financial institutions. It may
be our best plan for the future. The fact is: women have a more advanced intuitive understanding of
the challenges we face as a species - ecological stewardship, food and energy security, the
widening gap between rich and poor, education reform, community health, etc.
Thankfully,
more women are demanding that their values be reflected in their investments. They have been served
poorly by brokers and bankers over the years:- 59 percent of women feel misunderstood by food
companies
- 66 percent of women feel misunderstood by health care companies
- 84
percent of women feel misunderstood by financial services companies
By 2010, it is estimated
that women will account for half of the private wealth in America - approximately $14 trillion.
This number is projected to climb to $22 trillion by 2020. And women control 48 percent of estates
worth more than $5 million. (Data from 2007 survey, Buying Influence, Inc.)
My friend
Sallie recently moved from California to a small town in upstate New York. Soon after arriving, she
was contacted by a Merrill Lynch broker wondering if she had considered shifting her investment
portfolio based on current market conditions. Sallie said, "Yes, in fact I was thinking about
making a small direct loan to the local family farm that runs our CSA - over and above what I pay
them annually for the vegetables. I think it's a good long-term investment in my community. And it
will provide an even stronger relationship with a key source of our food. How would I do it? Any
ideas?" The broker discouraged it; then gave her a sermon on diversification in public equities and
bonds.
Should Sallie pay close attention to the risks associated with this potential
investment? Of course. But what would it look like if she and others invested a set percentage of
their assets in local, triple bottom-line businesses, effectively creating a new asset class? Why
should this be a crazy idea?
At RSF Social Finance, we're encouraging our clients to take
a closer look at investing in their own communities, in their own regions. International
microfinance is drawing a lot of interest this year from U.S. investors. For good reason, it's
great to see direct investment going to small, growing entrepreneurial ventures in the developing
world. But what about our neighbors? As the wealth divide continues to widen in this country, both
in urban and rural areas, we are asking ourselves at RSF, "How can our clients best support small
and medium-sized, privately held companies in the U.S. that have strong community development and
ecological sustainability goals?"
It's part of our True Wealth campaign. We are creating a
learning community that asks hard questions about money and how we use it, acknowledging that money
is simply a form of energy that creates relationship between human beings. What is true wealth, for
me? How would I describe it? What is the right balance between investment and philanthropy in my
situation? Do I need to achieve "market rate" returns on all my investments?
And we are
asking ourselves at RSF...- What does it look like to re-imagine money to serve our highest
aspirations?
- What, specifically, will it take to develop a network of risk and liquidity
appropriate financial vehicles that are completely different from the products of Wall Street?
Since 1984, RSF has made hundreds of direct loans to businesses and non-profit organizations
that create significant positive impact in society. Last year alone, we made $28 million in new
loans to social enterprises.
We work with entrepreneurs who are changing industry
practices:
Jeff Mendelsohn, New Leaf Paper, is creating a regional supply
chain for recycled paper
Stephanie Odegard, Odegard Carpets, is creating
living wage standards for the carpet industry
Priya Haji, World of Good, is
creating new distribution channels for artisans in the developing world
Scott
Leonard, Indigenous Designs, is creating a network of weaving cooperatives for organic,
fair trade clothing
Ahmed & Reem Rahim, Numi Tea, are creating new standards
for organic tea
In addition to for-profit companies, we also make loans to nonprofit
organizations such as: - Waldorf schools, designed to address the intellectual, emotional,
aesthetic, and social needs of the whole child.
- Green building projects, such as the David
Brower Center, a LEED platinum-rated building and multi-tenant non-profit center for environmental
work.
- Human services organizations, such as Community Homestead, where individuals with
disabilities live in extended family households.
We have three focus areas for our lending
activity: Sustainable Food and Agriculture; Education and the Arts; and Ecological Stewardship.
We also facilitate $6-10 million in grants each year to over two hundred non-profits
through our Donor Advised Funds. While these funds reside at RSF, they are invested in 100 percent
mission aligned portfolios of fixed income and equity holdings.
After 24 years, RSF has
defined a clear position on the leading edge of social finance, consistently making innovative
loans and launching funds that are the first in the market to address critical gaps in financing
for mission-oriented enterprises. We also know there are many smart and principled people working
toward similar objectives. So we strongly support financial vehicles that are developed by our
partners - through investment of time, energy, and money.
For example, we are working
actively right now to help create several start-up banks, all of which are place-based and focus on
serving the needs of their local communities in completely unique ways. We see ourselves as a hub-a
trust holder-in the broader ecosystem of institutions that share our values, constantly pushing to
bring new initiatives to market. Toward this end, we have a long history of supporting networks and
events that build connections: BALLE, Social Venture Network, Investors' Circle, Bioneers, etc.
Above all, we remain in a reverent state of inquiry. As a non-profit public charity, we
will always be mission-led. As indicated, we seek to ask challenging and timely questions about the
nature of money and the ways in which it can genuinely transform each of us, and we invite others
to do the same.
One of the major questions right now: what does it mean to take social
impact "to scale"? From our perspective, bigger is not necessarily better, especially if it
requires growth that dilutes principles. We believe there are many excellent companies and many
excellent investment opportunities emerging right now-for example, Organic Valley's preferred stock
offering for non-voting shares of the farmer-owned cooperative-that generate steady long-term
financial value and social/environmental returns without forecasting big year-over-year growth.
Another of our ongoing questions: How can we harness the striving energy and
entrepreneurial drive of the American people to move more towards collaboration and partnership,
instead of maximum individual gain, while honoring the power of free markets? We look forward to
working with all of you on these important questions in a spirit of service.
Article by
Don Shaffer, President and CEO of RSF Social Finance ( http://www.rsfsocialfinance.org ). Inspired
by the work of Rudolf Steiner, RSF has made over $145 million in loans and over $65 million in
grants since 1984 to organizations in the areas of Food and Agriculture, Education and the Arts,
and Ecological Stewardship. This year RSF is launching a new mezzanine fund for social enterprises
seeking growth capital, and a program related investing (PRI) fund for foundations seeking to make
charitable loans. Contact Don at don.shaffer@rsfsocialfinance.org
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