Posted on Author Marco Vangelisti Categories Finance, Investing, Uncategorized

Beyond Philanthropy – The Role of Regenerative Investing

Our investments shape the world we live in. That’s why I don’t like the term “impact investment” – all investments have impacts!

In the last couple of years, I felt the need to create an alternative investment taxonomy to clarify the impacts investments have out there in the world and the extent of investors’ awareness of the nature and extent of those impacts.

I call it the TANHI investment classification (TANHI stands for toward aware and no-harm investing).

Let me start with a question.

Do you own HII?

OK, prior to April 2022 it was known as Huntington Ingalls Industries.

Ring a bell?

HII is the largest military shipbuilding company in the US.

HII belongs to the S&P500. So, if you own a broad US market index fund or ETF thereof, you are benefiting from every Gerald R. Ford – class aircraft carrier, every Virginia-class attack nuclear submarine, every America-class amphibious assault ship or every Arleigh Burke-class destroyer (don’t you love the names?) HII sells to the US military.

If your portfolio benefits from HII sales of advanced weapons and you did not know about it, then you have an example of an unaware investment, the first terms in the TAHNI investment classification.

TANHI Investment Classification

Unaware (Extractive) Investing

  • The vast majority of investing especially via mutual funds and ETFs
  • ESG and SRI mutual funds are a marginal improvement but they mostly still fall under the rubric of unaware investing
  • Most publicly traded companies tend toward extraction

Aware Investing™

  • Individual stocks or bonds
  • If investing in mutual funds it requires full awareness and transparency to the ultimate components of those funds

No-Harm Investing™

  • Requires full awareness and transparency to the ultimate components of one’s investment
  • Requires knowledge of no-harm as opposed to lack of knowledge of harm
  • Hard to achieve for global multinational corporations and most publicly traded companies
  • Municipal bonds, CD of trusted financial institutions (e.g. credit unions, regional banks), project-based bonds, peer to peer lending, municipal and state bonds, Treasury securities, Agencies securities could be considered no harm

Positive Investing™

  • A no-harm investment that is creating positive outcomes either environmentally or socially
  • Most likely requires concessionary capital (below market rate)
  • Some of the compensation for risk comes in the form of social or environmental returns
  • Positive risk-adjusted return

Restorative Investing ™

  • At the intersection of investing and philanthropy
  • The primary/exclusive motivation for investing is non-financial (“return agnostic”)
  • Positively addresses a social or environmental problem
  • Strongly relates to your personal values
  • Negative risk-adjusted return
  • Should be viewed as a spending decision
  • Similar to a recoverable grant

At the end of this newsletter I will share with you an opportunity to learn more about the types of investing mentioned above.

For the purpose of this newsletter, I want to talk about restorative investing and what distinguishes it from philanthropy.

You are already familiar with the concepts of investing and philanthropy.

Investing is the deployment of money with the expectation of receiving your money back at a future date and then some, if all goes well. Most investments carry risks so there is very often the possibility that you would lose part or all of your investment but you would not make an investment if you did not have at least the expectation to get your money back and a positive return on top of that.

In philanthropy you are using your money to support an initiative you value for non-financial reasons – art, music, your church, the alleviation of poverty, the protection of endangered species, the protection of the environment, the empowerment of women in the third word etc.

Notice that, if you were to look at your charitable donation through the lens of conventional finance it would be a -100% return investment (at least before tax) in that, you don’t expect any of the money to come back. Notice also that anything you consider an investment would provide a positive return (possibly small in case of very short-term CD for example).

You might have noticed that there is a missing section of the chart. That’s where restorative investing lives!

An example will help.

West Oakland in the San Francisco Bay Area is defined as a food desert by the USDA and it has been one from the mid-1990s until June 2019 when Community Foods Market, a full-service grocery store opened to serve its 28,000 inhabitants, mostly low-income minorities and people of color.

Community Foods Market is the brainchild and labor of love of Brahm Ahmadi, a community organizer and activist who has worked tirelessly and creatively to improve the lot of the people in West Oakland, a sacrifice zone created by decades of institutional discrimination and racism (to get just a flavor for it you can check out this book or this article).

When I learned about Brahm’s work two decades ago, I was excited to participate in the public offering of CFM, which raised $2M from its community, and to join the Board when invited.

Of course, starting an independent full grocery store in an entrenched food desert is a very risky proposition. The investment terms reflected the typical low profit margins of even a successful independent full-grocery store – each preferred equity share could only be redeemed at its original price of $2 and, if the store was successful, it would return the capital to investors plus an accrued simple annual interest of 3% starting 7 years after the store opening.

Having a front-row seat to the incredible journey of the store from its initial ideation in the early 2000s to its excruciating funding efforts from the early 2010s to its frustrating search for a suitable location in the mid-2010s to its rocambolesque opening in June 2019 to the wild rollercoaster of the COVID-19 pandemic and to its untimely demise in early 2022 was both a privilege and a challenge to the health of my telomeres! Unfortunately, Community Food Markets joined the more than 3 million small and medium businesses that failed during the pandemic.

Of course, I knew about the risks from the get go.

When I looked at an investment in the preferred equity of Community Foods Market, I estimated that there was at least an 80% chance that I would lose my entire investment, a risk clearly not properly compensated by the expectation of a 3% return in the unlikely case of success.

This was a perfect example of a restorative investment. I invested in CFM because I wanted to help repair the injustices the West Oakland population had suffered regardless of the financial return I would get.

This example of a restorative investment gives me the opportunity to highlight the difference between philanthropy and restorative investing.

How would you solve the problem of the West Oakland food desert through philanthropy? Can you imagine supporting a sufficiently large food bank for a population of 28,000 people for years on end through philanthropy? After how many years would the donors become exhausted?

Clearly, the only way to address the West Oakland food desert in a durable way is to create a for-profit grocery store that eventually reaches profitability and is able to support itself for years to come while serving its community.

Yes, the chances of success are small, let’s say a 1 in 10, yet there was, and still is, a nonnegligible chance that a restorative investment could solve the problem of the West Oakland food desert for good. Alas, Community Foods Market was not it, but I am still proud of the valiant multi-decade effort to address this thorny issue.

If you are curious about learning more about aware, no-harm, positive and restorative investments, I would like to invite you to my upcoming course Toward Aware and No-Harm Investing I will offer in October.

Here is the description of the course and the link to sign up.

Hope you can join me.

Wishing you the peace of mind offered by a personal portfolio that is 100% aware and no-harm.

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Posted on Author Marco Vangelisti Categories Economy, Finance, Investing

Social Justice Investing – Is There Such a Thing?

Social Justice Investing seems to have sprung up as a meme in the last couple of years as a result of the Black Lives Matter mobilization following the murder of George Floyd. I was intrigued and a bit skeptical.

Finance and investing have of course had a very troublesome history when it comes to social justice, in fact they could be viewed as the very antithesis of it.

Suffice it to mention the role finance and investment capital played, via the innovation of the limited liability joint-stock company, in the European colonial enterprise and slave trade starting in the mid-17th century. This is well documented in the brilliant book Blood and Money – War, Slavery, Finance and Empire by David McNally (2020).

Therefore, the concept of social justice investing felt at first blush, like an oxymoron. Yet it got enough traction to compel even Investopedia to include an entry for social justice in its investment dictionary, and a pretty decent one at that.

A commonly accepted definition is that social justice refers to a fair and equitable division of resources, opportunities, and privileges in society.

The racial wealth inequality in the US, to take just one metric, is a clear indication that we have a very long way to go to achieve social justice in the US.

Our history of institutional racism has been well documented in the book The Color of Law: A Forgotten History of How Our Government Segregated America by Richard Rothstein (2017). For those who just want a short summary, this article by Terry Gross, host of Fresh Air on NPR, should do.

Broadly speaking, there have been a number of efforts to reverse the effects of such racial policies. For example, the 1977 Community Reinvestment Act (CRA), or the work of CDFIs (Community Development Finance Institutions) providing capital and technical assistance to mostly minority and economically disadvantaged communities. I am also aware of a number of private equity funds and impact investments trying to address the racial wealth gap by focusing on Black and minority entrepreneurs and workers.

While addressing issues of social equity and therefore social justice, the initiatives mentioned above have not explicitly organized themselves around the concept of social justice investing.

Rachel Robasciotti is the person who most likely came up with the term social justice investing and who certainly popularized it and put into practice.

She grew up in Oroville, CA in an economically disadvantaged Black community ravaged by systemic disinvestment. She experienced homelessness, and her family, as many others in her community, was not spared the scourge of fatal police brutality.

Despite these early challenges, her brilliance shown through and allowed her to graduate from high school at 15, and start a financial advisory firm at age 25. A deeply compassionate individual and a queer Black woman, she set out to use finance to promote social justice.

She founded Adasina Social Capital which began in 2018 as a social justice investing strategy.

Rachel recognized that, as asset manager, she could use the power of stock ownership in collaboration with social justice movements to change corporate behavior by organizing investors so that they would stop giving their dollars to companies that exacerbated racial, gender, economic, and climate inequities.

This approach is much more impactful than just relying on ESG metrics. The traditional ESG practice, for example to address gender equity issues, is to look at the number of women on the board of publicly traded companies, as if having a few women on the board was sufficient to address gender issues in the workplace.

Adasina’s approach was rather to consult social justice movements organizing around gender issues in the labor force to find out how it could use its power of stock ownership to advance their cause. Through this engagement it became clear that one of the most relevant problems for their constituency was the practice of forced arbitration for sexual harassment claims, very common among publicly traded companies.

In 2019 Adasina launched the Force the Issue Campaign.

According to their website, forced arbitration has been shown to favor employers over harassment survivors and silence the victims, creating a culture of acceptance of sexual harassment in the workplace.

So far, this coalition has effectively persuaded 300 publicly traded companies to publicly disavow the use of forced arbitration policies for sexual harassment claims. Over 10 million workers now know that they can take a workplace harasser/abuser to court.

Adasina maintains and makes publicly available the list of all publicly traded companies in the US and their stance on the issue of forced arbitration for sexual harassment.

A similar effort was launched to address racial equity issues. In June 2020 Adasina publicly released its entire dataset of Racial Justice Exclusion List organized by topics, such as money bail involvement, occupied territories, prison funding, immigrant detention, prison labor involvement among others.

In late 2020, Adasina Capital introduced the Adasina Social Justice All Cap Global ETF (JSTC), a highly diversified, global, all-cap portfolio.  Beginning with a global universe of 9,000 stocks, Adasina screened out companies whose policies, products or services exacerbate social injustice.

While I have a deep appreciation for the impact Adasina Capital has had in raising specific issues like the use of prison labor or the policy of forced arbitration for sexual harassment, and organizing other institutional asset holders and getting a number of publicly traded companies to change their behavior to reduce their harm to society, the environment and their workers, I firmly believe that if we are to achieve social justice, we must do more than invest in publicly traded companies, no matter how may screens they may have passed. Nevertheless, I would consider JSTC a “reduced harm” investment option for those who wish to continue investing in publicly traded companies.

Another interesting initiative I want to highlight is Just Futures, an effort to promote social justice investing and to offer more value-aligned retirement investment products and services to non-profit organizations. Just Futures recently organized a very interesting series of webinars on the topic of social justice investing – a good primer on the topic.

One more good resource on the topic is this Crowdsourced Guide to Social Justice Investing by Laura Oldanie whom I met through NextEgg – a community of practice learning new ways to invest retirement assets for a better future.

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Posted on Author Marco Vangelisti Categories Economy, Finance, Investing, Nature, Policy

Greta and Sallie

A new decade is upon us. It is the most crucial decade in the history of our species in terms of dealing with climate change. Even if the COVID-19 pandemic might be occupying the bulk of our collective awareness at this time, it is climate change and what we do or fail to do in the next 10 years about it that will define our future and determine whether the homo sapiens experiment will come to an early end or endure past the year 2100.

Two amazing women represent for me the ethos of this time – Greta Thunberg on one hand and Sallie Calhoun on the other.

Greta is a 17-year old Swedish climate activist with Asperger’s, a diversity which is actually her superpower since, unencumbered by social pressures to remain in denial about it, she is able to express with great clarity the gravity of the climate crisis we are facing and the scope of the actions required to address it.

Here is her talk at the COP25 in Madrid in December 2019 – a prophetic clarion call to action. Commitments by developed nations to reach a carbon neutral economy by 2050 are revealed by Greta as little more than clever accounting and creative PR in light of the fact that, at current emission rates, our collective carbon budget will be exhausted by the end of this decade. The politics required for changes appropriate to the challenge at hand do not exist at the moment – says Greta. While we collectively work on bringing about the politics required for the preservation of a habitable Earth, Sallie Calhoun shows us how to individually rise to the challenge through our investments.

A successful Silicon Valley tech entrepreneur, Sallie Calhoun put her financial resources at the service of addressing climate change by restoring the fertility and therefore the carbon absorption capacity of US agricultural land. She calls her engagement in philanthropy, impact investing and regenerative agriculture the No Regrets Initiative.

I see Sallie as embodying the type of behavioral change Greta is advocating as commensurate with the climate challenge we face. If only 20% of all financial capital were to be deployed in the manner Sallie deployed hers we would be well underway in reversing the effects of climate change and ensuring a habitable Earth for the long haul.

Here is Sallie’s E F Schumacher lecture on October 27th 2019 in which she recounts her journey from her early years as a Southern girl more interested in science than the female role models presented to her as appropriate for her gender and age, to her exciting and successful career as technologist during the golden years of Silicon Valley, to the transformation of her financial windfall into a tool for addressing the biggest existential challenge we are facing collectively.

As soon as her talk was published I found myself watching it three times. If at times you feel in the throes of worry or despair, you will find in Sallie’s talk a powerful antidote.  

After leaving the finance industry, I spent the last decade trying to help people connect the dots between our investments and the challenges we face, not only in terms of climate change but also the erosion of democracy, increasing wealth and income inequality and the destruction of natural ecosystems. Sallie’s example is a powerful reminder that it’s possible to turn financial resources from a tool of extraction into a tool for positive transformation and healing.

If you are curious to explore turning your own investment portfolio, or that of your clients, into a transformative tool to build a more just and healthy future for all, consider attending my course Towards Aware and Values-Centered Investing offered periodically through Money Quotient University or attend my webinar series Align Your Investments With Your Values which you can take at your own pace. The first course is designed for financial planners but is open to individual investors as well while the webinar series is designed for DIY individual investors.

You can also reach out to me for a free phone consultations if you are unsure about the DIY route or need some guidance and resources.

It is in moments like this, I am referring here to the COVID-19 pandemic currently raging around the world, that we pause and revalue how we act in the world through our purchases and investments. Let’s move towards supporting what is essential work and towards aware and no-harm investing!

Stay safe.

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Posted on Author Marco Vangelisti Categories Economy, Finance, Investing, Money and banking, Policy

An interview about the next economy

Santa Cruz Permaculture recently interviewed Marco Vangelisti, who has a background in finance and investment management and was a founding member of Slow Money. He is a 100% impact investor and helps communities increase their capacity for local investing. Marco’s workshop is titled “Essential Knowledge for Transition: Understanding the economy, money and investing and how to transform them for a regenerative world” and will take place February 23-24.

Our interview began by acknowledging the fact that some people think economics is just plain boring. Others find it confusing, or overwhelming because while they know it has direct effects on their lives, how it functions and the various forces at play can seem complicated and beyond our control, and that can cause anxiety. Why is this, and how do we overcome the inertia around understanding economics so that we can actually transform our current systems for a regenerative world?

SC Permaculture: For many people, the concept of “economics” is either boring or frightening orboth. What drew you to economics and finance, and what keeps you interested in this work?

 

Marco: The economy and the logic of the market have permeated every aspect of our lives and the way we interact with each other to meet our daily needs, yet most people feel unable to or uninterested in understanding how the economy works. 

Part of the problem is the way economics has been taught in school in the U.S. in the last forty years. Case in point–I came to the U.S. after studying math in Italy and attended economics classes as UC Berkeley. Economics as taught in college had taken a quantitative turn and my math skills were very useful. Only after the financial crisis of 2018 I finally understood that the assumptions required to “quantify” economics and apply to it the mathematical apparatus rendered it not only inaccessible to the regular public but also irrelevant for understanding how the actual economy worked. 

It turns out that understanding how the economy works not only does not require understanding economics (especially the current hegemonic strain of neo-classical economics) but it is actually accessible to anyone with a basic level of education and curiosity. 

Economic decisions made by the financial and economic elites in this country, without our understanding let alone our consent, profoundly affect our lives. To exercise true democracy we need to reach a collective understanding of how the economy actually works and challenge the economic decisions made by the few which affect them many. I see this as the necessary path to bringing about a more just and compassionate society. This is was motivates me to share with regular people my understanding of the economy and of the financial world.

SC Permaculture: You touched on this a little already, but why is understanding money, banking, economics, and finance important for the average person?

Marco: Basically the money and banking system, the economic system, and the financial system act as the operating system of society. The way these systems are currently configured leads to a number of undesirable outcomes like concentration of wealth and power, increased inequality, the housing unaffordability crisis, mounting levels of debt, increasing insecurity of the labor force, environmental degradation. It does not have to be that way! A systemic approach is called for and can be brought about by citizens equipped with a critical understanding of those systems and the more benign alternatives we can to create.

SC Permaculture: How have your years of experience working in finance influenced your current views on money, the economy, and capitalism?

Marco: My 20 years in finance made me understand the extent to which great wealth has been accumulated in the hand of the few through a process of extraction. One of the primary mechanisms of value extraction and expropriation has been finance and investing. Capitalism has been transformed into a form of financial capitalism that has sucked the life out of labor but also out of the old industrial capitalism of the prior century. 

To understand our current economic situation it is also critical to understand the role of banks in the creation of debt and money therefore inflating asset bubbles, creating business cycles (or increasing their magnitude) and the process of expropriation.

SC Permaculture: What is the main problem with our current banking system and what could be the role of public banking in the new economy?

Marco: Our current banking system is based on a private for-profit model which has not served our economy well. A common description found in most of the introductory economic textbooks describe banks as intermediaries that collect excess savings and lend it to expand productive activities in the economy. It turns out that banks create the money they lend and very little of their lending goes to productive activities. Most of their lending now goes to fund acquisition of existing assets – mostly in real estate. This causes asset bubbles and the housing unaffordability crisis experienced by most desirable cities in the U.S. A significant portion of their profit comes from fees and very high credit card interests.

The private banks also rely on government subsidies in the form of FDIC (Federal Deposit Insurance Corporation). As we have seen in the build up to the financial crises of 2007-2008 banks created too much money, lent it recklessly to fuel a massive housing bubble and when the whole edifice of credit collapsed the U.S. Government had to step in and clean up the mess. Banking in a modern economy has become an essential component of the economic infrastructure and the private sector has demonstrated that it cannot be trusted in managing the awesome privilege of creating the money we use every day.

An obvious solution is to turn a large portion of the banking activity into a regulated utility owned by the public through a network of local, state or federal governments. The public banking sector in Germany is considerable and is credited with the post WWII stability and resilience of the German economy. A network of public banks in the U.S. could provide credit where credit is needed (especially to rebuild our failing infrastructure and to support the productive economy), would not fuel financial speculation and asset bubbles, would not engage in usurious practices or unscrupulous lending, and would not be a drain on the economy through ever increasing fees and high interests.

SC Permaculture: Could you briefly describe the mission behind Slow Money? How did it get started and what have been some results of this organization so far?

Marco: Slow Money is a movement that emerged out of the Slow Food movement. It recognizes that our industrial food system and our financial systems are problematic and that a new ethos is called for to address the problem caused by both. 

The idea is to direct some of the personal investments towards the goal of restoring the fertility of the soil in our own foodshed by supporting local farmers and food producers who treat soil and people with respect. The idea is to measure the success of our investments by the world they make possible and not just by the financial return they generate. 

There are currently about 20 local Slow Money groups around the U.S. that have mobilized around $60M of capital to fund more than 600 small family farms and food enterprises.

SC Permaculture: What does impact investing mean? What is one example?

Marco: Impact investing refers to a form of holistic investment that is aware of the non-financial impacts an investment has on communities and ecosystems. Socially responsible investments mostly consists of screening the worst offenders out of a mutual funds of the stock or bonds of publicly traded companies (mostly multinational corporations). Impact investing usually focuses not on publicly traded companies but on funding specific project that try to address a social or environmental problem. 

One example is Community Foods Market (CFM) in West Oakland. West Oakland is currently a food desert and its 28,000 residents don’t have access to a full grocery store where they live. After a decade-long effort, Community Foods Market will open the very first full-service grocery in West Oakland in decades. California residents can invest in the project through the DPO (direct public offering) of CFM shares. This would be a very clear example of an investment that is trying to solve a social problem–in this case eliminating a foods desert in the Bay Area. 

SC Permaculture: In the past decade, you’ve seen changes already taking shape in our economy and society. Can you share a few of your favorite examples of these changes?

Marco: One of the most positive changes I have noticed in the last decade has been the resurgence of worker-owned cooperatives which represent a systemic alternative to capitalism. Unlike most privately owned and all of the publicly owned companies out there, worker-owned cooperatives are democratic institutions bound to other cooperatives by an ethics of collaboration and support instead of competition. 

Another hopeful sign has been the eschewing on the part of many of the Millennials I know of the consumerist fervor that has characterized the American society since the middle of the 20th century. The social enterprise movement has also grown and young people are more likely to dream about building a social enterprise than becoming a CEO of a large multinational corporation. 

SC Permaculture: Thank you so much for sharing your perspectives, Marco! We look forward to seeing you in February.

Learn more with Systems Change and the Next Economy: Regenerative Design for People & the Planet

Join us this February 23-24 in Santa Cruz, CA to spend the weekend learning about all of this and more with Marco Vangelisti! Register online here. Additional information about the Systems Change & The Next Economy course, including dates, workshop titles, and instructor biographies for our January, March, and April workshops, is available at http://santacruzpermaculture.com/economy/ 

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Posted on Author Marco Vangelisti Categories Economy, Finance, Investing, Money and banking

The Origin Story of EK4T

What was the impetus for creating Essential Knowledge for Transition?

In 2009 I left the finance industry and embarked on a quest to understand the causes of the financial crisis of 2007-2008. I was also looking for a different set of perspectives so I signed up for a permaculture design class and joined a number of movements including Occupy, Transition Towns, Public Banking, and Slow Money.

What I soon discovered was that the financial crisis was brought about by the collapse of the shadow banking system – the complex chain of financial intermediaries that turned mortgages into progressively more liquid and allegedly safer financial instruments, and that the various movements I had joined were not very familiar with the inner workings of the systems they were trying to change.

The first component of Essential Knowledge for Transition was Economy for Transition. As denizens of a society now profoundly shaped by the logic of the market and the drive towards the progressive commodification of all aspects of our lives and interactions, it is imperative that we understand how the economy works and stop deferring its managements to so-called experts if we want to maintain a working democracy. My initial task was therefore to explain in layman’s terms how the economy worked, and the key design flaws that caused it to operate in the interests of a progressively small fraction of society and at odds with the health of ecosystems and cultural and biological diversity.

As I looked at the economic system more closely, the role of the monetary and banking system came into stark relief. Even though standard economic texts treat money almost as an afterthought, it became clear to me that understanding the process of money creation and credit allocation was key to understanding the economy and especially the fluctuations in the business cycle and the recurring asset bubbles whose implosion cause so much economic suffering and dislocation.

Finally, the last piece of the puzzle was finance and the world of investing. Understanding how the financial system works is even more important now as we move into the late stages of a particularly complex form of financial capitalism (as opposed to the industrial capitalism of the 19th century).

The outcome of my research was a series of three talks – Money: The Invisible Operating System, Beyond Capitalism and Investing for the World We Want.

Here are the links to gain access to the content on money & banking, the economyand the financial system.

You might also enjoy this interview with Prof. Yanis Varoufakis on the importance of democratizing economic knowledge.

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