26 mei 2018

#EUREKA: Raters will Rescue the Global Economy ENGLISH

#EUREKA: Raters will Rescue the Global Economy

I thought standardised investment instrumenten are crucial to accelerate impact investing. 'If it looks enough like an investment product, it probably is'. Because structured products turned micro finance into venture capital & private equity debt funds, 'the' critical success factor for what we now call 'inclusive finance' ...

Because thematic bonds & notes, before the domain of develop-ment banks, these days also issued by corporations, created markets with Billions of US$ for economic growth & innovation, developing countries, community finance, uridashi, development bonds, vaccine bonds, investing in women, climate bonds, green bonds, sustainability bonds, social impact bonds, health impact bonds, development impact bonds, charity bonds, micro bonds...
I thought impact metrics are the key ingredient. That insight in non financial returns of investments through broad use by mature Integrated Reporting Invest- ment Standards : IRIS, supported by theGIIN, the Global Impact Investing Network) would make the impact return on investment transparent, also by rating it with the Global Impact Investing Rating System GIIRS, also supperted by theGIIN.

That the truth of the return of investments would be clear fot the whole global economy. I developed a Buy Hold Sell Framework to distuinghuis impact effects, also of ''stranded assets'' in non sustainable markets such as Alcohol, Gambling, Tobacco, Porn, Firearms, Fossil Fuel etc. A growingd universe of harmful products & servics be it direct or indirect. See next page.

As the Impact Transition follows the path of 'Sustainable' & 'Green Transition' a simple model emerges:
1: DeCoupling of Growth & Negative impact; → 
2: Diminish Negative Impact; → 
3: Grow Positive Impact; →
4: The corporation as provider of Societal Solution in 'New Capitalism'1.

STEP 1 : DeCoupling growing without growing 'negative impact'', the footprint, usage of resources such (fossil) energy, (sweet) water, minerals etc, creating less emission, less waste by working 'craddle to craddle' & circulair for products and services (refurbishing older models for new markets), in human resource management to prevent outflow & support recruitment, optimalize governance & compliance in 'Spirit' and intent not 'the Letter' of the Law, avoid thinking about substracting 'fines' from investments and monitor board salaries & gender pay gap & the public outcry.

STEP 1 is a smart business strategy : grow & produce more at lower costs, both internal & external, and it is the start of a new organisational culture aimed at less negative impact.

STEP 2 : Lower Negative Impact for People & Planet of core activities and the business model; map revenues of negative impact activities, divest & invest in activities & business models with less negative impact. Risk raters aim to lower exposure to financial & ESG (Environmental, Social & Governance) risks so low financial & ESG ratings are a call for action. High financial & ESG ratings give clues as do Green Revenue Indices & Sustainable Development Goals indexes. These indexes reward & encourage investing in impact theme's & sectors and circular & inclusive business models. A characteristic of these indexes is their prevalence of sustainable darlings & systemic corporations.

The (Russel) FTSE Green Revenues Index Series is designed to obtain increased exposure to companies engaged in the transition to a green economy, based on FTSE’s Green Revenues data model. The indexes are designed to capture changes in the revenue mix of companies as their business models shift to the delivery of goods, products and services that allow the world to adapt to, mitigate or remediate the impacts of climate change, resource depletion and environmental erosion. http://www.ftse.com/products/indices/green-revenues

Rater MSCI built an Sustainable Impact Themes index with 100 large & midcaps based on the social & environmental revenues contributing to the UN Global Sustainable Development Goals.
'The MSCI ACWI Sustainable Impact Index aims to identify companies that derive at least 50% of their revenues from products and services that address environmental and social challenges as defined by the themes outlined above. The index, which excludes companies that fail to meet minimum environmental, social and governance (ESG) standards, weights securities by the percentage of revenue derived from products or services that address the themes.

Based on
MSCI ESG Sustainable Impact Metrics, using index constituents and weights as of March 2016, the MSCI ACWI Sustainable Impact Index had 71% greater  exposure to estimated company revenue derived from sustainable impact solutions compared to the parent, MSCI ACWI Index'. https://www.msci.com/msci-acwi-sustainable-impact-index
Blackrock based its Global Impact ETF on this index: https://www.ishares.com/us/products/283378/

ESGreseacher VigeoEIRIS & Solactive, 'German Index Engineering' built a #SDG index2 for the Worldbank with 50 large caps. The Note is listed in Italië as retail investment product.

STEP 2 is smart business focused on revenues & long(er) term growth opportunities through innovating, investing & managing costs also capital costs by being extra attractive for investors. As Transparency of Societal Costs & Returns grows systemic outsourcing of costs to society will be regulated (or fined) & meet more stakeholders protests.

STEP 3 : Grow Positieve Impact for People & Planet by steering the core activities towards Basis Needs & Impact accelerators mainly #Tech: Quality & Quantity. Invest in People & Planet Friendly (new) businessmodels.

John Elkington who coined People-Planet-Profit emphasizes that New Business models, not technological innovation, are 'the' success factor for next generation corporations. Examples: companies without assets offering services such as Über & AirBNB, Alibaba, Zalando, Takeaway.com Also Facebook, Twitter & LinkedIn based on data, analysis & connectivity. Elkington's Break-through Businessmodels report has a explanatory glossary with easy to determine People & Planet Impact models: e.g. The sharing & circular economy. See his Appendix p. 7-10
Another very effective way to grow positive impact is to nurture Social Cohesion, focus on 'people affected by globalization', youth unemployment & 'underserved people' through inclusive work : equal opportunities, pay & career perspective for women, minorities, people with physical, & mental disabilities, 50+, people without on the job experience, from tuition & vocational trainingprojects, re-entering the labor market after long(er) absence, with short or 'aged' employment record, ex-Pats & Refugees, etc. In short : integration of Megatrends Ageing, Population Growth & Dynamics in Futureproof Employee, Clientele & Investor relations.

STEP 3 is a smart business strategy focused on long(er) term growth opportunities & creating a competitive advantage with People & Planet based Businessmodels.
A new inclusive organization grows positive impact social cohesion & loyality to corporations.

STEP 4: the Corporation as Societal Solution Provider as defined by Eric Beinhocker & Nick Hanauer in their framework developing into New Capitalism Note 1, 2014. For instance the 2015 UN Sustainable Development Goals.
In STEP 4 negative impact activites have been phased out or are compensated by positive impact business models. Easy Peasy? ... actually it is

Impact metrics systems such as the Integrated Reporting Investment Standards, IRIS & the Global Impact Investing Rating System, GIIRS are useful for finetuning total (financial & impact) return transparency, but the public equity capital markets covers the investees & just 1,000 businesses have half the worlds market capital:

'Globalization has concentrated economic power within a group of large companies who are now able to change the world at a scale historically reserved for nations. Just 1,000 businesses are responsible for half of the total market value of the world’s more than 60,000 publicly traded companies. They virtually control the global economy. […] By 2010 the world’s largest 1,000 companies made US$32 trillion in revenue. They employed 67 million people directly, and had a total market cap of US$28 trillion. That’s equal to 49 percent of total world market cap.'Eccles & Serafeim for Bloomberg 2012.

The Risk Raters hold the Holy Grail.

Whether they are ESG researchers or (financial) Risk Raters, these disciplines are converging rapidly as Risk raters start ESG departments and the universe of green bond verifiers keeps growing.

When Risk Raters can build indexes of corporations with positive impact based on core business, revenues & business model, they can do the same for negative impact... risk

Examples: Morningstar's Sustainability Globes, Controversies Tool (exclusion instrument) , the new Carbon Risk Score MSCI ESG Quality Score, Yahoo Finance integrating Sustainalytics ESG scores, benchmark position & controversies, etc.

I think Risk Raters, for Environment, Social & Governance and Financial Risk will have no problem determining negative impact & postieve impact.

QUESTION: But which of their clients will want to pay for being branded 'negative impact' & 'stranded asset'?
ANSWER: a select group..

Sapere Aude : Dare to Know

Politics should know to manage & accelerate the impact transition wisely...

Quetions & Remarks: impactinvestmentnews @ yahoo.com

Please follow me on Twitter @Alcanne

YOU TUBE Vlogs & Animations

Marga van Miltenburg @ ZIJSPREEKT

APPENDIX: Breakthrough Business-Models John 'People Planet Profit' Elkington, report for the British
Business & Sustainable Development Commission. Sep2016. Page 32 Annexes 1 Glossary of Business Models
'There are numerous business models and many different ways to categorize them, about which we do not go into detail in this report but encourage further reading. For quick reference, we offer below a short-hand glossary of some of the business models highlighted in bold italic throughout this report.'

All aim for Profit, highlighted are People Impact & PlanetImpact by me

Add-On: The core offering is priced competitively, but extras drive the price up. Customers benefit from a variable offer they can adapt. Affiliation: Supporting others to sell products successfully and benefitting directly from successful transactions. Usually uses some kind of a pay-per-sale system. Aikido: Allows a company to offer something diametrically opposed to the image and mindset of the competition. The novelty of the offering attracts a particular type of customer. Auction: Selling a product or service to the highest bidder.
Base of the Pyramid: The product or service targets customers positioned at the base of the wealth pyramid at an affordable price point. Despite small profits with each product sold, companies benefit from the higher sales numbers. Barter: Exchanging goods or services with no transfer of money.

Behavior Change: Stimulating customers to embrace new behaviors, such as reducing consumption or modifying daily habits. Building a Marketplace: Reinforcing the marketplace through the use of social programs, local market adaptation, and other services such as financing mechanisms or technical assistance. Buy One, Give One: Using a portion of the profits from the sale of a product or service towards donating a similar product/service to those in need.

Cash Machine: Customer pays upfront for the products sold before the company has to cover any associated expenses.

Circular Supplies: Using renewable, bio-based or fully recyclable materials to replace single-lifecycle inputs.
Closed-Loop Production: Virtuously recycling the material used to create a product back into the production system. Collection Service: Providing a service to collect old or used products from customers in a convenient manner. Consumer Lock-In: A value proposition that entices customers to continue using a specific product or service regularly.
Cooperative Ownership: Where companies are owned by members.

Cross-Selling Services or products from outside the business are added to the offerings.
Crowdfunding: Enabling entrepreneurs to tap into the resources of a wider network of people to raise money. Crowdsourcing: Solutions to tasks or problems are generated via an anonymous crowd, with contributors receiving some incentives.
Customer: Loyalty: Customers are retained by providing value over and above the actual product or service itself.

the-Materialization: Reduction in the amount of materials used in the production of products.
Differential Pricing: Charging more to those able to afford, and subsidizing those who cannot.
Digitization Turning: existing products or services into digital versions of themselves, offering advantages such as more rapid distribution. Direct Selling Where products are available directly from the manufacturer or service provider. Savings from cutting out the middleman are passed on to the customer. E-Commerce: Traditional products or services are delivered through online channels only. Experience Selling: Value of a product or service is increased by an additional customer experience.
Flat Rate: A single fixed fee is charged for a product or service, regardless of actual usage.

Fractional Ownership Sharing of a certain asset class among a group of owners.
Franchising: Independent franchisees bear the risk of local operations whilst being licensed to use the franchisor’s brand name, products and corporate identity.
Freemium Allowing users to access a proprietary product or service for free, but charging a premium to access advanced functionalities.

From Push to Pull Decentralization, adding flexibility to a company’s processes in order to be more customerfocused. Guaranteed Availability Makes the customer’s needs central to decisions within the enterprise and the shaping of the value proposition. Hidden Revenue Main source of revenue comes from a third party who cross-finances any free or low-priced offering that attracts users. Advertising is a common application.

Inclusive Sourcing: Shifting the focus of sourcing from volume and price, to supporting the farmer or producer.
Increased Functionality/Services: Uncovering multiple, alternative, uses for an existing product, resulting in fewer products required. Industrial Symbiosis: Sharing of services, utility, and by-product resources among industries to improve resource efficiency. Ingredient Branding: Inclusion of a branded ingredient to a product and stressing the added value or positive association.
Innovative Product Financing: Leasing or renting products to customers. Integrator Company: has command of the majority of steps in the value-adding process, including all resources and capabilities in terms of value creation. Layer Player: A specialized company limited to providing one value-adding step to different value chains, thus benefiting from economies of scale, more efficient production and specialized expertise.
Lean Production: The elimination of waste within a manufacturing system, or the creation of more value for customers with fewer resources. Leverage Customer: Data Creating new value by collecting customer data and preparing it in beneficial ways. Licensing: Developing intellectual property that can be licensed to other manufacturers, transforming intangible assets into money.
Local Loop: Co-locating of production processes in countries or regions where the businesses’ main markets are. Localization: Favoring local and/ or community-based production and consumption. The bulk of revenue is generated through a “long tail” of niche products, which individually, demand neither high volumes nor a high margin.
Make More of It: Where know-how and other assets in a company are offered to other companies, creating additional revenue using slack resources.

Mass Customization: Customizing products through mass production using modular production systems that enable efficient individualization.
Microfinance: Providing low-income, financially excluded, customers with small loans, and at times access to other financial services. Micro-Franchise: Traditional franchising with a focus on creating economic opportunities for the poor to become micro-entrepreneurs.
Modularity: Designing a product based on smaller component parts that can be independently created, purchased, used and replaced.

Multi-Sided Platform: Creating value by enabling direct interactions between two (or more) groups, typically through an intermediary platform. Success is dependent on attracting more users to all sides.
No Frills: Focusing on the necessary minimum to deliver the core value proposition, where cost savings are shared with the customer. Open Business: Where collaboration with partners in the ecosystem becomes a central source of value creation. Open Source: Where the source code of a product is made freely accessible for anyone.
Orchestrator: Where a company focuses on core competencies within the value chain, outsourcing and coordinating other segments.

Pay for Success: Performance-based contracting, typically between providers of social services and governments.
Pay Per Use: Actual usage of a service or product is metered, and customers pay for what is effectively consumed.
Pay What You Want: The buyer pays any desired amount for a given commodity, sometimes even zero. Seller benefits from a larger number of customers. Personalization: Personalization of products through the use of data.

Peer to Peer: Based on cooperation among individuals in a group or community connected via a meeting point, usually an online platform. Physical to Virtual: Replacing brick and mortar infrastructure with virtual services. Produce on Demand: Producing a product only when a customer order is made. Product as a Service: Customers pay for the functionality of a product, without the responsibility of repairing, replacing or disposing it. Razor and Blade: Basic product is cheap or given away for free, while the consumables are expensive and sold at high margins.

Rematerialization: Sourcing materials from recovered waste to create entirely new products.
Rent Instead of Buy: Customers rent the product, reducing the capital typically needed to access it.
Repurposing Excess: Capacity Excess capacity is mobilized in new ways, or with new customers.
Revenue Sharing: Sharing revenues with ones stakeholders. Reverse Engineering: Obtaining a competitor’s products, taking it apart and using the information obtained to produce a similar or compatible product. Products are offered at a lower price because of no investment in research or development is required.

Reverse Innovation: Simple, inexpensive products that have been developed within and for emerging markets. Self-Service Part: of the value creation of the service or product is transferred to the customer in exchange for a lower price. Shop in Shop: Instead of opening new branches, a company finds a partner whose branches can profit from integrating its offerings. Solution Provider: Offering comprehensive coverage of products and services in a particular domain, consolidated at one point of contact.

Stewardship Model: Where products and/or services are delivered via means that take into account biodiversity protection, ethical trade, consumer care, etc. Subscription Model Customers pay a recurring fee to gain ongoing access Sufficiency Model: Where customers are encouraged to consume less – e.g. extending the product life, encourage product take-back, product exchange, premium branding, etc. Supermarket: A company sells a large variety of readily available products and accessories under one roof. Customers are attracted to the wide variety, while economies of scale yield advantages for the company.

Trash to Cash: Used products are collected and either sold or transformed into new products. Resource costs for the company are practically eliminated. Ultimate Luxury: Where a company distinguishes its products or services by offering high standards of quality or exclusivity. User Design: Where a company supports customers to apply their creativity and preferences through services such as an online shop, or design software – resulting in the customer being also the manufacturer. White Label: A White Label producer allows other companies to distribute its goods under their own brand name.

1https://democracyjournal.org/magazine/31/capitalism-redefined/ What prosperity is, where growth comes from, why markets work, and how we resolve the tension between a prosperous world and a moral one. Nick Hanauer & Eric Beinhocker (Winter 2014, No. 31) McKinsey Quarterly: https://www.mckinsey.com/featured-insights/long-term-capitalism/redefining-capitalism Despite its ability to generate prosperity, capitalism is under attack. By shaking up our long-held assumptions about how and why the system works, we can improve it.

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