We are all environmentalists because our future prosperity depends on the Earth.
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I had originally written a post about sustainable investing earlier in the year as I was wrapping my head around how to align my newly cultivated sustainable values with my long time love of personal finance and investing. I thought I would revisit that post with new research that I have found as well as answers from questions I received over on Instagram. This post will appear on both The Do Something Project and Sisters for FI to link the need for us to be thinking about investing consciously in the current world that we live in. Many will call this triple bottom financial independence: caring about people, planet and profit.
I’ve read a lot of books on the environment/waste and a lot of books on personal finance, but no book ever put into perspective the true relationship of how our consumption affects our personal wallet and the planet than the book Your Money or Your Life by Vicki Robin and Joe Dominguez. Quick summary here.
As luck would have it, with the re-release of Your Money or Your Life, I had the opportunity to attend a panel that had Vicki as one of the guest speakers along with other notable personal finance podcasters: Jamila Souffrant of Journey to Launch and Farnoosh Torabi of So Money. A guest at the event asked an all important question: I want to invest and I want to provide for myself in the future, BUT I want to invest in socially conscious companies and not purely on capitalism. How do I marry the two together?
Vicki’s response: Invest in the world that you want to live in.
Such a simple response. Let’s just pause about that for a second. Our hope with our money is that it lasts us until we no longer need it and perhaps provide for the next generation. Our hope is that our investments provide for us well into the future. Our hope is that we still have a liveable Earth with clean water, fresh air and healthy people to be there in our old age. So if that is the case, what kind of world do we want to live in and what can we invest in today so that that kind of future is possible.
Money is Neutral
Money can be used for good or for evil. It’s you that ultimately decides how it is used. Depending on your influences, your money mindset may lean towards money being good or bad. I challenge you to re-think your ideas about money and investment today.
If you are providing value to the world then you should be paid accordingly. There is nothing wrong with being paid what you are worth. In the same vein, there is nothing wrong with taking that money you’ve rightfully earned to build a secure future for yourself and your family.
Money is neutral. It’s up to you to use it for good or evil.
A $20 dollar bill can be used to buy cigarettes for children or it can be used to buy food for a homeless person. The $20 bill doesn't decide how it's used, it's the person that decides. So you decide how to use your money for good.
Know Your Values
Before you invest, figure out what your values are. What’s important to you? What do you want to see more of? Going back to the Vicki Robin’s statement: Invest in the world that you want to live in. This is important as for many of us we don’t realize that we have a say in how things progress in the future.
Take a look at what you buy, how can you incorporate your criteria for buying consumer staples into investing? Are you into organic food and non-GMO food? Do you want to support more women owned businesses? Are you a proponent of solar energy? Do you buy consciously made clothes?
Personally for me, my consumption habits have significantly changed over the past years and I am now favoring items made locally so I’m looking to invest more in the local community. I appreciate good food so I want to support local farmers and artisans. I came from a background in tech and it was rare to see women in leadership positions so I want to invest in companies with women in the executive board.
Your values will be different from mine, but it’s important to take inventory of them so that you are prepared to look into your investments with your values in mind.
Know Your Risk Tolerance
A key part of investing is to also understanding and knowing your risk tolerance. Any investment carries with it risk, unforeseen risk that we will be exposed to. Know your tolerance. If you need your money right away, stay away from high risk investments. If you are unsure about a new technology and do not understand, let alone don't use it, stay away from it. Only you know your risk factor. So listen to your gut, read up, take advice with a grain of salt and make decisions for yourself and your goals.
Investing is Not Limited to Stocks
In the FIRE community, the first pillar of living a financially independent life is investing in a low-cost index fund that covers the Total Stock Market. This makes sense for a host of many reason (low fees, historically positive returns), but if we want to invest in a way that also takes into account the future of our planet, then we need to assess our investments differently.
Investing in the Total Stock Market means investing in the entire economy which is well and good, but the total stock market skews towards large companies that are over profiting from consumption. If we analyze what the total stock market is comprised of, we may see companies that are not in line with our values. For example, if we take a look at the S&P 500 list of companies, we will see companies like Altria Group (formerly Philip Morris), makers of tobacco related products or Exxon, one of the largest oil companies, or Apple, makers of technical products that extract precious metals from the Earth. These companies have consistently generated high returns over many years, but are not technically the best companies with one promoting a product that has been scientifically proven to cause cancer and another company that continues to profit off of fossil fuels and another that has been cited for workplace manufacturing violations. Are these companies inline with our values? Are we comfortable reaping the rewards of these companies to fund our future?
The thing we have to understand is that the economy is big. There are plenty of things that we can support and invest in that are not distasteful to our values. The economy doesn’t also have to be the grand economy that appears on the 24/7 new channels, but the local economy where we carry our day-to-day activities. The small businesses where you live, the mom and pop stores down the street, they matter too and they need your investment and your support.
Below is a brief talk given by Michael Kramer of Natural Investments, a financial advisory firm that that has been at the forefront of socially responsible investing. Give a listen.
It’s important to also consider where you are banking. With money being an important aspect of our lives, we also want the money that we don’t use right away to be used for good. Most of the conglomerate banks that are common across America are not necessarily the best companies to park our money with. They have different values and goals in mind.
When finding a good bank, make sure it is:
FDIC insured or NCUA. If banks go bankrupt, up to $250,000 in your checking or savings accounts stays safe. Banks can go bankrupt too and you don’t want all of your money going with them.
Provides you low fees and good rates. Part of the hallmark of a good bank is the ability to operate efficiently and pass on those cost savings to you via low fees and good rates.
Know and understand what the bank supports. Your money doesn’t just sit in a vault somewhere when you deposit it in a bank. It gets invested in many other things. It’s important to know what these investments are.
To find a good bank, check to see if they have any of the following designations: B Corp, Global Alliance of Banking on Values, or Community Development Financial Institution (CDFI) Certification. Here’s what they all stand for:
I naively thought the B Corp designation was only for consumer staples, but upon further research Certified B Corporations balances purpose and profit. “They are legally required to consider the impact of their decisions on their workers, customers, suppliers, community, and the environment. This is a community of leaders, driving a global movement of people using business as a force for good.”
Global Alliance of Banking on Values
“The Global Alliance for Banking on Values (GABV) is a network of banking leaders from around the world committed to advancing positive change in the banking sector. Our collective goal is to change the banking system so that it is more transparent, supports economic, social and environmental sustainability, and is composed of a diverse range of banking institutions serving the real economy.”
Sad to say that the Chase and Wells Fargo of the world do not have this designation, but there are certainly a good amount of smaller banks on this list.
Community Development Financial Institution (CDFI) Certified
"CDFI Certification provides a network of mission-driven institutions that serve and empower economically distressed communities. This translates into real change for the communities and people who need it most."
I will also transparently report that none of the banks I use currently are members or certified from any of these groups, which means I have some work to do. Sometimes we stay loyal to a bank because it’s what our parents used or it’s what we’ve always used, but it’s OK to shop around especially if they are not providing you the services that you want and need. There is enough banks to go around and while it may take some time to open and account and switch everything, it will be worth it in the long run. I was a long time Wells Fargo client for some time and after getting hit with an accidental overdraft fee and hearing about the new account scandals, immediately closed my account. My husband and I opted to go with a local bank in the town where we purchased our home because they had the best rates and the customer service was top notch. You can see if your local bank is investing in the community or small farm lending through Bank Local. My oldest bank is CapitalOne (formerly ING) when it was just an online bank that offered high savings rate than most banks. Their rate has declined since then and it looks Amalgamated Bank and Aspiration could be potentials for me to move too.
Investing in Good
Investing, the word itself is loaded with so much, but basically it is the idea that we can use money, time and talent in order to achieve a desired outcome. We can invest in ourselves via continuing education so that we can gain the skills necessary to succeed and help others. We can invest in other people and businesses so that they too can thrive and grow on their own. Investing is good unless it is used to exploit people and natural resources all of the sake of higher returns and a larger profit.
I have to be up front here that I never really thought about the impact of my investments until I delved into the world of sustainability. I loved seeing the high returns in my portfolio, but the past few years I’ve questioned the impact of these high returns. I’m still invested in the Total Stock Market Funds (which from the example above and from what we will cover below, not the best place in terms of social/environmental investments), but have been slowly moving away. To date, here are some of the new funds I’ve invested in to be more inline with my values.
Disclaimer: These are my own personal investments based on my own research and values. This is a not me telling you to invest in them, but showing you alternatives. Please consider your personal goals before investing and speak with your financial advisor.
This is a passively managed ETF that indexes against the Solactive Organics Index. This index seeks to capture the gains from a basket of global stocks that focus on our desire for natural products and foods. This includes firms that service, produce, distribute, market or sell organic food, beverage, cosmetics, supplements, or packaging. This is a fairly new fund which started in 2016. The expense ratio is a bit high relative to my other funds at .50%. This fund is tobacco free, fossil fuel free, deforestation free and weapon free.
This is a passively managed ETF that indexes against the WilderHill Clean Energy Index. The Index is designed to deliver capital appreciation through the selection of companies that focus on greener and generally renewable sources of energy and technologies that facilitate cleaner energy. This fund was started in 2005. The expense ratio is a bit high relative to my other funds at .70% so may trade this in at one point for a fund that invests in something similar but has a lower expense ratio.
This thematic index tracks those global large-cap stocks in that focus their businesses on increasing the lifespans of people. This includes health care, pharmaceuticals, senior living facilities and other similar sectors.I also invest in this because I have a fascination with biohacking and figuring out how live longer well. Side note: my grandfather just turned 97 (my other grandfather died at the age of 91) so if genes play a role into longevity, this may be me someday and I want to age well and have enough to do so.
This index seeks to provide exposure to global firms that operate in a sustainable and responsible manner under a Multi-stakeholder Operating System (MsOS) metric. These stakeholders include customers, suppliers, stock & debt holders, local communities, as well as employees. This fund feels slightly off because it does have a large concentration of a consumer packaging company so this will need a second look as well.
There’s also this misconception that investing with social and environmental needs in mind results in low performance, but research has shown that is not the case. You can take a look at this research paper from the UN “Demystifying Responsible Investment Performance”. The paper is from 2007 so it is a bit outdated, but I would venture to guess that we would see similar outcomes given the current trajectory of the economy and the need to have a more sustainable future.
Where to Invest in Good
Start with your existing employer sponsored retirement accounts first. Maximize those first to get the company match (money that is part of your compensation) and to receive a tax benefit. Note that investing pre-tax lowers your taxable income and may get you to a lower tax bracket. The challenge with some of these employer sponsored retirements accounts is the investment options are limited so you may need to invest in what is available (which will not all be good), BUT I highly encourage you to talk to HR and get the conversation started about adding more socially conscious mix of funds to the retirement plan.
Here’s a list of companies that have committed to divesting from fossil fuel investments. So if the New York City Employees Retirement System can divest their pension fund from fossil fuels, then with a little activism, it’s possible to also get your company to do something similar.
If you’ve got an old 401K or other retirement account from an old employer, I would recommend doing a Rollover IRA as doing so will allow you more investment options. There are no tax implications with doing a rollover. This is actually a fairly simple transaction to do which can be done completely online. The advantage is that you move your investment from your employer which has a limited number of funds to an IRA which has a broader range of funds to invest in.
If you are then ready to invest in other areas, consider opening an IRA or a taxable account. Both will allow you to invest in what you want. The IRA has a tax advantage but it has a yearly limit and has withdrawal criteria.
Local Investing Opportunities Networks (LIONS)
Consider also local investing. These are networks in your community of other local individuals that are investing in local businesses. “A local investing network is a type of community-based investment group: think angel investors or microlenders with a hyper-local focus.” Read more about local investing.
Here's Vicki Robins talking about some of the local investing opportunities she's participated in.
You’ve probably heard of Kiva for lending money to small businesses around the world, but did you know that you can also lend money to local businesses by you. Just do a filter for your nearest city and see if there’s a business opportunity you are interested in that fits your criteria. Kiva loans do not pay interest so you will not be getting rich of this, but you could be supporting people and businesses that are making your community and the world a better place instead of parking your money at a place earning less than 1%.
Kickstarter or Indiegoo
Kickstarter or Indiegoo is also a form of investment especially since there are a lot of new, technically advanced products/services being offered through this. Great place to see what's being invented as far as products to help reduce waste or to help fund plastic free businesses. I’ve personally funded Sol Light and Plaine Products. Solight is a solar powered light cube that replaces a flash light or a lamp. I’ve used my for camping on the Inca Trail and around NJ. They donate lights to disaster zones. Here's my write up on Solight. Plaine Products provides refillable personal care products in aluminum containers. They just recently launched a refillable face wash and face lotion. I'm currently testing the face wash and lotion for a review, but you can find the Plaine shampoo and conditioner review here. I like to log on to Kickstarter every once in a while to see what's trending in innovation. I'm specifically looking for a good solar panel for use on a deck so my eyes are peeled.
Slow Money Institute is a non-profit organization dedicated to catalyzing the flow of capital to local food systems, connecting investors to the places where they live and promoting new principles of fiduciary responsibility that “bring money back down to earth.” Check out if there is a group by you where you can volunteer or invest in.
I’ve not heard of this before, but it’s a great concept. Basically, you pre-pay for the items that you will buy at the restaurant or store front. The upfront cash can be used by the business to invest instead of waiting for cash flow from daily sales. Check to see if there’s a local business by you that you already frequent that can use your support. I don't see any businesses close to me, but do see a few in New York including Blue Marble Ice Cream and Cocoburg Raw Vegan Coconut Jerky.
Community Supported Agriculture is great way to support the local farm and slow food movement. In case you were not aware, CSA provides you the opportunity to purchase shares of fruit and vegetables and other local goods from a regional farmer. You pay up front for an entire season. This early bulk payment enables your farmer to plan for the season, purchase new seed, make equipment repairs, and more. Find one close to you.
Housing is a big area for investment, but we don't have to stick to luxury apartment buildings at insane prices or costly house flips. Perhaps, you invest in a property with fair market rents or perhaps you offer a part of your building for affordable housing, this is also investing.
Small Change is a real estate equity crowdfunding portal to help fund transformational real estate projects. Small Change packages offerings for developers to help them build projects that make cities better, and provides investment opportunities for everyone who cares about cities and wants to see positive change.
Small Change could be an option (I have not used it but am looking into it) for a way to invest in growing cities that meet people's needs.
Swell Investing came on my periphery a year ago, gotta thank those targeting ads, so a few weeks ago I made an initial investment of $50. I wanted to check out the platform and see how transactions were being made. I’ll have a full, detailed review of Swell next week. I love the ease of the platform (I can’t help reviewing this because I spent years as a product manager in adtech so I have a high appreciation for good UI, flow and responsiveness.) I appreciate their transparency with regards to what they invest in. The good thing with their investments is that it’s very simplified. No need to sort through and review hundreds of companies. They do some of that work for you and categorize them based on a few categories: Healthy Living, Clean Water, Green Tech and Zero Waste. Zero Waste invests in companies that deal with waste management, not purely zero waste so this does include waste-to-energy and landfill facilities. My initial investment is up 5.2% which is comparable to the S&P 500. Not bad. Of course this is just a subset of my investment and we are in the longest running bull market so luck and timing play into this so something to consider.
Startup Investing Via WeFunder
Another area to consider is investing in a new startup. Yes, there will be risk, but there will also be rewards. WeFunder opens up Through WeFunder, Vaute, a well known vegan fashion line was funded. Malibu Compost was also funded, makers of the first national producer of biodynamic bagged compost. Check out their funded projects and open projects. Note the risk involved with startups.
Solar Investing Via Wunder Capital
I still don't understand why we don't invest more in solar. It's the one resource that's free and available to everyone everywhere, but I get it, we can't control the sun so no one has the power. I invested in a solar company a few years back, I still have the stock, but it has been disappointingly low so Wunder Capital could be a good option for investing in solar, getting it to be used more in places and investing in a project that is highly vetted and offers returns. Can you imagine telling your grandkids that their education was paid for by solar investment?
How to Know What’s Good
As with anything investing takes time, research and implementation. How do you know what to invest in? First, know your values as mentioned above. Then figure out what you are currently supporting today. Remember, a vote with your dollar means a vote for the company. Do you want to support that company and their mission further? Do you want more of that product out in the world? Think about it another way, investing means you profit from people consuming or using those items everyday. Are you comfortable waking up each day knowing that fact?
Second, understand your risk tolerance. As with any investment, there are no guarantees. If you are counting on this money in the next year or so, it’s best to keep investments very conservative so there is little risk.
I would also encourage you to check out Natural Investments and their Heart Rating of Funds that rate funds based on a few social factors. The rating does not take into consideration financial performance so you’ll have to marry your acceptable values with a separate financial analysis. Here’s a quick sample of the rating for TIAA-CREF Social Choice Equity Fund. The first image is the Heart Rating, the next image is it's growth since inception.
I did a quick data pull of some funds to show you what the As You Sow screening tools pulled up. Let's first start with VTSAX, which we covered earlier. This fund is a darling in the FI community with it's low expense rates and great returns, but it also invests in the total stock market which means the inevitable investments in fossil fuels, tobacco, deforestation and weapons. Sadly, low ratings in the Fossil Free and Deforestation category.
Now let's look at one of the funds I mentioned above, ORG - The Organics ETF. Looks to be Fossil Free and Deforestation (Palm Oil) Free.
If you invest in companies, you own a portion of that company and it means you have a say in how things get run. One share may not mean that much, but as you continue to invest, your ownership will grow, you will learn that perhaps others want to move the needle to make the company a better steward for the Earth. Join the movement and make your shareholder voice heard. Not all companies will be 100% perfect in the way they address environmental and societal changes. Get active and engaged. Avoiding a company because it doesn’t fit 100% of your social and environmental criteria is up to you, but re-think if your involvement/support/investment could ignite new conversations.
Check out As You Sow for the latest in shareholder advocacy. Keep an eye out on your Proxy Statements and vote accordingly. I am a Kraft Heinz shareholder and received a Proxy Statement which included a resolution for the company to review their non-recyclable packaging. The resolution had around 14% votes, but next year, it might be more and after which, a change can happen to get the company to review and change their policies on packaging. Imagine how nice that would be given Kraft Heinz market size.
A note on diversification. It’s important that you also diverse your investments across a range of investments. After all, we don’t just live on bread alone, hence, it’s important that your investments are across a range of industries. Farming may be important to you, but don’t forget that housing, natural energy, education, is also important for a well run society. Let’s not put our eggs in one basket as we risk our future and the the future of our world.
Greenwashing in Investing
It’s probably now more common than ever to see greenwashing in investing. The word “sustainable” gets thrown around so much so be aware of this. Some of the ticker symbols even sounds great like CRBN or MPCT, but look closely at the companies it holds and see if they fit your criteria. Being green is so trendy right now. It doesn’t matter what industry you are in so greenwashing is commonplace even in the personal finance and investing world. Do as much research as you can and really get to the core of your values and beliefs and how your investments fit into that.
Find a Good Financial Advisor
I would also encourage you to find a good financial advisor that is inline with your values. Yes, there are some out there. Look for someone who is a fiduciary meaning they don’t sell financial products and are required to have our best interest when it comes to investment advice. Fiduciary's will charge a fee for their services. This is why it’s also critical to understand your risk tolerance and your values so that you can speak about them to your financial advisor.
I personally don’t use a financial advisor. I do a lot of analysis on my own, along with my husband's help. I do use Personal Capital to get a bird’s eye view of my financials. I’ve done a review of their tool here. It’s free so check it out and see if can help you plan. Note that you are not bound to a financial advisor or tool. If it doesn’t work for you, do not be afraid to look for a new one. It’s your money, your future, your life, do what is best for you.
As I dive further into this, I'll have more updates. In the meantime, I have queued up the following books in my list to read and I thought I would share them with you. I found them via our local Library through Hoopla so no need to spend money on books. Stay tuned for book reviews/summaries on these also.
I would also recommend these books on personal finance to round out your knowledge. While it’s good to hire someone to help you with your finances, it’s also good to be as informed so that you can ask the right questions when it matters.
Please feel free if you have any questions to comment below or send me an email cat [at] thedosomethingproject [dot] com. Also, check out Sisters for Financial Independence, where I and other women like me talk about money and the importance of knowing where your money is going. There's more to this discussion and the research that needs to happen for myself to take action. As with anything, there is no such thing as perfect, so better to do one small change than nothing at all. Just as we all started with trying to reduce our waste or picking up trash, let's continue to be active participants in the economy so that we build a better future and get paid doing so.