Funding The Inclusive Economy: How Purpose-Minded Investors Are Changing Capitalism

Despite growing awareness of environmental, social, and corporate governance (ESG) investing and increasing stakeholder discussions among investors themselves, investments in the United States continue to profoundly favor white male-led companies. 

According to Crunchbase, only 2.8% of U.S. startup venture capital went to women-led companies in 2019. When companies with founders of multiple genders are added in, the number is still only 9%. Furthermore, a 2019 study by RateMyInvestor and DiversityVC found that more than 77% of founders who received VC money are white.

Clearly, there is a disconnect between the talking points Silicon Valley VC firms and other investors are making and reality. There are investors, however, looking to create a more equitable system of investing that lifts up a more broad and diverse range of stakeholders. These investors are intentional in their capital allocation.

To learn how to accelerate this purposeful investing, and for my research of Certified B Corporations, I spoke with Susan Baker, a director of shareholder advocacy at Trillium Asset Management, and Shawn Berry, a partner at LIFT Economy, which manages the Force For Good Fund. Both companies are Certified B Corps or businesses that have met certain social and environmental standards as verified by the nonprofit B Lab.

ESG Advocacy Broadens Stakeholder Considerations

As a director of shareholder advocacy, Baker’s role is primarily to engage companies in adopting and improving ESG policies and practices. “Companies that are best able to attract, develop and retain employees are likely better performers, so workplace practices asking companies, for example, to expand parental leave, sick time policies and diversity and inclusion programs is an important area of focus,” Baker says. “We press companies to demonstrate environmental responsibility that takes into account emerging risks to human health and environment, and goes beyond regulatory compliance. “

But Baker is not alone in advancing these practices at Trillium. The company itself was, in fact, a pioneer in ESG investing when it was founded in 1982. The company’s ESG focus was an intentional choice by its founder Joan Bavaria.

“When Joan Bavaria founded Trillium, she came out of a traditional wealth management office , and really felt that one does not need to sacrifice investment returns when environmental, social, and governance factors are considered,” Baker says. “So that was a large part of her motivation for beginning Trillium. She really wanted to prove to the industry that corporations that understood their social purpose and responsibilities to all stakeholders would outperform those that did not over the long run.”

Dialogue, shareholder proposals and proxy voting are important tools Trillium uses in its advocacy strategy. This strategy has had important impacts on some well-known companies.

“Take for example a shareholder proposal filed at ExxonMobil asking it to amend its written equal employment opportunity policy to explicitly prohibit discrimination based on sexual orientation and to substantially implement that policy. The proposal was first filed in 2001 and was voted on for the next 15 years. In 2015, the company took action and adopted a nondiscrimination policy that included protections for the LGBTQ community.” Baker continued, “In recent years, workforce diversity proposals have been receiving 40, 50 percent and several majority votes showing that investors want to see progress on this issue. After a majority of Travelers Companies shareholders supported our proposal its leadership disclosed comprehensive, comparative workforce data which will give us important data to assess progress.”

She continues: “I have regular dialogues with Target. They have basically said, ‘We want to make sure we can attract the best employees, and one of the best ways we can do that is if we demonstrate that we have a sustainability mission that aligns with or responds to their goals and values.” 

Baker is optimistic that investor engagement on ESG factors will continue to drive changes in corporate behavior, especially as more investors seek to align their values with their investments.

“I think companies are understanding that the investor profile has changed,” Baker says. “As Millennials and women become asset owners, they want to know how companies are managing their impacts on the environment and labor and human rights risks. Business and societal forces are market mechanisms  driving companies to look more closely at environmental, social, and governance issues.”

Funding Companies Owned by Marginalized People

One clear way to address the imbalances in investing is to purposefully invest in companies owned by marginalized people. LIFT Economy’s Force For Good Fund does just that by only investing in companies with women or people of color owners.

“Our little million-dollar dollar pilot fund to kind of attempt to redistribute some wealth, I think, is significant in that it runs directly counter to mainstream investment norms,” Berry says.

To raise the money, LIFT Economy used a mix of crowdfunding and outreach to high net worth individuals. The goal for crowdfunding was initially to raise $100,000.

“I think we did a six-to-eight-week window, and we raised over $400,000,” he says. “There was more inbound interest than we anticipated, so that was a great affirmation. It largely came from some of the individuals in the B Corp community, such as staff at Ben and Jerry’s and Patagonia. We then went to accredited investors and referenced our democratic crowdfund raise as a success. We had a small handful of high net worth individuals that contributed the remainder of the balance of the fund, so another $700,000.”

The success of the fund has shown Berry and the LIFT Economy team that there is a broad desire to intentionally allocate capital to communities that have historically been marginalized, not just to seek out profitable investments.

“The Force For Good Fund is an eight-year fund, and we’re halfway through,” he says. “We promised a 2.5% return and said, ‘Hey, if you need more than what you could get with parking your money in a bank or a bond or something, this is not your fund. But if you want to actually get an outsized social-environmental impact, this is your fund.’ The organizations that we’re funding were founded to create new, innovative, mutual-benefit, win-win models that are not appealing to a capital accumulation framework because that’s not what they’re designed to do.”

While Berry is encouraged by the continued growth of purposeful investing, he is not satisfied with its current state.

“I don’t claim direct correlation; I think it’s emerging consciousness and humanity as much as anything, but since we launched our fund, there are more funds specifically for black women and people of color and underrepresented, underfunded groups,” Berry says. “So there’s a nice trend. But, again, it’s still too marginal at the moment.”