[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.
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:
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.
Highest per capita Carbon Footprint in Africa
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
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.
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.
Highest per capita Carbon Footprint in Africa
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
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