Investing in a sustainable world

Advance Praise for Investing in a Sustainable World by Matthew J Kiernan, Ph.D “Matthew Kiernan has redefined global thinking around sustainable finance and responsible investment Without Kiernan’s work since the late 1980s, the battle to drag institutional investors to the sustainability table would have been immeasurably harder Kiernan’s magic, as this book gives witness to, is based on a deep intellect, the confidence to continually challenge the investment status quo and the ability to see fundamental changes in the markets well in advance of the mainstream.” —Paul Clemants Hunt Head, United Nations Environmental Program Finance Initiative (UNEP FI), Member of the Board Principles for Responsible Investment (PRI) “If you’re a long-term investor, you have to care about sustainability, because it also equates to the ultimate sustainability of corporate earnings As a fund that invests across multiple generations, we believe that seeking short term gains at the expense of our planet and mankind will ultimately prove too costly to long-term corporate earnings and therefore reduce our overall return We at CalSTRS therefore take this book’s messages very much to heart.” —Christopher Ailman, Chief Investment Officer CalSTRS “In an age where financial risks are prowling “the street,” where complex instruments defy evaluation, where profits are privatized and losses are nationalized, Matthew Kiernan argues passionately—and convincingly— that the financial markets can, and should, become an engine for improving environmental and social conditions rather than for undermining them!” —James L Goodfellow F.C.A., Vice Chairman, Deloitte & Touche (Canada) “Matthew Kiernan has successfully scaled the Green Wall that often separates those working in the financial and sustainability domains His latest book demystifies the concept of sustainable investment and provides a compelling rationale for Wall Street to consider environmental and social criteria, not as afterthoughts but rather as core considerations in our investment decision-making framework.” —Abyd Karmali, Managing Director, Merrill Lynch/Bank of America “Why should savers watch passively as their nest eggs shrink? Matthew Kiernan’s sparkling, breakthrough book explains why they don’t have to— and how they can protect—and even expand—their investments.” —Dr Stephen Davis, Project Director and Fellow Millstein Center for Corporate Governance & Performance Yale School of Management “Matthew Kiernan has turned his considerable experience and energy on the ES themes into this lucid but sophisticated narrative This is perfectly timed to inform investors of the early mover advantage that is achievable in this field.” —Roger Urwin, Watson Wyatt Worldwide “A colorful and personal analysis examining why the financial sector, for the most part, has not understood that increasingly business success will be shaped by both social and environmental challenges Highly recommended.” —Bjorn Stigson, President, World Business Council for Sustainable Development “Investing in a Sustainable World explains the new sustainability paradigm driving the way investors, companies, and indeed society must now think about value creation Kiernan masterfully dissects the forces that are transforming the landscape of capitalism, and he highlights trends that investors must take into account and that corporate leaders simply cannot afford to ignore.” —Dr James C Murphy, Director, International Institute for Strategic Studies “Climate change has the potential to be the dominant investment theme of the 21st century There are people who know about climate and change and there are those who know about investing In Matthew you have someone who is passionately and effectively involved in both That’s why this should be at the top of your reading pile.” —Alan Brown, Group Chief Investment Officer, Schroders Investment Management “Never boring, always provocative and challenging mainstream investment professionals who ignore Matthew Kiernan’s messages here will so at their peril.” —Tim Gardener, Global Head of Investment Strategy, Mercer Investment Consulting “True to form, this book is both provocative and opinionated In a field where much that is put to paper is either mind-numbingly technical or just bland, this book is a refreshing change!” —Dr Raj Thamotheram, Head of Responsible Investments, AXA Investment Management “Investors can enhance their own competitiveness through innovations that take closer account of environmental risks and rewards, recognizing the growing nexus between finance and sustainable development In this important, timely, and compelling book, Kiernan shows how this can be done, and why it is essential if we are to forge an economy the earth can sustain indefinitely.” —William L Thomas, Counsel Skadden, Arps, Slate, Meagher & Flom LLP “Financial investment and sustainable development are allies, not adversaries With Matthew Kiernan’s expertise, talent, persuasion, and sense of humor in Investing in a Sustainable World, you’ll see that it’s a simple but powerful idea.” —Antoine de Salins, Member of the Board, French Pensions Reserve Fund (FRR) Praise for Matthew Kiernan’s previous book, The 11 Commandments of 21st Century Management: “A brilliant and prescient analysis by one of the most original and visionary thinkers—and doers—I know We ignore its messages at our peril.” —Maurice F Strong, 7-time Under-Secretary General of the United Nations Senior Advisor to the President of the World Bank This page intentionally left blank INVESTING IN A SUSTAINABLE WORLD This page intentionally left blank INVESTING IN A SUSTAINABLE WORLD Why GREEN Is the New Color of Money on Wall Street MATTHEW J KIERNAN, PH.D New York • Atlanta • Brussels • Chicago • Mexico City • San Francisco Shanghai • Tokyo • Toronto • Washington, D C Special discounts on bulk quantities of AMACOM books are available to corporations, profesional associations, and other organizations For details, contact Special Sales Department, AMACOM, a division of American Management Association, 1601 Broadway, New York, NY 10019 Tel: 212-903-8316 Fax: 212-903-8083 E-mail: specialsls@amanet.org Website: www.amacombooks.org/go/specialsales To view all AMACOM titles go to: www.amacombooks.org This publication is designed to provide accurate and authoritative information in regard to the subject matter covered It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service If legal advice or other expert assistance is required, the services of a competent professional person should be sought Although this book does not specifically identify trademarked names, AMACOM uses them for editorial purposes only, with no intention of trademark violation Library of Congress Cataloging-in-Publication Data Kiernan, Matthew J Investing in a sustainable world : why GREEN is the new color of money on Wall Street / Matthew J Kiernan p cm Includes index ISBN 978-0-8144-1092-9 Investments—Envioronmental aspects Investments—Social aspects Green movement Social responsibility of business Investment analysis I Title II Title: GREEN is the new color of money on Wall Street HF451.K54 2009 332.6—dc22 2008030023 © 2009 Matthew J Kiernan All rights reserved Printed in the United States of America This publication may not be reproduced, stored in a retrieval system, or transmitted in whole or in part, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of AMACOM, a division of American Management Association, 1601 Broadway, New York, NY 10019 This title is printed on 60# Thor Plus D56 Antique, which is processed chlorine free (PCF), meeting the requirements of American National Standard for Information Sciences-Permanence of Paper (ANSI) Z39.48-1992, is Sustainable Forestry Initiative (SFI), and has 15% PCW (post-consumer waste) content Printing number 10 Contents Changing Finance and Financing Change: The Genesis of This Book Acknowledgments xi xx Welcome to the Sustainable Investment Revolution! What’s Taken Us So Long?: The Power of Intellectual and Organizational Inertia Perverse Outcomes and Lost Opportunities But What Does the Evidence Really Say? Toward a New Post modern, Sustainable Portfolio Theory Why Does it All Matter, Anyway?: The State of the World Sustainability and Competitive Advantage: The New Corporate Imperative—and Some Success Stories The Game-Changers Part I: Collective Initiatives The Game-Changers Part II: The Individual Owners of Capital 19 37 61 73 97 10 The Game-Changers Part III: The Service Providers 11 Making It Happen 12 Some Final Thoughts 123 155 175 201 221 239 ix This page intentionally left blank Index ABB, 124 ABN-AMRO, 90, 212 ABP, 8, 165, 187, 218 Academic research, 65–72 Access to medicines (ATM), 147–149 Access to Medicines Index, 177 Accounting double-entry, 84 performance and, 75–78 pro forma, 76–77 as rear-view mirror, 76 scandals in, 77 ACFTU See All-China Federation of Trade Unions Active share ownership, 56 Adaptive Markets Hypothesis (AMH), 83 intangible assets and, 83 Advanced Research Center, of SSgA, 65–66 Advisors, 211–219 AEP See American Electric Power Affordable housing, 11 AFL-CIO and, 58 AFL-CIO See American Federation of Labor and Congress of Industrial Organizations AFL-CIO Building Investment Trust, 58 AFL-CIO Office of Investments, 56 AFL-CIO Staff Retirement Fund, 56 Africa, 95 growth industries in, 47 Ahold, 74 Ailman, Chris, 186 Air pollution, 11, 100, 111–113 WHO and, 111 Albright, Madeleine, 188 Alcan See Rio Tinto Alcan Alcohol, 21, 63, 203 All-China Federation of Trade Unions (ACFTU), 253 Alliance Trust, 210 Allianz Dresdner, 167, 170 Alpinvest, 177, 188 Aluminum, 116, 132–133 automakers and, 133 Amazon, 90 Ambachtsheer, Jane, 215 287 288 INVESTING IN A SUSTAINABLE WORLD AMD, 99, 108 American Electric Power (AEP), 95, 164 American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), 55–58 affordable housing and, 58 biofuels and, 58 clean technology and, 58 climate change and, 57–58 equal employment opportunity and, 56 fair lending and, 56 human rights and, 56 labor rights and, 56 mutual funds and, 58 proxy voting and, 56–57 American Superconductor, 108 AMH See Adaptive Markets Hypothesis Amnesty International, 109 Ampere Equity Fund, 188 Anchoring, 81 Angelides, Phil, 182, 185 Animal testing, 21 Annan, Kofi, 9, 40 at NYSE, 45 APG See Stichting Pensioenfonds APG Armaments, 63 Asia, 95 Asset Management Working Group (AWG), 70, 158–160 Asset owners, 20 ATM See Access to medicines Audi, 133 Australia, VicSuper of, 194–196 water and, 110 Automakers, 96 aluminum and, 133 Availability bias, 81–82 Aventis Starlink, 89 AWG See Asset Management Working Group Axa Real Estate, 160 Axa Rosenberg, 183 Baca Ranch, 53 Baker & Mackenzie, 208 Baltzell, Hewson, 217 Ban Ki-Moon, 58 Bank of America, 75 Barber, Brad, 181 Barclays Global Investors, 188 Base of the pyramid (BoP), 95, 105, 149–153, 243 BASF, 212 Batting averages, 36 Bauer, Rob, 24, 66, 177 Bavaria, Joan, 161 Baxter Healthcare, 212 Bear Stearns, 93–94 hedge funds and, 93 subprime mortgage market and, 90 Becker, Ying, 66 Behavioral finance, 81–82 Ben & Jerry’s, 212 Bernstein, 70 Bernstein, Peter, 82 “Best Companies to Work for in America” (Fortune), 67 Beverage companies, 96 Bias availability, 81–82 look-back, 68 recency, 82 Bill & Melinda Gates Foundation See Gates Foundation Biodiversity Gates Foundation and, 47 loss of, 11, 101–102, 120–122 Biofuels, AFL-CIO and, 58 Biomass energy, 48 Black empowerment, 95 Blair, Tony, 168 Blood, David, 204–205 BMW, 133 BNP Paribas, 70, 170 BoP See Base of the pyramid Borremans, Eric, 170 Bos, Els, 189 BP, 48 Brand strength, 98, 125 Brazil, Russia, India, and China (BRIC), 5, 104 population growth in, Brent Spar, 126, 212 INDEX BRIC See Brazil, Russia, India, and China British Telecom (BT), 197 British Telecom Pension Scheme (BTPS), 197 Brundtland, Gro Harlem, 10 BT See British Telecom BTPS See British Telecom Pension Scheme Buenrostro, Fred, 182 Buffett, Warren, 47, 50 Bush, George W., 246 Butler, Peter, 198 CAFE See Corporate average fuel economy Caisse de Depots, 160 California Public Employees Retirement System (CalPERS), 8, 45, 180–184 California State Teachers’ Retirement System (CalSTRS), 45, 184–187 PRI and, 186 SEC and, 186 CalPERS See California Public Employees Retirement System CalSTRS See California State Teachers’ Retirement System Cameron, James, 166, 208 Canada, Canada Pension Plan Investment Board (CPPIB), 184 Cap and trade system, 128, 207 Capital efficiency, 228 Capital expenditures, depreciation rates for, 78 Carbon Beta™, 234–238 Rio Tinto Alcan and, 255–256 Carbon capture and storage (CCS), 95, 131 Carbon dioxide (CO2), 30, 106 deforestation and, 120 regulatory compliance cost for, 88 Carbon Disclosure Project (CDP), 2, 163, 165–169 Connecticut and, 45 GHG and, 167 institutional investment and, 15–16 Walmart and, 169 289 Carbon markets, 128, 207–208 CARE, 152–153 Carrier, 134 Catalyst Microfinance Investors, 177 CCC See Climate Change Capital CCS See Carbon capture and storage CDOs See Collateralized debt obligations CDP See Carbon Disclosure Project CDSs See Credit default swaps Celulosa Arauco, 110 CEMEX, 95 CEOs, succession plans for, 57 Ceres See Coalition for Environmentally Responsible Economies Change catalysts, 86 Chemicals, 63 Child labor, 108 China coal and, 106 energy and, 103 Three Gorges dam in, 43 China National Offshore Oil Company (CNOOC), 246 China National Petroleum Corporation (CNPC), 254 Cholera, 113 CIS See Cooperative Insurance Society Cisco, 76 Citibank, subprime mortgage market and, 90 Citigroup, 70 batting average of, 36 CCC and, 209 writedowns at, 91 Clean coal, 130–132 Clean Edge, 128 Cleantech, 113 Cleantech Index, 128 Clean technology, AFL-CIO and, 58 Cleantech Ventures, 196 Clements-Hunt, Paul, 158 Climate Adaptation Development Program, 144 Climate change, 11, 86–89, 100, 106–108, 232–234 AFL-CIO and, 57–58 Connecticut and, 46 290 INVESTING IN A SUSTAINABLE WORLD Climate change (continued ) fiduciary responsibility and, 27 insurance and, 95 Rio Tinto Alcan and, 132–133 SEC and, 164 Swiss Re and, 142–144 water and, 94–95 World Economic Forum and, 53 Climate Change Capital (CCC), 166, 177, 207–210 Citigroup and, 209 Climate Change Centre of Excellence, 141 Climate Group, 141 Climate Solutions fund, 207 Clinton, Bill, 168 CMBSs See Collateralized mortgagebacked securities CNOOC See China National Offshore Oil Company CNPC See China National Petroleum Corporation CO2 See Carbon dioxide Coal, 89, 95, 130–131 China and, 106 Coalition for Environmentally Responsible Economicies (Ceres), 56 Coalition for Environmentally Responsible Economies (Ceres), 160–165 Exxon Valdez and, 161 Coca Cola, 98 water and, 110 Collateralized debt obligations (CDOs), 73 subprime mortgage market and, 90–91 Collateralized mortgage-backed securities (CMBSs), 73 subprime mortgage market and, 90–91 Collective initiatives, 155–174 Columbia University, Earth Institute of, 144 Combivir, 149 Commodities, Yale University Endowment and, 52 Common Wealth: Economics for a Crowded Planet (Sachs), 98 Company Renaissance Zero (CR-Z), 137 Competitiveness, 6, 31, 123–154 Connecticut, 45–46 CDP and, 45 climate change and, 46 ES and, 45–46 PRI and, 45–46 proxy voting and, 45 trustees for, 45 Conservatism, 81 Contraception, 21 Cooperative Insurance Society (CIS), 167 Core business processes, 31 Corporate average fuel economy (CAFE), 113, 136 Corporate governance, 13 Corporations, pension funds of, 59, 196–199 Corpus, 47 of Gates Foundation, 52 CPE, 209 CPPIB See Canada Pension Plan Investment Board Cradle-to-grave, 116 Craton Equity Partners, 186 Credit Agricole Asset Management, 71 Credit default swaps (CDSs), 92 Credit Suisse, 167 Credit Suisse First Boston, 75 CR-Z See Company Renaissance Zero “Dark Clouds Over Good Work of Gates Foundation,” 48 DCF See Discounted cash flow Deforestation, 11, 39, 101, 118–120 CO2 and, 120 Dell, 76 Depreciation rates, for capital expenditures, 78 Derwall, Jeroen, 66 Deutsche Bank, 158 Dexia Microcredit Fund, 188–189 Dickenson, Paul, 166 Discounted cash flow (DCF), 225–226 Discount rate, 33 Diseases See also HIV/AIDS malaria, 6, 114 INDEX neglected, 48 tuberculosis, 6, 48, 114 Diseases of the Developing World Drug Discovery Centre, 148 DJSI See Dow Jones Sustainability Index Doerr, John, 206 Donaldson, Bill, 84 Dot-com boom, 77 Double bottom line, 186 Double-entry bookkeeping, 84 Double-standard, 28–36 in management quality, 28–34 in performance, 34 Dow, 124 Dow Jones Sustainability Index (DJSI), 202–203 DP See Dubai Ports Dubai Ports (DP), 246 Duke Energy, 164 DuPont, 89, 98 Dutch Sustainability Research, 188 Dynegy, 95, 187 EAI See Enhanced Analytics Initiative EAPF See Environmental Agency Pension Fund Earnings management, 35 Earnings per share (EPS), 35 Earth Institute, of Columbia University, 144 Earthwatch, 141 ECCE See European Centre for Corporate Engagement ECGS See European Corporate Governance Services Eco-efficiency, 67 Ecomagination, Economic interdependence, Ecotourism, 121 Edmans, Alex, 67 Edvinson, Leif, 84 Efficient frontier, 79 Efficient Markets Hypothesis (EMH), 79–80 EFIs See Extrafinancial issues Ehnes, Jack, 186, 187 EIRIS Services, 259 291 Eldorado, 89 Electric power, 95 Elkington, John, 211–213 Emerald Technology Ventures Sustainability Fund, 195 EMH See Efficient Markets Hypothesis Employee opinion surveys, 30 Employee turnover, 30 Enablers of Excess, 57 Endowments, 20, 46–53 Energy, 39, 100, 106–108 China and, 103 Energy efficiency of refineries, 30 Rio Tinto Alcan and, 132–133 UTC and, 133–135 World Bank and, 42 Enhanced Analytics Initiative (EAI), 2, 169–172, 204 Enron, 74, 77 Environment, 12, 30 profitability and, 30 Environment Agency, of United Kingdom, 63–64 Environmental Agency Pension Fund (EAPF), 178–180 Environmental and social (ES) Connecticut and, 45–46 downside of, 124–126 Gates Foundation and, 49 in North America, 25 outperformance and, 86 Stichting Pensioenfonds APG and, 176–177 trustees and, 159 UNJSPF and, 40–41 upside of, 126–130 Yale University Endowment and, 53 Environmental audit, by third parties, 30 The Environmental Audit, 211 Environmental Defense, 55 Environmental footprint, of World Bank, 42 Environmental issues, 11 Environmental liability, litigation costs and, 30 292 INVESTING IN A SUSTAINABLE WORLD Environmental, social, and corporate governance (ESG), 40, 140 PRI and, 173 Epivir, 149 EPS See Earnings per share Equal employment opportunity, AFL-CIO and, 56 ES See Environmental and social ESG See Environmental, social, and corporate governance Ethics, 22 ETS See European Trading System European Centre for Corporate Engagement (ECCE), 24, 177 European Corporate Governance Services (ECGS), 259 European Trading System (ETS), 208 External advisory boards, 31 Extrafinancial analyses, 26 Extrafinancial issues (EFIs), 171 Extraordinary items, 35 Exxon Mobil, 125 Exxon Valdez, 126 Ceres and, 161 Failed Fiduciaries, 57 Fair lending, AFL-CIO and, 56 FASB See Financial Accounting Standards Board FCX Clarity, 137 Ferguson, Mark, 205 Fiduciary capitalism, 7–8 Fiduciary responsibility, 6, climate change and, 27 of UNJSPF, 39, 41 of World Bank, 44 Financial Accounting Standards Board (FASB), 126 Financial Analysts Journal, 63 Financial statements, intangible assets and, 14 FirstEnergy, 95 Fisheries, 11, 121 Flat Earth Society, 20 Flatz, Alois, 203 Flex-time, 30 Focus Funds, 198 Fonds de Réserve Pour les Retraites (FRR), 189–191 Food, 95 Ford Foundation, 50–51 returns on investment of, 51 Forestry, 26, 63, 96 See also Deforestation Fortune, 67 “The Fortune at the Bottom of the Pyramid” (Hart and Prahalad), 149 Foundations, 20, 46–53 Four Pillars, 12–13, 228 Innovest Strategic Value Advisors on, 31–32 management quality and, 29–31 Freshfields, Bruckhaus, Deringer, 159 Frijns, Jean, 176 FRR See Fonds de Réserve Pour les Retraites FTSE, 259 FTSE Good Europe, 188 FTSE/Impax ET 50, 128 Future-proof companies, GAAP See Generally accepted accounting principles Gap, 98 Gardener, Tim, 214–215 Gas, 26, 48, 63, 96 Gasoline MTBE in, 30 price of, 136 Gas turbine combined-cycle (GTCC), 130–131 Gates, Bill and Melinda, 47–52 Gates Foundation, 47–52 biodiversity and, 47 corpus of, 52 ES and, 49 HIV/AIDS and, 47–48 public health and, 47 returns on investment of, 51 tobacco and, 48–49 tuberculosis and, 48 Gates, William H., Sr., 47 GE, Geared turbofan (GTF), 135 Gender diversity, 11 INDEX Generally accepted accounting principles (GAAP), 76 Generation Investment Management, 54, 171, 204–207 management quality and, 206 Genetically modified foods, 21, 89 Gerling, 158 GHG See Greenhouse gas emissions GHGRS See Greenhouse Gas Risk Solutions Gifford, James, 172 Glass Lewis, 259 GlaxoSmithKline (GSK), 147–149 HIV/AIDS and, 149 Global 100, 69–70 Global Climate Change Index, 140 Global Compact See United Nations Global Compact Global Crossing, 74 Global Environmental Outlook 4, 98 Global Environment Facility, 42 Global Green Fund, 54 Global Reporting Initiative (GRI), 161–162 Gluck, Kim, 66 GMI See Governance Metrics Goldman Sachs, 2, 70, 172 batting average of, 36 Goldsmith, Teddy, 166 Goldsmith, Zac, 166 Goodwill, from mergers and acquisitions, 78 Gore, Al, 58, 166, 168, 171 at Generation Investment Management, 204–205 Governance Metrics (GMI), 259 Government, power erosion of, Grameen Bank, 150 Great Southern, 96 Green Century Capital Management, 161 Green Consumer, 211 Green Engine Program, of Pratt & Whitney, 135 Greenhouse gas emissions (GHG), 30, 128 CDP and, 167 waste management and, 115 293 Greenhouse Gas Risk Solutions (GHGRS), 143 Greenpeace, 212 Royal Dutch/Shell and, 126 Green real estate, 144–147 Green, Stephen, 141 Green Wave initiative, 182, 185–186 GRI See Global Reporting Initiative Gross world product, 102 Growth industries, in Africa, 47 GSK See GlaxoSmithKline GTCC See Gas turbine combined-cycle GTF See Geared turbofan Haggert, Gordon, 172–173 Haliburton, 124 Halifax Bank of Scotland, 231 Hancock Timber Response Group, 119 Hansen, James, 106 Harris, Peter, 205 Hartridge-Price, Colin, 198–199 Hart, Stuart, 149 Hawley, Jim, Health, 11, 100, 113–115 Gates Foundation and, 47 HealthSouth, 89 Hedge funds Bear Stearns and, 93 Yale University Endowment and, 52 HEOS See Hermes Equity Ownership Services Herbal medicines, 120 Hermes Equity Ownership Services (HEOS), 197–198 Hermes European Focus Fund, 188 Hermes Pensions Management Limited, 197 Hewlett Packard Foundation, 51 HFC-23, 210 Hg Renewable Power Fund, 186, 188 Hickox, Winston, 182–183 Hierarchy of self-actualization, for institutional investment, 15–18 High-performance workforce practices, 30 Hindustan Lever, 152 Hines Corporation, 183 294 INVESTING IN A SUSTAINABLE WORLD HIV/AIDS, 6, 113–114 Gates Foundation and, 47–48 GSK and, 149 mining and, 95, 99 Holmen Ab, 96 Honda, 127, 135–137 Honeybees, 121 Hong Kong and Shanghai Banking Corporation See HSBC Household savings rates, 92 Housing Investment Trust, 58 HSBC, 70, 127, 139–142, 158 Hughes, Gareth, 208 Human capital, 12, 30, 227, 228 Human health See Health Human resource management, 11 Human rights, 11, 100, 108–109 AFL-CIO and, 56 Iberdrola, 127, 137–139 renewable energy and, 139 Iceberg balance sheet, 12–13, 84 IFC See International Finance Corporation IGCC See Integrated gasification combined cycle ILO See International Labour Organization IMF See International Monetary Fund Income disparity, 11 INCR See Investor Network on Climate Risk Independent Minds, 259 Industrial competition, Inertia, 8, 15 in UNJSPF, 41 Information and communication technologies, Information ratio, 66 Innovest Strategic Value Advisors, 24, 140, 176, 216–219, 259 on Four Pillars, 31–32 Institutional investment, CDP and, 15–16 hierarchy of self-actualization for, 15–18 PRI and, 15–16 Institutional Investor Summit on Climate Risk, 58 Insurance, climate change and, 95 Intangible assets, 11, 78, 84–86 AMH and, 83 assessment of, 251–254 financial statements and, 14 Integrated gasification combined cycle (IGCC), 130 Intel, 76, 99, 231 Intellectual capital, 84 investors and, 85 at PetroChina, 253 International Finance Corporation (IFC), 42 International Labour Organization (ILO), 39 International Monetary Fund (IMF), 247 Investa, 144–147 Investment practitioners, 65–72 Investor Network on Climate Risk (INCR), 161–164, 181 Investors confidence of, 75 expectations of, 86 intellectual capital and, 85 Investor Summit on Climate Risk, 45 ISS, 259 Jaguar, 133 Jankowska, Bozena, 170 Jantzi Research, 259 Janus, 75 Jeucken, Marcel, 189 Job-sharing, 30 Johnson and Johnson, 108 Josefsson, Märtha, 193 Journal of Finance, 78 JP Morgan, batting average of, 36 Jupiter, 54 Kahneman, Daniel, 81 Kaletra, 147 Kisladag mine, 89 Kjaer, Knut, 172 KLD Research and Analytics, 259 INDEX Kleiner Perkins Caufield & Byers, 206 Kleinwort Benson, 209 Knight, Peter, 205 Knoepfel, Ivo, 203–204 Knowledge capital, 11 Kyoto Protocol, 120, 143 Labor relations, 228 Labor rights, 11 AFL-CIO and, 56 Lafarge, 70 Lake, Rob, 178 Land contamination, 11 Larkin, Greg, 91 Latin America, 95 Lawson, Nigel, 217 le Duc, Colin, 204, 205 Legg Mason, 35 Lehman Brothers, 70 subprime mortgage market and, 90 Lev, Baruch, 11, 85 Levin, Richard, 52 Lifestyles of health and sustainability (LOHAS), 115 Light Green Advisors, 186 Limited partnerships, Yale University Endowment and, 53 Liquefied natural gas (LNG), 89 Litigation costs, environmental liability and, 30 LNG See Liquefied natural gas Lo, Andrew, 83 LOHAS See Lifestyles of health and sustainability Look-back bias, 68 Los Angeles Times, 48 Lubber, Mindy, 161 Lufthansa, 231 MacArthur Foundation, 51 MacDonald, Donald, 197 Mackenzie, Craig, 166 Maktoum, Mohammed bin Rashid al, 246 Malaria, 6, 114 Malkiel, Burton, 26 Management Charter, of UNJSPF, 39 295 Management quality, 14, 20, 23–24, 28–29, 86 double standard in, 28–34 four pillars and, 29–31 Generation Investment Management and, 206 Manifest Information Services, 259 Markowitz, Harry, 78 Marsh and McLennan, 208 Martin, Jim, 217 Maslow, Abraham, 16 Massie, Bob, 161 Mauboussin, Michael, 35 Maverick risk, 46 McDonald’s, 98 Medicine, 11, 114 herbal, 120 Megatrends, Yale University Endowment and, 53 Melvin, Colin, 172, 197 Mercer Investment Consulting, 70, 213–216 PRI and, 216 Merck, 47 Mergers and acquisitions goodwill from, 78 restructuring charges from, 35 Merkel, Angela, 168–169 Merrill Lynch, 75, 167 subprime mortgage market and, 90 Meta-study, 63 MFS, 75 MHI See Mitsubishi Heavy Industries Millennium Ecosystem Assessment, 98 Mining, 26, 63, 89 HIV/AIDS and, 95, 99 water and, 94–95 Minow, Nell, MISTRA See Swedish Foundation for Strategic Environmental Research Mitsubishi Heavy Industries (MHI), 70, 130–132 Modern portfolio theory (MPT), 78–81 Money managers, 202–210 Monks, Robert, Monsanto, 89 Moody-Stuart, Mark, 218 296 INVESTING IN A SUSTAINABLE WORLD Morgan Stanley, batting average of, 36 Morgan Stanley Real Estate, 145 MPT See Modern portfolio theory MSCI World Benchmark, 70 MTBE, in gasoline, 30 MTV, 47 Multilateral financial institutions, 38–44 Munsters, Roderick, 176 Musselman, Gerritt, 170 Mutual funds AFL-CIO and, 58 scandals with, 75 Myanmar, 21 N-11, 104 Nappier, Denise, 45, 58 NASDAQ, 77 Natural resources, 96, 99 degradation of, Nature Conservancy, 53, 54–55 Neglected diseases, 48 “A New Approach to Capitalism in the 21st Century” (Gates, B.), 51 New Energy Finance, 259 New Forests Pty Ltd., 121–122 New York Stock Exchange (NYSE) Annan at, 45 PRI and, NGEN, 186 NGOs See Nongovernmental organizations Nike, 98, 212 Nissay Asset Management Corporation, 198 Nissay Hermes Stewardship Fund, 198 Nongovernmental organizations (NGOs), 6, 31, 54–55, 229 pressure from, 90 Nordisk, 212 Norsk Hydro, 231 North America, ES in, 25 Norway, Nuclear energy, 39 Nutritional deficiencies, 113 NYCERS, 184 NYSE See New York Stock Exchange Occidental Petroleum, 99 Oceans, 11 OECD See Organisation for Economic Cooperation and Development OEKOM Research, 259 Off balance sheet, 91 Oil, 26, 48, 63, 96 Old Mutual, 231 OneOK Inc., 187 Organisation for Economic Cooperation and Development (OECD), 104, 159 Organized labor, 55–59 Orphans, 108 Otis Elevator, 134 Our Common Future (Brundtland), 10 Outperformance, 34, 221 ES and, 86 Overconfidence, 82 Ozone layer, 11, 134–135 Pacioli, Luca, 84 Paper, 39, 116–117 Parmalat, 74, 89 Passive resistance, in pension funds, 15 PCA See Pension Consulting Alliance p/e See Price/earnings ratio Pearce, Howard, 178–180 Pension Consulting Alliance (PCA), 186 Pension funds, 20 of corporations, 59, 196–199 liabilities of, 78 passive resistance in, 15 PRI and, 9–10 in public sector, 44–46 of World Bank, 43 People, Planet, Profit, 211 Performance, 31, 66–67 accounting and, 75–78 double-standard in, 34 outperformance, 34, 86, 221 underperformance, 23, 26 of World Bank, 44 of Yale University Endowment, 52 Persson, Göran, 192 Petrobras, 90 INDEX PetroChina, 247 assessment of, 251–254 intellectual capital at, 253 stakeholder capital at, 253 Pfizer, 126 PFOA, 89 PGGM, 170, 176, 187–189 Pharmaceutical companies, 95 Pharma Futures, 177 Pinnacle West, 95, 231 Pitt-Watson, David, 198 Pollution See also Air pollution from transportation, 39 Population growth, 5, 99–100, 102–104 in BRIC, Pornography, 21, 63 “Portfolio Selection” (Markowitz), 78 Poverty, 11, 100, 104–105 The Power of Unreasonable People (Elkington), 212 Prahalad, C.K., 149 Pratt & Whitney, Green Engine Program of, 135 PRI See United Nations Principles for Responsible Investment Price/earnings ratio (p/e), 34–35 Private equity, Yale University Endowment and, 52, 53 Profitability, environment and, 30 Pro forma accounting, 76–77 Project Aparajita, 153 Proxinvest SARL, 259 Proxy voting, 191 AFL-CIO and, 56–57 Connecticut and, 45 Prudential, 75 Prudential Property, 160 Public health See Health Public sector, pension funds in, 44–46 PureCell, 135 Pure-play, 106 Racial diversity, 11 Radioactive waste, 39 RBS See Royal Bank of Scotland Real estate, 144–147 297 Realty Financial Partners, 53 Recency bias, 82 Recruitment, 30, 228 Refineries, energy efficiency of, 30 Refugees, 108 Regulators, 6, 31, 229 Regulatory compliance cost, for CO2, 88 Renewable energy, 30, 106 Iberdrola and, 139 World Bank and, 42 Reputational capital, Research providers, 259 Reset clauses, 92 Restructuring charges, 78 from mergers and acquisitions, 35 Retention, 30, 228 Rexiter Capital Management, 42, 177 Rhumbline, 186 Rice, 104 Ringger, Reto, 202 Rio Tinto Alcan, 98, 132–133, 231 Carbon Beta™ and, 255–256 Risk management, 30, 79 Rockefeller Foundation, 51 returns on investment of, 51 Roos, Goran, 84 Royal Bank of Scotland (RBS), 90 Royal Dutch/Shell, 32, 48, 70, 98, 231 Greenpeace and, 126 opposition to, 89 RREV, 259 Sachs, Jeffrey, 98 Salins, Antoine de, 190–191 Salomon Smith Barney, 75 SAM See Sustainable Asset Management Sanford Bernstein, 93 Sarbanes-Oxley Act of 2002, 77 Scandals, 89 in accounting, 77 with mutual funds, 75 Schering Plough, 126 Schmidheiny, Stefan, 158 Schopenhauer, Arthur, 156–157 Scott, Cheryl, 49 Scrubbers, 124 298 INVESTING IN A SUSTAINABLE WORLD SEC See Securities and Exchange Commission Securities and Exchange Commission (SEC), 77 CalSTRS and, 186 climate change and, 164 Self-actualization, 15–18 Senior executives, 13, 20 compensation of, 181 stock options for, 76 Shakti, 152 Shareholder-centric system, 56 Share price performance, 6, 228 Sharpe ratios, 67 Sharpe, William, 78 Sierra, Katharine, 42 Simcere, 149 Simpson, Paul, 166 Sin stock, 63 SIRI Company, 259 Smart energy, 203 Smart meters, 108 Smithsonian Tropical Research Institute, 141 Social inequality, 100, 104–105 Social issues, 11 Social license to operate, 31 Socially responsible investment (SRI), approaches to, 21 Société Générale, 167 Soil degradation, 101, 117–118 Solar energy, 48 AFL-CIO and, 58 Sovereign wealth funds (SWFs), 244–247 Spitzer, Eliot, 75 Sports utility vehicles (SUVs), 90 SRI See Socially responsible investment SSgA See State Street Global Advisors Stakeholder capital, 12, 31, 229 at PetroChina, 253 Stakeholder-centric system, 56 Standard and Poor’s 500, 62, 66 Starbucks, 108, 212 State funds, 44–46 State Street Global Advisors (SSgA), 65–66, 183, 218 Stern, Nicholas, 141, 166 Stewart, Tom, 84 Stichting Pensioenfonds APG, 66, 176–178, 218 See also ABP ES and, 176–177 Stiglitz, Joseph, 80 Stock options costs of, 78 for senior executives, 76 Stock price, investor expectations and, 86 Stock valuation, 228 Stonesifer, 47 Stora Enso, 96 Stoxx Limited, 259 Strategic governance, 12, 31, 229 Subcontractors, 30 Subprime mortgage market, 57, 90–93 Bear Stearns and, 90 CDOs and, 90–91 Citibank and, 90 CMBSs and, 90–91 Lehman Brothers and, 90 Merrill Lynch and, 90 UBS and, 90 Succession plans, for CEOs, 57 Sudan, 21 Sullivan, Francis, 141 Sumitomo Marine and Fire, 158 Suncor, 125 Supply chain management, 31 SustainAbility, 211–213 Sustainability, 10–11 Sustainability-enhanced portfolio, 227–232 Sustainability Leaders Australia Fund, 195 Sustainability Leaders International Fund, 195 Sustainable Asset Management (SAM), 195, 202–204 “Sustainable Development Agenda 21,” 39 Sustainable Investment, 194 sustainable investment hypothesis, 13–14, 28, 59, 61, 145 Sustainable Investment Revolution, SUVs See Sports utility vehicles Sveiby, Karl-Eric, 84 INDEX Swedish Foundation for Strategic Environmental Research (MISTRA), 24, 191–194, 212 Sweeney, John, 56, 58 Swenson, David, 52 Swiss Re, 142–144, 158, 231 Teflon, 89 Telecommuting, 30 Temple Inland, 96 10 commandments, 222–223 Tennant, Tessa, 166 Thamotheram, Raj, 170 Third parties, environmental audit by, 30 Thörnelöf, Eva, 193 Three Gorges dam, in China, 43 Titanium, 133 Tobacco, 63, 203 Gates Foundation and, 48–49 Tolba, Mustafa, 157 Toxic emissions, 11, 30, 39 Toyota, 133, 212 Toyota Prius, 2–3 Training, 30 Transfer opportunities, 30 Transportation, pollution from, 39 Trillium Asset Management, 161 Triodos, 177 Triple Bottom Line, 211 T Rowe Price, 206 Trucost, 259 Trustees, 8, 20, 27 for Connecticut, 45 ES and, 159 Tuberculosis, 6, 114 Gates Foundation and, 48 Turner, Ted, 166 Tversky, Amos, 81 Tyco, 74, 89 UBS batting average of, 36 subprime mortgage market and, 90 UBS Timber investments, 119 Underperformance, 23, 26 UNEP-FI See United Nations Environment Program’s Finance Initiative 299 Unilever, 95, 149–153 United Kingdom EAPF in, 178–180 Environment Agency of, 63–64 United Nations Environment Program, 98 United Nations Environment Program’s Finance Initiative (UNEP-FI), 157–160 United Nations Global Compact, 39–40, 173, 212 violations of, 41 United Nations Joint Staff Pension Fund (UNJSPF), 38–41 ES and, 40–41 fiduciary responsibility of, 39, 41 inertia in, 41 management Charter of, 39 United Nations Principles for Responsible Investment (PRI), 2, 40, 172–174 CalSTRS and, 186 Connecticut and, 45–46 ESG and, 173 institutional investment and, 15–16 Mercer Investment Consulting and, 216 NYSE and, pension funds and, 9–10 World Bank and, 43 United Nations Program Finance Initiative, 70 United Technologies Corporation (UTC), 133–135 Universal owner, 7–8 University Superannuation Scheme (USS), 167, 170, 210 UNJSPF See United Nations Joint Staff Pension Fund Unsold inventory, 78 Urbanization, 5, 99–100, 102–104 US Renewables Group, 186 USS See University Superannuation Scheme Usury, Yale University Endowment and, 53 UTC See United Technologies Corporation 300 INVESTING IN A SUSTAINABLE WORLD Values for Money, 211 van Pelt, David, 217 Vaughan, Scott, 158 VicSuper, 194–196 Vigeo, 140, 259 Villermain-Lécolier, Nada, 191 VOC See Volatile organic compounds Volatile organic compounds (VOC), 253 Wallace, Bob, 218 Wallace Global Fund (WGF), 218 Walmart, 3, 108 CDP and, 169 W Alton Jones Foundation, 166 Waste management, 11, 39, 101, 115–117 GHG and, 115 water and, 116 Water, 11, 100, 109–111 Australia and, 110 climate change and, 94–95 Coca Cola and, 110 mining and, 94–95 waste management and, 116 Yale University Endowment and, 53 Welsh, Bob, 195 Westley, Steve, 185 WGF See Wallace Global Fund Wharton School of Business, 67 White, Tony, 208 WHO See World Health Organization Wilder Hill, 128 Williams, Andy, Williams, Jon, 141 Wilshire Associates, 181 Wind energy, 48 AFL-CIO and, 58 Winslow Green Growth Fund, 54 Woodall, Mark, 208, 210 Workers’ capital, 56 World Bank, 42–44 energy efficiency and, 42 environmental footprint of, 42 fiduciary responsibility of, 44 pension funds of, 43 performance of, 44 PRI and, 43 renewable energy and, 42 “World Bank Socially Responsible Investments,” 42 WorldCom, 74 World Economic Forum, 27–28, 51, 69 climate change and, 53 World Health Organization (WHO), 39 air pollution and, 111 World Resources Institute, 55, 212, 259 World Trade Organization (WTO), 39 World Wide Fund for Nature (WWF), 103, 141 Writedowns, at Citigroup, 91 WTO See World Trade Organization WWF See World Wide Fund for Nature Wyeth, 126 Xstrata, 125 Yale University Endowment, 52–53 commodities and, 52 ES and, 53 hedge funds and, 52 limited partnerships and, 53 megatrends and, 53 performance of, 52 private equity and, 52, 53 usury and, 53 water and, 53 Yunus, Muhammud, 150 Zanamivir, 149 Zouk Ventures, 203 ...Advance Praise for Investing in a Sustainable World by Matthew J Kiernan, Ph.D “Matthew Kiernan has redefined global thinking around sustainable finance and responsible investment... President, World Business Council for Sustainable Development Investing in a Sustainable World explains the new sustainability paradigm driving the way investors, companies, and indeed society... the UN Earth Summit in Rio de Janeiro in 1992 In short order, Schmidheiny had managed to assemble a “dream team” of global industry titans: I xi xii INVESTING IN A SUSTAINABLE WORLD the chairmen