volume i. issue 11 journal of sustainable...note from peter fusaro, of global change associates, who...

Journal of Sustainable Finance & BankingSM

September 2014 Volume I. Issue 11

©Pablo Hidalgo/Shutterstock

Featured Domain Hillel’sVoice.com Erika Karp … p.16

Enhanced Analytics Not Just a ‘Flash,’ But a Call to Arms John Ramsay, IEX … p.19

Global Sector Research The Cornerstone Capital Strategy Update Michael Geraghty … p.21

Paths to Fossil-Free Future Create Disruptive Business Opportunities Holmes Hummel… p.30 Balancing Nature and Energy Peter C. Fusaro… p.33

The 2014 El Niño – Disrupting the Climate of Business? Madeleine Thomson, Aisha Muhammad… p.35

Corporate Governance Are You Thinking Like a Universal Owner? John Wilson … p.39

Featured Editorial Making the Case for Intrinsic Motivation Aaron Hurst … p.42 Ebola as a Challenge to Health and Investment Derek Yach… p.45 Endocrine Disruptor Chemicals – a Serious Health Risk for All, a Potential Opportunity for Business Lisa Beauvilain … p.48

Open Source Excellence Risk Mitigation – the Basis for Chemical Safety Dr. Martin Kayser, BASF … p.53

Accelerating Impact Accelerating Impact in Real Asset Investing James Lee and James Schaffer … p.55

Sustainable Standout The Great Negotiator Katrina Stanislaw … p.57

CEOs Letter on Sustainable Finance & Banking

Erika Karp Founder and Chief Executive Officer of Cornerstone Capital Inc. and Former Head of Global Sector Research at UBS Investment Bank

This month in the “Cornerstone Journal of Sustainable Finance & Banking” (JSFB), we look at a world with a shifting balance of power between nation states, social movements and multinational corporations. We witness global markets absorbing the risks associated with the Scottish referendum, the escalation of sanctions against Russia, and the evolution of strategies to defeat Islamic State militants all the while awaiting the interest rate outlook from the US Federal Open Market Committee. And, while on the corporate front we assess the prospects for greater transparency from Google’s algorithms, Alibaba’s IPO, Apple’s new iPhone’s and wallet, and the Fashion Week events at the world’s great cities, we take this opportunity in the JSFB to broadly consider the theme of “Purpose & Disruption.” As we move into a week in New York City where the UN Climate Change Summit brings world leaders together with hopes of catalyzing impact, we feature a note from Dr. Holmes Hummel formerly of the US Department of Energy. Dr. Hummel articulates the necessity and potential for “Paths to a Fossil-Free Future to Create Disruptive Business Opportunity.” In this brief summary which highlights the work of the International Energy Agency (IEA) as it explored technological transitions in the global energy sector, Dr. Hummel takes the long view to the year 2075 and poses the critical investment questions that need to be addressed today. Further on Energy this month, we include a note from Peter Fusaro, of Global Change Associates, who wades through white hot tensions in “Balancing Nature and Energy.” Peter’s point regarding the hydraulic fracking debate is that the rhetoric needs to be dialed back so pragmatism economics and the environment can go hand in hand. Speaking of pragmatism in the context of “Purpose & Disruption” this month, we turn to another contentious issue of concern to our society: Chemicals, and in particular, those which are endocrine disruptors (EDCs) such as Bisphenol A (BPA). In one of our “Featured Editorials” this month, Lisa Beauvilain, the Head of Sustainability & ESG at Impax Asset Management, reminds us of the potential cost to society of future negative health effects. Lisa takes the view that the regulatory approach to EDCs (“the low dose effect”) needs to be reassessed as she surveys the current landscape. On the corporate side of this discussion, we highlight a high-level, thoughtful perspective from BASF in our “Open Source Excellence” section. Here, Dr. Martin Kayser, SVP of Product Safety, Regulations, Toxicology and Ecology at BASF, walks us through “Risk Mitigation – The Basis for Chemical Safety,” which is a critical discussion given the pervasiveness of chemicals in modern society. Dr. Kayser highlights how one of the world’s finest corporations seeks to counter balance the risks associated with the pervasive use of a broad range of chemicals, through continuous efforts on behalf of responsible chemical management and product stewardship.

Cornerstone Journal of Sustainable Finance & BankingSM / September 2014 / 2

In considering these important issues of fracking and chemicals we’ve seen that the skills of diplomacy, communication, and transparency come into play. And, as suggested by Katrina Stanislaw of Ceres, it would be constructive to use the tactics of “The Great Negotiator.” Katrina addresses the opportunity for “sustainable finance” to have a potent and lasting impact on the world if we can find a “meeting of the minds.” A true understanding of interdependencies, and then the ability to leverage them as a point of strength, comes from preparation and inquiry – then progress towards alignment for the long term. This discussion in some ways mirrors a piece this month where Aaron Hurst of Imperative is “Making the Case for Intrinsic Motivation.” While Katrina reminded us that in great negotiations one needs to know when to walk away, Aaron highlights how employers can keep their talent from doing just that. Companies that are going to thrive will be those that can deliver purpose. Purpose comes from impact, relationships and personal growth. And finding these requires the wisdom of the ages. And to find this, we turn to our Featured Domain: Hillel’sVoice.com. And we enter into what some call “The Days of Awe” which encompass the traditional Jewish New Year. These High Holidays are a time of reflection, introspection, repentance and renewal. In reflecting on some of the dramatic challenges facing humanity, we take a moment to seek solutions to crises present and future. In this particular edition of the JSFB, we include work from both our Chairman Dr. Derek Yach, and our colleague Professor Madeleine Thomson of Columbia’s International Research Institute for Climate and Society. Derek gives perspective on the worrisome Ebola outbreak and the fault lines it has raised about access to basic healthcare in West African nations. Madeleine looks at how El Niño requires companies to take steps to mitigate risks and monitor emerging climactic conditions so they can implement appropriate response strategies. Finally this month, in looking for creative capital market responses to societal imperatives, we offer a case study on “Accelerating Impact” from James Lee and James Schaffer, who show us how to effectively invest in real assets. Further in this JSFB, we argue that “purpose and disruption” are intended to be “Not Just a ‘Flash’, But a Call to Arms.” We are particularly pleased to have an article from John Ramsay, the Chief Market Policy & Regulator Officer of IEX in this month’s edition. As learning from IEX and other examples of business model evolution in an era of big data and social media, transparency truly can be transformational . . . not just for electronic trading markets, but for all of capitalism. My sincere regards, Erika Erika Karp Chief Executive Officer


Table of Contents

CEOs Letter on Sustainable Finance and Banking

p. 2

Market Summary Overview Market & Global Sector Performance, Monetary Policy & ESG Data

p. 6 p. 8

Featured Domain HillelsVoice.com

Erika Karp

CEO & Founder,

Cornerstone Capital Inc.

p. 16

Enhanced Analytics Not Just a ‘Flash,’ But a Call to Arms

John Ramsay

Chief Market Policy and Regulatory Officer, IEX

p. 19

Global Sector Strategy The Cornerstone Capital Strategy Update

Michael Geraghty

Global Markets Strategist,

Cornerstone Capital Inc.

p.21

Paths to a Fossil-Free Future Create Disruptive Business Opportunities Balancing Nature and Energy

Holmes Hummel, PhD Peter C. Fusaro

Founder of Clean Energy Works

Chairman of Global Change Associates

p.30

p.33

The 2014 El Niño – Disrupting the Climate for Business?

Madeleine Thomson Aisha Muhammad

Senior Research Scientist, International Research Institute for Climate and Society at Columbia University Graduate Student, Columbia University

p.35

Corporate Governance Are You Thinking Like a Universal Owner?

John Wilson

Head of Corporate

Governance, Engagement & Research, Cornerstone

Capital Inc.

p. 39

Featured Editorial Making the Case for Intrinsic Motivation Ebola as a Challenge to Health and Investment Endocrine Disruptor Chemicals – a Serious Health Risk for All, a Potential Opportunity for Business

Aaron Hurst Derek Yach, PhD Lisa Beauvilain

CEO of Imperative

Executive Director, Vitality

Institute

Head of Sustainability & ESG at Impax Asset

Management

p. 42

p.45

p.48

Open Source Excellence Risk Mitigation – The Basis for Chemical Safety

Dr. Martin Kayser

Senior Vice President of

Product Safety, Regulations, Toxicology

and Ecology, BASF

p.53


Accelerating Impact Accelerating Impact in Real Asset Investing

James Lee James Schaffer Jaclyn Anku

Managing Partner, Schaffer & Combs

Managing Partner, Schaffer & Combs

Associate,

Schaffer & Combs

p.55

Sustainable Standout The Great Negotiator

Katrina Stanislaw

Manager, Corporate

Program, Ceres

p.57

Upcoming Events Global ESG Calendar

p.59

Journal of Sustainable Finance & Banking Subscription Form Articles Cornerstone Capital Team

p.60

p.62 p.63


Market Summary

Overview

Despite bouts of heightened geopolitical uncertainty, the environment for risk assets continues to be favorable and volatility remains relatively subdued. The S&P 500 rose above 2,000 for the first time, nearly 16.5 years after crossing the 1,000 level. Bulls cite accommodative monetary policy, low inflation and healthy corporate profits as factors that will drive markets higher while skeptics question the sustainability of returns within the context of impending Fed tightening and less compelling valuations. With investors returning from summer holiday, the major U.S. indices are grinding higher on the back of generally positive economic data. The Institute for Supply Management’s Manufacturing Index surprised positively in August as it climbed to 59.0 from 57.1 in July. The new-orders component also increased to a 10-year high of 66.7. The housing market, a source of relative disappointment this year, is perhaps gaining momentum as the NAHB Housing Market Index rose to 55, the highest level in seven months. Housing starts, building permits, and pending and existing home sales demonstrated signs of strength as well. While the August jobs report of 142,000 net new jobs appeared to fall considerably short of the 225,000 consensus number, markets are viewing it as a Goldilocks number, in that it keeps the long-term trend intact but isn’t so strong as to pull forward an increase in interest rates. In developed markets, Europe’s long-awaited recovery still remains fragile and imbalanced. The Eurozone posted an inflation rate of 0.3% in August, down from 0.4% in July, and significantly below the European Central Bank’s (ECB) “below but close to 2%” target. The specter of deflation is concerning enough that the ECB unexpectedly cut all interest-rate targets and announced it will purchase covered bank bonds and asset backed securities. Mario Draghi wasn’t precise in sizing the program, though he did

1 http://cornerstonecapinc.com/2014/05/alibabas-hybrid-corporate-governance-structure/

say the ECB’s aim is to get its balance sheet back to its size in the beginning of 2012, implying an expansion from about €2 trillion to €2.7 trillion. Separately, Scotland goes to the polls on September 18 to vote on whether Scotland will end its 307-year union with England and Wales as Great Britain. A vote for full independence could be accompanied by market volatility not only due to heightened uncertainty around currency, regulation, tax and pensions, but it may also revive conversation about secessionist scenarios across Europe. While much attention is being paid to Europe’s efforts in fending off deflationary forces, Japan is seeking evidence that the inflation-generating measures it took earlier this year are taking hold. Though prices are rising, inflation in June came in at an annualized rate of 1.3%, down from 1.4% in May. As such, some market participants believe the Bank of Japan will have to do more to reach its 2% inflation target. This view, coupled with the thought that the Fed may raise interest rates more quickly than originally anticipated, has driven the yen to a six-year low. Japanese stocks have correspondingly rallied on yen weakness, but Japanese policymakers are now saying that further declines in the currency may be unwelcome. Turning to emerging markets, Chinese equities have recently rallied as economic data has cleared a low bar. From a longer-term perspective, the property market remains a primary focal point for investors given the sector’s significant direct and indirect influence on the broader economy. Moreover, Alibaba’s eagerly anticipated IPO is approaching and will garner much attention as the largest tech IPO in history. John Wilson, our Head of Corporate Governance, Engagement & Research, raised important questions about the company’s corporate governance structure in May1 and we continue to monitor debate. Meanwhile, Indian equities reached


http://cornerstonecapinc.com/2014/05/alibabas-hybrid-corporate-governance-structure/




another record high following a speech by Prime Minister Modi outlining actions he would like to take to boost manufacturing and exports. On a one-month trailing basis, the MSCI Emerging Markets Index outperformed the MSCI World Index (a developed market proxy) by approximately 1.5%, and are outperforming on a year-to-date basis by about 4.5%. In a continuation of the more recent trend of underperformance, small cap equities trailed their large cap counterparts by approximately 50 basis points over the last month, bringing year-to-date underperformance to about 8.6%. From a sector perspective, performance was mixed between cyclicals and defensives. In the MSCI ACWI (broad

index for both developed and emerging equities), healthcare, financials and tech outperformed, while materials, energy and consumer staples lagged. Furthermore, with second quarter earnings season in the rearview mirror, approximately 75% of S&P 500 companies posted a positive earnings surprise, slightly better than the prior quarter's results. Topline results impressed as well, with 65% of companies reporting a positive sales surprise versus 53% in the prior quarter. According to Bloomberg, in aggregate, S&P 500 second quarter earnings grew at 9.3% and revenues grew 4.4%, marking one of the best performing quarters since the first quarter of 2012.


Market Summary

Market and Global Sector Performance

MARKET / INDEX PERFORMANCE As of 09/10/2014 (local currency) T1M (%) T3M (%) YTD (%) 2014 P/E 2014 P/B Div. Yield

US Equity Indices

DJIA 3.22 1.11 4.50 15.1 2.8 2.3

S&P 500 3.36 2.64 9.33 16.7 2.6 2.0

Nasdaq 4.79 5.78 10.49 22.3 3.5 1.1

Russell 2000 2.74 -0.68 0.63 27.3 1.9 1.2

Developed International Indices

Euro STOXX 50 7.90 -1.84 7.45 14.7 1.5 3.6

FTSE 100 4.66 0.50 4.37 14.0 1.8 3.7

CAC 40 7.30 -3.04 6.21 15.1 1.5 3.1

DAX 7.67 -3.28 1.55 13.7 1.7 2.9

Nikkei 225 6.90 5.45 -2.14 17.6 1.5 1.7

ASX 200 4.34 3.94 9.06 15.5 2.0 4.5

Emerging Market Indices

IBOVESPA 3.95 5.79 12.16 12.5 1.4 3.9

Shanghai Comp 5.71 15.92 12.97 9.2 1.3 3.3

KOSPI 0.90 1.92 1.95 NA NA 1.2

SENSEX 6.95 6.40 29.68 17.3 2.7 1.6

Global Market Indices

MSCI World 2.80 0.46 6.43 16.1 2.1 2.5

MSCI All-Country World 2.70 0.52 7.37 13.3 1.5 3.3

MSCI EAFE 2.26 -2.80 2.22 15.0 1.6 3.2

MSCI Emerging Markets 4.27 4.09 10.80 12.3 1.5 2.7


MARKET / INDEX PERFORMANCE (CONTINUED)

As of 09/10/2014 (local currency) T1M (%) T3M (%) YTD (%) 2014E

P/E 2014E

P/B Div.

Yield

Sustainable Indices

DJ Sustainability World Comp W1SGI 2.89 -0.92 6.67 15.1 1.9 3.0

FTSE4Good Global 4GGL 3.19 0.33 6.77 11.4 1.4 3.7

MSCI KLD 400 Social KLD400 3.23 2.86 8.88 20.4 3.3 1.9

Bovespa Corp. Sustainability ISE 1.96 1.81 5.17 12.1 1.4 4.7

Fixed Income

Barclays US Aggregate LBUSTRUU -0.04 0.96 4.16

Commodities Levels

9/10/2014 3/10/2014 9/10/2013

WTI Crude CLA Comdty 91.65 96.14 94.25

ICE Brent Crude COA Comdty 98.13 105.3 102.08

NYMEX Natural Gas NGA Comdty 3.966 4.602 3.933

Spot Gold XAU Curncy 1245.03 1339.72 1363.88

LME 3mth Copper LMCADS03 Comdty 6840 6782 7196

CBOT Corn C A Comdty 346 478 506

Currencies Levels

9/10/2014 3/10/2014 9/10/2013

EUR/USD EURUSD Curncy 1.29 1.39 1.33

USD/JPY USDJPY Curncy 106.82 103.27 100.39

GBP/USD GBPUSD Curncy 1.62 1.66 1.57

AUD/JPY AUDJPY Curncy 97.75 93.14 93.48

DXY Index DXY Index 84.36 79.77 81.82

Source: Bloomberg, Barclays. Equity Returns: All returns represent total return for stated period. Dividends and coupons are not included in the DAX and BOVESPA indices. Bond Returns: All returns represent total return for the stated period. Index characteristics: P/E, P/B, and Dividend Yield are based on Bloomberg consensus estimates for the stated period.


MSCI ACWI SECTOR PERFORMANCE

as of 9/9/14

1 Month Price Return (%)

Source: Bloomberg. Sector returns are based on GICS methodology. MSCI ACWI is a free-float weighted equity index that includes both emerging and developed world markets.

YTD Price Return (%)

Source: Bloomberg. Sector returns are based on GICS methodology. MSCI ACWI is a free-float weighted equity index that includes both emerging and developed world markets.

U.S. EQUITY STYLE PERFORMANCE

Style box returns are based on Russell Indices with the exception of the Large-Cap Blend box, which reflects the S&P 500 Index. All values are cumulative total return for the stated period including the reinvestment of dividends. The index used from left to right, top to bottom are: Russell 1000 Value Index, S&P 500 Index, Russell 1000 Growth Index, Russell Midcap Value Index, Russell Midcap Index, Russell Midcap Growth Index, Russell 2000 Value Index, Russell 2000 Index and Russell 2000 Growth Index.

1 Month

Source: Bloomberg

Year to Date Source: Bloomberg

HealthcareTelecom

Info TechFinancialsIndustrials

MSCI ACWI

UtilitiesCons Disc

Cons Staples

EnergyMaterials

-2 0 2 4 6

HealthcareInfo Tech

UtilitiesEnergy

MSCI ACWI

FinancialsCons

StaplesMaterialsTelecom

IndustrialsCons Disc

-5 0 5 10 15

Value Growth Blend

3.0

2.5

3.2

3.4

3.0

3.9

4.0

3.4

4.6 Mid

La

rge

Smal

l

9.8

1.2

11.6

9.5

0.9

10.1

9.2

0.6

8.8

Value Growth Blend

Smal

l La

rge

Mid


SECTOR SNAPSHOT – TOP 5 COMPANIES BY MARKET CAP as of 9/10/14

Company Name Ticker Industry

Mkt Cap (US$ Bn)

Price (Local)

Total Return YTD % (local)

P/E 2014E

EV/EBITDA 2014E

Div Yield % 2014E

Consumer Disc. Toyota Motor Corp 7203.JP Automobiles 197.5 6170.00 -2.2 9.8 9.6 N/A

The Walt Disney Co DIS Media 153.7 89.53 17.2 20.8 11.8 1.0

Amazon.com AMZN Internet & Catalog Retail

153.0 331.15 -17.0 135.9 24.1 N/A

Comcast Corp CMCSA Media 146.8 56.75 10.2 19.4 8.3 1.6

Volkswagen VOW3.GR Automobiles 107.5 176.25 -11.8 8.2 7.3 2.3

Consumer Staples Wal-Mart Stores WMT Food & Staples

Retailing 246.9 76.61 -0.8 15.2 8.2 2.5

Nestle NESN.VX Food Products 245.4 71.40 12.9 20.8 14.3 3.0

The Procter & Gamble Co

PG Household Products 226.8 83.75 5.3 18.8 12.7 3.1

The Coca-Cola Co KO Beverages 184.5 42.08 3.4 20.3 15.5 2.9

Anheuser-Busch Inbev ABI.BB Beverages 179.2 86.37 13.9 20.8 12.0 3.4

Energy Exxon Mobil XOM Oil, Gas &

Consumable Fuels 411.1 96.40 -2.8 12.6 5.8 2.9

Royal Dutch Shell RDSA.LN Oil, Gas & Consumable Fuels

254.2 2423.00 16.2 10.2 4.5 4.6

Petrochina Co 857.HK Oil, Gas & Consumable Fuels

242.3 11.06 32.9 11.6 5.3 3.7

Chevron CVX Oil, Gas & Consumable Fuels

234.3 123.38 1.4 11.6 4.9 3.5

Total SA FP.FP Oil, Gas & Consumable Fuels

154.3 50.29 15.7 10.7 3.6 4.8

Financials Berkshire Hathaway- CL B

BRK/B Diversified Financial Services

338.7 137.53 16.0 20.8 N/A N/A

Wells Fargo & Co WFC Banks 268.2 51.38 15.5 12.5 N/A 2.7

JPMorgan Chase JPM Banks 223.4 59.40 3.6 10.7 N/A 2.7

Ind & Comm Bank of China

1398.HK Banks 211.8 5.19 5.7 5.2 N/A 6.3

HSBC Holdings HSBA.LN Banks 204.8 661.00 3.6 11.6 N/A 5.0


SECTOR SNAPSHOT – TOP 5 COMPANIES BY MARKET CAP (CONTINUED) as of 9/10/14


Mkt Cap (US$ Bn)

Price (Local)


P/E 2014E

EV/EBITDA 2014E

Div Yield % 2014E

Health Care Johnson & Johnson JNJ Pharmaceuticals 296.0 104.96 17.0 17.7 11.2 2.7

Novartis AG NOVN.VX Pharmaceuticals 253.7 87.95 27.6 17.9 15.7 2.8

Roche Holdings ROG.VX Pharmaceuticals 248.5 271.70 12.3 18.3 12.2 2.9

Pfizer PFE Pharmaceuticals 186.8 29.46 -1.3 13.1 8.4 3.5

Merck & Co MRK Pharmaceuticals 175.1 60.71 23.2 17.4 11.7 2.9

Industrials General Electric Co GE Industrial

Conglomerates 260.7 25.99 -5.7 15.5 11.3 3.4

Siemens AG SIE.GR Industrial Conglomerates

111.2 97.80 1.6 14.8 10.2 3.1

United Technologies UTX Aerospace & Defense 99.0 108.25 -3.4 15.8 9.7 2.2

Uniion Pacific UNP Road & Rail 96.3 107.34 29.6 19.3 10.2 1.9

3M MMM Industrial Conglomerates

93.8 144.72 5.1 19.4 11.4 2.4

Info Tech Apple AAPL Technology

Hardware, Storage & 601.8 100.50 27.5 15.8 7.9 1.9

Google GOOGL Internet Software & Services

395.9 590.89 5.3 22.4 12.9 N/A

Microsoft Corp MSFT Software 385.3 46.76 27.6 16.7 9.4 2.4

Facebook FB Internet Software & Services

201.4 78 42.4 48.1 23.6 N/A

IBM IBM IT Services 190.9 191 3.8 10.7 8.6 2.3

Materials BHP Billiton Ltd BHP.AU Metals & Mining 168.9 35.80 -2.3 13.3 6.3 5.3

Saudi Basic Ind. SABIC.AB Chemicals 108.1 135.14 27.1 15.0 7.8 3.7

Rio Tinto RIO.AU Metals & Mining 98.1 61.53 -6.6 10.7 6.2 5.2

BASF BAS.GY Chemicals 91.8 77.46 3.3 13.5 8.2 3.5

Glencore GLEN.LN Metals & Mining 77.7 362.45 19.4 15.7 9.8 1.9


SECTOR SNAPSHOT – TOP 5 COMPANIES BY MARKET CAP (CONTINUED)

as of 9/10/14


Mkt Cap (US$ Bn)

Price (Local)


P/E 2014E

EV/EBITDA 2014E

Div Yield % 2014E

Telecom Verizon Communications

VZ Diversified Telecommunication

215.4 51.97 9.3 14.6 7.1 4.1

China Mobile 941.HK Wireless Telecommunication Ser

224.0 85.45 8.6 13.1 4.2 3.9

AT&T T Diversified Telecommunication

189.9 36.59 8.2 14.0 6.2 5.0

Vodafone Group VOD.LN Wireless Telecommunication Ser

90.9 202.90 -18.3 29.8 5.8 7.6

Softbank Corp 9984.JP Wireless Telecommunication Ser

88.8 7556.00 -17.7 18.2 7.9 0.5

Utilities GDF Suez GSZ.FP Multi-Utilities 64.2 19.86 20.4 14.6 6.8 5.9

EDF EDF.FP Electric Utilities 59.5 23.84 -4.7 11.8 5.0 5.2

National Grid NG/ LN Multi-Utilities 55.7 879.50 15.3 16.0 10.1 5.3

Enel SpA ENEL.IM Electric Utilities 54.4 4.31 39.9 13.6 6.9 3.0

Duke Energy DUK Electric Utilities 52.3 73.98 9.6 16.2 10.5 4.3

Source: Bloomberg. The securities in each sector represent the largest companies by market cap in the MSCI ACWI in their respective sectors. Sector classification is based on GICS methodology. Equity characteristics: P/E, EV/EBITDA and Dividend Yield are based on Bloomberg consensus estimates for stated period.

GDP / CONSUMER PRICE INFLATION / RATES

Source: Bloomberg. Estimates are composite of Bloomberg contributor estimates. *Italicized text represents actual data. ** India fiscal year runs to March 31. Therefore, 2014E is India's FY13 GDP.

MONETARY POLICY

Source: Federal Reserve Bank of St. Louis

Region/Countries 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016EUnited States US 2.1 3.0 2.9 2.0 2.2 2.2 0.25 1.00 - 2.9 3.6 -Euro Area EU 1.0 1.5 1.6 0.6 1.2 1.5 0.13 0.13 - - - -Japan JP 1.4 1.2 0.9 2.8 1.8 1.9 0.10 0.10 - 0.7 0.9 -UK GB 3.1 2.6 2.5 1.7 1.9 2.0 0.63 1.38 - 3.1 3.5 -Australia AU 3.1 3.0 3.2 2.7 2.5 2.8 2.50 3.00 - 4.0 4.5 -China CN 7.4 7.2 7.0 2.4 2.9 3.0 5.88 6.00 - 4.2 4.1 -Brazil BR 0.8 1.6 2.5 6.3 6.2 6.0 11.00 11.63 - - - -**India IN 4.7 5.4 6.4 9.5 7.8 7.3 8.00 7.63 - 8.5 8.1 -

Real GDP (% YoY) CPI (% YoY) Official Rates Long Rates

Sep-14 Mar-14 Sep-13Monetary Base growth (YoY) 17.8% 33.7% 30.7%M-2 growth (YoY) 6.4% 6.5% 6.6%Money multiplier (M-2/mon base) 2.9 2.8 3.2

1Q14 1Q13 1Q12Velocity of money (GDP/M-2) 1.53 1.57 1.63


ESG DATA

2013 2012 2011 2010

Total Global Wind Installations (MW)

318,105.0

283,048.0

238,050.0

197,637.0

Annual World PV New Build (MW)

38,352.0

30,011.0

30,133.0

17,151.0

1Q13 4Q11 4Q10 Global Aggregate % of Women on Boards 11.0 10.5 9.8

ESG DISCLOSURE SCORES OF LARGEST ECONOMIES (2013)

HIGHEST ESG DISCLOSURE SCORES

Composite Environ Social Governance1. United States 14.2 19.5 17.7 48.8 2. China 17.6 10.3 21.4 43.2 3. Japan 18.7 25.0 19.5 44.1 4. Germany 26.4 34.1 40.9 39.2 5. France 38.6 38.3 50.3 54.0 6. Brazil 32.0 30.7 53.5 36.7 7. U.K. 29.3 21.1 34.5 52.9 8. Russia 13.9 17.2 24.4 38.3 9. Italy 30.2 35.5 43.9 44.1 10. India 14.0 14.6 17.7 44.3

Composite Environ Social GovernancePortugal 45.8 47.5 51.9 50.6 Spain 40.0 46.0 56.4 46.1 Hungary 39.6 38.3 41.5 41.1 France 38.6 38.3 50.3 54.0 Finland 37.9 42.0 41.7 56.7 Sweden 36.4 31.2 40.9 55.6 Brazil 32.0 30.7 53.5 36.7 South Africa 30.7 25.7 43.5 55.2 Switzerland 30.4 32.0 34.2 48.7 Italy 30.2 35.5 43.9 44.1


KEY ECONOMIC CHARTS

C&I Loan Growth (%)

Source: Bloomberg

University of Michigan Survey of Consumer Sentiment

Source: Bloomberg

NFIM Small Business Optimism Index

Source: Bloomberg

ISM Manufacturing Purchasing Managers Index

Source: Bloomberg

U.S. Treasury Yield Curve

Source: Bloomberg

U.S. Initial Jobless Claims

Source: Bloomberg

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9/10/2014 3/10/2014 9/10/2013

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Featured Domain

Hillel’sVoice.com

By Erika Karp, Founder & CEO, Cornerstone Capital Inc.

Each month in the Cornerstone Journal of Sustainable Finance & Banking (JSFB), we will offer thoughts on a “Featured Domain,” which is selected from our proprietary “Sustainable Domain Bank.” The Cornerstone “Sustainable Domain Bank” contains 2,000+ addresses on the Internet, which are an articulation of business processes, business practices and aspirations for a more regenerative form of capitalism. Many of these domain names have the potential to be developed into business plans reflecting a robust interpretation of sustainable capitalism and finance. In particular, each “Sustainable Domain” captures a principle, or reflects a value inherent in the systematic understanding of the Environmental, Social and Governance (ESG) imperatives facing businesses and the economy today. Each Domain is intended to facilitate dialogue across functions and sectors of the capital markets; and each is available for collaborative partnership, purchase or transfer should it have particular appeal to Cornerstone clients and colleagues.

As leaders from across the globe are set to convene this month in New York City at the United Nations and an unprecedented number of citizens worldwide are expected to take action in support of a comprehensive response to climate change, we are reminded how important it is to amplify the voices of progress. We are also inspired by the approach of the Jewish High Holidays....”The Days of Awe.” “The Days of Awe” refers to the ten days starting with Rosh Hashanah and ending with Yom Kippur. They are a time for reflection, introspection, repentance and renewal. In the context of capitalism, there can also be “Days of Awe.” Days where market-based approaches deployed to address massive global challenges can help find alternatives to fossil fuels, drive the rebuilding of crumbling infrastructure, support economic inclusion, education, healthcare and human rights and dignity for those threatened by war, illness and food insecurity. “The Days of Awe” could bring lessons to leverage the power of capitalism towards its best and highest purpose. Fostering global prosperity can be achieved through a more sustainable form of capitalism - a form of capitalism where leaders must be prepared to engage in a nuanced debate and exchange of ideas that will yield both “Purpose and Disruption.” In reflecting on the future of capitalism, we draw from

©alphaspirit/Crystal Graphics wisdom of the great scholar Hillel, who was said to not only advance his own thoughts, but those of his opposition. It is in that context that we revisit an article first published in Forbes a couple of years ago: “Sustainable Capitalism… If not now, then when?” It is in that context that we select HillelsVoice.com as our “Featured Domain.” ____________________________________ The prominent Jewish scholar Hillel is known to have said “If I am not for myself, then who will be for me? And if I am only for myself, then what am I? And if not now, then when?” These questions posed at around 50 BC are incredibly timely in the context of today’s battered global economy and threats to our system of capitalism. Indeed, “If not now, then when?” Today, while the worst appears to be over for the global financial crisis, we witnessed the global


economy pile on trillions of dollars additional debt through quantitative easing, the Eurozone still under siege awaiting cohesive policy and political leadership, and China’s leadership driving a dramatic transition while hoping to maintain enough growth to support the needs of 1.3 billion people. Again, “If not now, then when?” We live in a world which consumes about 1.5 times the earth’s sustainable level of natural resources each year to support our current consumption patterns. Our population is aging such that the financial burden on the young to care for the old is growing rapidly, the extent of income inequality is dramatically increasing, the US alone has almost 50 million people living in poverty, and almost a billion people around the world don’t have access to clean drinking water. “If not now, then when?” The time is indeed now. All the pieces are in place to move forward and leverage the extraordinary power of capitalism on behalf of the entire world. Now we have everything we need across the broad realms of technology, science, academia, economics, government and finance to ensure a better future. We have the opportunity to repair an economic system which remains the greatest vehicle the world has ever known for creating wealth and prosperity. The real question is whether we have the force of will to follow through. In the face of a justified crisis of confidence in capitalism, we must rebuild trust and faith in the system. We can. And now is the time. To do this though, we need to better acknowledge the shortcomings in our abilities to deal with complex global problems. As did Hillel, we need to pose the hard questions to the right people and to ourselves. We need two things which are currently in deficit. The first is greater transparency into the mission, strategies, objectives and priorities of the world’s private sector companies combined with a regulatory infrastructure which encourages that transparency. The second is a generation of business leaders who are better at facilitating collaboration. On the subject of transparency, I would argue that many signals now point to the need for more systematic analysis of environmental, social and governance (ESG) factors in the investment processes which drive capitalism. The time is now given that

there are one thousand asset management firms representing $30 trillion in assets who need to better understand business decision-making processes associated with the inevitable trade-offs inherent in running a business for the long run. These firms, all signatories of the Principles for Responsible Investing, now have access to more ESG data than ever before. This data can now be housed in the cloud, better analyzed, better assured, and better disseminated through social media by the scores of investors, accountants, consultants, investment banks and academic institutions which are demanding it. This data, which is pivotal to decisions around financial investments as risk and return are analyzed, can now be disclosed in a more coherent and efficient matter now that standards are being established as with the GRI (Global Reporting Initiative) and the US launch of the Sustainability Accounting Standards Board (SASB). The time is indeed now for better transparency. With regard to collaboration, the time has also come. As is obvious from the course of the global financial crisis, independent action by individual economic entities working towards their own interests will ultimately fail. “If I am only for myself, then what am I?” Complex problems cannot be solved sequentially. There must be parallel processes, initiatives and perspectives which can ultimately come together to find solutions. There must be a belief that solutions for the whole will ultimately be beneficial for the individual. Collaboration can be encouraged by leaders who are incentivized to truly steward financial, human and natural capital for the long-run. We have indeed begun to see that in the capital markets across the corporate and investment world. Collaboration can be accelerated by embracing diverse perspectives. Again we have begun to see a greater recognition for this at corporate boards and with initiatives like those of CALPERS and GMI in their Diverse Director Datasource. The imperative and the infrastructure is in place, so “if not now, then when?” In summary, I argue that the awesome power of capitalism can be unleashed through rebuilding confidence and conviction. Confidence and conviction


can be restored through greater transparency and collaboration. Transparency and collaboration will allow for more creativity, innovation, productivity and growth. Obviously all these things are easy to say, but not as easy to execute. In order to actually deliver on the promise, I would suggest that we attack complexity with simplicity as did the scholar Hillel. The simple principle of asking questions is the best starting point. But, to ask them constructively and consistently, and to ask again and again until the answers are forthcoming, is the trick. To elevate consciousness around broad environmental, social and governance factors and then to ask for

accountability is essential. We must ask the right questions to the right people. Then we need to insist upon robust answers, comparability and accountability. The future of capitalism can indeed be much brighter if it is viewed as “a question of questions.”

Erika Karp is the Founder & Chief Executive Officer of Cornerstone Capital Inc. and the former Head of Global Sector Research at UBS Investment Bank.


Enhanced Analytics

Not Just a ‘Flash,’ But a Call to Arms

By John Ramsay, Chief Market Policy and Regulatory Officer of IEX I was still at the Securities and Exchange Commission, overseeing the Division of Trading and Markets, when I first heard about a small band of traders and technology experts at the Royal Bank of Canada who were using technology to tilt the playing field back in favor of ordinary investors. I could hardly have imagined at the time that I would end up joining them. By the time I met Brad Katsuyama and his remarkable team of 37 people assembled from all parts of Wall Street, they had already created and successfully launched IEX, a new trading venue that was explicitly devoted to a vision of new, reenergized markets that are fairer, more transparent, and wholly devoted to the service of investors. I spent nearly 15 years of my career in government service because I wanted to try to find a way to make a positive difference. Since joining IEX in June, I have found a way to continue that purpose in the private sector. And I have found a group of colleagues who are as devoted to that purpose as anyone I have met, inside or outside government. At the same time, the focus on what one company is doing to purposefully disrupt Wall Street misses the broader point. This is about a movement and we’re trying to spur the investing public to take action. And it is a movement that needs broad participation and for which individuals must take personal responsibility. Our mission at IEX is simple: to create a level playing field for all investors. We built a modern electronic stock market – from the ground up – to eliminate inefficiencies and loopholes that enable an unfair edge for some. Along the way, we took care to minimize the conflicts of interest that plague the trading ecosystem from our market and ownership model – seeking to create a better sense of balance using technology, design, governance and transparency.

© silroby80/Shutterstock As documented by Michael Lewis in his book, Flash Boys: A Wall Street Revolt, we believe the stock market is currently skewed in favor of a narrow group of traders armed with speed and other advantages needed to exploit structural inefficiencies in the marketplace for personal gain. Industry analysts estimate that high-frequency computerized trading now accounts for over half of market volume. One of their sources of advantage: fiber optic cables which connect their computers directly to the markets, often giving them a “first look” advantage. Small discrepancies – even millionths of a second of advance knowledge about what is being bought and at what price – have led to billions in profits earned across the public and private trading exchanges that make up the American stock market, questioning the ability of exchanges to be ‘safe havens’ for average investors. Everyone who owns equities is vulnerable to the predation, including average investors whose pension funds and mutual funds are managed by institutional investors. At IEX we view ourselves as stewards of the US equity market, so it’s about creating and sustaining trust. Right now, many traditional investors don’t trust the markets to have their best interests in mind. While it


http://www.iextrading.com/

is true that the US stock market has experienced great innovation, efficiency and cost reduction, it has become overly complex and opaque, eroding trust that pushes investors away. Imagine the potential we could unleash if we restored trust to the system? At a practical level, our challenge boils down to convincing the industry there’s more value to serving investors than serving intermediaries. Plus it’s the right thing to do. Revolutionary thinking? Perhaps. Restoring trust and eliminating industry conflicts of interest are indeed tall tasks. We are a small, focused team of experts, but we are taking on one of the most massive, well funded, set of vested interests in industrial history. Nonetheless, we believed our chances of success would be greatest if we went right to the heart of the industry and targeted the actual marketplace itself – the “plumbing” around which the greater ecosystem and Wall Street engines are built. Which is why IEX was created and why we are filing to become a national stock exchange. But that’s only half the challenge. Investors have to choose to trade at IEX instead of any of the 50+ venues that exist in the US National Market System, comprised of the 11 exchanges owned by household names like NASDAQ, the New York Stock Exchange, and the 40+ Alternative Trading Systems (ATS), or “dark pools”, owned mostly by the big banks. Investors hold the key, and collectively can exert great influence in the markets. They are the clients of the brokerage and technology vendor community. What they say goes. So far the institutional investment community has shown great support for our mission and our challenge. Recently we were fortunate to have raised an additional $75 million in financing that will be used to pursue registration as a US national exchange and to explore other opportunities to leverage IEX's

unique brand, capabilities and market position. But we have a long way to go – we’ve only run the first few miles of a marathon. We need the investment community to continue to apply pressure and hold their brokers, vendors and trading venues accountable. As we say, investors and issuer companies need to make their voices heard. We’re asking supporters to deploy this message to their friends and networks: #votewithyourtrades. When our team looks back at everything that we’ve gone through this year, it can be overwhelming and almost unbelievable: Michael Lewis’ book about our company and industry led to an uproar which sparked a much-needed national debate; IEX notched the fastest ATS debut in history, and we gain new allies every day. But while we’ve served it notice, we haven’t disrupted the market yet. We’ve shown the world a path forward, but it’s up to investors to knock down the first domino. Disruption is actually in their hands as well. Will they help us carry the torch?

John Ramsay is Chief Market Policy and Regulatory Officer of IEX, the first equity trading venue seeded by a consortium of buy-side investors, including mutual funds, hedge funds, and family offices. He has 25 years experience in the public and private sectors in positions that concern the regulation and oversight of securities markets and intermediaries. Most recently, prior to joining IEX, he oversaw the SEC’s Division of Trading and Markets, the group responsible for regulating broker-dealers and self-regulatory organizations, such as securities exchanges and FINRA.


http://www.iextrading.com/

Global Sector Research / Global Markets Strategy

The Cornerstone Capital Strategy Update

By Michael Geraghty, Global Markets Strategist at Cornerstone Capital Inc.

©don fiore /Crystal Graphics

This month we make some changes to our regional and sector weightings:

• We upgrade the Central and Eastern Europe, Middle East and Africa (CEEMEA) region to Neutral from Underweight as valuations have become more reasonable. We downgraded CEEMEA to Underweight in June when premature optimism about the situation in Ukraine prompted a rebound in the Russian stock market. However, the earnings outlook for CEEMEA has continued to deteriorate, suggesting that the region is unlikely to become attractive any time soon. (Our previous regional recommendations were published in the June edition of The Cornerstone Journal of Sustainable Finance & Banking.)

• We upgrade Health Care to Overweight from Neutral reflecting a relatively strong earnings outlook that outweighs the sector’s high valuation. As discussed in Appendix 2: The Conceptual Framework, the sector model gives a heavier weighting to earnings (75%) than the regional model where valuation and earnings are equally weighted. (Our previous sector recommendations were published in the Summer 2014 edition of The Cornerstone Journal of Sustainable Finance & Banking.)

Figure 1: Regional Rankings Arrows Indicate Change vs. Last Month


Michael Geraghty is the Global Markets Strategist at Cornerstone Capital Inc. He has over three decades of experience in the financial services industry including working as an investment strategist at UBS and Citi.

Figure 2: Sector Rankings Arrows Indicate Change vs. Last Month

Regional Strategy Update We have updated the inputs to the Cornerstone Capital Regional Strategy Model in which we rank eight regions/major economies that are included in the MSCI All Country World Index (ACWI). In terms of valuations, Figure 3 illustrates that the relative valuation of the CEEMEA region has improved.

Figure 3: Regional Valuations (50% of Aggregate Weight) Arrows Indicate Change vs. Last Month

Up = More Expensive Down = Less Expensive


None of the relative valuation shifts of the other regions were material, with Japan (one of our Overweights) becoming even cheaper and Europe ex U.K. (one of our Underweights) getting more expensive. Figure 4 illustrates that earnings momentum in the CEEMEA region continues to deteriorate, while Figure 5 illustrates that the earnings revisions trend in CEEMEA remains negative i.e., downgrades exceed upgrades. Earnings momentum in Japan and Emerging Asia improved last month, while it worsened in Europe, excluding the U.K. and Latin America. Earnings revisions trends were also negative for Europe ex the U.K. and Latin America.

Figure 4: Earnings Momentum (33% of Earnings Weight) Arrows Indicate Change vs. Last Month

Figure 5: Earnings Revisions (33% of Earnings Weight) Arrows Indicate Change vs. Last Month


In addition, margins in CEEMEA are currently lower than in most other regions — Figure 6. Figure 6: Margins (15-20% of Earnings Weight)

Another negative for CEEMEA is that share issuance remains very high — Figure 7. Given that corporate earnings are reported on a per share basis, a large amount of net share issuance is a drag on earnings per share growth in a region.

Figure 7: Net Share Issuance (15-20% of Earnings Weight) Arrows Indicate Change vs. Last Month


Figure 8 summarizes the current regional recommendations and Figure 9 illustrates the dispersion of the regional scores. Figure 8: Regional Recommendations

Figure 9: Ranking Regions by Weighting Valuation, Earnings and Governance Scores Arrows Indicate Change vs. Last Month

Sector Strategy Update We have updated the inputs to the Cornerstone Capital Sector Strategy Model in which we rank the ten GICs in the MSCI ACWI.


In terms of valuations, Figure 10 illustrates that the Health Care sector is currently the most expensive, followed by our three Underweights: Materials, Utilities and Energy. Figure 10: Sector Valuations (25% of Aggregate Weight) Arrows Indicate Change vs. Last Month

Figure 11 illustrates that earnings momentum in Information Technology improved again last month, while momentum in Health Care was relatively stable. Earnings momentum in the Utilities and Energy sectors weakened, while momentum in the Materials sector improved modestly after a long period of deterioration. Figure 11: Earnings Momentum (33% of Earnings Weight) Arrows Indicate Change vs. Last Month

Up = More Expensive Down = Less Expensive


Figure 12 shows that all 10 GICS experienced more downward than upward earnings revisions last month, with Health Care being the least negative (i.e., downward revisions modestly exceeded upward revisions). Figure 12: Earnings Revisions (25% of Earnings Weight) Arrows Indicate Change vs. Last Month

Margins in Information Technology and Health Care — our two Overweights — are materially higher than in most other sectors (Figure 13). Figure 13: Margins (25% of Earnings Weight)

Figure 14 illustrates that Utilities, one of our Underweights, has experienced a significant amount of share issuance over the last twelve months.


Figure 14: Net Share Issuance = 15-20% of Earnings Weight

Figure 15 summarizes the current sector recommendations. Figure 15: Regional Recommendations

Figure 16 illustrates the dispersion of the sector scores.


Figure 16: Ranking Sectors by Weighting Valuation, Earnings and ESG Scores Arrows Indicate Change vs. Last Month

Combining the Regional and Sector Models Combining our sector and regional models, Figure 17 illustrates sector over- and under-weights by region.

• We are overweight Health Care in the U.K., North America and Europe, ex U.K.

• We are overweight Information Technology in Japan, Emerging Asia and North America.

• We are underweight or neutral Energy, Materials and Utilities in the majority of regions.

Figure 17: Combining the Regional and Sector Model


Global Sector Research

Paths to a Fossil-Free Future Create Disruptive Business Opportunities

By Holmes Hummel, PhD, Founder of Clean Energy Works

©Lightspring/Shutterstock

Fossil-free by 2075. That is the answer the International Energy Agency (IEA) found when it explored technology transition paths for the global energy sector consistent with stabilizing climate change. As an intergovernmental formation of industrialized nations, the IEA’s aim was the same target as the one repeatedly sought by in international negotiations – 2 degrees Celsius above pre-industrial global average temperatures, a level intended to avoid the most catastrophic effects of climate change. While investment analysts are often bound to performance horizons of just a few quarters, the IEA view to 2075 has implications for capital allocations today. Investors with a multi-decade view on the value of their portfolios face critical decisions about navigating this transition – not so different than those who had to decide when to stop investing in whaling ships in favor of kerosene manufacturing. Investors in passenger ships lost their shirts to investors in aviation in the 20th century, and buggy whip manufacturers did not survive the challenge of the rising automotive industry. What disruptive technologies and business innovations can drive clean energy revolutions in the 21st century? And if investment levels in fossil-free solutions remain inadequate, what disruptive impacts of climate change could be wrought on holdings across the economy? The energy sector accounts for more than $5 trillion in global GDP, and more than 80% of the world’s economy is dependent upon fossil fuel. The opportunity space for clean energy solutions is enormous and immediate, yet investment levels in energy efficiency, renewable energy, energy storage, and other cost effective zero-carbon technologies are still too low to make the mark. The IEA calculated that global annual investments in fossil-free technologies would need to increase by about $1 trillion above business as usual – and maintain that elevated investment level every year for decades. Any time we imagine transforming 80% of one of the largest sectors in the economy, there is tremendous opportunity. Nearly 80% of the U.S. companies in the S&P 500 are already reporting through the Carbon Disclosure Project that their return on investments in carbon-reduction is higher than on their main lines of business. Transparency about the performance of those investments has helped overturn long-held beliefs that investments in sustainability would take a toll on a firm’s financial performance. Instead, investors now have more cause for concern about


Holmes Hummel, Ph.D is the Founder of Clean Energy Works, which connects champions of energy efficiency and renewable energy with resources that accelerate investment in clean energy solutions. Dr. Hummel was the Senior Policy Advisor in the U.S. Department of Energy’s Office of Policy & International Affairs.

the toll of climate change damages as the opportunity cost of failing to de-carbonize. The U.S. Department of Defense doesn’t mince words about the hazards on the horizon: Climate change is a threat multiplier. After making this pronouncement in 2010 in its tenaciously vetted national defense strategy, the Armed Forces underscored its view in the latest edition published this year. “Sea levels are rising, average global temperatures are increasing, and severe weather patterns are accelerating,” the report noted. And it dryly concluded, “These changes, coupled with other global dynamics . . . will devastate homes, land, and infrastructure.” It is no surprise, then, that the Defense Department is making multi-billion dollar investment commitments to deploy clean energy. The Joint Chiefs of Staff are not the only ones putting CEOs on notice. Top experts authoring a landmark National Climate Assessment (NCA) for the U.S. Global Change Research Program this year also captured key messages in plain language. After recounting projections for increased damages from droughts, downpours, fires, storms, and sea level rise, the Assessment presented findings for specific sectors. For example, the NCA findings for transportation include:

• Extreme weather events currently disrupt transportation networks in all areas of the country; projections indicate that such disruptions will increase.

• Sea level rise, coupled with storm surge, will continue to increase

the risk of major coastal impacts on transportation infrastructure, including both temporary and permanent flooding of airports, ports and harbors, roads, rail lines, tunnels, and bridges.

Looking toward solutions, the U.S. National Climate Assessment also reviewed scenarios for climate stabilization in studies like those undertaken by the IEA, and the bottom line it captured has stark implications for investors (with italics added for emphasis): “In these studies, direct burning of coal without carbon capture is essentially excluded from the power system, and the same holds for natural gas toward the end of the century – to be replaced by some combination of coal or gas with carbon capture and storage, nuclear generation, and renewables.” The writing is on the wall: “Disruption Ahead.” The good news for investors is that the disruptions caused by climate change to business as usual in both commerce and national security will also continue to motivate disruptive transformation in the energy sector. Managers of


long-term investment portfolios have good reason to take those risks and opportunities into account – and like the S&P 500 companies that are already profitably exceeding their carbon reduction targets, the key is to get started.

References: International Energy Agency (IEA). Energy Technology Perspectives 2012: Pathways to a Clean Energy System, Paris: OECD/IEA, 2012.

U.S. Department of Defense. Quadrennial Defense Review 2014. Washington, D.C.

U.S. Global Change Research Program. National Climate Assessment 2014. Washington, D.C.

Carbon Disclosure Project and World Wildlife Federation. The 3% Solution 2013.


http://www.iea.org/etp/etp2012/

http://www.iea.org/etp/etp2012/

http://www.defense.gov/qdr

http://nca2014.globalchange.gov/

http://nca2014.globalchange.gov/

http://www.cdpla.net/es/pdf/relatorio_3percent_solution.pdf


Balancing Nature and Energy

By Peter C. Fusaro, Chairman of Global Change Associates

Fracking the Bakken Formation, North Dakota ©Joshua Doubek/Wikipedia

When discussions about the imperative to lower greenhouse gases turn to the subject of hydraulic fracturing, or fracking, tensions get white hot. Opponents cite the horrors of gas and oil fracking — from flare-ups in upper respiratory ailments and skin rashes, to videos where water is set on fire coming directly from the tap due to the methane and other gases seeping out. Meanwhile, the oil and gas industry eager to capitalize on the bonanza, defend fracking as way to lower greenhouse gases and bolster the US economy by lessening the nation’s dependency on foreign energy. When done right, they argue, the technique is clean and safe. Truth be told, both sides need to dial back the rhetoric and find more balance. The US has over 1,500 coal-fired plants. Hundreds of them are being shut down due to the switch to natural gas and renewable energy. Renewables are the future, but today they account for only 12% of US electric power production, including the older hydropower plants built in the 1930s and 50s. Thus, natural gas is a bridge fuel offering half the carbon emissions of coal. Greenhouse gas emissions are already having deleterious impacts on the environment in the form of water shortages, heat waves, droughts and other climatic events. Their reduction is beneficial to human health and the natural environment. The success of acid rain- and ozone-reduction programs have shown that emissions can be lowered in an economic way where society shares the costs of a cleaner environment. Much opposition has flared in recent years against oil and gas fracking, which uses a mixture of water, chemicals and sand to crack open rock formations thousands of feet underground to release trapped oil and gas. Critics say that fracking could lead to water contamination, deplete groundwater levels, increase health problems and earthquake activity.1 The growth of fracking activity has led to calls for more regulation with ballot initiatives and other grass roots opposition around the country. 2 The economic truth, however, is that jobs are being created in the US energy industry that benefit Americans, in the form of cheaper and cleaner energy as well as aiding economic recovery by creating jobs and decreasing the US dependency on foreign oil.

1 http://www.nrdc.org/energy/gasdrilling/ 2 http://www.foodandwaterwatch.org/water/fracking/


http://www.nrdc.org/energy/gasdrilling/

http://www.foodandwaterwatch.org/water/fracking/

Peter C. Fusaro is Chairman of Global Change Associates, an energy and environmental consultancy in New York City. Throughout his career Peter has been involved in energy projects: he helped the Environmental Protection Agency take the lead out of gasoline, has co-written on EIS on LNG safety and siting, helped create the first energy efficiency programs for gas and electricity in NYC, worked on the development of the Toyota Prius, and worked on greenhouse gas emissions.

That is not to say there are not risks involved in producing and transporting energy. There are risks involved in producing any hydrocarbons (oil, natural gas or coal) as well as renewable energy sources. But these risks need to be balanced in terms of benefits to society as well as balanced with environmental concerns. A new documentary film, Breaking Free, engages many of the criticisms directed toward oil and gas fracking by highlighting the issues of water contamination and perceived increased seismic activity. Experts from the Environmental Defense Fund, Center for Strategic and International Studies, UC Berkeley, Native Americans, and others present their views on hydraulic fracking. The film has six segments including a community focus of ministers, teachers, local government and citizens, an illustration of the drilling process, the history of drilling, the environmental impacts, seismic issues, and economic impacts on local, state and federal levels. The film will be released to the public this fall. The larger issue on hydraulic fracking is that the US is now on a path to cleaner energy. Already US oil demand has peaked and is declining due to the Obama Administration’s Corporate Fuel Economy Standards that will make cars much more energy efficient with a goal of 54.5 miles per gallon in 2025. This goal is being obtained by the move to hybrid vehicles, electric vehicles, compressed natural gas vehicles and fuel cell vehicles. US electric power stations are now being targeted with a reduction of 30% of their greenhouse gas emissions proposed by the Obama Administration by 2030. Cleaner air and cleaner water have both health care benefits as well as economic benefits due to the employment of people in these industries and lower long-term healthcare costs. The challenges for American industry are to meet mandated goals set by government at the state and federal levels. California has set the highest reduction in greenhouse gas on the planet with a 25% reduction of greenhouse gases from 1990s levels. That will be met from renewable energy, energy efficiency and the increased use natural gas in power generation. The point is that a balance must be set of economic growth, environmental concerns, and use of new technology to achieve greater reductions in greenhouse gas emissions. The argument needs to move to one where economics and the environment go hand-in-hand and are not adversarial.



The 2014 El Niño: Disrupting the Climate for Business?

By Madeleine Thomson, Senior Research Scientist at the International Research Institute for Climate and Society at Columbia University

©alphaspirit /Crystal Graphics

Climate forecasters breathed a collective sigh of relief earlier this month as predictions of a “mega El Niño” on par with severe incidents that took place in 1997-98 were downgraded. Scientists now believe a more modest event will develop later this year and run through the winter of 2014/2015. Nonetheless, the revised “60-65% chance” forecast of an El Niño issued by the Climate Prediction Center, an agency of the National Weather Service, still translates to a period of heightened likelihood that extreme weather conditions will occur in specific regions and seasons around the world with associated social, economic and environmental impacts. “It’s definitely still on the cards” according to climate forecaster Tony Barnston, of the International Research Institute for Climate and Society. Typically, El Niño results in an increased likelihood of heavy rains and flooding in the late fall and winter in the southern U.S, Eastern Africa and parts of South America. It also enhances the chance of drought conditions in Northern Brazil, Indonesia, Southeast Asia and Australia. Here we argue that companies can mitigate immediate risks and improve long-term sustainability by understanding and monitoring the emerging climatic conditions and identifying and implementing appropriate response strategies. In the last 25 years, there have been six moderate-to-strong El Niño events: 1991-2, 1994-5, 1997-8, 2002-3, 2006-7, and 2009-10. The impacts of El Niño are felt most strongly in the tropics. Previous events have been associated with drier-than-normal conditions in some regions and seasons, and wetter-than-normal conditions in others (Fig. 1). El Niño also tends to increase atmospheric temperatures across the tropics, but local effects are in part driven by local rainfall. What is El Niño? El Niño-Southern Oscillation (ENSO) is a periodic appearance of unusually warm and cool sea-surface temperatures (SSTs) in the central and eastern Pacific Ocean. It is the most prominent known driver of interannual variability in weather and climate around the world. ENSO events are associated with increased probability of drought in some areas and excess rainfall in others, together with temperature anomalies in many regions. El Niño refers to the period of warmer-than-average SSTs


Madeleine Thomson is a Senior Research Scientist at the International Research Institute for Climate and Society (IRI) and Senior Scholar at the Mailman School of Public Health, Department of Environmental Health Sciences – at Columbia University. She is also the Director of the IRI/PAHO-WHO Collaborating Centre (US 306) for Early Warning Systems for Malaria and Other Climate Sensitive Diseases. Aisha Muhammad, who is pursuing her Masters in Climate and Society at Columbia University, contributed to this report.

that occurs as part of ENSO. This situation is the opposite of La Niña, which is associated with a cooling of the SSTs. El Niño and Rainfall: Risk and Opportunity Figure 1: Areas of likely El Niño rainfall impacts

Additionally, Figure 1 shows that areas of likely El Niño rainfall impacts are also those where seasonal climate forecasts will be more skillful during an El Niño year. Once developed, El Niño conditions in the Pacific typically persist for 9-12 months or longer, starting around June and peaking between November and February. Peak impacts do not necessarily coincide with the peak of the El Niño period: impacts generally occur during a region’s main rainy season. Because the progress and strength of the El Niño can be monitored through near-real-time ENSO observing systems, it is possible to generate probabilistic seasonal climate forecasts of the climate months in advance. Such forecasts may be useful for planning for and mitigating health impacts associated with climatic extremes. A major potential benefit of ‘El Niño years’ is that the seasonal climate is likely to be more predictable. Climate extremes pose a risk to agricultural production, infrastructure reliability, workforce health, insurance costs and many other factors. Not only is there a risk to production but climate anomalies may also impact consumption patterns, price hikes of food staples and social stability. Furthermore, forecasts of a forthcoming El Niño event may alone increase hoarding and speculation because of known effects on commodity pricing. Here we identify climate risk management strategies for enhancing both short-term planning cycles and longer-term sustainability.


Cost-effective supply chain management is critical in modern companies, many of which are much leaner and meaner than they were 10 years ago. For instance, many companies (especially manufacturing) have found that sole sourcing provides multiple benefits; there are also risks to be considered. Extreme weather events can shut down such suppliers for days — even months, disrupting supply chains and removing products from the market — with severe consequences for customer confidence and revenue. Thus reducing exposure to extreme weather events is an important part of managing reputational risk. This involves proactive strategies for increasing resilience through understanding and minimizing exposure (e.g. diversification), managing residual risk (e.g. insurance) as well as maximizing opportunities when possible. Corporate social responsibility, a hallmark of modern best practices for both the private and public sector, can also suffer from reputational risk associated with climate. For instance, the current billion-dollar global malaria program has significant investments from government entities, foundations, international agencies and the private sector. Success of this global initiative is predicated on consistent declines in cases and deaths associated with this climate sensitive, mosquito-borne disease in affected countries. In some regions, such as eastern Africa, the impact of interventions has been aided by recurrent drought. But an increase in rainfall, predicted for this October-December rainy season, may in part reverse these positive trends, in effect, undermining donor and private sector partner expectations. Ensuring appropriate attribution of both successes and failures (i.e. transparency) helps manage expectations, thus reducing reputational risk. As already indicated, El Niño is not all bad news. This climate phenomena has a positive benefit in that seasonal climate forecasts – indicating above or below normal rainfall and temperatures - are consistently more skillful during El Niño years. These enhanced forecasts can be used to provide early warning of large-scale energy impacts months in advance in specific regions and seasons (Fig 1.). Consider a potential disruption to energy supplies which might result from an extreme climate anomaly: a drought diminishing hydropower capabilities in a developing country; a flood disabling low-lying power stations and transport systems in a mega city; or an excessive heat episode increasing demand beyond supply capacities. Risk management strategies must identify and prepare for such multi-scale and diverse disruptions resulting from vulnerability to such climate extremes and the potential of cascading interconnected impacts on health, livelihoods and security. Health impacts associated with El Niño may result through multiple routes. For example, while heat waves can cause individual heat stress


and associated cardiovascular crises, lower hydropower capacity can reduce electricity available to health facilities, disrupt cold chains and impact on local and global manufacturing of essential (often plant based) healthcare products. Loss of agricultural production triggered by drought can impact livelihoods, tax revenues, and the ability to access nutritious foods and health-related goods and services. Loss of livelihood further impacts social cohesion as desperate populations can migrate from rural to urban areas in search of available resources. Not all impacts are negative, however. Many areas will expect drought relief and enhanced harvests as a result of the increased rainfall associated with El Niño1. What should matter to investors is how companies understand, manage and incorporate these climate related risks and opportunities in both their core business portfolios and corporate social responsibility initiatives. Transparency in terms of exposure and response to climate risk (both short and long term) should be part of Environmental, Social and Governance standards. Climate disruptions are inevitable, of course, but better recognition and preparation should limit their impact and help with both current and future business challenges in the context of a changing climate.

1 Information about the latest IRI El Niño briefing and tools for monitoring updates on the strength of the El Niño can be found at: http://iri.columbia.edu/enso. Follow #ENSOQandA and #IRIForecast onTwitter to monitor updates.


http://iri.columbia.edu/enso

Corporate Governance

Are You Thinking Like a Universal Owner?

By John Wilson, Head of Corporate Governance, Engagement & Research at Cornerstone Capital Inc. Imagine it is 2006, and a savvy and perspicacious Chief Investment Officer of a large pension fund foresees a looming threat to the stability in the financial markets. Having lost confidence in the banks, what can she do? Unlike hedge funds or active managers, she cannot short or even exit the shares of the financial sector because her fund is so large that it must hold every name in the public markets. Even if she could, she knows that the coming financial crisis will impose pain on every sector of her portfolio. When the financial crisis does arrive, the CIO may feel herself helpless to avoid the risk to her fund’s stability or her beneficiaries’ well-being. Our hypothetical pension fund represents a class of investors known as “universal owners.” By its strictest definition, a universal owner is an institutional investor, usually a pension fund, endowment, foundation or sovereign wealth fund, with two distinguishing characteristics: it is large enough to own every company in the market, and it has long-term liabilities so that its investment time horizon stretches into decades. The defining characteristic of a universal owner is that they are exposed to the entire market, and have limited ability to control the investment performance of their equity portfolios through stock selection. The list of universal owners includes some of the most recognized names in the financial world – such as the California Public Employees’ Retirement System, Norges Bank, TIAA-CREF, and hundreds of investors like them. Many smaller investors who own passive funds, such as index funds or ETFs, share interests in common with universal owners despite not meeting the definition precisely. Any investor who owns the entire market in perpetuity, or at least for a long time, should be thinking like a universal owner.

1 http://www.scotusblog.com/case-files/cases/citizens-united-v-federal-election-commission/

©Orla/Crystal Graphics For this reason, some universal owners have for many years sought influence over corporate governance to ensure that portfolio companies make decisions in the long-term interests of shareholders, rather than in the interests of managers. Where once corporate governance departments within institutional investors treated proxy voting primarily as an administrative function, today many investors use proxy votes as a tool of management accountability and a platform to monitor and engage corporate management on their governance policy and practice. These investors consider this engagement to be a responsibility of ownership. If exit is not an option, voice becomes a critical investment tool. However, agency problems persist even at companies that are fully committed to shareholder value. At least in the short term, companies can earn profits imposing costs on the market as a whole. For example, the Supreme Court’s decision in Citizens United has empowered companies with greater influence over election results than ever before.1 Companies may use this power to promote public policies in the interests


http://www.scotusblog.com/case-files/cases/citizens-united-v-federal-election-commission/

of their own shareholders — such as preferential tax treatment or lax environmental regulations — regardless of the impact on the economy and market. These decisions may be rational from the perspective of management, but could be harmful to their investors who are universal owners. Similar conflicts arise related to climate change, employment policies, lending practices, discrimination and many other areas of concern. As in the case of the global financial crisis, public policy is often not sufficient to protect the market from externalities caused by a few companies. And unlike companies, institutional investors who own the entire market cannot externalize their costs, because those costs will appear elsewhere in their portfolio. Agency conflicts may also arise if universal ownership thinking flourishes within a small governance or proxy voting group while being ignored by investment management. Many companies complain that shareholders ask for information about environmental, social and governance (ESG) factors but do not use them to make investment decisions. Most investment managers have little inherent incentive to consider the impact of company behavior on the entire market. Unlike universal owners, investment managers are usually evaluated on relative performance against market indices. Investment managers also trade in and out of individual names, and can choose concentrated portfolios that do not necessarily reflect the overall market. Whether markets are weak or strong, investment managers succeed if they perform better than their benchmark. Some institutional investors have begun to encourage managers to consider ESG in their investment analysis, where these issues have the potential to affect the long-term performance of companies. However, both internal and external managers are usually selected and compensated based on relatively short-term measures of performance. This creates incentives for managers to emphasize short-term factors in stock selection, while ESG issues are often relevant only over longer time horizons. Funds should

take care that manager incentives are consistent with the principles of universal ownership. Finally, in order to be credible advocates for good corporate governance, funds should hold themselves to high standards of internal governance appropriate for their own operations. Fund governance practices should manage potential conflicts of interest and emphasize the fulfillment of fiduciary obligations. Funds that employ transparent and accountable governance practices for their own organizations will be in a better position to demand them of portfolio companies and external investment managers in effect, giving our fictional CIO more power to act today than she ever dreamed of nearly a decade ago. In short, universal owners, or other investors who are exposed to the market as a whole, should be asking themselves the following questions:

• Are we well-informed about the issues and concerns that may affect our investment portfolio over the life of our liabilities?

• Are we actively engaged with portfolio companies to ensure that boards and management reflect our interests over the long term, or do we outsource this function to our asset managers?

• If we engage companies directly, are our investment management practices (or those of our external managers) consistent with the questions we are asking of management?

• If our asset managers vote proxies or engage companies on our behalf, are we satisfied that they are holding portfolio companies accountable to our long-term interests as universal owners?

• Are our investment managers compensated and evaluated in a way that aligns their incentives with our interests as universal owners?


• Are we well-informed about how our investment managers incorporate ESG into their investment practices?

• Do we, or our asset managers, devote sufficient resources to research and corporate engagement on ESG?

• Do we hold ourselves to high standards of governance, consistent with our fiduciary duty?

John Wilson is the Head of Corporate Governance, Engagement & Research at Cornerstone Capital Inc. Prior to Cornerstone, he was the Director of Corporate Governance at TIAA-CREF and the Director of Socially Responsible Investing at the Christian Brothers Investment Services. He is also an Adjunct Assistant Professor at the Columbia University Graduate School of Business.


Featured Editorial

Making the Case for Intrinsic Motivation

By Aaron Hurst, CEO of Imperative

©_Lonely_/Crystal Graphics

We are in the middle of a radical transformation of the workplace as it becomes much more fluid and dynamic. By 2020, Intuit reports that 40% of us will be independent workers and the expected average tenure of an employee will drop precipitously as the Millennial generation becomes the majority of the workforce. This new generation expects to stay in a job for a third of the time of their Boomer counterparts and will require significant investment to keep them longer. The impact of the Millennial generation on the workforce has been documented in numerous articles and studies. At the core of all this research is one word - purpose. What the new majority of the workforce want at unprecedented levels is purpose in their work. They are not alone. The other major demographic that will define the workplace of 2020 and beyond is women and they too prioritize purpose relative to a traditional, male-driven workforce. Purpose isn’t about causes and charities. It can be found in all jobs when people make an impact, have strong relationships, and experience personal growth. It is increasingly the “special sauce” that is building employee engagement, creativity and loyalty. Millennials are well documented to demand all three of these forms of purpose. Impact, the feeling of working for something bigger than one’s self, is a priority to millennials, with 72% considering it an important factor in a job. The relationships one creates with one’s co-workers and community are a second way to build purpose, with 71% percent of millennials hoping for their colleagues to become a “second family.” And personal growth is also an important way to find purpose, with 69% of millennials naming it as a factor in deciding on their current position. All of this speaks to the need to move managing from traditional financial or position-driven motives to leading by “intrinsic motivation.” The key first step, then, is for companies to help people define what generates purpose for them (free diagnostic at imperative.com). Managers can do this through the process of ‘job tailoring,’ helping an employee take ownership over their job to increase purpose by tailoring 10-15% of their tasks, relationships and


Aaron Hurst is the CEO of Imperative, a technology platform that enables people to discover, connect and act on what gives them purpose in their work. Aaron is a close advisor to many global brands and frequent speaker and writer on the Purpose Economy. He is the founder and active advisor to the Taproot Foundation and previously worked in Silicon Valley developing the precursors to social media.

approach. Learning the motivations behind each person will help managers guide employees in tailoring each employee’s job to them as an individual. We have all see people who tailor their work to meet their purpose needs - from parking lot attendants to CEOs. They find ways to connect mundane tasks to the goals they support to make their lives more meaningful. They go out of their way to care for others on their team and in their community. They see their work as a craft and are always working to grow. They are proactive about their work and define it in their terms — not just narrowly by a job description. Another way companies can support these intrinsic motivators is by practicing servant leadership. Millennials, who prefer a friendlier, more collaborative style of management that fosters independence and openness, are turned off by the top-down approach found in many companies. Instead of viewing managers as traditional bosses in a hierarchy, managers can become servant leaders and coaches, guiding employees at all levels to work cohesively and collaboratively to help the organization’s mission succeed. One’s purpose can’t be found without self-awareness. Organizations that encourage and champion that trait will do a better job in helping meet their employees’ needs. Companies need to work together with their employees to find out what creates purpose for them within the work environment. Purpose is not about causes or about promoting the organization’s mission, but rather comes from the aforementioned impact, personal relationships, and professional growth that can happen at a company. Self-awareness is the key to finding what exactly helps each employee feel a sense of purpose in the workplace. Companies can also get ahead of the game by making work a social place. Millennials prioritize closeness in their co-working relationships and appreciate work settings where social interaction happens often. More and more frequently, organizations are structuring their work environments to foster collaboration spaces as well as specifically-designated social spaces. This is the case for both online and offline environments. Similarly, creating work environments that allow people to be their whole selves is important. Gone are the days where you were one person at work, and another at home or with your friends. Instead, organizations (especially those run by millennials) are embracing the characteristics that make each person unique, allowing flexibility in dress, conversation and personal work style. This kind of acceptance leads to a more comfortable, relaxed, and creative atmosphere at work.


http://purposeeconomy.com/

Finally, companies can help employees find purpose by investing in mentors. Millennials, who were often guided heavily throughout high school and college, view mentors as important, with 75% saying mentors are vital to their success. Ideally, mentors can provide workers with guidance on both their jobs and on their purpose as well. Companies who want to keep up with the changing landscape of the workplace, especially with the influx of millennials, will do well by prioritizing intrinsic motivation. Helping employees find their purpose through impact, personal relationships and professional growth will foster a happier and more satisfied work environment, and strengthen the company’s long-term success.


Featured Editorial

Ebola as a Challenge to Health and Investment

By Derek Yach, Executive Director, Vitality Institute

©trans961/Crystal Graphics

The latest Ebola outbreak has killed at least 1,200 people and probably infected 3,000 to 4,000 more across several West African countries, making it the biggest on record. From an initial start in Guinea, the focus of this deadly virus has shifted to Liberia and Sierra Leone (with limited numbers in Nigeria and Senegal), devastating populations and health care systems in its path. Despite millions in emergency funds donated to help save lives – with the Gates Foundation recently committing $50 million – efforts to contain the virus are falling short. Fear, dread and exaggerated risks have led to panic and declarations of national and global emergencies by some countries and the World Health Organization (WHO). What has ensued are collapses of weak health services; patients with AIDS, malaria, diarrhea and hypertension not receiving medications; and accelerated uses of unproven treatments. It has also led to increases in economic losses for vulnerable economies; restricted travel and trade from affected countries; and powerful examples of weaknesses in global health governance. I touch on a few of these issues in this note. Is Ebola a serious threat to global health? Ebola spreads between humans by direct contact with infected blood, bodily fluids or organs, or indirectly through contact with contaminated environments. Ebola is a direct threat in countries where access to effective health systems is weak, where there is a lack of primary care health workers, and where supplies of several products are unavailable. Liberia and Sierra Leone exemplify the problem as they are ranked among the lowest in Human Development Indices, have only one or two doctors available for every 100,000 people, and have suffered from years of war and poor governance. There are not enough beds to treat Ebola patients, particularly in Liberia’s capital, Monrovia, with many people told to go back home, where they may spread the virus, per news reports. Margaret Chan, Director-General of WHO, notes that poverty underlies the scale and severity of the Ebola outbreak in these countries. Ebola is not a direct threat when health systems are robust and supported by a cadre of trained health workers and facilities equipped with basic infectious disease control supplies. Four US aid workers who


http://hdr.undp.org/sites/default/files/hdr14-report-en-1.pdf

http://www.nejm.org/doi/full/10.1056/NEJMp1409859?query=featured_ebola

Derek Yach is the Executive Director of Vitality Institute, Chairman of the Board at Cornerstone Capital Inc. and former World Health Organization Executive Director and SVP Global Health & Agriculture Policy at PepsiCo. You can follow him on Twitter @swimdaily or the Vitality Institute @VitalityInst.

were infected with the deadly virus in Africa were transported to a hospital in Atlanta for treatment; two of whom have since recovered. What are the most effective means of stopping this epidemic? Jim Yong Kim, President of the World Bank and the earlier architect of the WHO AIDS treatment response, succinctly summarized what is needed when he stated that “skilled health care workers with the right equipment can snuff this out.” This message was echoed by one of the world’s leading infectious disease control experts. Tony Fauci, who heads the National Institute of Allergy and Infectious Diseases at the National Institutes of Health, said that “drugs under development will not be a big part of the solution. The real focus should be setting up medical infrastructure to provide sick people with basic medical support.” Implementing this is not going to be easy, given the massive neglect of public health by the most affected countries. The European Union has announced funding worth $180 million to help the governments in West Africa strengthen their health services - and to help local people by securing food and water supplies. And the US government has spent more than $100 million in response to the outbreak, including funding for more than 100 extra African health workers to help run treatment units in Liberia, Guinea, Sierra Leone and Nigeria. What are the most effective means of preventing future epidemics? The recent Lancet Commission on Global Health (led by Dean Jamison and Larry Summers) upgraded the economic case for investing in health. The Ebola outbreak shows what happens in the absence of such investment. Donors have been active in Liberia and Sierra Leone for years, but have rarely focused on tackling basic health needs before other issues with higher PR potential are addressed. Tony Blair’s Africa Governance Organization is an example of this. It claims to address the critical development needs of Liberia, Sierra Leone and Rwanda. In the midst of the world’s worst Ebola outbreak, AGO appears to be absent in the field, despite two of the three focus countries being the most affected. Larry Gostin recently stated that a Health Systems Fund should be rapidly created to support the essential needs of health systems in affected countries in a very well-argued piece. Before considering such an initiative, it would be prudent to enhance national governance for health and review the roles of WHO and the World Bank. WHO has virtually no operational capability but must lead in defining norms and calling for action. A new UN-wide capability is needed with capacity to


https://thevitalityinstitute.org/people/derek-yach

http://cornerstonecapinc.com/bios/derek-yach/

http://cornerstonecapinc.com/bios/derek-yach/

https://twitter.com/swimdaily

https://twitter.com/VitalityInst

http://www.nytimes.com/2014/08/17/world/africa/with-aid-doctors-gone-ebola-fight-grows-harder.html?_r=0

http://www.usatoday.com/story/news/nation/2014/08/06/fauci-ebola-drugs/13672605/

http://www.thelancet.com/commissions/global-health-2035

http://www.africagovernance.org/africa

http://www.africagovernance.org/africa

http://www.law.georgetown.edu/oneillinstitute/resources/documents/Briefing9Gostin_WestAfricasEbolaEpidemicisOutofControlButNeverHadtoHappen_000.pdf

rapidly deploy. UN Secretary General Ban Ki-moon’s recent appointment of David Nabarro to head a UN-wide response to Ebola is a step in this direction. The secretary will also hold a meeting on the crisis on the sidelines of the UN General Assembly this month. What are the underlying determinants of Ebola? Sierra Leone is ranked as one of the top five producers of rutile (a titanium ore) and a major producer of iron, diamonds and gold. Palm oil and forestry products are additional major exports. Liberia is similarly a mineral-rich country and has increased deforestation to expand palm oil production. This has in recent months led to conflicts over land rights with indigenous communities that have been largely ignored by the government. Guinea is the world’s second-largest producer of bauxite and has rich deposits of diamonds and gold. These three countries are resource rich, but governance poor. Deforestation for mining and agriculture take people deep into tropical rainforests with increased risks for exposure to infectious diseases whose lifecycle usually occurs in wildlife. Humans become a casualty of stepping into such ecological zones. Entire ecozones are destroyed with potentially more serious consequences for health to come. Ebola – the primary reservoir of which is likely to be fruit bats – is a sentinel indicator of the future as natural environments are disrupted and destroyed. What can investors do? Investors need to be better informed about the underlying determinants of Ebola that fall within their decision-making orbit. Many investors are involved in agricultural and mining efforts in the affected countries. Their investments will be threatened by continued failure to address Ebola. But the major interventions lie in the hands of governments and WHO. It serves the self-interests of investors to steer companies in the affected countries to be far more active in working with governments to invest in basic health services and to ensure that funding from mineral profits are plowed back into national development. The links between taking that route and the long-term profitability of investments is extremely strong. Unprecedented optimism on Africa’s growth potential – as reflected by Standard Bank’s analysis on strong growth in Africa’s rising middle class and by President Obama’s US-Africa Leaders’ Summit – may be threatened by the failure to rapidly address the current Ebola outbreak and the determinants of future health crises.


http://www.theecologist.org/News/news_analysis/2481988/liberia_communities_join_to_fight_to_palm_oil_land_grab.html

http://www.nejm.org/doi/full/10.1056/NEJMp1409903?query=featured_ebola

http://appablog.wordpress.com/2014/08/19/standard-bank-report-confirms-strong-growth-in-africas-rising-middle-class-and-even-faster-future-growth/la

http://www.whitehouse.gov/us-africa-leaders-summit

http://www.whitehouse.gov/us-africa-leaders-summit

Featured Editorial

Endocrine Disruptor Chemicals a Serious Health Risk for All, a Potential Opportunity for Business

By Lisa Beauvilain, Head of Sustainability & ESG, Impax Asset Management

©jpldesigns/Crystal Graphics

In our daily lives we are constantly exposed to a large number of chemicals, affecting us and our health - without us even realising it. These chemicals stem from a broad-range of products we use every day; plastic food containers, shower curtains, sunscreens, pesticides, furniture, toys, cosmetics and even the cash receipts or lottery tickets we handle. This daily danger comes with a difficult name – endocrine disruptor chemicals (EDCs) – or substances that interfere with the hormonal communication between our cells. EDCs are linked to human reproductive abnormalities, immune disorders, cancer and obesity and obesity-related illnesses such as diabetes. Babies, children and adolescents - humans in a stage of quick development and growth - are considered to be most at risk from EDCs, as early exposure to EDCs may lead to illness in adulthood.1 Bisphenol A (BPA) is an EDC and is one of the most common and widely manufactured chemicals in the world. It has "feminizing" or “oestrogen-mimicking” properties on the human and can be harmful to reproduction even at low levels of exposure. BPA is linked to a wide variety of health problems, such as birth defects, obesity, cancers and fertility problems, as well as early puberty in girls. BPA can be found in many common goods such as plastics, food and drink containers, toys and computers.2 BPA-based plastics are clear, sturdy and cheap to manufacture and easy to use - and therefore attractive for business.3 Most food cans are lined with plastic containing BPA that can leach into the food. In thermal paper, such as in cash receipts, BPA is a powdery substance on the surface and can easily be absorbed by the skin.4 A large study by French scientists have shown how BPA is easily absorbed through the skin from thermal paper5 and it advised expecting mothers to avoid handling thermal paper and cashiers to wash their hands regularly during the working day.6

1 http://www.chemsec.org/images/stories/2011/chemsec/What_are_endocrine_disrupting_chemicals.pdf 2 http://www.chemsec.org/images/stories/2011/chemsec/In_Focus_Bisphenol_A.pdf 3 http://www.rsc.org/chemistryworld/2012/11/bpa-bisphenol 4 http://www.chemsec.org/images/stories/2011/chemsec/In_Focus_Bisphenol_A.pdf 5 The study found that c. 46% of the BPA in thermal paper was diffused through the skin. 6 http://www.nature.com/news/2010/101104/full/news.2010.581.html


Lisa Beauvilain is the Head of Sustainability & ESG at Impax Asset Management. She is responsible for environmental policy and legislation investment research and non-financial ESG analysis.

Parabens are also EDCs used mainly in personal care products and in cosmetics. They are used as preservatives in cosmetics because of their antimicrobial properties. Exposure to parabens is linked to various birth defects, infertility and cancer. 7 Phthalates are another group of EDCs that are used as softeners for plastics in flooring, toys, clothes, paints and furniture just to name a few. Phthalates are not chemically bound to plastics and can easily migrate into air, water, dust and humans, with negative effects on reproduction and metabolism.8 We are completely surrounded by these substances and over 90% of the US population9 test positive for BPA.10 The potential cost to society in terms of future negative health effects is therefore significant, with the potential negative health effects manifesting themselves only years after exposure, adding to the challenges of EDC research and analysis. The World Health Organisation (WHO) warned in a 2012 report that endocrine disruptors constitute a global threat.11 An EU funded report from June 2014 estimates that EDCs contribute to or were responsible of at least 2-5% of the illnesses that have been attributed to EDC exposure.12 This means EDCs would be directly responsible for c. $41bn in health costs and lost productivity every year in the European Union, with diabetes and autism being by far the largest cost burdens.13 However, policy makers have been remarkably slow in reacting to this threat, focusing on analysing huge amounts of research in this space, instead of taking a precautionary stance – which should be expected when serious negative human health issues are at stake. One of the reasons for the slow progress – and the source of much of the scientific controversy – is the “low dose effect” of EDCs. For many hazardous chemicals, there are regulations in place stating the maximum levels of exposure that can be tolerated without serious damage to human health. This regulatory approach has been questioned for EDCs, as tests on pregnant animals have shown that e.g. BPA produces developmental problems and adulthood illnesses even at doses well below the government’s safety cut-off levels, the “low dose effect”. EDCs seem to behave differently from most other toxic

7 http://www.chemsec.org/images/stories/2011/chemsec/In_focus_Parabens.pdf 8 http://www.chemsec.org/images/stories/2011/chemsec/In_focus_Phthalates_2.pdf 9 BPA was detected in 92.6% of persons ≥ 6 years of age. 10 Calafat AM, Ye X, Wong LY, Reidy JA, Needham LL (2008). "Exposure of the U.S. population to bisphenol A and 4-tertiary-octylphenol: 2003–2004". Environ. Health Perspect. 116 (1): 39–44. 11 http://www.euractiv.com/sections/sustainable-dev/eu-seeks-uniform-regulation-hormonally-active-substances-303306 12 This is based on a pioneering US scientific paper that estimated that BPA exposure in food contact materials may be responsible for 1.8% of child obesity and almost 39,000 cases of new incident coronary disease in the US, with an associated cost of $2.98bn. The EU report includes infertility, cancers, ADHD, autism, obesity and diabetes as endocrine-related diseases or conditions. 13 Health and Environment Alliance (HEAL), June 2014: http://www.envhealth.org/IMG/pdf/18062014_final_health_costs_in_the_european_union_how_much_is_realted_to_edcs.pdf


http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2199288

http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2199288

http://en.wikipedia.org/wiki/Environ._Health_Perspect.

substances, perhaps because our bodies’ respond so easily to natural hormones, such as oestrogens. The US National Institute of Environmental Health Sciences (NIEHS) is one organisation working to bridge the gap between the regulatory studies and research into low dose effects. The NIEHS is currently funding work carried out in the way regulatory studies are normally conducted but covering a much broader dose range than is traditionally looked at in regulatory studies. Some scientists believe – and hope – that the legacy of BPA might be that low dose effects will be considered for all chemicals and not just for BPA and EDCs in future regulatory safety processes.14 Regulatory progress has taken place, however, with Canada, Europe, Australia and several states in the US banning BPA in infant feeding bottles in the last few years. France banned all BPA-products affecting pregnant women and children under the age of three in 2013 and has set an expanded ban on any BPA that comes into contact with food from 2015.15 While regulatory progress is slow, the direction of travel seems clear – regulation on endocrine disruptors is likely to be tightened over time. The EU is legally obliged to set uniform safety classifications and criteria on EDCs. This is likely to be finalised sometime in 2015. A decision is crucial, as the EU with its REACH-regulations16 has been the leading global authority in regulating toxic substances. Many Asian countries have been fully or partly following the developments of EU REACH-regulations in their national chemical regulations.17 The US Food and Drug Administration, on the other hand, has been a laggard to date. The challenges and risks in the process for EDC regulatory classification in the EU are two-fold; firstly, there is fierce resistance by the large chemical and pesticide producers such as Bayer, BASF and Monsanto and secondly, the Transatlantic Trade and Investment Partnership (TTIP) being negotiated between the EU and the US and aiming to remove trade barriers between these two, by harmonising technical regulations, standards and approval procedures.18 These two aspects could threaten the EU’s traditional precautionary approach to health and environmental issues.19 While regulators are dragging their feet, consumers increasingly want to know what is in their daily products and food —and are demanding healthier and cleaner alternatives. The continued strong growth of organic food can be viewed as evidence for this trend. US organic food production has increased by about 240% between 2002 and 2011,

14 http://www.rsc.org/chemistryworld/2012/11/bpa-bisphenol 15 MSCI ESG Research, Industry Report: Containers & Packaging, November 2013 16 REACH = Registration, Evaluation, Authorisation & restriction of Chemicals 17 Notably Japan and South Korea. 18 http://ec.europa.eu/trade/policy/in-focus/ttip/about-ttip/ 19 Discussion with Anne-Sofie Andersson, Director at ChemSec, August 2014


compared with 3% growth in the non-organic food market. The US organic food market is expected to continue growing at roughly 14% per year to 2018, much faster than the overall food market.20 For individual companies this growth can be even more dramatic. For example, food maker General Mills, which announced plans this month to purchase organic food brand Annie’s Homegrown for $820 million, reported that its organic and healthy food lines grew by 35% in 2013 compared to 2% growth for its non-organic lines.21 Some companies have been first movers in responding to these healthier opportunities and have successfully developed substitutes to EDC substances or are diversifying their product offerings away from EDCs. For instance, the chemical giant Eastman Chemical has developed a business strategy that aims to capitalize on the demand for non-toxic chemicals. Eastman has increased its production of non-phthalate plasticizers, such as Benzoflex, Eastman TXIB, as well as Eastman 168, which is used as an alternative to DEHP-based products, a substance on the EU REACH Authorization List22. The company states that it has 10 non-phthalate plasticizer facilities and has further increased production by 60% following a retrofit. The company said it planned to increase production capacity of Eastman 168 non-phthalate plasticizer by an additional 15% by mid-2014. In 2013, the volume of Eastman 168 plasticizer sales grew by 25% or three times faster than its traditional plasticizer sales, indicative of strong growth of this market segment.23 Another interesting example is Eden Foods, another US organic food concern, which became alarmed by the toxicity of BPA in cans and food packaging long before the issue made it to mainstream news. In 1999, it asked its packaging supplier, Ball Corp, to develop a BPA-free can. The cost was 14% higher for the BPA-free cans in 1999; as of 2012 it is 30% more expensive than BPA-containing cans. Even so, Eden Foods has always been able to pass on the more expensive packaging costs to consumers, without suffering decreases in demand, again pointing to the strong underlying demand for healthier alternatives.24 Even in non-consumer-facing sectors there are companies moving away from EDCs. For example, the Finnish water treatment company, Kemira, decided to phase-out all EDC substances from their water treatment substance portfolios, in anticipation of tightening regulation regarding EDCs.25

20 http://www.foodnavigator-usa.com/Markets/US-organic-food-market-to-grow-14-from-2013-18 21 Discussion with MSCI ESG analysts, August 2014 22 The REACH authorisation procedure aims to assure that the risks from Substances of Very High Concern are properly controlled and that these substances are progressively replaced by suitable alternatives while ensuring the good functioning of the EU internal market. (ECHA, European Chemicals Agency). 23 MSCI ESG IVA Analysis of Eastman Chemical Company, June 2014, discussion with MSCI ESG analyst Cyrus Loftipour, August 2014 24 http://www.edenfoods.com/articles/view.php?articles_id=178 25 Discussion with Kemira IR Tero Huovinen and the Director of Sustainability Riikka Timonen, March 2014.


There is a strong sense of déjà vu in this debate. As with actions to mitigate climate change, or reduce air pollution in our cities or demands for properly labelling GMOs in our foods, it seems that consumers would want to have much more information and transparency, but also strong policy action in order to achieve healthier and more sustainable lives. However – largely due to industry standing in the way - policy action is often painfully slow. This same dynamic applies to the slow pace in progress for regulating endocrine disruptor substances. It is therefore this disconnect in demand and supply of sustainable action that creates a great opportunity for forward-looking businesses who can see past the entanglements to greener fields ahead. The author would like to thank Sweden-based NGO ChemSec for providing outstanding information around EDCs and chemical safety more generally. Any potential errors or omissions are however those of the author.


Open Source Excellence

Risk Mitigation the Basis for Chemical Safety By Dr. Martin Kayser, Senior Vice President of Product Safety, Regulations, Toxicology and Ecology, BASF

Chemical safety, especially when it comes to our everyday consumer products, is a topic of increasing relevance for the public. Almost weekly, news about food being contaminated, poisonous toys due to use of lead paints or unhealthy indoor air polluted by chemicals released from wall paint or furniture concern the public. Consequentially, calls for more stringent chemical management systems are con-stantly increasing. In fact, there is a trend toward hazard-based chemicals assessment fueled by non-governmental organizations (NGOs) and regulators – as well as companies and brand-owners at the other end of the value chain.

One of the most popular examples is the SINList (‘Substitute it Now List”) developed by the NGO, ChemSec, which includes more than 600 chemicals. However, substance criteria and relevant processes of the SINList are largely unknown. Recently, the SINList was recognized by the EU Commission as being a source for substances to be placed under its Registration, Evaluation, Authorisation and Restriction of Chemicals law, known as REACH. Considered among the strictest chemical regulations on record, REACH calls for a very complicated and costly process with the goal of outright substitution. Other examples include the EU’s Plant Protection Regulation and California’s Safer Consumer Products Regulation, both of which follow a phased approach to ban hazardous chemicals and promote substitution.

At first sight, hazard-based chemicals assessment may seem pretty easy and an appropriate tool to effi-ciently protect the public and the environment from negative impact caused by hazardous chemicals. Upon closer examination, it is only part of the truth. The impact of a hazardous chemical is largely dependent on exposure to that chemical – commonly examined during a period of risk assessment. We conduct similar calculations in everyday life. Everybody would probably agree, for example, that a lion, met in the

Researchers at BASF check physical parameters during the manufacture of graphene based substances. Courtesy of BASF.

wilderness is a dangerous animal and has the potential to seriously harm humans. If a man would meet a lion in its natural habitat, he most certainly would face a serious risk. However, if a man visits a lion in a zoo – the risk changes dramatically. With the lion kept behind bars, any visitor would assess the situation to be safe –even safe enough to take children on a visit. It is still the same, dangerous animal – its hazard properties remain unchanged. But within an enclosure the likelihood of direct exposure is significantly and very effectively reduced.

The same risk assessment principles can be transferred to chemicals. While the hazardous properties of a chemical cannot be changed (a lion al-ways remains dangerous), there are a range of effective measures available to minimize exposure (the bars in the zoo). Few would agree that lions should be banned from zoos. Following the same rationale, effective and responsible chemicals management needs to follow a risk-based approach. Protective risk management measures may in fact include substitution of a hazardous chemical – as the last resort, when the risk cannot not be effectively controlled by other means. Safe handling of our products at all stages of their life-cycle is of highest priority for the chemical industry. The following


paragraphs provide insights into our continuous efforts and commitments to ensure chemical safety. At BASF, our high product stewardship standards worldwide strive beyond regulatory compliance. Under our internal Goal 2020, we are reviewing the risk assessments for all BASF sales products. Progress is reported annually in our Company Report. However, BASF’s commitment to product stewardship does not end at the company gates. We take it further to the International Council of Chemicals Associations (ICCA), the global association of the chemical industry. ICCA promotes the voluntary Global Product Strategy (GPS) program, which is implemented by all major international chemical companies. The aim of GPS is to focus on enhanced product stewardship throughout the chemical life cycle with a specific focus on emerging and developing countries. Major activities of the program include:

• Guidance Material and Global Training: ICCA has established an easy-to-understand, step by step GPS Guidance on Chemical Risk Assessment, available in eight different languages and targets beginners with little experience in assessing chemical safety. ICCA works with the entire value chain to ensure that suppliers and customers can effectively evaluate the risks and successfully manage chemicals throughout their life-cycles.

• Transparent Access to Information: To make relevant and science-based information about chemicals available in an easy-to-

understand language, chemical companies prepare so-called GPS Safety Summaries. More than 4,000 of these documents are publicly available at the GPS Chemical Portal.

• Public-Private Partnerships: ICCA cooperates with UNEP, the United Nations Environmental Program, to improve safe management of chemicals in the developing world. Both partners have started a Flagship Project in Africa focusing on two major ports for the import of chemical products into Ghana and Kenya. Applying the “train-the-trainers” concept, the goal is to enable local authorities and service providers to improve chemicals management practices at transport and warehousing.

BASF is the world’s leading chemical company, which also applies for our Product Stewardship programs. We work diligently to make sure our products can be handled safely throughout the value chain and, we are sharing our data and expertise with our industry peers and with the public. BASF believes that the best approach in Product Stewardship is a balance between sound regulations and voluntary industry initiatives, recognizing the chemical industry as an essential partner towards safe chemicals management globally. Dr. Martin Kayser is a Senior Vice President of Product Safety, Regulations Toxicology and Ecology at BASF.


http://www.icca-chem.org/en/Home/Global-Product-Strategy/global-product-strategy/chemical-information-search/

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Accelerating Impact

Accelerating Impact in Real Asset Investing

By James Lee, James Schaffer and Jaclyn Anku at Schaffer & Combs

©TAlex/Crystal Graphics

As the nation’s housing market rebounds, investors have taken notice. But with many still scarred from the protracted economic downturn, questions about risk remain. But what if a real asset investing strategy could earn market-rate returns while simultaneously improving local communities? OpenPath Investments, a social impact real estate company, targets a return of 12-15% (IRR) across its $200 million portfolio of properties and has regularly outpaced this target over the last several years, even through the recent economic downturn. There is more to this story, however, than solid deal sourcing and expert portfolio management. Ask any of the 2,200 tenants who live in OpenPath’s properties why they prefer their current accommodation and their answer will resoundingly be: community. Through its cutting edge impact program, called “Urban Village,” OpenPath has built social connectivity amongst residents, resulting in thriving, resilient communities — the opposite of the stereotypical “boxed-living” apartment complexes dotting the landscape of every U.S. metro area. And as evidenced by its robust returns, OpenPath is proving that what is good for its communities is also good for limited partners. Three-years ago, Peter Slaugh, OpenPath’s Managing Director, had a hunch that if residents could come together and act as a traditional community, leveraging economies of scale and developing social connections, OpenPath’s bottom-line would reflect the increase in residents’ quality of life. After convincing his investors of the potential value of such an “impact program,” Urban Village was born. With an eye on long-term profits, Slaugh funded one complex on a pilot basis. As the community garden at the property began to grow, so did net income, driven in part by a 25% reduction in turnover rate. Additionally, fifteen vacant units were filled through resident referrals, rather than direct advertising expenditures, and the property ultimately achieved an overall occupancy rate of 98%. Since then, Urban Village has been rolled out to eight of OpenPath’s portfolio properties across the western United States. When investors receive their quarterly reports, they also see the results of community impacts from the Urban Village program. OpenPath’s acquisitions are typically “B+” multi-family residential properties located in supply-constrained metro areas with a high desirability index. OpenPath adds value through improving physical and environmental amenities and then layering on the Urban Village


http://openpathinvestments.com/

James Lee is Managing Partner at Schaffer & Combs James Schaffer is Managing Partnerat Schaffer & Combs. Jaclyn Anku is an Associate at Schaffer & Combs. For more information on OpenPath, or inquiries on impact investing in the real estate sector, contact James Schaffer at [email protected].

template. The program supports a broad-based and participatory approach to building community by inspiring residents to take on volunteer leadership positions — much different than a top-down approach to activities programming at a typical apartment complex. Residents lead classes, participate in ride-share efforts, pool babysitting resources, and organize outings, all of which increases social capital in the community. Additionally, Urban Village features shared common areas where residents come together for activities like gardening, shared meals, and game nights. The OpenPath team believes that these connections, over time, amount to improved quality of life: reduced household expenditures, a strengthened social safety net, and personal empowerment. As one Urban Village resident shared, “Since I know my neighbors and feel a part of the community, I can call this my home and not just another apartment.” As Slaugh points out, most investors would quickly connect this type of community loyalty to low turnover and thus to a solid bottom line, but many overlook how much residents save in moving costs. Over a period of a year at an average OpenPath property, this can amount to hundreds of thousands of dollars in retained household income. As a triple-bottom line company, OpenPath delivers environmental improvements in addition to its social impact by incorporating sustainable practices into each property and into the daily lives of residents. Environmental initiatives include: resident education on toxic materials, recycling and reuse programs, central drop-off locations, and the installation of non-toxic building materials and supplies. In fact, for every 1,000 residents, OpenPath estimates that it annually diverts 2,000 cubic yards of waste from landfills and reduces water consumption by 4 million gallons. By discovering the symbiotic relationship between impact and the economic bottom line, OpenPath is transforming multi-family real estate from bricks-and-mortar income generation to a value proposition that works equally well for resident communities as it does for limited partners. And OpenPath has taken steps to democratize access to this form of impact investing by enabling participation in its acquisitions for a diverse spectrum of investors – from first-time real asset investors to experienced, institutional partners. OpenPath has proven that a traditional asset class, particularly one that serves millions of people, can be an ideal vehicle for true impact investing. In the next eighteen months, OpenPath will continue to pursue above-market returns and measurable community impact by scaling its model -- the firm plans to invest another $100 million in acquiring and transforming multi-family complexes across the U.S.


mailto:[email protected]?subject=Open%20Path

Sustainable Standout

The Great Negotiator

By Katrina Stanislaw, Manager, Corporate Program, Ceres Sustainable finance is a relatively new enough concept that it can encompass everything from climate change solutions and infrastructure development to better healthcare systems, improved education and the overall well-being of communities. But as often is the case, each of these purposeful challenges begins with the task of gathering enough partners – some with opposing viewpoints -- to identify a common cause, or commitment where participants can create a potent and lasting impact. At the heart of any effective campaign is the “meeting of minds,” so to speak, which brings us to an examination of the Art of Negotiation. To begin, negotiations are about understanding interdependencies, and leveraging them as a point of strength. Savvy negotiators use these connections to create alignment on building value now, and for the long-term. Many think a great negotiator is the loudest person in the room, setting hard lines and demanding others to comply. Sometimes the loudest person in the room is the most effective and sometimes they’re not. Volume is irrelevant, it is technique and strategy that translate into outcomes- from the board room, to the family dinner table. Negotiating is about strategy, and fundamentally it is about understanding interests: the core needs that lie below the bluster, those surface positions about what is “necessary”. But these deeper needs must be met now and in the long-term. A great negotiator creates new value by understanding their own interests, their counterparts’ and the space in between. Preparation is possibly one of the least sexy elements of negotiations, and yet it is also the most powerful. A great negotiator comes to the proverbial negotiating table having clearly mapped out both their own interests and those of the other party. Savvy negotiators think about what they really want now,

©ArchMan/Crystal Graphics and in the long-term. Then they methodically map those same needs for each of their counterparts. Charting what is driving your own behavior and those you are negotiating with illuminates murky parameters. Savvy negotiators do another thing: they ask penetrating questions - and take the time to listen to answers. Testing assumptions and digging out new data focuses the lens of opportunity. Simple questions can yield telling information. By mapping mutual interests, you’ve created the space to brainstorm and invent possible solutions without committing to their execution. In this way, all parties can pool ideas about what might meet their needs. And in the process relevant information rises to the surface. Another essential element in negotiations is knowing when to walk away. This need not mean severing a relationship, but rather defining a line when the status quo better meets short and long-term needs than a new agreement. The great negotiator can chart the long-term consequences and walk away with confidence.


What distinguishes a great negotiator is their understanding of the big picture. Great negotiators are long-term thinkers. They know what they want and need now, and understand the essentials expressed by their counterparts. And they typically look far enough down the line to see how such factors may evolve over time. It’s about knowing when tweaking plans now yields more desirable long-term performance. Presumably the greatest negotiators have the long-term in mind the whole time. But the process of preparation, of inquiry, of dialogue, and inventing, creates a clear picture of the playing field that exists now and what will evolve in the longer-term. Finally, a great negotiator is a great collaborator. Great negotiators are acutely aware that you can’t prepare effectively alone, nor can you execute. Two of the most effective diplomatic negotiators in recent memory, Richard Holbrooke and George Mitchell, are considered diametrically opposite characters. Yet

both give tremendous credit to the teams who helped them think through steps, options, personalities and people. The great negotiators in business, in politics and in families all understand the need to balance the short and the long term. Negotiators understand interconnections, interdependencies and how to find points of connection to create lasting value. It sounds exactly like sustainable finance. It’s about meeting present needs, with future needs in mind.

Katrina Stanislaw holds a Masters of Arts in Law and Diplomacy from The Fletcher School at Tufts University, where she focused on sustainability and negotiations. She is a Manager in the Corporate Program at Ceres, where she advises financial services companies on sustainable business strategies, including performance, disclosure and stakeholder engagement processes.


Upcoming Events

Global ESG Calendar

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9.17.14 – 9.19.14 Global Banking Alliance for Women 2014 Summit

IDB Washington, DC U.S.A.

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9.19.14 IRRCi & The Millstein Center Stock Price Use, Misuse Conference

Columbia Law School W.116th Street New York, NY U.S.A.

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9.22.14 – 9.24.14 CGI Annual Meeting Cornerstone Participating

New York, NY U.S.A. http://www.clintonfoundation.org/clinton-global-initiative/meetings/annual-meetings/2014/

9.22.14 – 9.26.14 European PV Solar Energy Conference RAI Convention Centre Amsterdam, Netherlands

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9.23.14 Climate Summit 2014 – Catalyzing Action United Nations New York, NY U.S.A.

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9.24.14 – 9.26.14 PRI in Person Hilton Montréal Bonaventure Montreal, Quebec

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9.24.14 United Nations Private Sector Forum United Nations New York, NY U.S.A.

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9.24.14 – 9.26.14 Sustainable Brands: New Metrics ‘14 Royal Sonesta Hotel 40 Edwin H. Land Blvd Cambridge, MA U.S.A.

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10.2.14 – 10.3.14 RobecoSAM Forum 2014 Mobilizing Capital: Putting Sustainability to Work

Bocken Conference Center Bockenweg 4 Horgen, Switzerland

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10.8.14 – 10.9.14 CR Magazine COMMIT!Forum NY Marriott Downtown 85 West Street New York, NY U.S.A.

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10.15.14 – 10.17.14 Women’s Forum Global Meeting 2014 “Leading for a more equitable world”

La Villa Le Cercle Deauville, France

http://www.womens-forum.com/meetings/global-meeting-2014/15

10.20.14 – 10.21.14 2014 CEO Connection Mid-Market Convention Cornerstone Speaking Event

Wharton School of Business Philadelphia, PA U.S.A.

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10.21.14 High Water Women Investing for Impact Cornerstone Speaking Event

CUNY Graduate Center 365 5th Ave New York, NY U.S.A.

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10.28.14 – 10.29.14 TBLI Conference – Europe 2014 VU Amsterdam De Boelelaan 1105 1081 HV Amsteram

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11.9.14 – 11.11.14 SRI: The Conference on Sustainable, Responsible, Impact Investing – The Future of Investing

The Broadmoor Colorado Springs, CO U.S.A.

http://sriconference.com/index.jsp


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http://www.wallstreetweek.com/leaving-rio-and-going-towards-corporate-sustainability/

http://blogs.hbr.org/2012/06/why-go-it-alone-in-community-d/

http://www.forbes.com/sites/85broads/2012/03/28/sustainable-investing-and-moments-of-truth/

http://www.wallstreetweek.com/guest-post-investing-in-diversity-painful-but-profitable/

http://www.wallstreetweek.com/noise-cancelling-investment-research-esg-analysis-and-sustainable-investing/

http://www.forbes.com/sites/85broads/2012/01/13/superheroes-of-capitalism/

http://www.forbes.com/sites/85broads/2012/02/01/superheroes-of-capitalism-part-ii-the-women/

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The Cornerstone Capital Inc. Team

Erika Karp

Founder and Chief Executive Officer

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Joel Beck

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Nicola Shelbourne

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John Wilson

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Ariane de Vienne

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Michael Geraghty

Global Markets Strategist

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Margarita Pirovska PhD

Policy & Sustainability Research

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Michael Shavel, CFA

Research & Business Analyst

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Helen Nickells

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Karen Benezra

Head of Strategic Marketing & Communications

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Tanya Khotin

Head of Institutional Business Development

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Alice Petrofsky

Executive Director Institutional Business Development

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Mauricio Barbeiro

Latin America Business Development

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Juan Lois

Director, Business Development

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Matthew Daly

Director of Client Services

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Kara McGouran

Assistant to the CEO

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Rose Spiegal

Investment Management Associate

[email protected] Cornerstone Capital Inc. doing business as Cornerstone Capital Group is a Delaware corporation with headquarters in New York, NY. The Cornerstone Journal of Sustainable Finance and Banking (JSFB) is a service mark of Cornerstone Capital Inc. All other marks referenced are the property of their respective owners. The JSFB is licensed for use by named individual Authorized Users, and may not be reproduced, distributed, forwarded, posted, published, transmitted, uploaded or otherwise made available to others for commercial purposes, including to individuals within an Institutional Subscriber without written authorization from Cornerstone.

The views expressed herein are the views of the individual authors and may not reflect the views of Cornerstone Capital Group or any institution with which an author is affiliated. This publication is for informational purposes only and nothing in this publication is intended or should be taken as investment advice. This is not an offer or solicitation for the purchase or sale of any security, investment, or other product and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as recommendations to purchase or sell such securities. Information contained herein has been obtained from sources believed to be reliable, but accuracy and completeness are not guaranteed. Cornerstone Capital Group cannot accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication.



















volume i. issue 11 journal of sustainable...note from peter fusaro, of global change associates, who...

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