GRI Equity - integral investing

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Perspective

Although this question crossed my mind in the middle of October, it kept recurring in a range of areas. For those seeking system change it is core to the philosophical question of whether humanity can adapt to systems based on love and sharing instead of greed and fear. While that thought may not bear much reflection for us in our busy lives, and may even be annoying, it is strange that practical implications of the consequences of this primitive mindset coexisting in our high tech world should present themselves in a few weeks. We'll call it synchronicity. Let's reflect on the big picture of where power wins at the expense of truth.

Old news it may be, but the war in Iraq is prominent. The lie of course is that there were weapons of mass destruction. The truth is that its about money and oil. See Iraq is a resounding success ...

Turning to the world of money, there was more encouragement of moral hazard. But the best example of power winning over truth is the Master Liquidity Enhancement Conduit, a ruse by big banks with messy balance sheets to get investors to buy "the good loans" off their balance sheets. When the market needs transparency the big and powerful obfuscate the situation with MLEC! See US banks want you to carry the can for their sub-prime mistakes

And then there are the environmental challenges that everyone feels. Whether its drought in the US or warm winters or heat waves in summer we know there are problems and all of the science tells us we need to change behaviour now. So companies talk about green this and eco that. But do little to change their behaviour. See Lots of talk about Environmental Disclosure, little action among FTSE All-share

And we delude ourselves with the rationale that technology and trade can feed the world. But it isn't working now and it doesn't look like it could, unless the human population drops a lot and soon. See Humanity's demands on nature, in pictures

There was also scientific research published which suggests that while fairness is a genetic quality, some have more than others. The balance of economic and social influence seems to be held by those with less interest in fairness and more interest in themselves. See Behaving like monkeys

We know that education is the solution to many of our challenges because it distributes power among many. We're even getting a better consensus on what how to educate. But this solution gets little time, capital or energy so most of humanity is left behind. See How to build a better education system and Trade, inequality and education

We keep lying to ourselves. Whether it is economic imbalances, Iraq, Myanmar, trade or our own diet, we keep hiding from the fact that we want control over others even if the consequence is that our integrity is eroded. It is all too easy to take the money today, instead of sharing life with others. Whether it is coming to terms with Iraq or economic imbalance, our deal with the devil can only be unwound at a cost.

Just jotting these notes seems overwhelming. No one's perfect. We all cut corners. But humanity will be richer by working together. For that we need trust. For that we need truth. Humanity needs to grow up and behave more like a healthy life-form than a disjointed, dysfunctional mess. We need to live with nature, not without it. Let's hope that as our economic systems bend under the strain of over-consumption we can adjust our behaviour and love one another a bit more.

The World of Money

Financial market turbulence - research by EIU

The Economist Intelligence Unit has produced a special report (PDF, 508 KB) that analyses the various scenarios for the global economy and the potential impact on individual regions. This free report looks at the background behind recent events and presents EIU findings on the increased risks to economic growth. Download here (PDF, 508 KB, dated August 2007)

EIU economic scenarios

The EIU's recent review of financial market turbulence is a useful analysis of what economic climate we can look forward to over the coming couple of years. Heading For The Rocks analyses the global economy and offers three scenarios for the future. Whether or not you subscribe to their analysis it presents most of the pertinent issues and ascribes estimated impacts and probabilities to them. Some observations paint the picture in a few phrases:

Oil, Asia, Asset Managers

McKinsey released this useful research on the world of money, pertinent to investors, asset managers and strategic planners.

Chapter 1: The New Power Brokers MGI details how the rising influence of the four players is jointly shaping global financial markets. Their combined assets grew from just $3.2 trillion in 2000 to an estimated $8.7 trillionâ€“$9.1 trillion in 2006. The factors fueling their growth will persist for at least another five years and, even under conservative assumptions, all four power brokers will grow in size and influence in the years ahead. Launch this chapter (PDF - 1.68 MB)

Chapter 2: Petrodollars: Fueling Global Capital Markets Petrodollars are the largest of the four power brokers with between $3.4 trillion and $3.8 trillion in foreign financial assets at end-2006. Assuming oil at $50 per barrel, their assets would grow to $5.9 trillion by 2012. Launch this chapter (PDF - 1.75 MB)

Chapter 3: Asian Central Banks: The Cautious Giants Asian central banks had $3.1 trillion in foreign-reserve assets at the end of 2006 from just $1 trillion in 2000. Assuming flat or declining current-account surpluses in Japan and China, Asian reserve assets will grow to $5.1 trillion by 2012, with average annual investments of $321 billion per year in global capital markets. Launch this chapter (PDF - 1.80 MB)

Chapter 4: Hedge Funds: From Mavericks to Mainstream Hedge fund assets under management have tripled since 2000, reaching an estimated $1.7 trillion by mid-2007 on the back of record inflows and high returns. Including leverage used to boost returns, the industry's assets rise to as much as $6 trillion-which would make hedge funds the biggest of the four new power brokers. In MGI's base case, hedge fund assets could reach $3.5 trillion by 2012-and between $9 trillion and $12 trillion including leverage. Launch this chapter (PDF - 1.76 MB)

Chapter 5: Private Equity: Eclipsing Public Capital Markets? Despite the intense public focus it attracts, private equity is the smallest of the four new power brokers, with $710 billion in investors' capital at the end of 2006. Even with growth rates slower than in the past few years, MGI projects that global private-equity assets under management could reach as much as $1.4 trillion by 2012. Launch this chapter (PDF - 1.75 MB)

Central banks and the world economy

The Economist delivered a comprehensive review of the role central banks and financial policy have played in the global economy, focusing on the past five years and the recent credit crunch: Only human- A special report on central banks and the world economy. The report discusses the challenges faced by central banks over recent decades, the differences today, their achievements and failures and proposals for improvements. It is a useful primer on what might be expected to change in policy and their approach to working with financial markets.

The New Role of Corporate Leadership in Global Development

Doing Business with the World – The New Role of Corporate Leadership in Global Development (pdf 3.2 MB) by the WBCSD Development Focus Area shows how companies can contribute to global sustainable development through their core businesses in a way that is profitable for the companies and good for development. It offers a business perspective on key challenges and opportunities for the development of low-income countries, as well as key messages for companies and governments on how to promote sustainable business solutions that benefit the poor and the societies and environments in which they live. The issues selected are not exhaustive, but they reflect both traditional areas for development actors and business. The issues are Ecosystems, Education and Training, Energy, Enterprise Development, Financial Flows, Governance, Health, Mobility, Trade, and Water.

Besides the core publication, online material to complement the issues discussed in the report include: An introductory slide show (586 kb) outlining the content and goals of the publication; Slide shows on each chapter, which can be used to customize presentations and reports within a company or for a specific public; One-page Facts & Trends sheets highlighting further facts for each topic, which will be updated with further topics not included in the core publication: Accountability, Agriculture, Consumption, Income and Wealth, Infrastructure, Labor and Employment, and Population.

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Economy

US housing depression, wealth erosion and consumption recession

The good news is that the drop in consumer demand is likely to take pressure off inflation. But, all in all, the outlook for the US economy for the next couple of years is not good.

September US new home sales down 23%

Sales of new US homes fell 23% year on year. Commerce Department data shows sales of newly-built US properties totalled 770,000 in the year to September. September sales of existing US homes fell 8% y o y - the biggest year-on-year decline for non-new build properties in 16 years. The September new home sales figure however was a 4.8% rise on August, although this is only after August's figure was revised down to 735,000, from 795,000.

US September employment numbers look good, but aren’t really

The US Labor Department said the US economy added 110,000 new jobs in September, higher than the 100,000 figure predicted by economists. Also, rather than shedding 4,000 jobs in August as initially estimated, 89,000 new jobs were actually created. The government also revised upwards non-farm payroll figures for July, saying 93,000 jobs were created as opposed to the 68,000 first estimated. However, the overall unemployment rate rose to 4.7% from 4.6%, the highest for a year. If the August initial estimate had been confirmed it would have suggested a sharp slowdown in the economy since the economy has not shed jobs on a monthly basis for four years.

Ironically, the rise in August’s jobs figure was largely due to the previous underestimation of government hiring, particularly of new teachers, of which one might have thought the government would have a clear idea. And the September rise was driven by the services sector, while there was a net loss in jobs in construction and manufacturing industries. Jobs data is a key indicator of the health of the US economy, which has to create about 100,000 jobs a month to replace those lost through retirement and natural attrition. The data coming out does not appear strong and seems to have been prone to large adjustments since the July implosion of the sub-prime market.

As the US slows, will Asia and the world follow?

While I expect China and India to weather the slow down in US consumption reasonably well, perhaps even benefiting from a relief of inflationary pressure, others are more sanguine about the central role the US economy still plays in the global economy. This linked article, A Subprime Outlook for the Global Economy, by Stephen Roach is worth consideration, not least because of his excellent and long track record as Chief Economist for Morgan Stanley and now its Asia Chairman. In it he outlines his expectation of the impact of the US sub-prime meltdown on Asian economies (China, Taiwan, Japan ...) and recommends a more considered approach by policy makers to management of asset markets.

The theme of increasingly interconnected economies upon which he touches also suggests that this is where solutions might arise. This coupled with a more thoughtful approach by policy makers might encourage decision makers to look beyond standard measures of performance. I remain open to the idea that Africa will replace Asia as Asia rises and that non-financial measures will become more important to people and governments as issues such as climate change, health, education and lifestyle are taken more seriously.

IMF World Economic Outlook forecasts down

The IMF published its World Economic Outlook 2007 - Globalization and Inequality. The IMF now expects the global economy to grow 4.8% next year, down from its earlier 5.2% forecast. The downgrade follows in the wake of the much-publicised turmoil in the global credit markets which was started by record defaults in the US sub-prime mortgage sector. The IMF expects the US to see a particularly sharp slowdown in economic growth next year, now predicting it will expand just 1.9% in 2008, compared with its previous forecast of 2.8%. On China, the IMF sees its growth slowing slightly to 10% next year, down from 11.5% for 2007. And in Europe, it is projecting that the UK economy will slow to 2.3% in 2008 from 3.1% this year, while Germany's growth will slip to 2% next year from 2.4% for 2007.

World Development Report: we must focus on agriculture and rural opportunities

"Poverty is overwhelmingly rural and will be for decades to come" according to the World Bank and their annual World Development Report.

The World Bank warned that the UN goal of halving the incidence of poverty and hunger in the poorest countries would go unmet unless agriculture took centre stage in development aid. While 75% of the world's poor live in rural areas only 4% of official development assistance goes to agriculture in developing countries. In sub-Saharan Africa public spending on farming amounts to only 4% of total government expenditure. The report said that for the poorest people an improvement in a country's gross domestic product that is agriculture-driven is four times more effective in reducing poverty than is GDP growth originating in other sectors.

The report highlights the illusion that the poor will simply be absorbed by growth taking place outside agriculture, citing the persistence of rural poverty in the flourishing economies of China and India. And the report in particular called on the United States to reduce cotton subsidies that depress prices for African smallholders.

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Interest Rates and Currencies

US interest rates eased again, of course ...

The Fed lowered the federal funds rate by 0.25% to 4.5%, as the markets expected and desired. The vote was not quite unanimous with one governor voting to hold. The discount rate was also reduced by 0.25% to 5%.

The reduction in the fed funds rate was almost required given the anxiety of the market leading up to the decision. If there had not been a reduction, the chance of an emotional rout was high. As we've said before, reducing the rate is not going to resolve the credit crunch, but has contributed to moral hazard. While equities will continue to come under pressure, it would be sensible for the Fed to communicate that it is unlikely to reduce the rate further for the time being. A resolution of financial imbalances, driven by sub-prime and leveraged investment (PE), must be allowed to occur without handholding by the Fed. It is not the Fed's job to intervene and it may regret the recent reductions in 2008 when rate reductions might be appropriate. It will be interesting to see what kind of public statements Bernanke and company make going in to November ...

How low can you go, U S Dollar?

A graph of the Euro/Dollar exchange rate puts us in the picture.

I expect it to continue its trajectory for at least three months.

Indian rupee rising

The Indian rupee has risen to its highest level against the dollar since 1998, touching 39.32 to the dollar. The rupee has risen 12% against the US dollar this year. The Reserve Bank of India has intervened in the market to limit the rupee’s rise, purchasing more than $38 billion this year.

Foreign demand for Indian shares and high levels of foreign investment have helped to propel the currency upwards. The strong rupee has helped to subdue inflation by reducing the cost of imports. The appreciation, however, works against exporters, particularly those competing against China, such as textile traders.

India’s spectacular recent growth and its buoyant economic outlook is attracting investors, with foreigners buying $15.3 billion worth of Indian shares this year. The Sensex breached 18,000 on 9 October. Policymakers are worried about the threat to general financial stability from volatility in capital flows.

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Trade and FDI

China's focus on quality gets results

Following the appointment of Vice Premier Wu Yi to a special task force to raise standards, results continue to be reported. On one hand it is a little bit worrying to see the lack of standards compliance (though they are not accompanied by stories of swathes people getting ill), but it is refreshing to see the speed and effectiveness of inspections. During September and October 774 arrests were made! One can hardly imagine action taking place so quickly in more developed economies or more democratic states, where we know standards abuse takes place at the highest level. (And we're not immune to failures in food standards as the Topps beef affair or this story of Stand 'n' Seal show.)

No wonder Chinese exports continue to rise.

Trade, inequality and education

Observations that inequality is rising as wealth rises have circulated recently with the publication of the International Monetary Fund's latest World Economic Outlook which shows that while global income inequality has fallen, within countries, both rich and poor, inequality has been rising almost everywhere. As the IMF put it: "This recent experience seems to be a clear change in course from the general decline in inequality in the first half of the 20th century".

While the antagonists tend to parrot the orthodoxy of capitalism vs anti-globalisation, all voices seem to end up with the same conclusion: education is the key. This quote from the FT makes the point:

They say the answer is to raise educational standards, and to mitigate the pain for the losers with social protection programmes to compensate their lost income and education to help them find another job.

Professor Paul Krugman of Princeton University wrote on VoxEU.org that the problem of inequality "doesn't mean I'm endorsing protectionism".

"It does mean that free-traders need better answers to the anxieties of those who are likely to end up on the losing side from globalisation."

The IMF agrees, arguing: "The appropriate policy response is not to suppress FDI or technological change but to make increased access to education a priority."

Education is the holy grail as it reduces the benefits the already-rich derive from new technology and FDI. But as Jim O'Neil and Erik Neilsen of Goldman Sachs observe: "This, of course, is easier said than done."

WTO rules US cotton subsidies illegal, again

The World Trade Organisation upheld the findings of its interim report released in July saying that subsidies paid to US cotton farmers are illegal. The US is expected to appeal, but if it is upheld, the US could face billions of dollars in trade sanctions for failing to scrap illegal subsidies. The ruling is a victory for Brazil’s cotton industry, which spearheaded the complaint, and for West African states. Brazil and others complain that the payments harm their producers and depress world prices.

There is increasing legal opinion that US subsidies are illegal, and significant economic opinion that the subsidies are harmful. They are a key complaint of developing countries in the current Doha trade round. Elimination of the subsidies would liberate trade discussions, help developing economies, which are more reliant on agriculture and help US and other rich subsidisers allocate resources more effectively. Subsidies should go.

Soften the China lobby (and others)

Beijing recently announced an anti-monopoly law which some observers say could work with rules on technology standards, procurement, taxes and patent transfer requirements to give Chinese firms an unfair boost over foreign competitors. It is part of the call by US and other lobbyists for China to open up but at the same time enforce “international” standards. Unfortunately, while improvement is good, the tactic of villifying China does not help. Most obviously it is difficult to call for improvements without being guilty of failures oneself (whether it be competition, trade, nuclear proliferation, energy abuse, …). And it also can make the job of internal advocates of improvement more difficult, as this insightful observation on a global trade forum shows. Commenting on the US criticism of the anti-monopoly law:

While the final draft is significantly less ambitious than previous drafts in introducing competition into the economy, it is only so because the draftsmen have realized that there is really no way any currently existing government entity has the means to tackle the powerful vested interests in the state-run sectors. Thus it reflects a realistic domestic political outlook, something that most western governments do not have in China. Most of the draftsmen are actually just as frustrated as the US is. The thing is that every time the US chides China on domestic reforms, it only makes it more difficult for pro-reform leaders to argue their case since they are branded as some sort of traitors.

It is long overdue that a softer, more conciliatory approach is taken by western nations and organisations in supporting economic and social evolution in China and elsewhere, whether in the field of competition, IP, energy policy, defence policy, agrucultural policy or trade.

US protectionism for a while

As Doha dies and economic pressures rise, there has been more commentary of trade and investment protectionism, particularly among US presidential candidates. The outlook is not good as this insightful comment from a global trade forum indicates:

Bottom line: there are really only two things you can expect, on the whole, from the US on trade, and they are:

1) Consolidation period of gains made thru bilateral/regional deals

2) Retrenchment on any forward-leaning policies, unless (and this is an “if and only if” conditionality) a mega deal like US-EU or US-Japan gets brokered principally on its foreign policy merits rather than sold as a commercial deal

I imagine that this kind of analysis will stimulate much meaty criticism of the US and how it can’t abandon free trade. Well, bitching about the real impact of the politics of globalization won’t change the playing field. USTR can’t point to a single WTO partner (maybe Canberra) and say to Congress, with credibility, that “they’re really with us on clinching a Doha deal”. Brussels, Tokyo, Delhi, Brasilia, et al, can look forward to reaping what they’ve sown. There are many politicos in those capitals who’ve reaped the short-term benefits of beating up Washington on trade, but they made that decision at a price - that they’ve now missed the window on Doha for the next couple of years. It is simply going to take a political cycle for Washington to come back to the point where liberal trade is embraced, by the majority, as a lynchpin of long-term security, and that is certainly not entirely due to internal, domestic developments.

More from Europe: The Economist - The China Trade Syndrome

The irony is that the US and Europe are benefiting tremendously from trade with China. US companies might try to keep a lower profile, than European ones, as they are more fearful of a backlash from labour rights, anti-globalisation, or simply anti-China groups - it is politically incorrect to say that China is good for the US economy.

Africa growing with China or the west

This Jamestown Institute article African Perspectives on China offers a summary of the growing relationship of Africa with the rest of the world, especially China. Two main conclusions are apparent: China deals with Africa in a straightforward way (eg access to oil for a railway or factory) which is difficult for western businesses, particularly American ones, which are governed by more stringent laws on collusion and conflict of interest. China is a very attractive partner and African nations should diversify their relationships with other Asian nations to reduce reliance on China. For western businesses, the challenge is to offer Africa more or what they need, less charity, more investment.

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Markets

Gyrating markets

Despite unattractive economic fundamentals, US stock markets are still pushing highs. In early October Indexes posted highs: On October 1, the Dow Jones Industrial Average closed at 14,087.55 - the first climb above 14,000 since mid-July. On October 5, the Standard & Poor's 500 rose to a record 1,557.59, while earlier in the day the DJIA hit a record intraday high of 14,124.54 while the Nasdaq rose to 2,784.93 - its highest since January 2001. While they have come off a bit during the month, the US markets are buoyed by optimism.

And its not just the US. India's Sensex started the month breaking through the 18,000 mark and hit an all-time intraday high on 9 October closing at 18,327.42, up 788.85 points on the day, the largest-ever daily points gain. That represented a rise of more than 32% this year on the back of record inflows of overseas funds. But then on 18 October the index dropped 9% in one day, when regulators commented that curbs on foreign inflows might be appropriate. By the end of the month, the Sensex is nearly at 20,000!

And in China the CSI 300 hit a high of 5,877 on 16 October and has traded above 5,300 for October, ending the month at 5,688.

The MSCI Barra World index shown here illustrates October's gyrations, ending the month on an all-time high of 1,682.

Riding along a precipice

That's what it feels like watching the markets. The Economist offered a suitably scary briefing for Halloween: Spooking Investors - Financial markets remain on edge because the credit crunch has not been solved. While we know there are credit problems throughout the banking system, we don't know how big or where they are. And stock markets remain rather more optimistic than data would suggest. I certainly feel as Greenspan recently described the markets "in a state of fear". It feels as if one is walking along a cliff edge, the path is undulating, sometimes up, sometimes down, but nothing too drastic. But on the side is a massive drop, a financial precipice. If you have not yet informed yourself of the multiple liabilities stemming from loose credit over the past 5 years, have a look at the linked article. Otherwise, make sure you have something to hold on to in case markets get pushed over the edge.

The US housing market is already starting to clear - that's efficiency

This NYT article describes a Minneapolis auction of properties that have been foreclosed: 300 properties in 2 days, winning bids as low as half market value of 6 months ago. More than half the properties were previously owned by speculators who had never moved in.

The story illustrates how quickly an efficient market can move and is a key strength of the US system. When the financial crisis hit Asia back in 1996 it took years for deals to be struck in the Thai market and delayed injections of capital that would have accelerated the rejuvenation of the economy. That isn't happening in America.

US banks want you to carry the can for their sub-prime mistakes

A rescue plan proposed by a group of large banks and backed by Treasury Secretary Paulson (who presided over Goldman Sachs massive foray in to sub-prime CDOs etc) recommends a massive rescue fund the Master Liquidity Enhancement Conduit (mmmm!) which would borrow from the public and invest the proceeds in mortgage-backed securities. So, banks (which issued CDOs) and hedge funds (hiding losses in structured investment vehicles) all knowing that the book value of these assets is well above what will be realised wants you to lend money to their fund which will buy the dud assets. In other words they want to get the bad assets off their balance sheets on to yours (the investor) before the losses are realised. And when they are ... well, so sorry, unsecured, you loose.

The scheme may delay the inevitable, it would certainly remove some of the pain from the fiduciaries who put the sub-prime CDOs together or invested your money in them, and it would be more difficult for a host of individual investors to get bailed out later when the reality strikes. Yet again the banks and asset managers will dance with smoke and mirrors to delude us in to a "great" story. Caveat emptor.

(John Mauldin offers a more optimistic take on the super fund in The $100 Billion Superfund to the Rescue? and if a fund were to work as he describes it might help. Even so, it does seem that the market needs clarity and trust, not another layer of contracts. And The Economist shares its initial scepticism in Curing SIV: A bailout fund raises more questions than answers.)

How the sub-prime melts …

A good explanation of how mortgages were packaged, sold and then turned to dust from Fortune: Junk mortgages under the microscope -A close-up of one deal shows how subprime mortgages went bad. And here’s the graphic to keep you in the picture.

Compliance with new US restrictions on investment in Iran

KLD Research & Analytics, Inc. have launched a new Iran Compliance product that helps US institutional investors and money managers comply with engagement and divestment mandates of publicly trading companies conducting business in Iran. KLD's Iran Compliance product meets all U.S. state legislative requirements mandating Iran divestment. KLD Iran Compliance Product press release

Global business confidence index still positive, just

The Economist launched a global business barometer conducted by EIU which polls 1,000 executives. While it is just positive, I expect it to turn negative by January when the next poll will be taken. There are differences by region and industry and these differences are in line with what you might expect.

Stock prices do not always go up

In case you are still entirely convinced that the softness in stock markets is temporary and can be relived by another interest rate cut, please read this potted history of bear markets by The Economist. Wall Street has had a good run for a quarter of a century, but if were to go the way of the Japanese market since 1990, few of us would be happy.

All the pork in China …

As food and toy safety concerns sizzle in the media, Ethical Corp published a readable article on the recent history of demand and supply of pork in China. It is useful because it illustrates how markets work in China. And it’s amusing. Here’s an extract:

Pig farmers responded the same way all Chinese producers of everything from Thomas the Tank Engine toys to DVD players respond to increased demand, by quickly adding capacity. They bulked up the pigs on steroids – notably the widespread illegal use of the growth-promoting drug clenbuterol, which is often abused by bodybuilders and dieters in the US and Europe and has been banned by international sports authorities – to get better prices, and continued doing this even as swine flu took hold and consumers switched back to chicken.

Responsible Investing

Being green is more profitable

Companies with sophisticated and comprehensive climate change strategies have financially outperformed their competitors over the last three years, according to a major new report from investment research firm Innovest. The Carbon Beta and Equity Performance study of 1,500 companies found that there is a "strong, positive, and growing correlation between industrial companies' sustainability in general, and climate change in particular, and their competitiveness and financial performance." It also concluded that the investment premium attained by those companies with the best climate change strategies was growing as regulatory regimes tighten. Innovest expects taht in the longer term, the out-performance potential will become even greater as the capital markets become more fully sensitised to the financial and competitive consequences of environmental and climate change considerations.

However, the report found that despite the correlation between environmental and financial performance, there was still huge variation in businesses responses to climate change, both between and within industry sectors. It also argued that current corporate reporting of environmental initiatives remained largely inadequate and as a result investors were finding it difficult to identify those companies with the lowest "climate risk". "Disclosure information is notoriously unreliable, inconsistently reported across companies and over time, and generally not validated by independent third parties," the report argued. "Emissions data alone provides less than 25% of the information a sophisticated investor requires."
There are now more than $40 trillion of institutional investor assets concerned about climate change so the demand for more sophisticated data is there and, with it, an opportunity for independent research houses to deliver it.

Easy online investment in microfinance

eBay launched MicroPlace, a microfinance website that provides an easy way for the average person to invest in the world's working poor. Investors can loan a minimum of $100 through about a dozen microfinance institutions in countries like Bolivia, Cambodia, Ecuador and Ghana. 150 people invested on the day of the launch.

Awareness to Action: Sustainable Finance for today's global markets

Insurance response to risk and opportunity of climate change

Insurers and re-insurers have been warning about the potential consequences of climate change for years. Munich Re has calculated that by 2050, climate change could cost up to $300 billion annually in weather-related damages, industrial and agricultural losses, and other associated expenses.

A Ceres report "From Risk to Opportunity 2007: Insurer Responses to Climate Change" written by Dr. Evan Mills, a scientist with the IPCC which shared the 2007 Nobel Peace Prize, was just published. As we have been reporting for the past 5 years, global warming and the growing incidence of extreme weather events pose an enormous challenge to the insurance industry. This summer's floods and heatwaves around the world are only the latest reminder of why investors and consumers are concerned about the impacts of climate change on insurers. The report focuses on the significant progress made by insurers to develop new products and services. It identifies 422 real-world examples from 190 insurers, reinsurers, brokers and insurance organizations from 26 countries. That's more than double the 192 products and services that we identified in a similar report done by Ceres in August 2006.

Ceres notes that only one in ten of the insurers in the report are working in a visible way to understand the mechanics or implications of climate change. Only a third are offering innovative products and services. Insurers themselves have a major opportunity to reduce their own carbon footprints; for 20 major insurers reporting their emissions to the Carbon Disclosure Project, there is an eight-fold range in emissions per employee. Companies have tended to focus on reducing their risk exposure through financial means, by raising prices, excluding coverage and generally pulling back from at-risk areas. However rational that might be in the short-term, it is leading to a backlash from consumers and regulators and won't work in the long-term.

Businesses attract the best by being green and ethical, in all sectors

New research by Monstertrak shows that employees want to work at green companies and are happiest at companies with solid corporate social responsibility programs in place. Results from the survey show that a surprising percentage of young workers want employment with a green company: 80% of those surveyed said they are interested in a job that has a positive impact on the environment and a whopping 92% would chose working for an environmentally friendly company. Other research by Kenexa Research Institute shows employees working at companies with clear CSR programmes, including environmental and social programs, are most satisfied and employees at these companies also stay at their jobs longer and are more content with senior management than their peers at companies with lacklustre CSR programmes. The benefits of participating in CSR activities include: increasing an organization’s competitive advantage when recruiting; setting the organization apart from the competition in terms of employment brand; creating an elevated sense of teamwork among employees; and helping to establish an emotional tie between the employee and the organization. Being green isn’t only good for the planet, it’s good for HR, workers’ moral, and the bottom-line.

Lots of talk about Environmental Disclosure, little action among FTSE All-share

The U.K.’s Environment Agency published “Environmental Disclosures,” its second major review of environmental reporting among FTSE companies. Since the last review, in 2004, significant progress has been made in reporting. Almost every single company, 98%, listed on the FTSE All-Share Index now mentions the environment in their annual reports, unfortunately, for some that’s all they do - mention the environment. For the year ending March 31, 2007, audited disclosures on environment was 35% of the companies on the Index. In 2004, whle 89% of companies mentioned the environment in their reporting only 10% released environmental disclosures in audited sections of their reports.

The Agency expressed concern that, despite the near-universal awareness of environmental issues in corporate reporting, there is still plenty of room for improvement in the amount of quantitative disclosures on environmental risks and opportunities to shareholders and potential investors. According to the research, conducted by Trucost, 42% of companies did disclose quantitative environmental data, a 15% increase since the 2004 survey, but only 29% of companies reported quantified figures on energy use or other climate change related topics. The study also found that only 15% of companies reported on any of the environmental performance indicators recommended by DEFRA, and only 3% included hard data on water, waste and climate change impacts. The full survey can be downloaded from The Environment Agency or Trucost, and a report on the U.K.’s environmental performance indicators is available in PDF format.

Corporate investor relationship failing to communicate to investors.

The results of a summer survey from Thomson Financial make worrying reading for investors. On the plus side, 36% of the mainly US-based investors questioned said they considered corporate responsibility criteria “very important” when making investment decisions. But only 8% of investor relations officers (whose job it is to communicate with shareholders) said investors considered social and environmental factors to be “very important”. Investors wanting information on corporate responsibility are more likely to get it in London than in New York.

The mismatch suggests some investor relations teams are lagging investors on awareness about the link between social and environmental performance and share values. More than two-thirds of the investors, which include both mainstream and specialist funds in the US, said that their preferred source of corporate responsibility information was the investor relations department, with just 14% saying they would go directly to a corporate responsibility officer. But only 59% of investor relations officers think that corporate responsibility has a real impact on share prices, compared with 73% of investors.

Observers note a difference in the approach to SRI in the US and UK: In the US it has been more confrontational, whereas in the UK it has been more about building relationship and communication. Firms in both countries still struggle to communicate to consumers, who are more cynical because of poor industrial track records.

Thomson Financial offers a few simple pointers on corporate communications: Focus on communicating with the 10 to 15 key shareholders, identifying any CR programmes, adding slides to their existing presentations and publishing more information on their investor relations websites. Demonstrate to investors that you are up to speed with the companies’ corporate responsibility work.

GRI financial services guidelines for public comment

UNEP Finance Initiative and the Global Reporting Initiative have jointly coordinated a working group to pilot and review the draft versions of the GRI Financial Services Sector Supplement (Environmental and Social Performance). The revised Supplement including all these changes is now available for public comment until 10 January, 2008. The new Supplement and the response form are available for download at: http://www.unepfi.org/work_streams/reporting/gri/

Venture Capital

China seeking stakes in more global investment businesses

The FT reports that China's $61.5 billion social security fund has held talks to acquire ownership stakes in Carlyle Group, KKR and TPG. It's unclear how far along any of these discussions are, but China has already acquired positions in both The Blackstone Group and Bear Stearns. This further supports the view that China (and other Asian nations) is diversifying its asset base away from US Treasuries.

China to invest in Africa's biggest bank

China's largest bank, the state-run Industrial and Commercial Bank of China, announced plans to acquire a 20% stake in Africa's biggest bank, Standard Bank, for US$5.5 billion. If approved by South African regulators and ICBC shareholders, the deal would lead to the creation of a US$1 billion private equity fund that will be established by the two companies to focus on emerging markets. The partnership would leverage Standard Bank's experience in and access to markets throughout Africa. Standard Bank has a presence in 17 African nations and investments in many African firms. Chinese officials have already signalled an interest in investment opportunities in South Africa, Nigeria, Cameroon, Zambia, Congo-Brazzaville, and Angola. This deal is another sign of both China's interest in Africa and China's strategy of making significant strategic equity investments around the world, highlighted by the recent stake in Blackstone.

Dot.com bubble again?

While stock markets gyrate it seems investors are also resorting to the kind of investment screening applied near the end of the dot.com bubble to justify their bets. NYT reports that Silicon Valley start-ups are awash in dollars, again as investors apply convenient metrics, like number of users, to justify paying billion dollar prices for companies with no revenues. Article quote:

Apparently there remains much exuberance among investors despite a creaking US economy. And obviously there is more cash than sense around San Francisco. Given the close ties with Asia, it is surprising that more interest in Japan, Taiwan, China and SE Asia is not seen.

Capital gains tax break for VC disappearing in UK

UK Chancellor Alistair Darling unveiled substantial increases to the tax bills of private equity bosses. The Treasury has carried out a six-month review of the tax treatment of private equity groups in response to growing criticism, particularly from trade unions, that rich owners of such companies pay virtually no tax in Britain. Nicholas Ferguson of SVG Capital admitted this year that many are paying “less than our cleaners”. Their most controversial activity arises when they buy and sell companies and directors’ income is treated as a capital gain, taxed at only 10% if another company has been held for as little as two years. This tax break will be axed, to be replaced with a standard rate 18% flat rate capital gains tax. The change will raise £900m for the Treasury by 2010. (The Guardian report and NYT Deal Book report.)

The BVCA was not happy. Simon Walker, Chief Executive Designate of the British Venture Capital Association said

A similar discussion is occurring in the US and financial investors are under pressure to demonstrate their integrity and value deserves special tax treatment.

VC social networking

Next month, the New England Venture Network, a regional social group for venture capitalists, is launching VentureNetwork.vc, an online social network for professionals looking for another channel to connect and talk shop. It would be great to see a global portal of this nature, especially if it contains substantial public access.

October VC deals and data

A123Systems, which is developing nanophosphate lithium ion batteries to be used in everything from power tools to hybrid/ plug-in and electric vehicles, completed a $30 million round of funding, bringing the total capital invested in the company to $132 million. Investors include General Electric, Procter & Gamble, Alliance Capital, Motorola, Qualcomm, North Bridge Venture Partners, Sequoia Capital, CMEA Ventures, FA Technology Ventures, OnPoint, Carruth Management and MIT.

GridPoint, Inc., which is developing smart grid platforms, closed a $48.5 million Series D financing, bringing the total invested to $88 million. Goldman Sachs and Susquehanna Private Equity Investments led the round. Gridpoint offers utilities an intelligent network of distributed resources (e.g., advanced load control devices, batteries, solar systems) that reside at the point of consumption - the home or business. It can be scaled and upgraded to integrate new clean technologies such as plug-in hybrids and fuel cells.

Innovalight Inc, which is developing silicon ink-based printed solar cells, raised $28 million to relocate to a new 30,000 square foot plant in Sunnyvale, California. Convexa Capital led the series C financing. By processing silicon with liquids, the company aims to reduce the cost of solar by over 50%. The founder, Alf Bjorseth, is the former president and CEO of Renewable Energy Corporation, one of the world's largest vertically integrated solar companies. The capital should move Innovalight from development to production.

HelioVolt Corp., an Austin, Texas-based developer of thin-film photovoltaics, has raised $24 million in additional Series B funding. The round total now stands at $101 million, including a $77 million first close announced in August. New investors include Sequel Venture Partners, Noventi Ventures and Passport Capital. The initial tranche included participation from Paladin Capital Group, Masdar Clean Tech Fund, New Enterprise Associates, Solucar Energias, Morgan Stanley Principal Investments, Sunton United Energy and Yellowstone Capital.

BioFuelBox Inc., a Hollister, Calif.-based biofuel refining startup, has raised $9.46 million in Series A funding. Backers include Draper Fisher Jurvetson and DFJ Element, according to a regulatory filing. The company's website says its solution is a "bio-refinery in a box - a modular, containerized innovation that produces biofuel cost-effectively and easily."

Pellet-Art, a Poland-based wood pellet producer, has raised $9.5 million from Penton Partners.

Altela Inc., an Albuquerque-based provider of desalination technology and services, has raised $7.1 million in Series A funding. CCS Income Trust, a Canadian environmental and energy services company, led the deal.

American Public Education Inc., a Charles Town, West Va.-based provider of online postsecondary education for the military and public service communities, has set its IPO terms to around 4.69 million common shares being offered at between $15 and $17 per share. It would have an initial market cap of approximately $288 million if it prices at the high end of its range. The company plans to trade on the Nasdaq under ticker symbol APEI, with William Blair & Co. and Piper Jaffray serving as co-lead underwriters. Shareholders include ABS Capital Partners (41.4% pre-IPO stake) and Camden Partners (10.3%).

AEA Investors has agreed to sell Burt's Bees Inc., a Durham, N.C.-based maker of personal care products like lip balm, to Clorox Co. (NYSE: CLX). The deal is valued at $925 million, net of an additional $25 million payment for anticipated tax benefits. Get more info.

Zipcar has agreed to merge with fellow car sharing company Flexcar. No financial terms were disclosed. The combined company will be known as Zipcar, with Zipcar CEO Scott Griffith running the show. Zipcar has raised around $38 million in VC funding from firms like Benchmark Capital, Greylock and Globespan Capital Partners.

Vocalocity, an Atlanta-based provider of hosted VoIP services to micro enterprises, has raised $8 million in Series A funding. Noro-Moseley Partners led the deal, and was joined by Pittco Capital Partners, Imlay Partners and company management.

WeatherBill, a San Francisco-based online service that helps companies protect revenue and control costs from the impact of bad weather, has raised $12.5 million in new Series A funding. The company has now raised a total of $16.8 million. New Enterprise Associates and Index Ventures co-led the round, and were joined by Allen & Co., Atomico Investments, Sean Park and return backers First Round Capital and individual angels. Kittu Kolluri of NEA and Neil Rimer of Index Ventures will join the WeatherBill board of directors. Also joining the board is Barney Schauble, a partner at Nephila Capital, WeatherBill's risk capacity partner.

Penguin Computing, a San Francisco-based provider of Linux cluster virtualisation, has raised just over $3.11 million in Series C funding, according to a regulatory filing. Shareholders include vSpring Capital, San Francisco Equity Partners, Weber Capital and Convergence Partners.

JibJab, a digital comedy studio, announced that it has raised Series B funding from existing shareholder Polaris Venture Partners. No financial terms were disclosed, but peHUB reported that the investment was $3 million. This comes on top of a Series A round that a regulatory filing indicates was worth nearly $6.4 million. JibJab is known for its political satire.

MA Renewable Ventures, a subsidiary of MuniMae, closed Fund III, which will finance 10-15MW of new solar PV projects at 30 sites for commercial, utility, and municipal customers. When Fund III is implemented, MMA will have financed $300 million of solar energy projects in seven states using Power Purchase Agreements, resulting in 30 MW of solar development.

The Ampire Equity Fund has raised Euro 350 million in Europe. The fund will close at Euro 500 million by year end. In an unusual move, the fund was created by a project developer to fund its own portfolio. It will invest in projects developed by Evelop, a subsidiary of Dutch clean energy firm, Econcern. 70% of the fund's assets will be invested in Western Europe wind farms, both onshore and offshore; 30% will be invested in biomass generation and possibly solar. The Fund will provide about 25% of financing needed to reach the developer's goal of implementing 4,000 to 5,000MW of sustainable energy. Evelop has plans for more funds.

In India, ICICI Bank is planning to launch a private equity fund that will invest primarily in India-focused private equity funds through its International Mauritius subsidiary, which is also tasked with launching ICICI's $2 billion infrastructure fund that is currently in the pipeline. The fund of funds is to be launched by the beginning of 2008 and will start with about US$500 million in capital under management and eventually grow to about US$2.5 billion. Potential preliminary investments include IDFC Private Equity's upcoming US$400 million fund and Baring Private Equity Asia's next Indian fund. U.K.-based Private Equity Intelligence estimates that FoFs accounted for roughly 14% of private equity investments made last year. ICICI's FoF will be the first by an Indian company.

MoneyTree reported that 887 companies raised $7.1 billion in Q3 in the US. VentureOne, on the other hand, reported $8.07 billion raised by 635 companies. Working with MoneyTree data, quarterly investment activity was down slightly from the second quarter of 2007 when $7.2 billion (but higher than $6.8b in Q3 2006) was invested in 1,000 deals, suggesting ongoing stability within the venture capital arena. The quarter saw notable increases inboth the CleanTech and Internet specific sectors as well as ongoing strength in first rounds of venture capital financing. Moneytree release here.

Thomson Financial and the National Venture Capital Association released Q3 US fundraising data for the venture capital industry. Fifty-nine firms raised around $6 billion, which is a significant decline from both the prior quarter and Q3 2006. Release here.

Private equity investments in China topped US$2 billion for the first three quarters of 2007, surpassing the US$1.77 billion for all of last year and setting a new record. Furthermore, 15 China-focused funds raised a total of US$9.669 billion in the third quarter alone, a single-quarter high. Research institute and consultancy Zero2IPO, which compiled the figures, expects private equity investment in Asia to remain active in the fourth quarter, with the media and education industries joining traditional industries like manufacturing and real estate as targets for investment. For the future, the consultancy predicts more private equity investments in regional high-tech industries like alternative energy, especially wind power.

Activities, Media and Gatherings

Home and Garden

BT Notes: Halloween, biking, yoga, PestalozziWorld Ireland, garden …

Halloween is one of my favourite time of year. Colours are changing. Its not quite the dead of winter. And we have an excuse to party ;-). Over the past few years I’ve also come to experience the importance of the changing rhythm of life at this time of year. Its a time when nature prepares for the coming year: store food for winter, start sewing spring seeds, sort the survivors from the rest in new families (foxes, rats and squirrels are most obvious casualties). The symbolism of a bonfire is appropriate to getting rid of dead wood from our lives if we want to make a new start. The pagan ritual was symbolic of a sense of respect for those gone before - the dead; this also is useful grounding in the modern consumer culture of credit driven desire for more stuff. I hope you have a chance to reflect on past and future this Halloween. If you need a bonfire to help … come and stand around ours to be lit at 7pm. Here are a couple of links for more on the traditions of this time of year: Halloween, Samhain (from ancient Irish).

I’ve started mountain biking on the beat as briars and nettles slowly retreat. Its great! But a bit dangerous. I’ve kissed the nettles and nearly bathed in the Slaney a couple of times, but its getting a bit easier each time. Its definitely adults only (or with adult supervision). If you want to join the fun, please let me know.
Yoga is in full swing: 8pm at Teach Bride, Tullow or Thursday at 7.30 at Mount Wolseley, Tullow. Give Pam a call for more info 086 0891141.

Pam has set up PestalozziWorld Ireland an affiliate of the group that sponsors children’s education in Asia and Africa. We’ve always believed education is the best way to improve lives and communities and this charity helps the least advantaged. If you would like to know more, check out the website or chat with Pam or me. There’ll also be an information reception on 7th December - please let us know if you’d like to come.
The tomato harvest is winding down now as the weather turns cool and humid and will only be available for another week or so.
We had a couple of tours of the garden since last months offer. The garden infrastructure and history has become more interesting to me since reading Joseph Paxton’s biography. Paxton rose from garden boy to member of parliament and advisor to many in the first half of the 1800s. It was a time of great interest in horticulture when new propagation techniques and global expeditions to find new species took place. It is at about this time that the walled garden would have been constructed and the rhododendrons planted. The interest in horticulture then was similar to the investments in IT today. The biography is A Thing In Disguise if you’re interested.
The experiment with a blog seems to be going well - web traffic doubled last month so somebody’s reading it!.

Happy Halloween.

Tomatoes and tilling

I finally got some overdue chores completed in the garden.

The tomato harvest is in full swing and they need to be harvested at this time of year or they can deteriorate quickly. Although the greenhouse is warm enough for them to grow, the low temperatures overnight combined with seasonal humidity result in high condensation on the fruit which accelerates disease and rotting. Once they’re harvested they can be removed to a cool, dry area and last longer. We also make jars of pasta sauce and freeze bags of cherry tomatoes which can be used for culinary delights later in the year.

It is also a good time to control weeds which are growing in uncultivated space. Ideally proper weeding would be done, however, that is not really possible for me because of the large area cultivated and the limited time I have. Even if I had time, it would be uneconomical. (That is why Africa can import fresh veg to Europe - the wages are very low and allow for the air freight cost. A friend with 10,000 hectares under cultivation in Africa reckons the that for every Euro of European local labour, Africa substitutes 20c of African labour and 80c of air-freight!) So today I tilled 3 of six plots and the expansion plot - that’s about 700 sm with a 2-wheel tractor.

Farewell Spotty

Spotty died last night. He was a beautiful Faverolle cock. He looked quiet last night when I put him to bed. This morning he was still slightly warm and supple, but otherwise lifeless. There were no signs of injury or sickness and he’s less than a couple of years old. Very sad. We’ll miss him.

Media and Gatherings

You Tube for scientists

If you want to complement your video browsing with something a bit more scientific, check out SciVee. It has two main types of video: those accompanied by documentation for peer review and those without peer reviewed papers. For example, there’s a video of 6 science bloggers discussing their blogs or a lighthearted look at transgenic mice.

Planetpals

A friendly website with facts about our planet from how big it is to how it works. Lots of information and educational tools. Planetpals.com and the main earth related page.

Awareness to Action: Sustainable Finance for today’s global markets

UNEP FI Global Roundtable, Awareness to Action: Sustainable Finance for today’s global markets, took place on 24-25 October. The website now offers presentations, summaries etc online.

Heroes of the Environment

Under the byline of A Sense of Urgency, TIME’s annual celebration of heroes spotlights the most innovative and influential protectors of the planet. Congratulations. You may not agree with all their picks, but its a great roll-call of people who have changed systems to save the planet. See them all here.

Examples of those feted are: Interface chairman Ray Anderson, carbon market pioneer Richard Sandor, Japanese rock stars and green-finance leaders Kazutoshi Sakurai and Takeshi Kobayashi, Cradle-to-Cradle innovators William McDonough and Michael Braungart, next-generation solar entrepreneur Shi Zhengrong, Ahmet Lokurlu creator of an emission-free solar cooling system, and wind-power magnate Tulsi Tanti.

God, the Universe and Everything

This video (God The Universe and Everything Else) records a discussion between Stephen Hawking, Arthur Clarke and Carl Sagan, moderated by Magnus Magnusson. It is a very forward looking and, although recoded in 1988, offers insights today. Worthwhile viewing.

Anti-whaling video

The Australian government has launched an anti-whaling video aimed at Japanese children. The video, which carries Japanese subtitles, urges all countries to stop catching and killing whales. (Japan opposes the international prohibition of commercial whaling. Every year it hunts hundreds of whales in Antarctica under what it describes as a scientific research programme. This year, it will hunt 50 humpback whales - an endangered species - as well as more than 900 minke whales, a move criticised by anti-whaling nations.)

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Private and Confidential

October 2007