Tripadvisor for Development

Corruption and ineffective government services seems almost insurmountable, particlularly in developing markets. I recently came across a brilliant and effective solution that is working. DevelopmentCheck, which I would like to describe as the Tripadvisor for Development is a breakthrough in addressing corruption, lack of measurement, poor municipal services, quality of life, education and creating a culture of integrity. Tall order, but if one looks at the track record of 50% success rate in 2,000 cases, DevelopmentCheck can actually say “our system work”s.

Integrity Action (IA) is a pioneering non-profit in the field of social accountability, based out of London. In developing and emerging countries, the failure rate of development projects is extremely high. They have spent a decade to fine-tune a method for local communities to achieve this by working collaboratively with service providers to fix failing or abandoned projects. They can now achieve the highest Fix-Rate in their sector. Local communities are able to fix an average of 50% of the problems they identify.  They have helped more than five million people receive functioning roads, clinics, school buildings, clean drinking water and sanitation by ensuring that projects deliver as intended.

IA has created an award-winning, smartphone ap called DevelopmentCheck.org that they implement in partnership with national governments, ministries, contractors, and development finance institutions. Their approach has the impact that hundreds of millions of additional dollars invested in development would have – at a fraction of the cost.

When I learned about this I saw immediately the benefit for citizens in emerging markets but I also saw how this would be beneficial to investors, DFI’s and companies. Development Check will:

  • De-risk investments in markets
  • Improve the business climate
  • Fast track sustainable development
  • Measure governance improvements
  • Improve quality of life of employees and customers

Congratulations to Integrity Action for giving us DevelopmentCheck. Brilliant idea. If you are interested in learning how DevelopmentCheck can help your business, contact Integrity Action

Nothing is impossible, the word itself says ‘I’m possible’!

Audrey Hepburn

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TBLI EUROPE Next Month, November 19-20.

Come to TBLI Europe November 19-20, Zurich, Switzerland and meet many inspiring ESG and Impact Investing thought and do leaders in

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Save The Date-TBLI and COP 21 in Paris, Dec. 3

TBLI will host a special session during the 21st Session of the Conference of the Parties to the United Nations Framework Convention on Climate Change (COP21/CMP11) in Paris December 3. The session will cover Zero-Low Carbon Investments at scale. Speakers and audience will highlight large scale zero-low carbon infrastructure in energy, public transport, agriculture,  and buildings and their investment potential.

There will be limited space with strict security,  as the session will be held at the Conference Center where the delegates will be negotiating a new climate agreement. If you would like to attend, please send an email to robert@tbligroup.com. Priority will be given to asset owners.

Awesome

I looked up the definition of a commonly used word. Awesome: extremely impressive or daunting; inspiring awe: the awesome power of the atomic bomb. In the informal extremely good; excellent: the band is truly awesome! Why then is everything awesome? “I will call you back later”. “Awesome”. “See you next week.” “Awesome”. “I am going for a run”. “Awesome”. Why don’t we start being a bit discerning in what is awesome and what is just “fine”.

Cap and Share

TBLI has been working for its entire history on scaling up zero-low carbon investments. The solution always seemed very clear, carbon has to be a cost but no one wants to pay for it. In addition, the consumer was not included in most of the discussion around cap and trade.

Why don’t we go to a cap and share and give everyone an equal carbon allowance? If you are carbon efficient, take public transport or the bike, you can earn credits. If you can’t live without your ferrari, you buy credits. This way consumers can earn money by reducing carbon emissions. With everything being captured by big data, public transport chip cards, green credit cards and other new sources, it is doable.

That is what I call Awesome.

That’s what we’re missing. We’re missing argument. We’re missing debate. We’re missing colloquy. We’re missing all sorts of things. Instead, we’re accepting.

Studs Terkel

TBLI CONFERENCE EUROPE will be held on Nov. 19-20 in Zurich. Come and meet truly AWESOME people doing AWESOME things.

Support TBLI Foundation

 

What is Impact Investing?

Impact Investing has become the most widely used term to describe a “new form of investing”. What is Impact Investing? How is it different? Is there significant money going into it? Here are some of the common definitions that have been used.

  • Investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return.
  • Impact investing is an investing approach that intentionally seeks to create both financial return as well as positive social and/or environmental impacts that are actively measured.
  • Impact investing includes investments that range from producing a return of principal capital to offering market-rate or even market-beating financial returns. NO NEGATIVE SCREENS or avoidance.
  • Investments intended to create positive impact beyond financial return.
  • These are investments in business which have been designed with the intent to have positive social and/or environmental consequences. 
  • Impact investing is the deployment of capital with the specific objective of achieving positive social and /or environmental impact alongside financial returns.

This seems rather straight forward and all have very similar definitions.. However, if one looks at what most are claiming to be impact investment, the focus is on social impact. This often has a high level of what I call “The Photo Op”, or a ribbon cutting ceremony. Meaning, the communications seems to be more important than the content. Many investors, particularly endowments, have been trying to show how they are committed to this “new approach” to resolving societal and environmental challenges. Asset owners and managers often ask me what is the difference between ESG (Environmental, Social and Governance) Investments and Impact Investing. My answer is ESG is liquid investments and Impact was illiquid. I am sure many “advisors” will disagree, but I am not trying to sell a definition and write hours. TBLI is creating an active ecosystem for the ESG and Impact Investing Community to attract significant assets.

Impact Investment figures range from 60 billion in assets under management with 10+ billion invested in 2014 (Eyes on the Horizon:The Impact Investor Survey May 2015, JP Morgan and GIIN). There are many detailed graphs about impact and percentages of assets committed, if you need proof to believe that Impact is a good strategy. There are many of these reports and analysis with wide ranges of what it is and what researchers have found in asset allocations. Yet, we are constantly reminded that the investment opportunities are small, not scalable, not market rate, not quality, high risk and fundamentally they are “charity”.

There is a much more compelling story. Let’s focus on money flows. Look at the sectors below that make investments that match the definition of Impact, as stated above.

  • Public Transport Infrastructure
  • Fuel Free Energy Systems (Renewable Energy)
  • Secondary Market of DFI’s (Development Finance Institutions)
  • Green Real Estate including Retrofits
  • Agroforestry including Redd++ (avoided deforestation)
  • Social Impact

If one accepts these definitions then the amount of money going into Impact Investing, is actually in the Trillions and has been for quite a while. WRI(World Resources Institute) recently wrote a report called the Trillion Dollar Question. “The transport sector is growing quickly, with the global vehicle fleet on course to double by 2050. According to the paper, global transport investment is between $1.2 and $2.4 trillion annually.”

If one accepts the common Impact definition, then the present Impact discussions and case studies are vastly missing the point. We are focussed on the one small plant, that is pretty, in a massive forest of opportunity. When I hear the discussions around Impact by those trying to convince others, I am reminded of the scene from the movie Serpico, where Frank Serpico, a New York Police Detective is confronted with the scale of corruption in the narcotics division. One of the crooked cop describes the graft sums as “serious money”. Impact Investing is talking about “serious money” and always has been. One only needs to have an an open mind, look around and do the math. Do you want a financial return with a social and environmental added value? If so, why are you waiting for more research, when the opportunities are overwhelming?

 There are people who have money and people who are rich.

Coco Chanel

Trust and Consequences

The daughter of a friend of mine called me about a Dutch Fraud Film festival. Would I have any examples of fraud to apply for the Fraud Film Festival Prize? The winner would receive funding to produce a documentary. I replied. “Wow. There is no shortage of examples”. Leonard Blankfein’s (Goldman Sachs CEO) Senate Hearings testimony came to mind.

If you look at this clip, it is quite amazing to see how Blankfein defends Goldman’s actions in a very circular reasoning that gets the viewer so confused that one loses the script. The basic question that Senator Levin asked was quite simple. “Is there not a conflict when you sell something to someone and then are determined to bet against that security and don’t disclose that to your client?”

Blankfein’s answer is stunning.

“Whoever is careless with the truth in small matters cannot be trusted with important matters.”
Albert Einstein
I look forward to greeting you at TBLI CONFERENCE EUROPE 2015 in Zurich November 19-20 and introducing you to people of integrity and trust.

TBLI Testimonial

“TBLI is not just a great place to increase one’s understanding about sustainable investing it is also an excellent place to meet and network; some of the contacts I have made at TBLI have turned into successful and lucrative business partnerships.”

Rufo Quintavalle-Poet, Investor and Director at Agro-Ecological Investment Management

Guest Blog: Rufo Quintavalle

Tracking errors are themselves an error

An article earlier this year in Institutional Investor pointed to low carbon indexes as an alternative to fossil fuel divestment for investors who are concerned about climate change. Citing the example of the Swedish pension fund, AP4, and the French pension fund, FRR, who both use this investment strategy the article describes these funds as “low-carbon equity indexes that closely track blue-chip benchmarks while excluding most carbon-exposed companies in those benchmarks.” Which, translated into terms that people outside of the financial sector can understand, means “a way to say you are doing something about climate change while not actually doing it”.
It is probably already too late to stop global warming of 2?C, although that remains the official goal that negotiators at the COP21 will be working towards. But what is certain is that if there is to be any hope at all of avoiding catastrophic climate change then the world economy will have to fundamentally alter. In such a context any strategy that proposes closely tracking “blue-chip benchmarks” is woefully inadequate since the “blue-chip benchmarks” simply reflect the reality of the world economy as it is and not as it should be.
Proponents of low carbon indexes would say that by excluding the most polluting companies they can contribute to an incremental change towards a low carbon future – companies will be pressurized to improve their performance in order to make it onto the index and a virtuous circle will be set in place. But in the same way that you cannot have your cake and eat it you cannot have an investment strategy that purports to address climate change while only accepting a tiny tracking error relative to the broader economy. The broader economy is itself part of the problem and if we do want to address climate change then what is needed is as large a tracking error as possible. Otherwise we will end up with low carbon indexes that by their own internal logic are obliged to invest in companies such as Royal Dutch Shell (the fourth largest holding of MSCI’s European Low Carbon Leaders Index) and Exxon Mobil (the third largest holding of the equivalent global fund).
The inadequacy of low carbon indexes to address climate change is, to be fair, not an indictment of institutions like AP4 and FRR who are, compared to their peers, among the more progressive of institutional investors. Rather it is an indictment of our financial system as a whole which, as it is structured will never be able to address climate change or indeed any other problem that is time-sensitive and requires systemic change. And ultimately this failure boils down to a philosphical failure regarding moral agency and the true nature of investment. If the goal of investing is simply to mimic the behavior of the broader financial market then the money managers and the people devising the indexes are doing a good job (although one suspects it is the kind of job that could be done just as easily by a computer). But if we are to understand investment as something that does not simply follow the markets but rather seeks to actively create value for society then our financial system is conspicuously failing.
So what to do in a context where the system as a whole is inadequate to serve society? And in which every single one of us is complicit in this problem the minute we take out an insurance policy or start paying into a pension plan? To those with no disposable income at all the most obvious course of action is to lobby your pension fund and your insurer to adopt a genuinely proactive policy on climate change and divest from fossil fuels. For those who do have disposable income to invest and are interested in using their investment dollars to combat climate change then you could consider investing this money outside the stock markets via angel investing, crowdfunding, private equity and other asset classes that your banker will do his or her best not to tell you about. The rewards here are far greater both financially but also in terms of accelerating the transition to a clean, green economy. And finally, since it is all too easy to point the finger at others we ought to examine our own collective responsibility in creating a state of affairs where “investment” has reduced itself to the buying and selling of shares in publicly listed multinationals who never needed our money in the first place.
Bernie Madoff was able to thrive as long as he did because there was a stream of people who liked the idea of a steady “no-risk” annual return of 10%. But ultimately if you are getting returns without risk that means someone else is picking up the bill. In the case of Madoff it was the new subscribers who were picking up the bill for the old ones. In the case of the broader financial system (of which low carbon indexes are merely a symptom) it is the planet as a whole which is picking up the bill for our obsession with “low-risk” listed equities and our refusal to rock the boat.