A Conversation with Christi Electris and Sharlene Brown of the Croatan Institute on Ensuring a Just Transition

Croatan Institute is an independent, nonprofit research and action institute whose mission is to build social equity and ecological resilience by leveraging finance to create pathways to a just economy. We recently sat down for a conversation about climate justice and what it will take to bring about a just transition with the Institute’s Executive Director Christi Electris and Senior Fellow and Director of the Institute’s initiative on Racial Equity, Economics, Finance, and Sustainability (REEFS), Sharlene Brown. An excerpt of this conversation was published in Veris’ 2024 report A Framework For Investing in a Just Transition.

Why has climate justice become a major organizational focus for Croatan Institute?  

Christi Electris:  Croatan Institute launched 10 years ago – in 2014 on Earth Day. Integral to our work focused on how to invest in climate solutions is the idea of investing to build climate resilience and mitigation with a focus on the impact on people. It’s not just about saving the earth. 

In our first official strategic plan, Croatan Institute made an effort to explicitly integrate the social equity component into our work around ecological resilience. Since then, we have collaborated with low resource groups and communities of color on issues around place-based and economic development, as well as financing a just transition in specific regions including Appalachia and the rural south and Latino farmworker communities. 

Climate justice is integral to the way we approach our work. Our Soil Wealth program, for example, is focused on building community wealth through nature-based solutions to climate change and building climate and ecological resilience. 

Sharlene Brown:  I serve as the director of Croatan’s REEFS program, which stands for Racial Equity, Economics, Finance, and Sustainability. We cannot think about climate resilience or climate adaptation without thinking about social equity and racial equity. If you look at the legacy of environmental injustice, it has mostly been in the backyards of low income and poor people of color. Those communities are also on the frontline of the climate crisis. At this moment, as we’re thinking about significant climate investments in the US economy, and calling out the historical legacy, we have to prioritize those groups. This is an opportunity to address environmental and climate challenges, as well as wealth and income inequality. A lot of the Institute’s programmatic work is trying to meet at those two intersections. 

What are some of the top ways that asset owners and managers can help facilitate a just transition?

Christi Electris: The idea behind our Total Portfolio Activation framework is that, for every investment across asset classes, we have social and environment impacts – both positive and negative. We’ve applied this framework to sustainable agriculture, racial equity, and to climate solutions. 

Asset owners and managers need to make sure that when they’re investing in some of these programs, especially with the large amount of funding that’s coming out right now from the government, that we’re doing it with people who are authentically engaging with communities on the ground and stakeholders. The concern is that some people are parachuting in and working to deploy capital in ways that might sound good on paper but might actually be extractive in the long run. There have been stories of people getting solar put on their roof through the Property Assessed Clean Energy (PACE) program, but then they can’t financially afford it. 

We need to make sure that we’re working with organizations that are actually helping build climate resilience and community wealth at the same time. We have to consider how to do the due diligence so that it is not just about the finances, but also about the communities on the ground. 

Sharlene Brown: When we talk about our racial equity investing framework, we urge asset owners and managers to consider what needs to change in the system. I tend to frame it around risk management and the business case. Changing demographics combined with climate change and income and persistent wealth inequality means there is potentially unforeseen social risk at hand. There’s a business case here, that we don’t want our way of life to be threatened. And so, we have to invest in a way that ensures all communities are served and lifted. 

Many rural communities in the United States are now struggling economically. How do we take this moment and lift those communities? What does that mean for the corporations who are able to lead that charge? How can investors use their dollars to help accelerate that? That’s the opportunity at hand. We can create impact in real ways that will make America more broadly successful. And I think, in some ways, secure our place in the world. 

What are the innovations you are seeing in terms of investible solutions focused on ensuring a just transition?  

Sharlene Brown: The impetus of the Greenhouse Reduction Fund is intended to be the baseline so that there could be a significant leverage factor in the private markets. I think in the next 12 to 18 months we are going to see innovations that we have not yet been able to clearly identify. 

I think the most available opportunities are going to start in the public markets as industries begin to do this transition. And I think you will see an uptick in the number of public-private partnerships. Philanthropy has been playing a key role in the background setting the stage. If you think about some of the innovations that have been supported in regenerative agriculture, it has been private capital coming from philanthropic stakeholders. We need to recognize the work that has been done by those stakeholders to lay the foundation and demonstrate that these types of investments can be done and can be profitable to some extent.  

Going back to the equity lens, we’ve got to make sure that we are asking – what is risk? and who bears risk? And what are the appropriate returns as we structure these deals, particularly in the private side of the market, that’s where I see potential risks as we do this work and make sure that the justice lens doesn’t get lost. 

Christi Electris:  Nature-based climate solutions have been acknowledged to be a huge part of the share of the reductions needed by 2030 to keep global temperatures under two degrees. We’re doing a lot of nature-based solutions modeling.  Our Soil Wealth Program, for example, looks across forestry, fiber, farming, food systems, and finance to show how a total portfolio, multi-asset class approach can be used to build both soil health and community wealth through regenerative and organic agriculture. 

We have to do the work with smallholder farmers to make sure that they’re benefiting from these nature-based solutions as well. That’s where the climate justice part comes in to ensure they’re not just being extracted. Both philanthropic capital and the integrated capital approach, where we layer different kinds of capital to support these necessary investments, are really important. In the work we do with Soil Wealth, we are trying to help innovate to get more finance unlocked into regenerative landscapes and regenerative transitions. If you want to make a price premium to make it worth it, that investment needs some patient capital because there’s the three-year valley of death while you’re waiting for your land to be certified organic, while you’re waiting for conservation practices to actually take effect on your land. And so if you can access patient capital, that helps a lot. 

We’re experimenting at the Institute with some innovative capital mechanisms as well. Our Soil Wealth report from 2019 outlines all the types of mechanisms that we could identify across asset classes to get more money into regenerative agricultural investments, partly for this climate imperative. Soil Wealth Areas is taking a place-based approach to financing and thinking about what hotspot benefits you could aggregate and also the network value chain approach. Another one is loan guarantees. We’re exploring other de-risking mechanisms we can incubate here at the Institute or with partners to unlock additional capital. Investors that care about a just transition know that there’s a spectrum of returns. You can’t ask for extractive returns and expect a just transition, so I think that’s some of the innovation that is needed. 

Can you name a few of the top outcomes that you hope to see from today’s Just Transition efforts within the next three to five years?

Sharlene Brown: Within three to five years, after the $27 billion that is supposed to go into the US economy through the Greenhouse Reduction Fund is deployed, there is an anticipation that the potential impact of the private markets would look like a 10X leverage factor. 

Some of the more conservative folks say we should just double that and I think it probably looks more like a doubling effect. Because I think that there’s some infrastructure work within the financial system that needs to be done. Many of the players that are thinking about how they build the pipeline to get this money into local economies are trying to think about how to do business differently. Adjacent to what Christi was saying around the wealth building mechanism or the potential there, one of the discussion points, even though it’s not explicit within the EPA regs given explicit focus on equity to access. But there isn’t necessarily an explicit focus on wealth building. So that’s a distinction. 

I hope we can bring different ownership models to bear. That means that when we bring these technologies into communities, the wealth would stay in the communities. In my future projection, we’ve somehow managed to do that and that means that we begin to see communities look stronger, healthier as the income gap and the wealth gap begins to shrink and that the green workforce represents the nation that we live in, as opposed to all the benefits going into one group. 

Christi Electris: I agree. I hope a lot of the work, regardless of the future political situation, is on the way. There’s a lot of people that care deeply about it. The asset owners that are motivated to keep this work going and the philanthropic foundations will continue to press on. Obviously, policy has large implications in what happens. I would like to see positive outcomes. I would like to see growth around nature-based approaches like the resilient land practices happening more broadly across the country. Those will build resilience even if we can’t mitigate the carbon. I’d like to see that happen in a way that is not just the farmers that can afford to do it. Maybe it’s more of a hope, the outcome that I’m hoping to see. 

I also think communities would benefit also from more access to nature spaces, the green spaces, and less exposure to the chemicals related to conventional agriculture. There’s a whole other discussion about that that’s not climate specific, but ecological and health-oriented justice. That would be starting to change. 

And then we didn’t talk much about labor here, but that’s a big part of the Just Transition and having good jobs and not just for landowners, but for people across all industries. Just transition framing came out of Appalachia, where former coal workers need to have other good job options. I hope to see more focus on creating good opportunities to build wealth in those communities and decreasing gaps in income and wealth inequality and building resilience throughout the system. 

Christi Electris is the Executive Director and co-founder of Croatan Institute and a Senior Fellow at Croatan Institute. 

Sharlene Brown is Senior Fellow at Croatan Institute and Director of the Institute’s initiative on Racial Equity, Economics, Finance, and Sustainability (REEFS). 

Disclaimer

The content provided herein is provided for informational purposes only, represents only a summary of topics discussed, and does not constitute and should not be construed as investment advice. The opinions of the speaker interviewed herein do not necessarily reflect the opinions of Veris Wealth Partners. Information provided herein is derived from third parties and has not been independently verified by Veris Wealth Partners. 

BIPOC Mental Health Awareness Month: Be the source for better health

BIPOC Mental Health Awareness Month Resources

July is National BIPOC Mental Health Awareness Month in the United States. This month is dedicated to raising awareness of mental health resources, support, and treatment options that are available for racial and ethnic minorities in America and advocating for policy changes that will make quality care options more accessible to Black, Indigenous, People of Color (BIPOC) and Asian American and Pacific Islander communities. 

Named in honor of a NY Times bestselling author, journalist, and educator, Bebe Moore Campbell, the 2007 resolution passed by Congress to establish July as Minority Mental Health Awareness Month names disparities in outcomes and treatment options that negatively impact BIPOC communities. Almost two decades later, harmful racial disparities in access and quality of care are still significant.1 Though she passed away in 2006, Bebe Moore Campbell’s legacy of advocacy for underserved communities struggling with mental health challenges continues on today. 

Be the Source for Better Health

The theme of the 2024 BIPOC Mental Health Awareness Month is, Be the Source for Better Health: Improving Health Outcomes Through Our Cultures, Communities, and Connections. The aim of this awareness raising campaign is to help build a more equitable mental health care system in which everyone has equal access to high quality mental health care and services that are, in the words of the US Department of Health and Human Services’ Office of Minority Health (OMH), “responsive to diverse cultural health beliefs and practices, preferred languages, economic and environmental circumstances, and health literacy levels.” 2

An equitable system is more likely to lead to better health outcomes for BIPOC individuals and their families. By promoting mental health awareness, we combat harmful stigmas and collectively enhance the wellbeing of our communities. There are various ways we can help promote and support BIPOC mental health awareness: 

  • Donate and volunteer at organizations that support mental health initiatives in BIPOC communities.
  • Advocate for policies that will provide more equitable access to mental health care within your company and community. 

Educate yourself and help spread awareness about inequities in our mental health care system and solutions that help BIPOC communities. The US Department of Health and Human Services’ Office of Minority Health offers a National Minority Mental Health Awareness Month Toolkit and other resources for learning. 

Mental Health Resources for BIPOC Americans

Learn more about what you can do, or to access help for yourself or a loved one, please visit one of the below organizations that are providing mental health services, support, and advocacy for BIPOC communities:

988 Lifeline

If you, or someone you love, need help or are in a crisis situation, please call or text 988 for free, confidential support in English or Spanish. 988 Lifeline ofrece servicios gratuitos en español las 24 horas del día, los 7 días de la semana. 

AAKOMA Project

AAKOMA is a non-profit organization that focuses on raising awareness of stigma and inequalities that are barriers to equitable care faced by youth and young adults of color, conducting community-collaborative research, and encouraging young people to lead culturally relevant mental health conversations on mental health challenges. 

 Asian Mental Health Collective (AMHC)

AMHC is led by a team of mental health professionals, advocates and community leaders. AMHC’s mission is to normalize and de-stigmatizes mental health within the Asian community. 

Black Girls Smile

The mission of the nonprofit organization Black Girls Smile (BGS) is to empower the mental health and well-being of young Black women and girls through culturally and gender-responsive educational programming, support initiatives, and resource connections. 

Boris Lawrence Henson Foundation

BLHF is a non-profit Black mental health advocacy organization dedicated to providing culturally competent therapy referrals and wellness resources while working to end the stigma surrounding mental health. Founded by actress, producer and mental health advocate Taraji P. Henson, the name and mission of the Boris Lawrence Henson Foundation honors Henson’s late father who faced challenges getting treatment for mental health issues related to PTSD after returning from the Vietnam War. 

The National Alliance for Hispanic Health

The National Alliance for Hispanic Health was incorporated in Los Angeles as the Coalition of Spanish-Speaking Mental Health Organizations (COSSMHO) in 1973. The organization’s mission is, Best health for all.

National Alliance on Mental Illness (NAMI) 

NAMI is a nonprofit organization that offers information, advocacy, and support for people who are struggling with mental health issues. Their NAMI HelpLine is a free, nationwide service that offers information, resource referrals, and support to people living with mental health issues as well as their families and caregivers. Call 1-800-950-6264 Monday through Friday, 10am to 10pm Eastern / 7am to 7pm Pacific. NAMI also offers more information about Bebe Moore Campbell National Minority Mental Health Awareness Month.   

Substance Abuse and Mental Health Services Administration (SAMHSA) 

SAMHSA provides information about behavioral health equity, including information and resources for BIPOC communities. Their mission is to lead public health and service delivery efforts that promote mental health, prevent substance misuse, and provide treatments and support to foster recovery while ensuring equitable access and better outcomes. 

The Trevor Project 

The Trevor Project created a resource list of therapeutic programs, care providers and additional support options for people who identify as members of both the BIPOC and LGBTQ+ communities.

WE R NATIVE

We R Native project is a multimedia health resource for Native youth, by Native youth. The program strives to promote holistic health. The organization offers information and support on various mental related topics. 

References

1 https://www.kff.org/racial-equity-and-health-policy/issue-brief/racial-and-ethnic-disparities-in-mental-health-care-findings-from-the-kff-survey-of-racism-discrimination-and-health/

2 U.S. Department of Health and Human Services. “Be the Source for Better Health: Improving Health Outcomes Through Our Cultures, Communities, and Connections” https://www.hhs.gov/national-minority-health-month/index.html. Accessed July 17, 2024

Disclaimer

The information herein is provided for educational purposes only. Our website contains links to other websites that are not operated by us. Please be aware that we do not control, endorse, or assume responsibility for the content, privacy policies, or practices of any third-party websites. We strongly advise you to review the terms and conditions and privacy policies of any external websites you visit.

Veris won for Impact Investing (Advisory) and Diversity in Wealth Management (Company) at the 2024 Family Wealth Report Awards.

Veris Wins 2024 Family Wealth Report Awards for Impact Investing (Advisory) and Diversity in Wealth

Veris Wealth Partners, an independent, majority-woman-led financial advisory firm that serves families, foundations, and endowments, won awards for Impact Investing (Advisory) and Diversity in Wealth Management (Company) at the 2024 Family Wealth Report Awards.* 

Veris' COO Sheryl Kucer and Co-CIO Roraj Pradhananga accept the award for Impact Investing Advisory at the 2024 Family Wealth Report Awards.

Veris’ COO Sheryl Kucer and Co-CIO Roraj Pradhananga accept the award for Impact Investing (Advisory) at the 2024 Family Wealth Report Awards.

The annual Family Wealth Report Awards program recognizes the most innovative and exceptional firms, teams and individuals serving the family office, family wealth and trusted advisor communities in North America. Veris, which has a 100% focus on impact investing and ESG, won the Family Wealth Report Award for the ESG Investing (Advisory) category in 2023. 

“We are honored to again be recognized as leaders in our field by the Family Wealth Report Awards’,” said Veris’ CEO Stephanie Cohn Rupp. “At Veris, we believe that financial success and sustainable, positive impact are not mutually exclusive. Our aim to foster diversity and equity within our team and across our industry and economy reflects our conviction that inclusive perspectives drive better decisions and outcomes for our clients and for society. We see these nominations as an acknowledgment of our efforts and motivation to continue pushing the boundaries of what is possible in wealth management. Our journey towards creating a more sustainable and equitable financial future is far from over, and we are excited to continue leading the way.”

Veris' Co-CIO Roraj Pradhananga, CCO & GC Richard Chen, and COO Sheryl Kucer

Veris’ Co-CIO Roraj Pradhananga, CCO & GC Richard Chen, and COO Sheryl Kucer accept the award for Diversity in Wealth Management (Company) at the 2024 Family Wealth Report Awards. 

Stephen Harris, ClearView Financial Media’s CEO and publisher of Family Wealth Report, noted that every firm selected as an award finalist has been “subjected to rigorous and independent judging process” and said, “I offer my congratulations and best wishes for the future to all winners and highly commended firms.”

The judges that select the winners of The Family Wealth Report Awards are recognized experts from across the financial services industry, including family offices, private banks, consultants, and advisory firms. 

In their citation, the judges noted they selected Veris as the winner in the Impact Investing (Advisory) category because the firm “has had 100% focus on impact investing since inception; dedicated field-building efforts and research has helped Veris Wealth Partners build a reputation for leadership in this sector. The impact investments available to their clients are unusual, supporting first time fund managers and new impact themes.” 

For the Diversity in Wealth Management (Company) category, the judges said they chose Veris because the firm “showed strong statistics on diversity both internally and via the firm’s investment approach. Diversity, equity, inclusion and belonging are core aspects of how the winning firm operates and invests.”  

Winners were announced on May 2, 2024, at the Gala Ceremony at the Mandarin Oriental Hotel in New York, New York.

About Veris Wealth Partners

Veris is a financial advisory firm that applies sustainable and impact investing expertise across public and private markets to help foundations and families meet their financial and impact goals. Since 2007, Veris has been helping families and foundations align their investments with their mission and vision for the future. Learn more about Veris’ approach to impact investing.

About ClearView Financial Media Ltd (“ClearView”)

ClearView Financial Media was founded by Chief Executive, Stephen Harris in 2004, to provide high quality ‘need to know’ information for the discerning private client community. London-based, but with a truly global focus, ClearView publishes the WealthBriefing group of newswires, along with research reports and newsletters, while also running a pan-global thought-leadership events and awards program.

 

*No compensation was paid in connection with the receipt of the award.

Veris Economic and Market Update Q3 2023

By Jane Swan, CFA and Roraj Pradhananga, CPA

The first quarter of 2023 was characterized by major events such as the failure of Silicon Valley Bank, escalating concern of a pending recession. Sentiment made an about face in the second quarter, buoyed by limitless enthusiasm for artificial intelligence. At the end of the third quarter, we seemed to have settled into an uncomfortable normalcy: uncertainty.

The labor market remains tight despite slowing job growth in 2023. The unemployment rate remains low at 3.8% despite increasing 0.2% in Q3.¹ Employees are losing confidence in their job prospects, as shown by recent declines in the Conference Board survey and stalling of the quits rate. 

Quits: Total NonfarmThe quits rate, measuring the number of quits as a percentage of the employment, peaked in April of 2022 at 3%. In the third quarter it fell to 2.3%, equivalent to the rate in February of 2020. The fall in quits suggests workers are less certain they will easily find replacement jobs if leaving their current job. 

Unemployment Rate by RaceThe unemployment rate for Black Americans dropped slightly to 5.7% from 6% in June, it remains elevated compared to white and Asian Americans. 

The US economy remains tepid but resilient, supported by strong labor and housing markets. While growth remains positive, up 2.4% in the second quarter and preliminary estimates suggesting annualized growth accelerated to 4.9% in the third quarter, there are signs of slowing economic momentum.³

GDP ChartConsumer balance sheets remained strong, but the bottom 80% of households have depleted most of their excess savings and are taking on more debt.⁴ Default rates on auto loans are higher now than at any point in recorded history. Borrowers with high credit scores may feel current new car loan rates around 5% are high, but that pales in comparison to rates over 14% which are paid by people with low credit scores. We believe the mounting debt strain on consumers, along with higher interest rates and energy prices, the uncertainty of potential government shutdown in November, and the forthcoming resumption of student loan payments, will weigh on consumer spending and economic growth. This is discussed further in our Quarterly Impact Focus report. 

A sustained inflation downtrend has been in place since June 2022, when it peaked at 9.1%, falling to 3.7% in September. 

While core CPI remains abovYear over year growthe the Fed’s 2% target, there are reversals in major categories that drove inflation higher in the last two years such as easing vehicle prices, reflective of improving supply chains. Shelter remains the main driver of increases in core CPI, but leading indicators are predicting lower shelter prices ahead.

Index ReturnsAfter strong gains in the first half of 2023, global equities posted a negative return in Q3. 

Most of the “Magnificent Seven” (Apple, Microsoft, Alphabet, Nvidia, Amazon, Meta, Tesla) declined in August and September, retreating from the perhaps over enthusiasm in Q2. Fed officials continued to convey higher rates would be needed for longer to contain higher than expected inflation. In response, US equities trended lower. Bond markets also mostly declined in Q3 as yields increased meaningfully. 

The yield increase was more pronounced on the longer end of the yield curve due to concerns over US debt levels and large Treasury issuance to fund the deficit. This prompted investors to demand higher yields for taking on longer duration risk.

CPY yoy change

Energy and Communications Services were the two sectors with a positive return during the third quarter, returning 12.2% and 3.1%, respectively. 

S&P Sector ReturnsAfter leading performance in the first half of 2023, Information Technology declined 5.6%, with the reversal led by Apple, Microsoft, and Nvidia, followed by Tesla and Meta. The Energy sector continues to benefit amid oil production cuts from Saudi Arabia and Russia and the Israel-Hamas war.

Despite the headline grabbing 12.2% QTD and 51.2% 3-year returns, the Energy sector has trailed the other sectors on a risk-adjusted basis over 10 years. 

The height of each point on this graph represents the average return of the sector over the last 10 years. The distance from left to right measures the volatility of each sector, with less volatile sectors to the left and more volatile sectors to the right. The graph shows that over this period, energy had both the lowest returns and the highest volatility, by a significant margin, of all sectors in the S&P 500. While the ongoing war in Ukraine and related reductions in oil and gas supply from Saudi Arabia and Russia add to short-term tailwinds in the sector, we believe significant long-term headwinds for the sector include declining costs of renewable energy, transmission and storage solutions.

The stock market ended the quarter 11% lower than the highs reached towards the end of 2021, which is 16% higher than lows we saw one year ago.¹¹ As of the time of this report, the uncertainty around the Israel-Hamas war and the potential government shutdown could lead to further volatility and downside risks to markets. Fragility in the stock market recovery, along with significant uncertainty from geopolitical events and our wildly volatile political paths ahead serve as a reminder to evaluate expected spending needs and to check cash reserves, in consultation with your Veris advisors. 

Related reading: Impact Focus Q3 2023: Inflation, Interest Rates, and Corporate Profits

Authors

Jane Swan is a Partner & Senior Advisor at Veris Wealth Partners and a Chartered Financial Analyst (CFA®). 

Roraj Pradhananga is a Partner & Managing Director of Research at Veris Wealth Partners and a Certified Public Accountant (CPA).

Sources

Disclaimer

The information contained herein is provided for informational purposes only and should not be construed as the provision of personalized investment advice, or an offer to sell or the solicitation of any offer to buy any securities. Rather, the contents including, without limitation, any forecasts and projections, simply reflect the opinions and views of the authors.

All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change without notice. There is no guarantee that the views and opinions expressed herein will come to pass. Additionally, this document contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information derived from such third party sources and take no responsibility therefore. Information related to the performance of certain benchmark indices is provided for illustrative purposes only as investors cannot invest directly in an index. Past performance is not indicative of or a guarantee of future results. Investing involves risk, including the potential loss of all amounts invested.

Impact Focus Q3 2023: Inflation, Interest Rates, and Corporate Profits

By Jane Swan, CFA

In the hours approaching the end of the third quarter of 2023, Congress passed a bipartisan 45-day funding bill, temporarily preventing a government shutdown. At the time, President Biden prematurely expressed optimism for continuing engagement with Speaker McCarthy in a bipartisan process to approve a budget, including ongoing aid to Ukraine.1 Within two days, Representative Gaetz of Florida began the process of removing McCarthy as Speaker. That effort succeeded on October 3rd.  The need to organize new leadership and pass a budget was eclipsed by the humanitarian crisis in Israel and Gaza. 

Three weeks and three failed speaker candidates later, the Republican House majority elected far-right Republican Mike Johnson. Mike Johnson supported and played a key role in former President Trump’s effort to undermine the results of the 2020 election. The new Speaker could drive further uncertainty in policymaking as bipartisanship will be further out of reach. 

The need for leadership and the importance of passing a budget is crucial for maintaining a stable economy and providing financial, humanitarian, and diplomatic support to Ukraine and now also in the Middle East. Additionally, inflation continues to infuse the economy, markets, and consumers with increasing uncertainty. 

In this impact-focused review of Q3 2023, we will pay close attention to the relationships between income inequality, inflation, and corporate profits. You can read our overview of economic and market activity in Q3 here

For several reasons, inflation has a greater impact on low-income, low-wealth families than those with higher incomes or high wealth. Non-discretionary items like food, housing, and fuel tend to make up a higher percentage of their household spending.2 Families with more financial privileges can cope with inflation through prudent choices, such as buying generic rather than luxury brands, reducing travel and restaurant consumption, as well as limiting retail choices.3 Over the last 20 months, the Federal Reserve (The Fed) has aggressively raised interest rates, making 11 hikes for a total increase of 5%. In doing so, Fed officials have often cited the disproportionate impact inflation has on low-income families.4

However, when we look at how inflation hurts low-income families, interest rate hikes frame a scenario where the cure is potentially worse than the disease. When interest rate hikes discourage spending, the result can be an increase in unemployment. This harms workers who lose jobs, as well as the ability for employed people to demand higher wages.5 Historically, women and Black workers have faced the greatest obstacles to employment in periods of high unemployment.6  

The negative impact for low-income families goes beyond potential employment risks.

The bottom 80% of households have depleted most of their excess savings and are taking on more debt.7 Default rates on auto loans are higher now than at any point in recorded history.8 Borrowers with high credit scores may feel current new car loan rates around 5% are high, but that pales in comparison to rates over 14% which are paid by people with low credit scores through subprime loans, which were one of the reasons for the housing market crash in 2007 and 2008.9 The ongoing high interest rates impact low-income households through obvious consequences like interest charges on credit card debt. Additionally, higher interest rates make home ownership even more unattainable to low-income borrowers with less available for down payments, requiring them to finance a higher percentage of home purchases.10 The link between the wealth gap and homeownership is examined in our DEIB Investing report, published this fall. 

Looking at income by decile (5 groups, each representing 20% of income groups) we see that while income has been relatively flat for the bottom 60% of income earners, it has grown steadily for those between 61 and 80%, and sharply for the top 20% of income earners.11 

Suppressed wage growth for lower earners over recent decades makes these populations simultaneously vulnerable to inflation and high interest rates. While wage growth on average has been higher through the COVID recovery and high inflation period, it is estimated that it will take another year for those wage hikes to make up for the negative income effect of inflation. 

As The Fed works to combat inflation, we believe it is important to examine how prices are set, and some potential causes of inflation. A producer of goods and services usually sets a price based on the costs of production (including labor) and marks up the price to add a profit. If they include too much profit in the price, consumers may look for substitute goods. If consumers choose substitute goods, the producer may decide to reduce the profit from each unit sold to attract more consumers. This is the supply/demand relationship. When wage increases lead to increases in prices and higher inflation, workers are likely to demand even higher wages. This is known as the wage-price spiral.

At the first signs of inflation in 2021, The Fed and many analysts expected that the inflation was “transitory” or temporary.12 Supply chain and a tight labor market were seen as temporary problems that would resolve with remedies to supply-chain constraints and stabilization of the tight labor market.13 As high inflation has persisted beyond the period of significant supply chain constraints and as wages have grown less than inflation, analysis in 2023 has increasingly included examination of increasing corporate profits as a significant contributor to inflation. In February of 2023, The Fed was pointing to signs that the wage growth was moderating and began to shift some focus to what they called “The wage-price spiral.”14

graph depicting markup, post tax

The “Mark Up” in prices, which increased during and after COVID has protected corporate earnings while contributing to inflation.15 

From 2020 to 2022, non-labor cost changes as a component of increasing prices stayed about the same as they were from 2007-2019, changing from 28.6% pre-COVID to 32.3% during and after COVID. Comparing these same time periods, unit labor costs as a component of increasing prices actually went down from 58.4% to 32.8% during and after COVID.

The biggest change in contributions to iBar graph depicting contributions to increasing pricesncreasing prices came from profits, which were 13.1% of contributions to increasing prices before the pandemic but have been 34.4% of contributions to profits in the years that followed.

Unless corporations reduce prices to reflect improving supply chains and lower prices of inputs, low-income families will not benefit from real wage growth as the rate of inflation subsides. Otherwise, the only beneficiaries are owners and shareholders of these companies. 

All investors, including impact investors, benefit from and are protected by increasing prices. Some impact investors attempt to distinguish ourselves by examining these relationships and exploring and including alternate investments which aim to remedy some of the externalities in our financial systems. Notes in Community Development Financial Institutions (CDFIs) and CDs with Credit Unions can reduce the negative impact of high interest rates on low-income communities by offering subsidized or low-interest loans to borrowers often excluded from traditional bank loans. Some impact investors make investments in companies that seek to remedy inequities in how credit scores ratings are set, taking action towards leveling the playing field. 

For more information on impact solutions to the problems of inflation and high interest rates, please see our DEIB Investing Report or speak to your advisor.  

Author

Jane Swan is a Partner & Senior Advisor at Veris Wealth Partners and a Chartered Financial Analyst (CFA®). 

Sources

  1. https://www.whitehouse.gov/briefing-room/statements-releases/2023/09/30/statement-from-president-joe-biden-on-passage-of-the-bipartisan-bill-to-keep-the-government-open/
  2. https://www.dallasfed.org/research/economics/2023/0110#:~:text=Prior%20research%20suggests%20that%20inflation,few%20ways%20to%20reduce%20spending%20.
  3. https://www.minneapolisfed.org/article/2022/as-inflation-rises-low-income-households-grapple-with-particular-challenges
  4. https://ny1.com/nyc/all-boroughs/news/2022/01/11/fed-chair-jerome-powell-inflation-covid-jobs , https://www.stlouisfed.org/publications/bridges/2023/vol3/how-low-moderate-income-households-are-coping-inflation
  5. https://time.com/6253699/federal-reserve-inflation-interest-rates-workers/
  6. https://www.chicagobooth.edu/review/why-rising-interest-rates-could-particularly-hurt-black-workers-women
  7. https://www.bloomberg.com/news/articles/2023-09-25/only-richest-20-of-americans-still-have-excess-pandemic-savings
  8. https://www.bloomberg.com/news/articles/2023-10-21/high-car-loan-interest-rate-payments-americans-struggle-with-monthly-bills
  9. https://www.bankrate.com/loans/auto-loans/average-car-loan-interest-rates-by-credit-score/#average
  10. https://www.npr.org/2023/02/26/1159615312/interest-rate-hikes-widen-the-wealth-gap-an-economist-argues
  11. FRED: Income Before Taxes: Wages and Salaries by Quintiles of Income Before Taxes: By Decile, U.S. Dollars, Annual, Not Seasonally Adjusted
  12. https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20210317.pdf
  13. https://www.nytimes.com/2023/04/07/business/economy/wages-prices.html
  14. https://www.imf.org/en/Blogs/Articles/2023/02/24/wage-price-spiral-risks-still-contained-latest-data-suggests
  15. https://www.epi.org/blog/even-with-todays-slowdown-profit-growth-remains-a-big-driver-of-inflation-in-recent-years-corporate-profits-have-contributed-to-more-than-a-third-of-price-growth/
  16. Ibid

Disclaimer

The information contained herein is provided for informational purposes only and should not be construed as the provision of personalized investment advice, or an offer to sell or the solicitation of any offer to buy any securities. Rather, the contents including, without limitation, any forecasts and projections, simply reflect the opinions and views of the authors.

All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change without notice. There is no guarantee that the views and opinions expressed herein will come to pass. Additionally, this document contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information derived from such third party sources and take no responsibility therefore. Information related to the performance of certain benchmark indices is provided for illustrative purposes only as investors cannot invest directly in an index. Past performance is not indicative of or a guarantee of future results. Investing involves risk, including the potential loss of all amounts invested.

The Money Talk: Talking to Your Children About Money

By Alison Pyott

There is no single best way to talk to your children about money, but many experts agree that a series of age-appropriate conversations are better than THE one big money talk. This includes weaving money conversations and lessons into everyday life to help your children build perspective, skills, and confidence.

Children are naturally curious and perceptive. They likely are creating assumptions and making judgments about their family’s financial situation vs. their peers. Starting a series of age-appropriate money talks early in life can help them understand what they need to know in the present while preparing them for the future.

Consider making your conversations about more than money. Helping children understand needs vs. wants, values, local and global issues, how money is earned & the value of a dollar, vocations and what gives them joy can help build meaning and purpose. Family wealth can then be a foundation and fuel for helping your children pursue their passions and reason for being.

How To Prepare

Before initiating money talks with children, it is a good idea to reflect on your own values and emotions related to money, especially as it relates to what you want to pass on and instill in your children. Do you have any fears that need to be addressed? What are you most excited about? What are your greatest hopes for the future?

After some personal self-reflection, It is a good idea for parenting teams to share their reflections with each other and plan for larger discussions. Are you on the same page? Are there any areas of disagreement? Are there any boundaries you want to set? What are the most important facts your child needs to know at this stage of their lives? Setting intentions and defining ideal outcomes can help you enter conversations with a positive and purposeful approach.

The Conversations

Similar to other discussions to help your children prepare for adulthood, the best approaches are layered – multiple conversations big, medium and small. Answer their questions and listen to their thoughts and ideas. Provide them with age-appropriate resources to explore on their own and ask them questions that will prompt them to think more deeply about money, wealth and its purpose.

You may also want to consider sharing your family history with your children. Where did the family wealth come from? What lessons were learned along the way? What are the money values within your family that you wish to pass down to the next generation? Involving your children in philanthropy and simple spending decisions can provide wonderful opportunities for these conversations. As your children grow into teenagers or young adults, continue to deepen the conversations you have with them about family values and money.

You may also consider giving children the opportunity to talk to a money mentor – a trusted family member, financial advisor, or other professional who can provide information and answer their questions. Supporting your family’s needs is part of our work at Veris Wealth Partners. Our clients are welcome to contact their wealth manager to discuss ways we can support your money talks.

Veris 2017 Impact Report

2017: Another Breakthrough Year for Impact Investing

Veris is proud to announce the release of our 3rd annual Impact Report, highlighting the collective achievements of its clients, the Veris team, and the investment managers we work with.

Veris 2017 Impact ReportAmong the milestones of the past year: Veris celebrated its 10th anniversary, reached $1 billion in client assets under management, and was named as a B Corporation Best for the World company for the sixth consecutive year.

The 24-page report describes the environmental and social impact resulting from our clients’ collective investments in our five thematic areas: Climate Change & the Environment, Community Wealth Building & Social Equality, Sustainable Agriculture & Food Systems, Gender Lens Investing, and Mindfulness & Sustainability.

The report also focuses on how Veris measures impact, both quantitatively and qualitatively. As part of our ongoing due diligence, we look at the role public companies, shareholder advocacy, private social enterprises, and community development solutions play in creating a more inclusive and sustainable economy.

Making Progress
We’re pleased to note that we have seen great progress each year in terms of understanding and communicating the impact of portfolio companies.

In 2017, impact reporting took a leap forward with the development of systems-level frameworks, such as the U.N. Sustainable Development Goals. To encourage more common language in impact reporting, Veris also reports metrics established by the Global Impact Investing Network’s (GIIN) Impact Reporting and Investment Standards (IRIS). IRIS facilitates comparison and best practices, transparency, and accountability in impact measurement.

What is also interesting about this year’s report is what it says about the positive direction of impact investing. We’re seeing increased momentum across the field – such as major commitments from conventional investors and growth of the Green Bond market and assets invested with a Gender Lens. If you haven’t seen our 2018 analysis of Gender Lens Investing, please feel free to download it here.

We believe these trends validate what Veris clients and our team have recognized for a decade: that investors can align their wealth with their values. The 2017 Veris Impact Report demonstrates our commitment to delivering the most impactful investment opportunities and supporting the overall growth of sustainable and impact investing.

We hope you will read our report, and we look forward to your feedback.

Click here to download the full report.

Signatory Letters for Impact

By Danya Liu, Associate & Pat Addeo, Senior Associate

The power of a united voice cannot be overstated. This has been particularly evident over the past few months, during which we have witnessed a wave of political, social, and environmental activism. Some voices we agree with, some we don’t. But what we can all recognize is that standing up for your values is important. In that spirit, we would like to share how Veris is exercising its voice on behalf of clients through what is known in the investment world as a “signatory letter.”

Signatory letters are a way for shareholders, stakeholders, and any other concerned parties to voice their opinion about a particular issue. Signatory letters can express support or opposition for a given government policy or corporate rules/regulations/actions that impact our environment and society. Veris collaborates with people across the country to deliver clear, strong messages targeting the values and causes shared by our clients and the firm.

These letters can originate from nearly anyone, including investors, religious groups, academics. It’s important to note that the general public is an extremely important stakeholder in any company or policy decision. Often, a lead investor will author an opinion letter on a certain issue, and interested parties will join as signatory to amplify the message.

Earlier this year, we were signatory to a letter urging the Securities and Exchange Commission to reconsider the suspension of the Dodd-Frank Conflict Minerals Rule. This rule, which requires U.S. companies to address conflict mineral risk in their supply chains, has already positively impacted the mining sector in the Democratic Republic of the Congo and reduced the flow of money to militia groups in that region. Conflict minerals disclosure is integral to risk assessment and needs to be enforced not only for the good of the investor, but for the good of the communities affected. Eliminating the Conflict Minerals Rule will energize our community to push back further.

Child miners as young as 11 in eastern Congo – Kaji *

We also participated in a letter to the Trump administration to express continued support for key benefits of the Affordable Care Act, namely the expanded coverage for millions of previously uninsured Americans. Access to reliable, affordable health care is essential for vibrant, productive communities, and we urged the administration to expand quality care coverage to all Americans.

Paris marches for climate justice as COP21 concludes **

And finally, in August of 2016, we were signatory to a letter urging the G20 leaders to commit to climate action. Veris was one of 130 businesses and investors to re-affirm its deep commitment to addressing climate change through the implementation of the historic Paris Climate Change Agreement. We asserted that governments have a responsibility to work with the private sector to ensure the expedient transition to a low-carbon, clean-energy economy.

As we come across other social or environmental issues, we will continue to raise our voices and advocate for our values.

 

Photo Credits:

*Lezhnev/ENOUGH Project. CC BY-NC-ND 2.0

**Takver. CC BY-SA 2.0

Uncommon Conversations: Rich and Timely

By Patricia Farrar-Rivas, CEO

A while ago, I had a provocative conversation with two good friends: Rha Goddess, founder of Move the Crowd, an organization that supports entrepreneurial training for next generation movers and shakers, and Jessica Norwood, founder of Runway Project, aiming to solve the “friends and family” seed funding gap for African American entrepreneurs.

We talked about how many of the issues we face in our country today stem from inequality, lack of inclusion, and biased narratives around people of color. By the end of the conversation, we all recognized these types of reflective conversations are vital in moving us toward inclusivity.

We also felt compelled to create opportunities where this kind of dialogue could happen more frequently.

So Rha, Jessica and I began hosting Uncommon Conversations, a series of intimate gatherings over dinner to discuss how to reshape the prevailing cultural narratives and determine what active part impact investing can play.

Uncommon Conversations tries to bring in a range of diverse voices, including artists, investors, entrepreneurs, and community leaders. Together, over a shared meal, we explore new ideas and discuss the importance of resilient, inclusive cultures.

 

Tackling Big Issues

Our series began in Baltimore, during the 2015 Social Venture Network Gathering. We convened an amazing group of change-makers and influencers to answers questions like:

  • What is the potential of transforming culture through impact investing?
  • How do we begin to see culture as part of our strategy for impact?
  • What does a society that embraces cultural differences look like?
  • What does it mean to shift real power to the voices and experiences that shape our culture?

The words of the phenomenal author and social activist the late Grace Lee Boggs centered our conversation and provided true inspiration for the group. Grace led a life infused with critical conversations and demonstrated that they are an important thread of movement building. Guided by her extraordinary legacy, we used our time to enjoy the process of new ideas and new meanings being formed.

Next, we moved to New York and Los Angeles, where we asked guests to reflect on our responsibility to shape and mold the country’s culture. We viewed a beautiful video of Nina Simone, who talked about the role we can all play in making progress to inclusiveness. We also reviewed the work of the renowned artist, Frida Kahlo. Her story of strength in creativity is still relevant today, and it provided inspiration for the evening. Frida managed a life of complexity, while embracing the duality of self. These two cultural icons anchored our conversations as we shared ideas and reflected on these questions:

  • How will we be responsive to culture in a way that reflects the imperatives of our times?
  • Are we supporting meaningful financial and entrepreneurial lanes that open up space for the molders and shapers or are we requiring assimilation?

 

Food Is Love

Nothing illuminates culture quite like food, which was our focus for Uncommon Conversations San Francisco. Our venue for the evening was 18 Reasons, a community cooking school supporting individuals and families discovery good, healthy, affordable food. The food we eat tells the story of where we come from and where we’re going. It determines our health and how we survive. As the demand for more local, organic food increases, we can’t ignore that the people who bring us our food from factories, kitchens, and fields often can’t afford to eat the food themselves. We challenged ourselves to consider:

  • What is our responsibility to making the country’s food system equitable for workers in the industry?
  • How do we provide broad ownership and advancement opportunities in food systems?

More recently, we convened Uncommon Conversations at the Confluence Philanthropy annual gathering in New Orleans, cohosted with Dillard University’s Ray Charles program in African American Material Culture. Our conversations centered on supporting women and girls through the arts, and touched on themes including some of the controversy around artistic expression and how to keep stories alive with art. Big Chief Delcour from the Mardi Gras Indians shared his experiences as a cultural leader with us. Another artist, B Mike, stunned us with his larger than life artworks capturing African American heroes and New Orleans locals (see title image).

We feel, and have felt for a while, there has been an accelerating cultural shift cultural shift towards inclusiveness with regard to gender equality, equity, and agency for people of color. Lately, we’ve all witnessed a very quick and rapid change in the predominant narrative around this hard-fought progress. It is our belief that the underlying cultural shift towards inclusivity is still happening, and it is strong. The question we need to answer is this: “How do we shift the predominant narrative?”

 

Pressing Ahead

The richness of the Uncommon Conversations is a treat in and of itself. But our goal is for these conversations to inspire more individuals, especially impact investors. We want them to think about how they can support cultural entrepreneurs and movements. Ultimately, we want to build frameworks that integrate culture, inclusiveness, freedom, and agency into economic analyses.

We are in an unprecedented moment of change. As we explore the intersection of impact investing and culture, we deepen our collective understanding of what impact really means. We can identify new ways to disrupt our cultural norms and invest in equitable and culture shifts that are equitable and inclusive.

Economic Update Q1 2017

By Jane Swan, CFA, Senior Wealth Manager

Equity market returns in the first quarter were very strong. Investors were seemingly unfazed as political commentators vacillated between exuberance and doubt over the potential for the Trump presidency to advance tax cuts and other pro-business policies. The S&P 500 (U.S. large cap) was up 6.1 percent. The Russell 2000 (small cap) was positive at 2.5 percent. The MSCI EAFE (developed international equities) rebounded and were up 7.4 percent. Strongest of the major equity benchmarks was the MSCI Emerging Markets index, up 11.5 percent in the quarter.

2017 Q1 Asset Class Returns

Within equity markets, the strongest performance came from the technology sector, up 12.6 percent. After technology, the best-performing sectors were consumer discretionary, health care, and consumer staples up 8.45 percent, 8.37 percent, and 6.36 percent respectively. Only two of the ten sectors were negative. Telecom was down 4 percent and energy was down 6.7 percent. Positive earnings forecasts for the year are largely dependent on growth in earnings from the energy sector. The declining price of oil and weakness in the energy sector ordinarily casts a more negative pallor over the market.

2017 Q1 Sector Returns

Fixed-income markets were positive despite the interest rate hike at the March meeting. Tepid but consistent economic growth, low unemployment and a slight increase in inflation compelled the Federal Reserve to raise the Fed Funds rate by a quarter of a percent to the range of ¾ to 1 percent. The statement also foreshadows future rate hikes by year-end. The small rate hike did not impact longer maturities, as the yield curve flattened. This flattening reflects a disagreement between the bond market and stock market about the likelihood of a significant economic expansion. Fixed-income markets ended the quarter just barely positive after negative returns in the end of 2016. Treasuries were up 0.8 percent. The yield on the 10-year Treasury was almost unchanged at 2.39 percent from 2.45 percent at the end of 2016. Corporate bonds were up 0.8 percent. Intermediate munis were up 1.9 percent. High-yield bonds were up 2.7 percent in the quarter.

As we look at market behavior and reaction to political environment, there are a number of factors we carefully consider. Thus far, the majority of investors appear to react favorably to political statements and promises by the Trump administration that are business-friendly. At the same time, investor reaction has been muted to setbacks in the administration’s agenda. The market rallied in early March as debate began over a bill repealing and replacing the Affordable Care Act (ACA), but was flat the week the bill died without reaching a vote. Many business-friendly tax reforms are dependent on cost savings from the rollback of the ACA. However, the lack of reaction suggests that the market still believes significant tax reform can be achieved. Likewise, with a significant portion of earnings growth expected from the energy sector, declines in the price of oil and related earnings expectations for energy companies have not yet caused a drag on the market. Many of our clients have limited direct exposure to the energy markets, but a significant shock in this sector would have repercussions across the market.

With the initiation of many expected rate hikes, fixed-income investors are anxious about their portfolios. Interest rates have an inverse relationship with bond prices. This means that when interest rates go up, the prices of previously issued bonds declines. The decline in prices occurs because the increase in rates enables new bonds to pay higher rates than the previously issued bonds.  The sooner a bond matures (the shorter the bond’s duration) the less likely the bond will experience a price decline when interest rates rise. Conversely, the further away the maturity, (the longer the bond’s duration), the greater decline in the bond prices when interest rates rise. Bonds with a longer duration pay a higher current yield than bonds with low duration, but they also carry more risk and suffer more when interest rates rise.

Many investors look to the bond portion of their portfolios primarily for stability and preservation of capital. Declines in this asset class can be uniquely disconcerting. In the persistently low interest rate environment of the past decade, many investors have grown frustrated by low yields and have turned to longer durations or lower credit quality (high yield, also known as “junk” bonds) to increase income from bonds. Because these bonds have greater potential to fall in value as interest rates rise or credit quality declines, understanding this risk is important.

For investors using bond funds, there is a possibility that a decline in prices of existing bonds from interest rate hikes will cause panic selling among investors. Investors using laddered bond portfolios (a series of bonds over a spread of years that are held until the bonds mature) may have more control than bond fund owners. Fluctuations may not have a real impact on the investor. As we consider the options for bond investments for our clients, we look to find the best fit for their financial and impact objectives. Where individual bonds have the benefit of allowing the investor to limit realized losses by holding bonds to maturity, individual bond portfolios are almost always less diversified than bond funds. While bonds can theoretically be traded at any time, bond trading is significantly less efficient than stock trading. Transaction expenses for small bond denominations are expensive. Remembering that the primary purpose of a bond allocation is preservation of capital, the diversification through a bond fund should be balanced with the ability to control against losses from rising interest rates. For investors who do not have a large enough bond allocation to appropriately diversify their bond holdings, bond funds are often a better choice than owning an insufficiently diversified bond portfolio.

Your Veris team knows that uncertain times are unsettling to investors. While we continue to keep abreast of possible and unpredictable impacts from policy changes, we focus on our clients’ long-term goals. Our sustainability core-values help filter short-term noise in the financial markets without losing sight of the long-term risks and opportunities.