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.

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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.

 

Eastern Exposure

There is a Thai island in the Gulf of Thailand’, called Koh Chang. Rieki and I visited it for the first time, 23 years ago. There was nothing there when we came. No electricity. No road, just simple huts on the beach and a kerosine lamp for light. The beach was stunning. They didn’t call it White Sands beach for nothing. A real paradise where time just slipped through your hands as sand would. We returned several times over the years. A road was built and an electric cable stretching to the mainland was installed. Development occurred. Hotels, restaurants, massage stores, supermarkets all popped up along the road that was built. Fortunately 3/4 of the island is National Park, so development is limited. In spite of the development, Koh Chang always kept its laid back, slow pace that seem to be moving in slow motion. We always felt at home there and hoped one day to make our presence more semi-permanent.

On a recent return to Koh Chang, we met many a lot of AE’s (authentic eccentrics). All were looking for a quality and not a quantity of life. While we were wandering around the main road, where all activity seemed to happen, I was reminded of an old TV show called Northern Exposure. It was a show about a remote village in Alaska, called Cicely, that attracted all kinds of AE’s. Very entertaining. Deep down, I was alway looking for my Cecily, Alaska. Koh Chang seems to come real close.

There is a cast of characters that were making Koh Chang their home. Mr. Yuji, a Japanese water engineer from Osaka, who started an authentic Japanese restaurant. He always reminded me that the food was “authentic Osaka style”. He showed me the Onsen (thermal bath) that he built in the back using solar heating. The reason he built an Onsen, in a place that often feels like an oven, is that he wanted to relax in a large bath heated to boiling temperature. If most went into the bath, they would shout “ Hey! What do you think I am a tea bag”. He only had 3 tables, because he didn’t want to make his restaurant a business, but a hobby. His restaurant was also home to Mah, his manager who spoke little english and who had no real business to manage, Sakura a playful black labrador and Bamboo a stunning persian cat with a football tshirt supporting Portugal who played with Sakura,

Dave, from Big Sur, ran a restaurant that served the best breakfast and barbecue, I had in years. His body was a wall tapestry of tattoos from famous artists. The name of his place was Annie P. after his girl friend, who every day laid out a food offering to the gods, that was huge. Didn’t realise that the spirits were so hungry. Dave is the philosopher and uber cook, who just wanted to follow his passion: Chilling, cooking and people and get away from the madness that is called America.

We arrived one evening to taste Dave’s pulled pork, which is out of this world,  and met some of the other AE’s that Annie P. attracts. Hans Henrik from Denmark, also moved to Koh Chang and used to work on oil rigs but now works in North Sea putting up massive wind farms, as a crane operator. Rick, who is a handsome Indonesian, and grew up in Santa Barbara, California. He is a pipe fitter doing maintenance at nuclear power plants. Rick is the guy you want to go out with to get into trouble but have fun while you are doing that. Very funny and generous guy, who works 3 months to focus on his main hobby, living.

Just across the road is Khun NOi, a beautiful Thai woman who runs a hydroponics lettuce farm in front of her shop that doubles as  a juice bar. Well maybe not a bar. Maybe more a telephone booth size juice bar. She is fun, funny, kind, and a very good business woman. Totally follows her heart and speak her mind.  She was often complaining about her Austrian partner who she calls a butterfly (chasing women). We got along wonderfully. Next to her is Sylvain, or Sweepie, as the Thai couldn’t pronounce his name. He is a French Rastafarian, and runs with his Thai girl friend a book store and a store dedicated to Bob Marley. Every possible image of Marley was integrated in clothes, socks, towels, etc. It was like being at a football stadium with all the merchandise. Sylvain had such a beautiful aura of happiness about him. It was intoxicating.

Heli, without the copter, is a Swedish single mom who had been living on the island for 20 years. She had been successful with property development and was working on opening a new beach front restaurant. I remember when we were talking about her life there and things she missed from Europe. She would say “I miss nothing. I get home sick for Koh Chang when I visit Trad” Trad is the mainland town where you catch the ferry for the 30 minute journey to Koh Chang. One thing struck me while we were chatting. She was remodelling, and all the builders were busy running power saws, hammering, etc. In spite of the need to get the job done before high season stated, she shouted, take a break so we can chat in peace and enjoy our conversation. Most entrepreneurs would not stop the job to have a conversation with a stranger.

Almost forgot Henk, who started a business making home made kroketten, bitter ballen and frikandel. For those of you unfamiliar with any of these Dutch delicacies, it is an acquired taste. Henk had a very busy job as manager and felt life was not about being exhausted, physically and mentally everyday. There has to be another way and ultimately ended up in Koh Chang.

This menagerie of people whether Thai or expat, all shared a common love of Thailand. All worked to integrate that “je ne sais quoi” that made Thailand unique, into their lives. Not one tried to discourage us from moving to Koh Chang. We were welcome. They saw we had that Koh Chang gene in us.

I nearly forgot the most interesting group. The dogs. There are beautiful street dogs everywhere. They epitomise everything that is magical about Koh Chang. They all seem to have gotten lots of scrapes, bumps, bruises, and all seem to have a weathered face reflecting their character building life. In spite of all these rough experiences, the dogs are not aggressive, at all but unbelievably sweet, gentle, and full of love. Like everyone we met. Oh yeah, let’s not forget that they are all well fed.

Everyone seemed to have found contentment in their lives. That was the common denominator. Whether the massage girls down the road who cracked, stretched and realigned my tired body or the owner of Yes restaurant who loved seeing Rieki’s smile. The all shared love, respect, generosity, friendliness, no rush, and all working to make a life and not only a living. Dying rich was definitely not the goal. All following their passion in a community that was home.

Finally found my Cicely, Alaska.

Looking forward to meeting you and other AE’s at TBLI CONFERENCE EUROPE 2015 in Zurich, Nov. 19-20.