SRI pioneer Amy Domini last week launched Nia Global Solutions (Nia), a separately managed account for qualified investors that takes impact investing into public stock markets.
Co-founded with Oakland, Calif.-based Kristin Hull, an entrepreneurial philanthropist and impact investor, Nia invests in narrowly focused firms whose sole purpose is to solve intractable environmental or social problems. The firms’ areas of interest include renewable and efficient energy and technology, inclusive finance, environmentally friendly affordable housing that promotes community development, organic and non-GMO food products, health care, affordable transportation and educational opportunities for the poor and disadvantaged.
"The piece of impact investing that resonates with me is extremely targeted outcomes," Domini said. She pointed out that venture capital often "disappoints" in this regard because venture capitalists usually aim to sell young firms to bigger companies. "Couldn't the purchase of public stocks, rather than venture capital, meet the solution orientation [of impact investing] without this tragic outcome?"
Nia is Swahili for intention or purpose, and for Domini and Hull, it has a double entendre. Besides investing, Nia's goal is to demonstrate that these companies can add significant value to society by solving meaningful human problems while earning a competitive return for investors. The portfolio, which is managed as a separate account, is only open to accredited investors. The minimum investment is $250,000 and the fee is 1 percent.
"This is uncharted territory in terms of what kind of difference we can make," says Hull, who believes foundations should invest all their assets (not just 5 percent) to serve their charitable purpose. In 2007, she convinced her family of origin to place the family foundation’s entire $20 million endowment in do-good impact investments, beginning with community banks and nonprofit loan funds. The Hulls had already pulled out of the stock market in 2008 when private foundations on average lost 25 percent of their assets. Hull has since established the Nia Community Foundation, which is dedicated to social justice in Oakland. To date, her foundation has made 15 investments in companies that are based in the city or work there.
"I wanted to share the excitement I have with my private investing and make it more accessible," she says. "If we get people conscious and excited about their investments, things are going to change."
Nia is housed within Domini Social Investments, the home of three SRI mutual funds. But the portfolio represents a significant change for Domini, which, among other things, in l990 launched the Domini 400 Social Index (now the MSCI KLD 400 Social Index), comprised of primarily large-cap companies. As of June 30, the index has outperformed the S&P 500 Index over 5 and 10 years and since-inception periods. And like the index, her mutual funds have mostly consisted of large-cap companies.
In contrast, about half of Nia's 35 companies are small-cap, five or six of them under $1 billion—companies that are so small that Domini wonders why they are even public. As such, Nia evaluates them using venture capital criteria—things like quality of management, market niche, what's unique about the company's product and ability to infiltrate that market niche, burn rate, and so on. Because venture capital has a mixed record, the idea is to let the winners run up to 11 percent of the total portfolio's value rather than trimming them and limiting them to the traditional public market value threshold of 6 percent.
"We are willing to let some of these companies get very big because that's how venture capital works," she says.
The other half of the companies in Nia's portfolio, representing about 65 percent to 75 percent of its market value, is more seasoned. Nia evaluates these companies using more traditional stock selection criteria. Are they well priced? Do they have reasonable growth? And while quality of management and product s are still important, the analysis consists of looking more at the companies’ history and how successful they have been at accomplishing their goals. These stocks are limited to 6 percent of the portfolio's total value.
To make it onto Nia's buy list (now 70 companies, about half in the U.S.), companies must fill two requirements: First, among the top 10 officers of the company—either top management or board members—must be female–one. Second, there must be some acknowledgment of people and the planet and corporate social responsibility—for example, a statement of recycling, a carbon footprint, a company policy regarding its supply chain.
"[The gender requirement] sounds like a pretty pathetic line, but we lost a lot of companies [because of it], including Tesla," Domini said. "I personally had to boot out about 30 companies that were in other ways such strong social stories."
Hull and Domini both express enthusiasm about many of the companies in Nia's portfolio:
* OraSure Technologies Inc. (Nasdaq: OSUR) has the first at-home test for HIV, "an answer to the HIV spread problem," Domini said.
* Mitek Mobile (Nasdaq: MITK) sells technology that lets consumers to bank with their smart phones—something that has allowed credit unions to offer the convenience to populations that may not have Internet services at home.
* Sun-Opta (Nasdaq: STKL) is a Canadian farm-to-table food manufacturer that produces burritos under the Trader Joe label—"a pure organic play," said Domini.
* Sanlam (JSE: SANLAM) is one of South Africa's largest financial services companies and has been on an acquisition spree in one of the fastest-growing emerging regions. It is also a black empowerment company with a 150-page corporate social responsibility report.
* Ocean Power Technologies (Nasdaq: OPTT) extracts energy from ocean waves.
Ultimately, Nia is about extremely targeted outcomes. In the area of solar energy, for example, the portfolio includes a firm that makes panels, another that makes inverters so the panels can talk to the grid, one that finances residential properties and another that finances industrial projects.
"You build the package that has seven or eight individual companies, each addressing a narrow need, which together can make solar energy universally available," Domini said. "It's a buy and hold strategy. The best moneymakers are the people that buy good companies and hang onto them. You don't trim them here and buy them there. You go in, occupy and hold for 25 years."
