The New Toxic Asset

I was listening to the Planet Money podcast about how Wall Street is exacerbating the drought in California. It seems that investing large sums of money to speed up depleting the aquifer is a wise strategy for investors and farmers. Price of pistachio nuts is sky high and 1 pistachio nut needs 1 gallon of water, so farmers need to go deeper to pump up water, which needs more money. Wall Street to the rescue. Wonder if the fund managers are telling their asset owner investors that this agriculture investment is “impact investing”. This idea shows how the perversion of bonuses, no proper water pricing, and short term incentives makes good financial sense but very bad environmental sense. Check out the podcast.

Don’t reward bad behavior. It is one of the first rules of parenting. During the financial cataclysm of 2008, we said it differently. When we bailed out banks that had created their own misfortune, we called it a ‘moral hazard,’ because the bailout absolved the bank’s bad acts and created an incentive for it to make the same bad loans again.

Eliot Spitzer

Early Bird Discount TBLI CONFERENCE EUROPE Nov. 19-20 ends today

Guest Blog

Amit Sharma Co-Founder, Empowerment Capital

I find several phenomena in and around the “impact” sector to be a bit perplexing, given its stated objective for seeking social returns alongside financial/economic returns. As financial purists or ‘socially neutral’ investors may look to receive strong returns–or at least commensurate with deployed risk–when it comes to social enterprise investing, sometimes behaviors and expectations compared to traditional investing efforts seem set aside or changed in the following ways:
Time horizon: there are numerous examples in high tech, social media and initiatives in the information and big data economy where companies have openly expressed no view to near term profitability, and yet institutional investors flock to such deals with the patience that the firm is working toward strong market share, sector dominance or to achieve total proof of concept. One look no further than amazon– the world’s largest cloud-service provider taking years to achieve profitability (arguably continuing to innovate in ways that sacrifice near term profitability). Mainstream investors seem to find such investments attractive despite no real near term returns…but social enterprise ventures seem to be held to a higher standard–where investors demand attractive exits in the short term and positive cash flows in 18-36 months that will justify injections of capital.
Low vs high tech: some of the most innovative new ventures boast high tech solutions to meet consumer demand, requiring relatively large capital and R&D investments. Yet, often we look to impact-oriented activities to employ low-tech solutions to solve pressing development challenges, forcing such companies to cut on needed investments that would otherwise be more costly but ultimately could lead to greater efficiencies in delivering on our social objectives at scale. While multiples may be more attractive in sectors like gaming–whereby mainstream investors often incentivize beta testing, market exploration and high tech innovation–social enterprise may equally see attractive economics if they too were able to make larger capital expenditures that would benefit investors over time AND help achieve greater impact.
Risk-return calculation: Financial returns are a mere representation or proxy for other forms of value to investors: increased personal security, greater life and work flexibility, the facilitation of desired lifestyle, and/or the feeling of success that comes with positive economic investments. But all such returns need to be measured against risk–be it deployed financial capital, leveraged assets or relationships, or foregone opportunity costs given competing priorities. It seems to me, that if we ultimately seek greater welfare for ourselves and our communities, social enterprise investments may bring returns that are indeed commensurate with or exceed our deployed risk.
Growing impact may require a broader look out our fundamental investment objectives, and a reconciling of the standards we hold to mainstream vs social enterprise.

Impact and Hero

In keeping with a new tradition, I would like to highlight a true TBLI Hero. Dr. Rieki Crins is my best and dearest friend. She is the most authentic person I know and only follows her heart, which is massive. Throughout the early period of getting TBLI started and further developing our mission, she has been there every step of the way.

In 2007, we were holding our TBLI CONFERENCE ASIA in Bangkok. I had been ill for several months and no one could figure out why. Two days before leaving for Bangkok, I was diagnosed with endocarditis and had to be admitted to the hospital. The doctor said  I would have to stay for at least 6 weeks, perhaps up to 10 weeks to kill the infection, and then I would undergo surgery for a heart valve replacement. This was a major bodyblow to us all. Rieki had to go to Bangkok, with our 13 year old son, and run the entire event, while worrying if I would survive. She also had to find the funding to cover the costs of the conference venue on top of everything else. It was extremely tough on her and my son, but she took on the responsibility with grace, poise, class, tenacity and  leadership. I will never forget that, as most would never have been able to take on such a challenge and succeed.

It has often been a bumpy ride, as TBLI was trying to do what most didn’t want to do, change the financial system. Our mission has always been to create an inclusive values based economy, by highlighting the opportunities triple bottom line investing offers. Rieki has always worked with me at the coal face, and was instrumental in making TBLI a success and a household name. For that I am eternally grateful, as we all should be.  She doesn’t get the recognition that she richly deserves.  I would like to change that. Now, she is changing the hospitality sector through the launch of Bhutique
Hotel Group and the recently launched The Bongde Institute of Hospitality and Tourism (BhutanIMG_0010
 Hotel School). She will succeed.

I am proud and honoured to call her my friend, an inspiration, a genius, and a true TBLI Hero. Oh yes, a great animal lover. Thank you.

Come to TBLI CONFERENCE EUROPE 2015, in Zurich November 19-20 and meet Rieki and many other TBLI Heroes and Champions.

TBLI Publication:

Family Office Elite published an article I wrote on ESG and Impact Investing for its wealth holder readership. Thought you might enjoy it. How wealth holders can engage with clients on ESG and Impact Investing? page 109-110.

TBLI Hero

My wife and I recently caught up with my dear friend, Prakash Sethi, and his wife, Hillary. Prof. Prakash Sethi is one of the leading authorities on corporate codes of conduct. He is a distinguished Professor at Baruch College and is Forrest Mars, Sr., Visiting Chair Professor of Ethics, Politics and Economics at Yale. Prakash has written 29 books. Yes. that is not a typo. 29 books. I often found that mind boggling as I struggle with my own book. He is a great champion of ethics, values and good governance. As a thought leader, he was often asked to do social audits or evaluations of companies that were having reputation problems, like mining companies. His answer was always the same: “Happy to come help, but whatever we find, our results must be put into public domain”.

During dinner, I asked him how he keeps up his drive and energy to keep fighting the good fight with all its difficulties and all the challenges that he faces,in changing the corporate mindset. He said, “I love what I do and it needs to be done”. His thinking is clear and focussed, like his responses to values-related questions. I remember his response when I asked why he teaches at Baruch College and not at the Ivy League Colleges, full time. His response was “I believe in public education”.

Prakash’s classiness has been manifested over and over again. November 2-4, 2006, TBLI was held in Frankfurt. In preparation of that event, we were attacked by a right wing, Tea Party, Fox News-type who tried to torpedo our TBLI CONFERENCE. One of the speakers, we invited, Max Keiser, insulted and embarrassed a speaker that we wanted to invite, named Steve Milloy. Steve had started an anti SRI fund or “vice fund”. I thought it would be good to engage and have a dialogue about Steve’s fund and strategy. Steve tried to have Max removed from the program by intimidating me,  all the American speakers, sponsors and the moderator of that session, Prakash Sethi. To my amazement, Prakask took a great deal of  time to listen and to try to understand Steve, who could easily be the poster boy for Fox News. After listening, Prakash decided that he would still moderate the session with Max Keiser. Steve then intimidated the dean of Baruch College,  and started a campaign to discredit Prakash and have him fired. In spite of all that, Prakash still came to Frankfurt and did a brilliant job in moderating the session, and not allowing bullies to dictate his behaviour. Where most would have ran for cover and take the easy way out, Prakash reflected and let values be his compass, and continued to show respect to someone who didn’t deserve respect. I was very impressed.

In a world where everyone seems to chase the short cut, the quick buck, the predator method, it is inspiring to see someone still working at the coal face with a smile on his face and joy in his heart.

Prakash, we love you.

Integrity has no need of rules.

– Albert Camus

Hope to see you and other ESG and Impact integrity leaders in Zurich, November 19-20.

Robert

How to achieve 10x returns with Soulful Investing

It seems every investor that I encounter is obsessed with achieving 10x returns for social enterprise investing, by leveraging the power of technology. The thinking is that if we only throw some innovative technology at the problem, we can restore the social and environmental balance and achieve a high return on investment. The idea of just throwing more technology at problems and flipping a switch will fix the problem and generate high returns, seems out of touch with reality. I have another idea. Why not investing in social enterprises that target the soul?

We have more than enough technology. Another widget or software alone is not enough. There is far too much focus on this strategy and the “quick fix”. Hunting vs. farming. Ribbon cutting vs digging holes. What we lack is compassion.

I was thinking of my father, who was a tailor. He made custom made clothes for women and had a small store on the Madison Ave and E. 77th street in Manhattan, NY. He worked very hard and loved his work, as well as life. When the rent was increased by 400%, he saw that the financial model didn’t work, so he closed the store and worked from home. I would see him cutting material on the floor at home and working at the sewing machine, late into the night. I told him he was charging too little for the quality he was providing. “Raise the price”, I said. He said “If I do that I might have less work and more money, but I like what I am doing and don’t want to work less”. When I looked at him working and the passion and quality that he put into his work, you could see that the end product was soulful.

When I look at my wife and what she is doing in turning the hospitality concept on its head with her focus on “conscious travel”.  She combines cultural authenticity and sustainability by establishing a chain of Eco Lodges, in Bhutan. To support that and develop the hospitality sector, she created a hotel school (Bongde Insitute for Hospitality and Tourism) with Lausanne Hotel School alumni. Her focus was not technology, but the basics and values. It is working extremely well and was up and running in less than 4 months and generating revenue in less than 6 months.  If you look at the video of the students learning how to make bread, pasta, taste tatin, set tables, making beds, etc. you see the soul in their eyes. This was not achieved with an iPad and an ap but through love, dedication, and commitment.

Technology can be helpful in some situations but it has become the end all and be all. Why don’t we focus on supporting soulful enterprises and give them the wings to fly.

“The most powerful weapon on earth is the human soul on fire.”

Ferdinand Foch

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