Lending

RSF Links Socially-Conscious Borrowers, Investors

December 18, 2013

RSF was recently featured in an article in the The Press-Democrat. Author Cathy Bussewitz interviewed Don Shaffer, President & CEO, and other attendees of the recent Pricing Meeting in Santa Rosa, CA.

It was a strange place for a meeting about interest rates.

On a cold night at the Summerfield Waldorf School in Santa Rosa, while a crowd mingled in the school auditorium munching on locally made hors d’oeuvres under the warm lights of a Christmas tree, a group of borrowers and investors hashed out specifics on the details of their loans.

The event was held by RSF Social Finance, a San Francisco-based nonprofit that provides loans and investment opportunities to socially-conscious enterprises. It was part of RSF’s attempt to make finance more transparent, by bringing borrowers and lenders together in one room.

“Our stated mission is to transform the way the world works with money, and the way we look at it is one relationship at a time,” said Don Shaffer, president and CEO of RSF.

Press-Dem image

Esmerelda Arreola packages tea displays of Guayaki yerba mate at its Sebastopol facility. (John Burgess/ Press Democrat)

“The way I describe our financial system today is as complex, opaque and anonymous, based on short-term outcomes,” Shaffer said. “And what we try to do at RSF is to model financial transactions that are direct, transparent and personal, based on long-term relationships.”

To accomplish that goal, RSF creates an unusual opportunity for the borrowers — companies like Sebastopol beverage maker Guayaki — to meet with investors. In the gatherings, known as “pricing meetings,” the borrowers explain how they’ve been spending their money and how a change to their interest rate would impact their bottom line. Investors have a chance to meet the entities they’re helping to develop, and they also get a chance to chime in on what a change to the interest rate would do for their financial outlook.

“The pricing meetings are so powerful,” said Susanne Karch, owner of Estate Services, based in San Rafael, who has invested about $17,000 in RSF. “After those meetings, I always go home and write another check.”

Read the full article here

 

Small Grain, Big Change

November 19, 2013

This essay was originally published in the Fall 2013 RSF Quarterly

by Jillian McCoy

In 1993, Caryl Levine and Ken Lee decided they wanted to start a business together. They took a market research trip to China and while visiting rural farmers, they found their calling. Caryl and Ken were introduced to the culture of rice and some of the issues connected to it: an astounding loss of rice biodiversity, the plight of farmers at the base of the pyramid, and unsustainable agriculture practices. “The most unique rice widely available in US supermarkets at that time was Basmati. It was shocking to learn that thousands of varieties were going extinct because there was no market,” says Levine. “When we started to think about the larger economic and environmental impacts, we knew we had a great opportunity in front of us.”

These economic and environmental impacts are of no small measure. Nearly half the world’s population relies on rice as its dietary staple and about 75% of that supply is generated by small-scale, irrigated production—simply put, small farmers. This type of production consumes up to one-third of the Earth’s annual freshwater supply, depletes soils, and after cattle, is the second leading cause of man-made methane production (a major contributor to climate change).

Two years after that trip, Levine and Lee co-founded Lotus Foods, Inc. with a mission to support sustainable global agriculture by promoting production of traditional heirloom rice varieties, some of which may otherwise have become extinct, while enabling small family rice farmers to earn an honorable living. Lotus Foods works with in-country partners to source rice from Bhutan, Cambodia, China, India, Indonesia, Thailand, Italy, and Madagascar, and distributes it in natural food and specialty grocery stores in the US and Canada.

When Lotus Foods was founded, distributing fair-trade heirloom rice varieties from farmers in developing countries to North American consumers was new ground. “We were totally winging it,” says Levine. “We had to take a crash-course on rice, farming, and the whole industry.”

In addition, Levine and Lee faced a challenging supply chain. On one side, they were working with farmers to improve quality assurance (for US markets), and helping to educate them on the long-term impacts of sustainable practices versus the short-term economic rewards touted by conventional distributors. On the other side—distributors, retailers, and consumers—needed education on the value of diverse rice varieties and fair-trade pricing. But their passion for their mission was always there, and, slowly but surely, the company gained traction.

Group shot

Ken and Caryl with farmers from the Ramnagar Project in the Himalayan State of Uttarakhand, who are growing traditional basmati rice organically using System of Intensification methods

In 2005, Lotus Foods developed a game-changing partnership. They were contacted by staff at Cornell University who were involved in promoting research and awareness about a sustainable rice-growing methodology called System of Rice Intensification (SRI). The SRI methodology uses significantly less water than the conventional flooding methods used to grow rice, and results in higher yields and the need for fewer inputs (seed, synthetic fertilizer and pesticide, and often labor). Furthermore, whereas the water-logged soil of conventional rice paddies is ideal for methane production, SRI fields with drier soils and healthier plants are not.

SRI improves global food security, empowers poor households, conserves water resources, and promotes human and environmental health. Today, SRI is enabling some of the world’s most marginalized farmers to double their yields (or more) using 50% less water, 80-90% less seed, and no agrochemicals. Over 2.5 million farmers in 50 countries have recorded successful adoption.

Despite this success, SRI has experienced some resistance. “True of any great development, it always meets initial skepticism,” says Lee. “This approach is the exact opposite of input-driven agribusiness. It’s very farmer friendly and you don’t have to buy any inputs like seeds or fertilizers.”

As for resistance from the scientific community, “Farmers know best how to make this work on their land. It’s a methodology not a technology,” says Lee. “Researchers are challenging this because they can’t replicate it in their labs. As long as farmers are seeing it work in their fields, I don’t really care what the dissenters are saying.  And consumers and the food industry have been very supportive of our efforts to create market incentives for SRI farmers.”

Lotus Foods now helps their current farmers transition to SRI growing methods, and partners with existing communities of SRI farmers to bring their rice to market. Sustainability and economic empowerment remain at the heart of their efforts. “New farmers must produce enough for themselves and their community before exporting even becomes a possibility,” says Lee.

As farmers flourish, so does Lotus Foods. In recent years, the company made significant investment in rebranding their line, building their management team, and solidifying their commitment to SRI. Despite some losses during the recession, the company is now poised for growth and has been profitable for the past two quarters.

Lotus Foods recently developed a new partnership with Whole Foods which is now distributing a new value-added product line. The company is continuing to develop new products and distributes via other major retailers like Safeway and Costco. In January 2013, RSF financed a line of credit to support this growth.

Working with RSF was a natural fit for Lotus Foods. “We’ve always valued working with a mission-aligned financial partner,” says Lee. “A financing relationship is one of the most important for any business owner.”

As the company grows, Levine and Lee are still focused on what inspired them in the first place: social and environmental impact. When it comes to the company’s success, they aren’t concerned with growth simply for the sake of profit. “What we really want is to expand the market for our product, so that more farmers have an opportunity to grow this way,” says Lee. “Global warming, water resources, food sovereignty, poverty alleviation—major issues worldwide—these can all be positively affected just by changing how rice is grown.”

Jillian McCoy is Senior Associate of Communications at RSF Social Finance

Serving the Underserved: Marketing to Make a Difference

October 28, 2013

RSF and borrowers, Indigenous and Common Market, were recently featured in Forbes. Author Patrick Hanlon, shares stories of social entrepreneurs across the world using the power of business to address economic and social challenges.

timetothink-300x222The numbers who are underserved is beyond counting. The important news is that the ways we help to support other human beings is evolving, transforming.

The tipping point is gyrating like a mobius strip.

“Structurally it has been a little botched,” says Don Shaffer, president and chief executive officer of RSF Social Finance. “The emergence of impact investing is encouraging.”

Impact investments are made to companies, organizations, and funds with the intention to generate measurable social and environmental impact. This is a flip on typical venture capital investing, where most firms are in search of scalable opportunities.

“We are the opposite,” says Shaffer. “If our financial system today is complex, opaque and anonymous, the world we would like to see is direct, transparent and personal—based on long-term relationships.”

Shaffer cites two more differences. First, RSF Social Finance is funded by individuals and families, not by institutional investors. This means they are not driven by quarter-to-quarter financial results. They can take the longer view.

Second, RSF looks at companies designing new platforms that create wholesale change. That means the funded company itself may remain local, but their concept may be scalable to other communities.

Read the full article here

RSF Video: Financing Social Enterprises

October 23, 2013

RSF currently provides $75 million in financing to over 80 for-profit and non-profit social enterprises.

Watch this new video to learn more about three of these organizations: Camphill Communities California, Guayaki, and Ceres Community Project. Hear their senior leaders talk about why they chose a mission-aligned financing partner and the relationships we’re building with them on our journey to transforming the way the world works with money.

Do you know of a social enterprise in need of funding? Share this video and spread the word!

 

Local Initiatives Fund: Integrating Capital for Impact

September 26, 2013

Kelley Buhles RSF Social Finance

This article was originally published in the 2012 Annual Report.

By Kelley Buhles

How does innovation happen at RSF? Where do great new ideas come from? In 2012, an extraordinary thing happened that reminded us all how innovation is truly a co-creative process.

Working in collaboration with donors, the RSF philanthropic services and lending teams launched the Local Initiatives Fund. With a focus on building socially and ecologically sustainable regional food systems, this fund utilizes an integrated approach to investment through the deployment of philanthropic dollars allowing us to leverage our expertise across two disciplines, grantmaking and lending.

One of the exciting things about this fund is how it was created. A donor approached us early in the year expressing their admiration for our work and their trust in our values. They asked us, “How can you put our philanthropic money to work to build local, resilient economies?” What was special was not the question, but rather the donor’s willingness to release the gift – we were freed to think creatively about how we could best use these philanthropic funds to create more impact. The spirit of the free gift created the space for innovation.

We recognized that our lending team needed philanthropic funds to better leverage their work financing local sustainable food systems. In the past few years, the social finance field has seen that social entrepreneurs, those trying to make positive social and environmental impact, need different types of financing than those offered in the traditional financial market. Because most social entrepreneurs work carefully to preserve or restore natural resources and provide fair working conditions for their employees, they often do not see the high level of returns that are expected in the traditional marketplace. As a mission aligned partner, we are able to provide the different types of capital needed by these organization to support their growth in a way that most lenders cannot.

Using the philanthropic funds as guarantees, the lending team is now able to make loans to younger and slightly higher risk organizations that have the potential for great impact, but do not yet meet the financial requirements of our Social Enterprise Lending program. The lending team is also able to recommend charitable grants to non-profit borrowers who need extra support for infrastructure or capacity building. Using these different forms of capital, we’re able to deploy the right form of money, for the right purpose, at the right time for an organization.

A portion of the Local Initiatives Fund has also been designated for the Shared Gifting program. In this model, RSF facilitates a process in which grantees work together to allocate grants to each other. The goal is to move the decision making power of philanthropic funds into the community. The process encourages grantees to collaborate and share resources to meet their collective goals. In 2013, we will lead a Shared Gifting circle in Skagit County, WA.

At this stage, the Local Initiatives Fund is a pilot. We look forward to evaluating and sharing what we have accomplished over the next year.

As we look to the future, we now see more possibilities than ever before for how we can use money in new ways and work with our clients in different capacities to create more impact in the world.

Kelley Buhles is Senior Program Manager of Philanthropic Services at RSF Social Finance.

Moving Social Finance Forward: An Interview with Ted Levinson

September 12, 2013

Ted Levinson, Director of Lending, RSF Social Finance

Ted Levinson, Director of Lending, RSF Social Finance

Originally published on Social Velocity

Interview by Nell Edgington

Nell: RSF Social Finance is really the leader in the social finance market, you’ve been doing this long before anyone started talking about a “social capital marketplace.” Given that long history, how do you view the current state of the social capital market? Are we where we need to be to funnel enough and the right kinds of capital to social change efforts? And if not, how do we get there?

Ted: RSF has a twenty-nine year operating history, but it’s still early days for the field of social finance. The industry is at the same stage of development as natural food stores were thirty years ago – we’re established, we’re growing, we’re doing good work, and yet we’re still considered a fringe movement. I believe we are on the cusp of mainstream acceptance which will mean a much broader audience of impact investors (especially young people and unaccredited investors) and far greater demand for social capital from the growing number of social enterprises that are just now becoming investment-ready.

There’s been a shift in society’s view of natural food stores – we’ve overcome our fear of the bulk bins and now all grocery stores look more like natural food stores. I expect the same thing to happen with our conventional financial institutions which are just now beginning to pay attention to social finance.

What the field really needs is to expand the financial products available to social enterprises and address some of the existing gaps. Frustrated social entrepreneurs may disagree, but I think the angel capital and large-scale venture capital spaces are meeting the needs of for-profits. Incubators, business plan competitions and seed funds are providing modest amounts of funding to emerging non-profits and for-profits. RSF and some of our friends including Nonprofit Finance Fund, Calvert and New Resource Bank are addressing the middle market market.

The big voids in social finance include:

  • True “risk capital” for non-profit social enterprises. We need more foundations willing to place bets on high-potential organizations.
  • Bigger finance players or (better yet) a more robust consortium of social finance organizations that can band together to meet the $5 million + needs of high growth social enterprises such as Evergreen Lodge, Playworks and other organizations that are reaching scale.

I believe the field will get there but we’re playing “catch-up” now and social entrepreneurs are an impatient bunch.

Nell: RSF does something pretty revolutionary in that you combine philanthropic giving with impact investing, whereas these two sides of the social capital marketplace have not yet really found a way to work together in any large scale or significant way. Why do you think that is? And what needs to change in order to encourage foundations and impact investors to work more closely together?

Ted: We call our approach of combining debt and philanthropic dollars “integrated capital,” and we think it’s going to have a profound effect on impact investors, philanthropists and the social enterprises it serves.

Most non-profit social enterprises rely on a combination of earned revenue and gift money. There’s no reason why a single transaction can’t bridge these two forms of capital. With integrated capital we can leverage philanthropic grants or loan guarantees to push high-impact loan prospects from the “just barely declined” category into the “approved” category. In fact, even some for-profit social enterprises are eligible for this. Our loan to EcoScraps – a fast-growing, national, composting business was made possible by a foundation that shared in some of RSF’s risk.

Integrated capital is possible because RSF works with individuals and foundations that have overcome the prevailing view that how you invest your money and how you give are distinct activities. We’re also fortunate to work with an enlightened bunch of people who recognize that philanthropic support for social enterprises isn’t a crutch or a sign of a failed enterprise.

Our work at RSF is driven by a belief that money ought to serve the highest intentions of the human spirit. Conscientiously investing money, giving money and spending money can all further this goal.

Click here to read the full interview

Ted Levinson is Director of Lending at RSF Social Finance

Nell Edgington is President of Social Velocity, a management consulting firm leading nonprofits to greater social impact and financial sustainability. Social Velocity helps nonprofits grow their programs, bring more money in the door, and use resources more effectively.

Financing Ecological Stewardship

July 17, 2013

This letter was originally published in the Summer 2013 RSF Quarterly

Don Shaffer - DefaultDear Friends,

This issue [of the RSF Quarterly] is focused on Ecological Stewardship, a topic of great urgency in the midst of what one could call “climate chaos.” We are working very hard to find and fund those social entrepreneurs who have demonstrated success in solving ecological challenges and are supporting a restorative economy. Their work is needed now more than ever, and we would like your help in identifying and directing such enterprises to us.

As Kenny Ausubel, co-founder of Bioneers, says in his sobering and hopeful guest essay, these are critical times for action by those who care for the earth and our place in it: “Everyone is called to be a leader, to be a healer. Inquire within.”  This last call speaks to the personal transformation each of us will need to engage in if we are to shift whole economic and environmental systems in time to keep the earth inhabitable. On a personal note, the annual Bioneers conferences in the 1990s were an important influence on my life and how I imagined transforming the world.

In the area of Ecological Stewardship, we would like to make more loans to help mitigate climate change, reverse the depletion of natural resources, and support biodiversity. We are particularly interested in green building, resource recovery, and the restoration and conservation of water and water systems. Current examples of RSF borrowers working in these areas include EcoScraps, New Leaf Paper, and RecycleForce (featured in this issue as one leader building the next economy).

In the abundant beauty of Northern California, it is hard to keep present the very real challenges facing farmers in drought conditions, or manufacturers who depend on depleted supply chains. We need your help in connecting with proven innovators who need loan capital to catalyze their capacity to solve these and other ecological problems we face.

We also continue to expand our portfolio in our focus areas of Food & Agriculture, and Education & the Arts. Our investors remain excited about the innovative work we are doing here, all of which is dependent upon a healthy environment and thriving earth systems. I am reminded of E.B. White’s famous quote: “I arise in the morning torn between a desire to improve the world and a desire to enjoy the world. This makes it hard to plan the day.” We have much to do to assure that our world remains a healthy place to be enjoyed by all.

All my best,

Don

Click here to download this issue of the RSF Quarterly

If you have ideas for social enterprises we should be working with, let us know!

Don Shaffer is President & CEO at RSF Social Finance.

RSF Pricing Meeting: Resetting Rates, Recognizing Interdependence

July 8, 2013

by Jillian McCoy

Inspiration

For many years, we based our investors’ return rate on the 13-week U.S. Treasury Bill.  Each quarter we recalibrated the rate based on this well-publicized benchmark.  In 2006, we shifted to a different benchmark – LIBOR, or the London Interbank Offered Rate – which at the time represented the most commonly accepted barometer for short-term interest rates worldwide.

In 2009, well before the now notorious LIBOR scandal, RSF staff knew that a seemingly arbitrary rate, disconnected from the needs and activities of our community, was not a right fit. During a staff study group of Rudolf Steiner’s lectures on economics, we realized that the community of participants in the RSF Social Investment Fund were best suited to accurately determine a price that meets the needs of all parties.

Innovation

As of October 1, 2009, RSF adopted a community determined rate recommended each quarter through collaborative conversation with representatives of all three stakeholders in the RSF Social Investment Fund – investors, borrowers, and RSF staff.  A 4% spread (used to fund RSF’s operations) is then added to this customized SIF rate to determine RSF Prime, the base rate for borrowers in our Social Enterprise Lending program.

This collaborative process begins at each of our quarterly Pricing Meetings where stakeholders gather to meet one another face-to-face, discuss their needs and intentions, and share how an increase or decrease in the rate might impact them.

To date, we remain the first and only lending institution that has facilitated meetings between investors and borrowers to determine loan pricing.  With RSF staff at the table facilitating the conversations, all three stakeholders are reminded of the impact of their financial decisions. In this environment of direct engagement, the conversation is elevated beyond efforts to pay as little as possible or earn as much as possible. Instead, the stakeholders seek to achieve a balance between the financial and impact needs of everyone present.

Over 100 guests joined us for a community reception following our most recent pricing meeting in San Francisco.

Over 100 guests joined us for a community reception following our most recent pricing meeting in San Francisco.

Impact

In 2012, RSF Prime decreased by 0.25% to 4.75%. This was the first decrease since RSF Prime was first established. Since 2012, the rate has dropped an additional 0.25%. The driver behind the decrease was to ease some of the financial burden of existing borrowers and increase RSF’s ability to attract new borrowers.

Perhaps not surprisingly, at our most recent pricing meeting in San Francisco, there were requests from the investor community to increase the rate. However, over the course of the evening, their understanding of the impact of the interest rate shifted from their natural self-interest to an understanding of the whole system.

As one RSF staff member who attended the meeting commented, “One of the significant moments came when one of the borrowers talked exactly about how an increase in the interest rate would affect her company financially, and prohibit them from making a key hire at a time when her company needs additional staff to support growth. Investors could see in no uncertain terms the consequences of their stated need for a higher return. The resulting recognition of how their interest was directly connected to the borrowers was a transformative moment.”

In fact, although most of the investors noted that they would like an increase in the interest rate, they decided not to recommend an increase after learning how it would negatively impact the borrowers. At one point, one investor became emotional while expressing just how much it meant to her to be a part of this community, and learn more about how each borrower is having a positive impact in the world.

The borrowers were also touched by the conversation. One participant reflected, “It is thrilling to be a participant in the avant-garde of social finance. The current system is broken and we applaud this process where a more sensible and holistic paradigm can be practiced.”

Before the close of any quarter the RSF Pricing Committee, an internal RSF team, meets to discuss and reset the interest rate. The committee considers the input from the Pricing Meeting attendees in addition to reviewing macroeconomic conditions and the competitive market. The committee determined that the interest rate will remain the same for Q3 2013 – 4.5% for RSF Prime and 0.50% for investors.

Jillian McCoy is Senior Associate, Communications at RSF Social Finance. 

7 Tips for Social Enterprises Looking to Raise Capital

July 2, 2013

Originally published on The Huffington Post

Don Shaffer - Defaultby Don Shaffer

Raising growth capital is a challenge for most businesses, but social enterprises face an extra hurdle–they have to show how they’re going to maximize their positive impact and demonstrate the qualities investors generally look for, including a strong management team, a unique approach to the market or problem, and growth potential.

What does it take to succeed? Based on my experience as an entrepreneur and now a social enterprise funder, these seven strategies–a mix of fundamental business building and savvy approaches to fundraising–will put your enterprise in the best position to get the capital it needs to realize its vision.

1. Build a stellar management team. Just as real estate is about location, location, location, raising money is about management team, management team, management team. The first question funders have is “Who is running the business and what do they bring to the party?” Do a ruthless assessment as early as possible. And if you have a gap, say so. Don’t force funders to hunt for weaknesses in your organization–it makes you look bad.

I recently met with a potential borrower that gave us no information about the management team other than their names. They have a couple million dollars in revenue and it’s a pretty complex business for the size–and they botched their financials to us. The business was a perfect fit for us, but it made us nervous that they not only didn’t seem to have a finance person, but also didn’t seem to understand that it was a problem.

2. Ditch the 70-page business plan binder. Funders don’t want to plow through that, and they won’t. Go with a one-pager that focuses on the top questions on the funder’s mind: Are you addressing a real problem? What’s unique about your business? Why you? Is this a growth business or a lifestyle business?

3. Have a practical plan as well as an inspiring vision. This applies to impact growth as well as financial growth. What’s your story about how you’re going to get from where you are now to the next level? Be realistic: if all your graphs zoom up to the right as sharply as possible, a serious funder will think you don’t have a prayer.

4. Seek the right kind of funding for your goals. Social entrepreneurs often buy into the culture of venture capital–they position their enterprise as a growth business, look for a miracle angel investor and start giving away equity. They’re not thinking about how the investor gets their money back. Consider at the beginning what you ultimately want to do. Are you planning to sell this business? Do you see this as a legacy business that you’re building to last?

A long-term, slow-growth plan won’t destroy your chances for funding; you’ll just need to look at different kinds of funding. At RSF Social Finance, for example, we don’t need borrowers to be a rocket ship, as long as they can steadily pay off debt.

5. Search out specialist funders. Dedicated social enterprise funders typically specialize in one or a few areas where they have a passionate commitment and deep knowledge. Look for funders that focus on your sweet spot–they’ll have a better understanding of the market opportunity, and won’t expect your business to compromise its mission in order to grow.

6. Ask for advice–sincerely. Brazenly pitching everyone you meet like a madman is likely to annoy people. Figure out what value you can bring to a discussion, and ask funders for advice. People love to give advice. But as in dating, don’t be desperate. If you’re only pretending to earnestly want advice because you’ve heard this tip, people will see through that.

7. Show that you can go the distance. A funder wants to understand not only why your business is needed and why you’re the one to build it, but also your level of stick-to-itiveness. You could be brawling with your partner and lots of things are going to be a disaster– the point is to tell the funder a couple of things that demonstrate how resilient and determined you are.

Don Shaffer is President & CEO at RSF Social Finance.

 

Good Morning, Beautiful Business

June 26, 2013

This essay was originally published in the Spring 2013 RSF Quarterly.

Judy Wicks Headshotby Judy Wicks

Not long after I opened the White Dog Cafe in Philadelphia in 1983, I hung a sign in my bedroom closet in my home above the shop – right where I would see it each morning. “Good morning, beautiful business,” it read, reminding me daily of just how beautiful business can be when we put our creativity, care, and energy into producing a product or service that addresses our community needs. I would often think of my own business, and how the farmers were already out in the fields harvesting fresh organic fruits and vegetables to bring into the restaurant that day. Business, I learned, is about relationships—relationships with everyone we buy from, sell to, and work with, and our relationship with Earth itself. My business was the way I expressed my love of life, and that’s what made it a thing of beauty.

My new memoir Good Morning, Beautiful Business: the Unexpected Journey of an Activist Entrepreneur and Local Economy Pioneer follows my evolution from a little girl who rebelled against playing with dolls and learning to cook, to a businesswoman who fully embraced her feminine energy to help build a new economy—one based on caring and sharing.  A key turning point in my evolution came when I moved from being a competitive businessperson to a cooperative one.

This story begins when I learned about the cruel and unhealthy treatment of pigs in the industrial system, where sows are crammed into small crates in windowless factories for their entire lives.  I was aghast that the pork I was serving at the White Dog must come from this barbaric system, as most of the pork in our country does.  The next day, I went into the kitchen and announced, “Take all the pork off the menu. Take off the bacon, the ham, and the pork chops. We cannot serve pork again until we find a humane source.” Our chef asked farmer Glenn Brendle, who was bringing in free-range chicken and eggs, if he knew a place that raised pigs in the traditional way.  It wasn’t long before he was bringing us two pigs a week.

Next I discovered the plight of the cow—herbivores confined in barns and crowded feedlots and fed subsidized grain. So we found a local source for grass-fed beef and dairy. After much work on our chef’s part to find humane sources for all our animal products, I looked at our menus and thought, At last! We’ve done it! All of our meat, poultry, eggs, milk, yogurt, and cheese come from farmers who treat animals kindly. No product comes from the industrial system of factory farms. And we were the only restaurant in town that could make this claim. So this was our market niche. Our competitive advantage!

Then my transformational moment came. I said to myself: Judy, if you really do care about the pigs and other farm animals that are treated so cruelly; the small farmers who are being driven out of business by factory farms; the environment that’s being polluted by the concentration of waste and unhealthy practices; the workers in these ghastly slaughterhouses and factories; the rural communities that are being destroyed; and the consumers who eat meat that’s full of antibiotics and hormones, then rather than keep this as your competitive advantage, you should share your knowledge with your competitors.

Up until this point I had always felt that my highest calling was to model socially responsible practices within my company, but it was no longer enough. After all, there is no such thing as one sustainable business, no matter how great our practices are, we can only be a part of a sustainable system. I had to move from a competitive mentality to one of cooperation in order to build that system—an entire local food system based on the values I upheld.

I was ready to roll. We needed to expand the small network of local farmers supplying the White Dog to a much larger network of farmers supplying as many restaurants and retail markets as possible. I asked farmer Glenn if he would like to expand his business.

“Yes,” he replied.
“What’s holding you back?”
“I need thirty thousand dollars to buy a refrigerated truck so I can deliver to more restaurants.” I loaned Glenn the thirty thousand dollars, and he bought the truck.

It takes a lot of capital to build a new economy. The type of low-interest loan I made to farmer Glenn for his refrigerated delivery truck is needed across the country. Yet most people, even those who want to bring social change and see the need for a more nurturing economy, invest their savings in the stock market where it perpetuates the old exploitive economy. My own experience in learning how to invest differently began in 1999 when I suddenly became a stockholder. After my mother passed away, I inherited a stock portfolio comprised of holdings first purchased by my grandfather and kept in the family for over fifty years. I wasn’t quite sure what to do with it all.

At first I hired a broker to trade my stock for what was considered “socially responsible investing,” a concept where stock is “screened” to eliminate companies involved with such things as weapons, tobacco, and animal testing. But when I looked at my new portfolio, I was shocked to see Wal-Mart, a company known to destroy local economies and underpay its workers. How could I support such a company—even if it had passed through the screens created by brokers for socially responsible investing?

That’s when I realized that I did not want to participate in the stock market at all. These are single-bottom-line companies, who by law are directed toward maximizing profit for stockholders above the interest of other people and our planet. Instead, I wanted to invest in companies that passed through a different screen, one that could filter out all companies who are not independently owned and triple bottom line.

So in 2000 I sold all my stock. That’s when I first became an investor in RSF Social Finance and a local investment vehicle called The Reinvestment Fund (TRF), where I knew my money would be used to build the economy I envisioned. To the surprise of my investment-savvy friends, over the long term my investments at RSF and TRF outperformed their stock market returns.

When I discovered that the wind turbines bringing renewable electricity to Philadelphia were capitalized by TRF, I coined the term living return. The return on my investment was not only paid in dollars, but by the benefit of living in a healthier community. I began receiving a living return, and with it the happiness and satisfaction of knowing where my money was—doing good right in my community.

Naturally, I also saw living returns from direct investment in my supply chain. My loan to farmer Glenn improved my menu and supported local sustainable farming.  I made another supply chain investment in my coffee source helping Zapatista revolutionaries in Mexico export organic fair trade coffee.  Previously, the growers were forced to sell to local representatives of giant coffee corporations for such a low price that it kept them in poverty. After learning of the violence and oppression waged against the indigenous people of Mexico, I organized a group of coffee importers and investors to assist the pro-democracy struggle by developing direct fair trade routes between an indigenous cooperative and two coffee importers in the U.S.  A fellow investor and I each made a $20,000 low interest loan to the two U.S. fair trade importers who then pre-paid the cooperative so they had enough money to buy the coffee from their members.  Once the coffee was shipped to the importer and sold to coffee roasters around the country, my loan was repaid. After the second year’s loan, the indigenous cooperative had enough capital to pay their members for their coffee without a pre-payment from the importers.  Again the pay-off for me for investing in my supply chain was not only financial but in having access to organic fair-trade coffee grown by people I knew and trusted.  And, importantly, it was also an experience that helped me envision a new global economy—one comprised of a network of local economies self-reliant in basic needs and connected by fair trade.

Building a new economy, I came to realize, rests on a simple quality: our capacity to care—followed by our willingness to do what is necessary to defend and nurture what it is that we truly care about. Change begins in the heart of the entrepreneur. And for that matter, the hearts of the investor and consumer as well. It’s the power of love and compassion that can bring transformative change and build an economy that is prosperous and strong, yet one where loving relationships matter more than profits.

Judy Wicks is an entrepreneur, author, speaker, and mentor working to build a more compassionate, environmentally sustainable, and locally based economy. In working toward this vision she founded Fair Food, the Sustainable Business Network of Greater Philadelphia, and co-founded the Business Alliance for Local Living Economies, BALLE.  As an entrepreneur, Judy is best known for Philadelphia’s landmark White Dog Cafe, which gained national recognition for community engagement, environmental stewardship, and responsible business practices. With Chelsea Green Publishing, Judy recently published Good Morning, Beautiful Business (from which this essay was adapted). For more information or to purchase a copy of the book, please visit www.judywicks.com.

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