A look into how people are operating outside of the stock market to invest in sustainable and diverse businesses and develop a new type of economy.
In Making Money Matter (Prospecta Press, 2015), author G. Benjamin Bingham challenges us to analyze the current financial framework and instead see money as a tool and springboard for positive change in our world. One way people are doing this is by moving away from the stock market and diving into alternative ways to invest in a diverse collection of businesses. Through these practices, we can help develop a new economy that is greener, more positive, and more focused on people than profit.
One such multifaceted initiative is the burgeoning “localist” movement, which is turning its back on the stock market altogether. This approach slows down expectations by developing the local economy without worrying so much about the rest. Since the turn of the millennium, the “local living economy” idea has taken off, fostering all kinds of small sustainable business organizations in over ninety cities.
A perfect example is the Business Alliance for Local Living Economies (BALLE), which was conceived in 2001 by Judy Wicks and Laury Hammel. Philadelphia became the first city to enter what is now a substantial BALLE network, thanks to the steering committee of the Sustainable Business Network of Philadelphia (SBN Philadelphia). Together with Michelle Long in Bellingham, Washington, they launched a movement that now embraces cities across the whole country.
This women-led movement is breaking away from the old-white-boy network paradigm that has dominated business since the Industrial Revolution. A study by the Harvard Business Review documented the proven superior management skills of women. Looking at over 7,000 business leaders, the study ranked women above men on all levels of management in terms of overall effectiveness. This is a key element in the current paradigm shift and certainly essential to the success of BALLE.
While establishing my initial advisory business at Legg Mason, I needed a way to meet more like-minded investors. I was inspired to encourage SBN Philadelphia to develop the kind of “conversation circles” that built Philadelphia in the first place. The “Leather Apron Club” was a circle of craftsmen Benjamin Franklin met with regularly to solve local problems. He would anonymously write up and circulate their proposals to influence public opinion. Without any political representation, these ideas instigated the first public library, voluntary fire department, sidewalks, and cobblestone streets.
Responding positively to my proposal, SBN Philadelphia started its own Circle of Entrepreneurs, a gathering for peer-to-peer support focused on one or two local businesses each meeting. Members met each month for over ten years, sometimes in more than one location, fostering a sense of community and collaboration.
Meanwhile another group, Green Village Philadelphia, formed around the concept of creating a sustainable business center in the city where all kinds of green businesses could collaborate. We met for years, looking at one abandoned building or brown field after another — envisioning, arguing, and inspiring one another. More recently, two nonprofit incubators were merged to form the Good Company Group, soon to be the beneficiary of a prestigious Bloomberg Philanthropies Mayors Challenge grant.
Such incubators are forming all over the country, like healthy economic cells. Some, like the Unreasonable Institute in Boulder, Colorado, have become international magnets for the best ideas in the world. Competitive RFPs gather hundreds of applicants for focused investment days where angels, foundations, and other impact investors gather to hear pitches. Meanwhile, local shared workspaces such as Impact Hubs are opening up for entrepreneurs to cohabitate, inspire, and collaborate. Most of these entrepreneurs are tech-oriented, but shared manufacturing spaces are also starting to take form.
Magically, one of the huge warehouses in which we tromped around years ago was acquired by Shift Capital, a New York–based investment firm, with help from iStartup’s Janice Caillet. Perhaps our ideas lived on in the collective unconscious, later attracting those who could fulfill the vision! It is fun to imagine that huge warehouse carrying our dream like a sleeping giant.
Back then we could not imagine how to fund such a large undertaking, but now people can take advantage of online investing or crowdfunding, which has matured in the last few years. Fundrise is a relatively new platform that allows local non-accredited investors to acquire funds through a direct public offering (DPO) by pooling their small investments together. It is one of many such democratic initiatives to empower local investors. John Katovich of Cutting Edge Capital has developed his fundraising practice specifically around the DPO concept.
Danae Ringelmann of Indiegogo initially wanted to help people launch plays and films. When she realized that only 0.04 percent of new businesses receive venture backing and only 15 percent manage to secure loans, she built a platform wherein an individual can raise money from supporters in exchange for a small gift. So simple. User fees are increased if the goal is not reached, but unlike competitors such as Kickstarter, the money can still be accepted if you fall short of your stated goal. You can simply go for it and see what happens.
Such approaches are on track to raise billions of dollars from participants all over the globe, democratizing fundraising initiatives for valuable projects. When I saw her up on the stage at a gathering of the Social Venture Network, Ringelmann seemed so unlike the old archetypal capitalist. The times they are a-changin’, thanks to the millennial generation, and Ringelmann is as straightforward as she is wildly successful! Her advice: Ask yourself, what bothers you the most? Why? What can be done about it? And who else cares? Then talk to others who care and imagine raising $100,000 to address the problem. Do it because you can. Millions of dollars are now being raised this way. Billions will be.
Others are democratizing the flow of capital outside the impersonal stock market and the tight bureaucracy of big banks. Connie Evans of the Association for Enterprise Opportunity has decades of experience finding social solutions and, like Danae, is most concerned about the lack of access to capital. Because traditional banks are currently declining 8,000 loan applications every day, Evans is working with Muhammad Yunus of the Grameen Foundation to build micro-lending in this country. She is also raising a $50 million American Dream Fund to lend up to $250,000 of unsecured debt with 20 percent turned around within forty-eight hours and four to six weeks if the borrower needs to receive advice along with the loan. The American Dream Fund expects to turn down only 7–10 percent of applicants and to work with the 70 percent who need advice.
On a global scale, as mentioned earlier, Kiva opened the door to altruistic lenders to make zero-interest loans to poor entrepreneurs in the majority (developing) world. Starting with loans at $25 a shot that link the lender to the entrepreneur through a Facebook-like directory, this vibrant initiative is also growing by the millions each month. The only limit is imagination — and the participation of intermediaries to ensure such loans get into the right hands. In order to break away from the current portfolio gridlock, new intermediaries are proposing to open the portals wide for web transactions directly between investors and investments. While creative initiatives are blossoming, regulatory scrutiny is expanding as well, so it is hard to say how this will play out.
Our research team built WikiPositive as a wiki for socially positive investments. We currently list information on over 900 public companies with plans to expand with both public and private initiatives that benefit society. Currently the site is non-transactional and simply provides a starting point for research with links to deeper information. Over 700 companies on WikiPositive are linked to CSRHub, the largest aggregator of ratings data from around the globe. Users can use CSRHub to learn how a particular company rates compared to its peers in terms of environmental, social, and governance (ESG) ratings.
CSRHub.com has grown in leaps and bounds over the last five years. The user can drill down to see what data sources were used to rate each company, and reports can be purchased. The aim is to help companies improve their profiles, so the competition has become a race to the top, instead of a race to undermine, cut corners, or cheat to win.
The investment network Maximpact was built so that well-known managers can display private deals for impact investors to view and possibly connect over. Mission Markets and Gate Capital, on the other hand, are transactional platforms for impact investments. Mission Markets, along with its private offerings, has recognized the need for a broad database of global small-cap public companies that are not yet recognized by ESG reporting but clearly embrace socially beneficial missions. These and similar initiatives are springing up all over and, as they mature, will benefit from collaboration.
A small but powerful group of investors and nonprofit leaders, impact investors, and fund managers attend an annual retreat in Mexico to move this agenda forward. The Opportunity Collaboration, like the Clinton Global Initiative, is a way for thought leaders to discover how, through collaboration, to make a bigger positive difference. Jonathan C. Lewis, a pioneer of socially responsible investing, founded this gathering in part to support the growth of MicroCredit Enterprises, an initiative to identify wealthy individuals willing to guarantee institutional loans for microcredit. The clear focus of the retreat is on alleviating global poverty, but the broad range of discussions includes debates over key terms such as sustainability and impact.
The possibility of fiscal irresponsibility or mismanagement must always be considered. We can learn from the story of E+Co, which initially focused on bringing clean energy to developing countries. Impact investors were so successfully drawn to the company’s concepts — such as providing electricity for Internet connectivity to remote parts of the globe — that the money came in too fast and managers were stretched too thin to monitor their global portfolios in a responsible manner. As a small but early investor, I represent the minority investors on Persistent Energy Partners, the advisory board overseeing the unwinding and focusing of E+Co. This is proceeding in an admirable fashion with far fewer losses than expected, but no one can afford to overlook the critical importance of cash flow and organizational management. The standards for impact investing must be just as high as for traditional investment practices.
Terry Mollner, chair of StakeHolders Capital and one of the founders of the Calvert Foundation, argues that the next evolutionary step for humanity is for individuals and corporations to publicly prioritize the common good in their approach to everything, including, of course, investing. Many of the organizations and concepts mentioned in this chapter are in their infancy. I believe that one day there will be a new way for entrepreneurs to join with enlightened investors in order to produce common benefits. Here are a few suggestions:
• When forming socially beneficial funds, value all early dollars and late dollars invested equally, so there is no potential for the initiators to get robbed of control by “vulture capitalists.”
• Value each entrepreneur’s business and give them equity in the fund based on the valuation (e.g., a $100,000 valuation could give the company $100,000 in equity, just as though they put in capital).
• When designing funds, take into consideration the potential for shared resources and value adds, so that the companies in the fund benefit one another symbiotically.
• Recognize that some companies may fail, but their resources remain available to the rest — if any one company wins, they all win.
• Peer decisions can determine the need for new capital and where it would be most beneficial for the fund as a whole.
One thing is certain: Asset managers need innovative funds to reach this new economy — and they need to be guided well. They need a range of choices, packaged in understandable, accessible ways via trustworthy intermediaries. This is possible; it simply takes resolve, positive intentions, and a willingness to change. Hazel Henderson’s “Green Economy” investment tracking has shown that the already-impressive shift to green investments is rapidly accelerating. This is not simply altruism, but rather a practical response to world issues and a sound approach to long-term investing. It carries with it a sense of justice.
“Wrong none by doing injuries, or omitting the benefits that are your duty.”
Justice is so often confused with retribution and punishment. Franklin sees justice not as a Big Brother imposing penalties, but as a self-moderated virtue that is the duty of each and every person.
The greatest enemy of self-directed change is inertia. While experts are often needed to provide financial guidance, for justice to reign, we must not cede our moral obligations to “experts” who may not see justice as their responsibility. The “divest/invest” movement has awakened many investors to proactively take justice into their own hands, beginning with the fight against pollution caused by fossil-fuel extraction. This is only one of many important issues that investors can and do impact.
We must ourselves do no harm, but also depart from the status quo if something needs to be changed for the better. By supporting shortsighted corporations, we unconsciously do injury and omit our duty to support beneficial products and services. This is not so hard to change, because if we place our focus on justice, we will know when to act and when to stop.
Reprinted with permission from Making Money Matter by G. Benjamin Bingham and published by Prospecta Press, 2015.
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