Wall Street is the golden road to financial returns for most investors—but is it the straightest route to environmental and social returns?
In recent years, an omnibus of impact investing opportunities, from “socially responsible” mutual funds to “green bonds,” have offered market participants access to securities that mirror their desire to create social change as well as their need for financial growth or stability.
But those opportunities aren’t enough to change the way investors and businesses think about the world and each other, says Don Shaffer, CEO and president of RSF Social Finance, because they maintain a certain level of distance and opacity between investor and investment.
“We believe we can be most effective by modeling something altogether different, something that most investors can’t afford to do themselves, but also something that big investment firms can’t do because they’re too big and tied to the market,” Shaffer says. “We figured that our agility, our supportive investors and our core values put us in a place to be more impatient with Wall Street and more experimental with our approach.”
Following the 2008-2009 financial crisis, Shaffer helped lead RSF Capital away from traditional investments and off of Wall Street completely. The firm sold all of its public stocks in 2010 and gradually severed its ties to Citibank and other major financial firms, opting to use community banks instead.
He says that socially responsible investing strategies using traditional stocks and bonds can still be impactful, but generally fail to create a relationship between investors and the companies they’re investing in. “Our decision had nothing to do with returns—we’ve completely forgone the upside of the market over the past five years, so I don’t think anyone could claim it had anything to do with timing the market,” he says. “It had to do with our desire to model what it would be like to invest as directly as possible.”
Leaving Wall Street was just another step in RSF’s 32-year history of effecting change by connecting individual investors directly with social entrepreneurs, which the firm does from its San Francisco office. Named for the Rudolf Steiner Foundation, a predecessor entity founded in 1936, RSF Social Finance became an innovator in micro-financing in the 1980s and 1990s by making loans to like-minded community enterprises.
RSF’s namesake, Rudolf Steiner, was an Austrian philosopher and scientist who held that money should be a “bridge” that connects individuals into “relationships of service” through a less hierarchical, collaborative approach to financing and investing.
“In 1922, Rudolf Steiner addressed a group in Eastern Europe on the topic of economics, and he foresaw the economy and the financial system becoming more globalized,” Shaffer says. “He said as people become more distant from each other and their investment products became more abstract, the less constructive investing would be for society and humanity.”