March 2014 Journal of Sustainable Finance & BankingSM...BMW Urban Mobility Juan Lois … p.43 From...

Journal of Sustainable Finance & BankingSM

March 2014

©Sashkin/Shutterstock

Sustainable Domain Arbiters of Cool Erika Karp … p.16

Global Sector Research Defining Crises Michael Geraghty & Michael Shavel … p.18

Biomimicry Michael Shavel … p.22

The Nature of Investing Katherine Collins … p.25

Sustainable Fashion Design Cindy Motz … p.28

Open Source Excellence INDIGENOUS Supply Chain Ethics & Design Matthew Reynolds … p.31

Private Investors Exploring Emerging Asset Classes Hazel Henderson … p.33

Accelerating Impact Design to Serve the Reasonable Investor Dr. Jean Rogers … p.36

Enhanced Analytics ESG & Credit Risk N. Neghaiwi & A. Mihailescu Cichon … p. 38

Sustainable Product Review BMW Urban Mobility Juan Lois … p.43

From Luxury to Biomaterials Margarita Pirovska … p.46

Sustainable Editorial E-Cigarettes Derek Yach … p.48

Valuation & Accounting Lack of R&D Tax Credit Janet Pegg … p.51

CEOs Letter on Sustainable Finance & Banking

Erika Karp Founder and Chief Executive Officer of Cornerstone Capital Inc. and Former Head of Global Sector Research at UBS Investment Bank

This month in the “Cornerstone Journal of Sustainable Finance & Banking” (JSFB) we note the extent to which some volatility has returned to the global markets in the face of some complex cross currents. While the US Fed continues its tapering process, in recent days investors sensed some potential for the Eurozone and China to offer some monetary accommodation. Further, there seems to be as much uncertainty about geopolitics and political economics as there is regarding the price paid by the capital markets for Candy Crush maker King Digital’s IPO and by Facebook for Oculus as we enter a world of virtual reality. The hope it that these companies will prove to be masters of product design. This month in the JSFB, our theme is indeed design. In considering the design of business models and practices, this month we move from virtual reality to the actual reality facing global investors. These realities include the necessity of banks in the US to have enough capital strength to pass Fed Stress tests, the imperative of dealing with oil spills like that in the Galveston Bay taking a terrible ecological and commercial toll, and the critical steps taken by General Motors to address its current crisis relating to vehicle safety. Speaking of crises this month, we turn to a report from Cornerstone’s Global Markets Strategy team of Michael Geraghty and Michael Shavel. This note in our Global Sector Research section entitled “Defining Crises: Catalyzing Sustainable Growth?” considers lessons from history and whether or not companies have the capacity and governance capabilities to re-design and redefine their future state following a crisis. In the report, our team simply takes a quick cross-sector snapshot of companies such as Johnson & Johnson, Nike, Tyco, Neste Oil, Rio Tinto, Royal Bank of Canada and IBM. They ask about the genesis of and response to a major corporate crisis. And they suggest that when companies try to use lessons from history and the analysis of sector specific environmental, social and governance (ESG) factors to design their business models, the better can be their resilience and long term performance. Also this month in the JSFB, we consider extraordinary designs inspired by nature: Biomimicry. We include a report from Cornerstone Analyst Michael Shavel discussing how we can use “Nature’s R&D Department to Increase Productivity.” Michael reminds us that butterfly wings and sea bird beaks can inspire everything from Qualcomm’s mobile display technologies to Airbus A350s. Further, Katherine Collins report on “The Nature of Investing” argues that great investing and the search for true corporate stewardship demands an analogy to nature’s resilient and regenerative systems: Embrace nature’s wisdom. And, this is very much what Hazel Henderson does in

Cornerstone Journal of Sustainable Finance & BankingSM / March 2014 / 2

her article this month highlighting how “Private Investors are Exploring Emerging Asset Classes” as she guides us to the cutting edge of opportunity. This is all extremely cool. In fact, this month in the JSFB we argue in our “Featured Domain” that investors who think in these holistic ways are cool. In designing an investment process and a methodology to allocate capital, we argue that in the long run there can be a demand for both competitive returns and societal impact. We consider these investors who systematically seek this out and integrate the analysis of environmental, social and governance factors into their investment processes the new “Arbiters of Cool.” And this month for good measure, Cornerstone’s Juan Lois offers us a “Sustainable Product Review” of the BMW “i” line as we hope to move closer to a future of low carbon mobility. Other designers highlighted in this month’s JSFB are Jean Rogers, the Executive Director of the Sustainability Accounting Standards Board (SASB), and Matthew Reynolds, the President and Co-Founder of Indigenous Designs. As we constructively move towards “Accelerating Impact” Jean has designed an organization allowing corporations to give transparency to operational effectiveness through financial disclosure standards. In an example of “Open Source Excellence”, Matt has shown how to raise the bar for Supply Chain Ethics and design through The Indigenous Fair Trace Tool™. Finally in the Journal this month, as we have designs on the ability to promote public health, so we feature a “Sustainable Editorial” from Dr. Derek Yach of the Vitality Institute and Chairman of the Board of Cornerstone Capital Inc. We ask about E-Cigarettes. Are they “A Positive Disruption to the Market and Health, or a Distraction?” And just as Derek looks for a healthy nexus between profits and principles, Cornerstone Capital’s Janet Pegg helps us strike a balance between long-term imperatives and shorter term realities. As Q1 of 2014 comes to a close, Janet reminds us that the “Lack of R&D Tax Credits Will complicate First Quarter Earnings.” As with we see with the work of SASB above and Janet Pegg here, even accounting can be very cool. My sincere regards, Erika Erika Karp Chief Executive Officer


Table of Contents

CEOs Letter on Sustainable Finance and Banking p. 2

Market Summary Overview Market & Global Sector Performance, Monetary Policy & ESG Data

p. 6p. 8

Featured Domain ArbitersofCool.com Erika Karp CEO & Founder,

Cornerstone Capital p. 16

Global Sector Research Defining Crises: Catalyzing Sustainable Growth Michael Geraghty

Michael Shavel, CFA

Global Markets Strategist, Cornerstone Capital Inc.

Research & Business Analyst, Cornerstone

Capital Inc

p. 18

Biomimicry: Turning to Nature’s R&D Department to Increase Productivity

The Nature of Investing

Sustainable Fashion Design – Could Green be the New Black

Michael Shavel, CFA

Katherine Collins

Cindy Motz

Research & Business Analyst, Cornerstone

Capital Inc

Founder,Honeybee Capital

Global Advisory Council Cornerstone Capital,

Financial Services Consultant and former II &

WSJ All Star Analyst

p.22

p.25

p.28

Open Source Excellence Sustainability Becomes Fashionable with INDIGENOUS Fair Trace Tool™

Private Investors Exploring Emerging Asset Classes

Matthew Reynolds

Hazel Henderson

President and Co-Founder of INDIGENOUS Design

President of Ethical Markets Media® and

Author.

p. 31

p.33

Accelerating Impact Design to Serve the Changing Needs of the Reasonable Investor

Dr. Jean Rogers CEO, Sustainability Accounting Standard

Board (SASB)

p. 36

Enhanced Analytics ESG & Credit Risk: New Study Demonstrates a Clear Link

Virtual Attendance #theBigShift – Systems Innovation: Changing Systems, Changing the Future.

Alexandra Mihailescu Cichon

Nicole Neghaiwi

Margarita Pirovska, PhD

Head of Business Development, RepRisk

AG.

Senior ESG Risk Analyst at RepRisk AG.

Policy & Sustainability Analyst at Cornerstone

Capital Inc.

p. 38

p.41


Sustainable Product Review BMW Urban Mobility: Re-Creating the Status Quo through Sustainable Design

From Luxury to Biomaterials – Stories of Sustainable Packaging

Juan Lois

Margarita Pirovska, PhD

Director, Business Development Cornerstone

Capital Inc

Policy & Sustainability Analyst at Cornerstone

Capital Inc

p. 43

p.46

Sustainable Editorial E-Cigarettes. A Positive Disruption to the Market and Health or a Distraction?

Valuation & Accounting Lack of R&D Tax Credit Will Complicate First Quarter Earnings.

Dr. Derek Yach

Janet Pegg, CPA

SVP & Executive Director, Vitality Institute and

Chairman of the Board, Cornerstone Capital

Head of Valuation & Accounting at Cornerstone

Capital Inc.

p. 48

p. 51

Upcoming Events Global ESG Calendar Journal of Sustainable Finance & Banking Subscription Form Articles Cornerstone Capital Team

p.53p.54

p.56p.57


Market Summary

Overview

As we approach the end of the first quarter of 2014, global equity markets have thus far provided a mixed bag of returns for investors. Stocks initially experienced a selloff on geopolitical tensions surrounding the situation in Ukraine as well as renewed apprehension over Chinese economic growth, but have since recovered and, in some cases, are at or nearing record highs. Meanwhile, with the exception of a few, emerging markets continue to underperform on concerns around slower growth and the ramifications of Fed tapering. In the US, equity indices are in positive territory and the S&P 500 is now up over 175% since the bottom during the Global Financial Crisis. However, the stock market’s advance has been mild relative to the robust and mostly linear advances seen last year. Looking forward, bulls point to a conducive environment for sustained returns, including tame inflation, falling unemployment, reasonable valuations, and an accommodative Fed. To the last point, the market took the Fed’s recent meeting in stride, as it announced an additional $10 billion per month in tapering. Some economists note that, on the margin, the Fed’s forward guidance is more hawkish than expected, but the market’s reaction implies that the Fed by and large remains committed to a measured approach to tapering. Congruent to markets’ gains is a growing drumbeat of pundits warning of a looming asset price bubble, citing extreme valuations in specific industries (ie social media and biotech) and compressed credit spreads. Other market skeptics point to elevated levels of investor optimism, measured by sentiment polls. Soft economic data continues to be dismissed as weather-related, but there has yet to be a clear signal of a positive turnaround. For instance, the ISM Non-Manufacturing fell to 51.6 from 54, with the employment component coming in especially weak. Developed markets are no longer moving up in unison, as evidenced in the Japanese Nikkei 225’s

12.6% decline year-to-date (in local currency terms). GaveKal Capital notes that foreign investors in Japanese stocks were net sellers by the largest single-week amount since weekly records began in 2001. Momentum-driven fast money helped drive the returns of the Japanese market last year, so the outflows may not come as a total surprise, but there is an ongoing debate as to whether “Abenomics” is actually working. April will be an important month due to an increase in the consumption tax from 5% to 8%. The FT notes that “nearly two-thirds of sales generated by Japan’s biggest 50 companies, excluding banks, are homegrown,” so the effects of the tax increase will be acutely observed. European indices witnessed selling pressure during the height of the Russia-Ukraine situation, but have since retraced their losses and are largely flat over the last month. The Eurozone is enjoying a broadly balanced resurgence in economic output and economic indicators point to a continued recovery. That said, the ECB seems comfortable with undershooting its target of close to 2% inflation, and this attitude has some investors concerned about deflation risks. Likewise, the euro has been strengthening and some are questioning the extent to which exports will be impacted. Whereas emerging market volatility earlier this year was concentrated in the currencies, equities and bonds of the “fragile five” (Brazil, India, Indonesia, South Africa, and Turkey) on taper-related concerns, China now finds itself in the spotlight. The economic data coming out of the world’s second largest economy has turned decidedly worse, as industrial output, retail sales, and investment were uniformly below market expectations. As a result, investors are growing increasingly concerned about Chinese firms’ ability to carry heavy debt loads in an environment of slower growth and tighter credit. It’s notable that the PBOC took further action to weaken the yuan by widening the band in which it allows the currency to trade. The central bank indicates that it’s navigating


a decline in the currency to deter speculators from betting on it rising continually, though some find the timing curious and speculate that the ulterior motive is to provide a tailwind for exports. On a one month trailing basis, emerging markets continue to underperform developed markets. The MSCI Emerging Markets index underperformed the MSCI World index (developed market proxy) by approximately 130 basis points, extending the YTD

relative underperformance to 5.5%. After underperforming during the brief period of volatility witnessed earlier this year, small cap equities rebounded nicely and outperformed large cap equities by 80 basis points over the last month, and now lead by 1.4% on a YTD basis. From a sector perspective, performance was mixed between cyclicals and defensives. In the MSCI ACWI (broad index for both developed and emerging equities), tech and utilities outperformed while materials and telecom lagged.

The Cornerstone Journal of Sustainable Finance & Banking SM / March 2014 / 7

Market Summary

Market and Global Sector Performance

MARKET / INDEX PERFORMANCE As of 3/21/14 (local currency) T1M (%) T3M (%) YTD (%) 2014E P/E 2014E P/B Div. Yield

US Equity Indices

DJIA 1.40 1.08 -1.09 14.7 2.7 2.3

S&P 500 1.80 3.18 1.45 15.8 2.4 2.1

Nasdaq 0.38 4.52 2.67 20.7 3.2 1.2

Russell 2000 2.64 4.45 2.84 25.8 2.0 1.2

Developed International Indices

Euro STOXX 50 -1.11 1.87 -0.11 13.2 1.4 3.8

FTSE 100 -3.60 0.31 -1.83 13.1 1.8 3.9

CAC 40 -1.04 3.40 0.94 13.5 1.4 3.6

DAX -3.25 -0.61 -2.19 13.0 1.6 3.0

Nikkei 225 -4.26 -10.21 -12.63 18.8 1.5 1.7

ASX 200 0.95 2.85 0.91 15.0 1.9 4.5

Emerging Market Indices

IBOVESPA 0.00 -7.42 -8.01 9.6 1.0 4.5

Shanghai Comp -3.13 -1.78 -3.23 7.9 1.1 3.6

KOSPI -1.17 -1.41 -3.80 10.0 1.0 1.3

SENSEX 5.11 3.42 2.98 16.5 2.6 1.6

Global Market Indices

MSCI World -0.14 2.24 0.06 15.2 2.0 2.6

MSCI All-Country World -0.27 1.57 -0.54 14.3 1.9 2.7

MSCI EAFE -2.57 0.84 -1.87 14.4 1.6 3.4

MSCI Emerging Markets -1.42 -4.01 -5.58 9.4 1.3 3.7


MARKET / INDEX PERFORMANCE (CONTINUED)

As of 3/21/14 T1M (%) T3M (%) YTD (%) 2014E

P/E 2014E

P/B Div.

Yield Sustainable Indices DJ Sustainability World Comp -0.23 2.63 0.22 13.7 1.8 3.2 FTSE4Good -0.35 2.25 -0.14 10.5 1.8 4.0 Bovespa Corp. Sustainability 1.12 -7.07 -7.78 10.1 1.3 4.5 Fixed Income Barclays US Aggregate 0.08 1.29 1.6 Commodities Levels 12/13/2013 6/13/2013 12/13/2012 WTI Crude 99.46 104.68 92.45 ICE Brent Crude 106.92 109.22 107.47 NYMEX Natural Gas 4.31 3.69 3.94 Spot Gold 1334.69 1325.85 1614.85 LME 3mth Copper 6480 7280 7582.5 CBOT Corn 4.79 4.51 7.33 CRB Raw Industrial Spot Index 532.97 521.92 539.93 Currencies Levels 12/13/2013 6/13/2013 12/13/2012 EUR/USD 1.38 1.35 1.29 USD/JPY 102.25 99.36 94.90 GBP/USD 1.65 1.60 1.52 AUD/JPY 92.88 93.33 99.08 DXY Index 80.11 80.42 82.74

Source: Bloomberg, Barclays. Equity Returns: All returns represent total return for stated period. Dividends and coupons are not included in the DAX and BOVESPA indices. Bond Returns: All returns represent total return for the stated period. Index characteristics: P/E, P/B, and Dividend Yield are based on Bloomberg consensus estimates for the stated period.


MSCI ACWI SECTOR PERFORMANCE

as of 3/21/14

1 Month Return (%)

Source: Bloomberg. Sector returns are based on GICS methodology. MSCI ACWI is a free-float weighted equity index that includes both emerging and developed world markets.

YTD Return (%)

Source: Bloomberg. Sector returns are based on GICS

methodology. MSCI ACWI is a free-float weighted equity index

that includes both emerging and developed world markets.

U.S. EQUITY STYLE PERFORMANCE Style box returns are based on Russell Indices with the exception of the Large-Cap Blend box, which reflects the S&P 500 Index. All values are cumulative total return for the stated period including the reinvestment of dividends. The index used from left to right, top to bottom are: Russell 1000 Value Index, S&P 500 Index, Russell 1000 Growth Index, Russell Mid Cap Value Index, Russell Mid Cap Index, Russell Mid Cap Growth Index, Russell 2000 Value Index, Russell 2000 Index and Russell 2000 Growth Index.

1 Month

Source: Bloomberg

Year to Date

Source: Bloomberg

2.6

Value Growth Blend

4.1

2.2

1.8

2.6

1.3

0.8

1.3

0.5

Mid

La

rge

Smal

l


SECTOR SNAPSHOT – TOP 5 COMPANIES BY MARKET CAP as of 3/21/14

Company Name Ticker Country Industry Mkt Cap (US$ Bn)

Price (Local)

Total Return YTD % (local)

P/E 2013E

EV/EBITDA 2013E

Div Yield % 2013E

Consumer Disc.

Toyota Motor Corp 7203.JP Japan Automobiles 186.1 5514.00 -14.1 9.1 9.5 N/A

Amazon AMZN US Internet & Catalog Retail 163.1 355.21 -10.9 89.2 24.0 N/A

The Walt Disney Co DIS US Media 140.1 79.98 4.7 19.8 11.3 1.1

Comcast Corp. CMCSA US Media 129.6 49.75 -4.3 17.4 7.6 1.8

Home Depot HD US Specialty Retail 112.5 79.86 -2.5 18.0 10.4 2.4

Consumer Staples

Wal-Mart Stores WMT US Food & Staples Retailing 246.2 76.24 -2.5 14.3 8.0 2.5

Nestle SA NESN.VX US Food Products 236.2 64.85 -0.7 18.4 12.5 3.3

The Proctor & Gamble Co

PG Switzerland Household Products 215.4 79.45 -1.7 18.8 12.5 3.0

The Coca-Cola Co KO US Beverages 168.7 38.29 -6.6 18.2 13.9 3.2

Anheuser-Busch Inbev

ABI.BB Belgium Beverages 163.2 73.72 -4.6 19.0 10.9 3.9

Energy

Exxon Mobil XOM US Oil, Gas & Consumable Fuels

408.7 94.59 -5.9 12.7 5.7 2.7

Royal Dutch Shell RDSA.LN Netherlands Oil, Gas & Consumable Fuels

231.8 2168.50 1.5 10.3 4.5 5.2

Petrochina Co 857.HK China Oil, Gas & Consumable Fuels

223.8 8.29 -2.5 9.2 5.1 4.8

Chevron Corp CVX US Oil, Gas & Consumable Fuels

221.9 116.23 -6.1 10.5 4.3 3.4

Total SA FP.FP France Oil, Gas & Consumable Fuels

152.2 46.47 5.7 9.5 4.1 5.1

Financials

Berkshire Hathaway- CL B

BRK/B US Diversified Financial Services

307.8 124.81 5.3 19.4 N/A N/A

Wells Fargo & Co WFC US Commercial Banks 258.7 49.26 9.2 12.2 N/A 2.4

JPMorgan Chase JPM US Diversified Financial Services

230.6 60.89 4.8 10.3 N/A 2.5

Ind & Comm Bank of China

1398.HK China Commercial Banks 195.3 4.56 -13.0 4.9 N/A 6.6

HSBC Holdings HSBA.LN UK Commercial Banks 188.8 606.70 -6.7 10.5 N/A 5.6


SECTOR SNAPSHOT – TOP 5 COMPANIES BY MARKET CAP (CONTINUED)

as of 3/21/14


Price (Local)


P/E 2013E

EV/EBITDA 2013E

Div Yield % 2013E

Health Care

Johnson & Johnson JNJ US Pharmaceuticals 268.2 94.82 4.3 16.3 10.5 2.8

Roche Holdings ROG.VX Switzerland Pharmaceuticals 255.1 262.10 8.3 17.3 11.5 3.0

Novartis AG NOVN.VX Switzerland Pharmaceuticals 220.7 72.20 4.8 15.3 13.2 3.4

Pfizer PFE US Pharmaceuticals 201.6 31.53 3.8 14.0 8.6 3.3

Merck & Co. MRK US Pharmaceuticals 159.4 54.22 9.2 15.8 8.7 3.2

Industrials

General Electric Co GE US Industrial Conglomerates 254.6 25.40 -8.6 15.0 9.4 3.5

Siemens AG SIE.GR Germany Industrial Conglomerates 117.0 96.45 0.2 14.2 9.2 3.1

United Technologies

UTX US Aerospace & Defense 104.9 114.42 1.1 16.7 10.2 2.1

The Boeing Co BA US Aerospace & Defense 91.4 122.90 -9.4 16.9 9.1 2.4

United Parcel Service

UPS US Air Freight & Logistics 88.8 96.59 -7.4 18.5 9.7 2.8

Info Tech

Apple AAPL US Computers & Peripherals

481.3 539.52 -3.3 12.6 5.8 2.3

Google GOOG US Internet Software & Services

393.9 1172.24 4.6 22.3 13.0 N/A

Microsoft Corp MSFT US Software 334.1 40.25 8.4 14.9 8.5 2.8

IBM IBM US IT Services 196.2 188.39 1.0 10.5 8.2 2.0

Samsung Electronics

005930.KS South Korea

Semiconductors & Semiconductor

173.9 1273000 -7.2 N/A 2.8 1.1

Materials

BHP Billiton Ltd BHP.AU Australia Metals & Mining 167.7 35.74 -4.3 12.0 6.2 5.3

Rio Tinto Ltd RIO.AU Australia Metals & Mining 99.4 61.50 -8.1 9.9 5.6 5.0

BASF BAS.GR Germany Chemicals 97.6 77.17 -0.4 13.0 7.8 3.5

Saudi Basic Ind. SABIC.AB Saudi Arabia

Chemicals 93.4 116.75 4.7 12.3 6.8 5.1

Vale SA VALE3.BZ Brazil Metals & Mining 66.8 30.32 -15.1 6.1 4.5 0.8


SECTOR SNAPSHOT – TOP 5 COMPANIES BY MARKET CAP (CONTINUED)

as of 3/21/14


Price (Local)


P/E 2013E

EV/EBITDA 2013E

Div Yield % 2013E

Telecom

China Mobile Ltd 941.HK Hong Kong Wireless Telecommunication Ser

174.7 67.20 -16.4 9.5 2.8 4.9

Verizon Communications

VZ US Diversified Communication

193.4 46.69 -3.9 13.5 6.4 4.5

AT&T T US Diversified Telecommunication

179.6 34.50 -0.6 13.0 5.9 5.3

Vodafone Group VOD.LN UK Wireless Telecommunications Ser

97.0 222.65 -13.6 15.4 6.5 5.2

Softbank Corp 9984.JP Japan Wireless Telecommunication Ser

98.1 8354.00 -9.2 20.7 9.9 0.5

Utilities

EDF EDF.FP France Electric Utilities 72.8 28.44 10.7 14.1 5.4 4.4

GDF Suez GSZ.FP France Multi-Utilities 64.6 19.45 13.7 14.2 7.8 7.7

Enel Spa ENEL.IM Italy Electric Utilities 51.5 3.98 25.4 12.7 6.9 3.3

National Grid NG/LN UK Multi Utilities 50.2 816.00 3.6 15.8 10.1 5.6

Duke Energy DUK US Electric Utilities 48.7 68.88 0.9 15.1 10.1 4.5

Source: Bloomberg. The securities in each sector represent the largest companies by market cap in the MSCI ACWI in their respective sectors. Sector classification is based on GICS methodology. Equity characteristics: P/E, EV/EBITDA and Dividend Yield are based on Bloomberg consensus estimates for stated period.

GDP / CONSUMER PRICE INFLATION / RATES

Region/Countries Real GDP (% YoY) CPI (% YoY) Official Rates Long Rates

2014

E 2014

E 2015

E 2013

E 2014

E 2015

E 2013

E 2014

E 2015

E 2013

E 2014

E 2015

E United States 1.9 2.7 3.0 1.5 1.7 2.0 0.25 0.25 - 3.0 3.4 - Euro area -0.5 1.1 1.5 1.3 1.0 1.4 0.25 0.25 - 1.9 - - Europe 0.2 1.4 1.7 1.5 1.3 1.6 0.33 0.34 - 2.9 3.1 - Japan 1.5 1.4 1.2 0.4 2.6 1.8 0.10 0.10 - 0.7 0.8 - UK 1.8 2.7 2.5 2.6 2.0 2.0 0.50 0.50 - 3.0 3.4 - Australia 2.4 2.8 2.9 2.5 2.8 2.5 2.50 2.63 - 4.2 4.6 - China 7.7 7.4 7.2 2.6 2.8 3.2 6.00 6.00 - 4.6 4.6 - Brazil 2.3 1.9 2.5 6.2 6.0 5.8 10.00 11.00 - 10.9 - - India 4.6 4.8 5.3 10.9 9.6 8.2 7.75 7.88 - 9.2 8.5 -

Source: Bloomberg. Estimates are composite of Bloomberg contributor estimates. *Italicized text represents actual data

** India fiscal year runs to March 31. Therefore, 2013E is India's FY13 GDP.


MONETARY POLICY

Feb-14 Aug-13 Feb-13 Monetary Base growth (YoY) 33.1% 33.5% 10.6% M-2 growth (YoY) 6.2% 6.3% 7.1% Money multiplier (M-2/mon base) 2.85 3.11 3.59 3Q13 3Q12 3Q11 Velocity of money (GDP/M-2) 1.57 1.62 1.66

Source: Federal Reserve Bank of St. Louis ESG DATA

2013 2012 2011 2010

Total Global Wind Installations (MW) 318,137.0 283,048.0

238,050.0

197,637.0

Annual World PV New Build (MW) 37,007 29,865.0 30,282.0 17,107.0

1Q13 4Q11 4Q10

Global Aggregate % of Women on Boards 11.0 10.5 9.8

ESG DISCLOSURE SCORES OF LARGEST ECONOMIES (2013)

Composite Environ Social Governance 1. United States 14.4 16.9 14.6 48.9 2. China 18.3 9.8 20.3 44.1 3. Japan 21.3 26.6 20.7 44.6 4. Germany 26.4 28.3 37.1 38.4 5. France 36.4 34.5 47.4 52.3 6. Brazil 32.5 30.2 53.1 38.0 7. United Kingdom 28.4 21.1 32.3 53.0 8. Russia 16.8 18.4 30.4 39.8 9. Italy 33.4 36.0 45.1 43.7 10. India 14.4 18.2 29.4 44.9

HIGHEST ESG DISCLOSURE SCORES

Composite Environ Social Governance 1. Spain 41.9 46.4 56.5 48.6 2. Finland 37.5 34.0 38.7 54.5 3. Portugal 36.9 38.1 40.7 47.9 4. France 36.4 34.5 47.4 52.3 5. Sri Lanka 34.8 33.2 39.9 56.5 6. Italy 33.4 36.1 45.0 43.7 7. Sweden 33.3 26.9 39.5 52.2 8. Brazil 32.5 30.2 53.1 38.0 9. Colombia 32.0 36.2 46.8 33.7 10. South Africa 30.9 24.4 41.2 55.3

Source: ESG Disclosure scores are sourced from Bloomberg ESG data which is collected from company sourced filings such as CSR reports, annual reports, company websites and a proprietary Bloomberg survey that requests corporate data directly. Source: Bloomberg, GMI Ratings


KEY ECONOMIC CHARTS

C&I Loan Growth (%)

Source: Bloomberg

University of Michigan Survey of Consumer Sentiment

Source: Bloomberg

NFIM Small Business Optimism Index

Source: Bloomberg

ISM Manufacturing Purchasing Managers Index

Source: Bloomberg

U.S. Treasury Yield Curve

Source: Bloomberg

U.S. Initial Jobless Claims

Source: Bloomberg


Featured Domain

ArbitersofCool.com

By Erika Karp, Founder & CEO, Cornerstone Capital Inc.

Each month in the Cornerstone Journal of Sustainable Finance & Banking (JSFB), we will offer thoughts on a “Featured Domain” which is selected from our proprietary “Sustainable Domain Bank”. The Cornerstone “Sustainable Domain Bank” contains 2,000+ addresses on the Internet which are an articulation of business processes, business practices, and aspirations for a more regenerative form of capitalism. Many of these domain names have the potential to be developed into business plans reflecting a robust interpretation of sustainable capitalism and finance. In particular, each “Sustainable Domain” captures a principle, or reflects a value inherent in the systematic understanding of the Environmental, Social, and Governance (ESG) imperatives facing businesses and the economy today. Each Domain is intended to facilitate dialogue across functions and sectors of the capital markets; and each is available for collaborative partnership, purchase or transfer should it have particular appeal to Cornerstone clients and colleagues.

For better or worse, we live in a culture in which the coveted social label, “cool,” drives fickle fashion and retailing tastes, molds entertainment and media content, and sets the cultural lexicon. What’s cool generally equates to what’s relevant right now. Yet as the corporate sustainability and impact investing movement scales, a new class of firms, innovators and investors are redefining coolness as the pursuit of a positive societal impact. Coolness is the conviction that this societal purpose or mission does not have to be inconsistent with seeking profits and competitive financial returns in the long run. Yes, the new arbiters of cool are well-informed, well-meaning, analytical people out to sustain the world and create wealth along the way. Consider recent headlines, which tease pivotal questions about global business sectors ranging from healthcare and industrials, to technology and consumer goods: “IBM Moves Into Health With Gel That Zaps Hospital Superbugs” (Financial Times). “Has Apple Lost it’s Cool to Samsung?” (Wall Street Journal). “Print Me a Stradivarius” (The Economist). “Real Glass that Bends Without Breaking? Mollusk Shell holds the Key” (LA Times). “Can Mushrooms replace Plastic?” (The Guardian.) Smart companies and investors are getting behind this two-fold mission of simultaneously driving

©GST/Shutterstock corporate profitability and a simultaneous return on human capital and natural capital. Investors who tirelessly search for companies enjoying that equilibrium are amassing wider influence in labeling “cool” for entire markets. On their side: A bevy of evidence that long-term corporate excellence drives long-term share price outperformance in the stock market. Their formula involves systematically analyzing environmental, social, and governance (ESG) factors in their research methodologies. In an effort to enhance their analytical processes and search for better risk adjusted returns, these investors reject the old school notion that there must be a trade-off between long-


http://online.wsj.com/news/articles/SB10001424127887323854904578264090074879024?mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424127887323854904578264090074879024.html

http://www.economist.com/node/18114327

http://articles.latimes.com/2014/feb/17/science/la-sci-sn-glass-cracks-mollusk-sea-shell-bend-bioinspired-20140214

http://articles.latimes.com/2014/feb/17/science/la-sci-sn-glass-cracks-mollusk-sea-shell-bend-bioinspired-20140214

http://www.theguardian.com/sustainable-business/mushrooms-new-plastic-ecovative

term corporate profitability and an effort to address today’s massive societal imperatives. These investors, like Bruno Bertocci of UBS Asset Management, Joyce Haboucha of Rockefeller & Co., David Blood of Generation Investment Management, Joe Keefe of PaxWorld, and Cheryl Smith of Trillium Asset Management are seriously cool. Further, on the subject of "cool", we consider corporate executives who consistently and proudly articulate their company's innovations in both processes and products. We look for those leaders who instill in their companies a culture of trust, innovation, collaboration, transparency and accountability from the top to the bottom. Sustainable and impact investors are constantly seeking to learn more about companies like Novartis which talk about the work to be done in vaccines to harness the power of the human immune system; companies like AP Moeller Maersk and Dow Chemical which try to find billions in fuel efficiencies by leveraging their expertise in logistics or operations management; companies like Lockheed Martin which possess the technology to filter water to a billionth of a millimeter; and companies like Qualcomm which offer “boot camp” to engage 8 year old girls who seek to become leaders in science, technology, engineering and math. These companies aspire to be recognized by the “Arbiters of Cool.” Each time there is a headline that relates to a story of innovation, we need to consider which investors are

most sensitized to corporate excellence (a/k/a corporate sustainability). Each time there is an article addressing issues such as the insatiable global demand for broadband communications and digital mobility, threats to humanity from antibiotic resistant bacteria, resource efficiency and sustainable manufacturing and consumption, we can count on the efforts of the “Arbiters of Cool” to look for opportunities in the capital markets. We can count on the “Arbiters of Cool” to support private sector investments to drive product innovation, to attack vast new market opportunities, and to better side-step the risks of ignoring societal challenges including resource scarcity, lax corporate governance, healthcare, education, climate volatility, and essential infrastructure. The New Yorker Magazine, which some might argue is another proxy for cool, has stated that “cool can only be observed by those who are themselves cool.” If this is indeed the case, and if what is deemed “cool” is often adopted by the masses, then systematic ESG analysis is indeed about to move into the mainstream of all of today’s investment processes.

Erika Karp is the Founder & Chief Executive Officer of Cornerstone Capital Inc. and the former Head of Global Sector Research at UBS Investment Bank.


Global Sector Research / Strategy

Defining Crises: Catalyzing Sustainable Growth

By Michael Geraghty, Global Markets Strategist for Cornerstone Capital and Michael Shavel, CFA, Research & Business Analyst, Cornerstone Capital Inc.

© Pincaso/Shutterstock

Oftentimes, the way a corporation responds to a crisis ultimately leads to a binary outcome: the company stumbles and fails to survive or, alternatively, it responds effectively and thrives. In this article, we summarize corporate crises experienced by ten companies (one from each of the GICS), and outline how these companies learned from their experiences to develop resilient businesses capable of generating sustainable growth. Causes of Corporate Crises Various causes of corporate crises have been categorized.1 Among them:

• Product failure – Seven people died from tainted Tylenol capsules marketed by a unit of Johnson & Johnson.

• Social responsibility gap – Nike was accused of questionable working conditions in factories manufacturing its products outside the U.S.

• Executive misbehavior – Both the former CEO and the former CFO of Tyco International received lengthy jail sentences because of their criminal activities.

• Poor business results – IBM lost $16 billion between 1991 and 1993.

In addition, corporate crises can occur because of the death of a symbol of the company (e.g., Dave Thomas of Wendy’s) or misbehavior by and / or controversy about a corporate spokesperson (e.g., Tiger Woods). However, it’s arguable that, for most companies involved, these types of crises are “exogenous events” that soon pass over. Crises from a Corporate Sustainability Perspective The ten corporate crises that we summarize below can also be analyzed from the perspective of corporate sustainability:

• Environmental issues: In response to the “climate change crisis,” Neste Oil set its strategic sights on becoming the world’s leading producer of renewable diesel. Similarly, NextEra Energy moved to slash its emissions of greenhouse gases.

• Social issues: Nike experienced product boycotts after being criticized for poor labor practices. PepsiCo’s leading snack franchise was increasingly vulnerable as a focus on “eating

1 Corporate brand reputation and brand crisis management, Stephen A. Greyser, Harvard Business School, 2009


Michael Geraghty founder Informed Investor, LLC a consultancy specializing in thought leadership that produces bespoke research reports for institutional investors. Michael has over three decades of experience in the financial services industry. He has worked as an investment strategist at a number of leading firms. Michael Shavel, CFA is a Research & Business Analyst at Cornerstone Capital Inc. and a former Research Analyst on AllianceBernstein’s Global Growth & Thematic team.

healthy” got underway in the U.S. around the start of the millennium. Amidst harsh working conditions in its Australian mines, Rio Tinto has faced acute labor shortages.

• Governance issues: IBM floundered in the early 1990s because of a strategic emphasis on its mainframes business and lack of attention to the PC sector. The prompt response by the management of Johnson & Johnson to the Tylenol poisonings brought the crisis to an end in a relatively short period of time. Royal Bank of Canada not only survived the financial crisis of 2007-2008, but expanded its businesses as competitors failed. Tyco’s poor corporate governance facilitated criminal behavior by senior executives. Vodafone’s management was compelled by the TMT bubble of the 1990s to expand at a breakneck pace.

As the focus on sustainability continues to grow, it’s likely that corporate crises will increasingly involve ESG issues. Moreover, it has also been pointed out2 that: Globalization has brought with it a host of new challenges…U.S. corporations that might have been described as CSR (Corporate Social Responsibility) supermen in the U.S. have found it more difficult to capture the accolades in their overseas manufacturing operations. While most crises are idiosyncratic in nature, in some instances there are commonalities, both in terms of the precipitating factors and the responses of the companies involved. It’s for this reason that analyzing successful responses to prior crises can be enlightening for managements and investors. All ten of the companies we focus on learned from their experiences how to develop resilient businesses capable of generating sustainable growth. Information Technology: IBM

• Crisis: Between 1991 and 1993, the company lost $16 billion because of a strategic emphasis on its mainframes business and lack of attention to the PC sector.

• Response: Under Lou Gerstner, IBM was transformed from a (commoditized) hardware manufacturer to a focused IT services provider.

• Outcome: By 2000, IBM Global Services is world’s largest IT consulting & Web services org., providing 38% of IBM’s revs, compared with 16% less than 10 years before.

Health Care: JNJ • Crisis: In 1982, 7 people died after taking Tylenol capsules

deliberately laced with cyanide.

2 http://www.forbes.com/sites/dougguthrie/2012/03/09/building-sustainable-and-ethical-supply-chains/


• Response: Management withdrew all Tylenol from the market within a week.

• Outcome: Most Tylenol market share was regained within a year thanks to a range of industry-leading initiatives, including tamper-resistant packaging.

Energy: Neste Oil • Crisis: A 2003 EU directive called for 5.75% of traffic fuels to

be bio-based by 2010. • Resposnse: In 2006, Neste Oil set its strategic sights on

becoming the world’s leading producer of renewable diesel. • Outcome: Neste’s biofuels business, the world's largest,

turned profitable in early 2013 for the first time since its launch in 2008.

Consumer Discretionary: Nike • Crisis: In a 1998 speech, Phil Knight, CEO and founder,

admitted that “the Nike product has become synonymous with slave wages, forced overtime, and arbitrary abuse.”

• Response: Nike raised the minimum age of workers; significantly increased monitoring; and adopted U.S. OSHA clean air standards in all factories.

• Outcome: In 2013, Nike ranked as Fortune’s "World's Most Admired" apparel company, and was listed at #22 in Corporate Responsibility magazine’s “Best Corporate Citizens.”

Consumer Staples: Pepsico

• Crisis: PepsiCo’s leading snack franchise was increasingly vulnerable as a focus on “eating healthy” got underway in the U.S. around the start of the millennium.

• Response: The company broadened its product line substantially with the acquisition and development of "good-for-you" products, including Quaker Oats, Naked Juice and Tropicana orange juice.

• Outcome: "Good-for-you" brands totaled $10 billion in 2009, representing 18% of total revenues, with a target of $30 billion in revenues by 2020.

Materials: Rio Tinto

• Crisis: Amidst harsh working conditions in its Australian mines, Rio Tinto has faced acute labor shortages.

• Response: Experimentation with robots and remote controlled mines.

• Outcome: Rio Tinto plans to increase its fleet of automated dump trucks to 150 by 2015 and eventually automate all aspects of a mine.


Financials: Royal Bank of Canada • Crisis: The financial crisis of 2007 2008 is considered by many

economists to have been the worst crisis since the Great Depression of the 1930s.

• Response: Relatively unscathed by the crisis, RBC began an expansion into global financial markets: Capital Markets staff increased by 26% since 2008.

• Outcomes: Dealogic ranked RBC as 10th largest global investment bank by revenues in 2013, up from #15 in 2007.

Industrials: Tyco Industrials

• Crisis: In 2002, an accounting crisis was followed by a stock price crash and a liquidity crisis.

• Response: New CEO Ed Breen gutted the board of directors and the leadership team (with almost 300 managers leaving), and also slashed debt levels.

• Outcomes: In fiscal 2003, cash flow rose to over $5 billion from just $800 million in fiscal 2002, while the stock price doubled from its 2002 low.

Telecom Services: Vodafone Group

• Crisis: The TMT bubble of the 1990s compelled telecoms to expand at a breakneck pace.

• Response: Vodafone acquired Airtouch in the U.S. for $66 billion in 1999, and Germany's Mannesmann for $203 billion in 2000.

• Outcomes: Airtouch brought with it an extremely valuable 45% stake in Verizon Wireless. Vodafone sold Mannesmann's Orange unit at the peak of the bubble for $46 billion in 2000.

While this note is simply a quick snapshot of the past, we argue that there is predictive value in more fully and systematically considering all the environmental, social and governance (ESG) factors that both precipitated these crises, and in considering how these factors were addressed subsequently. We argue that this kind of analysis can provide a roadmap for corporate excellence which we argue is “the relentless pursuit of material progress towards a more regenerative and inclusive economy.” While we are well aware that these structural issues, both exogenous and endogenous take time to play out, we also argue that great corporate governance and resilience demands a framework for the systematic study of the past and the future.


Global Sector Research / Strategy

Biomimicry: Turning to Nature’s R&D Department to Increase Productivity

By Michael Shavel , CFA, Research & Business Analyst, Cornerstone Capital Inc.

©saulinsight/Googleimages

In our inaugural edition of the Journal of Sustainable Finance and Banking, we discussed the issue of declining money velocity and suggested that a concerted effort to drive greater transparency in capital markets would help put in the motion the capital that is needed to drive economic growth. This is only a piece of the puzzle, however. Economists are currently debating whether anemic job growth and capital investment are preventing the global economy from recovering more quickly, or if slower productivity growth is the culprit. Productivity growth accounts for the changes in output not caused by changes in labor and capital inputs. In essence, productivity growth represents the effects of efficiency improvements, technological change, and the contribution of other inputs that we cannot measure explicitly. The Conference Board points out that with the exception of the 2008-09 recession, 2012 saw the slowest global growth in a decade. This doesn’t appear to be entirely a cyclical phenomenon either – mature economies have witnessed steadily declining productivity growth since the late ‘90s. Greater efficiencies in major emerging economies have been an offsetting factor, but they, too, are now seeing productivity growth decelerate. The challenge we’re now faced with is not only putting capital to work, but accelerating the flow of capital to innovative, sustainable businesses that in aggregate will help reverse this alarming productivity trend. In pursuit of this goal, one field worth exploring is biomimicry, which is the study and imitation of nature’s best ideas to help solve human challenges. A well-known, yet simple example of biomimicry-driven innovation is Velcro, which was inspired by the way burrs stuck to fur. While still nascent, biomimicry is receiving attention not only from academia, but from engineering departments of large corporations around the world. Qualcomm, a US-based leader in semiconductors and telecom equipment, turned to the wings of a butterfly when developing the mobile display technology, mirasol. As described by Qualcomm, “Certain butterflies have tiny scales and ridges that reflect light in such a way that only certain colors are perceptible to the eye…The use of minute structures and ‘interference’ is essentially the same principle employed in mirasol displays.” Biomimicry is playing an important role in the transportation sector as well. Airbus, a leading aircraft manufacturer based in France (and subsidiary of EADS), utilized research on the beaks of sea birds to design the nose of the new Airbus A350. Airbus incorporated probes on the nose


http://www.google.com/imgres?start=266&sa=X&biw=1920&bih=985&tbm=isch&tbnid=cEFacisosjuyIM:&imgrefurl=http://saulinsight.blogspot.com/2011/02/biomimicry.html&docid=kEAXVeBW5tqAmM&imgurl=https://lh6.googleusercontent.com/-_lYJnE_Cb8A/TWuLRLOq_bI/AAAAAAAAAAo/YeDAD0OKnV4/s1600/Eastgate_TermiteMound.jpg&w=1600&h=1467&ei=FYEsU6Zn5b_QAauGgZgE&zoom=1&ved=0CIsCEIQcMFY4yAE&iact=rc&dur=665&page=8&ndsp=39

Michael Shavel, CFA is a Research & Business Analyst at Cornerstone Capital Inc. and a former Research Analyst on AllianceBernstein’s Global Growth & Thematic team.

of the plane that detect gusts and deploy moveable wing surfaces for more efficient flight, thus reducing fuel consumption and emissions. In rail transportation, the engineers behind the Bullet Train of the West Japan Railway Company also borrowed an idea from a bird’s beak. In this instance, changes in air pressure produced a loud “sonic-boom” which led to resident complaints. The train’s chief engineer turned to the kingfisher, a bird able to dive from the air into bodies of water with very little splash to catch fish. He modified the train’s nose to mimic the kingfisher’s beak and, in doing so, not only addressed the noise issue, but reduced electricity consumption by 15% and increased speed by 10%. In the field of architecture, architects and engineers collaborated to design a building in Zimbabwe without air-conditioning. A termite-inspired ventilation system resulted in a building that uses only 10% of the energy of a conventional building its size, saves $3.5 million in the first five years, and enables rents to be 20% lower than a newer building next door. The aforementioned examples are evidence that the field of biomimcry is yielding both economic and sustainable results. The next step, however, is to apply the concept of biomimicry more broadly across entire solutions opposed to isolated products or projects. To this end, the Sahara Forest Project (SFP) has designed a technological system with the goal of restorative growth. SFP, with pilot projects in Jordan and Qatar, is looking to take what we have enough of (CO2, salt water, sunlight and arid areas) to create what we need more of (energy, fresh water, vegetation and food). Biomimicry plays an important role this process. The seawater-cooled greenhouses developed by SFP essentially mimic and enhance the conditions in which the Namibian fog-basking beetle harvests water in a desert: evaporation of seawater is increased to create higher humidity and then a large surface is created for condensation. As we confront the challenges of declining money velocity and waning productivity growth, it falls upon capital market participants, companies and governments to consider the road less traveled. Clayton Christensen, Harvard professor and author of The Innovators Dilemma, suggests business leaders have become overly focused on short-term gains driven by “efficiency innovations” such as streamlining and cost-cutting. Meanwhile, they have underinvested in “empowering innovations” which generate new wealth and opportunity in underserved or unserved parts of the markets. We recognize, however, that investors are encouraging management teams to invest in this manner in order to meet near-term guidance. Simply stated, the economy is not growing quickly enough to generate acceptable revenue growth so management teams must employ “efficiency innovations” to expand margins. Moreover, governments are pumping massive amounts of liquidity into economies, but in many


instances are falling short when it comes to establishing an environment conducive to long-term investment. The field of biomimicry is not a silver bullet, but it is an area that offers promise for the development of sustainable technology. Janine Benyus, an expert in the field of biomimcry, reminds us that life has 3.8 billion years of experience in adapting and evolving to changing conditions. It is inherently efficient and sustainable. We would be remiss not to take advantage of nature’s R&D resume.


Global Sector Research / Financials

The Nature of Investing

By Katherine Collins, Founder and CEO of Honebee Capital and author of The Nature of Investing. Previously Katherine served at Fidelity Management and Research as head of US Equity Research and Portfolio Manager.

© Honeybee Capital

In sustainable finance circles, we spend a lot of time considering ways to invest in nature, or with nature. More effective stewardship and more complete understanding of the value of nature are certainly vital components of any sustainable investing approach. What if we also consider investing as nature? In addition to the material bounty provided by our natural world, we also have access to great stores of wisdom that are embedded in natural organisms and natural systems. As Janine Benyus, biomimicry pioneer, notes, “we are searching and searching, but we already have a perfectly sustainable world: the natural world.” What if our investment processes were rooted in the same principles that make for resilient, regenerative natural systems? Biomimicry begins with the idea of embracing nature’s wisdom, not harvesting nature’s stuff. At its heart is a deceptively simple question: WWND? What Would Nature Do? How would nature perform the function I’m trying to perform? This center point is remarkable in several ways: first, it starts with a question, with open inquiry. Biomimicry does not begin with a predetermined endpoint, even when the challenge before us has clear requirements or constraints. Second, the question is rooted in context: what would nature do here, in these circumstances? And finally, it forces us to be precise about purpose and function: what are we really trying to do, and why? I came to biomimicry along a winding path, beginning at a low point in my career. I was struggling through a tough performance patch, as all fund managers do, when luckily I was introduced to the work of Dr. Tom Seeley of Cornell through a meeting of the Santa Fe Institute. Dr. Seeley’s work investigates how bees make collective decisions that are consistently terrific. One of the key conditions is that when bees are looking to swarm to a new hive location, the first thing they do is to go out and explore the environment around them. This simple observation struck me like a lightning bolt. Here I was, staying later and later at my desk, building more and more convoluted models and spreadsheets, hoping that the answer would come to me through my


Katherine Collins, is the Founder and CEO of Honeybee Capital and author of The Nature of Investing. Previously Katherine served at Fidelity Management and Research as head of US Equity Research and Portfolio Manage.

computer screen. What I needed, instead, was to be out in the world, assessing my investment decisions in context. That path of inquiry first led (thankfully) to recovery in my investment performance, then to studies in moral philosophy at Harvard Divinity School, inspiration and mentorship from Janine Benyus and Hazel Henderson, formal training with the Biomimicry 3.8 organization and Dayna Baumeister, and the founding of Honeybee Capital, where our mission is to reconnect investing with the real world. And now it’s led to writing my first book, The Nature of Investing, which explores the principles of biomimicry and their application to finance in depth. For example, one of life’s principles is to be energy and resource efficient, and a sub-principle of that concept is to fit form to functions. I’ve been working recently with some entrepreneurs who are raising early-stage funding, and in almost every case they are presented with a standard set of term sheets and a very limited list of “levers” or choices that they can make. This process might seem efficient, but it is a shallow efficiency – fast and (relatively) cheap, because it’s standardized. But the forms offered for investment are missing a deeper sort of effectiveness: they often do not match the needs or intentions of the entrepreneurs nor of the investors. The rigidity of form often ends up creating an adversarial position between the company and its investors, though this is one of the most essential partnerships in the success of any new business. It’s clear that too often, the form for early stage funding does not fit the function, and we trade very short-term efficiency for longer term – and sometimes fatal - inefficiency. Aligning with natural principles from the very beginning would help to create more of a mutualism between investor and investee, and a healthier ecosystem for both parties. The time has come for us to refocus on investing in its essential, connected form – to reintegrate investing with the real world, rather than the world on the screen. Biomimicry provides us with a framework that embodies connection and integration, a model of our natural systems that have proven to be effective, adaptive, and sustainable. The principles of biomimicry, Life’s Principles, are not the newest theories: they are the oldest facts. These concepts describe how the natural world has actually functioned for 3.8 billion years. Life’s principles give a clear and compelling guide for transforming the investment process from the roots up. The result is an investment approach that goes “beyond sustainability” to form a system that is inherently resilient and regenerative. Most importantly, they are the


http://www.amazon.com/The-Nature-Investing-Investment-Strategies/dp/1937134946



basis of an approach that re-aligns investing with the world it was originally meant to serve. Instead of efficient, effective. Instead of rigid, resilient. Instead of synthetic complexity, elegant simplicity. Instead of maximized, optimized. This is the true nature of investing.


Open Source Excellence

Sustainable Fashion Design – Could Green be the New Black?

By Cindy Motz, Global Advisory Council Cornerstone Capital, Financial Services Consultant and former II & WSJ All Star Analyst

© Manolo Blahnick

Although March may mean St. Patrick’s Day, that’s not the only reason some apparel companies are hoping you’ll be wearing more “green.” While child labor and other social concerns have been on the radar screen for a while now,1 apparel/footwear companies are now increasingly focused on the environmental side of ESG issues as well, hoping not only to “green” up the business, but, hopefully, to earn investors some more “green” as well. What is Sustainable Fashion? “Saving the planet is very much in vogue. It’s also in Harper’s Bazaar, Elle, and Mademoiselle.” —Woody Hochswender, New York Times, March 25, 19902 Sustainable design in apparel is nothing new. From Giorgio Armani with hemp suits in the 1990s, to Birkenstock’s 230 year history of not “just jumping on the green band wagon,” there are many designers and corporate names incorporating sustainability into their businesses.3,4 In fact, Googling the above question yields 54.3 million results, defining the term:5

“Sustainable fashion, also called eco fashion, is a part of the growing design philosophy and trend of sustainability, the goal of which is to create a system which can be supported indefinitely in

terms of environmentalism and social responsibility.”

But when it comes to Manolo Blahnik shoes made out of waste tilapia skins, or Stella McCartney’s faux snake skin, biodegradable sandals, Wall Streeters may be wondering just how oversubscribed these so-called “greenshoes” can actually be at $895 and $515 a pair?6 Sustainable Action Committee Although sustainability may not be the first thing that comes to mind when one hears “SAC,” the Sustainable Apparel Committee’s mission is to promote ESG practices throughout all segments of the apparel industry. With well over 100 members spread across a diverse set of brands, retailers, manufacturers, and non-profit/government entities, SAC members are actively involved in everything from eliminating product waste, to opening up fully eco-friendly stores, to launching eco-


friendly clothing lines like Conscious Exclusive, H&M’s sustainable fashion line due to hit 150 stores on April 10, 2014. 7 As part of its efforts, SAC has developed the “Higg Index,” intended for use by apparel/footwear companies wanting to monitor sustainability progress. With in-depth brand, facility and product modules focusing on environmental, social, and labor issues, the Higg Index is available not only to SAC members, but to anyone who registers with the site at http://www.apparelcoalition.org/. Fig 1: Select SAC- Member Public Company brand, Manufactures & Retailers8

Rapid Design Module Although still in Beta form, the SAC recently put out a simplified, educational design tool that provides users with a sustainability snapshot of what the product’s environmental and social footprint might look like throughout its life cycle. After answering questions about materials, manufacturing, packaging, and usage, the user gets insight from feedback scores, on how sustainable the product design is, and how it could be improved. Fig 2: Sample SAC Higg Index Rapid Design Module Screen9


http://www.apparelcoalition.org/

Corn-fed, Grass-fed or even Pleather101? Love the detail on that leather jacket? Next time, think about delving into the details on how its original owner might have been fed—or whether it was ever even alive at all! If more sectors had sustainable design tools similar to the ones described above, it might make a big difference to the environment—and eventually, to investors as well. In the end, companies who keep a close eye on environmental and social issues are likely to be better positioned in terms of managing their overall resource and social/labor risk profile, which typically translates into lower cost structures. So while the jury may still be out on whether “green” is the new “black” from a top-line perspective, from a triple bottom line perspective, being “green” is likely to become much more of a key component of staying in the black! 1 US Department of Labor. http://www.dol.gov/ilab/media/reports/iclp/apparel/1c.htm 2 Hochswender, Woody. “The Green Movement in the Fashion World.” The New York Times Archives. March 1990. Accessed March 17, 2014. http://www.nytimes.com/1990/03/25/us/the-green-movement-in-the-fashion-world.html?scp=117&sq=environment+fashion&st=nyt 3 http://www.ellecanada.com/fashion/trends/7-sustainable-luxury-brands-making-eco-friendly-fashion/a/57121 4 https://www.birkenstockusa.com/about/green-steps 5 https://www.google.com/#q=what+is+sustainable+fashion. Accessed March 21, 2014. 6 Women’s Wear Daily, October 26, 2011. Accessed March 16, 2014. http://www.wwd.com/fashion-news/fashion-scoops/manolo-goes-green-5334918 7 London, Emily. “H&M’s New Conscious Collection Exclusive is Eco-Design at Its Best.” March 20, 2014. http://www.refinery29.com/2014/03/64784/hm-conscious-collection-april-10#slide-1 8Sustainable Apparel Coalition. http://www.apparelcoalition.org/, accessed March 18, 2014. 9 Sustainable Apparel Coalition. http://www.apparelcoalition.org/rapid-design-module-rdm-beta/, accessed March 20, 2014. 10 Slang term for synthetic leather made from plastic. http://www.wisegeek.com/what-is-pleather.htm


http://www.dol.gov/ilab/media/reports/iclp/apparel/1c.htm

http://www.ellecanada.com/fashion/trends/7-sustainable-luxury-brands-making-eco-friendly-fashion/a/57121

http://www.ellecanada.com/fashion/trends/7-sustainable-luxury-brands-making-eco-friendly-fashion/a/57121

https://www.birkenstockusa.com/about/green-steps

https://www.google.com/%23q=what+is+sustainable+fashion

http://www.wwd.com/fashion-news/fashion-scoops/manolo-goes-green-5334918

http://www.refinery29.com/2014/03/64784/hm-conscious-collection-april-10%23slide-1

http://www.refinery29.com/2014/03/64784/hm-conscious-collection-april-10%23slide-1

http://www.apparelcoalition.org/

http://www.apparelcoalition.org/rapid-design-module-rdm-beta/

http://www.apparelcoalition.org/rapid-design-module-rdm-beta/

http://www.wisegeek.com/what-is-pleather.htm

http://www.wisegeek.com/what-is-pleather.htm


Supply Chain Ethics & Design: Sustainability Becomes Fashionable with INDIGENOUS Fair Trace Tool™

By Matthew Reynolds, President & Co – Founder INDIGENOUS Design.

Fashionistas can now see beyond clothing labels for the first time with the Fair Trace Tool™ developed by fair trade fashion company INDIGENOUS. This new tool, in the form of a QR code on hang tags, offers transparency throughout the garment’s supply chain including a glimpse of the artisans who made it and the product’s social impact. The content is delivered in text, video and animated map format. INDIGENOUS was founded on the principle that great design starts with workers being paid fair wages in a safe working environment. “No one should suffer or die to make clothing,” says Scott Leonard, Co-founder and CEO of INDIGENOUS. “Just the opposite -- they and their families should prosper. That’s how it is with our supply chain. That’s how it can be with others. Let’s not make this harder than it is. And let’s not wait. Lives are at stake.” The company’s popular knit fashions are now in more than 500 stores. INDIGENOUS also produces garments for the socially responsible apparel brand, Eileen Fisher. The supply chain now includes over 1,600 artisan knitters in some of South America’s poorest regions. The Fair Trace Tool™ offers customers a rare and wonderful window to the rich heritage and culture of the local indigenous people who are prospering together with the brand. Though the tool is proprietary, the company is happy to share. “The INDIGENOUS model is readily replicable,” says Matt Reynolds, Co-founder and President of INDIGENOUS. “While it represents a distinctive competitive advantage, INDIGENOUS is ready to share it to help save lives and promote the well-being of artisans and garment workers everywhere.” While many brands use public relations to tout themselves as sustainable, often the clothing is produced by indentured workers in miserable and unsafe conditions, known as “sweat shops.” The April 24, 2013 collapse of the Rana Plaza building, just outside of Dhaka, Bangladesh’s capital city, killed over 1,100 garment workers. Then on December 1, seven people died and others were injured in a fire that destroyed a garment factory and its cardboard dormitory, which housed workers in the Italian town of Prato, Tuscany.

©Indigenous


http://www.indigenous.com/

Matthew Reynolds is the President & Co–Founder of Indigenous Designs. He has been a pioneer in the areas of fair trade, organics, environmental practice and the sustainability movement.

Heather White, global labor expert and founder of Verite, which monitors global working conditions, commends INDIGENOUS for improving the lives of workers in the company’s supply chain. “All over the world, workers are paying the price for the clothes we wear. Environmental cost is also not factored into our purchases. The Fair Trace Tool™ offers consumers an opportunity to better align their belief systems with the purchases they make.” INDIGENOUS sets prices that make safety, benefits and fair wages achievable. The company uses innovative SMS and voice technology to survey workers about their economic, social and workplace well-being. This allows feedback and opinions to be shared privately and confidentially. The continued implementation of The Fair Trace Tool™ within INDIGENOUS’ supply chain is exciting for the company, its customers and the apparel industry as a whole. In their last 2013 round of surveying the tool provided INDIGENOUS with a new dataset that facilitates internal analysis about the company’s social impact and progress over time. The data shows that most artisans in the INDIGENOUS supply chain are now living above the poverty line. The percentage of those who are at risk has fallen since 2011. Also, the majority of artisans continue to feel satisfied by their job. "These results are something we are very proud of," says Matt Reynolds. Through these efforts, and rigorous environmentally responsible standards, the founders can guarantee a sustainable product to their customers and trust this to influence purchase decisions and brand loyalty. They will share their best practices and supply chain transparency tools with any fashion brand that is committed and willing to stand up and take this pledge: No one will suffer or die to make our clothes. Instead, they will prosper. “This is a call to action for you (the fashion industry) to stand up and be heard,” says Scott Leonard.



Private Investors Exploring Emerging Asset Classes

By Hazel Henderson, President of Ethical Markets Media®, author, and former science policy advisory to US National Science Foundation, National Academy of Engineering and Office of Technology Assessment.

© Alexander Sokolov/Shutterstock

Now that ESG (environment, social, governance) criteria are uncovering sound, long-term investments, private equity, family offices and pension funds are looking even farther afield for more such opportunities. Conventional public markets are volatile, dominated by high-frequency trading and still beset with regulatory issues and negative publicity. Many private investors simply bypass Wall Street and other mainstream markets, now also challenged by crowdfunding and private electronic platforms such as Zanbato, MaxImpact and others. So-called “impact investing” has become popular, promoted by foundations including Rockefeller, as well as philanthropists interested in this new venture-philanthropy hybrid proclaimed a new asset class. This approach still needs more definition and clarity. Of course, all investments create impacts, many negative or even destructive. Meanwhile, seeking financial returns from such well-motivated funds may raise unrealistic expectations. More robust new investing models are those well-grounded in science: emerging research in renewable energy, efficiency, and innovative materials that are more easily recycled and biodegradable. Over $5.2 trillion of private capital has already been invested in such “green” companies since 2007 as tracked in our Green Transition Scoreboard®. Our criteria are strict: no biofuels grown from food or on agricultural lands, no “clean coal” with carbon sequestration or nuclear energy. The only biofuels that meet our criteria are from sea-based algae or grown along with other food and fiber crops on desert lands and irrigated with seawater. These cyanobacteria and plants employ abundant, unused resources: sunlight, land and seawater while mimicking Life’s Principles. This new biomimicry asset class is the focus of Ethical Markets research in our Principles of Ethical Biomimicry Finance™, jointly developed with our partner company Biomimicry 3.8 and its founder Janine Benyus. We license this turnkey knowledge system to private investors, pension fund and family office asset managers. Many are challenged by enquiries from their trustees about such ethical biomimicry companies


http://www.ethicalmarkets.com/category/crowd-funding/

https://zanbato.com/company/

http://www.maximpact.com/

http://www.ethicalmarkets.com/category/green-transition-scoreboard/

http://www.ethicalbiomimicryfinance.com/

http://biomimicry.net/

Hazel Henderson is President of Ethical Markets Media® (USA and Brazil), a Certified B Corporation, author of many books and a former science-policy advisor to the US National Science Foundation, National Academy of Engineering and the Office of Technology Assessment. She has many honorary degrees and created the Green Transition Scoreboard® and co-created with Calvert Group the now rebranded Ethical Markets Quality of Life Indicators. She was inducted into the International Society of Sustainability Professionals Hall of Fame in 2013.

and questioned about shifting from fossilized assets to greener, more ecologically sustainable companies. Traditional asset managers still grounded in traditional economics and its financial models are on a steep learning curve. These models, particularly on risk-assessment, such as VAR, focus on financial risk – ignoring systemic risk and the new science on looming social and geopolitical tail risks such as water shortages, collapsing fish stocks, rising food prices leading to hunger and social unrest. We study broader risks, including those analyzed by the New England Complex Systems Institute (NECSI) in Cambridge, MA, whose leading scientist is Prof. Yaneer Bar-Yam, a member of Ethical Markets Advisory Board, together with leading biomimicry scientists Janine Benyus, Biomimicry 3.8; Dr. Mae-Wan Ho, ISIS; Dr. Allan Savory, the Savory Institute; Dr. Wes Jackson, the Land Institute; Gunter Pauli, ZERI (Tokyo); and Fritjof Capra with whom I co-authored Qualitative Growth (2009). Our Principles of Ethical Biomimicry Finance™ access due diligence experts and our ever-expanding group of example companies, including Biomimicry 3.8, Pantheon Chemical, Envision Solar, Natcore, GrainPro and some which are successful cooperatives, including Equal Exchange, Hawthorne Valley Farms, Organic Valley, Green Garmento and others. These kinds of uncorrelated investments are of interest to innovative hedge fund and family office asset managers and may become a recognized asset class in the future. Life’s Principles govern the 3.8 billion years of successful evolution of all species, including humans on our planet. Expanding this context must include the daily symbiosis between planet Earth and our Sun which powers life and all processes with its abundant daily shower of free photons. If we humans simply learn to harvest these photons as well as green plants’ photosynthesis which creates all of our food, we can create abundant societies! These daily interactions between the Sun’s incoming photons and how our Earth’s oceans and atmosphere process them along with geothermal energy to create the phytoplankton blooms that undergird the food chain are now visible! Human populations now consume 40% of total biomass, driving extinctions of other species. Computer models show that if cheap solar lighting, such as that from Philips and other companies, along with access to microfinance were widely available to women, 3 billion avoided births could result (Ashok Khosla, 2009, on ethicalmarkets.tv). Our “eyes in the sky” are those 120 satellites orbiting our planet, providing real-time data on these Earth-Sun processes and how our 7 plus billion human family is affecting them in this new Anthropocene Age! Just as asset managers had to learn the basics of geology and physics to invest in fossil fuels and nuclear energy, so today they must


http://necsi.edu/

http://www.ethicalmarkets.com/about/research-advisory-board/

http://www.i-sis.org.uk/index.php

http://www.savoryinstitute.com/

http://www.landinstitute.org/

http://www.zeri.org/ZERI/Home.html

http://www.ethicalmarkets.com/wp-content/uploads/2009/10/Qualitative-Growth.pdf

http://youtu.be/kGDKQlTfSO8

http://www.ethicalmarkets.tv/video-show/?v=1328

become familiar with complexity models and NASA’s earth systems science. This broader, longer-term framework will payoff in such areas as renewable energy, sustainable infrastructure, efficiency, desert greening and all the new materials recyclable in circular economies as discussed at Davos in the World Economic Forum and now incorporated into China’s new 5-year plan. All this new science providing cutting-edge opportunities for investors will be discussed at Ethical Markets research conferences co-sponsored with Endobility, the first “Finding Ethical Alpha”, May 12-13, followed by People-Planet-Prosperity in October. The lowest hanging fruit: energy efficiency, sustainable infrastructure and desert greening are the subject of our May event. While fresh water is in crisis, 97% of the planet’s water is saline, in our oceans, lakes and brackish areas. Overlooked research on the 10,000 salt-loving halophyte plants that provided food, fiber and edible oils can be grown on desert lands and irrigated with seawater.13 This research is now driving business plans, e.g. DesertCorp from Amsterdam-based Planck Foundation, as well as restoring desertified rangelands as in the Grasslands Project in South Dakota of the Savory Institute and the Capital Institute. All this new science must now be cranked into financial models along with the new accounting standards of IRRC and SASB which analyze companies performance based on their use or misuse of the six basic forms of capital: finance, intellectual, built, human, social and natural assets – all now essential for our future prosperity as I cover in Mapping the Global Transition to the Solar Age (2014), co-published by London-based Institute of Chartered Accountants of England and Wales and Tomorrow’s Company, with Foreword by NASA Chief Scientist Dr. Dennis Bushnell. A new era in finance is at hand.

1 Glenn, Edward P., et al. “Irrigating Crops with Seawater,” Scientific American, August 1998.


http://science.nasa.gov/earth-science/

http://science.nasa.gov/earth-science/

http://www.endobility.com/%23!fea-home/c2058

http://www.irrcinstitute.org/

https://sase.org/

http://www.ethicalmarkets.com/wp-content/uploads/2014/02/tecpln12453-solarage-web.pdf

http://www.ethicalmarkets.com/wp-content/uploads/2014/02/tecpln12453-solarage-web.pdf

Accelerating Impact

Design to Serve the Changing Needs of the Reasonable Investor

By Dr. Jean Rogers, CEO of the Sustainability Accounting Standard Board.

©SASB

The reasonable investor of 2014 is not the same as the reasonable investor of 1973. In the past 40 years the world has changed. Megatrends like climate change, resource constraints, and population growth affect the ability of corporations to create financial value. However, investors don’t have information to determine how companies are adapting to this new reality. This is a challenge ripe for good design. Design is an intentional approach to problem-solving that foregrounds user needs. Less is more. Form follows function. In this situation, investors need comparable environmental, social, and governance (ESG) data in an accessible format. SASB standards—designed for the disclosure of material ESG issues in mandatory SEC filings such as the Form 10-K—cater to this need. SASB serves investors by elevating the ESG information most relevant to decision-making. SASB’s Sustainable Industry Classification System (SICS) groups industries with similar sustainability impacts, which helps investors see under- or over-exposure to certain types of non-financial risks and opportunities depending on sector allocation. SASB standards help investors compare sustainability performance within an industry. Design plays a calculated role in SASB standards, especially in terms of considering the needs of the end users. The standards identify the minimum set of ESG issues likely to be material, which keeps them cost-effective for companies. The metrics are comparable and largely quantitative, which helps investors benchmark performance, and they’re made available in the Form 10-K, an accessible format for investors. The SEC is also designing ways to serve the changing needs of investors. In their Draft Strategic Plan for 2014-2018, the SEC acknowledges they’re operating in an increasingly complex and globally interconnected securities market. One of their strategic goals—to “facilitate access to the information investors need to make informed investment decisions”—highlights understanding evolving information needs and providing high-quality disclosure.


Dr. Jean Rogers is the CEO of SASB. Under her direction SASB developed from an idea formulated in collaboration with the Harvard University Initiative for Responsible Investment into a globally-respected, ANSI-accredited, independent standards-setting organization. More than 1,350 corporate and investor participants–representing $15T in assets under management and $6.5T in market capitalization—have participated in SASB’s standards development process to date.

In addition to the Strategic Plan, the SEC is designing ways to surface the information that truly matters. The SEC’s disclosure reform efforts focuses on protect investors from information overload. They’re recommending a comprehensive approach that considers the appropriateness of disclosure requirements, as well as how the information is presented and delivered. Further, the SEC underscores the need for disclosure requirements that are flexible and adaptive to changing circumstances, cost effective, and supportive of investor confidence in the relevance of public company information. SASB’s work supports these objectives. While SASB and the SEC are striving to accommodate the modern investor, they’re also striving to meet the needs of companies. SASB standards help companies comply with existing regulation. While Regulation S-K requires publicly-listed companies to disclose material information in the Form 10-K, companies lack the accounting infrastructure to disclose non-financial material information. Furthermore, the SEC’s Draft Strategic Plan discusses “promot[ing] capital markets that operate in a fair, efficient, transparent, and competitive manner, fostering capital formation and useful innovation.” SASB standards —which are designed to create a race to the top for corporations on the sustainability issues most likely to impact value creation—support this objective. Making sustainability data transparent to, and actionable by, investors will incentivize companies to compete and improve performance on material sustainability factors. In the words of SEC Chair Mary Jo White, “One of the most meaningful powers we that we have to wield on behalf of investors is our authority to require companies to tell investors about the things that matter to them.” The things that matter to investors are changing. Through design, we can help the capital markets evolve to serve these needs. Both SASB and the SEC are designing solutions to improve the quality and usefulness of disclosure. SASB’s accounting standards help investors discern which companies are better positioned to create value in a resource constrained world. They build a new wing on an existing structure in a modern context.


Enhanced Analytics

ESG & Credit Risk; New Study Demonstrates a Clear Link

By Nicole Neghaiwi, Senior ESG Risk Analyst and Alexandra Mihailescu Cichon, Head of Business Development at RepRisk AG.

© Reprisk

Steve Lohr wrote in an opinion piece about the merits of corporate social responsibility (CSR) in the New York Times: “Corporate social responsibility efforts have always struck me as the modern equivalent of John D. Rockefeller handing out dimes to the common folk. They may be well-intentioned, but they often seem like small gestures at the margins of what companies are really trying to do: make money.”1 Although Lohr went on to defend CSR initiatives, his statement neatly summarizes the oft-echoed sentiments of CSR naysayers – that efforts to do good while making money amount to little more than “PR-hogwash”.2 Perhaps one of the longest-standing debates in the history of CSR is whether or not it is even ethical for companies to pursue CSR agendas at the possible expense of financial performance. But a new study3 by the Swiss Federal Institute of Technology and the University of Hamburg lends credence to the argument that companies not only can, but in fact do, do better when doing good. The study, which was awarded the best student paper at the UN PRI Academic Network Conference this past November, marks the first research of its kind to prove a clear link between environmental, social and governance (ESG) risks and credit risk. Using data contributed by RepRisk, a Swiss-based ESG business intelligence provider, the authors examined the effect of CSR-related negative media attention on credit default swap spreads. The results may not be surprising for proponents of CSR, but does much to discredit Miltonian arguments that CSR is essentially incompatible with capitalism.4 According to the study, companies that are criticized in the news for irresponsible ESG practices have higher credit default swap spreads, suggesting that a firm’s poor reputation when it comes to CSR issues could have a significant impact on its financial performance. In fact, the study found that just one additional negative news item in a leading business paper resulted in an average increase of three percent of the credit default swap spread by the following quarter. On a practical level, this means that information on ESG risks is relevant for fixed income investors. “The results are part of a growing body of literature suggesting that ESG factors can enhance investment value and help mitigate risks,” explains RepRisk CEO Philipp Aeby. “Investors


https://www.reprisk.com/

Alexandra Mihailescu Cichon is the Head of Business Development at RepRisk AG. Nicole Neghaiwi is a Senior ESG Risk Analyst at RepRisk AG.

are increasingly coming to the conclusion that companies that take concrete measures to mitigate ESG risks often have superior governance structures.” Prior to the Deepwater Horizon oil spill in April 2010, for example, investors expressed confidence in BP’s long-term growth prospects. In 2009, BP had increased production of oil and gas, discovered huge oil reserves amounting to more than it had produced in a year, made bigger than expected cost cuts, and reported third-quarter profits well ahead of expectations. 5 From an ESG perspective however, the company’s performance had been disconcerting. In the two years prior to Deepwater Horizon, RepRisk highlighted significant risk exposure for BP due to frequent and severe criticism on ESG issues such as occupational health and safety issues, environmental pollution, negative impacts on local communities and labor issues. In fact, RepRisk had captured more criticism related to occupational health and safety issues at BP than at five of its major competitors combined. The consequences of ignoring BP’s track record of negligent behavior are, at this point, well-known. The explosion at the Deepwater Horizon oil rig killed eleven workers in what experts have described as the worst environmental disaster in US history. It also resulted in BP’s stock plummeting nearly 40 percent – an estimated USD 75 billion in shareholder value – within months.6 The debate about CSR has changed drastically over time: four decades ago, the general consensus among CSR skeptics was a resounding “the business of business is business”, a quote that has been oft attributed to the father of neoliberal economics, Milton Friedman. These days, you are unlikely to come across that kind of sentiment strewn across the pages of many business publications. Instead, one is more likely to come across terms such as “shared value” and “triple bottom line”. But incidents like the Deepwater Horizon oil spill have brought to surface debates about the relevance and impact of voluntarily corporate responsibility efforts. Business leaders and investors alike must draw the line between those initiatives that can be aptly-dismissed as “PR-hogwash” and earnest attempts by corporate executives to drive sustainable reform across an organization. After all, CSR really is about much more than “handing out dimes to the common folk.” As the recent research linking credit risk and CSR demonstrated, companies can do well – vis-à-vis society, the environment, their employees, and of course, their shareholders and investors – by doing good.


1 http://www.nytimes.com/2011/08/14/business/shared-value-gains-in-corporate-responsibility-efforts.html?pagewanted=all 2 http://www.corporateknights.com/article/naysayers 3 http://www.reprisk.com/study-based-on-reprisk-data-wins-award-for-excellence-in-responsible-investment-research/ 4http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html 5 http://news.bbc.co.uk/2/hi/business/8327254.stm 6 http://content.time.com/time/interactive/0,31813,2006455,00.html


http://www.nytimes.com/2011/08/14/business/shared-value-gains-in-corporate-responsibility-efforts.html?pagewanted=all

http://www.nytimes.com/2011/08/14/business/shared-value-gains-in-corporate-responsibility-efforts.html?pagewanted=all

http://www.corporateknights.com/article/naysayers

http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html

http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html

http://news.bbc.co.uk/2/hi/business/8327254.stm

http://content.time.com/time/interactive/0,31813,2006455,00.html

Virtual Attendance

#TheBigShift – Systems Innovation: Changing Systems, Changing the Future.

By Margarita Pirovska, PhD, Policy & Sustainability Analyst at Cornerstone Capital Inc. A recent event in New York City, organized by the Guardian and Forum for the Future, drew attention to a major challenge on the road to a sustainable economy: system innovation, or how to create a large-scale system change to make a difference1. Sustainable and social entrepreneurs, activists and business representatives gathered in New York for half a day of discussion and brainstorming, including the United Nations’ Global Compact, Ecovative, TheRules.org, and others. While sustainable solutions develop across most industries, and market players increasingly integrate ESG aspects in measuring performance, large scale change is yet to happen, and business as usual still governs most market transactions. The big systems at the basis of the economy are not functioning in a sustainable manner – food and energy production and consumption are still extensively based on a linear resource exploitation model – and we need to fundamentally change the way these systems function. We need a BIG shift – a true change of behaviors, and of the process value creation, involving all stakeholders and businesses together. The first part of the workshop prompted some very interesting and bold ideas and solutions. When debating system change, how to promote sustainable business is but a part of the equation; fundamental issues such as whether economic growth is compatible with a finite planet (Alnoor Ladha, TheRules.org), and the dichotomy between values and individual interests, are among those that come to mind. There are ways to radically improve our environmental footprint and reduce the impact of business on the environment – an amazing example was presented by Ecovative, and their mushroom- based ultra-rapid renewable biomaterials2. But such

©ForumfortheFuture/Youtube innovative solutions need to be introduced on a large scale, across whole industries. System innovation and change, discussed by Joe Hsueh (Second Muse), rely upon collective dialogue and inclusion of all players and mechanisms at work in a given sector. Inclusiveness, and working with stakeholders, not trying to impose external agendas, is key to success in promoting system change. Another fundamental transformation needed to spur large-scale sustainability was raised by Amy Larkin (Environmentaldebt.net) – beyond profit & loss, we need to include time, and namely cause and effect, in accounting and in financial analysis. While personal relationships seem to be at the basis of any economic transaction, and are key to progressing towards sustainability (Peter Nicholson, Foresight Design), how do we pursue sustainable goals, related to collective goods and action? Sustainability has reached the board room – thanks to initiatives such as the Global Compact of the United Nations (Ole Hansen, UNGC), and setting sustainable development goals on a world level could help. But drivers within corporations are not sufficient – we still see responsible companies putting on the market


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products that are not sustainable. There is a gap between the future we aspire to reach and the present state of economic systems we are part of. That gap was the subject of the second part of the workshop – where participants were asked to brainstorm on systems change in various sectors – food, energy etc. While each subgroup responded particularly well to the task assigned – to build a model of the current or future state of a market with Lego pieces – imagining the transition between the two and the main drivers to implement this change was particularly challenging, even with simple Lego-constructed models. To go from a fragmented linear world to an integrated system, where impacts are embedded at the core of market functioning, seems

arduous. But as this workshop proved, we are constantly innovating and finding new bright ideas to address the most challenging and deep-rooted problems in the economy. A holistic approach, inviting cooperation with all stakeholders, and bold enough to investigate markets issues beyond the limits of finance and economics, can only help business become better, resilient and more inclusive.

Margarita Pirovska PhD, Policy & Sustainability Analyst at Cornerstone Capital Inc. and former Project Manager at GDF SUEZ at the Sustainable Development Division

1 More information on the event here: http://www.theguardian.com/sustainable-business/system-innovation-changing-systems-changing-future-event-new-york 2 See article in this edition in the Sustainable Product Review section.


http://www.theguardian.com/sustainable-business/system-innovation-changing-systems-changing-future-event-new-york

http://www.theguardian.com/sustainable-business/system-innovation-changing-systems-changing-future-event-new-york

Sustainable Product Review

BMW Urban Mobility: Re-creating the Status Quo through Sustainable Design

By Juan Lois, Director, Business Development at Cornerstone Capital Inc.

©Mikhail Bakunovich/Shutterstock

The ability to independently travel from location to location based on nothing more than a simple desire to move about freely is a powerful and historical concept that breeds individuality, builds personal character, and spurs innovation through the free exchange of ideas and cultures. Personal mobility has long been quintessential in the development of the United States, especially when considering the early 19th and 20th centuries where transportation slowly evolved from the stage coach, to railroads, to streetcars and subway systems. Throughout this transformation, however, steam remained the primary power source for self-propelled vehicles. Interestingly enough, gasoline was thought to be little more than a useless by-product of the oil refinement process—that is, until Henry Ford’s new and innovative design approach to automobile manufacturing drastically changed the status quo and put gasoline automobiles at the forefront of personal mobility. Fast forward a hundred years and automobiles, and the entire transportation industry for that matter, are still completely reliant on the same antiquated oil based power source. While the relationship between fluctuating oil prices and economic output has long been considered standard analysis, the corporate risk of relying on such fuels has been a contested topic of debate recently—especially when considering the affect this risk has on a company’s stock price and valuation. Although many investors have yet to be convinced of the inherent and intangible risks that accompany operating in our climate challenged world, a few large, influential, and forward looking corporations are paving the way towards a vehicular future that relies on alternative energy sources for power. While Tesla has been in the investor and consumer spotlight ever since they announced their Model S premium electric sedan at the Frankfurt Motor Show in 2009, BMW has been quietly working on a comprehensive and groundbreaking concept for sustainable urban mobility: the BMW “i” line. BMW’s vision is clear; inspire design and create a new understanding of what it means to offer a premium, sustainable product. In their mission of re-creating the status quo, BMW now offers their first fully electric, city focused vehicle, the BMW i3, and will soon offer the BMW i8—a progressive and hybrid sports car with the heart of the all-time favorite E36 M3, but that also happens to do 0-60 MPH in only 4.4 seconds. While a series of manufacturers are


Juan Lois is a Director, Business Development at Cornerstone Capital Inc.

starting to produce electric vehicles for the U.S. and global markets, BMW is a clear cut above the rest when it comes to creating a sustainable design that focuses on the entire value chain, analyzing everything from the material extraction process to reusing materials at the end of the luxury vehicle’s useful life. From a design perspective, it becomes readily apparent that BMW has invested significant capital, both human and financial, to developing a product line that 1) reduces the dependence on gasoline in order to mitigate their exposure to the uncertain future of oil based products, 2) addresses the need for increased regulatory compliance due to the increasing reduction targets for carbon emissions, and 3) puts sustainability at the heart of the company’s long term efforts. According to its ISO 14040/140441 certificate by TÜV SÜD Technical Inspectorate2, the BMW i3 is capable of emitting 30-50% less total life cycle greenhouse gases than comparable conventional vehicles, depending upon the source of its electricity. The 30% reduction is achieved by using the EU’s traditional mix of electricity, while the 50% reduction uses purely renewable forms of electricity, such as solar or wind power. The large reduction in emissions is due to a wide range of innovative solutions BMW has applied throughout the material sourcing and manufacturing processes. The “LifeDrive Architecture” creates a passenger cell manufactured from carbon fiber-reinforced plastic (CFRP) that is mounted to an aluminum chassis, made up of secondary aluminum produced from melted production scrap and requiring 95% less energy than using primary aluminum ore. Although CFRP is usually reserved for high-end performance supercars, BMW decided to manufacture the CFRP themselves in order to reduce costs, increase efficiency, and become the first car manufacturer to use CFRP for mainstream production. Staying true to their vision, BMW has now created the world’s first CFRP recycling concept, where various body components, production waste, and even parts from damaged i3’s will be re-incorporated into production and worked back into the vehicle. The design plan that BMW has created with their i brand initiative is an exemplary model for all companies faced with the challenge of operating in a world littered with the unforeseen risks and challenges that climate change has created. BMW has recognized that they will be forced to comply with tougher CO2 emissions regulations, and have thus been proactive in solving the problems at hand by re-designing the manufacturing process to reflect the challenges not just of today, but of the future as well. Compared to their traditional manufacturing facilities, their new plant in Leipzig, Germany uses four wind power systems to provide all the power needed for production, and creates a 50% savings in energy and 70% savings in water—the resource that very well may be the most sought after commodity in the world in the not too distant future. Additionally, in creating the Lithium-ion battery system


that both the i3 and the i8 will use, BMW engineered the system so that after 1,000 charges the battery can be serviced and put to use as short term solar storage units for residential energy consumption. BMW’s long term vision for a sustainable and luxury product is a welcome and necessary change to a design model that has dominated the transportation industry since the 19th century. As the company shifts its sight to create a mobile, urban population that increasingly relies on renewable sources of energy and materials to power their vehicles, consumers will be quick to notice and redefine their personal expectations and values to favor products capable of being stripped down and recycled at the end of their useful life. There is no doubt that other manufacturers will quickly follow BMW’s charge forward once they see consumer demand shift; whether or not these newcomers will be too late to catch up is a question that every manufacturer—and every investor—should be vehemently analyzing. 1 ISO 14040/14004 are international standards for lifecycle assessment. 2 TÜV SÜD Management Service is a neutral independent verification agency. http://www.greencarcongress.com/2013/11/20131113-tuv.html


Product Review

From Luxury to Biomaterials – Stories of Sustainable Packaging Design

By Margarita Pirovska, PhD, Policy & Sustainability Analyst at Cornerstone Capital Inc.

© Veuve Cliquot

Transitioning between a world of linear consumption of natural resources and accumulation of post-consumer waste, to a virtuous circular model, where waste and renewable materials are inputs for value creation, is within grasp. Many companies have already embraced this strategy, and we have seen success stories alongside this new market logic. In this month’s product review series, we would like to present two very different products, from two quite distant worlds – luxury and biomaterials – but that unexpectedly meet on the road to doing business better.

On one side, a startup, with a fantastic product, 100% renewable, 100% biodegradable, quick and cost-effective even without carbon pricing: meet Ecovative, the mushroom materials company1. 4.

Founded in 2007 by two young entrepreneurs, it is based on a brilliant idea: fungi can be used to produce rigid and molded materials, such as are needed in insulation and packaging. While it takes, for example, 15 years to “grow” a package made of tree paper pulp, it takes 4 days to grow one made of fungi and agricultural byproducts. And while polystyrene foam can take up to a million years to decompose, Ecovative’s mushroom based protective packaging is home-compostable.

A true cradle to cradle “ultra-rapid renewable” product, it can also be used for insulation, engineered wood, and even surfboards. Such a business model is both simple and effective – and will be part of the much needed replacement of unsustainable packaging and building materials that have been surrounding us for the past decades, and that, alongside most plastic products, have contributed in creating a huge and lasting pollution in the natural habitat.

On the other side, a more than two centuries old French champagne house – Veuve Clicquot Ponsardin.

Veuve Clicquot is not new to sustainability and innovation: already one of the first champagne houses to be run by a woman in the beginning of the 19th century, Veuve Clicquot Ponsardin established in 1972 a yearly prize for the most successful business woman. Acquired by LVMH in 1986, it became, along with other companies of the group, one of the

1 http://www.ecovativedesign.com/


http://www.ecovativedesign.com/

Margarita Pirovska PhD, Policy & Sustainability Analyst at Cornerstone Capital Inc. and former Project Manager at GDF SUEZ at the Sustainable Development Division.

first French luxury brands to conduct a carbon footprint analysis of their business activity in 2001, and define a corresponding strategy to reduce GHG emissions. According to LVMH25, this process was embedded in the creation of the Carbon Footprint tool of the French government and the energy management agency Ademe, and was subsequently rolled out at other companies of the LVMH group. Most luxury brands and companies have embraced to a certain extent sustainable practices, but have rarely embedded it in their marketing strategies. Although luxury is synonymous with quality and durability, and most luxury goods depend on rare resources and unique savoir-faire, sustainability in luxury remains behind the scenes. It was therefore a good surprise to see Veuve Clicquot last year put on the market a 100% biodegradable isothermal packaging for its champagne brut36. The casing, made of potato starch and paper from bio-based material, is 100% biodegradable, light but also isothermal, keeping the precious beverage cool for up to two hours. Reconciling a premium luxury brand with eco-design is therefore feasible. It is a recurring argument that customers of luxury products are not interested in hearing about sustainability topics surrounding products that aim for exceptionality. Associating champagne with issues such as waste management and electricity consumption is probably not straightforward, or very appealing. But these are part of the business activity nevertheless, and more importantly, the state of the ecosystem where the champagne is produced is vital to the long term value of the product. Probably because environmental preservation is absolutely material to the production process, Veuve Clicquot, alongside other brands of LVMH, introduced environmental criteria in the evaluation of employees and in their performance remuneration in 2008. It is also the driver behind the creation of the potato-based bottle cooler: cradle-to-cradle packaging products are essential if we are to preserve the environment that gives us exceptional products such as champagne. Both examples, despite their very different contexts, are compelling and encouraging. Packaging, a good that we use on a daily basis, and that contributes to dangerous waste accumulation when not recyclable, can be transformed into a truly 100% environmentally friendly product, while responding to the needs of demanding markets that are luxury goods. How companies package their products is very visible to customers, and those who embrace the change such as Ecovative’s customers or Veuve Clicquot, will have moved out of the short lasting, but highly impacting age of disposable plastic.

2 http://www.lvmh.com/uploads/assets/Com-fi/Documents/en/Governance/LVMH_environment2012EN.pdf 3 http://naturally.veuve-clicquot.com/en/discover/naturally-clicquot


http://www.lvmh.com/uploads/assets/Com-fi/Documents/en/Governance/LVMH_environment2012EN.pdf

http://naturally.veuve-clicquot.com/en/discover/naturally-clicquot

Sustainable Editorial

E-Cigarettes. A Positive Disruption to the Market and Health or a Distraction?

By Derek Yach, SVP & Executive Director Vitality Institute, Chairman of the Board, Cornerstone Capital.

© Franck Boston/Shutterstock

The introduction of e-cigarettes (e-cigs) has acutely disrupted the tobacco product/nicotine marketplace. As of 2013, Citi estimates that just under half of the 42 million smokers in the US have tried an e-cig. And, while e-cigs currently account for only 1% of overall US cigarette industry volumes, global e-cig sales have rapidly increased to $1 billion annually in 2012 ($500 million in US sales). More importantly, there is a staggeringly large pool of smokers that have not yet been introduced to the nascent product. The World Health Organization reckons that of the one billion smokers globally, 80% live in low and middle-income countries, most of which are markets that have not yet been penetrated by e-cigs. Given the breakneck rate at which smokers are assessing the new product, it is no surprise that major tobacco companies are committing capital to R&D to develop next generation e-cig products. We’ve also witnessed several notable acquisitions, such as Lorillard acquiring blu in 2012 and Altria acquiring Green Smoke this year. This disruptive product is also causing the markets to take note and a debate is emerging around the financial ramifications for the tobacco industry. Some investors are focused on recent trends that indicate both dollar and volume sales growth are decelerating (off a very small base) in the e-cig category, and conclude e-cigs are unlikely to materially impact earnings in the short to intermediate-term. Others, such as Wells Fargo, believe e-cig consumption has the potential to surpass combustible cigarette consumption in the next decade if innovation is not hindered by regulation. Wells Fargo also believes the industry may evolve into a razor/razorblade model, where less margin is made upfront on e-cig sales but more is made on the refill cartridges. Healthcare investors, too, are paying close attention to this market as e-cigs may cut into the pharmaceutical company led nicotine replace therapy (NRT) market. A GlaxoSmithKline marketing manager said “[Nicotine] patches have been suffering seriously since the summer of 2013, just when e-cigarette shops started to multiply in France.” The latest data, in fact, shows that NRT sales dropped by 6.6% in 2013 in


Derek Yach, SVP & Executive Director Vitality Institute, Chairman of the Board of Directors, Cornerstone Capital Inc. Former World Health Organization Executive Director and SVP Global Health & Agriculture Policy at PepsiCo.

France, which put the total market turnover at under EUR100 million for the first time since 2010.17 It is still early days for the e-cig market, but the overriding message seems to be: there is a large demand for clean forms of nicotine. In our minds, e-cig adoption will largely be dependent on the regulatory environment. Despite high levels of e-cig awareness, experimentation and regular use, experts are divided as to whether e-cigs will advance or threaten public health. Some feel that e-cigs represent the best hope to move smokers addicted to nicotine from inhaling deadly smoke from combusted tobacco products (cigarettes) to potentially less harmful methods of delivering nicotine. And, as this happens, future deaths and disease caused by tobacco could be dramatically cut (about 450,000 Americans die from tobacco every year). In contrast, others believe there are possible unintended consequences from the introduction of e-cigs that may result in an overall adverse effect on public health. The diversity of views reflects the paucity of data, different perceptions of risk, and divergent views on whether companies making reduced harm products can be trusted. There is general consensus that the major public health value of e-cigs is to help smokers transition from combusted tobacco products to cleaner sources of nicotine, much as is the purpose of NRT, with the possible long term goal of phasing combustibles off the market. In our opinion, possible unintended consequences from the use of e-cigs - youth initiation to nicotine, dual use, delayed cessation, relapse and re-normalization of smoking - all seem to be manageable through regulations developed to tackle tobacco products. However, these actions will not address a perception of risk that pervades the policy, general public and even health professional worlds and ascribes as much risk to non-tobacco products as to traditional tobacco products. One way of addressing this distorted perception is for companies committed to developing, marketing and selling non combustibles to develop an industry code of conduct that addresses the major unintended consequences in a proactive way and supports independent regular reporting of their implementation of the code. The benefits of such an industry code would be twofold: 1) the industry can respond more quickly than governments can act and 2) it would quickly separate those companies viewing their products as having major positive impacts on health from those using them as means to continue business as usual.

1 http://vaperanks.com/how-e-cigarettes-are-killing-the-nicotine-patch-market-in-europe/


http://vaperanks.com/how-e-cigarettes-are-killing-the-nicotine-patch-market-in-europe/

It is not often that such a potentially disruptive technology comes to bear. Regulators and e-cig companies have equally important roles in ensuring risks are met with sensible regulation and transparent reporting. Likewise, investors should monitor how these stakeholders respond. If executed properly, the industry has the potential to develop into a healthy nexus between profits and better health.


Valuation & Accounting

Lack of R&D Tax Credit Will Complicate First Quarter Earnings.

By Janet Pegg, CPA, Head of Valuation & Accounting at Cornerstone Capital Inc. and former Managing Director and Analyst of U.S. Accounting Research at UBS Investment. Investors should be aware that first quarter earnings could have a little extra “noise” in them this year, and may not be comparable to previous years. The problem results from Congress not extending the R&D tax credit again. The R&D tax credit (formally known as the research and experimentation credit) has been around for decades. It is basically a 20% tax credit (or an alternative 14% tax credit) linked to increasing research expenses, but is one of the more complicated sections in the tax code. The credit has a significant impact on the amount of research performed – in February 2013 the Joint Committee of Taxation estimated the amount of credits in fiscal 2012 at $6.1 billion. The R&D tax credit, however, is one of the “extenders” Congress is required to deal with every year – tax benefits that are renewed for one or two years, but set to expire unless Congress acts to extend them again. The R&D tax credit expired at the end of 2011, and wasn’t renewed again until January 2013, retroactively to the beginning of 2012. However, the credit expired again at the end of 2013. The expiration and retroactive renewal of the tax credit has wreaked havoc on earnings of companies that take the R&D tax credit. Under U.S. GAAP, companies can only include a tax benefit if they are entitled to it under currently enacted tax law. That means that the R&D tax benefit reduced tax expense, and increased earnings, for calendar 2011. But since the R&D credit was not available during calendar 2012, tax expense rose, and earnings were negatively impacted by the lack of the credit. When Congress retroactively reinstated the credit in the beginning of 2013, first quarter 2013 earnings included not only that quarter’s R&D tax credit, but also the retroactive

©docent/Shutterstock benefit for all of 2012. The second, third and fourth quarters of 2013 all included a normal R&D tax credit benefit. But because it expired at the end of 2013, first quarter 2014 earnings will not include the credit’s benefit. This lack of consistency has resulted in a lack of comparability between quarters. Looking just at the first quarter for the past few years:

• First quarter 2011: included a normal R&D tax credit benefit

• First quarter 2012: included no R&D tax credit benefit

• First quarter 2013: included five quarters of R&D tax credit benefit

• First quarter 2014: will include no R&D tax credit benefit

Luckily, most companies have, and will continue to provide investors information on this distortion through pro-forma earnings. However, with the on-again-off-again nature of the credit, there is concern that the amount and timing of company’s R&D expenditures are impacted based on whether the credit is currently available and expectations of whether the credit will be available in the future.


Because of impacts on R&D spending due to the uncertainty of the credit, there are continual proposals to make the R&D tax credit permanent. There’s one problem with these proposals: the cost. Congress needs to come up with offsetting revenues when enacting tax benefits. The Administration’s most recent budget proposal includes a provision to make the R&D tax credit permanent while also making some changes to enhance the credit, at a ten-year cost of $108 billion. Since it is usually easier to come up with revenue-raisers of $6-$14 billion for one or two-year extensions, Congress historically temporarily extends the credit. What should investors do? Although the R&D tax credit typically is extended for one or two years, it has (so far) always been renewed and is believed to be an

important incentive to companies performing important research. A permanent extension is likely only if Congress is able to pass broad tax reform – which is hard to handicap. But because, even without tax reform, the credit’s periodic extension is always probable, we believe investors should use the pro forma earnings provided by companies to normalize the uneven GAAP benefits. And when forecasting earnings, investors should be comfortable assuming a future tax rate that is reduced by the R&D tax credit.

Janet Pegg, CPA, is the Head of Valuation & Accounting at Cornerstone Capital Inc. and former Managing Director and Analyst of U.S. Accounting Research at UBS Investment.


Upcoming Events

Global ESG Calendar

Date/Time Event Location Information

3.31.14 The Wall Street Green Summit Columbia University Club New York, NY U.S.A.

http://www.wsgts.com/

4.9.14 – 4.11.14 Conscious Capitalism Conference 2014 San Diego, CA U.S.A.

www.consciouscapitalism.org

4.9.14 AIAG Corporate Responsibility Summit Suburban Collection Showplace Novi, MI U.S.A

https://www.aiag.org/source/Meetings/cMeetingFunctionDetail.cfm?section=orders&product_major=E14CRSMMT&functionstartdisplayrow=1&mtype=spec

4.16.14 – 4.18.14 5th Annual Impact Conference & The Sustainable Strategies Conference Cornerstone Speaking Event

ExCel London, United Kingdom

https://www.icsa.org.uk/events/conferences/the-6th-icsa-corporate-governance-conference

4.30.14 – 5.1.14 Ceres Conference 2014 ‘The Future is Now’

Westin Waterfront Boston, MA U.S.A.

http://www.ceres.org/conferences

5.13.14 – 5.14.14 The Conference Board Sustainability Summit Cornerstone Speaking Event

New York, NY U.S.A. Details will be available on the Conference Board website. http://www.conference-board.org/sustainability/

5.19.14 – 5.21.14 US SIF Annual Conference Cornerstone Sponsored Event

Capital Hilton Washington, D.C. U.S.A.

www.ussif.org/conference

5.19.14 Bentley University – Symposium on Integrated Reporting

Bentley University Waltham, MA U.S.A

www.bentley.edu/events/symposium

5.29.14 – 5.30.14 TBLI ConferenceTM New York 2014 Cornerstone Speaking Event

United Federation of Teachers Headquarters New York, NY U.S.A.

http://www.tbliconference.com/

6.2.14 – 6.5.14 Sustainable brands Conference 2014 Paradise Point Resort & Spa, San Diego California

http://www.sustainablebrands.com/events/sb14

6.23.14 – 6.26.14 The Responsible Extractives Summit 2014

London UK http://www.ethicalcorp.com/events

7.30.14 Impact Investing Conference Denver. Colorado http://www.fa-mag.com/impactinvesting/

8.10.14 – 8.13.14 AREDAY Summit 2014 Aspen, Colorado www.areday.net

9.2.14 – 9.5.14 SOCAP 14 Conference San Francisco, CA www.socialcapitalmarkets.net





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Recent Articles from Cornerstone Capital Group

Cornerstone Journal of Sustainable Finance & Banking – February 2014 Cornerstone Journal of Sustainable Finance & Banking Cornerstone Journal of Sustainable Finance & Banking – January 2014 http://www.cornerstonecapinc.com/CornerstoneJournal_Jan2014.pdf Cornerstone Journal of Sustainable Finance & Banking – December 2013 http://www.cornerstonecapinc.com/CornerstoneJournal_Dec2013.pdf Cornerstone Journal of Sustainable Finance & Banking – November 2013 http://www.cornerstonecapinc.com/CornerstoneJournal_Nov2013.pdf Cornerstone Journal of Sustainable Finance & Banking – October 2013 Inaugural Edition http://www.cornerstonecapinc.com/CornerstoneJSFB_October2013.pdf Wall Street Week: “Embrace the Grey” by Erika Karp, Derek Yach – September 2013 www.wallstreetweek.com/guest-post-embrace-the-grey Forbes: “The Power to Convene” by Erika Karp – December 2012 http://www.forbes.com/sites/85broads/2012/12/10/the-power-to-convene/ Forbes: “Sustainable Capitalism…If Not Now, Then When?” by Erika Karp – November 2012 http://www.forbes.com/sites/85broads/2012/11/08/sustainable-capitalism-if-not-now-then-when/ Forbes: “Could Sustainability be Unsustainable?” by Erika Karp – September 2012 http://www.forbes.com/sites/85broads/2012/09/26/could-sustainability-be-unsustainable/?utmsource=allactivity&utm_medium=rss&utm_campaign=20120926 Wharton Magazine: “The Clients of my Clients....Sustainable Selling” by Erika Karp – July 2012 whartonmagazine.com/blog/sustaining-selling-success/ Wall Street Week: “Leaving Rio....and Going Towards Corporate Sustainability” by Erika Karp – June 2012 http://www.wallstreetweek.com/leaving-rio-and-going-towards-corporate-sustainability/ Harvard Business Review | HBR Blog Network "Why Go it Alone in Community Development?" by Andrew MacLeod – June 2012 http://blogs.hbr.org/2012/06/why-go-it-alone-in-community-d/ Forbes: “Sustainable Investing and Moments of Truth” by Erika Karp – March 2012 http://www.forbes.com/sites/85broads/2012/03/28/sustainable-investing-and-moments-of-truth/ Wall Street Week: “Investing in Diversity…Painful but Profitable” by Erika Karp – March 2012 http://www.wallstreetweek.com/guest-post-investing-in-diversity-painful-but-profitable/ Wall Street Week: “Noise Cancelling Investment Research - ESG Analysis and Sustainable Investing” by Erika Karp – February 2012 http://www.wallstreetweek.com/noise-cancelling-investment-research-esg-analysis-and-sustainable-investing/ Forbes: “Superheroes of Capitalism” by Erika Karp – January 2012 http://www.forbes.com/sites/85broads/2012/01/13/superheroes-of-capitalism/ Forbes: “Superheroes of Capitalism: Part II - The Women” by Erika Karp – January 2012 http://www.forbes.com/sites/85broads/2012/02/01/superheroes-of-capitalism-part-ii-the-women/ Wharton Magazine: “The Poetry of Sustainable Investing” by Erika Karp – January 2012 http://www.whartonmagazine.com/blog/writing-the-verses-of-sustainable-investing/


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http://www.wallstreetweek.com/guest-post-embrace-the-grey

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http://www.forbes.com/sites/85broads/2012/01/13/superheroes-of-capitalism/

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http://www.whartonmagazine.com/blog/writing-the-verses-of-sustainable-investing/

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