Multi-Capital Framework and Covid-19

I introduced you to Ray and my kids in the last two posts, and this week I want to introduce myself to you. At the heart of it, the COVID-19 pandemic has lit a fire under me. From a place of fear and sadness, I see reasons to be hopeful about our situation. The first reason is that people like me, who are scared, realize we aren’t alone. The second reason is that there are a lot of remarkable people that have been thinking about new ways of organizing ourselves and developing ideas that might lead us from this cold, dark time. Let me begin by saying that I am an optimist, anyone who invests in businesses has a belief that entrepreneurs can change things. What I’ve learned in the last twenty years is that it’s more fun to find and work with business people that want to change the world and make it better. 

When this optimist holds fear, I look for new ideas and consider new paradigms. What forms of regenerative social and economic practice might unlock the potential for businesses to restore the stocks of human, environmental and civic capital? Could investments in those “regenerative” businesses increase their ability to rebuild those non-financial stocks of capital (stocks of human, environmental and civic capital that we have been converting into financial capital for hundreds of years)? My thinking along these lines is informed by a number of exceptional people. A venerable elder who holds truth in her writings, Joanna Macy, is one. Joanna frames the inflection point of our time and asks us whether we are capable of being part of a “great turning.” Another brilliant writer and thinker who has helped me to think about my relationship with other people is Mia Birdsong. Mia introduced me to a concept she called “center the margins.” This idea calls those of us who are trying to regenerate capital in the communities that we care about to center our attention on the most marginal members of that community and to ensure that those overlooked people and voices are heard. Finally, I owe a debt of gratitude to Jonathon Porritt for his generous thinking and collaborative instincts. Beyond Jonathon’s clear ideation – his work with Forum for the Future has informed our work to build a multi-capital framework when we think about generating both financial and non-financial investment returns for our clients.

If we consider a new paradigm of investing, together with a focus on the goals and priorities of the more marginalized members of our society, what process would align the goals of investor, community and enterprise (TILT’s multi-stakeholder philosophy)? We have developed a multi-capital framework to discern returns across civic, environmental, financial and human capitals. This approach allows us to work with our clients to forge a unique set of returns that are specific to their mission/purpose, investment goals and constraints. 

A multi-capital frame evaluates an investable enterprise to understand both whether and how it might produce financial capital returns to the investor (part of the old paradigm) AND whether and how the enterprise might produce financial, human, environmental and civic capital returns to the community. We believe that all enterprises - irrespective of their size, either for profit or non-profit, and whether publicly traded or privately held – both consume and create capital across the framework. We work to forecast the potential financial and non-financial returns and consider if these returns align with the communities’ goals and priorities. Alignment offers the promise of regenerating the capitals that are in deficit and providing an attractive financial return for the investor. 

As an example of such a regenerative enterprise needing capital, consider a food processing plant close to an interstate highway operating in an economically depressed community (creating valuable jobs). Imagine that the enterprise sourced organic vegetables from a regional network of growers (sustaining regenerative agricultural practices) . Further, consider that most of the foodstuffs will go into the owner’s supply chain with excess capacity going into the commercial supply chain (generating higher economic margins). Finally, what if the owner - the investee - was a non-profit, state-wide food bank (providing nutritious foods to the state’s most vulnerable citizens)?

Investing in these kinds of enterprises challenges the orthodoxies of modern portfolio theory and Milton Friedman’s shareholder theories that have dominated for the last 50 years. We need to look past the limitations of Socially Responsible Investing (SRI) and Environmental, Social and Governance Investing (ESG - sustainable) - developed in the 1970’s and 1990’s. We need to advance our thinking from these pillars of the old investment paradigm to embrace innovation and creativity. Paraphrasing Einstein reminds us: ‘if you apply the same logic to solving a problem that your old logic created – it’s unlikely that you will solve the problem!’ Our clients think it’s time to engage more deeply in the process of investing their money. They want to explore a new paradigm for deploying their assets. When the investors who hold the shares and the bonds of enterprises demonstrate the courage to embrace a new approach to investing, there could be real change - change that policymakers and regulators haven’t been able to achieve. When asset owners align their purpose with the communities’, capitalism could regenerate the stocks of capital that are in deficit? 

 Many of us have the potential to change the way investment capital is allocated. Some of us own the wealth directly, some of us influence wealth through our leadership roles in organizations, and all of us know someone who has this power. Will any of us use our power to shift the behaviors that need to change, and will we commit ourselves to inventing a new paradigm in the aftermath of this terrible scourge? We’d love to hear your ideas and to develop this new approach together. Please reach out to us through www.tiltinvestments.com

I am optimistic about the future. I expect that the next chapter will be turbulent and exciting. The old system will fight to reassert itself and we need to show strength and resolve to shift the paradigm, to create a lasting equilibrium that serves all groups of people. Capitalism is a powerful force, and if we can make it a regenerative force – there is promise for tomorrow.