Occupy Your Assets
The author is hosting special Lunch 'n Learn sessions this week at the Centre for Social Innovation. Join him on Friday, Feb. 10th noon @ CSI Spadina (215 Spadina Ave, 4th floor) and Monday, Feb. 12 noon @ CSI Annex (720 Bathurst, 3rd floor).
Three years ago, I started my company Strategic Sustainable Investments to facilitate the shift of money in a more sustainable direction. Recently, there has been an explosion of interest in my work, and I’ve received an avalanche of requests from friends to help shift their money. It seems more and more people are becoming unhappy with their banks and investment advisors. They feel that their money may be perpetuating the problem, instead of funding a better future. This article is an attempt to simplify the process of shifting 100% of your liquid assets into accounts and funds that help build a sustainable economy.
DISCLAIMER: Nothing in this article should be taken as professional advice. Please speak to an investment advisor and do your own homework before making any investments.
Step 1 - Join a Credit Union
November 5, 2011 was Bank Transfer Day. Anyone who blamed banks for taking risks that led to the financial crash or felt like they were getting gouged by outrageous bank fees were encouraged to move their checking and savings accounts and credit cards to a local credit union. 40,000 people took that advice on Nov 5, joining the more than 440,000 customers that had shifted more than $3.5 billion since Sept 29.
Although they are subject to the same regulations and your money is insured in the same way, credit unions are different from banks in a number of ways. First, they tend to charge lower fees. Think about all the advertising you’re not paying for. Also, they are usually local institutions as opposed to national or international corporations, which means they’ll be more receptive to community needs.
To understand the real impact of shifting money to a credit union, you need to understand how a ‘Reserve Ratio’ works. If a bank’s reserve ratio is 10%, then $1000 deposited in a savings account means that $100 will be kept in the bank’s vault while the other $900 will be loaned out to the bank’s clients. Assuming the loan recipients keep this $900 loan in the bank (or spend it and those people put it in a bank), then $90 is kept in the bank’s vault and the remaining $810 is loaned out to more clients. This process keeps getting repeated until your initial $1000 deposit is turned into $10,000 in loans.
Why is this important? Well, the majority of bank loans are $5 million or more to large corporate clients. Canadian banks are the largest lenders to mining and energy companies. So a big chunk of the $10,000 in loans, created by your $1000 deposit, may be funding oil sands development and mining projects in developing countries. Alternatively, if you take that $1000 and deposit it in a credit union, the $10,000 will be lent out to the credit union’s clients. Credit unions are regional, so their clients are almost certainly local small and medium-sized businesses that employ people in your community. They also provide loans to reputable not-for-profit organizations that can’t even get through the front door at a bank. Who would you rather support?
Step 2 - Be Responsible with your RRSP
If you’re saving for retirement or a new home, you probably have an investment portfolio, likely in the form of a fund. Have you ever looked checked to see exactly which companies you own? Most traditional funds include companies that profit from things like tobacco and military equipment. Moreover, traditional fund managers rarely take into account social and environmental factors, although that is slowly changing.
Fortunately, there are lots of options for people who want to encourage sustainability. All of the socially responsible funds I’m mentioning exclude companies that make most of their profit from tobacco, military, pornography and gambling. Additionally, they use different strategies to push companies in a more sustainable direction. Funds like the Meritas Jantzi Social Index use Environmental, Social and Governance (ESG) analysis to identify companies that are doing the best in these areas. If you’d rather have a direct impact on companies’ operations, you should check out the corporate engagement strategy used by Ethical Funds. They leverage your power as a shareholder to engage specific companies in a dialogue around sustainable practices and better disclosure of carbon emissions.
Finally, investors who only want to own companies that are part of the solution should check out Greenchip Financial’s Global Equity Fund. They only invest in companies that attempt to provide solutions to problems such as resource scarcity and environmental stresses, focusing on sectors like energy efficiency, smart grid and sustainable agriculture.
Why not set up a meeting with your investment advisor to consider investing your money in socially responsible funds? If they try to talk you out of it by saying that these funds are risky or don’t provide good returns, that’s a red flag (these funds lower your exposure to social and environmental risks, and studies have shown that sustainable companies often outperform traditional stocks financially). It might be time to find a new investment advisor who respects your values.
Step 3 - Make High Impact Local Investments
The final step in creating a sustainable portfolio is to invest roughly 10% of your money in funds and projects that have a high positive social and/or environmental impact. These funds usually provide a slightly lower financial return, but are also less risky. Financial turmoil in Europe or a stagnant economy won’t affect these investments, as they are less intertwined with financial markets. Investors in Canada may refer to this online matrix I helped build for the Community Foundations of Canada. It provides options for investors who support social enterprise, affordable housing and renewable energy.
Two of my favourites are Canadian Alternative Investment Co-operative (CAIC), which provides financing to non-profits, charities and social entrepreneurs, and SolarShare, which finances solar projects in Ontario. Many cities also have community loan funds, such as the Ottawa Community Loan Fund, that provide loans to small-business owners and aspiring entrepreneurs.
By taking these three easy steps, you can put your money to work at creating a more sustainable economy. There’s no time like the present, so visit your local credit union and start asking questions today!
Photo credit: http://www.flickr.com/photos/reinvented/267075188/
