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].
[SRI-Extra in 60secs This past week [some] culprits in the tainted milk scandal in China were sentenced to death. The tension between doing good business and the right thing is real, settled in court and in the press, sometimes in death. The toxic milk powder scandal killed at least six children and sickened nearly 300,000 last year. What makes it a little awkward is that NZ-based mega-dairy Fronterra owns 43% of Sanlu. Human rights do impact business, and a Bill of Rights is a key component. In the USA the Centre for Science in the Public Interest will sue Coca-Cola [NYSE: KO] for claims on VitaminWater health benefits. Further exploration on forming an AfricaSIF reaffirmed the two classic challenges faced elsewhere in the world, 1. definitions of ESG, and 2. the matter of priorities of ESG. Ranking the issues of sustainability will differ from country to country, or city to city, company to company. FTfm covered GS Sustain and Sarah Forrest’s team in London, the GSAM Africa marketing person is in JHB this week. The Economist this week raised the Norwegian profile in their "Norway and the environment briefing, Binge and Purge” where they reference Oslo as “[h]ome to a green-minded people and government, Norway exports the dirty stuff to the rest of the world. The result is a contradiction”. Statoil does have 7.8kg carbon emission footprint per barrel versus industry average of 19kg, 37% of global average. At least Norway has been active since 1991, and is switching to cap-and-trade to offer a material and measurable drawdown of emissions. South Africa’s minister of finance, Trevor Manuel, gives the annual budget shortly, and one may make suggestions directly to his website Tips for Trevor. The Danes signed a wind power agreement in South Africa. FT released annual MBA ranking with Wharton on top. Today’s Business Day "Management Review” included two articles on climate change and sustainability, but the content was unfortunately stale. GS]
Blood-Tainted Milk in China and Country Contradictions
Business failure has drastic consequences. Greedy executives, incompetent managers, self-interested workers, any of these may break down the fair play of good business. The tension between doing good business and the right thing is real, settled in court and in the press, sometimes in death. This past week the culprits in the tainted-milk scare in China were sentenced to death. I wonder what sort of moral dilemma that creates for the social investment advocates in the US who rose up in alarm at the China-sourced milk scandal, who probably do not support the death penalty in their human rights approach. Principles will always be tested in practice. Obama has been smart to stay flexible. The news reports with photos of anguished parents struck a cord this week: the photo documentary at the constitutional court of death penalty in South Africa in 1985 seemed eerily similar to the newspaper photos from China. The toxic milk powder scandal killed at least six children and sickened nearly 300,000 last year. The legal trials target executives from the Sanlu dairy group and city officials accused of allowing the sale of milk adulterated with melamine or for covering up the scandal.
SRI-Extra will cover more nutrition issues in 2009, including in the USA where Centre for Science in the Public Interest will sue Coca-Cola [NYSE: KO] for claims on VitaminWater health benefits, the lawsuit contending that the marketing for Coca-ColaVitaminWater product is 'deceptive' and makes 'unsubstantiated claims'. KO purchased VitaminWater maker Glaceau in 2007 for USD4.1 bn as they raced to catch up with Pepsi's non-carbonated soft drinks brands business, and counteract a poor nutrition profile of their brand portfolio.
Conversations in Johannesburg, Sandton and Cape Town over the past week have furthered the understanding of the opportunity [or not] for an African Sustainable Investment Forum, an AfricaSIF. It has reaffirmed the two classic challenges faced elsewhere in the world:
definitions of ESG, which cover sustainability, climate change, and which environmental, social and corporate governance [ESG] factors; and
the matter of ESG priorities, how climate change stacks up against say, jobs for under-employed, or houses versus human rights issues.
Ranking the issues of sustainability will differ from country to country, or city to city, company to company. Creating jobs trumps climate change as an issue. The survey of responsible investment in Peru in 2009 by Liliana at DukeUniversityFuquaBusinessSchool will offer some fresh facts to compare with the study in South Africa in 2007 with Neil [good news is he has just been appointed actiing director of the UNISA Center for Corporate Citizenship]. Balancing sustainability across a voting society raises many challenges. The question of definitions raised in SRI-Extra last week also had resonance in the FTfmcoverage of GS Sustain and Sarah Forrest’s team in London. The question tends to make fund managers splutter, but in recent months, advocates of sustainable investment have been able to point to clearly unsustainable investment strategies, and indeed an unsustainable global financial system, as proof they are not just posturing. Sidenote: The Economist or FTfm page may throw up the latest Toyota advertisement campaign, AIM: zero emissions. Do you also think the people as trees is a little wierd in the photograph, something does not look right, yes?.
Constitution Hill
The SA constitution and its Bill of Rights was the freshest in the world when launched in 1996. 20-something rights are enshrined, including social and political rights. A visit to the Witwatersrand and the Constitutional Court on Constitution Hill with a fellow LLB from University of Natal [UKZN] helped illustrate the conundrum. The fine, architectural-award winningConstitutional Court complex was built on the remains of a notorious prison not far from the University of Witwatersrand or from the headquarters of SAPPI [SAPPI Ltd/JNB/SAP]. But on a typical summer blue sky and cumulus cloud afternoon, the parking lot with its head-high weeds and empty lot reminded me of a forlorn municipality office somewhere in Kwazulu-Natal, or a university during the summer break. Where were all the visitors? And why did the entrance to this most important component of democracy and the rule of law look worse than any of the world-class shopping malls along Oxford Road toward SandtonCity? One wonders if the Constitutional Court should not have been added as an appendage to a shopping mall in a busy center to offer more foot-traffic, and bring the crux of the legal system to the people it is designed to empower? More people of every economic class were buying something to drink that afternoon, than visiting this iconic institution. No word on a listing of citizens’ duties to help make them the enshrined rights happen, starting with making the site more user-friendly, and picking up trash. Sadly, picking up after oneself is not just an SA problem, even Obama’s celebration was blighted by refuse left behind.
Country Contradictions
The Economistthis week raised the Norwegian profile in their Norway and the environment briefing, “Binge and Purge” where they reference Oslo as “[h]ome to a green-minded people and government, Norwayexports the dirty stuff to the rest of the world. The result is a contradiction”. The title alarmed me: sounded like my weight-loss program [which is a little behind schedule post Christmas 2008]. The Economist does offer some pithy reminders of what Norway has been doing since instituting a carbon tax in 1991, spending money on climate change mitigation technologies, including a novel one using fresh and saltwater. The Norwegians have even done a test on the merits of bridges versus mountains to assess the carbon impacts: bridges work best for over water, tunnels for under mountains. The pension fund divestment according to an ethical policy in 2006 led to a Harvard Business School case study Norway Sells Wal-Mart that I use at Kenan-Flagler Business School, although I am developing a more articulate example with University of North Carolina-Chapel Hill and MIT Sloan in 2009.
Statoil [StatoilHydro ASA/OSL/STL] does have 7.8kg carbon emission footprint per barrel versus industry average of 19kg, 37% of global average. But The Economist drives on the point similar to Bush’s White House, pointing out contradictions in making a positive action toward addressing environmental issues because the logic model is not buttoned-down and perfect. They attempt to offer some balance. The Economist article's online reader feedback forum matches some of the colourful language and comments in other media online around the world. It illustrates the power of the online version over the print version, although I remain solidly a hardcopy adherent, in solidarity with all the newsprints out there, including the New York Times saved by wealthy Mexican Carlos Slim last week.
Norway is switching to cap-and-trade to offer a material and measurable drawdown of emissions. This should make interesting reading for South Africa’s minister of finance, Trevor Manuel, a few weeks before his next budget [last year he pitched a carbon tax]. And Trevor may be listening. In a demonstration of Mr Manuel’s open-door policy and comfort in his shoes after ten years, one may make suggestions directly to his website Tips for Trevor. The most noteworthy or bizarre - or both – often are referenced in his speech, since 2001.
Activity in wind this week included further coverage of the Danish support for wind in South Africa, and treaties being signed. It is a fine profile for the Danish Wind Industry Association, worth EUR 4,7bn in 2007 to the Danes. Noteworthy in light of my comments last week about relative power of government ministers, the SA representative was the Minister of Energy & Minerals. The Darling wind farm is still in-between days. Jon mentioned that he came back from a hammering kitesurfing session the other day, but the windfarm blades were not moving…
World Rankings and Advertorials
FT released the 2009 FT MBA ranking. I prefer the recruiter driven WSJ version. The world’s top financial MBA, Wharton at the University of Pennsylvania dropped a note in the inbox, covering a trip to Antartica as part of a leadership program, Penguins, Leadership, and Thinking about the Planet. Prof Erik Orts of Initiative for Global Environment Leadership [IGEL] program tried to make the environment connection, and as expected, purchased carbon offsets [142mt through the Wharton Leadership Program Office. The group did not have a cakewalk, which is good, because hardship, physical hardship, is a powerful teaching tool. The Ghandi exhibit at Constitution Hill explained that Mahatma Ghandi made comments about how he achieved what he did in South Africa and then India were made possible after physical pain and isolation cleared his thinking. Every good cycle must have helped me, especially the ones that hurt the most.
The big accounting and consulting firms are moving strongly in the climate space, it certainly makes for a fertile consulting area in an era of shrinking consulting fee hours. The effort in the space is important, but perhaps the practice may be conflicted. Today’s “Business Day Management Review” included an article by the chartered accountants body president pitching “businesses must consider climate change in a strategic way and integrate sustainability into long term plans”. Of course, the media had to title it “Eco Warriors outlook will help the bottom line”. “Climate Change requires concerted action now” by Ajen Sita, head of assurance for Africa sub-area, Ernst & Young, unfortunately, has content so advertorial, it has the E&Y writer referencing CDP data from 2006, when CDP was in 2008, and CDP South Africa for the second year. Pretty weak reflection on BD, Wits and HBR all of which collaborate on the media item.
[SRI-Extra in 60secs > The Social Investment Forum's 9-point wishlist from the responsible investment industry to the Obama administration may have traction, especially the strategically important parameters for the financial markets, proxy access and even an innovation office for CSR. When will the environment not be an externality? New ideas and new actions are needed from politicians and business media, like Business Day’s editorial Monday 19 January 2009 on the end of environment as externality in power-generation investment, will help. Ignoring externalities creates false economy. Ignoring externalities is sub-optimal institutional investment. Just as in Australia or the US, every ton of low-grade coal burned by ESKOM in South Africa [120 million tons p.a. to March 2008, 130 Mt/p.a. to March 2009] has an environmental and social cost to the citizens of South Africa, and anyone downwind. It is sub-optimal to society and the institutions that power it. In the market-economy capitalist context, one needs to send demand signals to drive market solutions. We need a “mini-Stern” in Africa to state the climate challenge in real money terms, and the time value of money not spent now. Investment thinking on the continent needs an AfricaSIF that may promote integrating ESG factors while keeping tabs on the growth of sustainable finance. The trickle in specialist SRI mutual funds helps send signals, but it’s just a trickle. The “green” audience at UCT for the Humboldt conference “From Poznan to Africa” failed to connect directly their personal investment decisions to the environment issue studied scientifically. The hope of the environment as asset in investment decisions – sustainable finance made real at the intersection of sustainability + investment - will be realized one infrastructure project and one green collar job at a time, in the US or in SA. But looking hard at the cold, flat and crowded reality of 2009, expectations are way too high. GS]
Sustainablity + Investment Wishlist for Obama
The environment, though the proximate climate change issue, will command some attention in Obama's first 100 days. Perhaps, like in Whitehall [centre of UK government in London], the US may soon have an “office of climate change”. When I saw that title chipped into granite last October in London it immediately became a visual point of reference for me. Climate change was now real and to be taken into account. Environment seemed to be one step beyond being an externality. In Monday's Business Day editorial [South Africa’s leading business daily], the opinion on externalities comes close to what I hope to see in my lifetime as investment practitioner: the environment appreciated as an asset, and the word “externality” being retired forever.
In 2009 in the US, and probably in SA, some of the local and state-level climate change rules may finally make an appearance in a coordinated fashion. But as FTfm opined Monday, options are severely restrained. In a post-Poznan and pre-Copenhagen world, I agree that there is an international struggle over climate change on the horizon. Poznan failed because the Bush presidency was in final descent, the EU suddenly realized that their economies were looking pear-shaped, and the global financial crisis left any questions of financing mitigation and adaptation a long, long way from the top of the list [see The Economist's take by Emma Duncan]. The conference was also missing some key players. While environment ministers and the odd finance ministers were in attendance, energy and transport ministers and presidents were absent. Who will have more power to drive changes in energy generation policy: the minister drawing lines in the sand or the minister licensing a nation’s dollar-generating [but depleting] resources. It is a lot easier to count miners than waitrons, mines are more tangible than eco-tourists. South African Minister of Environmental Affairs & Tourism Marthinus van Schalkwyk , white Afrikaner and heir until he disbanded it of FW De Klerk's National Party, has been outspoken as lately as a representative opinion for emerging markets, both at the Poznan political meeting and in Washington DC. The NRDC and Climate Change Capital had him come and speak 13 January at "Emerging Strategies for International Climate & Investment Policy”, he referenced the SA government commitment to plateauing emissions in 2020-2025, before reduction, a sufficiently distant but plausible promise from a politician. The development vs environment dynamic is a real dichotomy for SA: the environment was spared emissions when ESKOM's brownouts left SA without electricity last January, and a slowed economy is the real reason there have been no brownouts in 2009.
"South Africa, the climate question is both an energy question and a development question. On the one hand, some 30% of households do not yet have access to modern energy services. On the other, the energy sector is responsible for some 80% of our greenhouse gas emissions, with electricity generation responsible for some 40%. Coal is the fuel used for 90% of our electricity supply".
Being on the ground, it is unclear how the demands of poor wanting electricity, and the current policy backgrounds, move South Africa to the goals mapped out, irrespective of how well the "technology, investment and policy"are mapped. The appeal for adaptation funding will be loud. But the fact that labour, society, government, business and policymakers are meeting minds is a strong positive. It certainly offers South Africa a place at the table with a coherent and articluate position representing Africa.
SIF’s Obama Wishlist
Many think-tanks and institutions have been pummeling Obama’s transition team with checklist and worklists [see the UPenn ranking of think-tanks ex-US, which includes four from SA topped by UCT’s Center for Conflict Resolution]. Net Impact used Facebook to leverage the power of their 10,000-plus MBA and professional network members to address an Open Letter: “…on how his administration can best support a sustainable social and environmental future for business”. The socially responsible investment community in the US represented by SIF urges the Obama Administration to take a number of steps:
Establish clear parameters and effective regulations for the financial system and stimulate transparent assessment of financial as well as environmental, social, and good governance factors;
Enhance access to the corporate proxy ballot so that long-term shareholders have a say in the nomination of corporate directors and in protecting shareholder value;
Support corporate responsibility or sustainability reporting by public companies;
Restate the consensus view that fiduciary duty may compel fiduciaries to consider environmental, social and governance (ESG) factors;
Assert global leadership in combating climate change, including through tax incentives and significant public investments in clean energy technology, energy efficiency, and green collar jobs and training;
Take a critical look at lending policies and create more accountability in the lending marketplace;
Create more opportunities for financially struggling homeowners to restructure their mortgages, helping them stay in their homes and out of foreclosure;
Endorse legislation that provides for socially responsible investing options in the federal government’s retirement plan;
Create an Office for Innovation in Corporate Social Responsibility to enhance and coordinate inter-agency CSR activities, allowing the federal government to become a state-of-the-art leader in CSR across its vast domestic and international arenas of influence.
The two most strategically important are the parameters and the proxy access, offering a strategic direction and a current execution of that to implement the change. Parameters are the larger discussion. FT on Monday argued that some more regulations are the least we should pay to avoid another meltdown. Perhaps fitting that Trinity Church Wall Street is hosting a global conference the day after the inauguration of the “Theology of Sustainability” where perhaps the sidelined Wall St bankers will enjoy “[r]e-imagin[ing] an abundant world measured not by personal consumption but by just and sustainable relations with nature and communities”. In ourrole at Sinclair & Company as advisors on integrating ESG factors into investment policy and practice, we are staunch supporters of governance and accountability in all its forms in any private or public sector climate. So here’s hoping the ninth idea on the SIF wishlist for an “Office for Innovation in Corporate Social Responsibility” gains traction, being based in part of the findings of the General Accountability Office GAO report on CSR in the US back in 2005.
Ignoring Externalities
Almost lost in the Obama buzz this week is the proposition that SA companies which have cash may dip into deals in Africa or abroad, inspired of course by the influential Rupert family maneuver to buy into Lehman’s private equity assets via the Reinert investment vehicle currently holding a large chunk of BAT shares after being spun out from Richemont. The BR covered the report by mergermarket, an international mergers & acquisitions (M&A) intelligence service. Mergermarket detailing M&A activity involving SA companies fell sharply in 2008, by 45.8 percent, to $14,4 billion (R143.4 billion) [this number conflicts with Thomson Reuters, which put the total M&A value involving South African firms at $24.1 billion]. The dominant British relationship was evident in that UK firms had 13 deals valued at $3.2 billion, or 76 percent of the overall value of inbound deals. UK's Vodafone Group $2.1 billion additional stake in cellphone network provider Vodacom was a large chunk. Which explains why the only Blackberrys being offered in SA by Vodacom are older Vodafone stock. And Oxfam is still seeking capital for its Cape windfarm project.
ESG in valuation is current but absent in investment analysis. Deloitte South Africa today presented their opinion about cap-and-trade [the Obama option] being more effective than a carbon tax [mooted by Finance Minister Manuel in 2008]. Business Day editorial hammering the short-termism employed by ESKOM in not building more alternative power-generation assets offered a good start to the week for a sustainability + investment practitioner. The Humboldt conference at UCT last week disappointed from a corporate investment or institutional asset management perspective: scientists were happy to cover the minutiae of their studies, but there was little assessment of the capital to bet on any direction. Perhaps more coverage by UrbanSprout will help, see 2007 Urban Sprout Carbon Calculator. Presenters did offer that a “mini-Stern” had been conducted in SA, but its absence from the financial lexicon in SA has not motivated investors as it did in Europe. The 2006 Stern report from the UK on the costs of climate change helped monetize the choices facing private, public and policy sectors; note also the Stern 2008 update confirming the situation is much worse than forecast. We need a “mini-Stern” in Africa beyond what was launched in SA in 2007, and the AfricaSIF that may promote it while keeping tabs on the growth of sustainable finance. Like the Norwegian SIF that last week finished a good valuation research piece as part of their Sustainable Value Creation Initiative [more on that initiative led by KLP's Jeanett Bergan soon]. Conversations with Jon and William later this week may move things forward another few yards.
At “From Poznan to Africa”, the room looked stunned when I posed the question of what each person in the room was doing about sending an investment signal by demanding more green investment. It was the same case I have made since the Environmental Leadership Program in 2004 in Philadelphia. To the self-selected “green” audience at the public meeting hosted at Kirstenbosch, it was as impactful: what is in your portfolio? How are you integrating ESG factors? Rows and rows of incredulous eyes stared back. That simple message – in the market-economy capitalist context, one needs to send demand signals to drive market solutions - is as powerful as Peter Bruce’s BD editorial on Monday. False Economy opined that there are no externalities; every ton of low-grade coal burned by ESKOM in South Africa [120 million tons p.a. to March 2008, 130 Mt/p.a. to March 2009] has an environmental and social cost to the citizens of South Africa [see Climate Change Corp's Dec 2007 article and article on ESKOM 2008 emissions]. ESKOM has announced an intention to build 100MW wind farm in the Western Cape. The “washed” coal is “better” quality, and it is exported. Millions of tonnes. Which in turn re-directs technical skills – an opportunity cost in a nation with a skills shortage - and which wears out infrastructure in a country where infrastructure is a top priority for investors, including pension funds targeting ESG as our 2007 study revealed.
South Africa is the country with the highest per capita carbon footprint in Africa and one of the highest in all emerging markets. Ideas impacting SA’s direction are as strategically important as SIF’s 9-point wishlist is to Obama. As BD opines, “[i]nvestment in alternative energy [is] compellingly affordable” with the right policy direction [there are more than the two fundamental ones offered by BD], and the right incentives [see the mistake-riddled defence from Petrochemicals spokesperson in today's BD]. Like rewarding corporate and institutional behaviour that incentivizes lower priced power in environmentally sustainable way. Which is where by now – nearly three years after the launch of the PRI in April 2006 at the NYSE - one would have expected the “presence” of at least the African investors in ESKOM to have become apparent. A positive sidenote is the fund democracy of the largest pension fund in Africa, SA GEPF, currently advertising for pensioner trustee representatives.
The relative silence on ESG issues in proxy action and investment analyst meetings in Africa is as deafening as the audience at the Humboldt lecture. The odd uncomfortable comment may tip-toe around “ethical” issues – the usual comments on “sin stocks”, but not in the ordinary analysis. When last did you see a direct reference to climate change costs in the quantitative analysis of a power-generating utility in emerging markets [see ESKOM's reference to environmental externalities in 2006]? In the US, a client in Manhattan reports their carbon calculator integrating Carbon Disclosure Project [CDP] 2008 data on electric-power generating utilities is interesting to their fixed income team, ignored by the equity team. In SA, while the FM carried the chains of bankers nervous on the cover, perhaps it was fitting that Enviroserv Waste Management advertised on the back cover. SRIX.GS
Investment is about the price you buy, the price you sell, and how long one holds in that position. You may be very smart, but the market may make a fool of you. And as investors from Benjamin Graham to Peter Lynch to Sir John Templeton to Warren Buffet have opined, there must be times when you have to be confident enough to be contrarian. Stand when the herd rampages off, and step away discretely when the thundering herd comes running back. So perhaps the smartest move is obvious for the smartest US president in a few years: either walk on water up to the Lincoln Memorial, or call a first presidential media conference to announce:
“Thank you fellow Americans, for believing in me, and voting for me to be here today. Knowing you expect everything of me is a wonderfully challenging, and not being one to disappoint you all, I quit. Now believe in yourself. I’m off to bodysurf in Hawaii…”
It is an understatement that expectations are high on the Potomac, and on planet earth. Obama must feel like Brazil come football World Cup time, Steve Jobs at Macworld or Ferrari at Monza. Friends and colleagues are trekking to Washington, DC for the inauguration, or to local celebrations like the African Celebration, and even heading up to Kenya to be live through the African American connection. It is mind-boggling to think his grandmother and aunt were packing for the flight from Nairobi. The epoch-changing event is building in intensity. One newspaper referred to Obama as the biggest celebrity in the world, the world’s best-known human. Symbolism is high ahead of the basic realities like administration. No pressure then, ‘ey?!
U2 and US
Sunday’s pre-inauguration concert at Lincoln Memorial introduced some of the celebrity. U2 singing for MLK made a strong picture. U2’s set of “Pride” written for MLK [today is Martin Luther King Day in the US] and sung with gusto during U2’s Rattle & Hum tour in the US in 1988, and the U2 theme song adopted by the Obama/Biden campaign, “City of Blinding Lights” with its sweet electric guitar hook. To have the greatest band in history playing on the steps where their icon MLK spoke for peace, and singing “Pride, In the Name of Love” was culture intersecting history. Live, and imperfect [like lead-singer Bono getting his math wrong!]. Being Bono, he went straight for the jugular of the issue of the day, dedicating “pride” and the reconciliation message also to Israel, and to Palestine. You can imagine the prime-time US producers holding their breath and fingering the tape-delay button. Maybe that is why Obama was not quite singing along [or maybe as a former nerd he does not quite have U2 cred?]. I expected that with the opportunity for a gospel choir, “I Still Haven’t Found What I’m Looking For” would have been selected, but perhaps that would not be sufficiently victorious. In true U2 style, in homage to America, they tweaked the lyrics just like they did at the NFL Superbowl concert after 9/11 in 2002. U2 has been as good to the USA, as the US has been to U2. Check Youtube for U2 Obama Inauguration and U2 NFL Superbowl 2002.
Cold, Flat and Crowded
What is the sustainable finance angle here? With a nod to Mr Friedman’s “Hot, Flat and Crowded” I suggest that the inauguration offers a “Cold, Flat, and Crowded” moment for sustainable finance and sustainability + investment. Expectations are high, but the grit of real details – like gravity – always will decide.
i. Cold Firstly, cold. Cold because, like in many inaugurations before, DC is known for the odd cold snap: it should be around... Nothing like Woodstock, VT where the president would need a Subaru not a Cadillac as presidential limo, but worthy of spectators bundled up like Eskimos and letting loose those ugly Uggs. Maybe this will help curb the length of speeches. The Northeast in winter is a grim place to be. The choice events have money managers in the Caribbean, or at least Florida. Hard-working and budget-tight responsible investment types were warm but local in New York City for the Institutional Investor/SIF 3rd Responsible Investment Forum. Word is that the mood was grim with cut-backs and retrenchments all round, although the headline presentation from John Ruggie was important, and attendance was down. The venue [Union League Club in midtown] does help allow the creative mind to drift to higher thoughts for a while. Last year between conference calls with Credit Suisse I flipped though Walt Whitman’s “Leaves of Grass”. Somehow conferences always seem a little long though, but II/SIF in NYC is doable because the iconic Apple store and Trump Tower are both walking distance, depending on how you prefer your inspiration.
Cold because it is a grim time to consider yourself a professional focused on ESG as the cuts in research and analysis budgets cut loose whole skilled teams [Merril Lynch cut their SRI sales person in London this week]. Cold because having the oil price around USD40 removes the urgency that prices of USD125 brought to switching to cars like the one driven by CIA director Wolmsley, Republican and climate change advocate in the US, with the sticker “Osama Bin Laden Hates This Car”. Nice. Cold because in the steps to get the US economy breathing again and the frozen banks lending, cold, hard calculations will trump ambition, and investment as usual does not value the environment correctly. In investment calculations between 7 am and 7pm in London, Stockholm, Tokyo or Sao Paolo today, what price will fresh air be priced at, or West Virginian mountaintops, or rules that minimize the opportunity for oil tanker hulls being ruptured? What price for the environment? Ignoring externalities creates false economy. The trickle of mutual fund investment reported by Responsible Investor Monday in Europe is a helpful sign, but dwarfed by the investment as usual money. Investment data group Lipper Feri and Responsible Investor calculated total sales for the SRI sector in Europe for November were €784.2m ($1bn) to take the overall value of the sector to €35.3bn. Sales of non-SRI equity funds totalled €588.7m.
ii. Flat Secondly, flat. The roads to DC policy makers and federal dollars to invest seem relatively flat and easy to travel. A good few friends have submitted their CVs online to the change.gov. Many in the sustainability+ investment space see in Obama the administration to ramp up the pressure for federal level action, beyond what in the US has been happening at State or institutional level. The Democrats, “progressives” and independents who voted Obama/Biden into office will have their list of wishes to be fulfilled. At least we hope they will be transparent, and welcome counter-points. Competing factions will arrive with their policy and investment demands. While the financial meltdown has swept away some of the more driven options for the new administration, it seems the prospect of infrastructure and “green jobs” means that some aspects of the climate change agenda and broader sustainable investment will happen. But perhaps in the first 1,000 days and not 100, days. An relevant sidenote is the similar pressure in 1992 when the first Clinton administration opened the door to “economically targeted investment” [ETI]. The results were apparently underwhelming, in the same way social and economic investments elsewhere around the world that have been overburdened in socio-economic-political expectations have under-performed, with exceptions as Tessa Hebb has written.
Flat because investors expect a small “Obama bounce” in the markets before the grim reality of America, Europe and Japan in depression comes back. The banks are still not right, Citi is now two mini-me’s, and RBS just got beaten up by Gordon Brown for “irresponsible risk-taking”. But there is hope that some of the clean tech and green collar jobs will yet come through. With a powerful funding mechanism and political will, and with so much infrastructure to build, green concepts have to form a part of the answer.
iii. Crowded Thirdly, crowded. Crowded with people, and crowded with demands. People who come to spectate and people who come to be energized to work. The inauguration is an event for this age, especially the Y generation that helped elect Obama. Children will ask “Did you go? Were you there?” Raised on celebrity, and the celebrity of previous icons like JFK, this is their chance to be there and post their Youtube perspective of history. I wonder if anyone will track the number of Obama inauguration vlogs? The tone in the US is like an open air World Cup final, the Tour de France all in one day, and the global audience of an American Idol finale into one small location in America. The rock concert and speeches yesterday had around 600,000 live and millions watching on TV globally. The unique Obama CNN/Facebook hookup is a seminal moment for social media and means that the virtual world will have online community watching and interacting. Its crowded with colleagues from the international investment and policy space, including those who like the phrase “responsible investment”, not a favourite of mine [along with ‘ethical investment”] because for the professional practitioner, it raises issues of whose responsibility, for what, and for how long; as well as the implication that all other investors are “irresponsible” which mainly just generates a negative dynamic. Sustainability + investment, ESG factors or sustainable finance work better.
Crowded with interested people and potential players. Whether they voted last November or could not vote, many professionals and people with thoughts of a new context or with stars in their eyes want to be in DC in the moment. The image of the president-elect and his family onstage for the election victory in Chicago - not white but black, and successful and representing a fresh image of America - will be set down in collages beside images from Tuesday of the first black president raising his hand to accept the role of president. In the US where much of the sustainability/ESG/socially responsible investment space is covered by voters who are probably Democrats, the appeal is obvious. At last, one of their own. Or so it seems. Obama is closer to U2 than people appreciate. As Obama himself reflected, and like U2’s songs, he is in many ways just a plain canvas that the people use to tell their own stories on, and through. A plain canvas, whether U2’s striving lyrics or Obama’s open-ended rhetoric. World citizens too from the US, UK and elsewhere are in Washington DC, seeing something to shout about, including at least one of President Mandela’s children, Zindzi Mandela. If only Madiba were a little younger, to be able to fly there and appreciate another historical moment. Many of the sustainability and policy shops have people on the ground in DC, like The Nature Conservancy [TNC], WWF, World Resources Institute [WRI], and niche investors like Albright Capital or the IFC, although Al Gore’s Generation Investment Management acknowledged that DC is a backwater for investors when they re-located to New York last year to be closer to capital rather than policy. But perhaps the US government spending a trillion dollars changes the rules of the asset-gathering thinking?
Ignoring externalities creates false economy. As false as the rubbish mortgage lending and investment ratings that melted markets in Q3 2008. If Obama’s Nobel-prize winning energy minister can make that case to coal-rich US, the case for externalities globally will take a major step forward. Maybe, just maybe, it will be time to watch out for that walk on water. SRIX.GS
We knew it was coming. Then it was refused permission. But now, the Russians have arrived! Tuesday in the late afternoon sunlight it was quayside. Dark, blue, sharp - all latent power, metallic angles and drilled sailors in whites. The Russian nuclear cruiser Pyotr Veliky [Peter the Great], flagship of the Russian Northern Fleet, is tied alongside next to the container channel in Cape TownHarbour with a shiny red star on the bow. Battlecruisers like Pytor are some of the largest warships in the world, second only to aircraft carriers, and are similar in size to a World War 1 battleship.
The Pyotr Veliky captain’s orders must have been clear – sail to Cape Town, get to the V&A Waterfront, and do some shopping in the January sales. At least that's what we assume because news reports it was “deemed too big to berth at the V&A Waterfront” and I cannot recall other capital ships trying to turn right after entering the harbour... When the Russian Navy wants to strut their stuff, they are very subtle. Next time the Americans send their nuclear-powered aircraft carrier back, they’ll probably want to park it in front of the V&A clocktower! The Americans had the discretion to float gently in the Table Bay gales when the USS Theodore Rosseveltarrived in October 2008. On the other hand, maybe the US Navy was just exhausted having determinedly conducted shock-and-awe against red tape for years to make it happen.
Maybe the Russians saw a few too many Cape tourism photos, or South African parliamentarians are about to make another arms deal that will distract presidents and would-be presidents for years to come…let's hope not like THAT other one, the one Archbishop Tutu has requested an inquiry into. The military ship was being patrolled last night by a SA Navy inshore boat [see it near the stern, above], watching for any protesters or drunken seals. Local NGO The Anti-War Coalition did react to the arrival, as they did to the US carrier in 2008. Note also the Russian Navy flag, looks a bit like the Scots. Unfortunately, I will not be sneaking happy snaps up close.
Are there any other nuclear-powered ships from any other nations of the world that want to dock in CPT to check out the new FIFAWC2010 stadium at Green Point? Guys, maybe just read the WorldCupblog. Perhaps the approval for the visit from Pretoria is the SA government serious about creating jobs [part of the ANC’s election manifesto the past three elections, but…]. The last time a nuclear-powered ship wanted to dock in 2005 but was denied, a storm in a teacup brewed up:
“The ship [US aircraft carrier USS Harry S Truman] eventually sailed past, prompting an outcry from local businesses that would have benefited from the spending power of more than 6000 visiting sailors”.
Well, at least the American sailors in 2008 did play rugby! I wonder how many crew the Russians have ready to buy wine and biltong, how many play rugby, and oh, I would pay to see some Russian sailors try and haggle with a minibus taxi driver, hanging out the window calling destinations with thick CapeFlats accent… Maybe that’s why all hands were on deck astern for at least an hour in the twilight last night getting a briefing from the captain and/or liaisons.
Curious minds that you are, one expects the reader will want to know what it takes for a nuclear ship to dock in SA. The original dates were blocked by NNR for “specific criteria for the refusal related to a safety certificate from the Russian regulatory authority; a liability letter that provided only for international nuclear damage; and an emergency plan that was ‘not comprehensive enough’". Good to know that instructions to evacuate CPT will be issued in Russian. Pyotr Veliky sits in the harbour about 1.5km down the mountain from here – wonder how fast after "dear comrades, we regret to inform you..." I could whip the MTB out and pedal over DevilsPeak?!
Nuclear Power
Nuclear-powered ships are really about steam boilers driving pistons. Similarly, nuclear-powered electricity generation remains a tough item in the ongoing debates about responses to climate change. There is a reason no nuclear plant has been built in the US in 30+ years, mostly due to "Not In My Back Yard" [NIMBY] and no financial firms willing to fund the huge capital costs. Nuclear power is under-covered in South Africa. In apartheid SA it had a powerful isolationist, screw-them component. Koeberg, about 50km up the cold West Coast from CPT, is the sole nuclear plant, French-built [Framatome] and commissioned in 1984. New construction on partly SA-developed technology ["pebble bed modular reactor"] was shelved. But in 2009 all bets were back on after ESKOM failed to provide electricity leading to bad waves of brownouts in SA in late 2007/early 2008. And with a large portion of the planet’s uranium, seems to make sense. For investors into the nuclear sector in SA though, about the only direct exposure would be via ESKOM fixed income instruments.
Business Report this morning included a headline “SA's next nuclear power plant to come on stream by 2019” indicating nuclear is back in the mix and moving forward. The SA government is doing it directly because quasi-government ESKOM fumbled so badly, and dropped out. The SA government plans around 6000MW by 2019, which is two years later than original plans. Instead of supporting the ESKOM funding, the SA government is doing its own thing because “government wanted to launch a process that differed from the utility's one-time proposal to ensure it could build up the fleet over time” according to Nelisiwe Magubane, the deputy director-general at the minerals and energy department. It is not clear where the government's energy versus environment trade-off has led, though both nuclear power and Environment Minister Marthinus van Schalkwyk have risen lately, according to BR. Meanwhile, NGOs like Earthlife Africa are trying to keep focus on getting power to poor people in SA.
Exelon, Entergy and other nuclear-power giants are set to surge, thanks to the Obama administration's plans for heavy investment in clean energy.
It is just seven days until the Obama inauguration. A friend with a solid global strategy in Boston he developed for State Street knew he would face heat from some sections of investors and stakeholders [Union of Concerned Scientists is based in nerd-heavy Boston] but he was willing to consider it as part of the solution, names like Hitachi, Westinghouse, AREVA. GE pitched nuclear in 2005 as part of ecomagination, with response from the likes of Treehugger.com in 2006 quite equivocal, but fast forward to NEI Notes' response to Obama's plans in 2009. The respected ESG investment house in the USCalvert now has a position of:
"Calvert's two newest funds, the Global Alternative Energy Fund and the International Opportunities Fund, may in select cases invest in companies with existing nuclear power if they are demonstrating leadership in developing alternative energy. Moreover, the Funds will not invest in companies that own or operate new nuclear power plants or do not meet Calvert's safety and security performance standards".
The issue is the same as for coal or consumerism: what happens to the waste? Between 70 and 90 percent of the world's spent nuclear fuel is of U.S. origin. No doubt, the siting of nuclear plants is the dramatic, as the accidents in Three Mile Island or Chernobyl suggest. Nuclear accidents are as cruel for civilians as Israel/Gaza, just silent and longer-term disfiguring. But the bigger issue, and little reported story, is where the nuclear waste [radioactive for longer than Larry King will by interviewing in suspenders] will end up. Where do all the nucleons go?
After over 20 years of research in the US and billions of dollars of “carefully planned and reviewed scientific field work”, YuccaMountain located 80 miles northwest of Las Vegas, Nevada, is the only site under consideration for a proposed repository to store 77,000 tons of high-level radioactive waste from U.S. weapons sites and commercial nuclear reactors. But protests about shipping and storing rage on in the litigious capital centre of the world. Opposition is fierce. Senator Reid has flatly refused EVER to let the nuclear waste be stored there. And what does "low-level radioactive emissions" really mean?
Where is all the nuclear waste stored today? The IAEA has been talking about global standards [ironically in CPT in 2007], and nuclear plants even qualify for environmental standards [ISO 14001, who knew?!]. But if France gets 80+% of electricity from nuclear power, is it sitting under the slopes of Chamonix? More research is called for. One immediately wonders about the French Legion heading into the Sahara or why the Paris-Dakar Desert Rally was switched to Argentina in 2009…
Where does radioactive waste go? The current concern with CO2 is important, nuclear may be part of the solution, but building more nuclear plants needs to happen in the context of the outputs. The by-product of coal-fired energy generation is CO2 emissions, and costing outputs may have caused at least one coal deal by Dynegy to flounder. Investors - especially institutional investors - must cost outputs so we have no externalities: pollution is a deferred cost, not an externality. Just like coal-fired power plants. Just like mines. Radioactive waste from mines is a current and present danger in SA, but you would be hard-pressed to find this costed ex-ante. Storing spent fuel at Pelindaba is the SA nuclear waste plan - which implies it is being railroaded or trucked to the hillside outside Pretoria. Mmm. But then Pelindaba allegedly suffered a terrorist raid that was hushed up, according to CBS 60 Minutes [I wonder if the brave manager who foiled the raid ever got his hospital expenses paid?]. Some American administration types included the issue a year ago in an WSJ editorial page article as part of a campaign for nuclear munitions abolition at the Hoover NTI conference, and pitched Bush's call for an international spent fuel and decommissioning facility.
In the US one has some confidence that watchdog NGOs like UCS and Environmental Defense and their nuclear engineers like David Lochbaum are watching the nuclear picture, being:
“vigilant in monitoring the performance of nuclear plants and their regulators—the Nuclear Regulatory Commission”. We continue to find and expose safety and security problems at individual plants, in industry standards, and in the failure of regulators to take effective action”
Well, where does this leave nuclear waste in Russia? It does not strike me that the Russian political leadership is open to scrutiny and Duma hearings with NGOs testifying, although Sally Osberg stated at Skoll World Forum, 2008 that “[i]n Russia, we’ve gone from virtually no NGOs eight years ago to more than 400,000 today”. WWF Russia, the Russian branch of the WWF, is active and brave. While at UNEP FI in Geneva I worked with Boris Shevchenko, Evgeny Shvarts and Elizaveta Nikonova and UNEP's Alexander Gudyma in getting the PRI translated for the first time into Russian in 2007/8 as a small engagement. In January 2009 Russian courts are weighing the threat to rare Western Pacific grey whales of the Sakahlin 1 project, litigating ExxonMobil and Rosneft to halt the pipeline. But it was the Italians who had to offer to contribute money to dismantle another Russian ship in 2004. Maybe the Russians are better in 2008 than 1998, but until 1990 nuclear waste disposal included...
“the Soviet Navy routinely dumped radioactive waste in Baltic, the northern Pacific (primarily the Sea of Japan)and Arctic waters, sites on the Kola Peninsula in the Russian North [Siberia], and on the Shkotovo and KamchatkaPeninsulas in the Russian Far East; and by holding radioactive waste on storage ships servicing the Northern and Pacific fleets”.
No wonder the Japanese wanted fresh southern African fish!. Nice. And maybe a reason why Russia claimed the Arctic in 2007? Ten years ago in 1998, around the time of the Russian bond defaults, academics reported
“[e]conomic hardships over the past decade have rendered Russia's radioactive waste handling capabilities inadequate. A severe shortage of radioactive waste storage space, coupled with a lack of funding allocations for new storage sites, has led to a difficult situation for Russia”.
The arguments for nuclear waste treatment are few and far between, lost in the calls to include nuclear power in the investment portfolio for "climate change friendly" power generation options. Lost like actual demonstrated carbon capture and sequestration [CCS] technology, the other "wonder technology". When Pyotr Veliky sails tomorrow, I hope it honours for Cape waters, and for every oceans, what a good few slobs on TableMountain paths have not lately: when you leave, leave only your footprints.
