Creating a Portfolio with Impact

| December 27, 2012

By G. Benjamin Bingham (CEO of 3Sisters, Socially Responsible Investment Advisor)

A close friend coming to the U.S. from South Africa decades ago commented after her first trip to a mall, “I have never seen so much choice and nothing I wanted!” She was a discerning shopper who got no satisfaction at that time.

Times have changed and choices have multiplied, at least on the surface, while the psychological drama for shoppers remains as subtle and profound as ever. What is most important for the conscious shopper to realize is that the choices made are influenced most by what is “top of mind.”  That could be a noisy child demanding a product seen on TV, the picture on a package of a celebrity or it could be a simple word: “organic,” “natural,” or “green.” The same applies in investing, especially for conscious investors who are changing the field of investment in the way conscious consumers changed the landscape for retail products since the ‘70’s.

The question is, what is the priority in a general sense, what is most important, what is “top of mind?”

When choosing investment strategies, despite the fact that from the media one gets the impression that no strategies have worked particularly well in the first 13 years of the millennium, diversification will never become outdated as a wise concept. Like a well-managed mixed farm with a good crop rotation, and just the right number of beneficial animals to transform what grows into topsoil, a diversified portfolio will have a better chance of steady performance if it is an ecosystem not a monoculture. Then in building the universe of choices for the mix it is important to manage the “noise” of information.

Despite Cramer or “the market” shouting to buy oil or tobacco, the conscious investor may have solar and fair trade chocolate at “top of mind.” These concepts too may be one-sided or over-valued. So, to create a broader, healthier universe of investments it may be helpful to consider what is most important in each sector of the world economy.

What countries do I want to be in, what currencies, and what industries? If the decision is to be as broadly diversified as possible, then what could be a leading thought to guide my decision making in each industry so that I can not only do no harm, but make the most positive impact in terms of valuing what matters most to me. Analysts have divided the Market into 12 or more sectors that describe the various industries of the world economy.

This framework can help the investor discern whether or not they have too much of a monoculture of investments (too much tech in 2000 when the Market was shouting TECH!) once the portfolio is built. And in building the portfolio it can help to look at what is needed in each industry; what do I want to be “top of mind” when looking for consumer staples or consumer discretionary stocks, for energy/utilities, for electronics/telecom, healthcare, financials etc.?  What is the guiding quality or leading thought that I value most when taking any company’s stock “off the shelf?” What might be most relevant, long-term, to put at “top of mind” now?

What follows is a possible set of considerations per industry that if followed by investors might move investment values closer to our underlying human values. Check it out as an overlay on your investments and how it jives or not:

Consumer Staples (basic needs of the home) – whole systems design, organic, fair trade

Consumer Discretionary (comforts of the home) – simple ergonomic design, natural materials

Energy & Utilities – renewable and clean

Electronics & Telecom – accessible connectivity and design for zero waste

Healthcare – prevention, natural wellness, person-centered tech, enabling equipment and critical care

Financials – community building, fair access, encouraging circulation

Industrials – zero waste production of goods that meet essential long term needs of people and planet

Info Tech – empowering individuals, collaboration building, open source, online security

Materials – natural, recyclable, reusable, closed loop manufacturing

Real Estate (land and buildings) – green, efficient design, affordable homes, sustainable (timber and agriculture)

Services – meeting human and environmental needs

Transportation – affordable and efficient mobility using renewable, clean sources of power while respecting home and neighborhood spaces

These are considerations that I want to be “top of mind” when choosing investments. It is a simple framework that provides guidelines and avoids compromises that I would regret. Make your own investment shopping list and see what matters most to you! It is not a negative screen that makes you feel inhibited.  Just the opposite: it is an encouragement to do what feels right. Of course all the other financial considerations must be in place and for most asset owners it is a matter of passing these guidelines along to the professional who will respect them as best they can.

The more investors develop these kinds of guidelines for their portfolios, the more the gatekeepers will need to become knowledgeable about what matters. This is already happening on a mammoth scale according to the managers of the UN Principles on Responsible Investing with over $30 Trillion represented by signatories (see UNPRI) and will be a major factor in future markets.

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Category: conscious capitalism, impact investing, Sustainable Small-B

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  1. Creating a Portfolio with Impact by Ben Bingham http://t.co/S30pOyoN #investment #strategy #impact #diversity #sustainability