The Organic Trend

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Organic food consumption and farming has been growing in popularity given the disdain for the many of the practices within the larger conventional agricultural community and due to a desire to consume products farmed mainly without synthetic pesticides. In addition, consumers and advocacy groups are pushing for transparency with regard to GMO or genetically modified organisms as this part of the crop yielding equation has many worried about our health.

According to wikipedia, “Organic foods are foods produced by organic farming. While the standards differ worldwide, organic farming in general features cultural, biological, and mechanical practices that foster cycling of resources, promote ecological balance, and conserve biodiversity. Synthetic pesticides and chemical fertilizers are not allowed, although certain organically approved pesticides may be used under limited conditions. In general, organic foods are also not processed using irradiation industrial solvents, or synthetic food additives.”

Studies continue from both the organic and the conventional farming communities to aid in our assessment of the health benefits and risks with both methods but there is no argument with regard to the interest and growth of this trend. The amount of sales continues to increase at the traditional super market and specialty health stores. This has established a strong demand for organic farms with top quality soil and farming practices.

It seems to us that there are a number of ways to invest in the organic movement and a couple major reasons why. If the evidence continues to grow that points to major environmental and health flaws in conventional agriculture, the larger farming and food concerns may have their “multiple” eroded as the market perceives them to be more of a societal and investment risk.

The reason that we mention the societal aspect is that we believe that companies and industries that create a positive impact in a social responsible fashion have a solid chance of financial success and the ability to command a premium in the market. Grocers and food companies that possess this attribute may be a more appealing choice among alternative traditional investments.

There are a lot of publicly traded companies to analyze including organic food corporations and specialty grocers and even non-publicly traded interests in the organic farm itself. There is a lot to digest within this area but given the growth and the potential portfolio risk reduction potential, it is worth a morsel of consideration.


Tom Koehler-CIO

“Socially Responsible Investments represent a complex asset class and while we covered a small amount, there is a lot more information needed prior to making an investment decision. Let us know if we can provide more information to help in that process.”


Sustainability investments-more scrutiny

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Sustainable investment themes are varied and the very word means a lot of different things to different people. Morgan Stanley, a large and reputable investment bank has recently come out with a study as they and a lot of the investment community attempts to quantify SRI investments and the role in a portfolio.

They define sustainability as follows; “We define sustainability as a commitment to economic well-being for both the present and the future, balancing society’s needs today with the demands of tomorrow. Sustainability encompasses behaviors, processes, tools and technologies that can be perpetuated and replicated in ways that achieve economic, social or environmental benefits. We see sustainable investing as the practice of mobilizing capital to businesses that engage in these behaviors and practices.”

The trend in this direction is real as according to the same report, $1 out of $6 is going toward sustainability. Audrey Choi, chief executive officer of Morgan Stanley’s Institute for Sustainable Investing, led an initiative to look at some historical data and the found some evidence that warrants a robust continued conversation on the topic.

“They analyzed performance data for 10,228 open-end mutual funds and 2,874 managed portfolios known as Separately Managed Accounts (SMAs). They compared investment strategies that use environmental, social, and governance data—sustainability metrics—to those that don’t.

Sustainable investments in almost every asset class performed as well, or better, than traditional investment strategies. Sustainable equity mutual funds had equal or higher median returns and equal or lower volatility for 64 percent of the periods examined over seven years.

In contrast, the managed portfolios underperformed traditional counterparts for 64 percent of the periods. But the sustainable investments had significantly less volatility, and on a risk-adjusted basis, they performed similarly.”

In our opinion it is worthwhile and even essential for firms to develop a thesis around this topic to be able to market successfully and as robustly as possible to take care of their current client base and to potentially cater to the millennial demographic. This is supported by one survey done by Morgan Stanley, as they found, In a poll of 800 investors, 71 percent said they are interested in sustainable investing. Millennials and women were each twice as likely as others to pursue sustainable investments.

While there are skeptics and there continues to be much work to do, a 2012 Harvard Business School Study that tracked the performance of 180 companies over 18 years found that the 90 companies that adopted environmentally and socially responsible policies significantly outperformed their peers. Every dollar invested in a portfolio of sustainable companies in 1993 would have grown to $22.60 by 2011. That beats the rise to $15.40 for a portfolio of companies less focused on sustainability .

The evidence continues to build that supports the case for a thorough look at the various aspects of the SRI/ESG and the impact investment landscape. It could help bolster firm recognition as clients recognize the more robust service offering and this could lead to additional referrals.

It could also help serve the specific needs of clients with a strong sense of support for one or more areas of the sustainability arena.


Tom Koehler-CIO

“Socially Responsible Investments represent a complex asset class and while we covered a small amount, there is a lot more information needed prior to making an investment decision. Let us know if we can provide more information to help in that process.”

Impact Private Equity

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We have written on the micro-finance area of the capital markets and how this mechanism can achieve two major goals. The first is to achieve solid financial returns on an absolute and risk adjusted basis while adding diversification to a portfolio, and the other is to enact definitive societal change at the micro level.

In the case of Root Capital the goal is to seed finance the poor farming concerns in developing countries. The rate of return is reasonably high while the default rate is reasonably low which is appealing for investors and at the same the initiative provides for a higher standard of living for the indigenous population.

That is only one example within one silo of the exciting world of impact investments and represents the very micro financing level. What occurs if we move up the capital level?

While there are many level within finance, private equity could arguably be another arrow within an investors quiver. One firm, DBL Investors out of San Francisco, CA connects innovative companies with investors through a two fold approach.

“DBL Investors assists its port­fo­lio com­pa­nies in achiev­ing a “dou­ble bot­tom line”: that is, strong long-​​term finan­cial suc­cess as well as pos­i­tive social, envi­ron­men­tal and eco­nomic impact in the local com­mu­nity. We have found that dou­ble bot­tom line prac­tices that com­pa­nies choose to adopt can be sig­nif­i­cantly ben­e­fi­cial to the fis­cal bot­tom line both via direct ben­e­fits of cost sav­ings and value cre­ation, and via indi­rect ben­e­fits of cre­at­ing good­will with their mar­ket, cus­tomers and com­mu­nity, and enhanc­ing employee morale and retention.”

The diversification is impressive as they make investments mainly across Clean Tech, Health Care, Information Technology, and Sustainability-Oriented Products and Services. We believe these will become powerful drivers in the decades ahead as the consumer and investors driven by financial AND ideologically based platforms.

The opportunity set for investors continues to expand beyond the traditional asset allocation models and this can serve two major purposes. The first is to attain the financial results within a portfolio that will allow for growth and diversification through a more robust opportunity set not available within the basic framework.

Secondly, it allows investors to finance forward looking, dynamic companies that have the potential for healthful societal change AND to profit.

We continue to be excited about the exciting changes to the capital markets and the potential for investors.


Tom Koehler-CIO

“Socially Responsible Investments represent a complex asset class and while we covered a small amount, there is a lot more information needed prior to making an investment decision. Let us know if we can provide more information to help in that process.”

‘Seeding the markets’

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There has been a move toward micro-finance over the last few years in a number of areas within the impact investment arena. As more consumers adhere to the organic and sustainably farmed initiative themes, there will be a higher demand for this type of enterprise globally.

Although this market is not new, it is being continually “seeded” by Root Capital, an entrepreneurial non-profit founded by Willy Foote back in 1999 with a loan to a cardamom and coffee cooperative in northwestern Guatemala. We tend to believe that these types of loans can often be overlooked by the major lenders and at most would constitute a small portion of their loan book.

According to a March 14, 2015 article in the Economist, “Root’s business is lending to the owners of small farms in poor countries. An estimated 450m of these smallholdings exist worldwide, typically providing a subsistence-at-best income for more than 2 billion of the poorest people on the planet. Mainstream finance has largely ignored them. They face multiple hardships, including land of poor quality, a lack of infrastructure to get their output to market and the constant threat of being wiped out by extreme weather. The lack of access to credit for working capital and investment makes a bad situation worse.”

With any loan from the highest quality to AAA companies to high yield bonds, there are a variety of risks. Think about the recent high yield volatility largely due to one sector in energy. While we cannot vouch for Roots loan portfolio, we feel this specific asset class is a risk worthy of exploration.

“The company says that less than 3% of its loans go bad, a failure rate that would be impressive even among much richer clients. The loans, which come with free advice and training in how best to use the money, are helping farmers increase their productivity and so boost their incomes. The money also protects farmers from having to sell their wares cheaply to the first available buyer. More than half of Root’s borrowers see their income increase by at least 20% a year after receiving a loan; it rises by over 50% for nearly a third of them.”

It is an interesting time in the markets as a robust group of non-profits and for-profit organizations work toward a larger opportunity set for investors. These investments require a lot of due-diligence in order for it to make it as a complement to an existing portfolio.

Keep this in mind as you explore the many possibilities outside the traditional asset allocation.


Tom Koehler-CIO

“Socially Responsible Investments represent a complex asset class and while we covered a small amount, there is a lot more information needed prior to making an investment decision. Let us know if we can provide more information to help in that process.”

Fossil Fuel Divestment

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The world runs on them and we as a society still depend on them in direct and indirect ways. Unless someone goes completely off the grid, they are a fact of economic and social life. However, many people feel conflicted as they believe that the use of fossil fuel is too some extent harming the environment and potentially our health.

An individual or organization can reduce their dependence on these fuels directly and indirectly. Directly they are able to gauge and measure their own usage and construct a plan to reduce through various alternative ways of conducting business.

The indirect route is interesting as investors can reduce fossil fuels from their investment portfolio. It would be very difficult to eliminate them altogether as most areas of the modern economy are touched by the use of fossil fuels.

The most apparent way to begin the process is to reduce oil and gas companies from ones portfolio. If someone is invested in mutual funds or ETFs, they can begin by selling those with the highest concentration of these type of companies and replacing the allocation with a “green” alternative.

Green Century is a small fund company with a balanced and an equity fund. If your intent is to ween off of the fossil fuel theme inherent in most diversified portfolios, philosophically it may make sense to examine this company. Below is their stated goal within the funds and something to seriously contemplate as more firms and foundations divest fossil fuels.

“The Fund seeks to invest in well managed companies that are leaders and innovators, strive to maximize their environmental advantages and minimize their environmental risks. To select the stocks for investment, the portfolio managers at the sub-advisor Trillium Asset Management use rigorous financial analysis that employs a “growth at a reasonable price” discipline. The portfolio managers use similar financial and environmental criteria in selecting bonds in an effort to modulate the Fund’s overall level of investment risk and exposure to business, economic, and interest rate trends. The portfolio managers also seek to invest in green bonds that support energy efficiency and emissions reductions programs through domestic and international corporations and agencies. ”

“Green Century believes that companies that are environmentally responsible could enjoy competitive advantages including cost and liability reductions, quality improvements, profitability enhancements, and access to new and expanding growth markets. Such companies may also gain from strong relationships with their stakeholders.”

The second paragraph is very powerful if all their assertions come to fruition. As the trend continues toward growth markets in green products and as stakeholders are taken into higher consideration, Zenith believes this is an area very worth exploring as the capital markets evolve over the next twenty years and beyond.


Tom Koehler-CIO

“Socially Responsible Investments represent a complex asset class and while we covered a small amount, there is a lot more information needed prior to making an investment decision. Let us know if we can provide more information to help in that process.”

Even bonds are turning green.

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These type of debt instruments raise capital in order to finance those projects that are definitively environmentally friendly. Overall they are a small portion of the bond market but are growing and have representation in investment and non-investment grade sectors. There are a number of indexes as Bank of America and S&P both have created them and no doubt this will increase investor participation as fund managers are able to manage around a defined set of criteria.

To illustrate, we have selected a fund from Calvert Investments who specializes in SRI investment themes.

Calvert Green Bond Fund (CGAFX)

“The Fund seeks to invest primarily in “green” investments. The Fund defines “green” investments to include securities of companies that develop or provide products or services that address environmental solutions and/or support efforts to reduce their own environmental footprint; bonds that support environmental projects; structured securities that are collateralized by assets supporting environmental themes; and securities that, in the opinion of the Fund’s Advisor, have no more than a negligible direct environmental impact, which may include securities issued by the U.S. government or its agencies, and U.S. government-sponsored entities.”

They may invest up to 35% in below investment grade debt and currently it is much lower than that although BBB’s make up 23%. Right on the cusp of investment grade. The yield of 1.38% is decent for a short term government/credit fund although this is categorized as an intermediate fund by Morningstar and rightly so as the duration is 4.79.

We would pass on this fund for now and in the meantime, continue exploration within this interesting segment of the debt markets.


Tom Koehler-CIO

“Socially Responsible Investments represent a complex asset class and while we covered a small amount, there is a lot more information needed prior to making an investment decision. Let us know if we can provide more information to help in that process.”

Triple Bottom Line?

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There simply used to be the bottom line but in the case of SRI/ESG investing there are potentially three main bottom lines.




“The phrase “the triple bottom line” was first coined in 1994 by John Elkington, the founder of a British consultancy called SustainAbility. His argument was that companies should be preparing three different (and quite separate) bottom lines. One is the traditional measure of corporate profit—the “bottom line” of the profit and loss account. The second is the bottom line of a company’s “people account”—a measure in some shape or form of how socially responsible an organization has been throughout its operations. The third is the bottom line of the company’s “planet” account—a measure of how environmentally responsible it has been. The triple bottom line (TBL) thus consists of three Ps: profit, people and planet. It aims to measure the financial, social and environmental performance of the corporation over a period of time. Only a company that produces a Triple Bottom Line is taking account of the full cost involved in doing business.” *Taken from the Indiana Business Review

The problem is measurement especially within the people and planet areas. How are they measured and what is the common unit of measurement across all three aspects? It could be helpful to measure across a common index and at the end determine a score that is monetized so that the profitability portion can be increased or decreased depending on the people and planet portion.

“Echoing the growth in corporate social responsibility reporting, a growing number of mostly small- and medium-sized companies are taking environmental and social stewardship further and becoming benefit corporations — companies that are legally bound to have a positive effect on society —according to a report by Worldwatch Institute.

There are currently about 200 benefit corporations  — none of which are publicly traded companies at this point — in the US, according to More Businesses Pursue Triple Bottom Line for a Sustainable Economy. The total gross revenues for all certified benefit corporations are about $6 billion annually, and together these businesses employ about 30,000 people, the report says.

Signs indicate that interest in becoming a benefit corporation is growing. The number of companies annually using benefit corporation nonprofit advocate B Lab’s online assessment tool, which is a marker for broader interest in eventual certification, grew from 280 in 2007 to 2,406 in 2012. By the end of the first quarter of 2013, some 8,000 individual companies had used the tool, according to the report.

Most benefit corporations to date are either small or medium-sized businesses. But they include a few larger companies that are privately held, such as the outdoor apparel and accessory firm Patagonia, which became a benefit corporation in early 2012 and posted annual sales of about $540 million for the fiscal year ending April 2012.

King Arthur Flour is another large benefit corporation. The employee-owned, 223-year-old company reported sales of about $84 million in 2010, the report says.

Proponents of this new corporate form say it “bakes a triple bottom line into a company’s DNA” that frees companies from the fear of shareholder lawsuits if their decisions fail to maximize shareholder value because of some competing interest of other stakeholders, such as workers.

Benefit corporation status is intended to establish the directors’ fiduciary responsibility to consider the interests of all stakeholders.”  *Taken from the Environmental Leader-May 2013

This summation is only intended to introduce the reader to a different analytical framework so that they are able to potentially judge companies on their merit beyond the traditional financial metrics.

In a way, this opens up many possibilities for holding companies accountable truer to ones ethos and to their view on how a corporate society can evolve.


Tom Koehler-CIO

“Socially Responsible Investments represent a complex asset class and while we covered a small amount, there is a lot more information needed prior to making an investment decision. Let us know if we can provide more information to help in that process.”

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