PRIVATE EQUITY ESG FRAMEWORKS AND MONOPOLIES ON ALUMINUM WAREHOUSING

Weekly Viewpoints on Sustainable Investment 

In this week's note a view on private equity adoption of ESG frameworks and regulators tracking the financial capitalism fingering the commodities business. 

Connecting at JSE: AIFAM2013 24 July 2013.
PHOTOCREDIT: SinCo 2013

PRIVATE EQUITY ESG

Private equity investments may have horizons of 5 - 12 years. Integrating ESG factors has increased as a key hygiene factor for funds raising capital. In my view, ESG in PE may better be understood as a key success factor. Different frameworks for ESG have been introduced, often from collaborative research and co-work. The European-based LPs have a guideline The EVCA Handbook Professional Standards for the Private  Equity and Venture Capital Industry (Edition November 2012) (PDF) which describes that: "When making investments on behalf of the Fund, the  GP should implement the Fund’s investment policy with  due skill, care and diligence and in accordance with the agreements the GP has made with the LPs in the Fund. A GP should be mindful of the responsible investment impact of the conduct of its business and should give  due consideration to material risks and opportunities associated with responsible investment factors such as environmental, social and governance (ESG) factors  throughout the period of its investment." Most development financing institutions (DFIs) have a framework, for example the IFC (multinational), the CDC (UK) has an industry-leading ESG toolkit for its managers (PDF). DEG (Germany) has also developed an ESG framework, and the PRI disclosure practice guideline (PDF) was published in March 2013. 

In conversations lately with private equity practitioners one current view of ESG is that it is about “pain and fluff”. Firstly, the pain of reporting by GPs on the portfolio company ESG and reporting that to the multiple LPs, many of which may be DFIs with their own reporting requirements. Secondly, some PE practitioners discount all the ESG work as too fluffy, too hard to quantify or offer examples of risk or return impacts on their performance. Private equity is seen as a “tax” on doing business and investment, something with little value, and as a cost to the business dealt with by hiring a worker to write up whatever their investors demand to be written. Case studies are needed. The IFC has sponsored some case studies, for example Cogitel in Tunisia (PDF) published with the Emerging Markets Private Equity Association, EMPEA in 2012. Some good examples may also be teased out of reporting by some of the major General Partners (GPs) operating in emerging markets, for example Actis based in London UK which has published some short notes which I have used in lectures. At SinCo we have been shortlisting and collating company narratives and ESG issues components for writing new case studies in PE. We wait for the right sponsor of the new research, and the right forum to present them to. The PRI PE event in Cape Town on 3 October may be one opportunity, or the annual PE events in London and Washington DC focused on the developing world economies. The PRI event is stacking up well with the PRI's Fong Yee Chan working hard with Michelle at AVCA and Erika at SAVCA (and I have been able to help some of the flow and shortlisting keynote speaker candidates this week). More soon.

ESG AS VALUE DRIVER IN PE

The compelling case for PE of “ESG as value driver in private equity” has underpinned much of the publicly-available research from major developmental finance institutions in the past decade. As I have noted before, investment, and investment analysis, in frontier and emerging markets happens across borders of regulations, guidelines and laws. ESG may act as a proxy for advanced due diligence or a marker for absent rules in the marketplace. The virtuous role of ESG has been illustrated in listed equity research of major companies in Europe. Many companies use ratings as a management tool monitoring for example the strengths or weaknesses analysis or as a means to track future trends [SOURCE: The Impact of SRI An Empirical Analysis of the Impact of Socially Responsible Investments on Companies by oekom research, May 2013]. PE deals in growth markets often intersect with building much-needed infrastructure, whether it is building the rail line for a new mine, or the 6,000 housing units for that mining company in some undeveloped patch of the world. Tharman Shanmugaratnam, the Deputy Prime Minister of Singapore was keynote speaker at the CFA Conference in Singapore in May 2013 spoke of the need for long-term investments (e.g. infrastructure), rather than short term or "indecisive" investments, but argued that there is a shortage of asset managers to facilitate these more complex investments. ESG is a value driver in infrastructure deals, shortening the timeline and increasing the possible positive outcomes. An old Harvard Business School Case that I have used as an MBA teaching tool demonstrates that “positive business and investment behavior reduces barriers to accessing investment opportunities and regulatory hurdles to doing businesses, especially in infrastructure deals” [SOURCE: Esty, Benjamin C., Carin-Isabel Knoop, and Aldo Sesia. "Equator Principles, The: An Industry Approach to Managing Environmental and Social Risks." Harvard Business School Case 205-114, January 2007]. Conversations this past Friday at a sunlit sidewalk cafe with the ESG specialist at a major asset owner in emerging markets and a political scientist reminded me of the critical role of the social factors. With the large governance and environmental footprint, it is not surprising that large infrastructure deals attract heavy-duty due diligence from analysts and investment committees. But with great scrutiny, the role of the social factors - how communities are engaged, how the stakeholders are not corrupted, how the social license to operate is renewed and respected - may become increasingly the key driver. 

THE DIRTY FINGERPRINTS OF FINANCIAL CAPITALISM ON SHINY ALUMINUM

The asset management industry is going through some tough times as consolidation plays out. For example, IPE reported in June that "AUM growth at 10 largest fund managers outstrips sector", with asset increase of €1.2trn sees and globally, the 10 largest institutional managers were responsible for €12.8bn in assets at the end of December 2012. Elsewhere BCG’s eleventh annual Global Asset Management report reports that “[a]ssets and profits both nearly returned to pre-crisis levels. Still, the asset increase was driven largely by rising markets—not the flow of net new assets, which was modest.” As financial services companies seek yields and uncorrelated returns, so they are broadening their proprietary activities to parts of the real economy. Financial capitalism pervades the real economy. Unfortunately, it seems major players have been bending the rules, as a New York Times investigative report has revealed (THE HOUSE EDGE: A Shuffle of Aluminum, but to Banks, Pure Gold By DAVID KOCIENIEWSKI Published: July 20, 2013). Intermediaries have a place in making markets liquid. Regulators have first place in making them efficient, fair and/or transparent, preferably with a self-regulatory efficiency to enforcement with sanctions overlay to be flexible. And let's price the carbon costs to make sure every cost gets reflected, especially when shuffling metals. And above all, the story is another argument to pay for good quality, long-form journalism that makes it possible to write up these stories. 

Even as the fate of “Fabulous Fab” (SEC won 6/7 counts of the civil fraud suit against former Goldman Sachs Vice President Fabrice Tourre) played out 4 August some five years after the CDO-driven meltdown led to the global financial crisis, the WSJ reports ["LME, Goldman Sued Over Aluminum Warehousing"] that regulators have now named Goldman Sachs and LME in the lawsuit targeting anti-competitive and monopolistic behaviour in the warehousing marketplace for commodities. Sustainable investment is as much about returning good yields on the investments, as in the way those yields are earned. Its the principle of the investment approach. Will this cause Goldman Sachs et al to review their GS Sustain ESG metrics they report on..?

Do good work on sustainable investment that matters.

Graham Sinclair

@esgarchitect

linkedin.com/in/grahamsinclair

Skype: graham_sinclair

SinCo - Sustainable Investment Consulting

SinCo designs ESG architecture for long term sustainable investment that matters. 

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. Reprinting or republication of this report on websites is authorized by prominently displaying the following sentence, including the hyperlink to SinCo, at the beginning or end of the report. "ESGextra Weekly Note is republished with permission of SinCo."

DEFINING SUSTAINABLE INVESTMENT

Weekly Viewpoints on Sustainable Investment 

In this week's note a view on defining sustainable investment, sustainability in investment and ESG. 

Language and definitions matter.
PHOTOCREDIT SinCo 2013

DEFINING SUSTAINABLE INVESTMENT: WHAT IS ESG?

Definitions for sustainable investment differ. We choose to define the theme of sustainable investment to explain that ESG issues are in every investment decision. But only some investment professionals proactively manage ESG for increased opportunity set and reduced risks exposure. Definitions and the language of sustainable investment have often been a stumbling block to investment practitioners building more formal ESG approaches. Over the years a broad genre of investment practices that integrate the consideration of ESG issues emerged with a perplexing array of names (see how the names have played out in the academic arena in N.S. Eccles; S. Viviers, The Origins and Meanings of Names Describing Investment Practices that Integrate a Consideration of ESG Issues in the Academic Literature, Journal of Business Ethics. 2011;104(3):389-402). Explaining sustainable investment and the role of environmental, social and governance (ESG) factors in investment management needs context. Sustainability has its own language. Explaining ESG starts by opening up the conversation. Of SinCo's five recommendations in the seminal report on Sustainable Investment in Sub-Saharan Africa (by SinCo + RisCura commissioned by International Finance Corporation funded by the Government of South Africa, published July 2011, see project page LINK), the very first was to articulate ESG in the language of the institutional investor.  

KEY REFERENCE DOCUMENTS

ESG is a useful abbreviation. It is just a simplification, just a tool. The work of developing an ESG philosophy and integrating it into the investment life cycle of a private equity fund or pension fund or listed equity active fund relies as much on the investment philosophy that the investor has of the world (how it see the world as an investor?) as on the definitions of sustainability offered by experts and stakeholders (what material sustainability issues intersect with the stakeholders in the future of the firm?). In framing the best approach to sustainability for a fund, I have used the most recent references (for example the latest IFC sustainability principles launched January 2012 (see also IFC resources for promoting sound environmental, social, governance (ESG) and industry standards) or the Global Reporting Initiative G4 sector guidelines launched in May 2013 or the Kenya Vision 2030 plan in Kenya) in working on design projects for SinCo in private equity in Africa. But we are also mindful of the institutional history through which we have come, for example the 1987 definition of sustainable development by the Brundtland Commission. 

• "Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs" 

But few practitioners are accurate in describing the two riders, namely needs of the poor and technology:

• "the concept of "needs", in particular the essential needs of the world's poor, to which overriding priority should be given; and 
• the idea of limitations imposed by the state of technology and social organization on the environment's ability to meet present and future needs."

The overall investment ecosystem of pension fund trustees, PEOs, advisors, and ratings agencies influence new investment practices. Investors are mostly conservative with a culture of investment-as-usual. Recently, SinCo research in southern Africa (Botswana, Namibia, South Africa) for the IFC and Principal Officers’ Association (POA) indicates that corporate governance, corruption and water scarcity stand out as ESG factors that investors worry may have a significant impact on their funds’ investment performance over the medium term. This research is captured in our forthcoming research paper Defining Momentum:  A Review of the Retirement Fund Investment Value Chain and the Progress of Responsible Investing in Southern Africa (SinCo commissioned by IFC, published July 2013) prepared for the industry-led initiative Sustainable Returns for Pensions and Society Project described in the SinCo portfolio of work LINK.

LINKING HARD LAWS AND SOFT RULES

Sustainable investment has tried hard to find hard ground of definitions, and many have emerged. Considering the carrots and sticks of promoting sustainable investment, definitions are necessary at a very practical level in order to establish the "rules of the game" that allows for policymakers to establish laws and regulations to be administered. The emergence of voluntary investor initiatives has been an important precursor to regulations, and sometimes a practical and pragmatic substitute for laws. These voluntary initiatives are a hybrid between hard rules (direct laws and regulations) and soft rules (moral suasion, stakeholder pressure). So for example, in identifying ESG issues and how they apply to investment, pension fund’s are flagging the realities of how investment happens within a broader investment ecosystem.  A sample of ESG issues include: 

• Environmental - Environmental Performance, Global Sanctions, Toxic Chemicals. 
• Social - Child Labor, Consumer Product Safety, Workplace safety, Diversity, Labor Relations. 
• Governance  - Separation of powers and duties, Publish What You Pay, Extractive Industries Transparency Initiative.

The CFA ESG Toolkit launched in June 2008  (PDF) also lists a good range of ESG issues as reference. Voluntary initiatives play an important role in defining some of the issues and differing perspectives to defining sustainability. For example the UN-supported Principles for Responsible Investment (PRI) (an investor initiative with UN environment Programme Finance Initiative (UNEP FI) and the UN Global Compact), the Extractive Industries Transparency Initiative (EITI), Code for Responsible Investment in South Africa (CRISA), the Equator Principles or the Carbon Disclosure Project (CDP) have played an important role in framing ESG issues. 

From my experience, the ratio of importance of ESG issues, and the exact issues, will vary from region to region, and so will their impact in the investment lifecycle given different asset classes. A positive outcome for institutional investors has been the emergence of investor collaboration. For example, pension funds have used the investor initiatives to increase pipeline of investment opportunities, to increase precision of due diligence, to spread risks in the deal, and co-invest leveraging development financing institutions (DFIs) capital. In shareholder activity the voices of more shareholders and shareholders with greater assets represented helps to generate more influence with companies or policymakers that sustainable investors are trying to influence. For example, this past week has seen the lobbying disclosure resolution filed by the Province of St. Joseph of the Capuchin Order receive 55% shareholder support at Alliant Techsystems (NYSE:ATK), with significant support from collaborating institutional investors. 

Do good work on sustainable investment that matters.

Graham Sinclair

@esgarchitect

linkedin.com/in/grahamsinclair

Skype: graham_sinclair

SinCo - Sustainable Investment Consulting

SinCo designs ESG architecture for long term sustainable investment that matters. 

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. Reprinting or republication of this report on websites is authorized by prominently displaying the following sentence, including the hyperlink to SinCo, at the beginning or end of the report. "ESGextra Weekly Note is republished with permission of SinCo."

SUSTAINABLE INVESTMENT, SOCIAL MEDIA AND THE KINETIC SOCIAL LICENSE TOOPERATE

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...

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.

Building Sustainability Indexes

Building sustainability indexes is a specialist function for index architects. The Domini 400 Social Index has been running since 1 May 1990 as a benchmark for the obvious question: including ESG factors in selecting large US companies, how does it impact performance. The ETF tracks at iShares FTSE KLD 400 Social Idx Fd (ETF) (Public, NYSE:DSI). Over the years the DS400 has come to send many other messages, and practitioners know the strengths and weaknesses of this specific index, but it has established the role for the sustainability index. The purpose of an index must be clear in order to create focus for any sustainable investment approach. At SinCo we recommend that any index must be succinctly defined. Sharpening the sustainable investment focus is critical. Criteria matter. So does longevity. Many interesting variations will emerge in the design, development and ongoing execution of the index, and tensions within the mission and current programs may be expected. Maintaining focus prevails on the choice of work and work partners and the design of selection criteria. The Dow Jones Sustainability Index is now 10 years old [see the latest review with DJ here] and some of the people who helped build it like Alex Barkawi have moved on.

Our experience of sustainability indexes provides the empirical basis for design directions and development, interpreted by experts in sustainable investment and the role of indexes. The emergence of country-level indexes rather than international (for example DJSI Global) or themes indexes (for example, carbon or water). South Africa is an obvious example in emerging markets with the JSE SRI Index [up this year, together with Brazil (BOVESPA ISE) launched by the IFC in 2005, and India (S&P CRISIL/KLD/IFC), as well as emerging country examples in Egypt, Spain and South Korea, together with newer thematic indexes such as the Healthy Living Index (SAM) and international initiatives like the Carbon Leaders Index – CDLI (CDP/Innovest).

• SAM Sustainable Healthy Living Fund is designed to invest from the global stock universe in the most attractive enterprises along the health value added chain. For this purpose those trends which influence the Healthy Living-sector decisively are investigated in the first step by means of macroeconomic analysis.
• Carbon Leaders Index – CDLI (CDP/Innovest) The CDLI scores for the Global 500, Europe, FTSE 350, and S&P 500 companies are now used by index provider Markit to create a family of equity indices.
  

Index architecture must map to the investment case and the index proposition. We will cover the impact of sustainability indices separately, other than to say now that sustainable investment indexes have an impact, but a complex model is needed to assess the impact. Indexes (and indexed portfolios) are actively managed investment instruments that are constructed according to objective criteria and are compiled and marketed by financial services firms such as FTSE Group/Financial Times [www.ftse.com/Indices], Morgan Stanley Capital International Indexes [www.msci.com], Standard & Poor’s Indexes [www.sandp.com] and Dow Jones Indexes [http://www.djindexes.com/].

Index membership literally confers “investment grade” on firms because numerous managed funds are benchmarked to, or directly invested in, these indexes. Where the index is themed, selection into the “club” confers a certain halo effect or positive association for that company because there has been a dramatic increase in the scale of funds that directly track market indexes. Gaining and maintaining membership in an “index club” is often a critically important goal for company executives. As with any differentiating characteristic, companies seek to gain competitive advantage with investors, prospective employees, and other stakeholders, and a high ranking in an index can give them such an advantage.

When a company is ranked or included in an influential or prestigious index such as the Dow Jones Sustainability Index (DJSI) or the Fortune 100 Best Companies to Work For, the company will reference that fact, especially when that firm is looking to present credentials as being “world-class”. For example, Brazil petroleum major Petrobras [Petroleo Brasileiro SA (ADR) (Public, NYSE:PBR)] lists five accreditations on a full-page color advertisement in a magazine targeted at investors and company executives (Bloomberg Markets magazine, December 2009), including membership in the DJSI. On the other hand, exclusion from an index can encourage companies to pledge changes. When Daimler [Daimler AG (Public, ETR:DAI] and Bayer [Bayer AG (Public, ETR:BAYN)] were excluded from the DJSI STOXX, their reaction in the German business paper Handelsblatt on 8 September 2008 ranged from pledges to improve (“We will definitely intensify our efforts regarding sustainability”, according to a spokeswoman from Daimler AG) to surprise at being excluded (Bayer commented, “We are not happy about it and we will try our best to be included again, since this is increasingly relevant to us on a financial basis. However, it will be more and more difficult to achieve inclusion in this benchmark.”). Our experience is that ratings, rankings and indexes may be a powerful tool for driving forward sustainability and creates a signaling effect across sectors and stakeholders. At this time we do not delve into the detail of ratings, rankings and indexes. There exist many different approaches, and characteristics of each of the three may be quite different, offering different value propositions that the index leadership must address at the outset of their goal and objective setting stages. Indexes are a feature of any discussion, a reference point, and quite literally a benchmark. Sustainability indexes can be even more so.

White London, Grey Davos, Green Cambridge

[SRI-Extra in 60secs > Snow falls on LDN and attracts some sustainability media thinking. Sort of. FA launches FAGreen in the US. Davos is WEF annual skiing vacation for politicos and financiers. Davos had better snow, and more hot air, but some pointed comments by Tutu and Putin. SA's Maasdorp covered impacts on Africa. Investment News suggests ESG is fast gaining acceptance in the US. Xshares launches Airshares. IFC-funded Who Cares Wins project closed with a summary report from OnValues, which included four recommendations for EM. IFC funded the project, and is active in ESG in investment in EM. Credit Agricole and Societe Generale merged asset management divisions. Obama says bank bonuses at this time are "shameful". MIT posts links to sustainability on campus, and at the B-school, MIT Sloan. GS]


Snow in London

Snow is dusting London and Paris this morning. It is enough snow to look beautiful, the sugar coating offering postcard photographers a once in decades opportunity. Fun at last for all those with Land Rovers. In Pennsylvania it's groundhog day [39% historical accuracy, 2009 predicts six more weeks of winter]. Funnily enough, a CNBC reporter jumped to make a climate change connection, CNBC Africa feed from Germany this morning's Business AM connecting a report on Lufthansa [Deutsche Lufthansa AG (ADR) (Public, OTC:DLAKY)] to the importance of sustainability in investment. I know aviation is a critical component, but that seems a bit of a reporter stretch, no? Maybe she could have connected to the Japan Airlines non-food biofuel-powered flight, that would have helped the segue a little [Japan Airlines Corporation (Public, TYO:9205)]. Here's hoping we will have smarter sustainability coverage from business journalists going forward, including a new on-line publication from Financial Advisor magazine, FA Green, launched by online editor Dorothy Hinchcliff. FA Green is targeted mostly at investment advisors in the US [see article on AirShares EU Carbon Allowances Fund (ASO) by Xshares, which rang the opening bell on 28 January]. The white snow will at least give our mates in the bleak City of London financial district something to look forward to, like building snowmen or a decent Calvin and Hobbes-quality snowball fight!


Lost in Davos

The snowfall may even help the bankers feel like they were part of the Davos circle for a few hours. Davos is the name of the town of Davos-Klosters in Switzerland and the abbreviated title for the annual World Economic Forum [WEF] gathering of politics and business. In 2009 SA's Maria Ramos was co-chair. It is a fun ride if you like schmoozing and skiing, and attracts attention of discontents. Davos is organized by the World Economic Forum, a Geneva-based organization set up by a millionaire Swiss businessman in the 1970's, with a fantastic view of Lac Leman over the UN Palais across to the Jura mountains in France. Davos offers much content at low cost for the major media, especially business media, so it received much coverage. As was widely reported, the role of finance and investment was supplanted by politicians. It is something of a lost year. Obama had no economic heavyweights there. Archbishop Emeritus Tutu [photo above] offered an interesting session on dignity as only he could, BBC reported Tutu said:

"we worshipped in the temple of cutthroat competition, and so some cooked the books, because the treasure is so great"

Bankers were no doubt an endangered species, with not a sorry in sight [see AP writer Brad Klapper report, note Forbes's comment and Schwarzman's pitch for less regulation]. The Bloomberg interview of Putin on 25 January by the female Bloomberg TV Moscow correspondent, Ellen Pinchuk, was gripping TV. Putin's slap down of Michael Dell was legendary. Bloomberg reported:

In the question-and-answer session after Putin’s speech, Dell Inc. Chief Executive Officer Michael Dell said he was surprised by the prime minister’s warning about excessive state interference and asked Putin how Dell could help Russia develop its information-technology industry. “You know, the trick is that we don’t need help,” Putin said. “We’re not handicapped. The people who really need help are the poor, the disabled, pensioners, developing countries.”

The ruble dropped 3.5% after Prime Minister Putin's comments. Soon we will see the movie adaptation of the play Frost/Nixon, so maybe I am a little more attuned to the challenges of being the astute interviewer face-to-face with a powerful person in a powerful emerging market country. She did well to discover his favourite "guilty pleasure" is ice cream, ever since Prime Minister Putin was a kid. Lots of it, apparently, but no mention of Ben & Jerry's. So if I ever meet him in person, we have at least one thing in common! Of all the river of Davos reporting, I enjoyed the note in Business Times in South Africa by WEF Young Global Leader, Leslie Maasdorp, vice chair of Barclays Capital and ABSA Capital, who spoke on the impact of the global financial crisis on Africa. His comments on the importance of a multi-polar world was expected, and he makes the good point that no new architecture or scope has been sharply defined for a "new world order". January 2009 is the worst ever January on record for the Dow, and the "January barometer" [if January is down, the year is down] suggests this year will be pear-shaped. Financials are down 25% in the US for the year [that's just January, folks!]. While many may wish for a "fairer economy" just keeping economies going may overwhelm all other priorities. Questions about the limits of corporate governance still lurk, including this morning's FTfm. Investment News overstates the US paradigm, "Investing according to strict environmental, social and governance principles is fast gaining acceptance among U.S. investors" BUT the positive trend maps our experience and forecasts.


Who Cares Wins Signs Off

Most useful for sustainable finance was the 2008 report summarizing the work of "Who Cares Wins", which unfortunately we could not contribute to because of prior commitments. The series of WCW papers since 2004 funded by the IFC, the Swiss Federal Department of Foreign Affairs and hooked to the UN Global Compact, have been useful in raising the profile of sustainability. Some papers have been better than others but the wrapping of the WCW project with an explicit conclusion is excellent project management, and good governance in this sector. On the eve of Davos fellow ESG consulting shop OnValues, based in Zurich, published the report as "a significant component of the Initiative's sponsors' media strategy during and following the WEF Annual Meeting 2009 in Davos this week." See the IFC PR.

Though the current turbulence in financial markets may tempt investors and companies to think of ESG issues as ‘tomorrow’s problem’, we believe that urgent and wholehearted action is warranted not in spite of, but precisely because of the market dynamics observed in the past months. ESG integration is about investors and companies taking a longer-term view, acknowledging the full spectrum of future risks and opportunities, and allocating capital as if they themselves were the beneficial owner.

The concluding paper offered some useful thinking for work in Africa and other emerging markets regions. The authors posit that in order to improve ESG integration in emerging markets investment, which was a special focus area of the WCW Initiative based on the direction of the IFC which has an EM ESG team [see IFC EM ESG projects] in Washington DC, four recommendations are important:

1. Include ESG issues in regular company meetings and engagement activities
2. Perform a systematic review of the ESG exposure of investments in emerging markets
3. Consider collaborating with other investors in requiring minimum ESG disclosure standards from local legislators and exchanges
4. Consider the potential for small allocations to frontier markets not only to deliver attractive returns but also to establish basic investability conditions (such as custody, efficient settlement services, etc.) and management awareness of material ESG issues.

In discussions through February I hope for some reaction from colleagues in EM in the sustainability + investment space to the request for better information. There is much to reflect upon. Moving changes in institutional investment are reflected by Société Générale and Crédit Agricole merging their asset management businesses to form Europe’s fourth largest operator with EUR638bn [USD837bn] under management. CA Cheuvreux had some solid ESG research [see 22/12/2008 The Green Road Out of Red], as did SocGen. One hopes their research capabilities are strengthened, not seen as overhead to cut. The consortium of funders behind WCW reflects the costs involved in some of these initiatives, especially where they are global. WCW was more useful because it tapped into thinking on emerging markets [EM] although mainly from the perspective of investors into EM from Zurich, London or Paris than actual investors in EM. A good exception was having Investec's Hendrik du Toit covering frontier markets at the July 2007 event in Geneva at the Credit Suisse private bank, Rue de Lausanne 17. All these projects must be funded, in cash or in-kind. One often forgets that the multitude of organizations and initiatives around the world are competing for influence, for money to support their efforts, and private and public sector institutions to collaborate with them. It is competitive. But it is also much harder to figure out on a consistent basis which organizations are achieving what. There is no "marketplace" or "stock exchange" valuing the work of international organizations and NGOs.


Pay for Performance

Scoreboards may be tough to read. Scores change in seconds, like market prices. We struggled to watch from 1am central African time [CAT] this morning the biggest one day sports event in the world, the NFL Superbowl in the US. A great game, but none of the famous Superbowl TV adverts. Wrong zone. Markets are like sports fans in that they like clarity, like knowing which is the champion. The increase in fantasy leagues, the recruiting of traders using poker games, and HSBC sponsoring the Lions rugby tour to South Africa in 2009, are just some of the examples of the metaphor and parallels. Boston-based online paper CSMonitor had a good item connecting pay-for-performance of businessmen and the NFL athletes, many of whom are superbly overpaid. All market players are not rational however: all the money in the world could not buy superstar Brazilian footballer Kaka from Intern Milan to Manchester City [GBP107m, USD147m - yes, million!]. The efficient market hypothesisticans must have been spinning...

Pay guidelines are a key request of pitches to the Obama administration as they reconfigure the rules of the financial game for Wall St. Apparently President Obama was pretty pissed about the bonuses, calling them "shameful" on this Huffington Post video. I wonder what President Obama may achieve if he were to invite to a frank airing of views behind closed [oak] doors a bunch of bankers pulling bonuses while firing employees.

In closing, an anecdote from another fine dinner in CPT on Friday. An architect was speaking about how climate impact is 70% caused by the built environment, and that developers will only look at economic cost/benefit-positive sustainability items. Apparently developers do not even care about longer term trade-offs, just the math until the sale to the property owner/manager. More reality from the frontlines on the challenges of getting longer term thinking into investment decisions. Seems like the Green Building Council has many yards to go in the industry. The conversation had me reflecting on my last lecture at MIT Sloan, their business school, back in December 2008 as well as meeting with a cross-disciplinary team at MIT focused on making sustainability happen on campus in Cambridge MA. Even when the thinking is advanced, and smart people are moving, putting basics together across different silos is a change management challenge of note. But MIT is making some good progress. See multimedia links were made available this week including Sustainability: Greening MIT's Campus and Beyond and the Professor heading up the B-school's efforts, Prof Sarah Slaughter, who has an engineering background, here speaking on sustainability. MIT Sloan are moving forward with some case studies for teaching sustainability + investment with Sinclair & Company in 2009. The title of Prof Sterman's lecture on the Sloan Review is about right: A Sober Optimist's Guide to Sustainability.
SRIX.GS

***
Who Cares Wins [WCW] events and milestones include reports for download at http://www.ifc.org/ifcext/enviro.nsf/Content/Publications_SustFinance:

• 2004 Annual Event; 'Who Cares Wins: Connecting Financial Markets to a Changing World'
  
• 2005 Annual Event; 'Investing for Long-Term Value'
• 2006 Annual Event; 'Communicating ESG Value Drivers at the Company-Investor Interface'
  
• 2007 Annual Event; 'New Frontiers in Emerging Markets Investment'

Looking Back in Zapiro

Being back in South Africa after seven years it is time to start catching up, on the society, the way of business, the political economy. Catching up on the past year is always easier in December/January. It is the time of year-end reviews and dovetails with the summer season similar to double issues in July/August in the northern hemisphere. The business dailies become anorexic and the writers eke out a few stories to tide us over. It is a good time to sneak in a qualified audit oipinion or a remote annual general meeting. One needs not really catch up on sport because those headlines come through in bite sized chunks, like the RWC 2007, Natalie du Toit at Olympics, the fumbling Bafana Bafana, or the first-ever test series win in Australia!

But what to read first? I flipped past the Financial Mail [FM] double issue, after reading the call for leadership by the editor, and the winners and losers. Yes, of course I would rather start with the sharp incisive wit of Zapiro. What better way to understand the SA psyche? As my old history teacher taught us, the political/editorial cartoonist is a brave wo/man. But with so much material, it must be a fulfilling job, although prone to recycling, with some of the craziness in the world, and in South Africa, repeating year on year [Israel/Gaza etc]. This cover [above] from Zapiro's September 2007 release of weekly cartoons refers to the SA health minister renowned for alcoholism and denial HIV/AIDS programmes. Allegedly she claimed that some vegetables potion is better than AIDS anti-retrovirals, and allegedly she bumped other liver donors so she could be operated upon sooner, faking the reason for her organ damage to hide alcoholism. Another fine Zapiro cartoon from January 2002 has a wealthy couple strolling into "Davos", reflecting the perception of hobnobbing by politicians and businesspeople at the annual WEF event in Switzerland while the poor are nowhere to be seen. That would test the humour of a few CSR, NGO and UN types I have met along the way who would be flattered to be invited...

Zapiro must have lasted as long as he has because, as his book The Mandela Files attests, he has serious credibility, and the odd endorsement from the icon Nelson Mandela himself: “Very exciting and quite accurate”. Would make a neat endorsement for one’s work, no? He is frank in interviews, and has been at the center of media freedom debate raging in SA. Zapiro was privileged to have the Mandela Foundation launch the book as part of Madiba's 90th birthday. The Mandela Files is available in the US from end April 2009, you may pre-order on Amazon. Check out the Zapiro bibliography here. Even the titles will make you smile...

I have always wondered how Zapiro managed to keep being published - his wit is cutting, and politicians have thin skins - and it turns out his Mum was active in the anti-apartheid struggle, as was he, starting out making posters for the UDF here in Cape Town and getting detained for the privilege. He also designed the poster for the End Conscription Campaign [ECC], which I remember well from high school when weighing the joys of being conscripted into an apartheid army while wanting to serve my country. Like Helen Suzman, in the rush to re-write South African history after 1994, a good few stories about ordinary people as activists have been lost along the way.

As one academic put it during a panel discussion at a Zapiro book launch late 2008, one may disagree sometimes with the Zapiro cartoon, but never with the write to publish it. The head of the ANC has taken a dim view of the September 2008 Zapiro cartoons in response to the winding Zuma rape courtcase - which became two as Zapiro responded to legal injunctions - and is suing Zapiro for ZAR7m. I wonder if Zuma becomes president in April which newspapers will be brave enough to continue printing the cartoons of the president depicted as having a shower over his head [refering to Zuma's claim that a shower washes away HIV/AIDS in court during his rape trial]. Yes, he said it.

Lounging at the Book Store
I am also delighted to find some independent bookstores, which I will support regularly. FM just covered the small but strong segment of independents in Small Bookshop Miracles. On Sunday we browsed The Book Lounge just down the mountain at the top end of the city, open for just over a year now. The bookies running it were good quality, so we’ll be back.
I had a little time to browse the "sustainability" and "business" sections too. I did pick up Choice Not Fate, the recent Trevor Manuel biography of the the well-regarded South African Finance Minister, by Pippa Green [yes, he has a wikipaedia entry]. The title Choice Not Fate seems like something I may understand based on my own lifepath, and timely, seeing as we drove past L'Ormarins in Franschhoek the afternoon Mr Manuel was marrying his longtime girlfriend and financial rockstar, Maria Ramos. we noticed the paparazzi at the gate [a first for me in SA]. The wealthy Rupert family owns L'Ormarins. I forecast that Mr Manuel will see in the new cabinet, then be recruited away to the World Bank or IMF or such. More about the bio later.

Private Equity in Africa
I am still catching up on how the South African context has moved relative to other emerging markets and developed markets over the past seven years, and where institutional investment is integrating environmental, social and governance factors [ESG] in 2009. In my investment consulting I am looking to cover alternative asset classes too, so I look forward what the private equity/venture capital conference has to offer on 12 Feb here [South Africa Private Equity Congress, 12th February 2009, Table Bay Hotel, Cape Town] to move forward my work in private equity in Africa for 2009. Perhaps I may learn more about the IFC work in sustainability in PE [the IFC called for money managers for a small US$50m PE fund in 8 low-income countires back in November 2008], and perhaps connect with Steve Beck (former CEO of Geneva Global) who has started an Africa social PE fund and is currently fundraising for capital for Springhill Equity Partners. My hopes are high, especially looking for "Western LPs"! : "Meet and network with an increasing number of Western LPs who are looking to South Africa as a potential place of investment".

Emerging Markets…Brutal?! Not For Sissies! I/II

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?!

Back in February, Goldman Sachs BRICS team spoke of the de-coupling hope…

“…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