Originally published in Slow Money State of the Sector Report (2014)
I worked in finance for about 20 years, the last 6 managing investment portfolios for institutional investors. As fiduciaries we were tasked with preserving and growing the capital of our clients. Our fiduciary duties were discharged by delivering financial returns with moderate risk by investing in our area of expertise.
Many of our clients were foundations and no one seemed concerned that some of the investments we were making on their behalf caused or worsened the very social and environmental problems those foundations were created to address. A case in point was one of our best performing stocks, a Malaysian palm oil company that had destroyed tens of thousands of acres of original rain forest and replaced it with a monoculture of palm oil plants. Such operation destroyed the Borneo habitat of the Orangutan, yet a few of our clients were environmental foundations trying to protect such habitat with their grants!
I realized the narrow lens of conventional finance that reduced all decision making down to considerations of risk, return and liquidity was blinding us to the impact our investments were having on communities and ecosystems around the world. My own portfolio, through diversified mutual funds, was invested in companies whose behavior I found objectionable – I was funding the very activities I objected to and benefiting financially from those misdeeds!
I realized that through my traditional investments I was involved in a massive intergenerational injustice. The financial returns I relied upon to provide for my comfortable retirement came at the expense of future generations since a large part of those returns were predicated on extractive activities that diminished the natural capital future generations will need to survive. I therefore had to overcome my own worries about loss of financial return, diversification and liquidity and align all my investments with my values. It meant liquidating my entire portfolio and starting the process of deploying the capital in projects aligned with my personal values.
In the last five years I have been involved in direct funding of mostly Slow Money enterprises in Northern California where I live. The process has called for an investment of time as well as money, since direct investing requires taking a close look at each business or project and, at times, advising the entrepreneur receiving funding. And yes, local investing can be risky. I experienced investment losses in two areas – pre-revenue start-ups and direct personal loans to entrepreneurs whose character I did not know well enough. But it can also be greatly rewarding. Seeing thriving local businesses and knowing your investment had a part in their success, is wonderfully gratifying.
Local investments are also investments for the long haul since there is no developed secondary market that could provide liquidity (the ability to sell the investment to someone else for cash). Risk, liquidity, a steep learning curve and time commitment are the primary challenges facing a realignment of our values with our investments, yet such realignment is the moral imperative of our time and our responsibility towards future generations.