Archive for January/2007

Max Oliva, Associate Director, Social Impact Management

Davos is over, some thoughts remain and most importantly, a call to action. I briefly go into some of the problems in the Davos’ agenda shared by Tony Blair:
• World Trade
• Climate Change
• Africa
Businesses must engage in these conversations not only for a moral cause but for a strategic interest, which goes way beyond corporate responsibility.
“Once we work out what is at stake, we need a multilaterism which translates the will into action, since it requires sustaining the global purpose, requiring global instruments of effective multilateral action.”
Several thoughts on interdependency and intervention capabilities within existing institutions and perhaps new ones were addressed. As an example, a UN without Germany, Japan, Brazil and India as permanent members will not only loose legitimacy but it will also inhibit action; the need of giving greater power to the UN Secretary General; merging the IMF and the World Bank; the G8 metamorphosis to the G8+5, to name a few.
But most interestingly, the Concept of Nation-Building (that is, the capacity for effective self government within a country) as it still being in its infancy was brought to the table. It is when seeing issues like corruption play such a pivotal role in the Africa conversation for example, that nation-building is core in order to bring change about.
Proper infrastructure of governments; functioning commercial and legal systems; health and education ministries; economic authorities; and police and military which perform the tasks they should under proper rules of governance, which are a given in many developed countries, are still a must in other countries. These are the life blood of true progress for nations struggling to be nations.
These, acording to Blair, are the new skills the international community must develop. To some like The Guardian or the Herald Tribune, it seemed as though he was looking for a job. But what’s wrong with politicians like Blair, Clinton or Gore focusing on the global agenda?

J.Pozuelo-Monfort, MSc candidate in economic development at LSE.

The recent regulation approved by the CNMV in Spain that triggered the expected marketing of hedge funds and funds of hedge funds, has also fostered some innovation and enabled the offering of alternative products.
A particular hedge fund that is as unusual as it gets is currently marketed by BBVA. It is a hedge fund that invests its proceeds in microcredits in Latin America. BBVA in cooperation with Codespa and a third-party conform the structure of the instrument.
The third-party is an auditing company that monitors the four institutions in Latin America that grant the microcredits to relatively poor individuals. The third-party, through its due-diligence process and reports, is able to signal which organisations do what and how. This enables BBVA to have the know-how to lend the proceeds to organisations that will, again, grant the microcredits in the field.
This is a relatively small hedge fund with a principal of EUR 20 MM. It is an instrument with a clear social impact that may also diversify the portfolio of a high net worth individual, with a clear social return. The upside is however not obvious… to what extent will this hedge fund offer attractive returns able to beat the market is questionable. The return is linked to the interest rates charged by the four institutions that grant the microcredits.
I am curious to know how this instrument is being marketed. If anyone reading this post has the time to ask at a BBVA branch, I would be happy to hear what they say in regards to this product, and how they compare it with other standard hedge funds that invest in the well-known strategies.
Products like this one will indeed have a clear impact on the developing world if they become popular.
Links to articles in spanish on the hedge fund:
Cinco Dias: El primer ‘hedge fund’ español es de BBVA y es solidario
El Pais:. BBVA lanza junto a Codespa el primer fondo de inversión libre.
El Mundo: Los Hedgefunds hablan español.
Yahoo Finanzas: El BBVA lanza los primeros fondos solidarios para Latinoamérica.

Dr. Javier Carrillo Hermosilla, Executive Director of the Centre for Eco-Intelligent Management
The Centre for Eco-Intelligent Management at the Instituto de Empresa, in collaboration with the PwC & IE Centre for Corporate Responsibility, has recently published a report entitled The competitive environment of the European electricity sector in the post-Kyoto scenarios. This study shows how the uncertainty associated to the absence of a post-Kyoto regime regarding Greenhouse Gas mitigation is affecting investments in mitigation activities in the EU electricity sector and, thus, future emissions levels. Based on a wide survey of EU power companies, the paper identifies the most likely post-Kyoto scenarios considered by these firms and how they are coping with such uncertainty in their current investment decisions. The major conclusion is that the non-existence of a post-Kyoto regime is having a negative effect on current business investment decisions in mitigation activities, increasing risk premiums and financing costs. All in all, the companies surveyed foresee post-Kyoto compliance regimes with emissions trading systems that would guarantee the continuity of the value of the reductions made beforehand, although they differ in their perceptions of the form that a post-Kyoto regime could take.
The authors are grateful to PricewaterhouseCoopers Spain for providing financial support for the project on which this paper is based.
Download a preliminary report here

J.Pozuelo-Monfort, MSc candidate in economic development at LSE.

A unique academic and urban environment surrounds me in the cafeteria of the London School of Economics while typing these few words and drinking a hot capuccino. On my left two Chinese girls talk to each other in mandarin and an apparently Brit reads the university paper ‘Beaver’. A truly cosmopolitan and international environment of a truly global institution that talks about globalization and its discontents, as Stiglitz names one of his last books.
A school that is leader in the social sciences, a school led by top-notch researchers that develop leading academic literature that is input to the economic and political policies developed by the political class of this unequal world. Apparently an institution that teaches some of the future leaders of this society, that will bring about new thinking, new ideas, innovation in the realms of politics and public administration.
Never further from reality. The corporate world leads recruiting at this and other top institutions. The McKinseys and Goldmans of the world where most of the pool of talented future graduates want to work. The current constructors of the system absorb young, high-potential graduates that could, on the long run, make a difference. They absorb the talent because there is no alternative structure that can competitively fight for the same pool of talent. The World Bank, the IMF, the United Nations, and some other International Organisations do hire, one may argue, but not as significantly and at a rather advanced-degree level (mostly doctorates).
Come to a world-class institution, ask your fellow students. If you are better off and have access to a competitive degree, chances are that you will decide to turn your talent to that prestigious consulting firm or that well-known investment bank. Ask your fellow students why they do not consider working for a developing economy, ask your fellow students why they do not consider working for the public administrations in their home countries. The answer is not surprising. Politics are rather disliked on this side of the Atlantic. Politicians have earned a deserved bad reputation. It is not so much a matter of corruption, literally absent in the first world, but a tendency to maintain the same style, set in place the persistent policies, and a stick to a clear lack of innovation.
The world needs talented individuals to move forward, to demand changes. There are currently no alternative structures able to hire from the pool of talent out of some of the best graduate schools. Corporations have the power to attract the talent, and it seems that nothing can do about it.

Want an insiders view of Davos? Visit Loic Lemeurs’ blog. Interviews to participants like Mel Young, from Homeless Football World Cup, Yann Arthus-Bertrand, photographer and environment Activist and many others…
Much better, read Loic and many others at the official forumblog.
Other blogs include:
The Davos’ conversation.
The FT in Davos Blog.
The WSJ in Davos.
How’s your french? Try Le Monde.
The BBC in Davos.

Max Oliva, Associate Director, Social Impact Management
FT just before Davos: “Few would have predicted at the start of 2006 that a slide show lecture on the science of climate change would become a cinema blockbuster.” Al Gore’s film An Inconvenient Truth, is now the third most profitable documentary of all time. FT says it was a measure of how far the issue of global warming had invaded public consciousness.
The cost of reducing emissions is according to experts of 1% of global GDP while the cost of not doing anything about it is of 5-20%. David Miliband, the UK’s environment minister, said: “The scientific argument is settled, and the Stern review has answered the economic argument against action.” He said all that was left was the collective action problem, that no country wanted to be the first to reduce emissions for fear of being put at a competitive disadvantage if other governments did not follow suit.

Yet as the FT clearly states on their article, several businesses have seen a competitive advantage in taking early action on climate change. General Electric’s Ecomagination revenues has risen from $6.2bn in 2004 to $10.1bn in 2005.
Wal-Mart has promised emissions reductions recently at The Clinton initiatve, just as Virgin. Marks & Spencer has also just announced it will become “carbon neutral” by 2012.
So how did Davos’ call to action go? Here’s a brief summary. To follow the whole conversation click here.
In regards to climate change, the “wait and see” is not a valid solution under any circumstances. Just bringing into account risk management which is part of the day to day CEOs’ responsibility.
In regards to biofuels, we have to get more serious: US corn based biofuel is not economic; sugar cane fuel in Brazil is. Let’s not confuse energy security with actually energy replacement of the sources.
We can not afford to effectively kill the growth protection of the pension funds (China, India, etc.) All Europe are aging and the world needs to facilitate the growth of these regions. The tipping point is unclear.. However, there is a social responsibility to act with preemptive measures, which means planning, building laws, that is not put all people into the highest danger.
The world biggest reserves of Coal are in the US, China, India and Russia (In this order). Unless we can develop a technology which takes the carbon dioxide from coal, we have an immense problem. We need to sequester billions of tons of carbon in order to bring change in global warming. We also need to increase our nuclear fission capabilities, having in mind that the US, China and India can’t build them fast enough. Finally, renewables have a chance at the 20% level (although at the end of the conversation this percentage found its way to the 50% level); yet it is important to increase transporting distances of electricity over several thousand miles, not hundreds like it is done now.
As a final conclusion, which by the way makes sense since Kyoto’s revision does not happen until 2008, global agreements are best to get nowhere. Let’s take concrete steps which are implementable. This is far better than trying to come to a world agreement. However, the Industry does need a signal, giving the industry time, a decade. Create incentives in order to have technologies developed. Yet, as Martin Wolf concludes, “We are still in a very messy transitional place in dealing with this challenge.“

Max Oliva, Associate Director, Social Impact Management

Don’t miss the chance that technology has brought in enabling you to follow conversations which make a difference. How about sharing the table and most importantly, the conversation on The Shifting Power Equation with E. Neville Isdell, Angela Merkel, Sunil Bharti Mittal, and Eric Schmidt…
Here are some conversations which might also interest you:
Climate Change: A Call to Action with Montek S. Ahluwalia, John McCain, Zhang Xiaoqiang, and Martin Wolf
Billions in Development Aid: What Are the Results? with William Easterly, Jakaya M. Kikwete and Maria Ramos
Sustainable Energy Consumption: Does Anyone Care? with Fatih Birol, Emanuel Höhener, C. S. Kiang and Christine Maier
A Business Manifesto for Globalization with Lord Browne of Madingley, Patrick Cescau, Ian E. L. Davis, James Dimon, Carlos Ghosn, James J. Schiro and Joseph E. Stiglitz
Scaling Innovation in Foreign Aid with William Easterly, William H. Gates III, Ellen Johnson Sirleaf, Paul D. Wolfowitz and Fareed Zakaria
A Conversation with the President of Mexico, Felipe Calderón-Hinojosa (this is of personal nature, forgive my partiality on internal affairs…)
Delivering on the Promise of Africa with Tony Blair, Bono, William H. Gates III, Ellen Johnson Sirleaf, Thabo Mbeki, Kumi Naidoo and Sadako Ogata
Frozen Trade Talks and the Need for Progress with Pascal Lamy, Doris Leuthard, Peter Mandelson, and Susan Schwab
Don’t miss the opportunity. I have as many of you a quite busy agenda. Despite of this, I would have gone to Davos if invited, perhaps next year… but for this year, missing these conversations which help build speakers and attendants’ accountability certainly has a stake at setting this years global agenda.
Join the conversations here.

J.Pozuelo-Monfort, MSc candidate in economic development at LSE.

The Financial Times of last January 16th, 2007 features an article with the following headline: “An onus on retailers to keep hands clean“. The article raises the issue of large retailer’s sense of responsibility when picking suppliers. Large retailers such as Walmart, Carrefour or Tesco have a huge purchasing power and are able to impose working conditions on their suppliers in exchange of a selling spot in their large retail centers. Players such as Walmart and Carrefour can therefore negotiate with their global suppliers a set of conditions under which the merchandise has to be manufactured and delivered. If the set of conditions is not met, the large retailers could turn a supplier down. Therefore a retailer has the option, and must exercise it, to motivate suppliers to adopt a set of ethical principles vis a vis the working conditions of their employees. Usually it has more often been the case, that a large retailer will exercise pressure on the prices, so that it can purchase bargains, ignoring the conditions under which certain products are manufactured. Inexpensive clothing coming from Asia is not necessarily manufactured in fair conditions. How do we make sure Bangladeshi women do not work 12 hours a day, 7 days a week, manufacturing clothing that the rich world can purchase at bargain prices? Either the consumer must decide not to purchase at a certain retailer that does not guarantee its suppliers fulfill a set of ethical principles, or the retailer itself must guarantee that all of its suppliers fulfill a set of ethical principles.
The effort seems to be coming from the retailers’ front. In an initiative called “Ethical Trading Initiative” a set of retailers, coupled with trade unions and NGO’s is pushing towards global standards in a supplier’s assessment. Ethical Trading Iniative exists “to promote and improve the implementation of corporate codes of practice which cover supply chain working conditions”. Their ultimate goal is “to ensure that the working conditions of workers producing for the UK market meet or exceed international labour standards”.
Autoregulation in a particular industry is not necessarily a bad thing, but does not always lead to the elimination of the problems that caused its creation. Imagine public corporations auto-auditing their financial statements on behalf of their good faith. If Auditing Companies are necessary in the financial arena, why aren’t there Auding Companies confirming whether or not a retailer, in this case, fulfills an ethical set of principles when incorporating suppliers to their global supply chain?
Two other organisations that are working in the direction of measuring the working conditions of a retailer’s supplier are the French NGO Verite and the American Fair Labor Association.
Let’s demand retailers to be accountable for their supplier’s miserable working conditions. The third world, in the end, does not deserve to be imposed 19th century working conditions in a globalized world that presumes to be reducing the gap between the rich and the poor. The third world cannot continue working day and night so that consumers in the first world have access to bargain products.

Max Oliva, Associate Director, Social Impact Management

IE Business School is hosting a Workshop on Corporate Governance to be celebrated on Friday, Februrary 16th. As part of our firm commitment to excellence in academic research, IE Business School, jointly with Universidad Carlos III de Madrid, CEMFI and IESE, brings together reputed scholars from overseas and local researchers in the field of corporate governance. This is a unique opportunity to interact with leading experts in corporate governance as well as with other colleagues working in this area.
This conversation include experts such as Milton Harris (University of Chicago, GSB), John Kose (NYU, Stern), Colïn Mayer (Oxford University, Saïd), Juan Santaló (IE Business School), Miguel Cantillo (IESE), Javier Suárez (CEMFI), María Gutiérrez (Universidad Carlos III de Madrid), among others. If you are interested in the content and conclusions of these conversations do let me know.
All relevant information about the Workshop is now available here.

Antonio López de Ávila, Director, Executive Master in Tourism Management
La Fundación Entorno acaba de publicar su informe “Entorno 2006“. Es la cuarta entrega bienal de un trabajo de investigación que pretende dar a conocer la situación actual y las últimas tendencias en la gestión de la sostenibilidad de la empresa en España.
Entorno 2006 analiza, entre otras muchas cosas, los beneficios obtenidos por las empresas españolas debido a la adopción de políticas de sostenibilidad. Separan, acertadamente, los beneficios intangibles de los tangibles, incluyendo en estos últimos:
* Mayor eficiencia en el uso de materiales y energía
* Disminución de gastos de gestión de residuos, emisiones y/o vertidos
* Incremento de producción
* Incremento de ventas
* Incremento de productividad
* Acceso a subvenciones y ayudas
* Atracción de inversores y/o acceso a cartera/fondos de inversión
* Incentivos fiscales
* Disminución de prima de seguro
* Condiciones preferentes de crédito
* Mejora de la satisfacción del cliente

Este estudio tiene un apartado sectorial particularmente interesante. Según explican, al analizar los datos por sectores de actividad se ve que, en prácticamente todos los casos, el porcentaje de empresas que declara haber obtenido algún beneficio de carácter intangible es mayor que el de empresas que han obtenido uno tangible.

Read more…