Green America's Green Business Network is the first and most diverse network of socially and environmentally responsible businesses in the country. Now one certified Green Business Network member, Natural Investments, is taking this a step further, by reorganizing as a perpetual purpose trust.
In taking this step, Natural Investments was inspired by Patagonia, which made headline news in 2022 when its owners, Yvon Chouinard, his wife, and two adult children, transferred their ownership of the company – valued at $3 billion – to a special purpose trust and nonprofit organization.
The idea was to preserve Patagonia’s independence as a for-profit company while ensuring its profits – about $100 million per year – are used in perpetuity to fight climate change and conserve undeveloped land around the world.
“Hopefully, this will influence a new form of capitalism that doesn’t end up with a few rich people and a bunch of poor people,” Chouinard told The New York Times. “We are going to give away the maximum amount of money to people who are actively working on saving this planet.”
In 2023 Natural Investments became the first financial services company to transfer its ownership to a perpetual purpose trust.
“It’s an exciting moment in Natural Investments’ history,” writes Michael Kramer, previous managing partner and now trust steward. “Democratizing our ownership structure empowers new decision-makers, facilitates gender and racial equality in determining the priorities and direction of the company, assures a careful and gradual leadership succession, and yields wider economic benefits.”
Why restructure company ownership?
Natural Investments was founded in 1985 as one of the first socially responsible investment advisors in the United States. The founding partners started revolving loan funds and pushed for divestment from companies doing business in apartheid South Africa. They educated people about finance as a way to make change in the world, writing three books on socially responsible investing.
In 1992, Natural Investments launched its Heart Rating, the first rating system to compare environmental, social, and governance (ESG) criteria used by mutual fund managers to select funds.
As the field of sustainable investing grew, Natural Investments grew with it, hiring more – and more diverse – financial advisors who managed increasing assets. What started in the 1980s as $50 million under management by a handful of co-owners grew into $1.8 billion under management by 20 financial advisors at the end of 2023.
“As we brought on additional advisors in the past 16 years, our long-term plan was always to pass on firm management and ownership to younger advisors,” Kramer explains. The way this typically works is for older retiring partners to sell ownership shares to younger advisors who buy into the partnership.
But as so often in life, things did not go according to plan. Because of Natural Investments’ exponential growth, the cost of shares in the business had skyrocketed, putting ownership out of reach for younger advisors, many of whom are women and people of color.
The firm had to find another solution that would ensure leadership succession to people who shared the founders’ core purpose, values, and management style. Enter the perpetual purpose trust.
How does it work?
A perpetual purpose trust is a non-charitable trust established for the benefit of a purpose rather than a person or persons, according to the Purpose Foundation. Unlike most trusts, perpetual purpose trusts can operate indefinitely. Their purpose is defined in a governing document called a Trust Agreement and overseen by a board called the Trust Stewardship Committee.
In the case of Natural Investments, the trust’s stated objectives are:
- Sustain our fiduciary duty to clients.
- Aim for a budget that reasonably balances the firm’s operational reserves, expenditures, and profit distribution.
- Provide infrastructure and ongoing regulatory, legal, and administrative services that bring value to advisors.
- Share economic rewards equitably among all advisors.
- Operate responsibly and equitably for the benefit of advisors, staff, clients, communities, society, and the environment.
- Promote an inclusive sharing of power in firmwide decision-making.
Decision-making authority moved from a few managing partners with varying levels of ownership and voting power in the firm to a Trust Stewardship Committee comprised of seven representatives, each with equal voting power. Other than one manager with a permanent seat on the committee, trust stewards are elected by advisors and their staff and serve staggered three-year terms.
“Establishing a Trust Stewardship Committee with 43% women and 29% people of color has also instantly changed our gender and racial leadership composition, as we had been 80% to 100% owned by white men for the past 38 years,” Kramer says. “This change is an important reflection of our ongoing internal justice, equity, diversity and inclusion commitments that are championed by our Race Equity Team and integrate the suggestions in a race equity audit we conducted with consultants.”
Best of all, no one had to go into debt buying ownership shares to take a leadership position.
Legal matters
Among the key advantages of a perpetual purpose trust are succession planning, asset protection, and flexibility, attorney Matthew Erskine writes in Forbes. Among the disadvantages is complexity and cost. Documents must be drafted for each business, and most states have no guidelines for governance.
To address this, Natural Investments worked with Purposed Owned, a consultancy for succession planning using purpose trusts, to convert their Colorado-based LLC to a Public Benefit LLC registered in Delaware, which has legislation that oversees tracking and reporting of benefits. They then borrowed a small percentage of the firm’s sale price from a longstanding community development financial institution (CDFI) to pay retiring partners for a portion of their ownership shares.
“To those of us who’ve been here for 20+ years, this graceful transition was far more important than maximizing our own personal profit,” Kramer says. “We have had many offers from larger firms to fully purchase or take equity positions that would have been more lucrative for exiting partners, but we opted to preserve the firm’s autonomy and identity while maintaining complete internal control.”
As the experience of both Patagonia and Natural Investments shows, the perpetual purpose trust is a viable option for responsible businesses whose managers want to ensure they can continue to make a positive impact on society while giving employees an equal voice for as long as the company exists.
Together we can put our money to work for good. Find a list of socially responsible financial planners and investment consultants, including Natural Investments, in Green America's Fossil Free Financial Products and Services pages, or in the Green Business Network's directory of Financial Advisors and Planners. You can also find mission-driven community development banks and credit unions in Green America's Get A Better Bank map.
