Our world is going mobile. Cell phones have quickly evolved from high-tech toys of the rich to a staple of development in emerging markets. Phones are becoming a tool to overcome distance, connect people with each other and access information across the world. In rural areas, mobile phones allow farmers to monitor crop prices, herders to check the weather, and migrant workers to transfer funds to their families millions of miles away. According to the Economist, more than 4 billion cell phones are now in use around the globe, and 75% of them are located in developing countries.  The proliferation of cell phones is creating new challenges and opportunities across the telecom value chain. Network operators, entrepreneurs, and end users are all innovating to create value and share the widespread benefits of this revolutionary technology.

Network operators in emerging economies must find cost-effective ways of serving significantly lower income consumers. Indian mobile operators have made the most effective inroads to support a huge population with limited infrastructure and extremely low income by employing a "managed capacity" model.  When moving to a new area, the operator requests a limited amount of calling capacity and pays for it NET 90 at the agreed price per unit of capacity. That leaves IT vendors such as IBM to manage the base station and customer service systems while running the mobile networks is handled by Ericsson and Nokia. This highly outsourced model allows them to transfer most of the risk to other parties and to focus on marketing and sales.
Mobile money has taken interconnectivity to another level. Using a similar transfer mechanism to PayPal, mobile users can utilize services like M-Pesa to pay bills or make transfers to customers. Mobile money makes formal financial services a reality for the millions of people who lack access to banking and credit. Fraud and data security issues are an obstacle, but should be dealt with through low balance maximums and transaction limits rather than hindering access to low income customers. These pioneering systems also represent an opportunity for the financial services industry to create new products and distribution channels that serve the millions of eager users in the developing world.

Mobile phones are ushering in a new wave of development. The technology has made a more significant impact in more lives more rapidly than any previous technology.  Who knows what economic and social doors cell phones will open? The keys to success are making sure that IT infrastructure, regulations, and financial mechanisms are in place to allow a broader range of players to participate in this growing industry.

Entrepreneurs in these markets are finding opportunities to realize savings from running a small business that provides their community with mobile access.  Village telephone operators receive a small loan of start-up capital and a cell phone which they use to charge customers to make calls.  These decentralized sales models reach rural customers at a low cost to telecom companies and allow entrepreneurs to create sustainable businesses that support their communities. While India is leading in information technology job creation, China and the Phillippines are also generating new, higher paying jobs that require skilled labor.

Controversially Prof Bennett introduced the thoughts of skeptics [perhaps heretics] on carbon emissions. He argued perhaps forcefully for a distributed power system with smaller provision with distributed power and use of wind and solar technologies. Reality check is SASOL's Secunda plant is the world's single largest carbon dioxide emitter on the planet [and causing protests outside the SASOL Rosebank head office]. Emerging markets make up around 6% of global emissions, Africa around 2.5% and South Africa the largest part of it. The comments kept tripping over the definitions of developed, developing and other markets. The decisions around size of economies, and how countries have negotiating power around climate change. kept coming up as an issue needing clarity. News for carbon traders from the podium was that we have bets both ways on what will or will not happen in Copenhagen: a market in outcomes, sounds like the marketplace to me?! See Justmeans.com post on carbon scenrios http://www.justmeans.com/Sending-Money-Managers-with-Laptops-Copenhagen/3233.html.

I enjoyed Mr Raubenheimer's approach to being "risk averse". Maybe that will be a more useful approach to the conversation on investment in new technologies, partly because most humans are mostly risk averse anyways - check out any defined contribution retirement fund investment choice distribution: most retirement fund members adopt a default or risk averse approach. As the debate unfolded, the merits of carbon trading came up. The proposition for carbon trading is about allegedly internalizing externalized costs. Marketplace.org recently covered the uneasiness about carbon trading [Is Europe's Carbon Trading Going Up in Smoke?], trading which the UNFCCC Copenhagen meeting may ramp up by simplifying and globalizing rules of trading carbon credits. As an investment guy and ESG architect, I was mostly interested in hearing the live audio clips of traders in action. The snippet also covered the negative reaction of environmentalists who see carbon trading as ultimate smoke and mirrors. And as all conversations about new investment in power generations inevitably do, the conversation came to nuclear power. SA has a small bet around pebble bed modular reactor [PBMR] which has burned around ZAR 12,5 billion with no deployable technology. A small debate-within-a-debate erupted about the real costs of coal, nuclear and solar - need someone to read their Platts.

I posed the first question, on how to join the dots between those in the audience - they are investors in some way, whether through their pension funds or unit trust funds [collective investment vehicles] - drew a muted response. Mr Worthington marched a little down the road, but did not pull it through to some basics like investment say in the WWF International mutual fund, the Living Planet Fund. I will have to bring that up with the WWF LPF team when next in Switzerland. Mr Worthington did press on trying to answer the question of polluter-pays principle, by pointing to cost increases, including carbon taxes. The debate closed leaving me with some better sense of the dialogue around policy options, and hoping that the "media of distractions" in South Africa could maintain a serious thread to the discussion. I was reminded why Judge Dennis Davis is respected for his candour [see his reaction to the JSC hearings]. Together with the comments from the audience about the humanity in Khayelitsha, a poor shanty town near the airport, the evening at the M&G Critical Thinking Forum/Shell Dialogues pretty much summed up where we are with sustainable finance: talking out loud.


]]> http://www.justmeans.com/More-Development-Less-CO2-Some-Sustainable-Investment/4131.html Wed, 30 Sep 2009 21:53:10 GMT Graham Sinclair Graham Sinclair http://www.justmeans.com/More-Development-Less-CO2-Some-Sustainable-Investment/4131.html Normal 0 0 1 456 2601 21 5 3194 11.1280

...And we're back. After a hiatus we are back tonight with a headful of talking heads. Investment in adaptation and mitigation in emerging markets, especially Africa, is a huge ask in the current economic context. Hard to find sustainable investment in 2009, though not impossible. Your newspapers like ours have probably been covering the posture by India that they will make no emissions-related limits at the UNFCCC Copenhagen meeting. Recently South Africa adopted a similar position. Mail & Guardian, an independent and respected weekly paper in southern Africa, hosted a third of their Shell Global Energy Dialogues within the M&G Critical Thinking Forum. Tonight we had 4 covering carbon emissions management. The purpose pointed toward policy options for emerging markets. One of the most respected legal thinkers in South Africa, Judge Dennis Davis, moderated the event - he has a good balance of wit, intellect and good spirit. He is telegenic for nerds.

Zapiro's G20 climate change cartoon [above] had me chuckling this week in M&G [see zapiro.com]. The title, More Energy, Less CO2, was immediately reasserted to "More Development, Less CO2" by the first speaker, Stefan Raubenheimer from SouthSouthNorth. Long term mitigation plans have 2050 as a magic timeline. For South Africa, this implies no coal in 2050. But like Australia, US, China, coal is the regional energy mainstay. One of my favourite statistics lately is the replacement cost of the energy sector in SA, the largest economy in Africa, around ZAR 1 trillion [USD 120bn]. Not a small number. Second speaker Richard Worthington of WWF presented how the UNFCCC 2007 fourth report understates the scenario and the reality in sub-Saharan Africa. Climate change is happening faster than scenarios predicted. Faster loss of sea ice. Increase of sea level rise. That is always going to have the audience sitting at a busy port feeling a little uncomfortable.Richard's colourful comments helped the debate steer away from boring!

Mr Worthington spoke of ecologicial footprint. He touched on ESKOM's lack of coal power plant provision being linked more to water than anything else. He controversially quoted from some environmental impact assessment report by consultants to a new power plant in the Waterberg by quoting "the exploration of alternative energy is not realistic". Mr Worthington referenced the situation of investors in a board room thinking beyond a four year horizon and toward returns to their children's generation. Pity he did not take further the institutional investment thinking. Nor did he tie together what investment horizon should better be considered for weighing investment decisions that cover environmental, social and governance factors. But it was insightful that the local affiliate of an international environmental NGO referenced sustainable investment.

Prof Davis sharpened the debate by suggesting that developing countries should not even embrace climate issues, with development and job creation being much more important. Stiglitz's arguments about GDP reared their heads [see Dawn's post] This reflects very much the survey of sustainable investment in 2007: job creation trumps saving penguins. In an upcoming project we at SinCo are working on, together with asset consulting and analytics firm, RisCura, and an international financing organization, we will be surveying attitudes and actions around sustainable investment in sub-Saharan African in Q4 2009 and Q1 2010. It will be interesting to see what the reality is on the ground in this unsettled time in history and in changing the conceptualization of sustainable investment. More on this debate soon.

"The fight is never about grapes or lettuce. It is always about people." Cesar Chavez

Organized labor has a long history of protecting worker's rights globally. The use of collective bargaining and other tools have unified workers and strengthened their calls for fair wages, health & safety standards, and the elimination of practices like child labor.

The benefits of organized labor are many, but as the modern day work force takes new shape, the ability of traditional unions to organize some segments of the labor force is hampered. Social entrepreneurs, for example, are a cutting edge element of the labor force, generating new ideas and technologies for a sustainable economy. I, for one, want the number of innovative social entrepreneurs to grow. How can we encourage them? In leaving the traditional workforce, social entrepreneurs also must leave behind job security and affordable access to many services that generally flow through employers (at least in the United States), such as health insurance and retirement plans. This could hamper would-be entrepreneurs from taking the leap into the independent work force and bringing their brainchild to fruition.

One of the best examples of "good work" I've seen to support social entrepreneurs and the independent workforce generally is the Freelancers Union . According to a recent piece in the Stanford Social Innovation Review, over a quarter of U.S. workers are now self-employed, meaning that they simply don't have the opportunity to organize with fellow workers. Or, at least they didn't the rise of the Freelancers Union.

The Freelancers Union builds on the success of the traditional union model by magnifying the voice of workers in the public policy sphere and amplifying their bargaining power when its comes to accessing services like insurance at a good price. As Chavez reminds us, organized labor is about protecting people. Kudos to the Freelancers Union for extending this model to social entrepreneurs.

As microfinance has grown in stature, however, there has been a shift away from its non-profit, charitable roots.  For-profit microfinance institutions and private equity groups are now wading into a space traditionally dominated by groups like Accion International, various projects of the World Bank, and Yunus' own Grameen Bank.  When Banco Compartamos, a Latin American microfinance institution, launched itself as a publicly traded equity on the Mexican stock exchange in 2007, the commercial model of microfinance took a leap forward.

So how is commercial microfinance shaking out?  According to an August report by the Wall Street Journal, the entrance of private equity funds and foreign investors has created a credit bubble in at least one town Indian town.  Household debt in India from microlenders has grown five fold since 2004 and women have started taking out new loans to pay off the old.  A vicious cycle is taking hold.  Mr. Yunus himself has said he is "nervous" by the big commercial bank trend in microcredit.

I agree he—and we who care about sustainable finance-- have every reason to be disturbed.  Motivating organization and individuals to do "good work" requires incentives in many cases.  When incentives in microcredit put profitability over serving customers, the mission is fundamentally altered and the results will be too.

For those out there in the JustMeans community working directly in the microfinance field, I'm hoping you can comment here on how to ensure sustainability remains central to the model.

Owning shares in a company is not like having votes in politics: the majority votes do not win. There is no democracy - all votes are indicative: management can completely disregard a 99% opposition vote. What prevents this behaviour is the signal such opposition sends. Management may reject the opposition vote and win the battle, but pissing off your shareholders will lose you the war. Annual voting is one of the major methods for keeping shareholders of companies involved and included in the activities by the executive and the management. In SA we speak of annual general meetings [AGM] while in the US the preferred term is annual meetings. Strides in sustainable finance and responsible investment have been made partly be active capitalists, people and institutions owning a stake in companies and being vocal about directions they consider the ways companies should go, and which not to go in. It is one of the awkward trade-offs in capitalism: sure you can have people add their capital to your company, but then they're going to want to have a voice. Today the largest money manager in Africa, the Public Investment Corporation [PIC] managing around USD 90bn in assets for the GEPF in South Africa, took up the effort to build a shareholder code to go alongside the forthcoming guidelines for good corporate governance in terms of King III, see PIC vows it will not let code for institutions die.

The proxy form is a powerful tool: whatever voting rights a share has may be given over to another shareholder to vote, so-called proxies. The proxy voting season is always eagerly anticipated, especially in it busiest "stadiums" being the annual meeting sof US corporations. The 2009 proxy season seemed to focus on issues of voting power around compensation and risk management. Voters may be anonymous, so why is SABMiller filtering through votes to find out who voted which way? Maybe the SABMiller team are feeling a little beaten up after having their webpage bounced about a bit in July, see critique of SABMiller's Investor Relations page. Surely easier to just call for opinions from shareholders in a structured way, get them talking to management? It is not hard, takes some skill and thick skin for some of the insults that (may) fly, but really just stakeholder engagement 101 - no doubt the IR team should be able to do this with their eyes closed, no? If SABMiller normally had 98%+ of votes in support of Board appointments, and now just 85% came through, well that's their free and frank focus group acting as dashboard, registering that all is not well with people who own a chunk of the firm. Good corporate governance says all shareholders have a right to vote, and more transparency makes it clear the firm, especially the large firm, is being run well and well run. Some words to this effect are probably on the SABMiller corporate governance webpage. A larger question for SABMiller is not whether these 15% of votes may be ignored and who voted them in 2009. The bigger question is what signal and multiplier effect will ignoring the issues flagged will have on ongoing capital raising efforts for future corporate activity. If the issues are not diplomatically and deftly handled by leadership, how big will the "no" vote be in a year's time? For the postscript, SABMiller posted a "For The Record" in BR the next day...leaves me thinking the IR team and the PR team need to hang out a bit, while the CG team heads for a session with the C-level suite to do some good work.

How to choose where to put money: creating software applications, launching community small, medium, micro enterprise [SMME] hubs of barbers, gyms and internet cafes, and retailing food in lowest income communities? Conversations on social entrepreneurs have been keeping us busy these past weeks. New and existing small enterprises needing capital, and how to get it to them, in Bophelong Gauteng in South Africa or Sao Paolo, Brazil, is the challenge. SoCap09 is just weeks away and there is much good ground to cover to justify the thousands of miles and 2 day journey to San Francisco. This will be our first trip to SoCap for its second iteration - tight schedules meant we had to deploy interns [from Kenan-Flagler B-school at UNC-Chapel Hill] to report back on the inaugural SoCap08 last year. Reports were good, and the content for SoCap09 good enough to seeing what Kevin and Amy have been conjuring up. From the chatter online it seems a bunch of the JustMeans community will be at SoCap and so we to hope to flip from virtual to physical relationships. While our Sinclair + Company advisory work has us stretched and probably not blogging live, impressions and material from the days will filter through the investment mind and onto the pages here in the Sustainable Finance editorial and SRI-Extra in future postings. What are you interested in understanding more from the investor's perspective that we should be mindful of? Skimming the SoCap09 schedule to flag sessions that fit to the challenges of making sustainable finance and responsible investment happen in emerging markets, especially Africa, offers a fair amount. Check out the SoCap09 blog too. With the agenda set, it looks more like the sessions should offer material on metrics, impact and philanthropy capital than the role of public or private capital. Generation Investment Management will be there, perhaps covering the HBS case that came out in May this year. In particular we hope to learn from the West coast experience on deploying capital to meet social and environmental needs, and trying to keep core by measuring the impact robustly. One person I have been waiting to spend time in conversation with is Sara Olsen of SVT. Back in 2006 we connected and she shared with me her short book covering Social Return on Investment (SROI). This was after I had spent some time with fellow Net Impacter from Boston and founder member with us at NetImpactBoston, Farron Levy. Farron developed a widget also used in metrics called True Impact, and has been featured in Boston Journal for the consulting and software solution it offers. Go you good thing, go! Exploring metrics and impact may help with tracking the positive impacts from projects like those at African Dream Trust, especially the economic development theme.

Another piece of the puzzle that SoCap may help fill is where social exchanges are now, and what we may do to push them on [Social Stock Exchanges Around the World breakout session2 day 2 1:30-2:30pm Wed 2 Sept, see PDF], see JustMeans post Good News in Social Investment 27 July 2009. We head over the Atlantic after having spent time swapping notes with Greater Good and SASIX here in Africa about what is, and is not working. We should have some value to add to the conversations. At least the 20+7 hour flights offer some reading time, depending on the knee torture by old model Delta aeroplanes flying from S.Africa. The reading list includes catching up on what Cathy Clark has been up to since 2004 with her RISE (Research Initiative on Social Enterprise) program at Columbia University that launched in 2002. Her 2003 paper on the Double Bottom Line Private Equity Landscape 2002-2003 with Josie Taylor Gaillard seems like such a long time ago, but the work she did helped add some rigour to the emerging asset class and the integrated asset class thinking. For many of us, it helped open the intellectual and experiential door to this "other' category of money management where environmental and social factors were explicitly included. The newness of the work was shedding some light on early stage social and private equity investing in the US, administered via web in 2002 and 2003, surveying 1,254 venture capital (VC) funds and others and finding USD 2.6 bn in "double bottom line" PE market, a large number at the time for the small sample. With the mix of institutions and people in SFO for three days in 2009, that number will probably be in one lecture hall.

Finally, in keeping with the life/work balance, entrepreneurship, biomimicry [see OnePlanet this week] and long-term investing, a mini-highlight of the SFO onsite will be seeking a taste of the million-years old beer, courtesy of a great WIRED story. Microbreweries are one of the beautiful fabrics of the US community life, like Harpoon in VT and MA which builds brand through a 110 mile cycle race Point-to-Point from Boston MA to Windsor VT every August. Fossil Fuel is brewed at a brewery is 70mi from SFO, Hackett's brewpub in Guerneville, California, so a cycle is do-able if we can secure some fine Cervelo rides or such and dream of the Tour of California. See the full Wired article of a scientist refugee from Cuba, biotechnology, business failure, and serendipitous ski slope conversations leading a bacterium from the age of dinosaurs 45 million years ago to crack out of amber and be cultured to brew some very, very funky beer. Reality is new ventures filled with good ideas grow and die; nine out of ten new small businesses fail. Making investment decisions for sustainable finance and responsible investment is even harder. Kudos to Fossil Fuel for trying, and bootstrapping with one's own cash to start a venture, that's the market economy in action. So the smallest consumption decision we make may help unlock the bigger investment capital down the line. For now, buying a few pints of local brew; that'll help a few social entrepreneurs in the region do more good work.

That may sound more like Corporate Finance 101 rather than an issue requiring the attention of a body simultaneously attempting to end extreme poverty by 2015, but a high level nod from the UN- and its team of lawyers and finance professionals- is what many asset managers and consultants need to get comfortable incorporating environmental, social, and governance factors (ESG) into decision making.

In its new report on the legal aspects of integrating ESG into institutional investment, the United Nations Environment Programme-Finance Initiative (UNEPFI) makes the case that fiduciaries of pension funds and other significant asset pools are well within their rights to look beyond traditional metrics of financial performance like PE ratios and cash flow statements when making investment decisions.  The initial report on this subject prepared by global law firm Freshfields Bruckhaus Deringer in 2005 concluded that "integrating ESG considerations into an investment analysis so as to more reliably predict financial performance is clearly permissible and is arguably required."

While to some this may seem so obvious that it borders on the banal, the truth is that investment professionals resist taking ESG factors seriously out of fear they are legally bound to focus on a more narrow, well-defined set of criteria to make investment decisions (enter ratios, balance sheets, and macroeconomic indicators).  We know these traditional metrics don't tell us the whole story, but for many it is the story they know best and feel most comfortable peddling to their clients.

This new analysis by UNEPFI is "good work" because it supports asset managers and consultants who want to make the switch from a traditional, narrow view of investing to one that incorporates the vast environmental, social, and governance challenges of the 21^st century.  And UNEPFI comes down out of the intellectual ether long enough to provide some important hand-holding and step-by-step advice on how to do that.  For example, providing sample language explicitly referencing ESG that is cut-and-paste ready for dropping into investment contracts.  While UNEPFI argues that such explicit references are not necessary in order for an asset manager to begin incorporating ESG into the investment process, clear reference in the contract would assuage the fears of many a money manager [Graham Sinclair recently discussed the importance of the investment policy statement here on JustMeans].

Fiduciaries can, understandably, be so focused on the perceived difficulties of adopting responsible investment strategies that they become blind to everything they have to gain from them.  This report invites them to test the waters of a new way to invest- it's nice out here and I hope they start wading in.

This statement provides the general investment goals and objectives of a client and describes the strategies that the manager should employ to meet these objectives. Specific information on matters such as asset allocation, risk tolerance, and liquidity requirements would also be included in an IPS.

Zack Hocking, the head of investments at Co-operative Investments, says: "The world is changing and it is throwing up highly attractive opportunities for long-term investors. The need to tackle ageing populations, climate change and global power shortage will see significant investment in those areas in coming years." The new Sustainable Diversified Trust fund will be an actively managed multi-asset fund that aims to offer long-term capital growth. It will hold a mix of equities, bonds, cash and property, but will not invest in firms involved in armaments, tobacco, mining or animal testing for cosmetic purposes.

a.    Production or trade in any product or activity deemed illegal under host country laws or regulations or international conventions and agreements, or subject to international bans, such as pharmaceuticals, pesticides/herbicides, ozone depleting substances, PCB's, wildlife or products regulated under CITES.
b.    Production or trade in weapons and munitions.1
c.    Production or trade in alcoholic beverages (excluding beer and wine).1
d.    Production or trade in tobacco.1
e.    Gambling, casinos and equivalent enterprises.1
f.    Production or trade in radioactive materials. This does not apply to the purchase of medical equipment, quality control (measurement) equipment and any equipment where IFC considers the radioactive source to be trivial and/or adequately shielded.
g.    Production or trade in unbonded asbestos fibers. This does not apply to purchase and use of bonded asbestos cement sheeting where the asbestos content is less than 20%.
h.    Drift net fishing in the marine environment using nets in excess of 2.5 km. in length.

1. i.    A reasonableness test will be applied when the activities of the project company would have a significant development impact but circumstances of the country require adjustment to the Exclusion List.


2. All financial intermediaries (FIs), except those engaged in activities specified below*, must apply the following exclusions, in addition to IFC's Exclusion List:

i.    Production or activities involving harmful or exploitative forms of forced labor2/harmful child labor.3
j.    Commercial logging operations for use in primary tropical moist forest.
k.    Production or trade in wood or other forestry products other than from sustainably managed forests.
l.    When investing in microfinance activities, FIs will apply the following items in addition to the IFC Exclusion List:
m.    Production or activities involving harmful or exploitative forms of forced labor2/harmful child labor.3
n.    Production, trade, storage, or transport of significant volumes of hazardous chemicals, or commercial scale usage of hazardous chemicals. Hazardous chemicals include gasoline, kerosene, and other petroleum products.
o.    Production or activities that impinge on the lands owned, or claimed under adjudication, by Indigenous Peoples, without full documented consent of such peoples.
p.    Trade finance projects, given the nature of the transactions, FIs will apply the following items in addition to the IFC Exclusion List:
q.    Production or activities involving harmful or exploitative forms of forced labor2/harmful child labor.3

...[A]ccess to appropriate funding and finance is often the single biggest concern facing organisations driven by social or environmental purpose. A Social Investment Wholesale Bank could help enable third sector organisations to access the finance they need to grow and become more sustainable...More broadly, the Bank could help increase investment in society, the environment and the economy at the same time, delivering against a 'triple bottom line' of more effective interaction between greater economic growth, social cohesion and sustainable development.