Of all of the big hairy systemic issues out there these days, I keep bumping into the question of sustainable finance. From whatever lens one takes -- macro or micro, public sector or private sector financing, driven by ODA or ROI -- the task of understanding money flows is critical for a more sustainable future. 'Cause like it or not, money flows frame the parameters of possibilities in our era.
With this in mind, I found myself at the TBLI Conference in Frankfurt, Germany early November (2-4th). The labour of love of Robert Rubinstein, this was the seventh Brooklyn Bridge TBLI event, which is practically middle age for a conference, not to mention testimony to Robert's ability to consistently attract leaders in the SRI (Socially Responsible Investing) and CSR (Corporate Social Responsibility) sectors. The next conference will be held in Bangkok, an encouraging signal that this field is spreading beyond the Western markets.
For my part, I ran an interactive workshop on the "Future of SRI". This was a strategic conversation designed to get people thinking differently while introducing some of the tools for strategic foresight, namely scenario thinking. This was Robert's idea because in his words "the SRI mafia needs to think more out-of-the-box and challenge their assumptions" about the future. I happily agreed to do this, notwithstanding the overtones of thuggery that might prevail (lucky for me, while leery of what "interactive" meant, the attendees were great and creative to boot!)
Seriously though, this community is important to watch because they are the ones focused on revamping our market metrics to include the other forms capital -- environmental and social -- and a longer term view. At the same time, the SRI community is also vulnerable to suffering the similar fate of other movements (i.e. fragmentation of effort, dogmatic insularity, and working at cross purposes) if there is no strategic dialogue about what success looks like and how it can be achieved. Just look at environmentalism, and the point is clear.
About 400+ people came (see website for list). They were asset fund managers, SRI research analysts, high networth individuals, the private equity folks, local blue-bloods (yes, I met a real German Count), foundations, reps from faith groups and associations, academics, social entrepreneurs, plus a range of consultants and hangers-on (that would be me). Perhaps it was the location, but despite this diversity, the gestalt was unmistakably old world banker. On the surface at least. For underneath those conservative navy-blue suits and serious-looks were some bona fide change-makers, a good reminder that they come in many different sizes and shapes.
No one theme or headline emerged from the conference; it wasn't really designed to be cumulative in message, with lots of different topics and workshops, and no synthesis at the end. Nevertheless, here is what stands out in my mind:
Michael Eckhart, President of SolarBank and President of the American Council On Renewable Energy (ACORE) talked about the use of bonds to finance solar energy, which made a lot of sense. ("Financing Solar Energy: Why it is more difficult than it seems, and possible solutions".) These kind of financial innovations, while not sexy to some, will be critical.
Rana Kapoor, CEO of Yes Bank in India, talked about the business case for sustainable investments in emerging markets, a promising model and company to watch. I'm struck by the number of Indian business leaders who just get this; and they seem skilled at explaining -- in natural, practical, timeless terms -- the interdependence between business and society. We should get these guys to give tutorials to their peers at Davos next year.
In my session. the key strategic question was around the difference between SRI as a movement and SRI as an industry. While having these lines blurred was useful in the early days, as this field matures there should be a clear boundary distinction. The motivations, tools, approaches and strategies are quite different depending on what side of the line you're on -- activist or asset manager. To generalize, activists believe we need to work outside of the money system to bring about change because the parameters are corrupt and the problem; whereas the analysts and SRI industry players believe the solutions are best found by working within the rules of the game. A classic strategic and deep worldview difference.
Different cultural attitudes to financing and money were raised as important areas to understand more deeply. The impact of China, India, and Islamic finance were specifically mentioned. More broadly, how the role of money changes over time is something to be explored with a "long view" in mind. For instance, the word "wealth" used to mean "well-being" just a hundred years ago, instead of being rich in cash. Can we imagine a world where we go back to this broader definition of wealth?
Scale seems to be the word of the day. Most conventional bankers won't look at anything -- a product idea, an innovation, a service -- unless they can see how it can scale. No mass market, no mulla. This puts at a serious disadvantage innovations which may not have an obvious scaling potential, but still deliver much value at the local level. How do we unlock these industrial age production mindsets? How do we overcome this dilemma?
The conventional wisdom is that SRI will be mainstream in ten years; that SRI will be fully integrated into a broader basket of measures when evaluating the risk profile of a corporation. The term SRI will likely disappear. So might the whole SRI industry, which puts some of the champions in an interesting conflict of interest. To provoke discussion, I said " So, you want to disappear, because this means success, but then you don't have a business. To which one person rejoined, "being acquired by a bigger institution isn't such a bad exit strategy." Fair enough. Planned obsolescence is becoming a normal strategy beyond the tech world.
Other financial instruments shouldn't be overlooked either. While the public equity side (stock-markets) get all the attention, private equity is just as interesting and may be the place to focus, because they have more degrees of freedom with their money. Lots of high net-worth individuals and funds are looking to invest differently: in ethical ways and for reasons beyond the bottom line. The trouble is private equity is still poorly understood (especially by asset managers) and the sector is shrouded in some mystique (some of which is cultivated). But expect SRI hedge funds, and almost every other financial product or service, to follow soon.
A strategy to ensure the best case scenario for the industry: if SRI was widely seen as a positive change agent by addressing a global problem. Having SRI legitimized by leading economists and thinkers (e.g. a Nobel Prize winner would be nice) would also help. At the same time, people felt more bottom-up action and pressure on policy-makers and leaders was necessary to get "beyond the business case." Changing business school education to include SRI training, together with a more "postmodern view of the role of the corporation in society", was seen to be important as well, especially since finding the right talent is going to be a constraint in this field.
The worst case scenario imagined SRI disappearing because it had failed. As a professor argued, in terms of relative returns, SRI is showing poor performance compared to most benchmarks. If this trend continues, the SRI market will shrink and then become discredited. Another detrimental driver: governments could determine that SRI is not socially responsible from a fiduciary duty perspective. Apparently an investigation is happening in the US now along these lines. Lastly, there is a fear that SRI investors and the development/aid community are on a collision course in terms of how they perceive solutions.
Mapping the Big Picture
Everyone is talking about money flows now. This is the good news. There is a growing sense that the rules of the game need to be reviewed and renewed. That some outdated assumptions, too buried underneath the complexity of our systems, need to be surfaced and challenged. The symptoms, however, are obvious. Money is flowing either too much, or too little, or "leaking" in all the wrong places. A dream project would be to map these money flows and see if this helps us spot new opportunities while identifying the bottlenecks.
Contrary to what people may think, the pools of capital are out there, abundant and wanting to flow in different ways to different places. But some pieces of the puzzle are missing. Indeed, the problem is not just the know-how, but the know-what to invest in. At the same time, too many choices at a time of uncertainty creates paralysis. In economist-speak, the evaluation costs become too high. The safe options then become too easy to resist.
What's clear is that the context has shifted for many investors, and they need help redrawing the picture and connecting the dots. We need new social ingenuity to bridge the gap between the gatekeepers of capital at the top and the many innovators at the bottom. Inventing better analytical tools, creating new intermediaries that broker these worlds, aggregate and broker activities are the categories I'd focus on.
At the end of the day, we should be encouraged that markets are not laws of nature, but social constructions, so it's within our abilities to make design changes if we find the courage, ingenuity, and wisdom to do so. The trillion dollar question is how do we realign these money flows so that they are more equitable and effective?
My presentation is found on the TBLI website (not up yet) here(PDF 1.1 MB). One warning: this isn't a futurist's picture of SRI, but a structure from which to have a strategic dialogue around. In other words, no glib predictions or easy answers are provided.
You can also read Gil Friend's excellent earlier post on the Future of SRI, which I found helpful in preparation.
For other reports I found interesting:
A largely optimistic view, "The Future of Socially Responsible Investment: Thought Leader Study" by Coro Strandberg (May 2005) from Vancouver, BC. Yeah for the hometown!
Paul Hawken's critique "Socially Responsible Investing: How the SRI industry has failed to respond to people who want to invest with conscience and what can be done to change it" which can be found at the Natural Capital Institute (2004) in the San Francisco Bay area.
Many thanks to Brooklyn Bridge and to the participants. And many thanks to the people I interviewed in preparation for this conference, including: Amy Domini, Angela de Wolff from Lombard Odier Darier Hentsch & Cie, Eric Breen from Robeco, and Max Keiser founder of Karmabanque and Hollywood Exchange, and Stacy Herbert.
Paul Hawken's critique is amazing. Has any fund taken up his suggestions?
If one was open about who they invested in and why, if I could suggest companies in an online forum... I'd likely move my tiny nest egg to it right away, and tell everyone I knew. Anyone know?
Does anyone have more information on Michael Eckhart's presentation, or know where more information can be found?
It sounds quite interesting indeed.
I will see if I can get access to it, and point you to the URL.
The author talks about a 'dream project' of mapping money flows. Does anyone know what information is needed, who is doing this, what's still needed, possible obstacles, etc?
Hey, tout le monde -
All TBLI presentations, including Eckhart's, are found here: