Dr.Bozesan on Integral Impact Investing EBAN Conference Vienna may2013

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© 2013 AQAL Capital. Strictly Confidential. For qualified investors only. 1 1 © 2013 AQAL Capital. Strictly Confidential. For qualified investors only Why I Am an Integral Investor Dr. Mariana Bozesan Club of Rome, Intl. Full Member President, AQAL InvesDng Partner, AQAL Capital May 13 th , 2013

Transcript of Dr.Bozesan on Integral Impact Investing EBAN Conference Vienna may2013

Page 1: Dr.Bozesan on Integral Impact Investing EBAN Conference Vienna may2013

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© 2013 AQAL Capital. Strictly Confidential. For qualified investors only

Why  I  Am  an  Integral  Investor  

 Dr.  Mariana  Bozesan  

Club  of  Rome,  Intl.  Full  Member  President,  AQAL  InvesDng  Partner,  AQAL  Capital  

May  13th,  2013  

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Lehman,  Fukushima,  Madoff,  Libor,  Climate  Change,  Debt  Crisis…    

 

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…  lead  to  wealth  owners’  sinking  confidence  in  insDtuDonal  

investors*  

*Source:  BCG  Report,  Regaining  Lost  Ground:  Resurgent  markets  and  new  opportuni5es.  Becerra  et  al.2010.  

 

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>=  10%  of  High  Net-­‐Worth  Individuals  want  sustainability  in  both  financial  terms  and  impact,  but  cannot  get  it  

   

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….  because  innovaDve  financial  products  that  can  fulfill  our  needs  are  

missing  at  large  scale    

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Thus,  many  HNWI  are  bypassing  insDtuDons    • Seeking  alternaDves  to  tradiDonal  fund  products,  o\en  sobered  by  weaker  than  expected  past  product  performance  

• Wealth  owners  are  self-­‐organizing:    – AVIVA  Corporate  Sustainability  CoaliDon  ($2  trillion)    – InternaDonal  Integrated  ReporDng  Commibee  (IIRC)  – InternaDonal  Stock  Exchange  IniDaDve  – Sustainable  Capitalism  Manifesto  –  Al  Gore  – The  Giving  Pledge,  GIIN,  incl.  self-­‐organizing  family  offices,  TONIIC,  PYMWYMIC,  AQAL  InvesDng,  etc.  

•  Impact  InvesDng  is  o\en  missed  by  insDtuDonal  investors  (only  5%  use  it)  vs.  10%  of  HNWI*    

 *Source:  J.  P.  Morgan  &  GIIN  Report:  Insight  into  the  Impact  Investment  Market.  December  14,  2011    

 

 

Market  drivers  

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TradiDonal  invesDng  is  challenged*    

7  

Market  drivers  

•  Financial  crisis  lead  to  fear  and  uncertainty  –  Falling  revenue  and  margins  –  Massive  capital  migraDon  –  Frustrated  wealth  owners  losing  trust  in  their  asset  managers  –  AlternaDve  and  customized  invesDng  are  on  the  rise  

•  TradiDonal  invesDng  o\en  focused  on  short-­‐term  profit  maximizaDon  at  the  expense  of  long-­‐term  health  of  global  community,  culture,  environment,  ethics,  and  overall  human  happiness  

•  TradiDonal  investment  metrics  o\en  missed  sustainable,  Dme-­‐based  businesses  and  responsible  investment  opportuniDes  

•  Many  tradiDonal  asset  managers  failed  to  develop  a  core  competency  in  alternaDve  invesDng  opportuniDes  including  impact  invesDng  (SRI/RI/ESG)  

•  The  Venture  Capital  model  is  “broken”*  Profit  

TRADITIONAL  INVESTING  Profit  Metrics  

e.g.      

WALL  STREET  BERKSHIRE-­‐HATHAWAY  

KLEINER  PERKINS  SEQUOIA  CAPITAL  

       

*Source:  Mulcahy,  D.  &  Weeks,  B.  &  Bradley,  H.  S.,  (2012,  May).  We  have  met  the  enemy  ….  And  he  is  us:  Lessons  learned  from  twenty  years      of  the  Kauffman  Founda5on’s  investments  in  venture  capital  funds  and  the  triumph  of  hope  over  experience.  Kauffman  FoundaDon  Research    

 

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Impact  InvesDng  is  growing  but  is  fragmented    

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Impact  InvesDng  is  fragmented  Two  types  of  Investors*  •  Financial  (Profit)  First  Investors    

– Pursue  the  opDmizaDon  of  financial  returns  before  having  an  impact  floor    

–  Investors  “are  not  willing  to  accept  lower  than  market  returns  as  a  cost  to  opDmizing  social  or  environmental  goods,  although  they  sDll  make  a  posiDve  impact”    

•  Impact  (People/Planet)  First  Investors    – Seek  to  opDmize  social  and  environmental  impact  with  a  financial  floor  

– For  greater  impact,  investors  are  willing  to  accept  lower  than  market  financial  returns.    

IMPACT    INVESTING  

Sustainability  Metrics:  ESG  

Triple  BoMom  Line  

 

Profit  

People  

Planet  

e.g.  GRAMEEN  BANK  TRIODOS  BANK  

GLS  BANK  BANK  SARASIN  

     

Market  drivers  

*DefiniDon  a\er  (Eurosif,  2010,  p.  7)  

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European  Impact  InvesDng  in  2009  

*Source:  EUROSIF  SRI  Survey  2010    

Impact  InvesDng  

13  

23  

33  

89  

242  

242  

306  

312  

396  

411  

1,043  

1,851  

Germany  

Switzerland  

Spain  

Finland  

Belgium  

Denmark  

Sweden  

Italy  

The  Netherlands  

Norway  

UK  

France  

0   200   400   600   800   1,000   1,200   1,400   1,600   1,800   2,000  

European  Impact  InvesDng  Assets  in  2009  in  Billion  Euros    (Source:  Eurosif  SRI  Survey  2010)    

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Global  Sustainable  InvesDng  (SRI/RI)  is  growing*  •  Global  Sustainable  Investments  using  some  kind  of  ESG  criteria  reached  US$  13.6  trillion  (=21.8  %  of  total  AUM  in  2012)  with  

– Most  common  strategy  being  NegaDve/exclusionary  screening,  US$  8.3  trillion  AuM  

–  Norm-­‐based  screening,  US$  3.0  trillion  AUM  mostly  Europe  (65%  of  known  SRI  AuM)  

–  PosiDve/best-­‐in-­‐class  screening  1.0  trillion  AuM,  mostly  US  

–  Assets  uDlizing  ESG  integraDon  are  at  US$  6.2  trillion  

Market  drivers  

*Source:  The  Global  Sustainable  Investment  Alliance  (GSIA)  Report  2012,  hbp://gsiareview2012.gsi-­‐alliance.org    

•  Impact  InvesDng  theme  investments  are  growing  but  are  sDll  fragmented  and  

–  ComparaDvely  small  at  US$  89.0  billion  

•  Sustainability  theme  investments  are  growing  but  

–  Are  also  comparaDvely  small  at  USD  83.0  billion    

   

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The  IntegraDon    between  TradiDonal  InvesDng  and  

Sustainable  Impact  InvesDng  is  needed  

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Integral  Metrics  

Planet  

People  

Profit  

Ethics,  Ego,  Emo8ons  &    Consciousness  

Behavior  

Exterior  Interior  

Individual  CollecDve  

Culture  &  

Morals  

INTEGRAL  INVESTING  GeneraDon,  AQAL  InvesDng,  AQAL  

CAPITAL,  Natural  InvesDng  

IntegraDng  TradiDonal  and  Impact  InvesDng  

Profit  

TRADITIONAL  INVESTING  

 Profit  Metrics  

e.g.    

TRADITIONAL    WALL  STREET  

BANKS  AND    

VENTURE  CAPITAL  FIRMS  

         

IMPACT    INVESTING  

Profit  

People  

Planet  

Sustainability  Metrics  ESG,  IRIS,  SAM  

Triple  BoMom  Line  

 

e.g.  GRAMEEN  BANK  LGT  VENTURE  PHILANTHROPY  

     

Integral  InvesDng  is  based  on  Ken  Wilber’s  Integral  theory  that  is  widely  applied  in  35  disciplines  including  science,  poliDcs,  economics,  educaDon,  medicine,  and  business;  Ken  Wilber  is  endorsed  by  Nobel  Prize  laureate  Al  Gore,  former  US  President  Bill  Clinton,  former  Secretary  of  State  Hillary  Rodham  Clinton,  and  is  also  used  i.e.  at  McKinsey  and  Company.    

Source:  Wilber,  K.  (2000).  A  theory  of  everything:  An  integral  vision  for  business,  poli5cs,  science,  and  spirituality.  Boston:  Shambhala.    

IntegraDon  

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What  is  the  evidence  that  it  works?  

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 e.g.  Whole  Foods:    

+40%  Higher  ROI  than  FoEs  

over  10  years  (1800%  shareholder  value  1995–2006)  

 

Sample:  8.0x  higher  ROI  than  market  average  (S&P  500)  over  

10  years;  and  -­‐        3.1x  

higher    than  GGCs  

3.0x    higher  ROI  than  market  average    (S&P  500)  over    

15  years  

GOOD  TO  GREAT  COMPANIES  (“GGC”s)  -­‐  2002  • Nucor;  Kimberly-­‐Clark  • Kroger;  Walgreens  • Wells  Fargo;  Gillebe  

ESG  &  INTEGRALLY  ACTING  BUSINESSES  • The  Container  Store;  REI  • Whole  Foods;  Trader              Joe’s;  Patagonia;  DM  

• Stoneyfield  Farms  

FIRMS  OF  ENDEARMENT                    (“FoE”s)  -­‐  2007  

• Patagonia;  Amazon  • Southwest  Airlines  • IKEA;  BMW;  eBay  • Google;  AVEDA    

*Source:  Sisodia,  R.,  Sheth,  J.,  Wolfe,  D.B.  (2007).  New  Jersey:  Wharton  School,  p.  16      

Sample  evidence:  Risk  reducDon  &  inclusive  sustainability      already  visible  with  ESG  &  integrally  acDng  companies  

Sample  Evidence  

Results  of  the  ongoing  ShiP  to  Conscious  Capitalism  

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Evidence:  Investment  return  in  detail*       15  Year   10  Year   5  Year   3  Year  

    Cumula8ve   Annualized   Cumula8ve   Annualized   Cumula8ve   Annualized   Cumula8ve   Annualized  

FOE  Return   1646.1%   21.0%   254.4%   13.5%   56.4%   9.4%   77.4%   21.1%  

GTG  Return   177.5%   7.0%   14.0%   1.3%   -­‐35.6%   -­‐8.4%   -­‐23.2%   -­‐8.4%  

S&P  500  Return   157.0%   6.5%   30.7%   2.7%   15.6%   2.9%   10.3%   3.3%  

*Source:  Mackey,  J.,  &  Sisodia,  R.,  (2013)  Conscious  Capitalism:  LiberaDng  the  heroic  spirit  of  business.  Boston:  Harvard  Business  Press  Review.    Slide  was  downloaded  from  hbp://www.slideshare.net/s2kapoor/foe-­‐updated-­‐financial-­‐performance    on  Jan  8,  2012  

Evidence  

Note:  Company  returns  are  total  returns  with  dividends  reinvested  and  compounded*  

FoE:  Firms  of  Endearment  

GtG:  Good  to  Great  

S&P:  Standard  and  Poor’s  index  of  five  hundred  U.S.  companies  

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TARG

ET  FINAN

CIAL  RETURN

 

TARGET  SOCIAL,  ENVIRONMENTAL,  ETHICAL,  CULTURAL,  &  HAPPINESS  IMPACT  

PROFIT  FLOOR  

IMPA

CT  FLO

OR  

FINANCIAL  FIRST  INVESTORS  OpDmize  financial  returns  with  an  impact  floor  

IMPACT  FIRST  INVESTORS  OpDmize  social  and  environmental  impact  with  a  financial  floor  

Philanthropy  

Making  Money   INTEGRAL  INVESTING  

Risk-­‐adjusted  opDmal  financial  return  and  premium  impact  returns  

Summary:  An  Integrated  Impact  Approach  

Summary  

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The  only  crisis  we  have  today  is  one  of  consciousness  

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WE WILL CATCH THE BOAT!