Widespread impact investment could help Maine meet pressing social and environmental needs
The balance of deposits with financial institutions in Maine is approximately $ 45 billion. This figure raises an obvious question for socially responsible investing pundits like Scott Budde, who heads the Maine Harvest Federal Credit Union: “Why do we have funding gaps somewhere?”
Shouldn’t more of these deposits be used to meet Maine’s unmet needs – from climate adaptation and food security to bloat and affordable housing? Why aren’t they?
The concept of choosing investments taking into account their social and environmental responsibility has been around for decades, and the term “impact investing” has come to define the dual purpose that Ben Franklin articulated for “doing well while doing good” .
Impact investing options abound – in Maine and beyond – for “accredited investors,” those with net worth over $ 1 million (excluding their primary residence) or who have earned over $ 200,000 in each of the previous two years. But these high incomes represent less than 5% of households in Maine. What opportunities are there for the vast majority of unaccredited investors (called “individuals”)?
Become Impact Investors
The first step in becoming an impact investor is to “identify yourself as an investor – even if all you have is a checking account,” said Christen Graham, president of the social impact consultancy, Giving Strong. Your deposits, no matter how small, can potentially be a positive force.
Next, think about the impact you want your funds to have, both in terms of geography and societal concerns. If you focus on Maine, the options narrow down considerably. For retail investors, “there are very few opportunities and they are not well advertised,” Graham warns, so DIY impact investing in Maine “is a real challenge.”
Before allocating savings for impact investing, weigh – possibly with a financial advisor – how prudent it is to allocate and how much risk you can tolerate. (And the usual caveat applies – don’t take the words of a journalist exploring a complex investment topic like financial advice.)
Large scale banking
One of the potential benefits of a more localized investment is that it prevents your deposits from supporting industries you might consider harmful – like fossil fuels, nuclear weapons, or tobacco. Placing your bank accounts with a local credit union or community bank helps minimize this risk and directs your savings toward boosting Maine’s economy.
Local financial institutions typically limit their loans – such as business finance, construction loans, and consumer loans – to the communities they serve. Since Maine does not produce fossil fuels or manufacture tobacco, and since all commercial banks and most commonly owned banks are prohibited from holding shares, your assets are unlikely to fund these. problematic industries.
If you’re doing business with a national company – like JPMorgan Chase, Bank of America, Citi, or Wells Fargo, your deposits are much more likely to fuel the climate crisis, according to writer and activist Bill McKibben. Chase, for example, loaned $ 196 billion to the fossil fuel industry between 2017 and 2019.
Lend for good
Unaccredited investors can invest funds in certain community development finance institutions (CDFIs), mission-based organizations that typically lend to underserved populations. Maine has seven CDFIs, but not all of them are open to retail investors. Coastal Enterprises, Inc., for example, only works with accredited investors. The Four Directions Development Corporation, which serves tribal communities, relies on federal funds and donations, not individual investors.
New Hampshire and Vermont both have nonprofit community loan funds that support residents with limited access to credit through loans and technical assistance for housing, local food businesses, small businesses. businesses and the provision of childcare. Maine’s equivalent, Genesis Community Loan Fund, has a narrower mission – to lend money from a pooled capital fund on “flexible and favorable terms” for affordable housing and community facilities in the areas. underserved.
The money invested in these community loan funds is not FDIC insured. But all three funds have a 100% payback rate over decades of operation, and they report their performance to the Federal Treasury and an independent organization, Aeris. Investors can choose commitments from one to 10 years, with longer periods offering higher interest rates.
“Investors tend to stick with us,” said Liza Fleming-Ives, executive director of Genesis, which has a renewal rate of over 98%. But “the demand for loans is growing so rapidly,” she added, that “we are looking to link up with individuals and institutions” interested in investing.
Genesis does not require that the projects it supports be energy efficient or use renewable energy, she noted, but several lending partners like the Maine State Housing Authority are now encouraging these practices. It’s “a conversation we have” about every project now, she said, acknowledging “the greater efficiency and cost savings of that initial investment.”
Know where your money is going
For lenders who prefer FDIC insurance, Maine has an option that no other state offers – a federally regulated credit union that lends to local farmers and food producers. Depositors with a savings account or CD at the Maine Harvest Federal Credit Union know their funds go directly to building the local Maine food system.
The credit union offers potential depositors a straightforward interface, but Budde, its CEO, quickly recognizes that creating a highly regulated institution focused on a specific type of high impact loan is anything but simple; the process lasted more than six years.
At the other end of the risk spectrum, some people choose to invest directly in start-ups or expanding initiatives – through crowdfunding sites like WeFunder, personal contacts, networks like Slow Money Maine or clubs. investment like Maine Organic Lenders. Local lenders have made many successful loans offering lower than market interest rates with low incidence of defaults. But given the risk of starting small businesses, especially in the food sector, such loans should only be made by those willing to lose their principal, experts warn.
Increase local investment
Local loans are a natural choice in Maine. “We feel very lucky to be doing this work in Maine,” Fleming-Ives adds, because “people are looking for creative solutions in their communities.
A clearinghouse for information on investment options would be a good place to start, making it easier for potential retail investors to find initiatives that match their criteria. To generate more investment opportunities, a study group of community finance experts could identify needs and make recommendations on how to put more of our collective savings to work for the common good.
Maine already has many local financial institutions, a strong interest in impact investing, and worthy businesses in need of capital. All that remains is to increase our capacity to invest locally.