Sustainable Finance Cold, Flat and Crowded

Sustainable Finance

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.
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