Ellis: This is very exciting and our readers are investing in many of these plays already. Tell us more about the capital part of the equation.
Doherty: First off, there is now even more capital looking for a new investment hypothesis in America and the global economy. We are in a time of extraordinary imbalance in financial markets. There’s over $11 trillion earning 0% or negative rates of return. The Japanese yield curve is below 0% well beyond 10 years. This savings glut is unprecedented, but it also creates extremely low hurdle rates for large-scale, sustainable infrastructure projects. While the U.S. government could be borrowing and investing at these low rates, the gridlock in Washington has foreclosed that option. We think private financing models can pick up the slack, and should.
The leading edge will be large institutional investors who have the flexibility to invest in new financial vehicles that unlock this demand for sustainable growth. With a focus on sustainable infrastructure, this strategy would help to break the glass ceiling on scaling sustainable capital allocation, with large institutional investors underwriting the beginning of the cycle.
Ellis: You’re really talking here about a shift in who invests in the operating system of the economy, aren’t you?
Makower: Absolutely. If a pension fund with tens or hundreds of billions in assets is underperforming due to chronic federal dysfunction, it really has two options: lobby Washington for change, or start investing in what the feds should have been funding. We’re also looking at the role of more local actors, at the regional and metro scale, where there is an enormous opportunity for communities and citizens to build diverse local places to live, be mobile and source food and water.
We’re also seeing, on the sustainability and technology side, this new world of a circular economy where materials stay in use and in circulation a lot longer, whether because of sharing or repairing or recycling—and this happens mostly locally as well.
Mykleby: That’s where I get excited. The opportunity to test these demand signals for capital allocation is a story that repeats itself across the entire rust belt, from Akron to Youngstown to Detroit, across all ethnicities and cultural landscapes. The same is true in Appalachian country. Many communities are suffering from high unemployment rates, a shrinking commercial and residential property tax base, and rising infant mortality rates, as well as other health-care issues.
Ellis: So what are you three doing to make this real?
Mykleby: Patrick and I co-direct the Strategic Innovation Lab at Case Western Reserve University. There, we’re supporting a project in Glenville, Ohio, for example … a 15-year build-out focused on light-rail and housing in a largely African-American community that’s been ravaged by decades of disinvestment and neglect. Glenville desperately wants to be part of a growing, sustainable economy and use that growth to give its residents access to a ladder of opportunity that the all-too-common pattern of gentrification can’t deliver.
Doherty: We’re also launching Long Haul Capital Group, a B corp that focuses on regenerative investment opportunities created by the systemically unmet demand for modern walkable communities. Combining private investment vehicles with a focus on long-term outcomes, Long Haul Capital Group’s model links light-rail—a critical component of the next-generation of mobility—with an innovative sustainable mortgage product, delivering returns designed to outperform 30-year Treasurys.
Makower: At the GreenBiz Group we’re helping companies create these local and regional partnerships they need in order to take advantage of the new, more sustainable technologies. This often requires new regulations and, of course, continually perfecting the new technologies.
The oil and gas industry, for example, has been around for 125 years, so the technologies related to its uses are pretty mature. That’s not true of renewable and distributed energy technologies, so we bring companies together to understand how to improve the technologies and turn them into markets.
Ellis: Exciting work. What kind of message do you want to leave with our readers?
Makower: The core message for me is that this is a big idea and it feels audacious, but we’ve done this before as a country. We have a lot of the answers and technologies, and it’s really about getting our act together and coming to terms with what we want to be as a nation.
This election year we should at least be discussing these issues, whether it’s Grand Strategy per se, or how we bring prosperity, security and sustainability together. Writing the book has been a real eye-opener for me regarding a much bigger vision of America’s future. It has renewed a sense of patriotism that I didn’t even know I had.
Mykleby: There is no excuse for not getting these things done. The cool thing is that at the Main Street level mayors get it, county councils get it and citizens get it. The market exists, the capital exists, and we just need the will and the grit. It’s not going to start in Washington, it’s going to happen on Main Streets across the country.
The opportunity for America and the rest of the world to engage the sustainability challenge is enormous, and we believe America must lead in that challenge.
Ellis: I agree, and look forward to meeting the authors during the 27th annual SRI Conference, November 9-11, 2016, in Denver. I hope advisors will read the book, tell their clients the story, and help them invest in the future, not the past.
The New Grand Strategy
December 1, 2016
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