White Papers [in beta]

Archive of SinCo White Papers developed for thought leadership articles, clients and in the public interest. Executive summaries and PDFs will be posted here in coming months, please check back. For other SinCo writing and work by peers, please review our LIBRARY.

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Like Europe, in South Africa the institutional investment industry has been a driver. US$ 125 billion (self-reported) in Sub-Saharan Africa  is invested with ESG policies, dominated by South Africa’s GEPF and its asset manager, PIC, managing 92% of its US$ 131bn. A fraction – US$ 5,5bn – is invested with ESG-branding. The opportunities to grow the market lies in the gap between, and in the 80% of institutional and retail investment still to fully appreciate the sustainability meta-theme.

Based on our work for the seminal IFC-SinCo Sustainable Investment in Sub-Saharan Africa report 2011 prepared by SinCo for IFC over 23 months from August 2009, we have further developed out thinking on SI in the region. The findings are based on research conducted by SinCo and RisCura, encompassing a literature review and empirical analysis, including interviews with investment practitioners. Primary research was conducted in 2010 and 2011. The authors conducted interviews and corresponded with over 160 investors, lawyers, analysts, consultants, academics, and advisors active in investment in South Africa, Nigeria, and Kenya. The authors thank the many colleagues who helped us: 13 asset owners, 37 asset managers, 52 private equity investors, and 59 investment stakeholders who contributed directly to this report by taking part in interviews, as well as the many investment and research colleagues inside and outside Africa who contributed to IFC-SinCo report. The White Paper develops some of the new thinking on the evolution of SI in the region, and lessons for Global Emerging Markets [GEM].

[WHITE PAPER forthcoming Q1 2012] 

 What Is the Value Of A Tree?

What is the value of one tree? One of our most popular interview questions, the issue quickly unpacks the issue of valuation and price. Ecosystems services and the value of biodiversity are being tested in a financialized, globalized market for assets. What can sustainable investments add to the appreciation of investment and returns, against the backdrop of one planet and the natural resources and the communities that value them. The backstory includes a Christian Science Monitor 2006 article on the increase costs from loss of shade, to a US mapping program by the USDA Forest Service Pacific Southwest Research Station's (PSW) scientists which found that for every $1 spent on planting and caring for a tree, the benefits that it provides are two to five times that investment.

Benefits include cleaner air, lower energy costs, increased property values and improved water quality and storm water control. Scientists collected and analyzed cost and benefit data on large, medium, and small trees in 16 communities across the nation. They compared costs, such as tree purchase/planting, pruning, irrigation and pest control, with benefits, such as increased property value, runoff reduction, energy savings and air pollution reduction. A large tree in the Northern California Coast region, for example, will return a benefit of $101 a year. One in the Inland Empire will net $66 annually. These findings are detailed in a series of brochures, which were produced in partnership with CAL FIRE Urban and Community Forestry, examining trees in California's Inland Empire and Valleys, Southern and Northern California Coast, Desert and Mountain climate regions. Brochures covering 10 more U.S. climate regions will be available later this month. The brochures can be found at: http://www.fs.fed.us/psw/programs/uesd/uep/ 

So how should investors - including real; estate and forestry investors in emerging markets like Costa Rica and Mozambique and Borneo, value their assets..?

[WHITE PAPER forthcoming Q1 2012]

Re-engineering Investment 

 In 2011, institutional investors are worried about the state of their profession. For example, in October 2011 a group of 10 heavyweight European investment professionals formed "The 300 Club" to draw attention to ways in which the investment industry does not act in the long-term interest of its clients. They say they aim to "raise awareness about the potential impact of current market thinking and behaviours and to call for immediate action", with a mission to "spotlight irrational and dangerous market behaviours and assess their implications". The 10-strong group, named for the 300 Spartans of Greek legend who resisted the Persians at the Battle of Thermopylae, is concerned about three main trends according to the FT [Industry chiefs admit they’re stumped October 16, 2011 4:14 am]: increasing complexity; a focus on products rather than the needs of investors; and a view that in the medium to long term, markets will always rise. Added to this, more and more retirement have switched their members to a defined contribution basis, meaning the investment risks are with the workers/members. Who often are uninformed,ill-disciplined, or not incentivized to investment for the long-term.

These trends will have a significant negative effect on the concept of savings and investment in the coming decades as a smaller asset base is needed to underpin investment goals. The asset management industry must work to prevent the serial short-termism from its clients, malaise in the practice of investment [including irrationality] and their portfolio company investments. Sustainable investment institutionally as a philosophy [eg. Generation Investment Management] should fit better the need for longer time horizons, a compelling logic for institutional investors to be active in the space. But are they..?

[WHITE PAPER forthcoming Q1 2012]

Scaling Up Sustainable Investment

Despite efforts of thought leaders, including the CFA Institute, sustainable investment is misunderstood by most investment practitioners, and their clients – like your retirement fund or unit trust. This will change. Globally at least US$ 11 trillion is invested using ESG factors according to industry sources such as USSIF, Eurosif and Asria, with more than US$ 450bn in emerging markets. Some analysts predict AuM will top US$ trillion by 2015. Voluntary investor initiatives like the Carbon Disclosure Project count more than US$ 71 trillion, and the UN-backed Principles for Responsible Investment (PRI) count over US$ 25 trillion. These initiatives seek in different ways to promote more explicit recognition of risks and opportunities from ESG factors, including at the system level. One initiative is pressing COP17 negotiators to develop more regulatory incentives to invest in climate finance [see 2011 Global Investor Statement on Climate Change http://www.iigcc.org/iigcc-investor-statement]

How to drive more capital to integrate ESG factors in 2012..?

[WHITE PAPER forthcoming Q1 2012]

Rethinking Climate Resilient Investment

What Is the Sustainable Investment Case for Fracking?

Investment practitioners will need a nudge to embrace this more advanced investment approach, which goes beyond climate change finance. Long-term investors need to get smarter for sustainable performance in a more inclusive, climate-resilient economy marked by greater volatility and globalization, while avoiding immaterial political investment agendas. Or the portfolio risks will play out, hurting investment performance, and losing their client’s savings.

Can we find an investment path that goes beyond tilts of carbon intensity in portfolios, driving new capital to big-ticket climate finance, and plays across the public-private divides to deliver PPP thinking at scale? See OECD paper www.oecd.org/env/cc/financing - "Significantly scaled up financing for adaptation is a core element of the ongoing international negotiations on climate change." Workshops identified "Raising incentives for #pension funds and other private pools of capital to invest in low carbon and “climate proofed” development, including through the use of green bonds"...

[WHITE PAPER forthcoming Q1 2012]

In the 21st century, the huge new demand for reliable, cheap and environmentally-friendly power generation follows as millions move into the middle classes, and billions move out of poverty. Like us, they all increasingly seek better (and more energy-intensive) lives. Fracking is a controversial topic currently being debated in Africa, especially in Southern Africa as South Africa considers if/how to develop a policy on energy and extraction that considers the technology of shale gas fracturing, commonly called "fracking". Investors are increasingly seeking investments with positive environmental, social and governance (ESG) attributes. The controversial method for extracting natural gas — hydraulic fracturing or 'fracking' — is stirring an environmental and property rights debate, and at least one movie, Gasland. Companies such as Shell, Halliburton, ExxonMobil, Total, and SASOL have applied for exploratory licenses in countries ranging from Poland to France to South Africa. The US Energy Information Administration has estimated that there are trillions of cubic feet of shale gas in the world.

Can frontier and emerging markets develop energy resources while creating jobs, not destroying its natural endowment and leading to corrupt practices? Who loses in the trade-offs? How can leading investors help us understand consider the investment case for fracking including material ESG factors. Can fracking work without compromising a clean environment or irreversible ecological damage? Where will the massive amounts of water needed come from? What investment opportunities are there, and what liabilities may investors be taking on?

[WHITE PAPER forthcoming Q1 2012]

LISTEN to Bruce Whitfield interview Graham Sinclair about the forthcoming GIBS + AfricaSIF.org Sustainable Investment Case Forum: Bruce Whitfield and Graham Sinclair, Sustainable Investment Strategist, SinCo.


What is the Sustainable Investment Case for Fighting Malnutrition?


With the world's population reaching 7 billion, competing demands for key resources such as food, water and land will fuel tensions. As far back as 2002, investment bank UBS flagged obesity as the “next tobacco” for the F&B sector. Selling more food products is great for business, but what if success contributes to public health issues? Investment analysts are concerned that F&B manufacturers’ response to the nutrition/obesity challenge will strongly influence companies’ performance in the medium term, expecting “significant correlation between food groups’ [nutrition] positioning and the pace of profitable growth.”  Companies seek growth in emerging markets, which are getting fatter (Nigeria and South Africa have the highest incidence of obesity-linked diabetes in Africa). With obesity the largest threat to healthcare after cancer, the USD 3.8 trillion food & beverage sector is nervous. Caveat investor.

[WHITE PAPER forthcoming Q1 2012]


Visit the ESGextra blog by @esgarchitect at http://esgextra.blogspot.com

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