Humanizing Wealth through Integrated Capital
When we meet with folks eager to learn more about Humanize Wealth, the conversation typically starts with shared values. Prospective clients often express wanting to use their wealth as a means to achieve social impact and environmental justice — shifting systems toward healing and resilience. But practically, what are the steps to get there?
Recently, we were asked:
“I love the idea of investing to meet my needs while helping others thrive and improving the environment. But how does it actually work?”
The answer to this question begins with developing a strong financial plan rooted in deep assessment of financial resources and goals. This includes forecasting future cash flows and determining the income and growth required to meet the objectives of the plan. We then work through a series of big picture questions:
How much money and income is needed to feel financially secure? How much is enough?
How can the plan balance financial and impact goals like helping address housing affordability, transitioning to a low carbon economy and supporting businesses owned and managed by people of color?
The next step is to design a portfolio of investments expected to support the sum of the goals identified and quantified during the planning process while also expressing client values and impact aspirations.
To achieve this, there are three factors at play that need to be harmonized: impact, return and risk.
Impact represents the social and environmental impacts that investments are expected to have over time. Note that all investments have impact, whether intentional or unintentional.
Return is the financial return a portfolio needs to produce over time to meet the goals and related expenditures identified during the planning process. Targeting too high of a financial return could result in investment decisions that harm people or the planet. Targeting too low of a return could result in a portfolio not producing enough income to meet long term needs.
Risk, in the context of this exercise, is the potential that a portfolio fails to meet its long term financial return or non-financial impact targets.
So how do we build a portfolio that properly balances desired impact, return and risk capacity? Humanize Wealth employs an integrated capital toolkit to evaluate and build a portfolio of investments aligned to each client’s values and goals.
Integrated Capital Toolkit
Integrated capital is a framework typically used when constructing impact investment portfolios. Our integrated capital toolkit is pictured below. The visual shows a spectrum of investment approaches, their focus, goals, and the tools we use at Humanize Wealth to implement them.
One way of employing the integrated capital toolkit is to evaluate a range of investments across an impact theme. In the example that follows, we use this framework to show how someone could invest thematically in sustainable agriculture across the whole spectrum of investment approaches.
Traditional Investments
Let’s start on the left side of the spectrum with traditional investing. To reduce harm, investors should avoid traditional investments that fail to consider environmental, social or governance (ESG) factors and focus solely on financial risk and return. Within the theme of agriculture, this might mean avoiding companies that contribute to the industrial agricultural complex through the use of GMO seeds, toxic pesticides and synthetic fertilizer, inefficient water management and other soil depleting methods.
Responsible Investments
In the responsible investing category, we allocate to separately managed accounts, mutual funds and exchange traded funds (ETFs) that are invested in publicly traded stocks and bonds using an ESG framework or are constructed through an impact lens. In public markets, this involves avoiding companies that are involved in extractive practices, as well as directing capital toward companies that are having a positive impact. For example:
Adasina Social Capital is an investment manager committed to large-scale systemic change through investments in public markets. One of the themes they are focused on is agriculture and its impact on climate and they created an extractive agriculture dataset that the team integrates into their portfolios. Adasina also mobilizes other partners and investors to influence companies and governments to change harmful agricultural management practices that contribute to systemic injustice.
Impact Investments
Beyond publicly traded stocks and bonds, there is a wide variety of private impact investments that can be layered into a portfolio to help achieve a balanced mix of impact, return and risk. We divide impact investments into two categories: finance first and impact first.
Admittedly, the line between these categories is blurry. However, a finance-first impact investment is generally expected to produce a “market-rate” return alongside a positive impact. An impact-first investment will prioritize impact over return, often with the investor accepting a lower than market rate return in order to have a deeper impact.
Finance first impact investments prioritize financial returns over impact. Examples of finance-first impact investments in this theme include:
Supply Change Capital invests in privately held, early stage, high growth food tech businesses and culture-first brands under the organizing principle that culture and climate — the defining forces of our time — are deeply impacting the future of food.
GoSteward is a financial and technology (“fintech”) impact investing platform centered around sustainable agriculture. The Steward Regenerative Capital investment program enables funders to participate in a diversified loan pool. Another example is the Cairnspring Mills (Burlington, WA) loan that will be used to finance the mill’s annual grain purchase from contract farmers.
Impact First impact investments prioritize impact over financial returns. Below are two examples:
Black Farmer Fund provides Black agricultural and food businesses in the Northeast U.S. with patient debt and technical assistance to optimize farmer growth potential and social impact. Supporting Black food actors with empowering resources is essential to addressing systemic barriers.
Iroquois Valley manages a Rooted in Regeneration Note program which is a natural evolution responding to a particularly underserved demographic within the organic farming community – socially disadvantaged farmers – who are primarily Black, Indigenous, and other People of Color (BIPOC).
Philanthropy
Philanthropy is an integral part of Humanize Wealth’s integrated capital toolkit. While by definition there is no financial return on charitable gifts, philanthropic capital is highly impactful and can be combined with investments to maximize impact.
Washington Farmland Trust protects and stewards threatened farmland across the state and keeps land in production by making it accessible to a new generation of farmers.
WSU Bread Lab is leading the movement to put nutrition and sustainability at the center of our conversation about food through innovation and discovery, and education and advocacy.
Beyond sustainable food and agriculture investments, there is a broad spectrum of themes focused on other impact opportunities including: climate solutions, clean tech, affordable and sustainable real estate, worker and community owned business and assets, gender lens investing and accessible and affordable small business lending funds.
For investors new to private investments or sustainable and impact investing, the concepts, terms and decisions can feel overwhelming. An experienced advisor can help guide you in planning and investing at a pace, scale and speed that fits your needs. Connect with us to start a conversation and learn more.
Disclaimer
Humanize Wealth Partners LLC (“Humanize Wealth”) is a registered investment advisor offering advisory services in the State of Washington and in other jurisdictions where exempt. Registration does not imply a certain level of skill or training.
The information on this post is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision.
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