Socially Responsible Investing
written by SRI veteran, Richard Fuchs
A fundamental aspect of socially responsible investing is understanding why people invest their hard-earned funds in the first place. They do so with the hope of securing a happier, wealthier, and healthier future for themselves and their families. There has been dramatic growth in the way people invest their money to achieve these goals. Above and beyond the risk and reward inherent in investments, investors are looking to see if their money is being invested in a way that has positive attributes that may be deemed as “Socially Responsible Investments” or SRI. SRI may assist low and moderate income geographies and populations, creates jobs, provides housing, or accelerates the advancement of Green energy.
Millennial investors embrace these values not just for themselves, but for the rest of humanity as well. More than any other generation, they believe their investments can do good in the world and foster positive change for others. There are an ever-increasing number of money managers offering portfolios that follow SRI criteria as demanded by their clients. Now, of the nearly $47 trillion dollars under professional management in the US, it is estimated roughly 1 out of every 4 of those dollars are involved in SRI. SRI opportunities range from equity to fixed income instruments to loans for specific borrowers and project financing.
After the Dakota Access Pipeline was built, the Sioux tribe of Standing Rock built a 300KW solar grid and are gearing up for a 100KW expansion. We could see many more native tribes shift towards a serious commitment to renewable energy. Providing a portion of their own energy solidifies their sovereignty by reducing their dependence on the US power grid and supports their long-standing cultural commitment to the land and the environment.
There are a growing number of projects in the US that are working to provide solutions to today’s inefficient recycling process. Some of these projects are large-scale commercial facilities that convert municipal solid waste into distributable electricity. One of these innovative projects uses technologies that break down municipal solid waste into their fundamental elements. The repurposed adaption of the “syngas” process results in diesel or jet fuel, metal ingots, and paver tiles with zero emissions. By creating an entirely new recycling process from existing technologies that not only reduces waste, but also produces valuable commodities that can be sold, investors can expect to see healthy returns and know that they did something to improve the environment while creating jobs.
By utilizing Small Business Administration (SBA) loans, small businesses have greater access to funding than ever before. Government guarantees allow community banks to provide a greater opportunity to borrowers who use the funds to build their businesses, thus creating jobs in their communities. However, that is not where the benefit of SBA loans end. These loans can be pooled and securitized, offering investors a liquid, floating rate instrument that can be focused on specific geographies to impact a particular community.
In the long run, by investing in an inclusive portfolio comprised of socially responsible assets, investors will help not only their pocketbooks but also the world around them.
Municipal bonds backed by Green initiatives represent the largest sector of fixed income instruments issued that meet the environment component of SRI and Environment, Social and Governance (ESG) standards. Duke Energy Carolinas issued a $1 billion Green bond offering in November of 2018 that will finance eligible energy projects, including zero-carbon solar and energy storage in North and South Carolina.
While we are seeing more municipalities embrace renewables, its scope is much larger. Disney recently dedicated 270 of its 30,000 acres in Florida towards building a solar farm that will provide up to a quarter of the park’s needs within the next year. As solar technology improves and becomes more accessible, such transformative projects will be much more common in the marketplace.
With a 35-year history in fixed income sales, Richard Fuchs has been focused for the most recent 20 years by specializing in CRA- Community Reinvestment Act- investments and tax credits. The goal has been to provide banks, insurance companies and mission-related investors with unique solutions that complement regulatory guidelines and Socially Responsible Investing. Rich spent 14 years at Sandler O’Neill + Partners in New York as Director assisting banks with their CRA obligations. He identified community-based ideas and was able to convert them to loans, investments and tax credit products. He was able to complete many innovative tax credit financings for Low Income, New Market, Historic and Solar projects.