Consumer confidence may be rising, and the U.S. economy might be stabilizing as the President suggests, but it’s not yet easy to look forward with optimism. Our view of the future is still clouded by recent experience with the worst economic crisis in decades.
Investors of all stripes are, in a very real sense, paralyzed—gripped by disappointment and frozen with fear. Many advisors are also in a fragile emotional state, saddled with a sense of guilt for recommending portfolios that were seriously damaged by the broad market declines of the past 18 months. In many ways, it’s a sort of shared trauma—both sides feel victimized by the financial crisis.
Worst of all, at a fundamental level, trust has been compromised. We have all been turned off by bloated CEO salaries and other questionable business practices that have made headlines in recent months. Investors are disgusted by how much even well-diversified portfolios, which they understood were designed to manage portfolio risk, are down over the past year. Money, after all, has a profound effect on peoples’ lives, and the effect hasn’t been so good for awhile.
And yet, there may never have been a better time to be in the investment business!
That’s because, as painful as they are, wrenching economic downturns are enormously effective at helping us distinguish between what’s really essential and what’s merely optional in our lives. Recessions have a way of making us prioritize. “Americans at all income levels are finding ways to enjoy themselves without spending at the breakneck pace they have in the past,” says Evan Simonoff in the May 2009 issue of Financial Advisor magazine. “The guess here is that this time our desire to save will have more staying power [and] that means it will be a great time to be a financial advisor.”
Time To Reassess
This bear market has forced most everyone to reassess their lives and to refocus on what we think is most important. We have been pushed out of our comfort zones. And as we scan the unfamiliar terrain, we are raising our eyes to view newly visible opportunities. I predict that a year from now, while there is much learning still ahead, the vast majority of us will never want to go back to “the way it used to be.”
Now is a time to reassess what we are doing and why. Now is a time to look at new investment opportunities and new portfolio designs. Now is a time to begin to reflect our clients’ life philosophies in their investment portfolios. Now is the time to deepen trust and enhance the impact we have on the health and well-being of our clients and their families.
The investment stars are aligning in ways that support companies of the future. For many companies, sustainable business initiatives are driving top-line growth—encouraging innovation, increasing sales and improving customer retention. Many companies are now demonstrating how products and services that help customers reduce emissions, save money, lower risks and enjoy more healthful lives create real business opportunities.
And the winds in Washington, D.C., have shifted dramatically. Politics now favors companies working for the common good. As a result, investment capital can be used in transformative ways to catalyze the shift toward a more socially just and environmentally sustainable global economy. The good news is that “there’s gold in them thar hills” (profit)!
Entering An Age Of Awareness
While there is a higher-than-usual degree of uncertainty permeating financial thinking these days, there are a few things about which we can be fairly sure. For example, it’s not likely that we will be going back to the days of excessive leverage anytime soon; banks are likely to be managed more conservatively; and the government is likely to support things like smart meter and smart grid technologies and alternative energy development including solar, wind, ocean wave, and geothermal.
We can also be relatively certain that at some point in the near future we will have legislation which puts a price tag on carbon emissions. With this we will begin to close the chapter of human history when it was OK to externalize the costs of air pollution onto all living creatures. “Economic deficits are what we borrow from each other,” says Lester Brown of the Earth Policy Institute. “Ecological deficits are what we take from future generations.”
“We are entering an age of awareness, which bodes well for companies that have environmental stewardship in their DNA,” says Jan Schalkwijk, CFA, founder and chief investment manager of JPS Global Investments. “Take the organic foods sector for example. People are becoming aware of the poison they are putting in their bodies through the current food system and want to do something about it.” Confirming Schalkwijk’s point, U.S. sales of organic products reached $24.6 billion in 2008, an impressive 17.1% jump over 2007 sales despite the poor economic environment.
Walking The Talk
Tough economy notwithstanding, global business is waking up to the new expectations of investors and consumers. In fact, the theme for the 2009 BSR Conference (Business for Social Responsibility) is “Reset Economy. Reset World.” The agenda will focus on “delivering business value by thinking big and embracing long-term sustainability trends.” CEOs will discuss and learn how to leverage resources, implement changes, and succeed in a world where ‘business as usual’ is no longer viable.
At the client level, linking green investing to green living is becoming an increasingly powerful concept. As Charles Sandmel, an investment advisor representative with First Affirmative Financial Network says, “investing green is necessary but insufficient to creating a greener planet. What you choose to consume and how you live has the greatest ‘green’ impact in the short term, but how you invest can have a more powerful long-term impact.”
Meanwhile, the interest in community investing—directing small portfolio allocations to at-risk communities where people don’t have access to capital through conventional sources—is growing. “Clients see 3% lending to deserving borrowers as preferable to what they would be doing with a regular bank account, both in terms of interest rates and, more importantly, how their money is being put to use,” says Maureen Maguire, a representative of Protected Investors of America. “It is a refreshing conversation during these trying times—both for me and for my clients.” Of course, past performance is no guarantee of future results.
“Many of my clients find that bringing their personal, moral, ethical values into the investment process allows them to fully engage with the world they live in,” says Justin Harris of KMS Financial Services. “The existential component of committing to their values is why socially responsible investing ‘works’ for them.”
Paradigm Shift
A couple of centuries ago, Copernicus formulated a new astronomical worldview that recognized the earth was not the center of the solar system. This discovery set the stage for advances in astronomy, physics, and related sciences that were unimaginable at the time. Similarly, we must now wrap our heads around the fact that the economy is not the center of our world.
In a commencement address to the Class of 2009 at the University of Portland, Paul Hawken said, “Buckminster Fuller said that spaceship earth was so ingeniously designed that no one has a clue that we are on one, flying through the universe at a million miles per hour, with no need for seatbelts, lots of room in coach, and really good food.”
The planet itself creates the conditions that sustain economic progress and improve the human condition. Lester Brown says that “if the economy is a subset of the earth’s ecosystem, the only formulation of economic policy that will succeed is one that respects the principles of ecology.” The Investment Policy Statement of a community foundation client reflects the understanding that “investment returns over the long-term are driven primarily by the performance of innovative, well-managed corporations that are themselves dependent on the health of the human societies and ecological systems that sustain all economic enterprise.”
It’s time to acknowledge that a truly sustainable economy and ecology is a commonly held goal of a large and growing segment of the investing public. It’s time to reset expectations and embrace the ever more apparent reality that the most responsible corporate citizens are the best investments. It’s time to go forward with purpose.
Special thanks to the following First Affirmative Financial Network advisors who contributed indirectly to this article via our private social network, Transformative Investing: Alan Gammel, George Gay, Justin Harris, Maureen Maguire, Tom Moser, Kevin O’Keefe, Lincoln Pain, Ben Roberts, Charles Sandmel, and Jan Schalkwijk.
Steven J. Schueth is president of independent Registered Investment Advisor, First Affirmative Financial Network, LLC. First Affirmative specializes in socially responsible, sustainable and transformative investing, and supports a nationwide network of investment professionals who work with socially conscious investors. First Affirmative also produces the annual SRI in the Rockies Conference. The 20th annual SRI in the Rockies Conference will be October 25–28, 2009. Schueth is a former director and spokesperson for the nonprofit Social Investment Forum. He can be reached at steveschueth@firstaffirmative.com. |
Dorothy 
