may 2014 journal of sustainable - cornerstone capital...

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Journal of Sustainable Finance & BankingSM

May 2014

Global Sector Research Introducing the Global Sector Strategy … Financial Impediments to Job Creation by Start-Ups and Small Firms Michael Geraghty … p.17 and p.25

Valuation & Accounting Making the Case for Crowdfunding Rules Janet Pegg … p.33

Featured Editorial The Global Entreneurship Revolution Shelly Porges … p.35

The Work of an Entreprenuer: Dream Maker – Dream Killer David Lubin … p.37

Where Angels Fear to Tread…. Robert Lamb, Sadika Hameed … p.40

Regional Imperatives MingJian, Testing for Safe Quality Products in China James Feldkamp … p.42

“Exit Left:” A Reflection about VC Investing… Camillo Sicherle … p.44

Open Source Excellence Creating an Ecosystem of Entrepreneurship to Drive Business and Social Value Lauren Moore … p.46

Fans, Flavors and Failure: Innovation from Cow to Cone Jostein Solheim … p.48

Why Compliance Programs Work Like Pushing a Rope… Dan Ostergaard, Michael Fuerst … p.50

Enhanced Analytics Measurement Systems at the Product Level Kara Hurst … p.53

Where Should “Human Capital” Fit Laurie Bassi … p.56

Accelerating Impact Reimagining Impact, Reimagining ROI Bob Harrison, Bulbul Gupta … p.59

Sustainable Standout PIP’n Good Wendy Gordon … p.61

“I Bought the Farm!” Jennifer Grossman … p.65

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), global markets took comfort from easing tensions in the Ukraine, robust US growth dynamics, and the Chinese government’s stimulative intentions. Also, much attention has been paid to the leadership of the European Commission, and corporate M&A activities from GE and Siemen’s respective intent to win Alsthom’s power business, to Pfizer’s failed bid for AstraZeneca, where jobs and the value of intellectual property remain key aspects of negotiations. All the while, debates about the genesis and path of income inequality and corporate governance rage on. These latter issues bring us to a discussion of “legacy.” An important legacy is one of the greatest hopes of entrepreneurs. Entrepreneurs are the greatest hope for capitalism.

This month’s edition of the JSFB explores “Entrepreneurship” from many angles. We begin with our featured domain, “BuildTheLadder.net,” where we celebrate the creative, inspired, dauntless innovators and force-of-will they employ to leverage ideas and relationships toward a successful vision. Some of these leaders would agree with the great American poet Maya Angelou, who passed away this week. In an extraordinary life of lending inspiration to others, Angelou stated that “People will forget what you said, and people will forget what you did, but people will never forget how you made them feel." As this group of entrepreneurs share the feelings they’ve experienced along their journeys, we applaud their efforts as the economy’s single best source of job creation.

Further this month, Cornerstone Capital’s Global Markets Strategist Michael Geraghty takes a more granular look at “Financial Impediments to Job Creation by Start-ups and Small Firms.” This snapshot of bank lending and the IPO market reminds us of the importance of policy efforts, such as the JOBS Act. Janet Pegg, our Head of Valuation & Acccounting, walks us further through this law in “Making the Case for Crowd Funding Rules.” As the SEC eyes this “evolving method to raise money via the internet,” we note the challenges and necessities in validating crowd funding as a viable investment and capital formation tool with transparent and understandable risks.

This month we also introduce the Cornerstone Capital Global Sector Strategy Model where Michael Geraghty ranks the 10 GICS in the MSCI All Country World Index employing our quantitative multi-factor methodology. We generate sector recommendations using our proprietary measures of valuation and earnings (momentum, revisions and margins), while weaving in considerations of Environmental, Social and Governance metrics. While we are expecting our model and processes to evolve, our conscious consideration of the most material ESG factors by sector offers another lens by which to analyze our allocations. Currently, we take a somewhat pro-cyclical stance of being overweight in the Information Technology and Consumer Discretionary sectors, and underweight in Consumer Staples and Materials.

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

http://www.buildtheladder.net/

As Michael notes, the extent to which a weighting in the Materials sector needs to coincide with a Regional Strategy call, we turn to our “Regional Imperatives” section with two entrepreneurial perspectives from China and Brazil offering insights that can be applied globally. James Feldkamp demonstrates that necessity is indeed the mother of invention in the mission of “MingJian: Testing for Safe Quality Products in China,” and Camillo Sicherle in Brazil addresses a structural question of financing new businesses in “Exit Left: A Reflection about VC Investing” -- a mindset that can, at times, undermine the highest purposes of entrepreneurship and capitalism.

In “Open Source Excellence,” we feature three of the world’s leading companies working to articulate a vision for private sector excellence. Lauren Moore of eBay discusses “Creating an Ecosystem of Entrepreneurship to Drive Business and Social Value.” Jostein Solheim of Ben & Jerry’s talks about “Fans, Flavors and Failure: Innovation from Cow to Cone.” And Michael Fuerst of Novartis with Dan Ostergaard of Integrity by Design stress that when “Building a Culture of Integrity” traditional compliance can only go so far. Rather, what is critical from the outset are clear expectations and widespread awareness combined with checks and balances.

Digging deeper into this month’s theme of Entrepreneurship, we learn from expert perspectives across disciplines. In “The Other Revolution,” Shelly Porges showcases the extraordinary prospects for unleashing human potential at a time when “Talent is universal, but opportunity is not” (as stated by Hillary Clinton.) David Lubin brings his years of experience and valuable pragmatic frameworks for success to herald “The Work of an Entrepreneur: Dream Maker – Dream Killer.” And finally, Bob Lamb and Sadika Hameed suggest we can find lessons in surprising places “Where Angels Fear to Tread, Entrepreneurs Rush in – But Investors Usually Don’t.”

Investors do need a world of “Enhanced Analytics” and here we look to Kara Hurst, who argues that sustainable investors are “Going Deep: Seeking Measurement Systems at the Product Level,” while Dr. Laurie Bassi asks “When Should “Human Capital” Fit into the Sustainability Agenda?” In both cases, we find a more robust understanding of the true “food chain” of the capital markets. Finally, this month, we feature “Sustainable Standouts” in the world of social entrepreneurship (3P Partners and FarmCo New York), a summary of the outstanding 2014 Ceres Annual Conference, a review of sustainable eyeglass maker Warby Parker, and a call-to-action from the Clinton Global Initiative that drives explicit commitments for those who wish to “Accelerate Impact” throughout the global capital markets.

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. 7

Featured Domain BuildTheLadder.net Erika Karp CEO & Founder,

Cornerstone Capital p.15

Global Sector Strategy Introducing the Cornerstone Capital Sector Strategy Michael Geraghty Global Markets Strategist,

Cornerstone Capital Inc. p.17

The Cornerstone Global Regional Strategy Update Michael Geraghty Global Markets Strategist, Cornerstone Capital Inc.

p.23

Financial Impediments to Job Creation by Start-Ups and Small Firms

Michael Geraghty Global Markets Strategist, Cornerstone Capital Inc.

p.25

Corporate Governance Insights Good Governance: A Cornerstone of Entrepreneurism

Follow the Leader? Follow the Money Sustainable Entrepreneurship in Banking — The Equator Principles

John Wilson

Cindy Motz, CFA

Head of Corporate Governance, Engagement & Research, Cornerstone

Capital Inc.

Independent Research Analyst & Global Advisory Council Member to Cornerstone Capital Inc.

p.29

p.31

Valuation & Accounting Making the Case for Crowdfunding Rules Janet Pegg, CPA Head of Valuation &

Accounting, Cornerstone Capital Inc.

p.33

Featured Editorial The Other Revolution: The Global Entrepreneurship Revolution

The Work of an Entrepreneur: Dream Maker – Dream Killer

Where Angels Fear to Tread: Entrepreneurs Rush In, But Investors Don’t

Shelly Porges

David Lubin

Robert D. Lamb

Sadika Hameed

Global Entrepreneurship Advocate

Managing Director of S3

Senior Fellow & Director for Program on Crisis,

Conflict and Cooperation, CSIS

Fellow, Program on Crisis, Conflict and Cooperation,

CSIS

p.35

p.37

p.40

Regional Imperatives MingJian, Testing for Safe Quality Products in China

“Exit Left:” A Reflection about VC Investing & Entrepreneurship

James Feldkamp

Camillo Sicherle

Co-Founder and CEO, MingJian

Attorney, São Paulo, Brazil

p.42

p.44

Open Source Excellence Creating an Ecosystem of Entreneurship to Drive Business and Social Value

Lauren Moore Head of Global Social Innovation, eBay Inc.

p.46


Fans, Flavors and Failure: Innovation from Cow to Cone

Why Compliance Programs Work Like Pushing a Rope and How Leaders Can Impact Behaviour

Jostein Solheim

Dan Ostergaard

Dr. Michael Fuerst

CEO, Ben & Jerry’s, a Unilever

Company

Managing Partner, Integrity by Design

Senior Manager, Novartis

p.48

p.50

Enhanced Analytics Going Deep: Measurement Systems at the Product Level

When Should “Human Capital” Fit in the Sustainability Agenda?

Kara Hurst

Dr. Laurie Bassi

CEO, The Sustainability Consortium

CEO, McBassi & Company

p.53

p.56

Accelerating Impact Reimagining Impact, Reimagining ROI Bob Harrison

Bulbul Gupta

CEO, Clinton Global Initiative

Head of Market-Based Approaches, Clinton

Global Initiatives

p.59

Sustainable Standout PIP’n Good Wendy Gordon Co-Founder and CEO, 3P

Partners p.61

“I Bought the Farm!” Jennifer Grossman Founder & President, FarmCo New York

p.65

Sustainable Product Review Warby Parker Michael Shavel, CFA Research & Business

Analyst, Cornerstone Capital Inc.

p.68

Virtual Attendance Ceres Conference 2014 Tanya Khotin Head of Institutional

Business Development, Cornerstone Capital Inc.

p.71

Upcoming Events Global ESG Calendar p.72

Journal of Sustainable Finance & Banking Subscription Form Articles Cornerstone Capital Team

p.73

p.75p.76


Market Summary

Overview

With earnings season in the rear-view mirror, the global investment narrative remains largely unchanged and most of the major indices are up modestly for the year. Volatility has remained subdued, though there has been more movement under the surface as we’ve witnessed rotation out of growth and into value stocks. This has not coincided with a rotation into defensive sectors, however, implying that investors remain encouraged by economic data and are optimistic on global growth.

In the U.S., economic data is rebounding from the “winter slump” and investors are pushing the Dow Jones and S&P 500 to fresh highs. The Institute for Supply Management’s (ISM) Index rose to 54.9 from 53.7 and the employment component posted a strong gain as well. On the employment front, the closely followed BLS Employment report showed a better-than-expected 288k jobs added in April, bringing the unemployment rate down to 6.3%. After plodding along at uninspiring rate since the GFC, corporate sentiment seems to be on the mend as M&A activity is grabbing headlines and companies are increasing capital expenditure plans. The optimism isn’t contained to large companies; the NFIB small business confidence index is breaking to a new cycle high as well. Despite the positive economic data, the action in the bond market has been counter-intuitive with the 10-year Treasury yield declining. We have seen a few plausible explanations for this, but it is deservedly being closely monitored.

Elsewhere abroad, other developed markets are presenting investors with varying degrees of positive news – though not enough to stave off political routs in fresh elections across the continent. The economic recovery in the UK is well entrenched with employment growing faster than expected and spare capacity falling. The recovery in the Euro zone has been more subdued with GDP growth disappointing (except Germany) and inflation, although slightly improved, remaining precariously low. In Japan, buying ahead of the consumption tax increase in April lifted annualized GDP to a higher than expected 5.9%,

though this effect is likely to dampen economic growth in the second quarter.

Turning to emerging markets, China continues to attract investors’ attention, particularly as it pertains to the slowdown in their property market where sales (by volume) declined 19% vs. the prior year. Still, industrial production and retail sales jumped 8.7% YoY and 11.9% YoY in April, respectively, indicating that the slowdown isn’t reverberating throughout the economy. Meanwhile, Indian markets have outperformed on the overwhelming victory for the Bharatiya Janata Party (BJP) and in hope of economic reforms. In a rally also related to politics, Brazilian investors cheered early polls showing declining voter support for incumbent President Dilma Rouseff.

On a one-month trailing basis, the MSCI Emerging Markets index outperformed the MSCI World index (developed market proxy) by approximately 1.7%, and now are outperforming on a year-to-date basis by about 75 basis points. In a continuation of the more recent trend of underperformance, small cap equities trailed their large cap counterparts by a considerable 4.4% over the last month, bringing YTD underperformance to about 7%. From a sector perspective, performance was mixed between cyclicals and defensives. In the MSCI ACWI (broad index for both developed and emerging equities), energy and consumer staples outperformed while consumer discretionary and industrials lagged.

With first quarter earnings season nearing an end, approximately 75% of S&P 500 companies posted a positive earnings surprise, in line with the prior quarter's results. Topline results weren't as impressive, with only 53% reporting a positive sales surprise relative to 61% in the prior quarter. The technology sector had the highest percentage of earnings beats at 86%, while the energy, industrials and utilities sectors also saw over 80% of their constituents beating earnings estimates. Conversely, telecom and consumer staples delivered weaker results, with only 60% of the companies beating earnings estimates.


Market Summary

Market and Global Sector Performance

MARKET / INDEX PERFORMANCE As of 5/22/14 (local currency) T1M (%) T3M (%) YTD (%) 2014E P/E 2014E P/B Div. Yield

US Equity Indices

DJIA 0.50 3.33 0.79 14.8 2.7 2.3

S&P 500 0.93 3.60 3.25 16.0 2.5 2.1

Nasdaq 0.01 -2.25 -0.02 20.5 3.2 1.2

Russell 2000 -3.50 -4.00 -3.83 25.4 1.9 1.3

Developed International Indices

Euro STOXX 50 3.89 3.94 4.99 14.4 1.5 3.6

FTSE 100 2.71 1.09 2.94 14.1 1.9 3.7

CAC 40 1.53 4.14 6.23 15.1 1.5 3.2

DAX 1.26 0.66 1.77 13.5 1.7 2.9

Nikkei 225 -0.35 -2.76 -11.27 16.2 1.4 1.8

ASX 200 0.62 2.34 4.35 15.4 2.0 4.4

Emerging Market Indices

IBOVESPA 1.60 11.45 2.52 10.8 1.3 4.1

Shanghai Comp -2.36 -4.24 -3.50 8.0 1.1 3.7

KOSPI 0.57 2.95 0.22 10.9 1.1 1.2

SENSEX 7.20 17.93 15.50 15.4 2.5 1.7

Global Market Indices

MSCI World 0.73 2.63 2.84 15.4 2.0 2.6

MSCI All-Country World 0.92 3.20 2.92 14.8 1.9 2.6

MSCI EAFE 0.77 1.77 2.49 14.5 1.6 3.3

MSCI Emerging Markets 2.47 8.17 3.60 11.1 1.4 2.9


MARKET / INDEX PERFORMANCE (CONTINUED)

As of 5/22/14 (local currency) T1M (%) T3M (%) YTD (%) 2014E P/E 2014E P/B Div. Yield

Sustainable Indices

DJ Sustainability World Comp 1.13 4.66 5.13 14.6 1.8 3.0

FTSE4Good Global 1.69 3.52 3.74 11.0 1.4 3.9

MSCI KLD 400 Social 0.74 2.32 2.88 16.7 3 1.9

Bovespa Corp. Sustainability 0.08 8.58 -0.98 10.7 1.3 4.7

Fixed Income

Barclays US Aggregate 1.2 1.9 3.46

Commodities Levels

5/22/2014 11/22/2013 5/22/2013

WTI Crude 103.79 94.84 94.28

ICE Brent Crude 110.39 111.05 102.6

NYMEX Natural Gas 4.36 3.77 4.18

Spot Gold 1293.47 1243.8 1370.27

LME 3mth Copper 6831 7095 7475

CBOT Corn 4.77 4.22 6.58

Currencies Levels

5/22/2014 11/22/2013 5/22/2013

EUR/USD 1.37 1.36 1.29

USD/JPY 101.72 101.27 103.16

GBP/USD 1.69 1.62 1.51

AUD/JPY 93.84 92.88 100.05

DXY Index 80.23 80.71 84.35

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 5/21/14

1 Month Price 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 Price 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 Midcap Value Index, Russell Midcap Index, Russell Midcap Growth Index, Russell 2000 Value Index, Russell 2000 Index and Russell 2000 Growth Index.

1 Month

Source: Bloomberg

Year to Date

Source: Bloomberg

Value Growth Blend

0.5

-3.1

0.1

0.9

-3.5

0.1

1.0

-3.9

0.0 Mid

La

rge

Smal

l


SECTOR SNAPSHOT – TOP 5 COMPANIES BY MARKET CAP as of 5/22/14

Company Name Ticker Industry

Mkt Cap (US$ Bn)

Price (Local)

Total Return YTD % (local)

P/E 2014E

EV/EBITDA 2014E

Div Yield % 2014E

Consumer Disc. Toyota Motor Corp 7203.JP Automobiles 187.2 5526.00 -12.4 8.9 8.9 3.0 The Walt Disney Co DIS Media 142.9 82.52 8.0 19.8 11.3 1.0 Amazon AMZN Internet & Catalog

Retail 140.3 304.91 -23.5 88.8 20.9 N/A

Comcast Corp CMCSA Media 134.3 51.73 0.0 17.7 7.8 1.7 Volkswagen VOW3.GR Automobiles 120.6 190.85 -4.5 8.7 7.4 2.1 Consumer Staples Nestle NESN.VX Food Products 253.4 70.30 11.1 20.2 13.7 3.1 Wal-Mart Stores WMT Food & Staples

Retailing 243.3 75.39 -3.0 14.5 8.0 2.5

Procter & Gamble PG Household Products 218.1 80.60 0.6 19.2 12.7 3.2 The Coca-Cola Co KO Beverages 178.4 40.58 -1.0 19.5 14.9 3.0 Anheuser-Busch Inbev ABI.BB Beverages 178.1 81.13 7.0 21.0 11.7 3.6 Energy Exxon Mobil XOM Oil, Gas & Consumable

Fuels 436.5 101.65 1.8 13.1 6.0 2.7

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

258.3 2368.50 12.2 11.0 4.9 4.7

Chevron Corp CVX Oil, Gas & Consumable Fuels

235.6 123.76 0.8 11.5 4.6 3.5

Petrochina Co 857.HK Oil, Gas & Consumable Fuels

224.2 9.47 11.4 10.5 5.3 4.2

Total SA FP.FP Oil, Gas & Consumable Fuels

169.0 52.05 18.4 10.9 3.5 4.6

Financials Berkshire Hathaway- CL B

BRK/B Diversified Financial Services

313.2 127.01 7.1 19.2 N/A N/A

Wells Fargo & Co WFC Banks 263.4 50.01 11.7 12.2 N/A 2.8 JPMorgan Chase JPM Banks 206.6 54.58 -5.5 10.0 N/A 2.9

Ind & Comm Bank of China

1398.HK Banks 204.2 4.97 -5.2 5.1 N/A 6.5

HSBC Holdings HSBA.LN Banks 198.0 616.10 -4.3 11.1 N/A 5.4


SECTOR SNAPSHOT – TOP 5 COMPANIES BY MARKET CAP (CONTINUED) as of 5/22/14

Company Name Ticker Industry

Mkt Cap (US$ Bn)

Price (Local)


P/E 2014E

EV/EBITDA 2014E

Div Yield % 2014E

Health Care

Johnson & Johnson JNJ Pharmaceuticals 285.2 100.80 11.6 17.1 10.9 2.8

Roche Holdings ROG.VX Pharmaceuticals 258.2 268.50 10.9 17.9 12.0 2.9

Novartis AG NOVN.VX Pharmaceuticals 243.2 80.40 16.7 17.0 15.2 3.0

Pfizer PFE Pharmaceuticals 189.5 29.75 -1.2 13.3 8.3 3.5

Merck & Co MRK Pharmaceuticals 165.2 56.52 13.8 16.3 10.9 3.1

Industrials

General Electric Co GE Industrial Conglomerates

266.4 26.57 -4.4 15.7 12.3 3.3

Siemens AG SIE.GR Industrial Conglomerates

114.4 95.15 -1.1 14.4 9.6 3.2

United Technologies UTX Aerospace & Defense 105.6 115.16 2.2 16.8 10.1 2.0

The Boeing Co BA Aerospace & Defense 96.3 132.11 -2.1 17.9 10.0 2.2

UPS UPS Air Freight & Logistics 93.5 101.66 -1.9 20.0 10.3 2.6

Info Tech

Apple AAPL Technology Hardware, Storage &

524.0 608.33 9.7 13.8 6.5 2.2

Google GOOGL Internet Software & Services

370.9 555.45 -1.0 20.8 12.1 N/A

Microsoft Corp MSFT Software 332.0 40.19 9.0 14.9 8.3 2.8

Samsung Electronics 005930.KS Semiconductors & Semiconductor

204.9 1426000.00 3.9 N/A 3.3 1.0

IBM IBM IT Services 187.9 186 0.1 10.4 8.3 2.4


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

as of 5/22/14

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

Price (Local)


P/E 2013E

EV/EBITDA 2013E

Div Yield % 2013E

Telecom

Verizon Communications VZ Diversified Telecommunication

204.8 49.45 2.8 14.0 6.9 4.3

China Mobile 941.HK Wireless Telecommunication Ser

203.7 78.00 -3.0 12.0 3.7 4.2

AT&T T Diversified Telecommunication

183.6 35.38 3.3 13.1 6.0 5.2

Vodafone Group VOD.LN Wireless Telecommunication Ser

91.0 204.15 -20.8 24.0 5.5 6.0

Softbank Corp 9984.JP Wireless Telecommunication Ser

82.6 7004.00 -23.7 18.3 7.6 0.6

Utilities

EDF EDF.FP Electric Utilities 69.3 27.31 6.3 13.4 5.4 4.6

GDF Suez GSZ.FP Multi-Utilities 66.9 20.31 23.2 14.9 6.8 5.8

National Grid NG/ LN Multi-Utilities 55.5 881.00 11.8 16.0 10.0 5.3

Enel SpA ENEL.IM Electric Utilities 50.9 3.96 24.9 12.6 6.7 3.3

Duke Energy DUK Electric Utilities 49.9 70.52 4.4 15.4 10.3 4.4

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

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.

Region/Countries 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015EUnited States 1.9 2.5 3.1 1.5 1.7 2.1 0.25 0.25 - 3.0 3.2 -Euro Area -0.4 1.1 1.5 1.3 0.8 1.3 0.25 0.10 - 1.9 - -Japan 1.6 1.4 1.3 0.4 2.6 1.7 0.10 0.10 - 0.7 0.8 -UK 1.7 2.9 2.5 2.6 1.8 2.0 0.50 0.50 - 3.0 3.2 -Australia 2.4 2.8 2.9 2.5 2.8 2.7 2.50 2.60 - 4.2 4.5 -China 7.7 7.3 7.2 2.6 2.6 3.0 6.00 6.00 - 4.6 4.3 -Brazil 2.3 1.8 2.0 6.2 6.3 5.9 10.00 11.10 - 10.9 - -**India 4.6 4.7 5.3 10.9 9.5 7.8 7.75 8.00 - 9.2 8.6 -

Real GDP (% YoY) CPI (% YoY) Official Rates Long Rates


MONETARY POLICY May-14 Nov-13 May-13

Monetary Base growth (YoY) 26.5% 39.2% 20.1%

M-2 growth (YoY) 6.6% 6.0% 7.0%

Money multiplier (M-2/mon base) 2.9 3.0 3.5

4Q13 4Q12 4Q11

Velocity of money (GDP/M-2) 1.56 1.59 1.65

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) 37007 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)

HIGHEST ESG DISCLOSURE SCORES

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

Composite Environ Social Governance1. United States 14.4 18.1 15.7 48.9 2. China 17.5 9.9 20.7 43.8 3. Japan 21.2 26.3 20.6 45.0 4. Germany 25.8 28.9 37.3 38.0 5. France 35.9 34.2 46.9 52.2 6. Brazil 32.5 30.4 51.2 37.8 7. U.K. 28.1 20.4 32.4 52.8 8. Russia 17.7 20.9 29.8 39.7 9. Italy 32.6 34.8 44.9 42.0 10. India 14.5 14.9 18.1 44.8

Composite Environ Social GovernanceSpain 40.8 45.9 56.3 46.3 Finland 36.8 33.7 38.5 55.8 France 35.9 34.2 46.9 52.2 Sri Lanka 34.8 33.2 39.9 56.5 Portugal 33.9 35.5 37.2 45.4 Sweden 33.2 26.0 38.9 53.3 Italy 32.6 34.8 44.9 42.0 Brazil 32.5 30.4 51.2 37.8 Greece 32.1 40.7 48.4 45.1 South Africa 31.4 24.7 42.1 55.8


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

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Featured Domain

BuildTheLadder.net

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.

Are you “just the right amount of crazy” to start a new business? Do you know that entrepreneurship is like “jumping out of a plane and building the parachute on the way down?” Are you prepared to put enough capital? To put in that same amount in again? And then again? Are you prepared to function without a powerful organizational infrastructure standing around you? Can you tolerate the astonishing speed of the swings between a manic soaring sense of opportunity and optimism, and the panicky middle-of-the-night sweats with your mind racing? Sure, no problem.

And, despite all those worries, it’s worth it. It’s worth going through it all so that you can “Build the Ladder” rather than continue to climb a corporate ladder built by others. It’s worth it all to be able to combine vision with execution, strategy with tactics, and managerial skill with operational excellence. This is the view from a group of successful entrepreneurs, each of whom had a great deal of big corporate experience.

In this month’s edition of the “Cornerstone Journal of Sustainable Finance & Banking” (JSFB), we select “BuildTheLadder.net” as our “Featured Domain.” We honor the entrepreneurs. We celebrate the creative, inspired, dauntless, innovative thought-leaders ... especially those who have managed to instill in their organizations a sense of purpose. In surveying the landscape of these leaders, we also highlight the

©Bruce Rolff/Shutterstock

extent to which they are conscious of the impact they have on the world around them. It is the start-ups among the universe of small and medium-sized enterprises (SMEs) that are creating the vast majority of new jobs in an economy. And it’s often the start-ups that have figured out innovations that can then be scaled to meet the needs of a changing world.

It is this sheer force of will to address an unmet need that is the genesis of economic growth and prosperity. Entrepreneurs recognize the security they may have given up in leaving big companies. But they highlight an extraordinarily deep sense of accomplishment too. They welcome the unparalleled sense of responsibility for their own fate and that of their employees. And, they experience greater


empathy and respect for those founders around them. At the same time, they have less empathy for those people and institutions that waste time and energy. They have less tolerance for those executives in larger institutions who have the resources and platforms to implement constructive change and progress, but do not. They have even less comfort with the status quo than they did in their former lives.

So in this month’s JSFB, we applaud the awesome innovators who are building the latter and devising solutions to problems ranging from urban transportation nightmares (think Waze and Uber) to absurdly expensive broadband services (think Aero) to eyewear that’s stylish yet doesn’t break the bank (think Warby Parker). We also applaud the executives inside major corporations who have figured out how to create a culture of innovation.

We argue that it is also those companies which can embrace disruptive innovation and not be paralyzed by fears of cannibalization that will truly find sustainable, competitive advantage.

These companies embrace the economist Joseph Schumpeter’s notion of “creative destruction” and somehow manage to embrace change and innovation for the long-term good of capitalism … notwithstanding the sometimes painful journey. These leaders have the entrepreneurial spirit to which we can all aspire.

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 / Global Markets Strategy

Introducing the Cornerstone Capital Global Sector Strategy

By Michael Geraghty, Global Markets Strategist at Cornerstone Capital Inc.

©xalex/Shutterstock

In this note, we introduce the Cornerstone Capital Global Sector Strategy Model. The model ranks the 10 GICS in the MSCI All Country World Index. As discussed in detail below, the model employs a quantitative multi-factor methodology to generate sector recommendations based on proprietary measures of valuation and earnings. The Cornerstone Capital model also takes into account environmental, social and governance (ESG) metrics by sector. We will be updating the sector model on a monthly basis.

A Cyclical Tilt Figure 1 illustrates that our sector equity strategy currently has a cyclical tilt. We are overweighted in Information Technology and Consumer Discretionary and underweighted or neutral in most of the “defensive” sectors: Consumer Staples, Health Care, Utilities. The exception to this cyclical tilt is that we are underweight in Materials. The sector ranks unfavorably both in terms of valuation and earnings. As we discussed in the February edition of The Cornerstone Journal of Sustainable Finance & Banking1 “pricing power [for Materials] seems questionable in an environment of just moderate global economic growth.

Figure 1: Cornerstone Capital Global Strategy Model Sector Overview

The Key Fundamental Variables: Earnings and Valuation We start with the assumption that only two things ultimately determine the fair value of equities: earnings and valuation. In the short term, other factors may play a role – e.g., sentiment (“fear” or “greed”), politics

1 The Makings of a Market Correction? The Cornerstone Journal of Sustainable Finance & Banking, February 2014

GIC WeightingValuation (Relative) ESG (Relative)

Earnings Momentum

Earnings Revisions Margin (Relative) Share Buybacks

Information Technology OW Positive Positive Positive Negative Positive Positive

Consumer Discretionary OW Positive Negative Positive Negative Neutral Neutral

Telecommunications Neutral Neutral Positive Negative Positive Positive Positive

Industrials Neutral Positive Positive Positive Negative Negative Neutral

Financials Neutral Neutral Neutral Neutral Negative Neutral Negative

Utilities Neutral Neutral Neutral Neutral Negative Neutral Negative

Energy Neutral Neutral Negative Negative Negative Negative Neutral

Health Care Neutral Negative Negative Neutral Negative Positive Negative

Consumer Staples UW Negative Neutral Neutral Negative Neutral Neutral

Materials UW Negative Neutral Negative Negative Negative Negative


Michael Geraghty is the Global Markets Strategist at Cornerstone Capital Inc. He has over three decades of experience in the financial services industry including working as an investment strategist at UBS and Citi.

(including geopolitical issues), macroeconomic variables (e.g., Central Bank tightening or easing) etc. – but, in the long run, we believe it all comes down to earnings and the valuation of those earnings. A number of factors drive valuation multiples at any point in time, including perceptions of ESG issues.

This is a dynamic model, with factors and factor weightings reviewed on a monthly basis for relevance. The key measures of valuation and earnings are also updated monthly; they can be updated more frequently (e.g., weekly) although a risk here is short-term “noise” in the data that does not persist for a longer period of time. A variation of this model has been in use for a number of years, and has added value in the investment decision process.

The Weighting of Regions versus Sectors The Cornerstone Capital Global Strategy Model is comprised of a regional element and a sector element. The sectors are the 10 GICS in the MSCI All Country World Index (ACWI). Figure 2 illustrates the sector weights in the MSCI ACWI – currently and in recent years. Note that the weight of the Information Technology sector increased dramatically during the TMT “bubble” of the 1990s, while the weight of the Financials sector increased during the sub-prime bubble that burst in 2007. While our strategy model is tactical in nature, in subsequent research reports we will address optimal strategic sector allocations.

Figure 2: Sector Weights in MSCI ACWI

The primary difference between the regional and sector models is the weighting assigned to the valuation and earnings factors. The sector model gives a heavier weighting to earnings while, in the regional model, valuation and earnings have roughly similar weights. The reason for this is that, in our experience, investors look for sectors that primarily offer relatively strong earnings momentum, and for regions that offer a combination of attractive valuations and earnings momentum.

So, for example, an investor may choose to overweight Japan and be underweight Latin America primarily because of the relative valuations of the two markets. To be sure, however, a region (e.g., Japan) that has a heavy weighting of a sector with strong earnings momentum (e.g., Consumer Discretionary) will likely be overweight, while a region (e.g.,

4/30/2014 2007 2006 2005 2000 1999 1998Consumer Discretionary 11% 9% 11% 11% 12% 14% 13%Consumer Staples 10% 8% 8% 8% 7% 6% 9%Energy 10% 12% 10% 9% 6% 5% 5%Financials 21% 22% 26% 25% 21% 17% 20%Health Care 11% 8% 9% 10% 12% 8% 11%Industrials 11% 11% 10% 10% 10% 10% 10%Information Technology 13% 11% 11% 12% 16% 21% 12%Materials 6% 8% 7% 6% 4% 5% 5%Telecom 4% 6% 5% 5% 8% 11% 9%Utilities 3% 5% 4% 4% 4% 3% 5%


Latin America) with a heavy weighting of a sector with weak earnings momentum (e.g., Materials) will likely be underweight. This is indeed the case – we are overweight Consumer Discretionary and Japan, and we are underweight Materials and Latin America – so that the sector and regional models are consistent.

Sector Valuation Factors In terms of the valuation of a sector, several factors are measured in order to come up with numerical values, which we label “positive,” “neutral,” or “negative” in Figure 1.

These factors include: • P/E relative to other sectors;• P/E relative to the historical average for the sector;• P/E on a “normalized” basis i.e., excluding cyclical peaks and

troughs;• The potential for P/E expansion or contraction.

The first three factors are self-explanatory, while the fourth factor is based on a number of momentum indicators.

Sector ESG Metrics As we noted above, a number of factors drive valuation multiples at any point in time, including perceptions of ESG issues. We also pointed out that this is a dynamic model, with factors and factor weightings being reviewed frequently.

In this first iteration of the sector equity strategy model, we utilize ESG metrics calculated by MSCI. MSCI ESG Intangible Value Assessment (IVA) provides analysis of over 5,000 global companies' financially material risks and opportunities arising from environmental, social, and governance factors. At a security level, an Environment Score, Social Score and Governance score are calculated on a 0-10 scale, with 10 being the best in terms of companies’ opportunity or risk exposure and ability to manage that exposure.

Figure 3 on the following page illustrates that, according to a Deutsche Bank analysis,2 Environmental factors are particularly important in the Utilities and Materials sectors, Social factors are particularly important in the Health Care sector and Governance factors are particularly important in the Telecom and Financials sectors.

2 The Socially Responsible Quant, Deutsche Bank Markets Research, April 24, 2013


Figure 3:Sector ESG Scores by Weighting

To arrive at a final rating – see Figure 43 - the weighted averages of the scores are aggregated and companies’ scores are normalized by their industries.

Figure 4: MSCI Sector ESG Scores Highest Score is Best

Sector Earnings Factors Turning to the earnings of a sector, the model aggregates a number of measures under four broad headings:

Earnings momentum: Relative to the MSCI All Country World Index, we calculate if the earnings momentum of a sector has been accelerating, stable or decelerating. We then look at the earnings momentum of one sector relative to another. The resulting numerical values are labeled in Figure 1 as “positive” (accelerating momentum), “neutral” (stable momentum) or “negative” (decelerating momentum).

Earnings revisions: For each of the companies in a sector, we look at the recent trend in earnings revisions by calculating the difference between the number of upward and downward estimate revisions. The data are

3 The Socially Responsible Quant, Deutsche Bank Markets Research, April 24, 2013

0%

20%

40%

60%

80%

Con Disc Con Staples Energy Financials Health Industrials Info Tech Materials Telecom Utilities

Environmental Weight Social Weight Governance Weight

Consumer Discretionary 4.8Consumer Staples 5.2Energy 4.7Financials 5.3Health Care 4.8Industrials 6.3Information Technology 6.5Materials 5.7Telecommunication Services 5.9Utilities 5.4


aggregated, and the resulting numerical values are summarized. A high ratio of upward-to-downward revisions is considered “positive” for a sector; conversely a high ratio of downward-to-upward revisions is considered “negative.”

Margins: We look at the margins of each of the companies in a sector – both actual and estimated – and aggregate the data. We assume that relatively high and sustainable margins are “positive” in that they should support earnings growth, while volatile margins are a “negative.” In recent years, margins in the (knowledge-intensive) Information Technology and Telecom sectors have been consistently high, while margins in the (commoditized) Energy sector have been quite volatile. Consequently, Information Technology and Telecom get a higher score for Margins in Figure 1 than Energy.

Share buybacks: Given that corporate earnings are reported on a per share basis, we take into account the amount of net share buybacks that have occurred over the past twelve months in each sector. Once again, we aggregate data from the company level. A large amount of net share buybacks is “positive” for earnings per share growth in a sector, while the opposite (i.e., share issuance) is “negative.”

Ranking Sectors by Weighting Valuation, Earnings and ESG Scores The values derived from the various measures of valuation, earnings and ESG are weighted, and the sectors are then ranked on the basis of their total “score.” Sectors that are at the very top or very bottom of the distribution are typically ranked “overweight” or “underweight” respectively, while sectors that fall in the middle are typically ranked “neutral.”

Given the quantitative underpinnings of the model, we can look at the dispersion of the “scores” in order to decide on the relative weightings. In other words, a sector’s score might be so high relative to the others in a given month that it is the sole overweight while, in another month, the scores of a number of sectors are closely clustered and they are all assigned the same weighting (e.g., “neutral”).

Combining the Sector and Regional Models Combining our sector and regional models, Figure 5 on the following page illustrates select sector over- and under-weights by region.


Figure 5: Regional and Sector Overview

We are overweight Information Technology in Japan, Emerging Asia and the U.S.; we are overweight Consumer Discretionary in Japan and the U.S. We are underweight Materials and Consumer Staples in the majority of regions

Japan EM Asia U.K. U.S. CEEMEA Europe ex. U.K. Latin America

Information Technology OW OW OW

Consumer Discretionary OW OW

Telecom

Industrials

Financials

Utilities

Energy

Health Care

Consumer Staples UW UW UW UW

Materials UW UW UW UW UW



The Cornerstone Capital Regional Strategy Update By Michael Geraghty, Global Markets Strategist at Cornerstone Capital Inc.

©MSEN/Crystal Graphics

In the April edition of The Cornerstone Journal of Sustainable Finance & Banking we introduced the Cornerstone Capital Regional Strategy Model. Table 1 illustrates that, after updating the inputs, there is no change in our regional over- and under-weights.

In terms of performance, Latin America, which is ranked underweight, has been relatively strong, gaining about 2% in the past month, at the same time the MSCI All Country World Index was up around 1%. There has been no change in the fundamental outlook – Latin America still ranks unfavorably both in terms of earnings and valuation.

Brazil is by far the most important country in the region, accounting for 58% of the MSCI Emerging Markets Latin America Index. The MSCI Brazil Index is up about 2% in the past month. It would seem that the rally has been driven by some investors betting on the failure of President Dilma Rousseff’s re-election bid. The hope is that, after the October election, a new administration will usher in new policies - since President Rousseff took office in 2011, the pace of Brazil’s economic growth has been only 2% annually on average. Meanwhile, economists expect Brazil’s inflation to reach 6.5% in 2014, which corresponds to the upper level of the official range set by the government.

Table 1: Cornerstone Capital Global Markets Equity Strategy Model Regional Overview

Region/ Major Economy Weighting

Valuation (Relative)

Governance (Relative)

Earnings Momentum

Earnings Revisions

Margin (Relative)

Share Buybacks

Japan OW Positive Neutral Positive Neutral Negative Neutral

EM Asia OW Positive Negative Neutral Neutral Negative Negative

U.K. Neutral Neutral Positive Negative Neutral Negative Negative

U.S. Neutral Negative Positive Positive Negative Neutral Positive

CEEMEA Neutral Positive Negative Negative Negative Positive Negative

Europe ex. U.K.

UW Negative Neutral Negative Neutral Neutral Negative

Latin America

UW Negative Negative Negative Negative Positive Negative


http://cornerstonecapinc.com/2014/04/introducing-cornerstone-capital-global-markets-regional-equity-strategy-model/


Uncertainty about the election aside, the fundamental outlook for a weak economy and a likely inflation-driven interest rate hike suggests that the risk-reward scenario in Brazilian equities remains unfavorable.

Our other underweight, Europe excluding the U.K., was a relatively poor performer, remaining virtually unchanged during the month.

In terms of overweight regions, Japanese equities were roughly flat in the past month. Weighing on stock prices was a strong yen driven, in part, by geopolitical tension centered on the Ukraine, which prompted Japanese investors to sell large amounts of euro-denominated bonds. Strength in the yen has pressured Japanese exports. However, many economists expect that the Bank of Japan will engage in additional monetary easing policies later this year, which should support equities as a lower yen benefits corporate profits.

Our other overweight region, Emerging Asia rose about 2% last month, less than the roughly 6% gain in the CEEMEA region. The bearish consensus in emerging markets has reversed in recent weeks, with some of the more troubled markets (most notably Russia) outperforming those with stronger fundamentals. A number of factors are likely behind this shift in sentiment on emerging markets, including reduced geopolitical tension over Ukraine. In addition, market observers have also pointed to: (i) lower U.S. bond yields; (ii) prospective monetary easing by the European Central Bank; (iii) growing expectations of stimulus from the Chinese authorities.

Reflecting attractive valuations in Emerging Asia and the potential for stimulus measures in China, we remain overweight the Emerging Asia region, while staying neutral on CEEMEA given a weak fundamental outlook.



Financial Impediments to Job Creation by Start-Ups and Small Firms

By Michael Geraghty, Global Markets Strategist at Cornerstone Capital Inc.

©Frank Peters/Crystal Graphics

Start-ups are a significant source of job creation in the U.S. Separately, mature small firms account for a large portion of employment levels. Bank lending and initial public offerings (IPOs) are important forms of financing for start-ups and mature small firms. However, both types of financing have yet to fully recover from the financial crisis of 2008-09. This is cause for concern because available financing is key to start-up formation and business sustainability which, in turn, fuel job growth.

Start-Ups: A Significant Source of Job Creation While older firms are important with regard to employment levels, it is new and young businesses (i.e., less than one year old) that are a key source of job growth. The U.S. economy is comprised of more than 6 million establishments with paid employees. The status of these businesses is constantly churning — some grow, others decline, and yet others close. New businesses replenish the pool of establishments with paid employees; since 1977, newly born companies created 3 million jobs per year on average. As we discuss below, these 3 million new jobs exceed total average annual job growth overall, reflecting job destruction by mature firms.

In recent years, however, the rate of start-up formation has slowed sharply. After declining from 667,000 in 2006 to 507,000 in 2010, the number of startups rose in 2013 for the third consecutive year, albeit only to 628,000 — well below their 2006 peak. As for employment growth, the rate of job creation at start-up companies was steady in the 1980s and 1990s at 11 start-up jobs per 1,000 people (i.e., among every 1,000 Americans, 11 were newly hired at a company begun that year). Not surprisingly, the start-up jobs rate declined along with the rate of start-up formation (to just 8 start-up jobs per 1,000 people in 2009), and improved modestly to 9 per 1,000 in 2013.

As for where start-ups have been predominant in the economy, Figure 1 shows the sectors that accounted for the largest number of jobs created by start-ups in the period from 1994–2013. Note that the Information Technology sector appears relatively unimportant in terms of start-up job formation during this period, accounting for just 3% of jobs created by new young firms (included in “Other”) This is somewhat misleading, however, as it doesn’t take into account the critical issues of (1) survival rates and (ii) net employment growth rates.



Figure 1: Jobs Created in U.S. Establishments <1 Year Old by Sector, 1994-2013

So, for example, a lot of pizza restaurants that fall under the “Accommodation & Food Services” category may open each year after hiring cooks and serving/delivery personnel, but their survival rates are often low. By contrast, far fewer tech firms may set up shop each year with just a handful of employees but, if they successfully develop a product, they survive and often go on to add many more employees. This suggests that some sectors are better than others in creating sustainable jobs.

Small Firms: Big Employers The World Economic Forum has noted that “most young firms start small, but most small firms are not start-ups.1” Almost half of U.S. private sector employment is in firms with fewer than 250 employees; the proportion has been relatively stable over the past two decades, suggesting that small firms consistently account for a large portion of employment levels.

Existing firms create significantly more new jobs than start-ups. Given the very large share of activity accounted for by mature firms, it is not surprising that, in terms of sheer numbers, older firms create and eliminate the largest number of jobs. On average since 1977:

• 10 million new jobs have been created each year at existingfirms (e.g., a Starbucks corporate headquarters);

• 3 million new jobs have been created each year at newestablishments of existing firms (e.g., a new Starbuckssomewhere in the U.S.)

1 Not All SMEs Are Created Equal, World Economic Forum Global Agenda Council on Financing & Capital, 2014

Accommodation & Food Services17%

Retail Trade15%

Office Support Services9%

Health Care9%

Professional Business Services8%

Construction8%

Manufacturing6%

Finance and Insurance5%

Other23%


• 14 million jobs have been eliminated each year by existingfirms (e.g., “mom and pop” coffee shops closing locationswhen Starbucks enters a new market).

In aggregate, existing employers averaged net job losses of 1 million workers per year, at the same time that newly born companies created 3 million jobs per year on average. So, what matters most, in aggregate, is creating new jobs and holding on to existing jobs.

Less Bank Lending to Small Businesses As per the aforementioned World Economic Forum study, most lending to small and medium-sized enterprises (SMEs) in the U.S. is by the largest banks. Around 85% of all commercial and industrial loans of $100,000 or less were made by banks with more than $1 billion in assets (the largest size bucket reported by the FDIC). Although small banks might lend more to SMEs as a fraction of their asset size, the asset base of large banks is so much larger that their lending to SMEs dwarfs that of smaller banks.

Policies that were enacted in the aftermath of the financial crisis of 2008-09 may have had unintended negative consequences for lending to SMEs. Among the most notable of these policies is the Dodd-Frank Wall Street Reform and Consumer Protection Act intended, in part, to govern the behavior of large banks by making them “less risky.” Risk aversion may have adversely impacted SME lending— the dollar value of commercial and industrial loans to small businesses in 2013 was 15% below 2008 levels (i.e., five years later and with nominal GDP in 2013 14% above 2008 levels.)

Fewer IPOs Stock market IPOs are another important source of funds for young and/or small firms, often functioning as a key rite of passage for many entrepreneurial firms, and allows founders and financial backers to begin cashing out. Furthermore, venture capital and private equity firms are typically contractually mandated by their limited partners to exit their portfolio companies within a certain number of years after the initial investment, and thus are motivated to either sell out or take a company public.

From 1980–2000, an average of 311 firms went public in the United States each year, but in 2001–2011, this number fell to an average of only 99 per year. The drop in IPO activity was most severe among small firms – one study2 documented that the average number of small-company IPOs per year in the period between 2001 and 2009 fell by more than 80% relative to the annual average number of small-company IPOs in the period between 1980 and 2000.

2 Where Have All the IPOs Gone?, Gao, Ritter & Zhu, 2012


A number of explanations for the prolonged drought in IPOs have been advanced. For example, it has been argued that the Sarbanes Oxley Act of 2002 (SOX) imposed additional compliance costs on publicly traded firms. As a percentage of revenue, these costs have been especially onerous for small firms. Consistent with the SOX explanation for the decline in IPO activity and, as noted above, the decline in IPOs has been most pronounced among small firms. Other observers have attributed the drop in small company IPO volume in the U.S. to a decline in the “ecosystem” of underwriters that focus on smaller firms and provide analyst coverage only after a company has gone public. Policy Implications The drop in IPO activity generated concern among policymakers given that, as outlined above, a big source of job creation is by young, fast-growing firms. Consequently, the Jumpstart Our Business Startups (JOBS) Act was signed into law by President Barack Obama in April 2012 with an explicit goal of encouraging start-ups. Whether attributable to the stimulus provided by the Act or not, the number of IPOs in 2013 rose to over 200, but still well below the 1980-2000 average of 311. It’s undoubtedly a negative for job creation by start-ups and mature small firms that IPOs — and bank lending too — have yet to fully recover from the financial crisis of 2008-09. In addition, there is anecdotal evidence that the U.S. policy environment has made entrepreneurial employment growth more difficult to achieve. At the federal level, the dominant factor here may be new regulations on labor. So for example, the passage of the Affordable Care Act is creating a sweeping alteration of the regulatory environment that directly changes how employers engage their workforces. So in summary, this brief analysis gives a bit more granularity to the extent to which start-ups are a significant source of job creation in the U.S. and mature small firms account for a large portion of employment levels. Further, given that bank lending and IPOs are important forms of financing for start-ups and mature small firms, it seems clear that a greater degree of confidence in the power of capitalism is needed to further stimulate economic growth. In a number of the articles in this month’s edition of the Cornerstone JSFB, we argue that greater transparency and improved corporate governance, can indeed begin to rebuild this confidence...and thus help stimulate the financing that is needed to restart the entrepreneurial jobs engine.


Corporate Governance Insights

Good Governance: A Cornerstone of Entrepreneurism

By John Wilson, Head of Corporate Governance, Engagement & Research at Cornerstone Capital Inc. “Corporate Governance.” Perhaps the term seems out of place in a journal devoted to entrepreneurship? Entrepreneurship, whether found in a start-up or an established company, implies innovation, strategy and corporate renewal. Corporate Governance, by contrast, is seen as a “soft” form of corporate regulation that restricts and perhaps confines management. Moreover, decades of studies of different corporate governance approaches have not produced a consensus on whether and how corporate governance matters for corporate performance. On the other hand, as Ken Bertsch, the former head of the Society of Corporate Secretaries, once pointed out, “How could it not?” In fact, effective corporate governance is essential for creating entrepreneurial organizations that are built to thrive. Corporate governance describes the relationship between all stakeholders that determines the strategic direction of the organization. Understanding the systems by which the company makes strategic decisions, executes its business plans, and holds management accountable offers insights about whether the firm has the capacity to innovate, execute, and create long-term value. Historically, companies’ governance has been judged according to the formal rules, such as board structure, compensation plans and voting rights – what some call the “hardware” of corporate governance. The virtue of studying “hardware” is that precise and comparable information is available from the company’s regulatory filings. While there is value in this approach, there are limitations as well. Apparently well-designed governance structures can mask deep conflicts of interest, as in the well-known cases of Enron and Lehman Brothers, or less dramatic

1 Fogel, Kathy and Ma, Liping and Morck, Randall, Powerful Independent Directors (January 9, 2014). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 404/2014. Available at SSRN.

but nevertheless significant weaknesses that may signal a long-term risk to shareholder value. Corporate governance "hardware” matters to the extent that it facilitates quality interactions among corporate stakeholders – the “software” of corporate governance. But the tools to evaluate “software” have until recently eluded researchers because outsiders lack a robust perspective on the discussions that take place among managers, boards, and shareholders — much less the company’s engagement with employees, customers, communities and regulators. However, an emerging body of studies are beginning to address this limitation by assessing the quality of the firm’s relationships and its impact on performance. Here we consider a few recent studies that shed light on what makes good corporate governance. Although listing standards and most investors expect that boards include a majority of independent directors, the literature has not definitively linked independence to higher shareholder value. Listing standards consider directors “independent” if they lack conflicts of interest arising from an employment, familial or business relationship with the company. Formal independence does not guarantee that a director will be capable of providing independent perspectives or judgment necessary for effective board leadership. A recent working paper from the European Corporate Governance Institute1 considered individual directors’ relationships more broadly, including their professional, educational and social networks. The paper found that boards that directors with stronger social networks were associated with higher firm valuations. The study posited that these “powerful”


http://ssrn.com/abstract=2377106

directors’ external relationships made them better informed, more able to avoid groupthink and more willing to dissent. In other words, it was not enough to be legally independent; directors add value to the company when they are in a position to behave independently. Another important aspect of corporate governance is the firm’s relationship with its external stakeholders, including employees, regulators, communities, and the environment, which can all exert significant influence on a firm’s key strategic decisions. Many advocates of corporate social responsibility claim that good relations with stakeholders can be seen as a proxy for good management. A recent study2 provided direct evidence for this hypothesis by examining the relationship between high quality management and corporate social responsibility practices. The study used a dataset of company responses to a survey about the use of 18 management techniques that had been shown to correlate with strong firm performance. The study found that companies whose top executives use these best management practices are more likely to invest in positive social responsibility practices as well. These studies complement the research of shareholder engagement and firm performance. Some institutional shareholders engage directly with portfolio companies to advocate action on corporate social and environmental impact. The effectiveness of these engagements has been difficult to track because these dialogues tend to be confidential. However, two

2 “A Good Horse Never Lacks a Saddle: Management Quality Practices and Corporate Social Responsibility,”Najah Attig,Associate Professor, Canada Research Chair in Finance Saint Mary‘s University, Halifax, Canada, February 07, 2012 3 Dimson, Elroy and Karakaş, Oğuzhan and Li, Xi, Active Ownership, June 4, 2013, (available at SSRN) and Flammer, Caroline, Does Corporate Social Responsibility Lead to Superior Financial Performance? A Regression Discontinuity Approach, October 2013 (available at SSRN.)

recent studies3 have begun to shed light on this practice. The Dimson, et al, study considered the results of thousands of individual cases of shareholder dialogue, while Flammer looked specifically at shareholder proposals that received majority support. Both studies demonstrate that successful shareholder engagements (either because they receive majority shareholder support, or because they result in policy change) are associated with improved operating and financial performance. Historically, investors have inferred corporate governance practices from formal board structures that may or may not accurately signal the quality of firm decision-making. Together, these studies begin to open the “black box” of corporate governance, suggesting ways that investors may be better able to evaluate a firm’s capacity for long term value-creation by more directly understanding the quality of a company’s management practices and relationships with their stakeholders. It only with an infrastructure of trust and material transparency that today’s innovators can realize the true promise of entrepreneurship.

John Wilson is the Head of Corporate Governance, Engagement & Research at Cornerstone Capital Inc. Prior to Cornerstone, he was the Director of Corporate Governance at TIAA-CREF and the Director of Socially Responsible Investing at the Christian Brothers Investment Services. He is also an Adjunct Assistant Professor at the Columbia University Graduate School of Business.




Corporate Governance Insights

Follow the Leader, Follow the Money Sustainable Entrepreneurship in Banking — The Equator Principles

By Cindy Motz, Independent Research Analyst & Global Advisory Council Member, Cornerstone Capital “This is where the entrepreneurs come in … Just look at the opportunities, dream up a couple of ideas and work on them.” — Sir Richard Branson1 While images of Branson or Elon Musk may come to mind upon hearing the term “social entrepreneur,” one does not require a huge public presence, a revolutionary new idea, or even billions of dollars to make a positive impact in meeting societal needs. Throughout the world, sustainability professionals are working on effecting lasting change within the banking and project finance sector every day, by having their organizations participate in “The Equator Principles.” The Equator Principles Established on June 4, 2003 by several banks, including ABN Amro, Barclays, Citibank, Westpac, and others, the Equator Principles have now been adopted by 78 financial institutions across 34 countries.2 A voluntary risk management framework designed to take into account environmental and social responsibilities, the Equator Principles are intended to set minimum due diligence standards for member financial institutions participating across all industry sector project finance transactions, including advisory, corporate and bridge loans. Having undergone several revisions since its inception almost

1 Richard Branson, “Richard Branson on the Business of Sustainability,” Entrepreneur, October 10, 2011, http://www.entrepreneur.com/article/220496. 2 Equator Principles, http://www.equator-principles.com/index.php/members-reporting. 3 The Equator Principles 2013, http://www.equator-principles.com/resources/equator_principles_III.pdf. 4 Rainforest Action Network, “Shifting the Paradigm,” http://ran.org/shifting-paradigm.

11 years ago, the most recent framework, the EP III, was established in 2013 for project finance transactions over $10 million beginning in 2014. The provisions now also include a focus on protecting human rights (original transaction threshold was $50 million, and focus was more on environmental rights). Although most of the reporting is qualitative, there are ten principles which the signatories have agreed to track, incorporating categorization and monitoring of risks, greenhouse gas (GHG) reporting, grievances, loan covenants and independent auditing of the principles.3 Sometimes, Opportunity Walks Up and Knocks—on Your Boss’s Door Back in 2000, then Citgroup Chairman and CEO, Sandy Weill, had likely never thought much about the Rainforest Action Network.4 But the situation changed when the NGO began showing up — at his home, office and elsewhere — attempting to pressure Citi, then the world’s largest bank, into thinking about the social and environmental implications associated with some of its project financing transactions. “They realized they needed some standards, a framework,” said Shawn Miller, who was working in 2003 as a Social Development Specialist at the IFC when banks approached the private sector investment division of the World Bank seeking answers. Soon after the initial standards were drafted, Miller joined Citi in 2004, where his first goal was to broaden the bank’s environmental and social risk management


http://www.entrepreneur.com/article/220496

http://www.equator-principles.com/index.php/members-reporting

http://www.equator-principles.com/resources/equator_principles_III.pdf

http://ran.org/shifting-paradigm

policy, and then, set up the transaction review process that included implementation of the Equator Principles (which he co-authored in 2006, and are based on IFC guidelines). Eventually, Miller and his team went on to set a 10% GHG reduction target, and Citibank launched a $50 billion, 10-year climate investment initiative that was recently achieved this year, three years earlier than expected.5 Now, Managing Director and Head of Environmental and Social Risk Management at Citibank, Miller served as Chair of the Equator Principle Steering Committee (2010-12), and also helped to draft the recent third iteration of the 2013 Equator Principles.

Stakeholders Follow the Money — Take Them Seriously If You Want to Keep More of Yours

“If any of our clients’ projects do not apply strict standards, they will inevitably suffer from opposition and delays … The cost of these avoidable setbacks can easily run into the billions of dollars,”6 Miller stated in the journal CFI.co.

Throughout his career, Miller has increasingly observed stakeholders “following the money,” essentially focusing on those who financially back projects that may have adverse social or environmental impacts. In addition to the rising trend in shareholder resolutions regarding ESG issues, pressure is now coming from a variety of

different stakeholder sources, all of whom should be taken seriously.7 Miller notes that most clients recognize the value of the Equator Principles and its review processes, understanding that having stakeholder approval and a “social license to operate” are integral to any project’s success. Working with companies to develop action plans and road maps to achieving more sustainable projects, Miller’s group reviews hundreds of projects each year. Globally, 90% of project financings are being handled by financial institutions who are signatories to the Equator Principles.8

Managing Director at Citibank — Sustainable Entrepreneur?

Miller’s ESRM title may not immediately shout “Rachel Carson” at you, but Shawn Miller has been a pioneer in sustainable finance for more than 17 years. While there is more work to be done here, and authoring/implementing the Equator Principles may not be as “sustainably sexy” as Silent Spring or a Model S, sustainable entrepreneurs, like Miller, have seized an opportunity and are working to effect sustainable change both at their own institutions, as well as client organizations, one project at a time.

Cindy Motz is an Independent Research Analyst & Global Advisory Council Member, Cornerstone Capital. She is a former II & WSJ All Star Analyst.

5 http://blog.citigroup.com/2014/04/50-billion-climate-change-investment-initiative.shtml. 6 Shawn Miller, Cfi.co, “Banking on Sustainability,” August 2013, http://cfi.co/asia/2013/08/the-equator-principles-banking-on-sustainability/ 7 Eric J. Hespenheide and Dr. Dinah A. Koehler, “Drivers of Long-Term Business Value,” Deloitte University Press, July 2013, http://dupress.com/articles/drivers-of-long-term-business-value/. 8 Shawn Miller, “Managing Risk, Enhancing Reputation: Discussion on Social and Environmental Performance in the Finance Sector” Lecture, New York, April 29, 2014.


http://blog.citigroup.com/2014/04/50-billion-climate-change-investment-initiative.shtml

http://cfi.co/asia/2013/08/the-equator-principles-banking-on-sustainability/

http://cfi.co/asia/2013/08/the-equator-principles-banking-on-sustainability/

http://dupress.com/articles/drivers-of-long-term-business-value/

Valuation & Accounting

Making the Case for Crowdfunding Rules

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 Bank Start-up companies and investors eagerly await SEC final rules implementing the JOBS Act’s crowdfunding provisions. The SEC, however, must ensure investors are adequately protected. Achieving this goal will help validate crowdfunding as a viable investment and capital raising tool. The Jumpstart Our Business Startups Act (“JOBS Act”, or “the Act”), enacted on April 5, 2012, made significant changes to the ways small companies can raise capital. Title III of the JOBS Act provides for an exemption from regular securities registration in specific circumstance, referred to as crowdfunding. The passage of these provisions has created a great deal of excitement for potential funding for new start-up companies. But the new regulatory exemption doesn’t become effective until the Securities and Exchange Commission issues final rules implementing Title III. Although the Act directed the SEC to issue the rules not later than 270 days after enactment, because of the complexity of the provision and the need to ensure investor protection, proposed rules weren’t issued until October 23, 2013. A comment period closed on February 3, 2014. Although eagerly awaited, there is no set timetable for when the SEC might issue final rules. The concept of crowdfunding is explained in the introduction to the SEC’s proposed rules: Crowdfunding is a new and evolving method to raise money using the Internet. Crowdfunding serves as an alternative source of capital to support a wide range of ideas and ventures. An entity or individual raising funds through crowdfunding typically seeks small individual contributions from a large number of people. A crowdfunding campaign generally has a specified target amount for funds to be raised, or goal, and an identified use of the funds. (SEC Release Nos. 33-9470; 34-70742; File No. S7-09-13)

©LuMaxArt/Crystal Graphics

The JOBS Act included rules and restrictions on the use of the crowdfunding regulatory exemption, directed at the issuers, investors, and intermediaries connecting issuers with investors, and the issuers. The more notable of these rules include: • An issuer cannot issue more than $1 million in any

12-month period and must comply with specific rules.

• Companies issuing securities under the crowdfunding provisions must provide specified information to the SEC and meet other specified rules, must be organized within the U.S. and cannot be existing reporting filers with the SEC. Required disclosures would range from tax returns and financial statements certified by the principal executive officer for issuers offering 100,000 or less, to audited financial statements for issuers offering more than $500,000 in a 12-month period.

• Limitations are placed on the amount an investor can purchase from an issuer in any one-year period. Under the original JOBS Act the limits ranged from $2,000 for the smallest of investors


to $100,000 for investor’s with annual income or net worth equal to or greater than $100,000.

• An investor cannot transfer acquired securities for one year except in limited circumstances.

• Transactions must be conducted through qualifying brokers or funding portals that follow specific requirements.

The original crowdfunding provisions in the JOBS Act took up about nine pages. Included was a direction to the SEC to issue “such rules as the Commission determines may be necessary or appropriate for the protection of investors.” As an indicator how serious the SEC is taking this charge, the October 2013 proposed rules to implement those provisions total almost 600 pages. The SEC made some interpretations and adjustments to the original JOBS Act provisions, while asking for general comments, and answers to about 300 questions. The full text of the proposed rules is available here. Approximately 300 comment letters have been posted to the SEC’s website. The response that has received the most attention, however, is a recommendation from the SEC’s Investor Advisory Committee (the “IAC”.) The Investor Advisory Committee was created by Dodd-Frank to “advise and consult with the Commission” on issues such as “initiatives to protect investor interest; and … promote investor confidence and the integrity of the securities marketplace.” The IAC issued its recommendation on the crowdfunding proposed rules on April 10, 2014, and can be viewed here. The document notes many of the risks of investing in early-stage start-up companies, and then provides six recommendations to the SEC.

1. Tighter restrictions on amounts investors can invest.

2. Strengthening of enforcement of the investor investment restrictions.

3. Stronger requirements on intermediaries with regards to ensuring issuer compliance.

4. Increased SEC oversight of educational materials provided by intermediaries to investors, done in conjunction with other regulatory bodies.

5. Changes to proposed electronic delivery requirements for investor materials.

6. Application of integration doctrine, requiring applicability of regulatory exemption for crowdfunding offerings be considered in light of other offerings by the issuer.

Consideration by the SEC of the IAC’s recommendations, along with the other comments received, are likely to take some time. As the SEC noted in April 2012, the exemption is not available until final rules are issued. Various parties have expressed concern that the SEC’s proposed rules are too cumbersome and will result in high issuance costs for issuers. But the SEC's mission, as stated on its website, “is to protect investors, maintain fair, orderly and efficient markets, and facilitate capital formation.” The SEC’s Investor Advisory Committee's recommendations highlight the significant risks from crowdfunding. Therefore, the SEC cannot be rushed or pushed into issuing "easy" rules. Investors don’t need to be entirely protected from risk – risk is an important component of an investor’s return. But the SEC needs to ensure that investors aren’t blinded by the potential for large returns.

Investors need to fully understand the risks of a potential investment, and how these investments impact the volatility and realizability of their entire investment portfolio. Protecting the small investor from unscrupulous ventures can validate crowdfunding as a viable investment and capital-raising tool, but with transparent and understandable risks.

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


http://www.sec.gov/rules/proposed/2013/33-9470.pdf

http://www.sec.gov/spotlight/investor-advisory-committee-2012/crowdfunding-recommendation.pdf

Featured Editorial

The Other Revolution: The Global Entrepreneurship Revolution

By Shelly Porges, Global Entrepreneurship Advocate and former Senior Advisor, Global Entrepreneurship Program, U.S. Department of State

©SOMMAI/Shutterstock

Imagine if Bill Gates, Mark Zuckerberg or Steve Jobs had been born in Africa or Asia or Latin America. Do you think they would have realized their potential? Now imagine if each of these men had a sister who was also an innovator. Do you think she would have had access to the same resources her brother enjoyed, to realize her dreams? Secretary Hillary Clinton used to say: “Talent is universal, but opportunity is not.” As Secretary of State, she worked hard to create more opportunities for people across the globe. She understood that when you elevate others and unleash human potential to drive global prosperity, it advances both our national security interests and those of people everywhere. Today, it is estimated that there are nearly 400 million entrepreneurs starting and running businesses in the 54 economies surveyed by the Global Entrepreneurship Monitor. According to the report’s lead author, Donna Kelley, Associate Professor of Entrepreneurship at Babson, “Even better news is that over 140 million of these entrepreneurs expect to add at least five new jobs over the next five years. These figures and growth projections affirm that entrepreneurial activity is flourishing across the globe and that entrepreneurship, as an economic engine, is the best hope for reviving a weakened world economy.” Emerging markets like Turkey and Mexico and developing countries like Egypt and Nigeria are all experiencing tremendous growth in young people seizing the opportunity to create their own future and drive economic well-being. Yet, if you ask any company founder anywhere on the planet what is the one resource they most need? It is capital. Numbers of organizations including development agencies and banks, NGOs, corporations and angel groups have begun to turn their attention to the role they can play in unleashing this powerful force by improving access to capital for young companies. Crowdfunding is also being considered by many for their ventures. In the development world, programs like the Global Entrepreneurship Program at the U.S. Department of State, offered in 150 countries, and


K. Shelly Porges is a Global Strategy and MarketingExpert focused on entrepreneurship, partnerships and business development for several non-profit and for-profit organizations. She is a former Senior Advisor, Global Entrepreneurship Program at the U.S. Department of State.

the Enterprise Development Network at the Overseas Private Investment Corporation have begun to make a dent in building entrepreneurial ecosystems and connecting entrepreneurs with new sources of funding. NGOs such as the Global Banking Alliance for Women and Acumen prepare businesses for early-stage and growth capital. Corporations also play a key role. Over the past four years, over 180 corporate venture funds were launched, bringing the total number to over 900. Companies including American Express, Dell Computer and Yahoo! have all made investments in innovative ventures in various parts of the world. For young businesses seeking early-stage capital, angel groups like Keiretsu Forum are having an increasing impact as they expand globally. Finally, a report published by Crowdfund Capital Advisors and the World Bank identified the opportunity to crowd-source capital for growing firms, “leapfrog[ing] the traditional capital market structures and financial regulatory regimes of the developed world.” These organizations and others like them are providing the funding for everything from traditional energy and infrastructure companies to agriculture and tourism, as well as to a new generation of high-tech startups driven by the globalization of technology and communications. In turn, they are fueling the other revolution, the global entrepreneurship revolution that is the key to driving economic prosperity in all our economies.


Featured Editorial

The Work of an Entrepreneur: Dream Maker — Dream Killer

By David Lubin, Managing Director of S3 and retired as Co-Chairman and Managing Director of Renaissance Worldwide

©alphaspirit/Crystal Graphics

Every entrepreneur has a dream of making something happen; maybe even making a difference, and just maybe “making it big.” Finding your way through the start-up maze requires managing a delicate balance between the vision of the ‘plan’ and realities of the ‘actual’. Keeping that balance requires being just as adept at undoing as doing.

When I left my secure university roles at Tufts and Harvard in psychology in 1981 to start Spectrum Interactive, a company that planned to commercialize computer-based learning and multi-media technology, most people I knew scratched their heads. I had never taken a business course, they noted, and couldn’t understand a balance sheet. I never held a job other than Assistant Professor, and generally seemed risk averse. All true. Worse, they didn’t own computers and couldn’t imagine why anyone would want one.

Harry Lasker, also on the Harvard faculty was my co-conspirator and was to become my long-term business partner. Through his work on Sesame Street we were exposed to the concept of interactive television. Imagine: “Three of these things belong together, one of them is different. Can you tell me which one?” We had seen a demo of QUBE interactive cable in the late 70’s and then something very new — an Apple computer (itself a novelty) wired up through a black box to issue commands to another new device, a video cassette recorder. There it was, the communication power of television and the intelligence of the computer. We had glimpsed the possibility of a very different future – desktop learning – and electronic shopping. We now faced the entrepreneur’s first hurdle: Could we sufficiently describe that place and construct a map reliable enough to get others to join the journey?

We often hear about the vision thing and that’s key, but the real challenge for the entrepreneur is to model how, at what speed, with what threshold criteria met will customers actually commit and buy? Only if they do roughly as planned will the alternative future vision become both a reality and an opportunity for the entrepreneur. It may be okay, even desirable, to be in “too soon,” so long as you’re still there when the market grows.

Model building expertise is the differentiator. That doesn’t mean just the complexity of your linked spreadsheet, but the ability to make a


David Lubin spent 25 years leading pioneering firms in multi-media, e-commerce and analytics. He is Managing Director of S3, and retired Co-Chairman and Managing Director of Renaissance Worldwide. In 2007, he turned his attention to climate change and sustainability, serving as lead contributor to the UN Global Compact and developer of the PRI’s report entitled, The Value Driver Model – A Tool for Communicating the Business Value of Sustainability.

necessarily unpredictable future predictable. Building a value creation roadmap you can rely on is everything. Hitting that plan means building the trust of those around you – investors, customers, employees, channel partners, even family members. For us, that meant understanding how our growing solution set would fit into a slowly changing corporate training niche within a rapidly evolving tech ecosystem. We were fortunate to have the world’s best venture capital firms back our “map of the future.” Board meetings always had the same last refrain, “If money were no object, how fast could we grow?” But that’s the trap – money is always the object. If you use it wisely you get more than you need, which can then get you in trouble. It is sometimes reasonable to rationalize after the fact why this or that planned goal was not achieved despite the big, costly initiative. But when the stakes are big, your investors and your organization generally expect the entrepreneur to know before they do when it’s time to pull the plug and quickly put Plan B in place. It was November 1985. We had just raised $7.5 million in what we knew would be the last up round of capital before we needed to be cash positive. The funds would launch the first big multimedia IT training library. Our plan was to go big – ramp up a marketing and sales organization. Get multiple products in production to follow on our first set of titles. Double our team, quickly hiring 100 people – and get them to give 150%. The plan: Burn $1 million per month for six months, close the big accounts in June when the trial program ended and then see the cash pour in. IBM and AT&T would be the bell-weather wins. They thought we had achieved a breakthrough. After seeing our cash dwindle from $7.5 million to $2.5 million in April of 1986, and knowing we needed the big, hard orders in June when cash would be nearly exhausted, Russ Carson, the legendary private equity investor and the lead of our syndicate, asked me if the orders would land as planned. I started to explain that while things looked good, we needed more data from the beta customers to vet the sales forecasts from the new team. Russ patiently asked if we were sure we didn’t know. We knew. We might get the orders later, but not in June – and not in time to avoid a cash crisis in July. If more money was needed, we might get it, but at a huge cost. We left the board meeting ashen faced and spent all night devising the expected cuts and how to communicate the news without casting a pall over the firm. It wasn’t that hard to reduce the burn because we were wasting so much on marketing, sales, and futures that had no impact on the 10 key customers whose money and endorsement was all we really needed. Somehow, we stretched the cash, got the orders three


http://unglobalcompact.org/docs/issues_doc/Financial_markets/Value_Driver_Model/VDM_Report.pdf




months late, but it was enough. Sales skyrocketed and we saw our company grow by 400% in 1987. Within a year, our key strategic partner made an unsolicited offer we could not refuse to acquire the company outright. The entrepreneur’s second-biggest hurdle is nearly the inverse of the first. After selling the vision and the plan to just about anyone who will listen, the entrepreneur must clearly read the failure signals, and be ready to change course before he or she is guilty of practicing management by wishful thinking. It happens all the time, even (maybe especially) after extraordinary success. Think AOL, or Blackberry, or OS/2 or Betamax. Successfully managing the dissonance between unwavering commitment to your vision and the plan, and accurately reading the business signals that forewarn trouble is the entrepreneur’s perpetual challenge. False negatives and false positives are coming at you in a steady stream. Overreacting and underreacting each have great costs. Retaining your effectiveness as a person, a spouse, a parent, a friend and a leader while managing this 24/7 obsession is one reason why the personal toll is so great on entrepreneurs and the people around them. By the time Harry and I retired from Renaissance Worldwide, the second company we founded in 1991, we were running a publicly held firm with several thousand employees in offices around the world. We swore we would never do it again. However, the exhilaration from making it happen or even coming close is so powerful that we each came back for more.


Featured Editorial

Where Angels Fear to Tread: Entrepreneurs Rush In, But Investors Don’t

By Robert D. Lamb and Sadika Hameed, Program on Crisis, Conflict and Cooperation at the Center for Strategic and International Studies

©Kinetic Imagery/Crystal Graphics

A teenage girl sews some clothes and sells them to a vendor at the local market, grows her business, and eventually becomes the main employer in her community. An inspiring story, but nothing out of the ordinary for those who study entrepreneurship - until you learn she built her successful manufacturing collective in secret, just after the Taliban took control of her community in Afghanistan. Similar stories play out wherever a government is abusive, corrupt, weak, or nonexistent - unusually difficult environments, with high violence, crime, and coercion, and low incomes and quality of life. These are the most difficult of the frontier markets. Even investors who seek frontier opportunities tend to avoid them. But that just means opportunities are being missed. All human beings need food, shelter, family, community, and some way to pay for life’s necessities. As the young Afghan showed, even when bullets are flying, disaster has struck, or warlords are in charge, the human will to survive runs deep. Investors might be surprised by just how enterprising people who live in such complicated environments can be. Those who start their own businesses usually need to hire private security, cut deals with armed thugs, or rely on expensive electricity generators to keep their businesses operating. Some pool resources to encourage collective action and promote order. In Jamaica, a tourism company coped with crime and social tensions from a nearby slum by offering job training and opportunities to local residents, who in turn kept an eye on the tourists’ safety. In Haiti, a local Internet service provider rebuilt quickly after the 2010 earthquake and profited handsomely by providing communication services to the rapidly growing aid community. Despite the fragility of the state, mobile phone and banking services often thrive, light manufacturing takes place, and multinationals extract resources or distribute finished goods. Even illicit markets demonstrate that entrepreneurs in the most difficult frontier markets can succeed by finding creative ways to manage risk. Some entrepreneurs secretly welcome the difficulty of their local business environment, because it prevents competition from outsiders who do not understand it nearly as well as they do. It is that local understanding that enables them to succeed.


What they usually lack, however, is access to credit, collateral-based loans, risk insurance, or information on how to find investors to help grow their businesses. That gap is itself an opportunity. In the absence of well-functioning stock markets, private equity rules, if the opportunities can be found. The prize goes not only to the entrepreneurs who succeed in managing risk in hard places but also to those investors smart enough to find ways to help them thrive.

Robert Lamb is a Senior Fellow and Director of the Program on Crisis, Conflict and Cooperation at the Center for Strategic and International Studies. Sadika Hameed is a Fellow, Program on Crisis, Conflict and Cooperation at the Center for Strategic and International Studies.


Regional Imperatives

MingJian, Testing for Safe Quality Products in China

By James Feldkamp, Co-Founder and CEO of MingJian (消费明鉴) The life of a consumer in China is akin to walking blind through a minefield; always fearful that your next purchase may contain hidden dangers. If you enter the words “product safety China” into Google, it will return more than 150 million results. Seldom does a day pass in China without product safety issues making headlines in the news and on social media. Yet, while consumers in China are more aware than ever that each purchase decision is fraught with potential hidden dangers, they are left feeling hopeless, lacking an independent expert reference to identify safe, quality products. I speak from firsthand experience as a local consumer, coming to China in 1996 and making it my home in 1998. The first 14 years of my career were spent in manufacturing, working for major producers either directly or as a management consultant. I have worked with the automotive, home appliance, fast moving consumer goods (FMCG), electronics, and food industries spending time in production facilities throughout China addressing product quality issues. In the summer of 2009, my Chinese wife was pregnant with our first child. As with many new couples in China, that meant purchasing and renovating an apartment, buying our first car, and stocking up on baby stuff; all products with huge potential health and safety risks to our unborn child. We did extensive research in Chinese and were unable to find any independent expert sources of information we could rely upon to identify safe, quality products. Speaking with friends and family, we realized that we were not alone. We conducted market research in five major Chinese cities and confirmed that consumers across the country were struggling with the same issues and frustrations. Born and raised in the United States, I grew up with Consumer Reports and the invaluable contribution to

©Joachim Wendler/Shutterstock American consumers of independent expert advice on products and services. Knowing there was a better way, my wife and I agreed that consumers in China deserved such a service, and together started MingJian. Registered on World Consumer Rights Day, March 15, 2010, MingJian (消费明鉴) is a social enterprise dedicated to helping consumers in China make informed purchase decisions and get the best value for their money by providing independent, expert research and testing of products. Our test results and buying advice are disseminated online via our website and our soon-to-be-released mobile app and print publication. In the same spirit as Consumer Reports, we act exclusively in the consumer interest, independent of manufacturers, and do not accept advertisements. All of the products are purchased at authorized retailers by “mystery shoppers” (consumers just like you) and subjected to rigorous scientific testing in laboratories. We initially started testing baby products and have since expanded coverage to include electronics and personal care. We not only identify the best products and value, but also inform consumers about dangerous or poor performing products they should


http://www.mingjian.cn/

avoid. For example, we have tested children’s car seats that broke free from their mount and flew through the vehicle in crash tests and uncovered a compact underwater camera whose screen cracked under pressure. To date, we have tested more than 2,500 products across dozens of product categories. To ensure that we provide consumers in China with the highest level of testing available globally, we partnered with the world’s leading consumer organizations to conduct joint comparative testing. MingJian is the China member of International Consumer Research and Testing (ICRT), the only independent international organization for consumer research and testing with members, including Consumer Reports, found across 36 countries. ICRT brings together the combined expertise of nearly 6,000 comparative testing professionals, with all products tested in top laboratories in Europe and the United States. Expert comparative testing has three primary social impacts. First and foremost, is the improvement in the lives of consumers, as the increased transparency of product performance directs consumers to safe, quality products. Consumer selection raises the overall level of product quality and safety as manufacturers respond to market forces and unsafe products are avoided. As the world’s largest manufacturer of consumer products, the

improvements in product quality and safety in China benefit the lives of consumers globally, wherever Chinese products are sold. Second are the positive environmental impacts. Tests for hazardous materials are an integral part of our testing methodology, including many types of known carcinogenic materials. Downgrading products containing hazardous substances has led manufacturers to phase out their use in production, even ahead of new regulations. Third are the incremental jobs created for manufacturers of high-quality products. Independent objective testing of product performance increases demand for safe, healthy, quality goods and services. This both creates new export opportunities for Chinese manufacturers in global markets as well as increasing the import opportunities of high quality global products into the China market. For more information about MingJian, please refer to www.mingjian.cn or contact me at [email protected].

James Feldkamp is Co-Founder and CEO of MingJian (消费明鉴), the independent expert guide for consumers in China to safe, quality products.



mailto:[email protected]


Regional Imperatives

“Exit Left:” A Reflection about VC Investing & Entrepreneurship

By Camillo Sicherle, an Attorney of Law in São Paulo, Brazil In the premiere episode of the new HBO drama, Silicon Valley, six tech geeks who live together in an “incubator” space in Palo Alto, CA, are hoping to make it big. One of them, an incredibly bright, but socially awkward programmer, has created an app with a powerful compression algorithm that could reap billions and potentially change the very nature of the entertainment business. Suddenly he becomes embroiled in a bidding war, with one potential offer going as high as $10 million, sending him off to a clinic with a panic attack. We have seen this story play out again and again. An entrepreneur hatches an idea, then looks for independent sources of funding to grow and scale the business. Yet, despite the many headlines about soaring multiples, the road to riches isn’t so simple. Blame the practice of independent venture capital (VC) firms dedicating a lot of focus and energy on “exit strategies” as the first and foremost question in structuring an investment, a practice that could actually be undermining instead of fostering entrepreneurship. I would argue that moving towards more “evergreen” structures for capitalizing new enterprises would help everyone regain momentum. Looking from a Brazilian market perspective and drawing from my experience as a legal adviser active in São Paulo, the VC scene here since its early beginnings in the mid-nineties offered a few first-hand experiences in negotiating exit provisions on behalf of “buy side” and “sell side” clients, as well as later participating in some of the ensuing “exit”. There are three main categories of independent VC-sponsored deals from the perspective of exit strategies and their dynamics: At one end of the spectrum lie a fair number of companies that do not take off after they’re seeded and quickly die of natural causes; on the other extreme, we find the precious few that do

Wikipedia Commons, Exit Sign in Sweden according to plan or better, making everybody happy and rich. In between are the handful of entities that end up “getting by” after scoring an infusion of venture capital, performing more or less to the satisfaction of their founders – but hardly living up to the expectations of the VC’s managers and investors. It is invariably in these “middle of the road” scenarios where exit clauses come into play and at their roughest, cause a lot of stress to those involved, if not significant avoidable losses. Stepping back to look at the individual cases, the broad backstories tend to be very similar to the one now being depicted on TV: the target firm survives its start-up phase with the VC’s capital injection but, for any number of reasons, does not reach the stage where it can raise capital on its own merits by the time the VC’s liquidation deadline approached. Nevertheless, in the eyes of its founders, it still has a great future – provided that they can be entrusted with more capital, time and some good people. All these elements, of course, are in very short supply with the VC partner; investors are impatient to cash out and look for greener pastures and no performance


fees are likely to materialize out of the deal. As tension mounts and the relationship between entrepreneur and investor sour, the readiest solution for the VC is to make use of its exit prerogatives and to try to forcibly sell out, usually at a significant discount, to a “strategic” buyer (oftentimes the original entrepreneurs, if they can find the necessary funding). Less often, the parties might agree to muster the cash needed to liquidate the venture if no buyers are found. And finally, there is bankruptcy as the path of last resort. If the VC was able to extract “minimum return” guarantees from the entrepreneur as part of its exit package before closing, there would be some collateral damage and additional costs arising from ensuing litigation, assuming the entrepreneur was worth the trouble in the first place. In hindsight, I’ve wondered: couldn’t those involved have overcome the fighting and directed all the money, time and energy spent on negotiating and resisting a forced exit to help the company get over the hill, or find new investors? Surprisingly, looking back at the fiduciary duties, contractual structures and the layout of the economic incentives set out from the start, the answer was a very clear “no.” Why so, then? My guess is that local VC fund regulations1, by-laws and economic incentive structures were originally crafted to mimic imported models, designed to work in developed economies and typically carried pre-established liquidation dates. As such, the much deeper capital markets and an abundance of strategic buyers at the ready coupled with functional bankruptcy laws, made it theoretically possible to spin off, recapitalize or terminate investments before the end of a fund’s pre-set investment period, with relatively little residual value destroyed in the process. Maybe more importantly, the prevailing very high local capital costs associated with the extra liquidity risks of venture capital investing caused the risk premium demanded by independent VC’s to be very

1 Note: most local IVC sponsored vehicles are regulated by and registered with the Brazilian SEC (CVM: Comissão de Valores Mobiliários,) as a matter of mandatory portfolio allocation rules applicable to local institutional buyers. 2 “Investment, Duration, and Exit Strategies for Corporate and Independent Venture Capital-backed Start-ups”, by Bin Guo, Yun Lou and David Pérez-Castrillo, Barcelona GSE Working Paper Series, WP # 602, January 2012.

high and the capital commitments very low, all of which had a direct impact on the type of deals (and exit clauses) the VC managers had to work with. As a result, most of the VC funding offered to start-ups in Brazil ended up being attractive only to those entrepreneurs that had difficulties raising capital elsewhere and were led to believe that having the “quality stamp” of a local VC partner helping with governance, intelligence and visibility would facilitate their access to markets, thus compensating for the extra price imbedded in the steep exit conditions. The result of that combination fell short of everybody’s expectations and depressed the industry as a whole. On the other hand, opportunities apparently continued to exist for other types of VCs entering the game with fewer constraints, such as private family offices, aka “Corporate Venture Capital” (CVC’s). Curiously, there’s an interesting piece of academic research supporting the thesis that CVCs on average do better than independent VCs because they generally have more money and time to do better, and are less constrained by exit preoccupations2. If the above considerations are correct, one may conclude the conventional VC’s “exit first” approach appears to have some negative impact on entrepreneurship and that making VC structures more “evergreen” could help rebalance the equation. TV depictions of startup life aside, investors should also believe that this different tack will work to their benefit so that they may feel confident to deploy more capital and worry less about short-term returns and exit strategies – and ultimately, lead independent VC managers to agree and change their compensation models accordingly.

Camillo Sicherle is an Attorney of Law in São Paulo, Brazil.


Open Source Excellence

Creating an Ecosystem of Entrepreneurship to Drive Business and Social Value

By Lauren Moore, Head of Global Social Innovation, eBay Inc.

In today’s market, shareholder value is increasingly measured in more ways than purely financial gain, and at eBay Inc. we’ve placed a great deal of importance on our capacity to drive both business and social impact. While our company started as an innovative idea 18 years ago, that same founding spirit of entrepreneurship and purpose continues to run deep throughout our company today. From our work to serve entrepreneurs and startups outside the company walls, to the intrapreneurs we empower everyday within our business, we continue to innovate and sustain an ecosystem of entrepreneurship that attracts and retains employees, propels our business to new heights and supports communities around the world. Externally, we empower small- and medium-sized businesses (SMBs) to build and grow their enterprises, globally. Over the past two decades, our platforms and tools have enabled SMBs to thrive by connecting them to the global marketplace. Take, for example, Taushif Ansari, who runs an online clothing store out of one of Mumbai’s biggest slums. Through his eBay- and PayPal-enabled store, he has been able to take his designs to more than 30 countries around the world, hire five people and buy three sewing machines; he is investing his profits right back into his business and his community. By providing a way for business owners like Taushif to break free from the geographical limits of their immediate surroundings, we help them compete and win over the long-term, which in turn positively impacts their families, communities and local economies. But we don’t just stop there. Through our in-office incubators in New York City, Boston, Tel Aviv, Chennai, and elsewhere, and other eBay Inc. programs like the PayPal Startup Blueprint and Braintree Ignition programs, we’re committed to helping entrepreneurs from day one – from the moment of inspiration. And as they scale, we strive to be a partner of choice, making sure they get the support they need to survive and grow. We know that when they succeed, powerful economic and social impacts result for them and their communities – and we’re proud to be a part of that. In addition to our work supporting entrepreneurs externally, we also celebrate and foster that same spirit of entrepreneurship among our employees around the world. Take, for instance, our Powering Giving


Lauren Moore is the Head of Global Social Innovation at eBay Inc. She has led the development of eBay’s Social Innovation strategy, focusing on three core areas of impact: creating economic opportunity, powering charitable giving and enabling greener commerce.

program. Ten years ago, a group of employees set out to prove that the eBay platform could also be a phenomenal tool for nonprofit fundraising and charitable giving. We were intrigued by the idea and gave them the resources to test it out. Today, that small team has expanded to a cross-organizational group of some 50 employees, all committed to building the world’s largest charitable-giving platform. They’ve proven the concept, demonstrated the business value and are blazing the path forward. And, together, they’ve generated some impressive results. In 2013 alone, our platforms benefitted more than 330,000 nonprofits and helped generate nearly $5 billion for good – further highlighting our commitment as a purpose-driven company.

eBay Inc. fosters an entrepreneurial spirit amongst its global workforce. This team of eBay employees put their engineering skills to work to develop a new Facebook application for nonprofit partner Ashoka.

Creating an ecosystem for entrepreneurship and innovation inside and outside our company is at the core of our business, and we believe it’s not only a great way to create value for shareholders, but is also a critical way to attract and retain top talent. As a purpose-driven business, we continue to innovate and provide shared value for our business, our shareholders and the communities where we live and work. It’s a commitment that is the backbone of our company, and we believe it will help drive business and societal success for generations to come. Moving forward, we hope even more companies will adopt this philosophy, and together we can all play a part in making the world a better, more sustainable and enabling place for all people.



Fans, Flavors and Failure: Innovation from Cow to Cone

By Jostein Solheim, Chief Executive Officer of Ben & Jerry’s, a Unilever company

“The Flavor Graveyard,” courtesy of Ben & Jerry’s

How do you measure success in your company’s innovation strategy? Ben & Jerry’s strives to create engagement, stories that are willingly shared and essentially present products that fans don’t want to live without, summarized in two words: “Flavor excitement.” Success, then, can not only be measured by how popular the newest flavors are but also for what stories they tell and how they support the overall business and brand. Historically, the top 10 flavors have been challenging to beat in terms of sales – with the list dominated by existing, iconic combinations that have chipped their way into pop vernacular over the past 30 years, such as Phishfood, Cherry Garcia or Chubby Hubby. While those long-time flavors continue to be our best performers, ongoing innovation is what keeps B&J fresh, relevant and in tune with popular culture. Launching a flavor with Stephen Colbert in 2007 was deemed risky by some as mainstream competitor Jay Leno had a much larger audience at 5.7 million viewers around that time. Still, Colbert was a better fit for the company, matching its irreverence, tone of humor and left-of-center personality. Today, Colbert’s flavor (AmeriCone) is one that has pierced the “Crème de glace” ceiling of the very top iconic lineup breaking into the top 10 flavors featured nationally — and that’s before Colbert takes over the CBS Late Show next year. Ben & Jerry’s aims to build partnerships based on shared values and objectives rather than traditional sponsorships. Those partners are then expected to donate their share of the proceeds to help address social needs. This joint commitment to have a positive impact on society is what creates an authentic relationship and allows us to expand these partnerships beyond the specific flavor to support us when taking positions on key social justice issues, or our values-led ingredient sourcing programs, like Fairtrade. Ben & Jerry’s takes a different perspective on what constitutes a “business risk.” Our objective is to positively impact society and the biggest risk we see is a fundamental lack of action and progress on most of the critical issues facing the world today from climate change, sustainable agriculture to structural income inequality. While the company’s social mission is a separate topic unto itself, we do see the risk of not taking action, not taking a stand as more significant than any potential down-side from actions such as being the only business that actively supported the Occupy Wall Street movement in New York.


Jostein Solheim is the Chief Executive Officer of Ben & Jerry’s, a Unilever company.

This approach to “business risk” is also reflected in our innovation strategy where one of the main “unlocks” for the company is around how we deal with “failure.” While our intention is to always create flavors that our ice cream fans can’t live without, the natural challenge of maintaining approximately 50 flavors in pints on shelves and in franchised Scoop Shops, means we also have our fair share of failures, or “flavor flops.” The difference is that we actively celebrate our failures, in typical Ben & Jerry’s fashion, with tongue and corporate sense of humor firmly in cheek. On site at our visitor center we proudly feature a “Flavor Graveyard” for our dearly departed flavors deserving of eternal recognition. Flavor disasters such as “Lemon Peppermint Carob Chip” or “Sugar Plum” enjoy eternal rest here. I have never met a real innovator that does not have a long list of glorious failures! Innovation must be “always on,” be deeply rooted in real human needs and popular culture trends, and be activated from the heart not just the head. All food is essentially an emotional experience. At Ben & Jerry’s, trained foodie chefs are responsible for R&D. Being “always on” is a commitment to broad involvement across the whole company. Ideas are being explored and bandied about every day. Ben & Jerry’s teams spend time in the “real world” visiting delis, restaurants, food carts, specialty stores, ethnic food stores and other foodie places. We foster a non-hierarchical creative culture; we have a deep respect for ideas and protect them from typical snappy evaluation and rejection. The effort is more chef than scientist and everyone is invited to participate. That responsibility doesn’t end with those only earning a paycheck from Ben & Jerry’s. Even our fans get in on a scoop of the action. The fans’ record has, so far, proved quite adept. Flavors such as Cherry Garcia, Chubby Hubby, Chunky Monkey and Chocolate Chip Cookie Dough were all suggested by fans. The last one – getting raw gobs of cookie dough in ice cream – was accomplished via many trials on the floor of the Waterbury Production facility, not too many steps away from the Flavor Graveyard itself. It was a tremendous success and continues today to remain in the top handful of offerings. Whether it’s the early days of inventing Cookie Dough ice cream, or combining a few of the most popular flavors, which B&J did in 2000 to make Half Baked ice cream (Cookie Dough plus Chocolate Fudge Brownie), which unseated Cherry Garcia as the best-selling ice cream in the U.S., it’s easy to see that the commitment to innovation must be fully baked. Trial and error, success and failure, are simply part of the process. Being fearless, celebrating failure, and leveraging all company assets from fans to employees is at the core of the Ben & Jerry’s innovation strategy.



Why Compliance Programs Work Like Pushing a Rope… How Leaders Can Impact Behaviour

By Dan Ostergaard, Managing Partner of Integrity by Design and Dr. Michael Fuerst, Senior Manager at Novartis

©Truefellpix/Shutterstock

Few ingredients are as important to building a successful organization as culture and most CEOs will argue that integrity is one of the cornerstones. But how do CEOs foster an entrepreneurial spirit and ambitious drive to perform without compromising ethical standards? With the consistent stream of ethical scandals in the financial sector and beyond, answering this question has become one of today's key leadership challenges. Here is what we see. The CEO refers to business integrity in speeches and company-wide communications; employees are trained on the Code of Conduct and certify their commitment annually; well-staffed compliance and audit functions manage a hotline and monitor violations; and employees who breach ethical standards are sanctioned. Doesn’t this sound like a pretty good effort to encourage ethical conduct? Strong tone from the top, clear expectations and widespread awareness, combined with checks and balances. Perhaps it is similar to what you have in place in your organization? If so, you should be worried. The elements above had been in place in the organizations that experienced severe ethical breakdowns leading to reputational disasters, billion-dollar fines, jail sentences and outright collapses. Despite the many well-intended efforts to ensure ethical conduct, much of it works like pushing a rope. In fact, most ethics & compliance programs are bureaucratic, expensive and toothless as about 99% of resources are spent on policies, compliance training and monitoring, while less than 1% focus on managing the factors that drive behavior in performance-driven organizations: what leaders say and do, and what gets rewarded. Are today’s ethical lapses really caused by ‘bad apples’? Surely, people of right character would always do what is ethical, no matter the circumstances? Such a narrow perspective, however, fails to recognize how much people are influenced by the organizational context in which they do business. While some large organizations may have a few outright crooks, even good people will do what they know is wrong, if the context does not specifically encourage, or even discourages, responsible behavior. Think of physicians incentivized to perform a certain number of specific surgeries to achieve targets and


Dan Ostergaard is Managing Partner of Integrity by Design, a responsible leadership consultancy based in Basel, Switzerland. Previously he was Chairman of ENICO and headed the global integrity function at Novartis. Dr. Michael Fuerst holds a Senior Manager position at Novartis. He has more than 14 years of experience in integrity, compliance, corporate responsibility and shared value strategies in both business and academia.

get their bonus, or bank staff working under pressure to grant a certain number of mortgages every day, or risk being sanctioned. So why do CEOs invest time and effort into such traditional compliance programs if these are costly, drain employee engagement and have little impact? They do because they have to. The U.S. Federal Sentencing Guidelines and the UK Bribery Act, amongst others, require companies to establish “an effective ethics & compliance program” and “adequate procedures,” in order to protect themselves from severe penalties or possible exclusion from government business. Sadly, such regulatory requirements hinge on the “bad apples” theory, and therefore prescribes tick-the-box activities with no real impact on behavior. Brushing regulatory arguments aside, however, there are several reasons why leaders should indeed strive to manage organizations responsibly, albeit in an entirely different way: one that motivates employees, explores opportunities from increasing ethical expectations in today’s society, and achieves sustainable performance. While the potential benefits are great, CEOs cannot view it as a nice-to-have hobbyhorse to be addressed when everything else is done, or a risk management exercise to be handed over to the General Counsel or Chief Compliance Officer with no further ado. Rather, it requires leaders to do two things 1) view business through holistic lenses to meet not only commercial, but also legal and ethical responsibilities simultaneously, and 2) create the right context that enable others to do the same — through the guidance that leaders provide, the organizational climate they establish and behaviors they reward. The latter means introducing a two-dimensional incentive system that measures and rewards the achievement of business objectives against adherence to ethical standards, with equal weight and direct impact on compensation and career prospects. Moreover, performance incentives should combine financial and non-financial incentives, which have been shown to be more effective motivators for performance. Some leaders argue that rewarding ethical conduct is absurd; why reward something that is simply expected? Company values placed on the wall at corporate headquarters already define how to behave and a code of conduct sets limits. In any case, integrity is too subjective and impossible to measure. So it goes. Well, performance-driven organizations indeed already do reward what is expected; leaders are rewarded for leading, researchers for researching and sales people for selling. In the end, an organization rewards what it believes is important. Therefore, if it strives to conduct business responsibly, it must reward it.


A holistic approach to managing organizations responsibly challenges conventional thinking, assumptions and practices. It impacts how and whom organizations hire, promote and reward; how leaders are developed and lead, how decisions are taken and how business is conducted. And, despite its real impact it comes at a fraction of the costs of prevalent compliance programs. Leaders of companies of whatever size should ask themselves: what do we really encourage people in our organizations to do?


Enhanced Analytics

Going Deep: Measurement Systems at the Product Level

By Kara Hurst, Chief Executive Officer of The Sustainability Consortium

©archerix/Crystal Graphics

In a world of big data, radical transparency for corporations and sustainability reporting on the rise, we should see a major shift in how businesses are tackling the most intractable environmental and social issues, as well as a rapid pace of progress towards improving our overall standard of living as well as the health of the planet. Correct?

Not exactly.

In the last twenty years, sustainability reporting has risen sharply, and by most estimates, over half of the S&P 500 companies are now issuing reports to track environmental, social and governance performance.1 What we are not seeing on the same scale, however, is the necessary translation of that information at the scale and pace to generate true transformation within business. We are not seeing this transformation because for most businesses, the metrics collected on an industry or company-wide level are still too generalized to have an impact on the day-to-day decision-making that must take place to generate that transformation. For the same reasons that it is difficult to mobilize the general American populations’ concern about climate change into actions that matter, it’s difficult to mobilize a merchant in a company to manage towards a greenhouse gas (GHG) reduction goal or a pro-human rights policy: it’s too vague to operationalize within the business framework that already asks many things of today’s leaders in addition to making decisions to maximize profit.

What is necessary is to drive a more rapid consensus at the product level: on both the issues and how we measure them. Most importantly we must define the improvement opportunities that supply chain partners can work on together to make progress and identify proper incentives to promote delivery not just on reporting, but on the improvement opportunities themselves. Without that last step, you can have ambitious goals and beautiful metrics, but the pace of progress will remain painfully slow.

The Sustainability Consortium (TSC®) is a membership organization focused on improving the sustainability of consumer products from source to shelf and beyond. Our members, representing over $2.4 trillion in revenue, participate across industries – from corporations to

1 2012 Corporate/ESG/Sustainability/Responsibility Reporting – Does it Matter? Governance & Accountability Institute, 2012.


http://www.sustainabilityconsortium.org/

Kara Hurst is the Chief Executive Officer of The Sustainability Consortium® (TSC), an organization that is developing and promoting science and integrated tools that improve informed decision making for consumer product sustainability. Prior to TSC, she served as Vice President at Business for Social Responsibility (BSR).

food and consumer packaged goods manufacturers, to government, civil society, and academia. TSC is driving a science-based approach to consumer product sustainability that has been missing from the field to date. We do this through rigorous methodologies and translating the research we generate into a toolkit for business that drives a new generation of sustainable products. Our toolkit – the “Sustainability Management and Reporting System” or SMRS – is the first one that is science-based with application at the product level. Simply put: use of our work has been proven to generate positive change in goods that end up in the arms of consumers, which can roll up in to rapid achievement of overarching goals.

The Opportunity for Standardization of Product Impacts

TSC looks at an array of products sold across the retail spectrum: from milk and beef, to laptops and plastic toys, to household furnishings. We determine what areas within a business – e.g., raw materials, packaging, energy use, distribution – will have the most impact (hotspots) and then we use the data to highlight the improvement opportunities that a buyer and supplier can work on together to make progress, plus the questions, or key performance indicators, businesses can use to monitor these activities. This enables companies to evaluate this information in a whole new way. Even if a company might have had a measurement system before, the information is layered in holistically, with a standardized and consistent format across all products throughout the consumer product value chain.

Implementation at Walmart: Impact through Products When a consumer buys a laptop, typically it doesn’t come with the energy saving setting already turned on. As consumers, we have the option to turn on this setting, but most people, even if they are energy conscious, may not get around to doing so. Through our research, we identified the potential to save a large amount of energy by changing this simple setting further down the supply chain. A proactive buyer at Walmart determined that about 30% of its laptops sold had these settings and were shipped at the optimal energy-saving rate. The Walmart buyer took this research and set a company goal: 100% of laptops sold with this option would have that power setting activated, before ever reaching consumers. Given the volume of laptops sold by Walmart, this translates into many thousands, if not millions, of machines over time. Walmart institutionalized this process and will themselves save hundreds of thousands of metric tons of GHG emissions through working with suppliers at the factory level. Consumers are also benefitting and saving money by using less energy at the residential level.

Lesson learned: Simple things can yield significant results when we put information into the hands of people who have the power to make changes at scale.




Building Blocks to Impact at TSC and Opportunities for Investors:

• Research: A science-based approach has been lacking inidentifying environmental and social issues across a broad swathof product categories. In a world of strategy, platforms, goals,initiatives, greenwashing and bluewashing, it is essential that weare able to step back and examine the validity of the basis for thosestrategies. Information that has the potential to change businessdecision-making must be deeply rooted in and based on arigorous, science-based, transparent methodology and process.While the metrics for environmental issues such as carbon, wasteand water have long been established, the metrics on the socialside are still in need of more rigor. TSC’s approach brings lifecycleanalysis and scientific approaches to all issues. In addition, aninvestor could use our information to evaluate a company’sshifting product and service portfolio over time to see if thebusinesses’ overarching goals and investments mitigating the risksto the commodities they rely on are really the right goals based ontheir product impacts.

• One System: The sustainability field does not lack for indicators,surveys, ratings schemes, cross-sector working groups or industryinitiatives. The gap that TSC fills is to provide an approach forcompanies who sell, buy, produce and/or procure multipleproducts to look across their product portfolio and implement onesystem – SMRS. All of our product categories are available thereand shortly, for the first time ever; we will have data sets in theaggregate across the product level.

• Accessibility of Information: Any system that is created needs tobe easily accessible, broadly available, and remove as manybarriers to entry as possible. We’ve recently partnered with SAP toenable the first cloud-based solution to support thisimplementation.

What Does an Investor Need to Know?

Information is becoming more specific and granular. However, that does not have to mean it becomes more confusing. The enhanced analytics that are now available to companies, NGOs and investors provide a much deeper and more nuanced picture of the impacts of a company’s product portfolio – and with it, the risks and challenges throughout the supply chain.


Enhanced Analytics

Where Should “Human Capital” Fit in the Sustainability Agenda?

By Dr. Laurie Bassi, Chief Executive Officer, McBassi & Company

©Jane LiLi/Crystal Graphics

If people are a firm’s “most important asset” – as CEOs repeatedly proclaim – why are they only reported as costs? What are the problems caused bythis mismatch, and what would ameliorate them? In light of this, what actions can and should investors take?

For starters, CEOs do, in fact, know what they’re talking about in this regard – even though their firms’ actions are sometimes (maybe even often)inconsistent with their words. Those companies that have consistently prioritized the “people side” of their business are among the best investments you can find. For example, a study by The Boston Consulting Group found that over a 10-year period, companies that appeared at least three times on Fortune’s “100 Best Places to Work” list outperformed the S&P 500 by 99 percentage points.1

Study after study – by the Sirota Institute, Towers Watson, IBM, Gallup, The Great Places to Work Institute, and countless academics – point to the same conclusion.2 Companies that make themselves worthy of the best efforts of their employees consistently outperform their less worthy competitors, a trend that has accelerated as the economy has become increasingly knowledge-driven.

Yet despite its growing importance in value creation, the reality remains that the only “human capital” metrics consistently available to investors fundamentally measure people costs. There is very good reason for this: firms do not own people, and hence, people simply cannot be measured as assets in the traditional sense of the word.

Yet this creates a huge disconnect between the reality of people as a firm’s most important asset and the measures actually available to investors. This has very real consequences. For example, a firm that is making an unusually large investment in learning and development initiatives to enhance its workforce’s capabilities will appear on the balance sheet as simply a “high cost” firm. Its short-run returns will suffer as a result: the firm’s investments in workforce development occur despite – rather than because of – pressures from investors. Since workplace learning has very

1 Boston Consulting Group/WFPMA, From Capability to Profitability: Realizing the Value of People Management (July 2012).

2 For an excellent summary of this literature see Chapter 2 of Enterprise Engagement: The Textbook, edited by Bruce Bolger, Richard Kern and Allan Schweyer, published for the Enterprise Engagement Alliance by Engagement Enterprises LLC. 2014, Edition 1.0.


Dr. Laurie Bassi is the Chief Executive Officer of McBassi & Company, a human capital analytics firm that helps clients achieve both sustainably profitable and enlightened management of employees. She is the co-author of “A smarter annual report – how companies are integrating financial and human capital reporting” (forthcoming) and “Good Company, Business Success in the Worthiness Era” (Berrett-Koehler, 2012).

significant economic benefits for both employers and employees, the current state of reporting makes everyone worse off.3 This has broader implications as well. In a world where growing inequality has come to be widely recognized as a threat to social cohesion, it’s more than time for human capital to be on the sustainability agenda.

The good news is that progress is being made. In a forthcoming review of Integrated Reports (see Figure 1), my co-authors and I found that firms are voluntarily disclosing a growing number of metrics (with associated discussion) on the people side of their business.

Figure 1 Human Capital Metrics Included in Firms’ Integrated Reports

Source: Bassi, Creelman, Lambert, A smarter annual report – how companies are integrating financial and human capital reporting (forthcoming).

Although it’s encouraging that a growing number of firms are beginning to disclose more human capital metrics, Figure 1 makes it clear that most of these disclosures fall short of providing a coherent view of what creates, limits or destroys value on the people side of the business. Even on a measure that is now widely recognized as an important indicator of superior financial performance – gender diversity of the Board4 – there is less than universal reporting among the firms that are leading the way. And other important factors that are known to predict future performance – employee engagement, investments in training and internal promotion rates5 – are only reported by a minority of these firms.

Providing investors with an abbreviated version of the key information that a firm’s Board of Directors should be using to manage human capital risks would go a long way to solving these shortcomings. These risks can be classified into six categories (see Figure 2).

3 “Employers’ Perspective on Human Capital Management and Development,” Laurie Bassi and Dan McMurrer, Education Working Paper No. 18, Organisation for Economic Cooperation and Development, Paris, January 2009. 4 http://www.catalyst.org/media/companies-more-women-board-directors-experience-higher-financial-performance-according-latest. 5 Enterprise Engagement: The Textbook.and “Employers’ Perspective on Human Capital Management and Development”.


http://www.catalyst.org/media/companies-more-women-board-directors-experience-higher-financial-performance-according-latest

Figure 2 A Risk-Based “People Measurement Framework”6

Questions that investors (and boards of directors, for that matter) can use to bring this perspective to light include:

• Capability Risk: Do your people have the knowledge, skills, resources,and business processes that will enable them to perform effectively?

• Alignment Risk: Do your people really understand your businessstrategy and goals and do their day-to-day jobs in alignment with thosegoals?

• Availability Risk: Are you finding and acquiring the right people?• Turnover/Demographic Risk – Are you retaining key people? Do

you have a pipeline sufficient to replace departing employees?• Engagement Risk: Do your people go the extra mile, and does this

show through to your customers?• Leadership Risk: What is the risk that any initiative will fail because

you don’t have the leadership depth or quality that is needed?

The evidence is clear that long-horizon investors would benefit from having this type of information available. For example, Alex Edmans at Wharton estimated an investment portfolio of the “100 best companies to work” generated 2.3% to 3.8% higher annual returns versus peer companies from 1984 to 2011.7

But “waiting for Godot” will never get us where we need to be in this regard. Firms will only begin to reveal this information on a broad-scale basis when investors consistently start to ask better “people” questions–and then demand better answers from the firms in which they invest.

6 This framework was originally proposed by Jim Marchiori, Executive Director, University of Colorado Global Energy Management Program. 7 Alex Edmans, “The Link Between Job Satisfaction and Firm Value, with Implications for Corporate Social Responsibility,” Academy of Management Perspectives (November 2012, 1-19), http://faculty.london.edu/aedmans/RoweAMP.pdf.


Accelerating Impact

Reimagining Impact, Reimaging ROI

By Bob Harrison, CEO and Bulbul Gupta, Head of Market-Based Approaches at the Clinton Global Initiative

As the world rapidly changes, markets and investors must keep up. If we care about meeting the economic, social, and environmental demands of the 21st century, and growing consumer demand for responsible products, then we need to collaborate to support and scale more inclusive and sustainable enterprises. However, there are obstacles to building a more responsive entrepreneurial ecosystem. In the impact investing industry, many large and institutional investors feel that they have an insufficient pipeline of investment-ready enterprises, especially those large enough to absorb the amount of capital they want to invest in them, that can provide desired returns.

Many forums, including the Clinton Global Initiative, are encouraging impact investors to invest in businesses at an earlier stage of enterprise where they need patient capital to get to a proof-of-concept where other investors would also find them attractive. Doing this in partnership between philanthropists willing to give grant capital to prove the concept (the type of capital most able to take on the most risk), and investors like Deutsche Bank Americas’ 2012 Essential Capital Consortium signals a commitment to action. In doing so, they provide catalytic venture debt to social enterprises in health, education, housing, finance and energy, incentivizing other investors to participate. This is key to achieving the ideal pipeline needed to scale successful impact enterprises that are building a new and better capitalism for us all. For example, one of Deutsche Bank’s investments (through one of its funds that closed in 2012) d.light Design, which innovates solar lighting products for the base of the pyramid, has also received past grant funding from other CGI members, such as the Omidyar Network and Acumen Fund – allowing them to get to the stage where they could scale further.

©iqoncept/Crystal Graphics

Another CGI Commitment by the National Association for Latino Capital Assets Builders (NALCAB) is unleashing enterprise creation in American Latino populations; a historically untapped market that has accounted for 56% of the population growth of the United States in the last decade. As part of its CGI Commitment, NALCAB has loaned more than $50 million to over 2,000 small businesses, harnessing capital from private and corporate foundations, private investors, and the public sector.

In the US and globally, we see our members increasingly investing in cluster development approaches using incubators and accelerators as aggregation points to better provide capital and technical assistance to entrepreneurs at seed-stage, helped by ecosystem enablers such as the Aspen Network of Development Entrepreneurs, Endeavor, and others. We also increasingly see corporates using their value chain finance power in impact investing approaches to source from more socially or environmentally responsible enterprises, as one pillar


of a shared value approach that many CGI members are embracing. CGI’s theme for 2014 is “Reimagining Impact” – and one of our goals is to work with the public and private sectors to also reimagine ROI through mutually beneficial partnerships – financially, socially, and environmentally, for all involved.

The Clinton Global Initiative is a membership-based organization that advances public-private partnerships both globally and in the US, through its CGI America platform. CGI America will be held in Denver June 13-14; please visit www.cgiamerica.org

for more information. CGI’s Annual Meeting is held every September in New York City; please visit www.clintonglobalinitiative.org for more information.

Bob Harrison is the Chief Executive Officer at the Clinton Global Initiative.

Bulbul Gupta is the Head of Market-Based Approaches at the Clinton Global Initiative.


http://www.cgiamerica.org/

http://www.clintonglobalinitiative.org/

Sustainable Standout

PIP’n Good

By Wendy Gordon, Co-Founder and Chief Executive Officer, 3P Partners

PIPS Earn page courtesy of Wendy Gordon

I’ve been on a mission for close to half my life — to figure out how best to steer individuals toward more socially mindful daily life choices. Because really, from the coffee you brew in the morning to the way you get to work, your everyday decisions have an impact — on the environment, on people and on you. Two years back, when David Sand and I first started musing about PIPs, our just-launched ‘positive impact points’ virtual currency program, we thought: Wouldn’t it be nice to be recognized and rewarded for making better choices — for choosing the most energy-efficient laptop, considering where and how your clothes were made, or investing in a community-scale solar project? David, a classmate at Princeton, is a socially responsible investor. I have been part of the conscious consumer movement, going back to the late ‘80s when I co-founded Mothers & Others for a Livable Planet with Meryl Streep – a nonprofit that encouraged consumers to buy safe and sustainable products. Mothers & Others’ Green Guide, acquired in 2007 by National Geographic, was the go-to resource for the busy mom looking for the smartest, healthiest, most socially responsible choices for her family and home. We all know the power of rewards; who doesn’t love their frequent flyer miles? Companies love them too, as customer spending is 46% higher with companies offering rewards programs. Hundreds of millions of Americans participate in rewards programs, and spending on rewards exceeds $50 billion annually. 1 But could we leverage the incredible market power of rewards to incentivize ‘positive impact’ behaviors? The timing seemed right. There is a very clear ‘spend shift’ happening, with America's 80 million Millennials leading the way. Eighty-four percent of Millennials (representing $1T in buying power) consider corporate social responsibility when deciding what to buy and where to shop. Overall,

1 McKinsey & Co. Loyalty: Is it really working for you. March 2012.


http://mckinseyonmarketingandsales.com/loyalty-is-it-really-working-for-you

Wendy Gordon is the Co-Founder and Chief Executive Officer of 3P Partners, a benefit corporation based in New York.

fifty-four percent of Americans bought “positive impact” products in 2012. 2

Also we had considered the very important fact that “soon enough”, with smartphone technology, the most quotidian of behaviors – walking, driving responsibly, etc. - could be digitally measured and meaningfully rewarded. And with social media, all of this data could be easily shared.

We also enjoyed a degree of “second-mover” advantage, and have learned from previous efforts. One, to focus first and foremost on the user experience (UX), and two, to avoid the “eco” niche. To that end we would design the PIPs platform for multiple action opportunities that delivered a variety of positive impacts, including but not limited to the environment — such as personal health and fitness, community, and social good.

Feeling somewhat encouraged by the trends, we talked to everyone we knew, and everyone they knew about rewards. But we also talked to folks about other stuff, like games. PIPs might one day grow in popularity to become the ‘go to click’ for all positive impact actions, we reasoned, but to really transform our daily behavior, it had to be “super social” and fun.

To build the PIPs engagement platform, we brought on a founding CTO, Yaniv Eyny, who came armed with an irresistible resume: a behavioral expert with a background in neuroscience and some experience running a dopamine research lab. Yaniv knows the real power of a little reward — that shot of dopamine — to cut through the noise of our busy lives and focus us on better choices.

We launched the beta platform — pipsrewards.com — in early April 2014. Yaniv and his partner, Evan Sable, have embedded it with great game features. You can earn badges, unlock mystery rewards, and get more PIPs for referring friends and answering quiz questions. Soon we’ll be introducing contests, so that PIPsters can not only cash in their PIPs (a PIP is worth one cent) for great positive impact products, donate their PIPs to great causes, or “micro-invest” their PIPs in community solar projects, but be rewarded for their actions with chances to win great prizes too — tickets to events and unique experiences.

And as with all our ‘earn’ options, PIPs will feature only redemption options from partnering brands that are making positive improvements in their operations and products. To provide ‘360 degrees of good,’ has been our vision from the start.

2 SOURCE of these stats: 2013 CONE COMMUNICATIONS SOCIAL IMPACT STUDY: THE NEXT CAUSE EVOLUTION


http://www.conecomm.com/stuff/contentmgr/files/0/e3d2eec1e15e858867a5c2b1a22c4cfb/files/2013_cone_comm_social_impact_study.pdf

Our First Pivot By the beginning of 2014, we had built a great platform, with a fun UX, but the perennial question was hard upon us: “will they come?”

Our user growth strategy is multi-pronged, but its foundation has always been based on building a powerful partner network of like-minded companies, big and small, that have the financial and CSR motivation to incentivize select positive impact behaviors among their customers or employees.

This remains the case, but to attract those early partners, we needed to show them that we could indeed create a catalog of really unique, high quality positive impact earn-and-redeem options.

We did so by setting up affiliate merchant programs with partners, which fortunately for us included the likes of Zipcar, Gazelle, Solar City, VineMarket, Quirky, iTunes and others offering products and services delivering the sort of positive impact we sought.

Our “Earn” catalog now contains a couple dozen or so really great options for earning PIPs. We share the payout we receive with users taking the PIPs worthy action. They receive PIPs, which they can closely track on their tally page – how did they earn them, how did they spend them, what badges they have earned, etc. We will also eventually provide users a tally of their impact.

The “Use” or redemption catalog is also growing. It too contains great products and services but also a neat tool that allows members to pledge your future earned PIPs to a charity or maybe a community scale solar project. You don’t need to have earned any PIPs to make a pledge.

With the affiliate marketplace set up and growing, we are working in earnest to bring on preferred partners that award PIPs directly to their customers taking actions they wish to encourage. The sweet spot we’re finding is among companies that don’t have a dedicated rewards program and appreciate the value proposition of PIPs’ efficient, lower-cost social good rewards solution.

Examples of companies in our preferred partner pipeline include KOR Water, MadeClose, Zady, SparkBox Toys, Dash, Global Goods Partners, ioby, Music Givz and Faherty.

But we are also finding PIPs can appeal to other companies, including those with a highly developed rewards program. A bank for instance may someday award PIPs to customers converting to paperless billing. And small shops that use payment gateways like Shopify, Intuit, etc.,


can easily integrate with our platform to award PIPs to shoppers who opt for e-receipts rather than a paper version. Imagine our reach when thousands of shop owners are awarding PIPs for customers choosing e-receipts. We also provide premium partners with customized content for white label programs, cause marketing, special events, contests, games, etc. For example, we’re developing a PIPs-powered cause marketing campaign with KOR Water. Fun, Social and Mobile A second big driver of user growth is our app, which we plan to launch later this year that will enable users to geo-locate and earn PIPs offline — in stores, restaurants, or at events. This should lower the friction and up the fun of engaging with PIPs. Finally, we’re working to brand PIPs as the “Go-to Guide” for consumers to which wanting to better themselves and the world, but faced with data overload and often confusing or conflicting messages, aren’t sure how to make their choices count. PIPs, as Yaniv likes to say, can “clean up the mess in our heads” - or cut through all the noise - by curating our daily life choices and reward us for our positive impact actions. To this end, PIPs is rolling out a content and social media marketing strategy that involves creating and curating daily content — blogs, storytelling, interviews and “humble bragging” about partners, pioneers, change-makers, brands, causes, etc. We will also implement sharing initiatives and user-generated content, host regular competitions and contests with prizes to incentivize social, and roll out targeted digital advertising efforts to key communities. If the timing is right, PIPs is poised to be the ‘Points with Purpose’ program that takes off. The platform is lithe, flexible and easily adapted to enhance both partner and user experiences. The founding team is awesome — seriously good listeners, eager learners and creative implementers, both strategic and tactical. Hopefully, we will know opportunities when they are before us, and pivot when it’s best. About one thing we can be certain: As a benefit corporation, we are bound and determined to “do good while doing well.” That’s PIP’n good, right? No, it’s PIP’n awesome.


Sustainable Standout

“I Bought the Farm!" By Jennifer Grossman, Founder & President, FarmCo New York

Pole Barns courtesy of Jennifer Grossman

After 20 years of having what many would consider one of the best jobs in the environmental NGO world, I took the plunge into the rough and tumble world of business. Whether it was it for the NYS Department of Environmental Conservation or the Open Space Institute, I had been buying and selling land to preserve it in perpetuity for historic preservation, habitat protection and recreational use. The work was non-adversarial, amply funded and spiritually rewarding. Plus, I got paid to hike mountains, paddle ponds and enjoyed many a homemade pie at the table of friendly landowners.

While consulting for the Natural Resources Defense Council New York Foodshed Program, whose objective is to significantly boost the production, consumption, and accessibility of sustainably grown local food, I explored various policy, legal and financing options to address these issues in a scalable and replicable way.

But it became clear when seeking to protect working lands – i.e. farms – that the traditional conservation paradigm had to shift and that thenon-profit model needed for-profit partners. It wasn’t enough to preserve the land base by purchasing and safeguarding development rights. Farms – whether small or big – are businesses that require all critical components of any product-based retail or wholesale operation – access to capital, efficient management and consistent markets.

If farms don't make money and remain viable, the fallow land might convert back to forest cover, or even worse – a large mowed lawn of a ‘gentleman farmer.’ Farms affect all aspects of rural community growth and progress: $1 spent on a farm turns over almost three times locally, keeping mechanics, veterinarians, feed stores and other service providers afloat. Failed farms can have the opposite effect, not only on local businesses but on water and land management, and their demise directly impacts the natural resource base in the surrounding region.

And the timing couldn’t have been better. For the first time, New Yorkers are now listing “more locally grown foods1” as their top priority, even above cost savings in dairy, meat and produce purchasing; 86% of shoppers say the presence of local foods is important in determining where they shop and 40% have a desire to see more local food available.

1 http://www.nationalgrocers.org/docs/research---consumer-panel-surveys/consumer-panel-survey-2011.pdf?Status=Master


http://www.nationalgrocers.org/docs/research---consumer-panel-surveys/consumer-panel-survey-2011.pdf?Status=Master

Jennifer Grossman is the Founder & President of FarmCo New York, a Catskill’s based company creating economically-viable and environmentally-conscious family farm business ventures. She has more than 20 years of strategic environmental legal experience in public and not-for-profit sectors and is a conservation consultant working with the NRDC to design a New York Regional Food Initiative.

It all made sense in theory. But the market needed a practical example, a success story to prove it was possible to build an economically sustainable food business with sustainable profits, marrying the food production upstate with the growing demand for “local” products in the New York metropolitan region – home to more than 20 million people -- and ensuring that the processing, marketing and distribution businesses could also succeed.

So when I received that all too familiar call from a desperate farmer seeking to hang on to his land, I took what I knew from my background in legal real estate conservation and jumped into the unknown – I literally bought the farm.

First, I formed FarmCo New York, as an umbrella organization to house what I’d design – economically and environmentally sustainable business ventures that could preserve productive farmland, create stable incomes for farm families and generate risk-adjusted returns to investors. Based upon a powerful social mission platform with a strategic acquisition framework, FarmCo would be uniquely positioned to offer the effective leadership needed to create profitable “farm to fork” operations. It took many long nights to develop a business plan that reflected our true potential. Colleagues offered terrific advice on this new approach to farmland protection and I was able to secure some seed capital to jumpstart our first project.

FarmCo’s primary strategy is to acquire farmland in and around the New York City Catskill Watershed, design business strategies along the entire food value chain, and employ family farmers as land managers, offering a network of processors, distributors, and point of sale contacts to support these viable agri-businesses. We would ensure transparency, efficiency and quality in an historically underperforming industry.

Less than two hours from New York City, the Catskills is home to the largest unfiltered public water supply system in the world. This natural wonder pumps 85 million gallons from six reservoirs serving more than 10 million NYC residents with pure drinking water. This is also a region of great agricultural tradition dating back to the mid-1700s, steeped in pasture-raised livestock, perennial crops and rich river-bottom soils.

So that call back in March 2012 resulted in FarmCo and its first venture -- rescuing a 400-acre, fourth-generation dairy farm that had faced imminent foreclosure. The reason? The dairy cooperative that Pete Mauer had been supplying decided to cease purchasing his milk when he could not produce enough to make the drive up the hill worth it. Mauer, an only child, had used all of his available funds to cover medical costs for his aging parents. When they died, he continued as best he


could to produce milk just as his great-grandparents did – but he couldn’t do it alone. Mauer had one advantage that other farmers did not: since he was eight years old, he had raised guinea hens as a hobby. Several of the large plumed birds were on display the day we met. And that one visit with Peter triggered the idea of what to do next. Mauer’s Mountain Farms, the premiere and only NYS heritage French Jumbo Guinea Hen farm, commenced operations in June 2013. Antibiotic- and hormone-free, our hens are fed a custom blend of grains and corn supplemented with seasonal greens. They are humanely processed with a unique air-chill method at nearby Hudson Valley Foie Gras and sent to NYC every week. Technically a wild bird, guinea fowl thrive only when not confined. All of our hens are raised in free-range conditions. The meat of the guinea fowl is white and moist, similar to chicken but higher in protein, lower in fat and intensely flavorful. Guinea hens have a significant yield of meat and fewer tendons in the leg and thigh area than other game birds, like pheasant, making them a cost-effective and substantial dish. Mauer’s adheres to the highest standards of animal welfare and natural resource management to produce economically viable, nutritionally rich and environmentally appropriate food. FarmCo’s alternative farm production plan provided access to a consistent source of income, preserves the integrity of the farm, and has created one full time and two part-time jobs, with the likelihood of another full-time position to come. In less than a year, Mauer’s Mountain Farms is the leading provider of sustainably-raised heritage French Jumbo Guinea Hen serving the greater NYC metropolitan wholesale market of three- and four-star restaurants. Recently, distribution expanded via a large meat purveyor, extending our reach across the tri-state area – and now to Bermuda. While our focus remains on growing operations three-fold by year’s end, we’re also looking ahead. We’ve identified niche markets based on current and potential use of Catskill agricultural resources and infrastructure for two new business plans: a farmstead yogurt effort using local milk from a kosher organic famer and a grains intiaitive to provide expanding farm breweries and distilleries in NY with local ingredients as required by law. Combining strategic branding and marketing with distribution to wholesale and retail consumers, Farmco can provide a strong stream of consistent revenue. We believe this is an innovative approach to preserving a rural Catskill heritage and designing new and expanded sources of income for local farmers. With our partners on the ground and in New York City, we can accomplish a sustainable intensification of food production that protects the planet, provides for people and offers a profit.


Sustainable Product Review

Warby Parker

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

At the heart of any successful entrepreneur is the ability to identify and meet a market need. In some cases, meeting this need is premised on the introduction of an original, innovative product while in others it is about improving the process by which it is produced and delivered. The latter appears to be the case in the eyewear industry where startup Warby Parker, a certified B Corp, is aiming to provide consumers with “high quality eyewear at a fraction of the price.” Although it’s still early days, the company’s business model seeks to bridge the gap between a social need for affordable quality eyewear and an industry that has succeeded in keeping prices artificially high.

Before discussing Warby Parker in more detail, it’s important to understand the dynamics of the global eyewear industry. When shopping for a pair of glasses, consumers are met with what seems to be an infinite array of options. Upon further investigation, however, it’s apparent that the market is largely an oligopoly. Italian-based Luxottica is the largest, with an estimated 500 million people wearing its products. The magnitude of this number is evident when one considers JP Morgan’s estimate that there are 1.7 billion vision correction wearers globally.

Furthermore, Luxottica is vertically integrated across the supply chain, ranging from manufacturing to wholesale and retail distribution to vision insurance. Luxottica’s portfolio consists of several owned brands, such as Ray-Ban and Oakley, as well as licensed luxury brands, such as Bvlgari, Prada, Dolce & Gabbana, and Chanel. It owns retail stores including Lenscrafters, Pearle Vision and Sunglass Hut. Indeed, Luxottica also owns EyeMed Vision Care, one of the largest managed vision care operators in the US. Effectively, a customer could buy a pair of glasses manufactured by Luxottica in a retail store owned by Luxottica with insurance provided by Luxottica. It is this dynamic of

1 www.businessinsider.com/this-startup-wants-to-destory-a-20-billion-company-that-rips-off-its-customers-2012-12?op=1

Fillmore frame by Warby Parker. Mollyyoung/Wikipedia.org

being vertically integrated in a concentrated market that is key in allowing Luxottica and a few other large players to be price setters.

But it is this same dynamic that led to the conception of Warby Parker. Frustrated by the high prices of eyewear, the founders built a company that offers a reasonably priced, high quality alternative. Instead of partnering with licensing companies and selling through retail optical shops, Warby Parker designs its own frames and sells directly to consumers. Whereas polycarbonate prescription lenses and anti-reflective lens coating often come at a premium in traditional eyewear shops, Warby Parker incorporates these features at no additional cost. At the end of the day, the average frame plus lenses costs $300 at Lenscrafters (~20x more than it costs to make them), while Warby Parker charges $95 for a comparable product.1 This price point includes free shipping and a 30-day, no-questions-asked return policy.

In addition to providing the consumer with an attractively priced product, Warby Parker is aiming to make a positive impact with its “Buy a Pair, Give a Pair” program. According to the company, “approximately one billion people don’t have access to affordable glasses…which means that 15% of the world’s population is unable to effectively learn or


work because they can’t see clearly.”2 The company provides funding and/or glasses to non-profit partners for each pair sold, and those non-profit partners provide glasses and training to low-income entrepreneurs in developing countries to start their own businesses selling glasses. Thus far, Warby Parker has donated 500k pairs of glasses to people in need, up from 250k the year prior. Given the one for one nature of the program, we can conclude that Warby Parker roughly doubled its sales in 2013. While we’d be naïve to suggest that a relatively small startup is an immediate threat to Luxottica and the other industry heavyweights, it’s useful to examine what elements of the business model may be disruptive in the long-run. To be sure, Luxottica’s aforementioned vertically integrated business model and extensive portfolio of owned and licensed brands is a formidable barrier to entry. It is in part what has prevented other competitors, such as Costco and Wal-mart, from disrupting the status quo. Where these players excel in affordability, they lack in brand value and quality (or, at least perceived quality.) On the other hand, Warby Parker offers a product on par with luxury brands and, perhaps more importantly, is building brand equity. The company’s founders say of all the metrics they track, they monitor the company’s Net Promoter Score most closely. This statistic, created by Bain & Company and Satmetrix, is a measurement of customer satisfaction. Warby Parker has “consistently been in the high 80s or low 90s” (on a scale of -100 to 100).3 It is this combination of an affordable, high-quality product and a brand that consumers respect that makes Warby Parker stand out. Naysayers suggest that there will always be an audience willing to pay a significant premium to sport the logo of luxury brand. We agree. But there is also a segment of the population that simply desires a quality pair of glasses at a reasonable price. In 2011,

2 www.warbyparker.com/do-good/#buy-a-pair-give-a-pair 3 www.businessinsider.com/dave-gilboa-on-warby-parkers-success-2014-2? 4 http://www.theopticalvisionsite.com/marketing-trends/the-vision-council-report-fashion-v-s-function-in-eyewear

The Vision Council, with the assistance of industry leaders, developed a questionnaire to survey whether eyewear users and buyers value the ‘fashion’ aspect of eyewear or the ‘medical-function’ of eyewear. The survey concluded that: 1) functional factors consistently outrank fashion factors (including brand/designer name); 2) about 6-10% of eyewear buyers explicitly mentioned the brand/designer name as one of the main decision factors in their most recent eyewear purchase; 3) of the surveyed respondents that purchased prescription glasses in the six months leading up to the survey, approximately 76% were more concerned with the ability of the eyeglasses to provide the best vision possible, while 24% were more concerned with the look/style/fashion of the glasses purchased.4 For Luxottica, this is the customer segment that is most susceptible to competition and potentially poses a risk with respect to lost sales and/or pricing pressure. Another factor worth considering is the fact that online sales of eyewear is still in its infancy. Until recently, consumers were essentially forced to shop at brick-and-mortar stores to try on glasses. This is evident in the fact that less than 1% of Luxottica’s sales are online. However, with the recent improvements in virtual try-on technology, online sales are posting impressive growth rates. Should this trend continue, Luxottica’s position in the retail sales channel may be not be as robust as it’s currently regarded. It’s clear that Luxottica has accomplished an impressive feat in dominating the eyewear vertical, and the company’s shareholders have been rewarded handsomely. We recognize that Luxottica isn’t standing still – the company is building out an online presence with virtual try-on technology and could put more effort in developing brands that compete at the Warby Parker price point. But herein lies the potentially disruptive nature of the Warby Parker’s of the eyewear industry. Should these newcomers force incumbents to cede market share or lower prices, what does this mean for pricing, volumes and


http://www.theopticalvisionsite.com/marketing-trends/the-vision-council-report-fashion-v-s-function-in-eyewear

margins? On consensus estimates, Luxottica is trading at 27x next twelve months P/E, a 30% premium to its peer group average and about 1.5 standard deviations above its historical premium versus the peer group. Given the premium valuation, investors would be keen to contemplate the potential long-term ramifications of an evolving market place. Like a good pair of glasses, investing is often about putting the right points into focus.

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


Virtual Attendance Ceres Conference 2014

By Tanya Khotin, Head of Institutional Business Development, Cornerstone Capital Inc. It has been 25 years since Ceres, the Sustainability Leadership Advocacy organization, was formed by a small group of investors to further the adoption of sustainable business practices that could protect the planet while ensuring long-term prosperity for its people. What better way to celebrate a quarter century of progress than to attend the Ceres Annual Conference, held April 30th in Boston. Attendees included a great blend of Asset Owners, Asset Managers and Corporates furthering the debate on establishing better business practices and standards. Among the key issues addressed during the two-day event: climate change, corporate responsibility and Ceres’ own benchmark report, “Gaining Ground: A Roadmap for Sustainability,” outlining the still spotty progress by corporations in adopting sustainable frameworks to meet pressing societal needs. Beginning with the Asset Owners, one of the main recurring topics was Governance. Companies are increasingly being asked about the framework, composition and expectations of their Board and Committees. Factors such as diversity and the environment continue to be areas of interest, as well as relevant expertise of the Board and committee members, particularly on topics such as industry regulation and executive compensation. The independence of the Board is paramount as is the ability to engage shareholders on material issues related to sustainability. Asset Management constituents focused on research and information access. Portfolio managers and chief investment officers continue to struggle with the various reporting tools and formats now deployed across industries and are pushing for more unified progress on standards, investment-grade tools and analytics. Meanwhile, analysts in attendance pressed for more material and forward-looking analysis, in addition to the historic or static data that has become more readily available. Also of

note was the demand from across the asset management caucus for more independent sustainability focused “institutional level” research. Interestingly, this group clearly felt that having a handle on sustainability is a competitive advantage. From a Corporate perspective, it was very clear that sustainability is a real economic imperative that’s increasingly seen as building competitive advantage. The idea of viewing sustainability as a culture and a language – as opposed to a department – is now a common theme among leading brands. Companies such as Nike, Gap, Ford, Suncor, EMC, Intel and others, outlined very specific strategies to address key issues that affect resources, markets and consumer demand. They discussed plans to better manage their industrial footprints and understand how demand for their core products will change based on scenarios around climate change. Despite regional and industry differences, a common theme was reducing the use of non-renewable materials, water and energy. Several discussed the important subject of supply chain management, including working with suppliers and production facilities to achieve greater energy efficiencies. Impressively, some of these companies have programs to educate their workforce to ensure productivity and retention. As a leading advocate for change, Ceres is to be commended for creating another world class event, where dialogue is pivotal and progress can lead to meaningful commitments in a world economy shaped by sustainability risks and opportunities.

Tanya Khotin is Head of Institutional Business Development at Cornerstone Capital Inc. Previously she focused on sustainable investing opportunities at Hugo Neu Corp. and served as Head of the Russian Equities business in Moscow and Head of the Emerging Markets Institutional Sales Desk in New York at UBS.


http://www.ceres.org/resources/reports/gaining-ground-corporate-progress-on-the-ceres-roadmap-for-sustainability/view

Upcoming Events

Global ESG Calendar

Date/Time Event Location Information

5.29.14 – 5.30.14 TBLI ConferenceTM New York 2014 Cornerstone Speaking Event

Credit Suisse New York, NY

http://www.tbliconference.com/

6.2.14 – 6.5.14 Sustainable Brands Conference 2014 Paradise Point Resort San Diego, CA U.S.A.

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

6.11.14 – 6.12.14

Agrion Disrupt 100+ Metropolitan Pavilion New York, NY U.S.A.

http://www.agrion.org/new-york2014/

6.12.14 – 6.13.14

Impact Forum Asia Holiday Inn Singapore Orchard City Centre Singapore, Singapore

http://www.impactforum.asia/

6.19.14 Private Equity International Responsible Investment Forum 2014 Cornerstone Speaking Event

Marriott Grosvenor Square London, U.K.

https://www.privateequityinternational.com/ConferenceAgenda/?ConfId=12885365533#

6.23.14 – 6.24.14 5th Annual Responsible Extractives Summit

Regent’s Park Marriott Hotel London, United Kingdom

http://events.ethicalcorp.com/extractives/

6.26.14 PRI in New York Bloomberg LP New York, NY U.S.A.

http://www.unpri.org/events/research-on-responsible-investing-strategies/

7.30.14 Impact Investing Conference Colorado Convention Center Denver, CO U.S.A.

http://www.fa-mag.com/impactinvesting

8.10.14 – 8.13.14 11th Annual AREDAY Summit Hotel Jerome Aspen, CO U.S.A.

http://areday.net/index.html

8.13.14 – 8.14.14 FMI & GMA Global Sustainability Summit Seaport Hotel & World Trade Center Boston, MA U.S.A.

http://www.fmi.org/forms/meeting/Microsite/2014TPASustainabilitySum

9.2.14 – 9.5.14 SOCAP 14 Conference San Francisco, CA U.S.A. http://socialcapitalmarkets.net/

9.22.14 – 9.24.14 CGI Annual Meeting New York, NY U.S.A. http://www.clintonfoundation.org/clinton-global-initiative/meetings/annual-meetings/2014/

9.22.14 – 9.26.14 European PV Solar Energy Conference RAI Convention Centre Amsterdam, Netherlands

http://www.photovoltaic-conference.com/conference.html

10.15.14 – 10.17.14 Women’s Forum Global Meeting 2014 “Leading for a more equitable world” Cornerstone Speaking Event

La Villa Le Cercle Deauville, France

http://www.womens-forum.com/meetings/global-meeting-2014/15

10.20.14 – 10.21.14 2014 CEO Connection Mid-Market Convention Cornerstone Speaking Event

Wharton School of Business Philadelphia, PA U.S.A.

http://www.midmarketconvention.com/

11.9.14 – 11.11.14 SRI: The Conference on Sustainable, Responsible, Impact Investing – The Future of Investing

The Broadmoor Colorado Springs, CO U.S.A.

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http://www.agrion.org/new-york2014/

http://www.impactforum.asia/

https://www.privateequityinternational.com/ConferenceAgenda/?ConfId=12885365533



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Recent Articles from Cornerstone Capital Group

Cornerstone Journal of Sustainable Finance & Banking – April 2014 Cornerstone Journal of Sustainable Finance & Banking – March 2014 Cornerstone Journal of Sustainable Finance & Banking – February 2014 Cornerstone Journal of Sustainable Finance & Banking – January 2014 Cornerstone Journal of Sustainable Finance & Banking – December 2013 Cornerstone Journal of Sustainable Finance & Banking – November 2013 Cornerstone Journal of Sustainable Finance & Banking – October 2013 Inaugural Edition 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 by 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/


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http://www.forbes.com/sites/85broads/2012/09/26/could-sustainability-be-unsustainable/?utmsource=allactivity&utm_medium=rss&utm_campaign=20120926

http://www.forbes.com/sites/85broads/2012/09/26/could-sustainability-be-unsustainable/?utmsource=allactivity&utm_medium=rss&utm_campaign=20120926

http://www.wallstreetweek.com/leaving-rio-and-going-towards-corporate-sustainability/

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http://www.wallstreetweek.com/guest-post-investing-in-diversity-painful-but-profitable/

http://www.wallstreetweek.com/noise-cancelling-investment-research-esg-analysis-and-sustainable-investing/

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

http://www.forbes.com/sites/85broads/2012/02/01/superheroes-of-capitalism-part-ii-the-women/

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The Cornerstone Capital Inc. Team

Erika Karp

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Joel Beck

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Michael Geraghty

Global Markets Strategist

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Janet Pegg

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Policy & Sustainability Research

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Michael Shavel, CFA

Research & Business Analyst

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Helen Nickells

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Latin America Business Development

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Director, Business Development

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Matthew Daly

Research Product Manager

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Assistant to the CEO

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Cornerstone Capital Inc. doing business as Cornerstone Capital Group is a Delaware corporation with headquarters in New York, NY. The Cornerstone Journal of Sustainable Finance and Banking (JSFB) is a service mark of Cornerstone Capital Inc. All other marks referenced are the property of their respective owners. The JSFB is licensed for use by named individual Authorized Users, and may not be reproduced, distributed, forwarded, posted, published, transmitted, uploaded or otherwise made available to others for commercial purposes, including to individuals within an Institutional Subscriber without written authorization from Cornerstone.

The views expressed herein are the views of the individual authors and may not reflect the views of Cornerstone Capital Group or any institution with which an author is affiliated. This publication is for informational purposes only and nothing in this publication is intended or should be taken as investment advice. This is not an offer or solicitation for the purchase or sale of any security, investment, or other product and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as recommendations to purchase or sell such securities. Information contained herein has been obtained from sources believed to be reliable, but accuracy and completeness are not guaranteed. Cornerstone Capital Group cannot accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication.



















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