#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...
IMPACT
METRICS
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
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
PUBLIC
SPEAKING & PANELS
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.
Rapport:
http://volans.com/wp-content/uploads/2016/09/Volans_Breakthrough-Business-Models_Report_Sep2016.pdf
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.
