Updated June 24, 2023 (1st published 4/2/23)
by Bruce Herbert, AIF®
Whenever money moves it has an impact. However, without careful planning and forethought, quite often there are negative corollary impacts that lead to increased inequity or exploitation of the planet.
Fortunately, there are ways to direct and humanize those impacts so they can benefit the natural world and all its denizens, while also meeting your goals as an investor.
This post shows you how.
In it, I explain the five key pillars for humanizing wealth:
- ESG* Investing
- Community Impact Investment
- Shareholder Engagement & Policy Work
- Direct Private Investment
* ESG = environmental, social, and governance factors or considerations
Each strategy has particular strengths, but individually – or especially in concert – they allow an investor to greatly amplify and humanize the impact of their wealth.
As early innovators in ESG social-impact investing, the Newground team brings more than 50 years of grounded experience to activating money as a force for good – and we understand how the use of money serves as an enduring expression of a person's values.
Written to provide insight to both individuals and institutions, this post is necessary reading if you wish to humanize wealth by activating your portfolio's full potential for positive impact. It is written from the vantage point of our being fee-only, a legal fiduciary, and the nation's first Social Purpose Corporation (SPC).
The 5 Pillars of Responsible Investment
1. ESG Investing
ESG* impact investment involves weighing financial factors as well as material ESG considerations when making investment decisions. This approach acknowledges that the act of investing is inextricably linked to the well-being of society and the planet. By investing in companies that prioritize sustainable practices and positive social impacts, you can use your wealth to make a constructive difference in the world while still generating financial returns.
In contrast to avoidance, the practice of ESG investing centers on engagement as a theory of change. Because there is no such thing as a perfect company, rather than walk away the ESG investor calls on companies to improve and transform.
This is where magic happens. By persistently asking questions of companies about the ESG impacts of their policies & operations, ESG analysts and firms like Newground elevate these considerations internally and place them front-and-center – becoming part of what management measures and pays attention to. This helps drive positive change at a systemic level and promotes a more equitable and sustainable future for all.
* ESG = environmental, social, and governance factors or considerations
2. Community Impact Investment
Community Impact Investment involves investing in organizations or initiatives that have specific, measurable, and beneficial impacts on local communities – such as providing affordable housing, creating job and business-formation opportunities, and supporting small farmers.
This type of investment is typically made through a Community Development Financial Institution (CDFI) which serves as an intermediary, conducting the initial research and due diligence, then allocating capital as the investor may direct.
The revolutionary idea of "micro-credit" lending was created in Bangladesh by Muhammad Yunus, who in 2006 received a Nobel Peace Prize for this ground-breaking innovation.
A CDFI acts as a revolving loan fund, making loans in their respective communities (whether here or overseas) that focus on providing needed capital and banking services to groups that are traditionally underserved, if not outright excluded – groups such as women, minorities, and the poor.
A unique aspect of community investment historically is its emphasis on building community resilience and cooperation. One of the ways a CDFI fosters cooperation is through "lending groups", where each person in the group is responsible not only for their own loan, but for the loans of others in the group. This creates a mutual support network where everyone has as much an interest in others' success as in their own, and (in contrast to more traditional capitalism) spawns a "we before me" type ethos.
When a CDFI investment matures and is repaid, investors can withdraw funds for other purposes or reinvest back into the community impact system, which keeps the revolving flow of funds going.
Community impact investing is a way for you to use wealth in support of values-aligned initiatives that have a direct, tangible impact in neighborhoods and on the ground – in the communities you care most about.
3. Shareholder Engagement & Policy Work
SHAREHOLDER ENGAGEMENT – one of Newground's specialties – is the process by which company shareholders (collectively, a corporation's owners) communicate with management, the board of directors, and fellow stockholders to directly influence a company's actions and policies.
One of the rights of share ownership is the ability to place a proposal in the company proxy for a vote of all stockholders. When this happens, the proxy is printed (at company expense) and sent to every shareholder on earth – which also launches it into the business press. This creates tremendous leverage, both for educating others and for shifting the company in more positive directions.
Through shareholder engagement, you as a shareowner can use investments to promote socially responsible and sustainable practices within the companies you own. You can voice concerns about issues such as climate change, human rights, or secretive "dark money" lobbying, and through Newground work with the board and management to find solutions that are in the best long-term interest of the company, shareholders, and a range of other stakeholders – including employees, communities, and society at large.
POLICY WORK – another Newground commitment – is lobbying at both the state & national levels to improve (or preserve) the rules by which corporations are allowed to transact business.
The goal of policy work is to prevent corporations, their executives, and politicians (who are swayed by corporate "dark money" lobbying payments) from profiteering over the common-good interest of stakeholders and the community at large.
For decades, the responsible investment community has engaged in substantive policy work. However, especially since the Trump administration, the need has escalated as ESG investing and shareholder engagement (in particular) have become the subject of far-right "woke capitalism" conspiracy attacks. The majority of the investment community – asset managers of all stripes and sizes, including those without explicit ESG mandates – have found common cause in countering these undemocratic initiatives.
Our own policy efforts over the years have included:
- In-person legislative visits in DC, Seattle, Olympia, and other cities.
- Action Days and other public events held around the country.
- Participation in by-invitation policy symposiums with academics, Agency staff, judges, and politicians.
- Authoring published op-ed and opinion pieces.
- Active participation in formal administrative review and comment processes, including direct dialogue with Federal Agencies.
- Participating in lawsuits under the APA (Administrative Procedure Act) and other provisions.
- Testifying as an expert witness before municipal boards.
- Conference, university, and workshop presentations internationally, and
- Mobilizing many billions of investor dollars on open-letter and campaign initiatives.
Policy work is a largely unheralded linchpin that's foundational to every aspect of responsible investment, but finding a firm or advisor who dedicates the time – though critical for the good of all – is rare. In fact, too many financial services firms are known to move in the opposite direction – supporting status quo, anti-regulatory viewpoints.
Newground is particularly well-known among professional colleagues and peers for our innovations in shareholder engagement, and tireless advocacy on the policy front.
4. Direct Private Investment
Direct Private Investment refers to investing directly in private companies, real estate, or other non-publicly-traded assets.
This strategy is similar in ways to Community Investment (pillar #2 above), but usually involves much larger investment sums, and results in direct ownership of portions of a project or business. This is in contrast to money placed with a micro-credit CDFI, which deploys your capital in the form of returnable loans.
By investing directly in private companies, accredited investors can have heightened control over the types of businesses and initiatives they support, and thus ensure that investments better align with their values and priorities. For example, you as a private investor may choose to invest directly in companies that provide renewable energy, affordable housing, or healthcare access.
While direct, private investments can offer the potential for high returns, they typically involve higher degrees of risk than publicly-traded securities. Also, invested funds are usually illiquid – locked up and unavailable for some number of years until a project is completed. However, properly chosen, direct investments may be able to diversify your portfolio beyond what a stock-and-bond approach normally achieves.
Philanthropy, as an investment in the common good, humanizes wealth in a variety of beneficial ways, allowing people to give back to their communities, create social impact, build awareness, and champion ethical values.
Philanthropy is also essential because it can direct funds in the form of grants or donations to regions and activities that are not yet being addressed by more traditional market mechanisms.
Philanthropy takes many forms, ranging from donations of money or appreciated securities, to in-kind donations of goods and services, volunteering time and expertise, or opening your space to host gatherings and fundraising events. Philanthropy can be directed at the local, national, or global levels.
Depending on your situation and the type of philanthropic activity, this can provide significant tax benefits in the form of deductions which may strategically offset gains in other areas – such as gains from liquidity events, sales of real estate, a business, or concentrated stock positions. Through this process you may also reap benefits by having a portfolio become more broadly diversified.
An important distinction is the difference between "social change" philanthropy – which seeks to address the root causes of problems – and "downstream" philanthropy which address the ill symptoms that result from those root causes. Both are necessary, but the distinction is instructive to those seeking to direct and boost the impact of their philanthropy.
Foundations, Endowments, and (on the more individual level) Trusts, and Donor Advised Funds (DAFs) are all tools that we weigh in our strategic planning with clients around philanthropy, tax efficiency, impact, and estate planning.
As you can see, philanthropy is a clear and powerful tool for creating positive social impacts and a more equitable, sustainable, and compassionate society.
Whenever money moves it does have an impact, and the 5 pillars of responsible investment have demonstrably helped humanize wealth's impact on people and the planet.
These five pillars – ESG investing, community impact investment, shareholder engagement & policy work, direct private investment, and philanthropy – can be practiced individually or collectively, enabling you to maximize the positive impact of your wealth while also benefiting others and the world.
In both the individual and institutional investing contexts, the Newground team has decades of experience with each of these five strategies for humanizing wealth. We thrive on helping clients activate their money as a force for good, not only to benefit themselves and their families, but also their communities and the world – both now and into the future.
To improve your wealth's impact – Reach out today
Bruce Herbert, AIF® is the founder and chief executive of Newground Social Investment, an early proponent of Responsible Investment and now the nation’s oldest independent Registered Investment Advisor (RIA) with an exclusive ESG-impact focus since inception. Newground is fee-only, a legal fiduciary, and the nation's first Social Purpose Corporation (SPC). Before founding Newground in 1994, Bruce started practicing responsible investment circa 1985 during his early years at Merrill Lynch.