Tag: Impact Investing

Like many Americans, I’ve started travelling again. Flying over the Midwest recently on my way to a conference in New York, it was hard not to be awed by the sight of mile after mile of cropland – around 180 million acres – growing just two crops, corn and soy.

What’s less visible from 30,000 feet but very evident on the ground, however, is the immense cost of growing these two crops year after year – topsoil loss, chemical residue in the soil from pesticides like 2-4-D and atrazine, a loss of pollinators, and vast water pollution. This type of agriculture is also at the center of a system responsible for about a third of the planet’s greenhouse gas emissions.

U.S. agriculture has a concentration problem. It started 50 years ago, when the head of the USDA told farmers to plant for maximum production – from “fence row to fence row” and “get big or get out.” It worked. Today, 56 percent of American cropland acres are growing just corn and soy.

Crop diversity and crop rotation, once the hallmarks of land stewardship and productivity, are vanishing. Only one-third of America’s corn acres are planted sustainably, defined as planted once out of four years. Roughly 62.5 percent of corn acreage rotates only minimally, alternating between soy and corn. And of these, about 10 million acres have practically no crop rotation at all, planting corn in ten or more years of a 12-year period, according to USDA data. That’s a large-scale problem, as those continuous-corn acres comprise three times more than all the organic cropland in the U.S. combined.

What’s even more troubling is that some industry players now want to classify their damaging practices as “sustainable” agriculture. They’re seeking to paper over destructive practices to make their products more appealing to consumers and meet investor demand for ESG accountability. Sadly, greenwashing has come to agriculture, with some trying to put green lipstick on their pig.

Misleading people about “sustainable” agriculture is possible because there are neither legal nor science-based standards for it. The Certified Organic standard, on the other hand, is grounded in Federal Law, managed by the National Organic Standards Board, which is an independent body appointed by the US Department of Agriculture.

Yet even without a formal standard, nearly everyone agrees that certain farming practices are harmful, and clearly not sustainable, such as growing corn year-after-year on the same farmland. This practice is entirely dependent on genetically modified crops and requires increasing amounts of toxic herbicides, pesticides and fertilizers to try to overcome the damage it causes to the soil and ecosystem.

In our view, any self-proclaimed standard for sustainable agriculture should meet a three-part test:

1) Independence. It should have an independent board with full transparency of membership, affiliations and decisions.

2) Materials and Practices. It should identify specific materials and practices that are prohibited, as well as those that are required. For example it would bar the use of chemicals like 2-4-d (Agent Orange) or soil fumigants (nerve gas) and prohibit practices such as continuous corn, or even a corn-soy rotation, which is a below-average practice in the U.S. It should require crop rotation of 3 or 4 crops, or set aside 1-5 percent of land as pollinator habitat or ecosystem reserve, or mandate use of cover crops.

3) Impact and Outcomes. It should produce specific, measurable on-farm changes and outcomes, ideally affecting regional or global goals. Examples might include clean water, improved ecosystem function or habitat improvement, carbon sequestration, or food production (vs producing ethanol as a fuel additive).

The USDA Certified Organic standard meets these criteria today. Its 15-member National Organic Standards Board includes: organic farmers; environmental conservationists; organic processors; a retailer; a consumer representative; a USDA accredited certifying agent; and a scientist with relevant background. Authorized certifiers review documents and inspect fields to ensure farmers and products meet these rigorous standards. And 40 years of published scientific research supports the many benefits of organic agriculture on human health, soil health, and the ecosystem.

Investors and consumers are waking up and beginning to ask tough questions of farm managers. But rather than make changes, some organizations try to claim they have “sustainability standards,” with pretty logos and appealing marketing language, although they permit the worst agricultural practices that we’re all trying to change.

One misleading standard that’s popular with large institutional managers was organized by the firms themselves, including support from giant industrial agriculture companies. There is no independent standards body, there are no restrictions on ag practices, and they don’t change outcomes. It’s like having tobacco companies set health standards. But strong investor demand for (real) sustainable agriculture, combined with no legal restrictions on what they can represent and clever marketing, has grown them to over 2 million acres in about two years – a level it took certified organic land 25 years to reach.

It takes three years for a farm to become Certified Organic. It’s not designed to be an easy, check-the-box process. But the benefits to organic certification are clear and tangible to farmers, in terms of higher crop prices and acreage rents, and to the environment.

Our own experience bears this out. We’ve shown that organic farming is both good for the environment and can generate attractive returns. Our first fund had a 69 percent financial gain in net asset value over seven years. As importantly, a two-year USDA-sponsored study on our 4,200 acre California farm shows we also generated a 46 percent net gain for the ecosystem, measured by data-driven metrics including: carbon sequestered in the soil, harmful conventional ag practices avoided, enhanced biodiversity, establishment of healthy pollinator habitats, and improved quality and reduced use of water for crops.

Helping agriculture become more sustainable is a daunting but important challenge, and some aspects are not always clear-cut.  But some assessments are easy to make. Any purported standard that allows the worst-of-the-worst agricultural practices, such as monocropping continuous corn, to certify as sustainable is not legitimate.

We all should support sustainability initiatives that promote independent standards with science-based criteria and verifiable environmental and health benefits. And we all should stand up to greenwashing and self-declared standards. Investors and consumers are demanding real change, and those who mislead should not harvest their support.

Article by Craig Wichner, CEO of Farmland LP, the largest fund manager of organic farmland in the US, with 15,000 acres in Washington, Oregon and Northern California valued at over $200 million.

Read Craig’s June 2021 GM article: Roots & Returns: Craig Wichner Explains Regenerative Agriculture

I recently had the opportunity to sit on a panel on the importance of preserving our forests, alongside the founders of the Lenape Center and other experts. The Lenape are an Indigenous people with historical territory in what is now known as New York, New Jersey, and Pennsylvania. As a New Yorker based at an investment firm in NY, I found their reflections especially affecting. One of the Lenape Center leaders reframed our discourse on the United Nations climate goals and global deforestation risks, putting it in historical context. As land was forcibly taken from Indigenous tribes and our economy grew with roots in extraction and exploitation—of people and our natural resources—society developed systems that are fundamentally unsustainable. Just as the cause of these problems is rooted in 400 years of history, so too are some of the most powerful solutions.

An Unsustainable System

One example of this extractive model is industrial agriculture. Our global food systems have been under increasing pressure, with 2.37 billion people around the world without food or unable to eat a healthy balanced diet, a crisis exacerbated by the pandemic and again by the tragic war in Ukraine.

The predominant agricultural models are generally run by a few major players, whose monoculture crops, use of chemical fertilizers and pesticides, and long supply chains have climate impacts and often contribute to economic hardship for farmers. An estimated 23 percent of global carbon emissions are from agriculture and land use change. Climate change, water scarcity, and the degradation of biodiversity may result in the loss of seeds and arable land.

Frameworks for Change

All this amounts to a global environmental crisis. A recent UN Intergovernmental Panel on Climate Change (IPCC) report reinforced this urgency, noting that improved land stewardship and afforestation are among our greatest available tools to mitigate climate change. In October 2021, the UN recognized the right to a clean, healthy and sustainable environment as a human right. This encompasses a right to sustainably produced food free of toxins—and, further, calls for meaningful protections for environmental human rights defenders who have fought to protect their land from exploitation.

There is a powerful alternative model from the Lenape people that can be applied to many of these challenges. Over centuries, the Lenape have protected and stewarded their seeds, and they are now attempting to return seeds to their homeland, Lenapehoking. This is a demonstration of the acknowledgement of their land and cultural seed sovereignty. It is also a poignant embodiment of what regenerative and sustainable agriculture mean in practice.

Drawing Connections at Domini

Regenerative agriculture involves practices that equitably use land to address climate change, biodiversity, soil health, and the well-being of workers and local economies. In 2019, Domini launched its Forest Project, focusing on the systemic importance of forests to environmental systems, businesses, and investments. We recently drew more explicit connections between our forest work and our sustainable agriculture work, recognizing the relevance of our expectations across all. Deforestation and large-scale agriculture plantations result in similar conversion of land, from old growth forests or wild mixed-use purposes, to a single monoculture crop. From a climate perspective, this reduces climate resilience and carbon sequestration benefits. It also erodes soil health and contributes to biodiversity loss. The importance of equity around land rights, food sovereignty, and the rights to self-determination are similarly fundamental.

How We Analyze Companies

At Domini, as an investor in public equities and fixed income portfolios, we look to be additive in addressing key sustainability challenges through our investments and engagements. Specifically for forests, we identify our direct and indirect impacts, encourage a forest positive system, and collaborate with partners and investors to elevate this work. This manifests through the refinement of our industry specific key performance indicators (KPIs) that our research analysts use to evaluate companies for investment. It also informs our expectations of companies that we advance through engagement and leads us to advocate for strong public policy.

At Domini, we are encouraged as more companies recognize the importance of their agricultural inputs and land use in meeting global “net-zero” climate commitments. Many are setting science-based emissions reduction targets, which include their supply chain, often adopting regenerative agriculture commitments.

At this stage, expectations are still emerging, so we are meeting with companies we invest in to better understand the scope of their commitments. For example, we ask about the percentage of their supply chain covered, which regenerative practices are deployed, and how equity and justice are incorporated. Meeting these commitments generally requires actions from suppliers. To understand the depth and quality of companies’ supplier engagement, we ask about how Indigenous and local communities are consulted in designing new models, and the technical assistance and incentives to help farmers adopt regenerative practices. And as this continues to evolve, we’ll encourage companies to be transparent about their methodology and impact measurement. All of these changes should be reflected in companies’ long-term business planning and capital expenditures, including investments in innovation. 

Learning from the past and looking ahead

The scope of Domini’s engagement and investment goes beyond traditional food and beverage companies. We look favorably on innovative new models of agriculture, often investing in companies that advance state-of-the-art technology and use practices that will benefit ecosystem and business outcomes in the long term. For example, we invest in a U.S. farming company that uses non-GMO seeds, integrated pest management, and chemical-free agricultural practices that result in significant reductions in energy and water use. We appreciate the similarity of this new innovative solution with what Indigenous communities have long known and incorporated in their stewardship practices.

Our future calls on us to collectively identify and scale such solutions, while respecting the rights of Indigenous communities, honoring their cultural traditions, and following their lead. The Lenape diaspora and other Indigenous leaders have practices of cultural and ecosystem regeneration unique to their communities and land. We encourage companies to make their business models more resilient and equitable—by building relationships with Indigenous and local communities and learning the unique lessons that they offer.

Article by Mary Beth Gallagher, Director of Engagement at Domini Impact Investments LLC. Ms. Gallagher, an attorney and former Executive Director of a non-profit organization representing institutional investors, has been advancing social justice and human rights issues for most of her professional career.

Ms. Gallagher is responsible for leading Domini’s engagement efforts with portfolio companies, broader stakeholder groups and policy makers, as well as developing initiatives and campaigns in areas such as worker’s rights in the supply chain, climate change mitigation, deforestation, health, and racial justice. In Domini’s work to advance ecological sustainability, Ms. Gallagher encourages companies to adopt policies and practices that advance the low-carbon transition, also in alignment with the needs of workers and community stakeholders. Forests are an important aspect of the discussion on climate resilience. Domini’s forest project is committed to understanding the drivers of forest destruction, biodiversity loss, and the impacts on the rights of Indigenous peoples, and addressing this through our investment decisions, and engagement efforts, to further forest value creators.

Prior to joining Domini in 2021, she was the Executive Director of the non-profit organization Investor Advocates for Social Justice. In this role, she represented institutional investors in stewardship and shareholder advocacy with corporations to encourage more disclosure and responsible business practices to advance systemic change. Ms. Gallagher holds a B.S. in environmental science from Boston College and a J.D. from the Washington College of Law at American University. She is a Member of the New York Bar, admitted in 2009. She was a Peace Corps Volunteer in Benin, West Africa.

Disclosures:

Before investing, consider each Fund’s investment objectives, risks, charges and expenses. Contact us at 1.800.225.3863 for a prospectus containing this and other important information. Read it carefully.

An investment in the Domini Funds is not a bank deposit, is not insured, and is subject to certain risks, including loss of principal. The market value of Fund investments will fluctuate. You may lose money. The Domini Impact Equity Fund is subject to certain risks including impact investing, portfolio management, information, market, recent events, and mid- to large cap companies risks. The Domini International Opportunities Fund is subject to certain risks including foreign investing, geographic focus, country, currency, impact investing, and portfolio management risks. The Domini Sustainable Solutions Fund is subject to certain risks including sustainable investing, portfolio management, information, market, recent events, mid- to large-cap companies and small-cap companies risks. The Domini Impact International Equity Fund is subject to certain risks including foreign investing, emerging markets, geographic focus, country, currency, impact investing, and portfolio management risks. Investing internationally involves special risks, such as currency fluctuations, social and economic instability, differing securities regulations and accounting standards, limited public information, possible changes in taxation, and periods of illiquidity. These risks may be heightened in connection with investments in emerging market countries. The Domini Impact Bond Fund is subject to certain risks including impact investing, portfolio management, style, information, market, recent events, interest rate and credit risks.

The Adviser’s evaluation of environmental and social factors in its investment selections and the timing of the Subadviser’s implementation of the Adviser’s investment selections will affect the Fund’s exposure to certain issuers, industries, sectors, regions, and countries and may impact the relative financial performance of the Fund depending on whether such investments are in or out of favor. The value of your investment may decrease if the Adviser’s or Subadviser’s judgement about Fund investments does not produce the desired results. There is a risk that information used by the Adviser to evaluate environmental and social factors, may not be readily available or complete, which could negatively impact the Adviser’s ability to evaluate such factors and Fund performance.

The Domini Funds are only offered for sale in the United States. DSIL Investment Services LLC (DSILD) distributor, Member FINRA. Domini Impact Investments LLC is the Funds’ Adviser. The Funds are subadvised by unafilliated entities. 5/22

Some Thoughts on Fiduciary Responsibility, Mutually Assured Destruction and Small, Diversified Organic Farms

(Above photo: 0% loan recipients Blain Snipstal and Samaria King of Juniper’s Gardens (Brandywine, MD)

Since the slow money movement’s first low interest loan to a local organic farm in 2010, more than $80 million has flowed to over 800 small farms and local food businesses, via volunteer-led groups in a few dozen communities. Events of the last few years have emphatically accentuated our shared concerns.

The pandemic heightened appreciation of community supported agriculture and local food systems. COP26, Greta Thunberg and wildfires highlighted the urgency of climate change. Another kind of wildfire—that of populism—erupted in ways that were surprising to those who assumed that neoliberal democracy was ascendant and secure. And, today, Mutually Assured Destruction, that Dr. Strangelove-esque doctrine of nuclear deterrence, is brought to our breakfast tables and into our hearts and minds by the war in Ukraine.

The connection of war to issues of food and farming goes far deeper, has far deeper historical and systemic roots, than the current disruption of Ukrainian wheat and sunflower exports. We are talking, here, of the 10,000-year agriculture-enabled process of urbanization that turned the Fertile Crescent into the Oil Patch, taking us from the nomadism of hunter-gathering to the nomadism of cyberspace.

Oxymoronically, agriculture, as it became subsumed by and central to industrialization and globalization, passed—as if Passing Go on a Monopoly board—the culture of Taking Care of The Places Where We Live and proceeded straight to Big Box Stores And The Realm of Cheap Shelf-Stable Calories.

The Green Revolution and industrial agricultural systems are dedicated to increasing production via large-scale agricultural operations and global supply chains, in order to feed the growing world population. Since the mid-20^th century, they’ve been doing this to a T, powered by synthetic fertilizers, herbicides, pesticides, GMOs and other food and farming technologies. As the threshold of the new millennium arrived, something called “the food movement” emerged. Consumers in developed countries woke up to what was being degraded, ecologically and culturally, by the advent of highly-processed food. Community supported agriculture and farmers’ markets expanded. In 1989, Carlo Petrini famously pronounced when McDonald’s opened in Rome, “We don’t want fast food. We want slow food.” Slow food became a movement, linking hundreds of thousands of consumers, producers, chefs and food activists in many scores of countries, in support of indigenous food culture and biodiversity. Then, slow money came on the scene to address the investing side of things.

If we want to preserve and restore small, diversified organic farms, we are going to fund them not only as consumers, but as investors. Which is going to require new ways—slow, small and local ways—for capital to flow across the boundaries of investing and philanthropy.

Over the past few years, some of us have begun accomplishing this via SOIL groups, with SOIL standing for Slow Opportunities for Investing Locally. We’re pooling local charitable donations and then making 0% loans to organic farms and food businesses, by majority vote of member donors—one person, one vote, no matter the size of the member’s donation. When loans get paid back, the money recirculates as future loans. Today there are five groups (four in Colorado and one in Virginia), with two in formation (one in Montana and one in Israel). They’ve loaned almost $2 million to more than 60 farms.

Recently, we’ve launched beetcoin.org as a platform for small donors across the land to participate in this process, too, building a grassroots source of capital for use as matching grants to SOIL groups. We are aiming for widespread replication of local 0% loan groups in the coming decade, fixing things from the ground up in ways that industrial food systems and industrial financial systems cannot.

Bombs come from above, as do edicts from the Great Fiduciary in the Sky.

The latter are not designed to kill, of course. Fiduciary processes are designed to increase efficient capital flows, in pursuit of higher living standards. However, there is such a thing as too much efficiency. At some point, the pursuit of efficiency comes at irredeemable costs to diversity. Biodiversity. Cultural diversity. Economic diversity. We begin to think that diversification, upon which investment strategies depend, is more important than diversity, upon which living systems depend.

Efficiency is not exactly at war with Diversity. Or is he? Efficiency does sometimes seem hell-bent, as if he were a kind of Greek god, to vanquish Diversity, who might become, were the Fates to smile, his better half. The whole world, the future of our species and so many others, depends on the outcome of their relationship.

Mutually Assured Destruction as a geopolitical doctrine is almost mythic in its cultural implications. Perhaps what is being destroyed is our very capacity for myth, for elevated storytelling, part of which, in the 21^st century, must include a new economic narrative. Mutually Assured Destruction is not a terribly satisfying system for keeping the peace and it is an awfully sad expression of our increasingly desperate need, in these times of multiple crises, for greater mutuality.

Hence the need for those of us of a certain persuasion to get together directly, locally, personally, informally. Yes, we are funding small diversified local farms and local food systems. We can track the number of farms, the amount of food produced, nutrient density, price, the amount of carbon sequestered. We can develop new metrics. But at a level that is both deeper and simpler, we are finding new ways to reconnect to one another, to the places where we live and to the land.  In the name of health and peace.

Article by Woody Tasch is founder of the Slow Money Institute and author of AHA!: Fake Trillions, Real Billions, Beetcoin and the Great American Do-Over (Slow Money Institute, 2021)