Alternative Investments: Achieve Deeper Diversification and Impact

Alternatives encompass all the investments that do not fit in the conventional asset classes of cash, fixed income, and public equities. Even private investments, which we covered in the last chapter, are usually considered to be alternatives. Currency, gold, real estate, natural resources, art—virtually anything you can buy and sell—can be an alternative.

People invest in these assets for a variety of reasons. They may be pursuing portfolio diversification, a hedge against inflation, opportunities to grow wealth, or a personal interest. Here's a breakdown of each:

  • Portfolio diversification is a commonly cited reason for investing in alternatives because these assets are not usually correlated with stock and bond markets. Happily, there are a number of values-aligned alternatives you can invest in to achieve this goal.
  • Tangible assets such as gold, art, or real estate are often used as a hedge against inflation or economic setbacks. Investments in foreign, or even crypto, currencies can serve a similar function. My husband owns both gold and cryptocurrency, while I hold neither.
  • Many people view real estate as a means of generating wealth, particularly in markets that have historically experienced rising property values over the long term. I was weaned on real estate and count on it as part of my income during retirement.
  • Sometimes, we have specialized knowledge we want to capitalize on and invest accordingly. Or we're so interested in a subject that we decide to learn. That's what happened with some people I know who are investing in sustainable agriculture.

How much of your money you allocate to alternatives depends on your goals. If you're interested in this asset class primarily as a means of diversifying your portfolio, many advisors recommend placing no more than 10% of your investable assets here. Those with more wealth might consider a larger allocation. If you're looking at real estate or using specialized knowledge to build your wealth, you may have a significant percentage allocated to those alternatives, particularly if you consider them a side business.

Alternatives Come in Many Forms

As you'll learn in this chapter, you can take a nontraditional approach to your investing using fixed income, public equity, private debt, or private equity instruments. You also can invest in alternatives by purchasing tangible assets or physical property. Since each option comes with its own risk-return trade-off, you'll need to assess each investment individually.

This chapter will introduce you to several values-aligned alternative investments. You'll learn what's possible within this asset class and walk away with some options you can invest in right away.

REITs' Cross-Impact Categories

The first alternative investment we're going to look at is a real estate investment trust or REIT. This is a company that finances, owns, and/or operates income-generating real estate or natural resources. REITs collect rent or generate income from the properties they hold and pass those profits to investors through regular dividends. Some REITs are publicly available while others are private. Public REITs function a lot like mutual funds. They're traded on the stock market, which makes them a fairly liquid investment.

Although REITs can invest in any type of real estate, most specialize and typically hold properties in a single real estate category. Although most REITs are not values-aligned, some are. Examples include REITs that invest in senior health, renewable energy, farmland, timber, and climate change.

People invest in REITs because they're looking for the dividend income and capital appreciation associated with owning real estate coupled with the ease of investing in publicly traded stock. As you will see in Table 10.1, returns on REITs can be as variable as the real estate holdings they own.

Like any stock offering that focuses on a single sector, these investments can be risky. When you invest in a REIT, you're also putting your trust in a real estate management company. Before investing, make sure you know something about the integrity of the company and the people behind it—from both a financial and an impact perspective.

TABLE 10.1 Real Estate Investment Trusts

Source: Morningstar as of Sept 11, 2020.

Ticker 3-Yr. Return 5-Yr. Return 10-Yr. Return Other
Digital Realty Trust DLR 7.84% 21.63% 11.26% Owns and operates data centers; the company has a long-term goal of powering its entire portfolio with renewable energy
Hannon Armstrong HASI 23.33% 19.95% - Invests in climate change solutions; every investment they make has to lower or mitigate climate change
Prologis PLD 17.73% 24.11% 16.36% Invests in distribution centers and warehouses; considered to be a sustainability champion by cutting greenhouse gases and expanding use of solar and LED
Welltower WELL −2.99% 3.79% 6.88% Has an emphasis on senior care; finances senior housing, assisted living, memory care communities, and medical facilities
Weyerhaeuser WY −1.59% 4.63% 8.91% One of the largest private owners of timberland and mills; sustainability of their lands and community development are stated goals

Renewable Energy

You don't have to look far to see the negative impacts that pollution and climate change are having on our environment. Support of clean and alternative sources of energy is accelerating and their use is growing. Hydro-, wind, solar, and geothermal power are all forms of renewable energy. In 2019, their use in the US exceeded that of coal for the first time in 130 years.1 Their importance is reflected in the stock market as well. Returns on several clean energy funds were more than double the S&P 500 Index in 2019. Although nothing is guaranteed, if this trend persists, we could continue to see significant returns into the future.

Anyone Can Invest in Renewable Energy

The easiest way to support renewable energy is by banking with the Clean Energy Credit Union, which was introduced in the cash chapter. It's also possible to invest in renewable energy though the public equities market where there are currently 10 to 12 renewable energy ETFs. You were introduced to a few of these funds in Chapter 8, and can find a more comprehensive list in Table 10.2. The one-year return data is included for comparison purposes only. If any of these ETFs interest you, please use Morningstar or other online tools to get a full picture of the investment's performance and to assess its historic risk-and-return profiles.

TABLE 10.2 Renewable Energy ETFs

Compiled with data from Morningstar as of Aug 11, 2020.

Ticker 2019 Return Fees Other
S&P 500 Index 31.49%
ALPS Clean Energy ETF ACES 51.67% 0.65% Invests at least 80% of its assets in US and Canadian companies involved in the clean energy sector, such as renewables and clean tech
First Trust ISE Global Wind Energy ETF FAN 31.18% 0.62% Invests at least 90% of its assets in US and global companies around the world working actively in the wind energy industry
First Trust NASDAQ Clean Edge Smart Grid Infrastructure ETF GRID 42.83% 0.70% Invests at least 90% of assets in US and global hardware and software companies involved in creating a smart energy grid infrastructure
Invesco Cleantech ETF PZD 36.45% 0.65% Invests at least 90% of its assets in US and global companies involved in cleantech; at least 50% of revenues must come from these activities
Invesco Global Clean Energy ETF PBD 40.01% 0.75% Invests at least 90% of its assets in US and global companies that generate and use clean energy or that advance renewable energy
Invesco Solar ETF TAN 66.53% 0.71% Invests at least 90% in companies in developed markets that generate a significant portion of their revenue from some aspect of the solar industry
Invesco WilderHill Clean Energy ETF PBW 62.57% 0.07% Invests at least 90% in US and global companies advancing cleaner energy and conservation
SPDR S&P Kensho Clean Power ETF CNRG 63.25% 0.45% Invests at least 80% of assets in US and global companies driving clean power innovation through their products and services

Backing Renewables with Private Debt and Private Equity

My research and personal experience have uncovered limited private debt investments in renewable energy. On occasion, private debt funds become available, enabling investors, most often accredited, to participate. Once the amount the fund managers set out to raise has been obtained, the fund closes and is no longer available for investment.

Wunder Capital and Greenbacker Renewable Energy Corporation have offered renewable energy debt funds in the past. Although the funds are now closed, it's likely these companies will offer new funds in the future. If you're interested, hop on their websites. You can also tap into email lists, industry associations, and impact investment clubs to stay informed.

As an accredited investor, you also have the opportunity to invest directly in alternative and renewable energy start-ups or venture funds. In my opinion, making investment decisions at this level requires significant levels of due diligence, specialized interest, or expertise—most likely all three. There are some angel groups that focus primarily on environment issues, such as E8 Angels in Seattle and Clean Venture Group in Cambridge. You can also check AngelList for other private equity investors interested in this sector.

Residential and Commercial Real Estate

What types of real estate investments have a positive impact? This is a question that Eve Picker asks every person she interviews on her Impact Real Estate Investing podcast, and each guest has a different answer. This is not surprising, because there are several societal and environmental issues that can be addressed through real estate. In this section, we'll focus on a few of the most recognized interventions, because they offer a diversity of investment opportunities. Specifically, we'll look at affordable housing, community development, and green building.

On the social side, affordable housing is an increasingly critical issue as our cities grow and real estate prices rise. Lower-income people are forced out of their homes—sometimes to suburbs that are hours from their places of work or, in the worst-case scenario, onto the streets. Socioeconomic inequities and discrimination in property ownership have devastated some of our neighborhoods. Revitalizing these areas through community development and ownership not only changes the place, it can also change outcomes for people who live there.

On the environmental side, our homes and offices are major contributors to climate change. Building construction and operations account for 40% of global energy use, 30% of energy-related greenhouse gas emissions, approximately 12% of water use, and nearly 40% of waste.2 A green building movement emerged in the 1960s and 1970s to reduce the negative impact of the way we live and work. Progress is being made in some parts of the world. The European Union, for example, passed regulations that require all new buildings to be net zero starting in 2021.3 A net zero building produces at least as much energy as it uses over the course of a year. Sadly, the US is trailing other countries in the move toward green construction. However, as an impact investor, you can address these challenges with your capital whether you're accredited or not.

Getting Started in Impact Real Estate Investing

The easiest way to get involved in impact real estate is by investing in community loan funds or notes. These are basically fixed income assets that target homelessness and lack of affordable housing. Another easy entry point are REITs that were designed around green building and sustainability. Some of these options were mentioned in Table 10.1. There is also a real estate crowdfunding platform that anyone can invest in for as little as $100.

Private debt and private equity provide additional options. There are also start-ups and venture funds that focus exclusively on impact real estate and the broader industry. Investment amounts, risks, and return potentials vary widely.

The most time-consuming, but potentially most rewarding, way to be involved in impact real estate investing is to use your capital to buy single- or multi-family residences or commercial properties that you develop to achieve your personal impact goals.

With the exception of community notes, minimums and risk-return profiles on a real estate investment are as varied as the deal itself. Real estate also carries additional risk. Projects can go belly-up for a number of completely legitimate reasons, including delays in development, declines in property values, and errors in assumptions related to costs and revenue. There are also unscrupulous players in the market, so please do your due diligence before you buy.

Community Notes That Support Affordable Housing

Community notes and loan funds allow you to invest in a portfolio of loans that help low-income households buy homes. These are fixed income vehicles. As such, they have relatively low risk-and-return profiles.


Some REITs that invest in multi-family housing and commercial real estate have made commitments to implement ESG and/or green building practices. Digital Realty Trust (DLR) and Equinix (EQIX) are examples of REITs striving to achieve 100% renewable energy usage across their portfolios. Vert Global Sustainable Real Estate Fund (VGSRX) and HIP Investor are funds that hold multiple sustainable REITs.

Crowdfunded Affordable Housing and Community Development Projects

When you invest in real estate through a crowdfunding platform, you're investing in a specific building or real estate development. Although there are a number of platforms that allow you to invest for as little as $500, there is only one I know of that is specifically designed for impact—Small Change. It's also one of the few real estate platforms open to non-accredited investors.

Private Debt Offers Unlimited Impact Real Estate Opportunities

Opportunities to use private debt in support of impact real estate deals emerge frequently. However, you have to be tracking the market, involved in impact real estate discussions, or aligned with a financial advisor who actively seeks these opportunities to know about them.

AFFORDABLE HOUSING.   The development of affordable housing for lower-income people, seniors, and other at-risk populations is critically important, and developers are looking at a range of innovations to meet this growing need. In a well-established model, a real estate developer raises debt in the form of a note or bond to construct an apartment complex, senior living center, or other multi-family building for underserved populations. Investors underwrite the debt, enabling the developer to purchase property and construct the building. During the term of the note, investors are paid an annual dividend, and the principal is returned once the building is completed and sold. Terms can be less than 10 years.

There are a number of real estate developers around the country that offer this type of investment opportunity. The economics differ with each investment. Many housing developments that offer units at rents below market rate can fail to deliver attractive returns to investors. Given the severity of the housing problem, some investors are willing to accept concessionary returns to achieve their social impact goals. Promissory notes that pay 2% to 3% interest over a 5- to 10-year time horizon are not uncommon for affordable housing developments.

COMMUNITY DEVELOPMENT.   Community development initiatives bring new investment into existing underserved neighborhoods. Successful projects improve the quality of life for inhabitants, stimulate economic revitalization, and support the local housing market. Financing can come from a mix of sources, including public or private subsidies, tax credits, debt financing, and even private equity.

Community ownership is a form of community development. It can address socioeconomic inequalities in housing and property ownership. In some models, residential and commercial buildings are purchased by a for-profit or nonprofit in “trust” for a community. Investors provide capital for either a downpayment or the entire purchase price of a property and receive regular payments during the term of their loan.

Meanwhile, the building residents or other community stakeholders gradually purchase complete ownership in the property. The new owners can sell their shares and realize a profit. In some cases, the profit is tied to conditions established beforehand to ensure rents remain affordable for lower-income residents or business owners.

While these opportunities exist, you have to either be paying attention in your local community or be willing to kickstart an initiative yourself.

GREEN BUILDING.   Green buildings are properties that are designed, built, and maintained using environmentally responsible materials and resource-efficient processes. They can be new construction, renovations, or remodels. In addition to their positive environmental impact, green buildings make good economic sense because they result in higher property values, are healthier, and have lower maintenance and operating costs. Any of us can go green in our homes. There are also opportunities to invest in developers or development projects that do just that.

Private Equity Underwrites Innovative Start-Ups

Start-ups are popping up all over the residential and commercial real estate industry. And some are developing solutions to challenges we face in the way we currently live and work. They are innovating building construction and management, addressing inefficiencies and inequities in existing models, and reimagining the way cities and communities develop. Some use technology to disrupt previous models or to design new solutions. While not all of these enterprises would be considered values-aligned, some definitely are.

As an investor, you can support individual start-ups as an angel investor, or you can invest in an impact real estate fund. If either of these options interest you, one of the best places to start is by reading Daniel Wu, a privacy lawyer and writer who is passionate about affordable housing and transport. In 2019, Dan evaluated over 200 innovative housing start-ups. He looked at everything from construction to property management, from affordability to access. Dan's analysis included start-up businesses, venture funds, and market trends. In his work, Dan provides names and descriptions of many of the companies and funds he researched. You can find his writing on Medium and TechCrunch.

Individual Property Ownership

Assuming you have, or can raise, the capital, you could choose to purchase or build a residential or commercial property that you intend to make green or use to create more equity in the housing or commercial real estate markets. You can also stretch your money by partnering with others through tenants-in-common agreements, special-purpose vehicles, or other legal structures. The possibilities are limited only by your resourcefulness and imagination.

One of the simplest examples I know is building an accessory dwelling unit (ADU) to increase housing density. Better known as granny flats, ADUs are small residential units located on the same lot as a stand-alone single-family home. If you have the money, space, and local zoning regulations that allow for it, you can add an ADU to your existing home, backyard, or rental property. These units help alleviate the housing crisis if they enable people to live in neighborhoods they could not otherwise afford.

Sustainable Agriculture

Many of our current agricultural processes are depleting the soil, polluting the land and waterways, and negatively affecting farm workers. Sustainable food and agriculture seek to reverse these trends by applying farming and production methods that can meet society's food needs while ensuring a healthy environment, socioeconomic equality, and economic profitability. These objectives extend from farming to food production to consumption and include sustainable, organic, and regenerative practices.

Investments in sustainable food and agriculture can provide positive financial, social, and environmental returns. Unfortunately, there are only a few investment opportunities accessible to non-accredited investors. But that doesn't mean those with lower asset bases are without recourse. If this is an important issue for you, a first step could be divesting from businesses that harm the land. A simple web search can help with that.

Opportunities for Any Investor

Non-accredited investors can also create positive impact by banking with CDFIs and credit unions that lend to small farms or sustainable companies in the food industry. For example, Maine Harvest Federal Credit Union uses all of its assets to support food systems in its community. Craft3 in the Pacific Northwest, the Natural Capital Investment Fund in Appalachia, and the Cooperative Fund in New England are other financial institutions that support sustainable agriculture. Accredited individuals can also use fixed-income assets to invest directly in the loan funds of these financial institutions.

Gladstone Land (LAND) is the first publicly traded REIT that invests in farmland. More than 35% of its acreage is either organic farmland or in transition to become organic. Another option for any investor is a non-traded REIT, which unlike most REITs, cannot be sold on public markets. Thus, it's more akin to a private investment and should be treated as such in your considerations. There's also a crowdfunding platform focused exclusively on sustainable food and agriculture that's available to any investor for a minimum of $100.

Additional Options for Accredited Investors

Accredited investors have additional options because they can invest in food-based start-ups or venture funds using private debt and private equity vehicles—most of which are not available to non-accredited investors. They're also more likely to be able to purchase ownership in sustainably managed farms or farmlands. Once again, this level of investing requires specialized knowledge. Any approach you take within this sector should be thoroughly researched for its financial, social, and environmental returns.

If the idea of investing in farmland, sustainable food, and agriculture interests you—and you can participate as an accredited investor—then you might want to engage with likeminded individuals who can help you learn. You can connect with a Slow Money chapter or follow the work of the Global Alliance for the Future of Food.

Sustainable Forestry

Forests cover 31% of our land and harbor most of our terrestrial biodiversity.4 This critical resource is dwindling. Agriculture appears to be the primary cause of deforestation, with just four commodities—beef, soy, palm oil, and wood products—driving the greatest losses.5 Timber harvesting and development also play a role. While there are conflicting views about the speed of decline, there seems to be agreement that we need to do something about the rate at which forests are being eradicated.6

Individuals and institutions that invest in forests are hoping to harvest timber sustainably, conserve land for future generations, and maintain biodiversity. Revenues from these investments can be generated through land appreciation, timber sales, carbon offsets, and land leasing. However, these assets are also subject to unusual risks, such as natural disasters, the politicization of regulations, and long periods—perhaps decades—of illiquidity. As a result, investors should be committed and very patient.

Limited Investment Opportunities

To date, support has come primarily from philanthropy, as well as institutions and high-net-worth individuals with millions or tens of millions to invest in these assets. Although there are timber ETFs and REITs, most of these investments are extractive rather than conservation focused. Thus, values-aligned investment options in timber and forestry conservation remain limited for most of us.

Private investment funds and land purchases are the most common tools used for timber and forest conservation. While the Global Impact Investing Network (GIIN) showed that values-aligned timber funds outperformed conventional timber funds during the period from 1997 to 2014, with a pooled return of 5.9% for the former and 3.3% for the latter,7 there are a limited number of opportunities. When they're available, funds generally require investors to be accredited. These funds also have high minimums and are only available to investors while the fund is being raised.

Lyme Timber, Ecotrust Forest Management, Conservation Management, and The Forestland Group are all firms that have offered investment opportunities in sustainable timber and forests. These are all closed funds with a limited window of time to invest. Minimums are in the neighborhood of $250,000 or more, putting these investments out of reach for most people. The ImpactAssets 50 is one resource you can use to search for current opportunities.


Clean drinking water is a basic need of every human being and animal on the planet. Yet water systems around the world are in stress. Globally, 4 billion people experience water scarcity at least one month a year, and the situation is expected to get worse as temperatures rise.8 Even more striking, a child dies from water-related illnesses every two minutes.9 In the US, nearly half of our rivers and streams and more than 30% of our lakes are unfit for swimming, fishing, or drinking.10 Sadly, women, children, and people of color are often the hardest hit by these challenges. Investing in water can be good for our wallets and the planet.

Water is a much more complex space than I realized. It goes well beyond water conservation, pollution cleanup, or desalination. A knowledge-sharing platform called The Water Network lists almost 10,000 different organizations working with water. AngelList has almost 700 start-ups within the water space engaged in everything from designing more sustainable water bottles to companies developing smarter water management systems for cities. Your money can be invested to increase efficiencies in water management, remove plastics from our oceans, or ensure water usage remains affordable for all people.

Anyone Can Invest in Water

For years, I've wanted to invest in water but didn't think I had enough money, and I didn't know how. I thought this sector was only accessible through philanthropy and to those who could invest large sums of money—much like sustainable forestry. While researching this chapter, however, I discovered some water investments that anyone can participate in. For example, WaterWorks recently launched a crowdfunding site that allows investments in water for as little as $500.

One of the easiest ways to invest in water is through the public equities market. Table 10.3 lists the two water-related mutual funds and five ETFs that are currently available. The mutual funds have minimums of $1,000, higher fees, and turnovers in the 30% to 40% range. All the funds have a high sustainability mandate and earned high grades from As You Sow. Although these funds are not benchmarked against the S&P 500 Index, the index is included in the table for comparison purposes.

Investors can also support water projects at the local level through municipal bonds, which are an increasingly popular way to finance improvements in municipal water systems. Repayments of these bonds are often tied to usage fees, which provides a certain level of security for these investments. Since water delivery is considered an essential service, these are also considered to be more conservative options within the municipal bond market.

TABLE 10.3 Water Mutual Funds and ETFs

Source: Morningstar as of Jul 17, 2020.

Ticker 2019 Return Description
S&P 500 Index 31.49%
Allianz Global Water Fund AWTAX 32.77% Invests globally in companies offering solutions to water resource management and access to clean water
Calvert Global Water Fund CFWAX 28.02% Invests globally in water-related companies operating in alignment with the Calvert Principles for Responsible Investment
First Trust Water ETF FIW 37.37% Tracks the ISE Clean Edge Water Index, which is comprised of US companies involved in potable and wastewater industries
Invesco Global Water ETF PIO 35.58% Tracks Nasdaq OMX Global Water Index, which includes companies designing products that conserve and purify water
Invesco S&P Global Water ETF CGW 34.04% Tracks S&P Global Water Index, which includes companies involved in water utilities, infrastructure, equipment, instruments, and materials
Invesco Water Resources ETF PHO 37.57% Tracks Nasdaq OMX Global Water Index, which includes companies designing products that conserve and purify water
Tortoise Water Fund ETF TBLU 38.74% Uses a proprietary index comprised of companies around the globe in the water industry, particularly public water distribution.

Accredited investors have numerous opportunities to support start-up businesses in the water sector. However, it requires research and participation in angel or environmental groups to find them. One place to get started is talking to angel groups that are focused on environmental issues, as many of them include water in their mandates. You could also look into Imagine H2O and BREW Accelerator—two accelerators that work with start-up companies in the water space.

Venture funds with an exclusive focus on water are few and far between. Some that have been recommended to me include Cimbria Capital, MazarineVentures, Helios Capital Ventures, and XPV Water Partners. You could also consider firms that focus on cleantech and include water under that umbrella.

Some Thoughts on Due Diligence

Due diligence is the research you undertake to identify risks and validate information about a potential investment. By the time you have reached this point in the book, you've already learned a number of skills that you can apply to the investments described in this chapter.

For example, if you're moving cash to a financial institution that's supporting affordable housing, make sure your funds will be insured up to $250,000. If you're making a fixed-income investment, get information about the historical returns and default rates. Public equity investments are volatile, but you've learned how to use Morningstar and other tools to look at fees, turnover, and historic returns. Private debt and private equity opportunities require the same type of diligence that we spoke about in the previous chapter on private investments.

Direct investments in real estate, land, sustainable agriculture, or a natural resource are unique. Risks are based on market and business conditions related to each category of investment and can differ from place to place. Successful investing in these assets requires specialized, and often localized, knowledge. To get started, you might want to:

  • Look for opportunities that are making a difference in the impact areas important to you;
  • Invest in projects in, or near, your community so you can assess the risks and potential return more easily; and
  • Assume that return projections are aspirational—understand what needs to happen for you to start generating return on your investment as well as what could affect full repayment.

Take Action

Have some fun with this group of investments. You don't have to risk a lot. As you learned, there are several options available for as little as $100. Try a few different investments, experiment, and track the impact. You might even consider bringing together a group of women to consider options, perform research, undertake diligence, and perhaps even invest together. Learning more about nontraditional investments that create a deeper impact can be a great reason to start an investment circle.

  1. Pick one cause that resonates with you; then think about the level of investment that feels comfortable to you.
  2. Consider the options mentioned in this chapter and do some research to see if any other opportunities pique your interest. Be sure to study the risks and returns relative to other investments in the asset category you have chosen.
  3. If you are interested in a private debt or private equity investment, you can ask your advisor to identify additional opportunities or to help you with due diligence. Or, even better, you can connect with other people who are interested in the same topic and learn from them. The process is a lot more fun that way, and you may be surprised at whom you meet.
  4. Once you have picked an investment, done your homework, and feel good about both the financial and social return, pull the trigger and invest.


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  7. 7   GIIN and Cambridge Associates. “The Financial Performance of Real Assets Impact Investments: Introducing the Timber, Real Estate and Infrastructure Impact Benchmarks.” 2017.
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