GRI Equity - integral investing

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Perspective

Reflections in May focussed on the need and nature of system change that humanity requires to preserve and enjoy the biosphere.

There is debate about whether or not humanity will, is, has or never will reach a limit to growth. Many say Malthus and the Club of Rome are wrong and forecasts of growth limits have been proven wrong time and time again as technology has provided resource leverage which has resulted in more consumption, both in quantity and quality. But that is only correct if your perspective is personal and you have not considered the Big Picture. It is deluded to think that the planet is healthy and humanity is happy, simply because our perspective is selfish and short term. We think and behave as if a lifetime is a long time. But in the context of the biosphere it is a second. And the seconds are ticking.

When was the last time you had fresh water? Perhaps you never have. Perhaps it has always been treated, filtered, pasteurised, bottled. And you are rich, not one of the billions of poor people pushed to the edge of existence by others' greed. The limit of physical growth has surely been reached. While the attention to spiritual growth has been ignored and neglected if not ridiculed.

There are many who talk about and even work towards a "sustainable" model. Whether it is investors, industrialists, politicians, journalists, artists, scientists, all too often their perspective is that others must change, and their initiatives are wholesome. But it is rare for world leaders (i.e. people with stuff like us) to actually make changes themselves. Perhaps you can reflect on your own company, business or industry and consider what it is actually doing to moderate consumption. Invariably the answer is "not enough", if not "nothing".

Take for example carbon trading. (Which is a very good thing because it focusses attention on a critical aspect of the biospheres balance.) Carbon trading is like buying indulgences. It was once a common practice for people to pay the Catholic church for a blessing or indulgence absolving the purchaser of sins and perhaps even more. Of course, this was simply a way for the Roman Catholic church to make money. And it was a convenient way for ignorant and superstitious, but wealthy individuals to feel good and be seen in a bright light by peers and society. They did not actually have to do anything to make amends, to redress the harm that they may have done. Is that not like big companies buying carbon credits so that they can feel good about themselves, look good in the eyes of society, but actually not do anything to redress the pollution and inequity that they perpetuate?

An industry that I focus on, the finance industry, is perhaps the best example. It is a particularly relevant example because "money makes the world go round". Or as we say: "Energy is the currency of the biosphere. Money is the blood of our world." (Money is the proxy for our values which is not always a happy thought.)

So let's briefly reflect on the world of money. Just in the past year, as a slew of high level globally endorsed scientific reports have come out warning us of the Inconvenient Truth of global warning. So now it is acceptable to talk about the environment, sustainability and related issues. Clean tech investment has ballooned, doubling in the past year. Responsible investment has taken on a new dynamic so that all established fund managers are pitching their green, sustainable, ethical, SRI funds.

Unfortunately, little has changed in the way in which the funds are managed. There has been little innovation in the structure of the financial services industry. Funds continue to separate management responsibility and reward from investors'. Few managers have demonstrated a commitment to ethical principles by restructuring investment or compensation dynamics. Vanguard remains one. But where are the others? A few small innovators are walking the talk - read about the Appleseed Fund in the Investment section. But even the pioneers of sustainability are doing less than they could. Why, for example, is Al Gore, backing a vehicle that invests in listed equities? His fund does not actually finance green technologies, it pays its money to other investors for their shares; it is a secondary transaction. And why has the fund not structured itself to align the interests of investors, managers and holdings? Because David Blood would not be able to take such a nice fee and because they haven't even thought about it (or hadn't when I spoke to him at the fund's inception).

So while we can pat ourselves on the backs for beginning to wake up to the fact that the planet is dying (as well as half the human population) we have done little to actually address the core problems - we eat too much and we care too little. We are teenagers. And if we are large companies we might even be a little psychotic.

Reflections in May were therefore rather sober. But not hopeless because change is happening and increasingly it is the change that is needed - a holonic system change. An emerging intelligence that is accelerating and may allow humanity to enjoy the excitement of space age technology. It is small DIY communities of business, science, politics and industry that are the models for tomorrow. There is no future in a few big units of human agglomeration whether that is company or country. We are all in this together and we must put others first before we will be able to create a system that reflects the realities of nature. And it will happen in my lifetime ... or not at all.

Investment, Finance & VC

Standard & Poor's 500-stock index hit its record in May, catching up with the peaking of the narrower Dow Jones Index, and the growth in stock prices continued in May, not just in the US but also Europe and Asia. The market for luxury goods also continued to show exuberance as both Sotheby's and Christie's set records for contemporary art auctions, including records for individual artists. From New York to Shanghai there is a buoyant mood of speculation. But it still seems to be built on shaky foundations, particularly in America where the housing market is still slowing, consumer spending is slowing, inflationary pressures remain and corporate profit growth seems to be slowing. As discussed last month there is tremendous liquidity built upon credit. While this party could go on for a while, as the pyramid of credit extends to more people around the world, both in emerging and developed markets, the picture is worrying as trends are looking vertiginous.

Finance 101 tells us that leverage in a business where the return on assets exceeds the cost of debt is infinitely attractive, which is presumably the rationale that is getting borrowers excited. But the elementary lesson also teaches that in reality there is a limit to the amount of leverage that is beneficial, even in good times. And when operating returns come under pressure, the bottom of the pyramid, and even a few people at the top, get wiped out.

Nevertheless, timing the market is prone to mistakes. The dotcom bubble was evident by 1998, but continued for a couple more years before it deflated. Just make sure that you've got a chair to sit on when the music stops. How do you do that? With diligence and luck. On the diligence front I would strongly recommend diversification: internationally, by industry and by asset class if you can; and seek value in individual opportunities, that is, critically review the cost of your investment.

China's Shanghai Composite Index fell 6.5% following Beijing's decision to triple the tax on stock transactions from 0.1% to 0.3% in an attempt to cool the country's overheated stock markets. But it did not stay down long. The Shanghai Composite Index has risen over 60% this year and has quadrupled in value since the start of 2006 to close over 4,000. Strong demand from domestic investors, many of whom are using savings to buy shares, is helping to underpin gains. While it is certain that a stock market bubble is being created, and will deflate, it is unlikely to have a disastrous effect on the Chinese economy, which is predicted to expand by 10.4% by the World Bank. And while consumption falters in the US, retail sales in China grew at an annual rate of 15.5% in April according to official figures, beating forecasts and marking the fastest pace since 2006. Jewellery, grains and building materials saw rises of over 30% pa. Consumption is driven by the expanding Chinese middle class, many buying property, and government initiatives to encourage spending, by lowering taxes especially in rural areas.

While analysts, including former Federal Reserve chairman Alan Greenspan warned that the Chinese stock market could undergo a dramatic correction, the stock market's capitalisation is only about 25% of GDP compared to 150% in the US and a major correction would not have the same kind of impact in China as it would in the US. However, a dramatic correction in China's stock market, maintained for a few weeks might be part of a destabilisation of other markets, including the US market.

With its massive reserves ($ 1.2 trillion), mostly held in US$, China's investment of $ 3 billion for 9.9% of leading private equity group Blackstone is worth noting. There may also be a story behind the connection between Stephen Schwarzman, co-founder of Blackstone, and President Bush, who were "dorm roomies" at Yale and members of the highly secretive Skull and Bones Society. But you can be certain that this opportunity will be well used by China. While both parties are likely to benefit, China will get an inside look at the machinations of an experienced financial team with a US capitalist culture, which will help them deploy the remainder of $ 300 billion ear-marked for investment. This deployment in itself may signal a diversification of currency holdings in Asia (see Interest and Currencies below).

Lest we forget the other giant of Asia, note that the Indian market has increased nearly 50% in the past year. The market PE is about 29, which is in dotcom territory. We spoke about the massive growth in capital deployed in the Chinese markets last month, and it is the same in India: mutual fund assets under management increased 16% in May to a record $102 billion - a $14 billion increase in just one month. But it's been just five stocks that have pushed the Sensex to its 14% rise since April 1. Also,investors are not allowed to short stocks - investors must go long. India is therefore also setting its stock market up for a tumble. This might occur when short selling is introduced which may occur this summer.

With the imbalance between US markets and its economy, combined with lower volumes in summer which can raise volatility - it is worth asking if the run up in the US is a deluded last hurrah whose demise will be triggered by deflation of Asian stock markets.

Turning to Europe and Germany, research group GfK expects its confidence index to hit 7.3 points in June, up from 5.7 points in May. This is unexpectedly good news.Many analysts were expecting consumers to be less optimistic because of higher sales taxes, and interest rate rises. However, it seems that consumers have shaken off their worries, boding well for growth in Europe's largest economy. And having had the privilege of spending a couple of days in Germany in May, the stability and strength of the economy was visible.

In Spain, the property bubble fuelled by speculation both by local and foreign players may be about to unwind. A number of local officials have been arrested recently on allegations of fraud, money laundering and corruption linked to housing projects. And a new law was passed demanding that official documents will list everybody who has owned any piece of land in the five years before its development and senior local government officials will also have to declare their assets. This combined with rising interest rates may moderate property prices in the coming months.

While asset prices seem bubbly in the US, China, India and parts of Europe, Africa's rise continues. African economic growth is expected to reach nearly 6% in 2007, the highest in 20 years, according to the African Development Bank.Overseas demand from China and other rapidly-growing nations for natural resources, including oil, has been a cause for growth. The region's economy grew by 5.5% in 2006, with South Africa, Nigeria and Algeria among the strongest nations. Oil-rich Nigeria saw its GDP grow by 5.3% last year and is set to expand 7% this year in an environment of increasing political stability - including a peaceful transition of government in May. Zimbabwe remains desperate, being beset with soaring inflation and slowing agricultural output, and will continue its zombie performance under current administration. (Unfortunately, even this rapid growth is not be adequate for Africa to hit its goal of halving the number of people living in extreme poverty within eight years.)

Responsible Investing

The recognition of the benefits of green practices among executives is expanding very quickly, according to the report, "The Greening of Corporate America," which is the latest in a series of extensive SmartMarket reports released by McGraw-Hill and produced in partnership with Siemens Building Technologies. According to the study, in less than 2 years the American business community will have reached a tipping point in sustainable practices, when more than 80% of companies will have opted for sustainable materials in at least 16 percent of their building stock. 18% of the corporate leaders surveyed are in a position to transform the market -15% view sustainability as a competitive advantage and the other 3% are actually driving their entire businesses through this value-driven lens.

Rising energy costs were identified as a fundamental driver of green building in corporate America, with an overwhelming 75 percent of participants listing that trend as a major motivator.

Ethisphere Magazine released its first listing of the World's Most Ethical Companies. There criteria are evidently appropriately rigorous because out of thousands of organizations that the editors surveyed over a six-month period, fewer than 100 companies made the final list. The process included reviewing the companies' codes of ethics, litigation and regulatory infraction histories; evaluating companies' investment in innovation and sustainable business practices; looking at activities(ESG) designed to improve corporate citizenship; studying nominations from senior executives, industry peers, suppliers and customers; and working with consumer action groups for feedback and rating. Researchers included editors from Ethisphere Magazine as well support from SustainAbility, World Business Council for Sustainable Development, Trillium Asset Management Corporation, Winslow Management Company, ForestEthics, Women's Equity Fund, The Center for Business Ethics, and New Alternatives Fund. The full list includes 90 companies spanning the globe in 29 sectors. Ethisphere Magazine has the full list on its website.

Environmental and social issues including climate change, energy use and labour and human rights practices are now issues for mainstream investors as well as enlightened investors. Institutional Shareholder Services, a major provider of corporate governance and proxy voting services, is creating a global Sustainability Risk Reports database. Drawing on an extensive set of over 400 environmental, social and governance factors, ISS's company profiles offer in-depth qualitative analysis to help assess and compare companies' ESG performance across industries. Among the many factors assessed in the ISS reports are carbon emissions, energy use, labour standards and ethics. ISS also analyses each company's disclosure practices, adherence to ESG policies and its Board's oversight of ESG issues. By allowing such transparency to be compared across companies and sectors, it will enable all stakeholders to more effectively compare and benchmark company performance.

In the special Summer issue of Green Money there is a rare selection of articles by some of the leading lights of enlightened investing:

A podcast interview with John Huntsman, founder and chairman of Huntsman, a major chemicals and plastics company, is really inspiring here. This self made billionaire talks about how to build a sustainable ethical business. He even uses the "L" word!

Over three quarters of respondents to a survey, by Fleishman-Hillard and the National Consumers League, said US companies had poor records on CSR, with a big focus on sectors such as energy, food, chemicals and pharmaceuticals as needing more oversight by authorities. A large majority of Americans, from all sides of the political spectrum, have said that they would look towards legislators to correct poor CSR performance by US businesses, according to a recent survey. 96% of Democrats, 80% of Independents, and 65% of Republicans say that it is either very or extremely important for congress to ensure that companies are addressing social issues.

Climate change research from JPMorgan is now available. The research studies the economic, legislative, and business developments of current and projected carbon controls. JPMorgan states that they are releasing their research publicly as an example of their commitment to the environment.

We draw your attention to the Appleseed Fund, launched December 2006, for its enlightened investment principles (which closely match GRI Equity's management policy). The portfolio is guided by four principles:

The Fund has worked to keep fees competitive with other actively managed SRI equity funds. With only 15-20 portfolio companies, the Fund plans to hold onto an investment for four years, limiting the transaction costs, reinvestment risk, and the tax burden of the Fund’s shareholders. The Fund is a no-load mutual fund and has waived management fees through December 2008 to keep the Fund’s net expense ratio at 0.90% to minimize the performance drag that fees can have on returns. Its five portfolio managers are also co-shareholders in the Fund with collective investments representing about 20% of the Fund’s total assets. “By eating our own cooking, so to speak, we think our interests will be better aligned with outside shareholders’ interests,” say the managers.The Appleseed Fund has generated a 4.7% return through the first quarter of 2007, compared with the S&P 500 Index’s 0.7% total return during that same period. According to Morningstar, the Appleseed Fund’s year-to-date return as of May 22 is 10.67%. It currently has $5 million in net assets.

Innovest Strategic Value Advisors has released updated Intangible Value Assessments for the 17 companies in the new Consumer Finance sector. How companies respond to rising consumer over-indebtedness and manage growing regulatory scrutiny is a key driver for strong performance in this sector. Although the medium-term outlook of the overall sector is rather bleak as more stringent credit regulations and reforms are now underway or being proposed, companies were favourably rated relative to peers if they were successfully diversifying their operations away from the business areas under stakeholder scrutiny and swiftly adapting to new regulatory requirements ahead of the enforcement and of competitors.

The McKinsey Quarterly offers Investing in sustainability: An interview with Al Gore and David Blood. The former vice president and his partner in Generation Investment Management, an investment-management firm argue that sustainability investing is essential to creating long-term shareholder value. Blood and Gore (ha ha) present the usual arguments underpinning sustainable investing, though some of them weigh more heavily in the private investing and VC sphere than listed investments. Unfortunately, they are still mute on how their business model and approach is itself a sustainable innovation. Like most others, it is not, and based on a brief conversation with Blood when they started the business, it is not even on their radar which begs the question: are they any different from the rest of the pack? Unfortunately not, particularly given their high profile - they are doing little to enhance the investment/finance industry.

Venture Capital

John Doerr of Kleiner Perkins talks and tears about climate change. He doesn't yet have the answer, but he's started to think about the problem and has probably stimulated a few others in the business to do the same.

Southwest Windpower Inc., a maker of residential-scale wind generators, has raised $6.5 million in Series B funding. NGP Energy Technology Partners led the deal, and was joined by return backers Altira, CTTV Investments and Rockport Capital Partners.

Imperium Renewables Inc., a biodiesel producer, has filed for a $345 million IPO. It plans to trade on the Nasdaq under ticker symbol IMPR, with Morgan Stanley and Lehman Brothers serving as co-lead underwriters. Imperium is run by former venture capitalist Martin Tobias, and has raised funding from such firms as Nth Power, Technology Partners, Vulcan Capital, BlackRock Investment Management, Capricorn Management and Silver Point Capital.

INI Power Systems Inc., a developer of methanol-powered fuel cell systems, has raised $4 million in Series B funding. MHI Energy Partners led the deal, and was joined by individual angels.

Greentech Media Inc., a provider of online content about the greentech industry, has raised $1 million in Series A funding co-led by Lightspeed Venture Partners and Northport Private Equity.

Emap PLC has agreed to acquire GroundSure, a UK-based provider of environmental due diligence, from shareholders like Metropolitan Venture Partners. The deal is valued at up to £44 million, including an initial £30 million cash payment and up to £14 million in earn-outs over the next two years.

Ecosorb SA, a Brazil-based environmental management company, has received $5 million in first-round from Stratus Group.

Virgin USA has acquired a majority stake in CircleLending Inc., a Waltham, Mass.-based manager of loans between relatives, friends and other private parties. No financial terms were disclosed. CircleLending had raised $16 million in total VC funding from backers like Venrock, Monitor Company, Intel Capital and the Omidyar Network.

Tesla Motors Inc., a maker of electric cars, has raised $45 million in Series D funding. Technology Partners and Elon Musk co-led the deal, and were joined by Capricorn Investment Group and return backers Vantage Point Venture Partners, Draper Fisher Jurvetson, JP Morgan Bay Area Equity Fund, Valor Equity Partners and Compass Venture Partners. Tesla had raised a $40 million Series C round last summer.

Petra Solar, a developer of power electronics for solar energy systems, has raised $14 million in Series A funding. DFJ Element and BlueRun Ventures co-led the deal, and were joined by National Technology Enterprises Company.

SunLink Corp., a provider of solar mounting systems for the commercial market, has raised an undisclosed amount of Series B funding led by Clean Pacific Ventures.

Solaicx Inc., a maker of silicon wafers for photovoltaic panels, has raised $27.1 million in Series C funding. D.E. Shaw led the deal, and was joined by Mitsui & Co. and return backers Applied Ventures, Big Sky Ventures, Firsthand Capital Management and Greenhouse Capital Partners. Solaicx has now raised around $39 million in total VC funding since 2005.

Shunda Holdings Co. Ltd., a China-based maker of mono-crystalline silicon ingots and wafers, has raised $82 million in private equity funding. Actis led the deal with a $40 million infusion, and was joined by Chinese institutions Jolmo and Waichun. Shunda is a supplier to solar cell manufacturer Suntech, an existing Actis portfolio company.

LDK Solar Co. Ltd., a China-based maker of multicrystalline solar wafers, has filed for a $400 million IPO. It plans to trade on the NYSE under ticker symbol LDK, with Morgan Stanley and UBS serving as co-lead underwriters. Shareholders include Jafco Asia.

Jajah Inc., a Internet telephone company, has raised $20 million in Series C funding. Intel Capital led the deal, and was joined by return backers Sequoia Capital and Globespan Capital Partners. It previously had raised around $8 million.

Technorati Inc., a search engine for the blogosphere, has expanded its Series C round to $11.52 million, according to a regulatory filing. It held a $7.6 million first close last June, and later expanded the round to $10.52 million. DG Incubation, operator of Technorati Japan, is listed as a new shareholder, alongside existing backers Draper Fisher Jurvetson and Mobius Venture Capital.

Tioga Energy Inc., a provider of solar power purchasing services, has raised more than $10 million in first-round funding. Participants include NGEN Partners, Draper Fisher Jurvetson, Rockport Capital, DFJ Frontier and Kirlan Ventures. Tioga is basically a restart of CerOx Corp., which closed earlier this year after having raised around $15 million over two rounds.

MuleSource, a provider of open source infrastructure and integration software, has raised $12.5 million in second-round funding. Lightspeed Venture Partners led the deal, and was joined by Hummer Winblad Venture Partners and Morgenthaler Ventures. The company raised $4 million in first-round funding last October.

Interface21, a provider of open-source software for building and deploying mission-critical enterprise applications, has raised $10 million in Series A funding from Benchmark Capital. Peter Fenton, a Benchmark general partner, will serve on the Interface21 board of directors.

Hyperic Inc., a provider of multi-platform open-source systems management, has raised $6.1 million in second-round funding from return backers Benchmark Capital and Accel Partners. Hyperic launched in 2004, and raised an initial $3.8 million round in May 2006.

Pegase Medical Inc., a developer of natural base products for the animal market, has raised Cdn$3 million in first-round funding. Backers include Innovatech Quebec, Fonds Bio-Innovation, Lodial Capital and Benoit Cote.

NanoH2O, a water purification startup, has raised $5 million from Khosla Ventures.

Emerging Capital Partners has closed its second EMP Africa Fund with $523 million in capital commitments. The fund will seek minority or majority equity positions in companies throughout Africa, with a focus on larger markets such as Nigeria, South Africa, Egypt, and Kenya.

Interest Rates and Currencies

The US Federal Open Market Committee left interest rates unchanged on May 9, but kept the message that "although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures." Despite recent data reflecting an easing in core inflation (excludes food and energy), tight labour conditions, a weaker dollar, strong growth abroad and ample liquidity leave open the possibility that inflation could rise.

In China, the one-year lending rate is going up by 0.18% to 3.06%, while the one-year deposit rate is rising by 0.27% to 6.57%. It is the fourth rise in a little over a year in its attempts to rein in economic growth. Also, just ahead of the economic summit between China and the US, the People's Bank of China widened the band that the Yuan can trade against the dollar from 0.3% to 0.5% per day. Widening the trading bands is a modest step towards freer currency movements because the Yuan rarely approaches its current trading limit of 0.3% and the parity rate is still set each day by the central bank. China has also increased the amount of cash that banks have to keep in reserve.Banks' reserve requirements have gone up eight times in the last year, this time they have gone up 0.5% to 11.5%.

Asian finance ministers have agreed plans to pool the region's vast financial reserves to protect their currencies from speculative attack. The agreement, reached at a meeting in Japan, comes almost 10 years after speculators triggered an economic crisis across the region. During the Asian crisis governments appealed to the International Monetary Fund for help, but the IMF imposed punitive conditions in return for stabilisation packages. These often involved sharply reducing government spending, and raising interest rates, thereby forcing companies out of business. Unemployment and poverty rose, and governments changed. To prevent this kind of chaos, China, Japan, South Korea and members of ASEAN have agreed the new pool.

There has been contention that Asian central banks would diversify from US$ for some time now, but it has not happened. Perhaps the news that Asian central banks are planning to pool assets in order to manage currency exposure is the harbinger of a new policy of currency diversification. And China's investment in Blackstone (see Investment above) is a sign of diversification.

There is also a new dynamic - inflation. Inflationary pressures felt in the US and Europe might be multiplied in Asia as prices of basics are pushed up. It seems to be happening in India and may continue. If the trend continues, and fundamentals suggest that it should given the scarcity of soft commodities. The interest rate and exchange rate policy of Asian central banks may change. While trade imbalance has not motivated a change in policy, more popularly felt structural change of inflation may galvanise a change in policy. That would help rebalance global currency flows, and would be a challenge for the US to manage as the demand for dollars abroad might wane. As demand for US$ bonds wanes, interest rates would be pressured up, and the cost of Asian currencies would rise, increasing import costs and further fuelling US inflation.

All of these signs suggest complacency about the stability of the US$ would be imprudent.

The Bank of England raised interest rates by a 0.25% to 5.5%. The increase, the first since February, takes the cost of borrowing to its highest level since 2001. Analysts had widely expected the rise as the Bank aims to rein in inflation. Business and employers groups accepted that the latest rise was "necessary", but added caution was needed in future so as not to slow UK growth too much.

Trade and FDI

As mentioned in Geopolitics the hard ball approach of the US to trade relations with China is not productive and the US would be better served by a more integral approach. In the first four months of 2007, the US lodged three formal complaints against China in the World Trade Organization, and for the first time in 22 years it applied countervailing (anti-subsidy) duties to imports from China. The actions have been met with incredulity and anger in China and the United States, fuelling speculation that a trade war is imminent. We do not think that is likely because China holds most of cards and tends to take a patient approach, unless aggravated.

Nevertheless, for a more conservative (Republican) view, Daniel Ikenson explains why he believes a trade war is unlikely - “Under [WTO rules], members can retaliate in response to an action or inaction of another member only when such a course has been authorized by the Dispute Settlement Body, and only in measured proportions.” In a new Cato Free Trade Bulletin: Growing Pains: The Evolving U.S.-China Trade Relationship, Daniel Ikenson puts recent actions into context by suggesting they “are not extraordinary actions demanding extraordinary conclusions.” Ikenson offers a defence in principal, arguing that the “three recent U.S. WTO actions are all about encouraging China to open its market further in accordance with its commitments.”

A US agreement on trade between the Bush administration and Congress takes the demand for the integration of labour standards in trade treaties up a further notch. The display of bipartisanship, with Nancy Pelosi, Democratic Speaker, appearing with Hank Paulson, Treasury secretary, and Susan Schwab, US trade representative, has been the cause of widespread celebration. However, as Jagdish Bhagwati notes, the compromise consensus to insert stronger protection of labour rights into US trade deals has dangerous implications for the world trading system. The proponents of the compromise make a serious mistake when they assume that domestic consensus on trade policy is a sufficient condition for further trade liberalisation. Trade needs at least two parties. Unless your trading partners agree with what you propose, your own consensus is well nigh useless. The problem is that, except for bilateral agreements with small countries (or groups of countries, such as Central America) with little political power or with overriding security interests, the developing-country trading partners of the US are generally opposed to the inclusion of labour (and other non-trade-related) requirements in trade treaties, agreements and institutions. The US bipartisanship is no guarantor of virtue. The US record of the US using WTO trade rules to force Europe to accept GMO and GM contaminated products from US agri-pharma companies illustrates the disingenuous approach of the US using an unrelated tool to coerce access to markets they wish to exploit. The deal illustrates a disconnect from reality as the US drives protectionist trade measures despite the need to maintain flows to keep the US economy buoyant.

Activities and Media

For the past three years I've enjoyed the BeTheChange gathering in May. Unfortunately, the format has changed to cater to UK consultants. However, I was blessed with an invitation to participate in Making Green Pay a Salzburg Seminar (Session 442).This 5 day excursion to a palace in Austria served as a annual training and holiday. The setting is splendid. The organisers professional and friendly. The 30 or so participants provided a very broad spectrum of views being from a range of industries and representing 22 countries from around the world - I left feeling I had made friends with many. The discussions were valuable. I highly recommend anyone to visit Salzburg and participate in one of these seminars if you ever get the chance. It is far removed from an air-conditioned hotel networking event where people are selling themselves to one another. It is top class. The Salzburg Seminars, started by 3 Harvard students aiming to build intellectual and ethical ties between Europe and the US, celebrates its 60th anniversary this year. If you can not go on business, this summer various celebrations are taking place. The palace, Schloss Leopoldskron, is an education in itself and you might recognise it having been a setting for the Sound of Music.

On the journey to Salzburg, I took the opportunity to spend a day in Munich where I caught up with a friend from school. Touring the city I managed to cover a lot of ground from Nyphenburger Palace to downtown, including residential neighbourhoods, the central street market, a community garden allotment and even a large cemetery . And my gracious host was a font of information about Germany and Bavaria. It was a wonderful experience which left me wanting more and knowing that there is much to learn from this part of the world. The strongest impression was that Germany's reputation far undersells the place. Whether it be in town or rural planning, food, architecture, social diversity, quality of life or people.

I also learned a bit more about Angela Merkel, who I previously thought was competent, but now know is far more than that for a whole host of reasons from her extraordinary upbringing in east Germany, to her career trajectory. Most importantly she is an enlightened change agent most clearly demonstrated by her unpartisan, pragmatic and integral approach to resolving issues. Someone who works to create a nurturing environment for all stakeholders, for the future and for the planet. I hope to see her continue to be able to influence Germany, Europe and the world.

Apart from that tour, May is always a busy time in the garden so days have been spent weeding, tilling and planting. The roof extension that I'm building also occupied dry days. Evenings were used to play catchup in the office.

Dr Pratchett expects to publish his next book in September. I only mention my hero's novel Making Money because after less than a month its already ranked 137 on Amazon.co.uk Sales Rank in Books from presales! I guess other people like him too ...

Yahoo!'s Media Group introduced Yahoo! Green, a new, one-stop eco-site offering the latest news and tips for green-motivated consumers.

WorldChanging.com is a new public interest website providing examples of sustainable and positive change. According to the Worldchanging.com founders "We pay special attention to tools, ideas and models that may have been overlooked in the mass media. We make a point of showing ways in which seemingly unconnected resources link together to form a toolkit for changing the world."

Check out the newly launched Encyclopaedia of Life which is an interactive log of species all over the world. You too can make a contribution if you've a good photo of a species not yet logged.

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This report has been prepared for information purposes and is not an offer, or an invitation or solicitation to make an offer to buy or sell any securities. This report has not been made with regard to the specific investment objectives, financial situation or the particular needs of any specific persons who may receive this report. It does not purport to be a complete description of the securities, markets or developments or any other material referred to herein. The information on which this report is based, has been obtained from publicly available sources and private sources which may have vested interests in the material referred to herein. Although GRI Equity and the distributors have no specific reasons for believing such information to be false, neither GRI Equity nor the distributors have independently verified such information and no representation or warranty is given that it is up-to-date, accurate and complete. GRI Equity, associates of GRI Equity, the distributors, and/or their affiliates and/or their directors, officers and employees may from time to time have a position in the securities mentioned in this report and may buy or sell securities described or recommended in this report. GRI Equity, associates of GRI Equity, the distributors, and/or their affiliates may provide investment banking services, or other services, for any company and/or affiliates or subsidiaries of such company whose securities are described or recommended in this report. Neither GRI Equity nor the distributors nor any of their affiliates and/or directors, officers and employees shall in any way be responsible or liable for any losses or damages whatsoever which any person may suffer or incur as a result of acting or otherwise relying upon anything stated or inferred in or omitted from this report.

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Private and Confidential

May 2007