Weekly Viewpoints on Sustainable Investment
In this week's note some reflections from a week's work in Washington DC which gave a sense for where the investment aspects of sustainability are right now, and challenges for financing sustainability trends, as well as some catch ups with colleagues doing interesting work. I hope this commentary and analysis encourages you in your good sustainable investment work.
 |
| IFC Sustainability Forum 18 June 2013 |
IFC SUSTAINABILITY SUMMIT
At the invitation of IFC's sustainability team responsible for Commdev (promoting stakeholder investment in sustainability issues), I was an invited stakeholder for two back-to-back events in the political capital of the world's dominant economy: the IFC Sustainability Forum (aimed at a trends conversation, hosted at the suitably imposing Renaissance Hotel) and the IFC Sustainability Exchange (a multi-stakeholder listening and reframing format, squeezed into IFC's headquarters on Pennsylvania Ave). I took up the invitation partly because of the good systemic work that I see the IFC having the opportunity to influence, and to be a voice presenting the developing markets viewpoint and representing our work at AfricaSIF.org promoting sustainable investment in Africa. As always, instant commentary is via twitter, where I helped out the @IFC_org by tagging the events - #sustysmt2013 and #ifcsustyx2013, see http://commdev.org/sustainabilitysummit. The heavyweights on the first day's IFC Sustainability Summit topic spoke to the season of change I have spoken of before that I sense in the industry, it was headlined "Dealing with Uncertainty". The humility of admitting that the future cannot be forecasted is a good starting point, especially in a town better know for hubris and talking heads. But few speakers helped frame ways to get one's hands around the uncertainty. The IFC team did well to get some major voices in the room, albeit World Bank President Kim only as video message, and the question sessions were good, and the weaving role by moderator Jon Lukomunik worked well. Looking around the room though, and listening to sidebar conversations, the voices seemed a little narrow, missing was a broader voice from South America, Eastern Europe, the Middle East, Africa and South East Asia. Little did the speakers know that the stock markets would have a mini-meltdown come Thursday that reminded everyone how thin the progress out of the global financial crisis is, and the discontent on the streets of Brazil, the darling of emerging markets, reflecting the gaps between how things may appear, what politicians may describe, and what is happening on the ground with ordinary citizens. The political economy continues to shift investor reference points. This month Goldman Sachs changed their 2013-2014 GDP forecasts, revising down the outlook for the Euro area, China, Russia and Turkey and upgrading Japan’s. No word on Brazil...
At the invitation of IFC's sustainability team responsible for Commdev (promoting stakeholder investment in sustainability issues), I was an invited stakeholder for two back-to-back events in the political capital of the world's dominant economy: the IFC Sustainability Forum (aimed at a trends conversation, hosted at the suitably imposing Renaissance Hotel) and the IFC Sustainability Exchange (a multi-stakeholder listening and reframing format, squeezed into IFC's headquarters on Pennsylvania Ave). I took up the invitation partly because of the good systemic work that I see the IFC having the opportunity to influence, and to be a voice presenting the developing markets viewpoint and representing our work at AfricaSIF.org promoting sustainable investment in Africa. As always, instant commentary is via twitter, where I helped out the @IFC_org by tagging the events - #sustysmt2013 and #ifcsustyx2013, see http://commdev.org/sustainabilitysummit. The heavyweights on the first day's IFC Sustainability Summit topic spoke to the season of change I have spoken of before that I sense in the industry, it was headlined "Dealing with Uncertainty". The humility of admitting that the future cannot be forecasted is a good starting point, especially in a town better know for hubris and talking heads. But few speakers helped frame ways to get one's hands around the uncertainty. The IFC team did well to get some major voices in the room, albeit World Bank President Kim only as video message, and the question sessions were good, and the weaving role by moderator Jon Lukomunik worked well. Looking around the room though, and listening to sidebar conversations, the voices seemed a little narrow, missing was a broader voice from South America, Eastern Europe, the Middle East, Africa and South East Asia. Little did the speakers know that the stock markets would have a mini-meltdown come Thursday that reminded everyone how thin the progress out of the global financial crisis is, and the discontent on the streets of Brazil, the darling of emerging markets, reflecting the gaps between how things may appear, what politicians may describe, and what is happening on the ground with ordinary citizens. The political economy continues to shift investor reference points. This month Goldman Sachs changed their 2013-2014 GDP forecasts, revising down the outlook for the Euro area, China, Russia and Turkey and upgrading Japan’s. No word on Brazil...
INVESTING IN FRONTIER MARKETS
SinCo has worked on projects with the IFC since 2009, but perhaps the IFC deserves a quick primer. IFC's role is private sector investment in developing countries - originally through project finance (loans) but over the years increasingly in various equity products, bonds and financial market investments (for the latter IFC typically lends to a Bank or PEF who then on-lend to sub-projects - this is now a sizable part of IFC's business). For all of these, IFC are usually a long term investor and work with the client over sometimes many years on developing their E and S management / sustainability systems in order to meet development objectives. A significant amount of conversation covered agri-business sector and oil, gas and mining sectors. IFC clients range from junior exploration companies to the majors such as BHP-Billiton, Rio-Tinto and Anglo-American. As of June 2012, IFC had a portfolio of emerging market investments of US$31.4 billion, of which US$9.8 billion is in equity. In the year ended June 2012, IFC committed more than US$15 billion of debt and equity investments in 559 transactions, of which US$2.1 billion was equity. Since inception, IFC has invested approximately $19.3 billion of equity in more than 2,100 emerging markets transactions, with more than 1,340 exits. Why would IFC be hosting a global think session for sustainability in developing countries? IFC has an important promoter role to play, demonstrating that sustainability makes sense for investors, and for channeling investment to corners of the world where commercial investors are too skittish to invest in. The influence flows in 2 ways: as technical advisory through support for sustainability at company portfolio or regional levels, and as actual investor in equity or fixed income of portfolios and companies. In the field of sustainable investment, IFC has influence on the terms of sustainability through their IFC ESG standards (the basis for industry initiatives like the Equator Principles as well as private equity reporting for PE firms managing money for IFC, OPIC, and others), and directly where IFC's own asset management company (IFC Asset Management Company, LLC) is investing capital, with around US$4.8 billion of assets under management in five funds. AMC funds co-invest alongside IFC’s investments but has independent fund governance, for example AMC’s Board has majority independent members and separate fund investment committees. IFC s investments are typically limited to 25% of the total capitalization of the company or the project IFC equity ownership is typically limited to 20%. IFC does not take control positions.
EVERYTHING IS PUBLIC
Transparency was a refrain across speakers. The powerful, democratic tool of social media in sharing information (both accurate and inaccurate, fair and snarky) is critical for doing businesses in developing countries. The statistics on cellphone penetration is legend. If information is power, then sharing information is about using that power with equity. A term that had resonance was "information equity", talking of a fair deal when all stakeholders voices are reflected, captured and monitored over time. I have inserted into our most recent investment value chain analysis in recent papers for the IFC / POA (see Defining Momentum project page http://www.sincosinco.com/project-sustainable-returns.php) and WWF / GEPF ( see Shuffling Feet report on Navigating Muddy Waters page http://www.sincosinco.com/portfolio-climate-risks.php) some perspective on making sustainable investment happen in the context of pervasive social media and the demand for transparency. In this new Twitter-enabled context, we operate investment decisions within the overarching paradigm of maximum transparency, as a primary lens for building credibility. The ultimate defense may be to "wiki-leaks" proactively because there is no more any internal/external divide, as has so dramatically been demonstrated by young Mr Edward Snowden (future Iceland asylum seeker?).
SOCIAL LICENSE TO OPERATE
Social media is the social license to operate (SLTO). The role of social media is that it monitors SLTO and offers a grassroots communication channel that encourages (forces) companies, politicians, administrators, investors and other actors to be mindful of treating people fairly. It is not static. The SLTO changes over time. This insight from Rio Tinto's T.Malan was an important one and which many speakers added to. It is also not comforting. Hard-won stakeholder reputation and agreement is not fixed in stone, in coal or gold. It will change, meaning stakeholder mapping and monitoring needs refreshing on some regular cycle, some suggest annually is enough. The point was reinforced in the most granular session which focused on the IFC Commdev Financial Valuation Tool (FVT) widget, basically a strategic planning and valuation tool relying on a ex ante discounted cash flow analysis to value the "investment" opportunity set for stakeholder actions based on the positive/negative cash and time-flow effects on development of site projects. A new Wharton case study using Newmont in Ghana has a helpful context for FVT. No company seems to be using FVT across all projects, although Anglogold Ashanti (NYSE:AU) presented its use in their Geita mine, along with network power/influence analysis. From my perspective, FVT is not being used to explain to mining company institutional investors how company mine investments in sustainability are being made, something I hope we can help change. Anglogold claim mine operators are spending 60% of their time on sustainability issues, that 40% of projects are affected and 25% result in material cost over-runs. And a final word to Vale, the Brazil global miner. Their global public affairs hushed the audience into thoughtful silence by reminding us that mines make profits but also losses, and in the fullness and fairness of sharing the development of riches from rocks, more conversations should include situations that generate profits as well as losses, not only the former. The framing makes sense to investors, but politicians. Too often rights are disconnected from responsibilities. We do well to keep them related, with rights comes responsibilities.
Do good work on sustainable investment that matters.
Graham Sinclair
Principal
@esgarchitect
SinCo
Sustainable Investment Consulting
www.sincosinco.com
@SinCoESG
Based on my work, experience and interactions, all views and opinions expressed are those of the author and do not reflect the named individuals, institutions or SinCo, it's clients or services providers. No mention suggests endorsement. This commentary does not constitute investment advise. Issued by SinCo to professional investors and stakeholders for information only and its accuracy/completeness is not guaranteed. All opinions may change without notice and may differ to opinions/recommendations expressed by other business areas of SinCo. SinCo may maintain positions and trade in collective investment instruments referred to. Unless stated otherwise, this is not a personal recommendation, offer or solicitation to buy/sell and any prices/quotations are indicative only. SinCo may provide sustainable investment architecture and other services to, and/or its employees may be directors of, companies referred to. To the extent permitted by law, SinCo does not accept any liability arising from the use of this communication.
© SinCo 2013. All rights reserved. Intended for recipient only and not for further distribution without the consent of SinCo. SinCo reserves the right to retain all messages. Messages are protected and accessed only in legally justified cases.
No comments:
Post a Comment