Weekly Viewpoints on Sustainable Investment by Graham Sinclair with commentary on sustainable investment strategy, changes in the investment markets, and issues of environment, social and corporate governance [ESG] architecture. ESGextra viewpoints are from a growth markets perspective in frontier and emerging markets [see also Visual Notes at esgarchitect.tumblr.com and Tweets @esgarchitect or @SinCoESG].
In the week that began with Citi [C] becoming the US government's latest shareholding, JPMorganChase [JPM] was pitching their core competency as a lender, and Goldman Sachs [GS] was looking to stretch their sustainability advantage branding their research and investment products. JPM was busy offering a full page advertisement in WSJ Eastern edition A5 Tues 25 Nov pitching to the WSJ readership on their commitment to lending [“Our Business Is Lending. And That’s Exactly What We’re Doing”], including “in a responsible way”. Yes, I can only imagine what my mate who taught me how to build a BS filter for company ESG claims, the KLD research director in Boston, will say about that one!
Goldman Sachs was taking the front foot in the FT Mon p.3 with the first above-the-line hardcopy advertisement I have seen for GS Sustain, a fair advertising budget commitment to go above-the-line. Of course GS hedged bets by burying the ESG lead in the body, the sub-title “innovative thinking finds innovative companies”, and one has to mine the paragraph further for “a unique global equity strategy that brings together ESG (environmental, social and governance) criteria, broad industry analysis and return on capital to identify long term investment opportunities”. But GS now fronts their homepage with GS Sustain. Clearly someone is taking a big bet, and perhaps with freefall markets, a good time to try something completely different.
GS Sustain has a colourful history. It's strong underpin is from the GS sell-side in London via the work dating back to 2003 of Anthony Ling in the Energy Equity Research team, and then taken forward by Sarah Forrest, Marc Fox and colleagues. Sarah is now an Executive Director for Global Investment Research. After finally establishing a coordinated framework in early 2007 – GS Sustain – which launched to plaudits from the usual UN Global Compact types and affiliates in Geneva last July, the GS Sustain brand has been slowly building. Like IBM, no presenter looks dumb when quoting GS – a false security to be sure – but expedient for now. Indeed, in my MBA865 seminar at Kenan-Flagler Business School, Sustainability in Investment Strategy at Chapel Hill last week, one of the most informed students referred to “it’s Goldman Sachs!” as the GS halo in the ESG space proves to light the way for less skeptical inquiry of how sustainability plays in. Clearly GS benefits from being one of the two last i-banks standing, [mostly!], and may push for competitive advantage on sustainability matters in the FT, the print daily which positions itself in US as more global than the WSJ or NYT Business Day as a major business daily. Companies, as they do with any positive third party assessment, but especially when it is a major i-Bank brand, are only to happy to tout their standing in any competitive assessment, such as BG Group[LON: BG] a natural gas company.
I was first alerted to the new GS Asset Management product built off the GS sell-side’s GS Sustain framework in Manhattan at the Sustainable Investing 2008, People. Plant. Profit. on September 23-24th, 2008 at The Harmonie Club, New York City. At that time the product was available offshore only, but now institutional US clients may access it. The conference was hosted by Financial Research Associates, LLC for the first time, as a new conference publisher entering the sustainability space, with assistance from SIF.
In the next two weeks I will be having a more solid look at GS Sustain GSAM product as forward planning for when it has run a year at least and we may start recommending the strategy from an informed understanding to the benefit of asset owners and multi-managers. I like that GS Sustain is in the game, for sure, but a close examination of some of the underlying criteria makes me cautious based on my past experience of ratings that are built on "box checking". The framework looks good, but underlying data, and assumptions like memberships of an initiative or international organization sending signals about sustainability, may be sub-optimal. I am cautiously positive, and our recommendation at Sinclair & Company to investors is to observe closely, and stress-test the ideas before becoming convinced. I have not reviewed the strategy in detail since hearing about it in late Sept, partly because the most impressive aspect of the Sustainable Investing 2008 event had me moving to other thinking. Other than Tim Smith’s usual excellent chairmanship [when not chairing SIF, he is in Boston as Senior Vice President at Walden Asset Management], was the compelling speech by Joe Keefe CEO of PAX over lunch, one of the best expositions on where ESG/sustainability investment is in 2008, and where it may go, an extract of which is here.
And of games, well, it just would not be right to cover emerging markets and London in the same story, and fail to mention Saturday's smashing game the Springboks played against England which CNN titled "Springboks Thrash England at Twickenham". Rugby, like life, rewards grit as well as grace, with patience a coaching watchword lately. So comprehensive, the Brits found time to boo their team. Yikes! The tackles, the tenacity and the touch South Africa showed against England in their backyard, racking up the Roses’ biggest ever loss at home, was a fresh reminder of the entrepreneurial and rugged nature of the boys from the bottom end of Africa.
Sarah is an Aussie, so she would have enjoyed it, and the headliner from The Australian "Springboks Outclass England at Twickenham". The boys from Goldman are credited with the BRIC monikercoined the term ‘BRIC’ in our Global Economics Paper, ‘Building Better Global Economic BRICs’, published on November 30, 2001. Maybe they had seen Bakkies [“bricks”] Botha make a tackle sometime before, like the try-saving one he made on Saturday? [sidenote: should every rugby player hope for a wikipaedia entry?!]. Yes, I know, South Africa has the ability to play sublimely one week [has Australia recovered from 50-odd thwack at Ellis Park, their biggest ever Test loss?] to the slack - only one Tri-Nations title in all these years. But as I pitched at the Paris UN PRI Board meeting in Nov 2007 - to the sullen looks from the Englishman directly after Springboks won in Paris [and a smile from the Frenchmen] - nice to see EM on top. A small smile for EM slips out when running through the scoreboard from Saturday: Emerging Markets 42 vs. Developed Markets 6.
The England coach called it “brutal” and “a lesson”. Pretty much sums up the financial meltdown for EM and the rest of the world too, and the bleak '09 outlook. Enough said.
It has been a rough spring in emerging markets in the South [this photo is from April, obviously]. The emerging markets, as simplified and represented by the BRICS moniker [Brazil, Russia, India, China, South Korea and South Africa], have been bounced out the back of the financial services meltdown wagon. The benchmark indices catch you up on the story quickly, and the forex cross-rates quickly offer the impact - Brazilian ranches, Russian dachas or South African wine estates are cheap right now for payers in USD! Yes, as a fixed income manager mate in Cape Town will attest, this creates a serious challenge for his vacation strategy – which weakened forex rate best matches the exotic destination he would like to visit in January?!
“…expect GDP growth in the BRICs to be lower this year than last, the structural changes in these economies-and indeed in the world economy-are likely to make the impact of the global slowdown less severe than in the past…one of the key underpinnings of the BRICs' strength: capital flows”
BRIC is the original acronym coined by the GS EM team in NYC, although BRICS is my preferred acronym, and ChIndia the population-weighted current favourite on CNBC. And whether local or foreign, how tough the investment forecasting game is may be illustrated by reflecting on conclusions like…
“Overall, the deterioration in capital flows that we anticipate this year is manageable, and we remain bullish on the BRICs currencies. We expect appreciation of 8% against the USD in China, 4% against the USD/EUR basket in Russia, and 5% against the USD in India. In Brazil, we think the Real could strengthen over the next three months, but it is likely to weaken later in the year.”
The personal finance regulars in WSJ Tues covered the sad EM tale with their “SmartMoney” screens, from being up 50% p.a. in China in ‘06 and Brazil in ‘07, now down about the same magnitude in ‘08, with the Fidelity Latin America fund down -65.6% YTD @ 20 Nov. Yikes! No wonder Fidelity is letting go staff in BOS to trim expenses. Interesting as always to note the pricing – of the no-load funds, the passive tracking option from Vanguard [Vanguard Emerging Markets Stock VEIEX] proves to be cheapest as always, with 40bps annual fee. And like Wal-Mart soaring in these tough depression days as consumers know where to purchase lots of cheap stuff, maybe Vanguard will gather assets even as the regular 401k contributions have to go somewhere. But retirement advisors, a growing advisory service category according to FRC, will need to be longer-term orientated to recommend emerging markets to US clients in 2008. Like Africa, EM is not for sissies! Donald Hanna, MD and Global Head of Emerging Markets Economic & Market Analysis at CITI in New York, offered a bleak look at where EM may be for ‘09 in a presentation in BOS last Thurs. His take on Brazil and South Africa seemed fair...hard times ahead.
Standard Chartered, a bank and a solid emerging markets play based on their strong network in Middle East and Africa, is raising around USD3 bn through a rights issue and just hosted an Investor Trip to its banking operations in India, Abu Dhabi and Dubai from 17 to 20 November 2008. Standard Chartered has a network of over 1,750 branches and outlets in more than 70 countries across the Asia Pacific Region, South Asia, the Middle East, Africa, Europe and the Americas and employees about 75,000 employees from 115 nationalities. Their branding tied to marathon running and cricket hints at their EM exposure. Although without an in-house money manager [I pitched them on joining the PRI in EM project back in Dec 07], nor with direct exposure to toxic US mortgage assets or developed markets financial services, the tough times ahead imply the need for more capital on hand. STAN has some good programmes in EM, as the programme head Mariannne Mwaniki covered last July at for the Global Compact 4th annual Communication on Progress (COP) workshop at the Palais des Nations in Geneva.
Many EM banks did not have direct exposure to sub-prime. But similar to our experience in the South African market, where banks and money managers were prevented from reckless exposure by capital restrictions allowing only 15% offshore investment and hence no major exposure to the developed markets contagion, the resulting flight from risk – perceived or real – has smacked the forex rates and JSE as investors pulled back cash from every accessible liquid markets. At STAN I like some of the work done to play in local communities, for which STAN has won acclaim. STAN have used the IFC Equator Principles guidelines on STAN project finance in developing countries since their inception and adopted the revised Equator Principles 2 (EP2) in June 2006. I think EP2 is solid, but I know NGOs like Banktrack.org have their doubts, and I look forward to research to check in on progress on the ground from a former Boston College Center for Corporate Citizenship colleague now at HKS.
In the STAN [Standard Chartered PLC, LON:STAN] core banking business, the opportunity “at the bottom of the pyramid” makes sense: improving access to sustainable financial services plays an important role in empowering people, both socially and economically, and grows the STAN client base. In Q1 '08 STAN’s Robert Tacon was elected to head UNEP FI, the UNEP/financial sector initiative that organizes conferences and publishes pamphlet [see basic PPT from Seoul July '08 here]. It was a pity when he left in later this year, although I am not sure really what happened there… STAN’s above-the-line campaign, including the FT US print on p.8 of Mon 24 Nov US edition, makes clever connection to their business + community approach with a board room morphing into a well. Solid brand positioning is their reward for a clear marketing message.
STAN is not in Eastern Europe, Latin America, nor the Far East. When we last spoke in his role in sustainability at STAN, Rob's view was that it was:
Look at what organization sets itself as objective, for example, is environmental and social factors on the agenda?
And if it is, then how is it implemented?
His opinion was that companies that take into account ESG will do better. The aim of training is to show why ESG is important, as a long run issue, while in the short term is about reputation. But the benefits to organization need time to manifest itself, it also depends who they are investing for. In EM, he confirmed, it is very hard to convince people, far more difficult to crack sustainability in many respects.
At least STAN has not copied Barclays which has basically shattered investor confidence by rushing to the “Medici” in the Middle East for cash, apparently GBP 7bn [USD 11bn], rather than UK government money with strings. STAN is tapping existing shareholders first. Barclays, which itself bumped up EM exposure by taking a controlling interest in ABSA, one of the big four in South Africa, managed to upset all shareholders with their plan. But being stuck up a creek without a paddle, the investors apparently agreed Mon to let Barclays proceed, knowing that the whole Board is up for a vote next April. Do not be surprised when the door swings the other way at the first next opportunity. George Dallas, the director of corporate governance at F&C Asset Management [and former head of S&P’s CG effort before that was frittered away so needlessly like other ratings agencies], was piqued on Mon. F&C had “reluctantly” voted for the capital raising, but George was quoted as saying "We think that this amounts to a clear and egregious abuse of pre-emption rights. We object that the consequences of voting against this particular transaction would make a bad situation worse". F&C sees "environmental, social and governance [ESG] issues as fundamental drivers of long-term corporate performance, a principle that is central to F&C’s philosophy as an asset manager", and sell their responsible engagement overlay [REO] service.
The Barclays meeting was a fun example of live capitalism right up there with Gordon Gecko’s Wall St address. Shareholders at the 200-strong gathering were still asking questions after 2 hours when Marcus Agius, the bank's chairman, closed the meeting and one shareholder was apparently checked by security guards as he approached the stage. Chairman of Barclays? It too is not for sissies! SRIX.GS
Dartmouth College is one of the eight Ivy League schools in the US. “Big Green” is smaller and less well-known than the Harvard or Yale. It's motto sums it up: Vox clamantis in deserto ("the voice of one crying in the wilderness"). The red brick and white column campus with greens is set in the small town of Hanover, N.H. in the Upper Valley along the Vermont/New Hampshire border with a tight-knit community of an outdoor orientation [and a reputation for partying the cold winters away]. They even say the Dartmouth rugby team is half-decent.
Tuck Business School is a top ten school where hyper-competitive Wall St types go to advance their careers, but also home to a solid Net Impact chapter and the Allwin Initiative. Tuck ranked 1st in the WSJ ranking, 15th in the FT Global ranking. The aims of making the B-school education current and contextually relevant in a multi-polar world has helped Allwin Initiative find a solid niche in the crowded syllabus and competing agendas [see IFC GBSN]. This offers a pertinent example of the current reality of the prevailing stakeholder approach to modern business: business thrives in stable societies with healthy environments. In a global world, every corner starts to matter. Pat Palmiotto administers the AI program, which includes a Nonprofit Board Fellows program and consulting opportunities in places like South Africa, getting MBAs the coalface experience they need to look less like McKinsey-types in suits, and more like 21st century business leaders. I have attended a few in the last five years, and the day always offers a handful of sharp insights and new colleagues in the sustainability field.
Thayer School of Engineering building is next to the B-school, and playing in engineering offers a strong competitive advantage for the AI. The challenges of fitting onto one planet without a “Mad Max” ending in a century or two will require some very smart creators of widgets and some very smart sellers of widgets. One Planet Leaders included a broad range of reference material on it, including from the WWF. MIT Sloan enjoys the same advantage. It was at AI in January, 2005 is where I first had an in-depth conversation with the first sustainability person at Wal-Mart, well before Lee Scott’s post-Katrina re-awakening [see 21st Century leadership speech] that running a good store may include being responsible to your consumers and staff. Businessweek covered the thrid year of AI in 2005. The most recent AI drew 300 Tuck students, nearly ¾ of the class, a reflection of great leadership by the Tuck Net Impact chapter, a stacked agenda, and the right kind of band playing!
Green Collar Jobs
Big green also describes the report this week that “green investment” may create 2 million jobs. “Green collar” is the catchy phrase floating around efforts to identify the positives of the sustainability field, where innovation attracts new business models and new ways of managing resources that covers the “green” or environmentally-friendly means of conducting business. In New Hampshire, as in emerging markets like Malaysia and Brazil which I visited over the summer, has a mix of rich and poor. You do not have to drive far [in the state car, the Subaru!] down one of the winding roads to find the reality that much of New Hampshire has rural poor. The state’s politics reflects the mix: McCain ’00 handily beat Bush ’00. The people are hardy, talk straight, and need decent jobs.
This being the height of political season in the US, talk of jobs in a tough economy matters [although the buzz around Sarah Palin’s hockey-mom lifestyle distracted from real social and political issues for a while]. Some of the green collar talk may simply be re-branding. No-one would think of calling “green collar” the guys I remember seeing late at night or on early morning runs in Durban, South Africa, guys who would be manfully struggling up a hill pushing a shopping trolley [carts] loaded up with cardboard boxes or soda cans. No-one would tell them they are part of the sustainable solution, they simply knew collecting enough stuff that some scrap collector paid them rands and cents for would put food on the table. Making their own jobs. It is not unreasonable to project a raft of new types of jobs, and more jobs, where the environment comes to have a value it should always have had, and “externalities” is a term that goes extinct. Brazil ranks high in aluminum can recycling - who knew, there is an international ranking - recycling 95% of canswhile the debate on enviromental footprint of cans vs bottles rages on in the US.
Scrap and waste management is never going to be a glamorous industry, but waste management services in the US is up over 40% over three years, outstripping the S&P500 of around 3%. The mafia-tainted wranglings in Naples ensured garbage remained an ugly word early this summer. Garbage rotted on the streets in the heat for weeks, before crisis politics saw the trash shipped by rail to Germany. The city of Hamburg accepted the waste management contract and its issue for 1,000 euros per ton. The look of things to come?
Hamburg, a city of 1.8 million, produces 1 million tons of garbage a year, 700,000 tons of that from private households. Fiedler says about one third is recycled by compost plants and scrap processors. Incineration work costs 250 to 350 euros (392 to 550 dollars) per ton.
The “big green” in waste management in the US, Waste Management Inc, up 10% over 5 years, but share price has been choppy. WMI, has had its hands full with labor union challenges of late. But the firm has been moving forward into the gap sustainability introduces for them: more firms are seeking ways to reduce waste, process it in a more environmentally-friendly way, and potentially earn back revenue from the energy of biomass power generation. WMI was able to roll out a new sustainability service business, franchising their skill in waste management and the software that sits behind it.
Ranking Green
Good quality analysis of “green” or “environmentally-friendly” business will become increasingly relevant as more and more firms tout “green” credentials, just like their safety records. Media-driven ranking tables remain a key measure for a meritocracy as a market-capitalist society aims to be. Firms watch rankings like the Fortune Most Admired and Best Companies to Work For, universities watch the US News & World Report college rankings, and students wait anxiously for their GMATs or SATs, a standardized academic test which determines who goes to Ivy Leagues and public elites like Michigan and Chapel Hill, and who does not. MBAs are all to familiar with GMAT scores. Years in the industry, including a few at leading research shop KLD in Boston, helped my BS filter pick up greenwashing or the PR spin that investor relations would seek to push. Alonovo.com presented a new approach to the business model, doing better with Amazon.com.
Word this week of a new rating shop seeking to develop a US News standard ranking of “green” companies bears watching, partly for who is involved, and what the results of the ranking reveal. As a forthcoming article for Responsible Investor on the practical problems of ESG integration describes, the frequency and currency of the data upon which major ESG analysis is made remains a weakness. Equally challenging is that no objective assessment of sustainability, and therefore performance attribution integrating ESG factors, is available. Money management is a competitive business, and scores must be kept, and for scores, we need goalposts standing clear and tall. Investment professionals manage around USD 70 trillion of “other people’s money”, excluding sovereign wealth funds. Practitioners in investment centers like Boston, Sao Paolo, Cape Town and Zurich are feeling compelled to integrate more sustainability thinking into their investment decisions.
Evaluating sustainability is seldom forward looking: GE’s US$10 billion ecomagination businesses have only recently been rewarded with ratings [Greenorder built the brilliant ecomagination campaign in 2005, the 2007 report keeps score], GE itself increasing objectives for 2012. Lagging analysis of company sustainability performance remains a major barrier to comparing and contrasting investment ideas. ESG data collection itself remains a competitive advantage, on top of the added value from analysis, so perhaps a new ranking will use advertising-supported dollars to fund new ways of coverage, or deeper coverage, or both. Quality research is expensive, and becoming more expensive: on 10 September Credit Suisse announced plans to charge new clients for access to its research analysts. Money managers must trade-off deeper understanding with the added costs of idea R&D. But perhaps a leading media journal may harvest the fields of “green” claims in advertising to fund better research. That would make a good use of the Google business model [advertising-drives revenue] to green business. In this, Google’s tenth year, that would match the GOOG motto of “do no evil”! GOOG is up 300% since the IPO via Dutch-auction, still a favourite listing of a company removing the usual payoff to Wall St insiders, not the usual old boys' i-banking launch.
My experience with the Business Ethics 100 taught that crisp, clean data fed through a rigorous and objective criteria based on sustainability philosophy will reveal mostly the better companies, but also some anomalies. Enter the political index committee stage right. Then the oldest cynic, or the index chair, or the person who’s name is on the firm’s door may affect the outcomes. A ranking must include some external review, perhaps an advisory board of some ilk, and a transparent process that may not necessarily reveal so much it may be gamed by big-spending corporations, but offers confidence in the approach. Perhaps a surprise winner will pop out the top as Green Mountain Coffee RoastersGMCR did for BE100 in 2006 – a year before their first-ever CSR report!
The okapi's face and long legs resemble those of the giraffe, their closest-living relative, but they look more like horses with long necks. The average height of their shoulders is 1.6 meters (5 feet, 3 inches). They have a short, dense, velvety coat and dark prehensile tongue long enough to clean their own eyelids and ears.
The past week has had me pondering the role of whistleblowers, and the ethics of average people looking to do business. The Year of the Whistleblower [2002] seems more than just five years ago, but that was when Enron, Worldcom et al were still fresh in our minds [see excellent Business Week article 2002 Year of the Whistleblower: The personal costs are high, but a new law protects truth-tellers as never before]. Aside from Homer Simpson, I know no employees at nuclear facilities, but there is someone I would love to talk with. Media reported the sentencing of the nuclear plant engineer in Eerie, PA who fudged reporting of a six-inch steel core corroded by acid to within millimeters of a breach of a nuclear plant owned by FirstEnergy Corp. No luminous fish have been found! AP reports from Ohio:
Jurors on Tuesday convicted a former nuclear plant engineer of hiding information from government regulators about the worst corrosion ever found at a U.S.reactor. Prosecutors said Andrew Siemaszko and two other workers lied in 2001 so the Davis-Besse plant alongLake Erie could delay a shutdown for a safety inspection. Months later, inspectors found an acid leak that nearly ate through the reactor's 6-inch-thick steel cap.
Front page this week was news that a Halliburton man admitted to millions of dollars of bribes [US$180m] to win natural gas contracts in Nigeria in the 1996-2000 period, when current US Vice President Dick Cheney was CEO. The man faces years in prison, but no word on the Nigerian side of the deal, nor the living conditions of the man’s wife and children and their gilded lives his lifestyle must have afforded. Coverage of the case makes for fascinating reading, including the indirect path to the case, following on an unrelated case in France that led investigators in France, the US and Switzerland to hunt down the frauds. Bribing officials subjects executives and their companies to prosecution under the U.S. Foreign Corrupt Practices Act. A French magistrate began looking into the matter in October 2003, uncovering shell corporations in Gibraltar and bank accounts in Switzerland. U.S. investigators joined the hunt in January 2004, according to Halliburton SEC filings, all of this monitored by accountability activists. Perhaps the SEC investigation will pick up further interesting stories... Elsewhere, whistleblowers face an uncertain future. Merck & Co. has agreed to pay $650 million to settle two long-standing lawsuits involving whistleblowers over Medicare pricing practices and related marketing activities. But Wyeth had a suit brought on vaccine training dropped. The landmark Sarbanes-Oxley Act of 2002 gives those who report corporate misconduct sweeping new legal protection. An executive who retaliates against a corporate whistleblower can be held criminally liable and imprisoned for up to 10 years. But this week the US Department of Labor, charged with enforcing the federal law protecting corporate whistleblowers at publicly traded companies, was revealed to have been dismissing complaints on the technicality that workers at corporate subsidiaries are not covered. It was left to Vermont Democrat Sen. Patrick Leahy, who helped craft the whistleblower provision as part of the Sarbanes-Oxley corporate governance act [2002], to say the law was meant to cover workers in corporate subsidiaries. "Otherwise, a company that wants to do something shady, could just do it in their subsidiary". [reported in WSJ 4 Sept 2008].
Then there is the case of sailors and the decisions they make, over the horizon. I hiked another piece of the Appalachian Trail this week with an ex-merchant marine officer who spent some time on coastal freighters carrying crude oil up from the Gulf of Mexico to New York and Boston harbours in the 1970’s and 1980’s. You have time on a hike to think, aloud or alone, and to talk or not talk, as the rhythm of your footfalls and your thoughts dictate. The path is steep to the alpine zone about 3 miles up. As we hiked boulder by boulder, we talked through his experience of sailors making decisions over the horizon, in “international waters” where no-one may see, and where no-one may care what happens, and law is in the eye of the beholder. This is a long way from the moves by food companies this week that pledged not to use cloned livestock meat nor milk, a voluntary action responding to a survey by Center for Food Safety. Of course, my local VT favourite, Ben & Jerry’s, is represented by Unilever, the Anglo-Dutch parent, but in a reflection of how far things have come, includes Kraft, Wal-Mart and Tyson Foods.
What is the business case for maritime pollution? Stories of marine pollution are disappointing. Yes, they make me angry. In 1975, the US National Academy of Sciences [NAS] estimated ships dumped 14 billion pounds of garbage at sea. BILLION. Weak enforcement of the United Nations/International Maritime Organization International Convention for the Prevention of Marine Pollution (MARPOL) fails to prevent ships to illegally dump waste oil from bilge and storage tanks into the ocean. A 2001 study from the [NAS) reports that:
Approximately 10–25% of commercial ships violate MARPOL and discharge more than 65 million gallons of waste oil at sea each year, nearly 3 times the amount spilled in catastrophic oil tanker accidents.
One of the stories the ex-officer described shipping of oil north along the US East Coast. After delivering the different grades of oil to NY or Boston the grades of aviation fuel, gasoline, heater and heavy oil, the ships would head south to the South for the next pickup. All the freighters were of similar design, and their tanks had a small inefficiency where a trace amount of oil remained behind that could not be sucked out. Before loading the next load of grades of oil, the ship would pump out the old using seawater. Pure oil, intentionally pumped directly out into the ocean, would jet out of the tanks for a few minutes until the tanks were cleared. The practice was usual. For every one of the loads.
For every one of the ships.
For years.
After a year-and-a-half of advocating, the EU is finally sanctioning this practice. Apparently, the shipping companies and the sailors who manned them needed some kind of bureaucrat to write some kind of regulation to deter the activity. It is likely however, that thousands of gallons of commodities are spewed over the side when no-one is looking over the horizon, when no-one is looking. The impact of business-as-usual is accumulative, and must be making the oceans more dirty, not more clean, according to Oceana.
The pollution of the sea from hydrocarbons (crude oil, fuel, petrol, oily waste, etc.) is a global problem that entails between two and ten million tonnes of these products reaching the sea each year. Although the bulk of public attention is focused on the oil slicks caused by major oil tanker accidents, chronic dumping of these substances – in other words, the residue from ordinary maritime traffic – is three times higher. Washing out the tanks of oil tankers, dumping bilge water and minor spillages on board or in port are the main sources of hydrocarbon pollution of marine origin.
A mid-July, 2008 investor conference call with ExxonMobil and sustainability investors illustrated some of the challenges we face in the sustainability+investment practice integrating ESG factors into investment practice. Scheduled to cover ExxonMobil Environmental/Climate Change initiatives and reporting with the VPs for Safety Health & Environment and Public Affairs, while the PPT slide deck covered a range of issues, no answer was available live nor within 24 hours on what number of tankers shipping XOM oil, and what percentage of tankers, are double-hulled and which are double-skinned. Of these tankers, how many transport XOM oil in environmentally sensitive harbor areas like San Francisco, Valdez etc? Perhaps this is unsurprising from a company that still fought the Exxon Valdez case through 2008, all the while touting corporate citizenship and their technologies for hybrids in full-colour multimedia advertisements. The XOM climate change webpage has not been updated since 29 Feb. 2007. Maybe Gabelli's new green theme investment may offer some answers: Gabelli's eponymous firm is making more noises about exploring the alternative energy and green space. The CEO of Gamco Investors said in a Bloomberg Television interview that he is launching a hedge fund to invest in environmentally-friendly companies. This week the DJSI announced its revisions for 2008, and Alex Barkawi, MD for Indexes at SAM that calibrates the index, commented that "there remains significant room for improvement and thus wide scope for a continued strong sustainability momentum". WSJ even posted a full page congratulatory advertisement on p.C7 tucked in the Money & Investing section, in black & white.
Integrity is not cheap. A working definition of integrity is what one does when no-one is looking. Perhaps it was because I was getting a little more fatigued near the top of Mt Lafayette on the Bridle Path 9 mile loop in FranconiaNotch State Park past Falling Water, but I could not understand why sailors and engineers on ships would try and be “company men” by taking short cuts to save “the company” some amount of dollars. The “Company Man” fascinates me: how the average worker calculates the risk and returns of their actions, and expects what they do for “The Company” is good for them vicariously through the company. The sailor that has seen crewmen eject pollutants overboard after regulations direct it is illegal, by the authorities and their company which sought to comply with the rules, and be tacitly and explicitly rewards with a nudge, a wink or a pat on the checkbook by their bosses. There are some happy endings, including this report from the NJ Star-Ledger:
Federal authorities will collect $4.75 million in fines and payments from a Danish company that admitted responsibility in federal court in Newark Thursday for illegally discharging oil sludge and oil-contaminated bilge water into international waters in 2006.
In another report from 2000 in Canada, a military patrol plane first documented a 12-kilometre long slick while on routine surveillance in mid-October, 1999, leading to the successful prosecution of a Singapore-flagged vessel owned by a Scots firm.Identifying cuprits is made somewhat easy by oil having a particular "fingerpint" based on where it originates from. Ahead of the last weekend of summer this year [these dates are officially established in the US, summer is officially over!], the Labor Day weekend, there were dramatic media reports that prime beaches in New Jersey were shut in part in Avalon due to medical garbage washing up on shore. The sizeable legal community in the NY/NJ/PA tri-state area will no doubt be bringing in experts to inflate to the right economic costs. Avalon was named by National Geographic Adventure magazine as one of the nation's 10 best places to live, work and play. TV captured the hapless Mayor valiantly trying to sound more on top of this mini-disaster than FEMA following Katrina, while seeming friendly enough to attract the beach crowds his local businesses relied upon. Early on the investigation expected that someone dumped medical waste off the coast, as had been cleaned up many times before. Turns out a 30-year veteran dentist had taken his boat out and dumped the junk over the side. The dentist is from a once grand section of suburban Philadelphia, Wynnewood, an early stop on the R5 from 30th St Station on the way out to Villanova. What was he thinking?
The dentist is charged with unlawfully discharging a pollutant and unlawful disposal of regulated medical waste. Each charge carries a maximum prison term of five years. Fines could total $125,000 if he is convicted on both counts. No word on the environmental costs, nor ruined walks at sunset along a clean beach. At least this nasty little incident offers some very pointed, local sound-bites for the Net Impact conference at Wharton 13-15 November [the Investments track continues to build nicely].
What was he thinking?
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Update: Suzlon are now reported to be speeding their integration plans for the German wind firm REpower they purchased to speed the technology transfer. Perhaps they are seekin solutions to the high speed/high load failures reported on 2.1MW turbines by Deere & Co. and Edison Mission Energy.
