Analysis: Investment sponges for a growth-saturated world

Wed, Oct 31 03:45 AM EDT By Mike Dolan LONDON (Reuters) - When paltry (ittle/small)growth, systemic risk and resource scarcity are darkening the global horizon, investors must hunt shrewdly to find stocks resilient enough to ride out the storm. Far from being cathartic,((Inducing catharsis; purgative. n. An agent for purging the bowels, especially a laxative. )) the past five years of credit crisis and the subsequent slow, painful debt paydown has merely nudged the world economy deeper into the dangers posed by dramatic population growth, aging in rich economies and shortages of natural resources and capital. Whether you call it the "new normal" or an economic "perma-frost"((thin layer of frozen soil )), the resulting consensus is for many more years of sub-par global growth and a vulnerability to shocks that the public at large and the institutions managing their savings are going to have to navigate deftly.((Quick and skillful; adroit. See synonyms at dexterous )) For some, such as bond fund PIMCO's boss Bill Gross, this heralds the death of the "cult of equity" as most firms struggle to boost revenues and profits in such a dour environment. With bond returns at historical lows and converging rapidly to near zero rates on cash, there's little solace there too for savers even attempting to beat inflation over time. High-dividend blue chips or high-yield corporate bonds have been chased relentlessly over the past couple of years as a hybrid. Yet some strategists and stock pickers now insist that work needs to intensify on finding innovative "new growth" firms with environmentally sustainable and efficient long-term strategies as well as high scores on governance and regulatory sensitivity. The rise in recent years of investment models based on "socially responsible investment", SRI, or companies with high ratings on "environmental, social and governance" metrics, ESG, has met with mixed reviews. But strategists at UK asset manager Schroders warn of dangers in ignoring the scale of population and environmental overload twinned with the demand suppressant of deleveraging and cash hoarding. Fears over the impact of population growth, which took just 12 years to go from 6 to 7 billion people and is expected to rise another 30 percent by 2050, are not new. But together with rising income aspirations across emerging markets, the impact on food, energy and other natural resources remains daunting. Amid a long litany ((•A liturgical prayer consisting of a series of petitions recited by a leader alternating with fixed responses by the congregation. • A repetitive or incantatory recital: "the litany of layoffs in recent months by corporate giants" (Sylvia Nasar). )) of shockers in the report, Schroders cited data estimating that if everyone in the world reached a U.S. level of consumption, we would need three times the ecological capacity of the world. What's more, statistics compiled for the United Nations by Trucost put the monetary value of environmental damage caused by the top 3000 listed companies at $2.25 trillion, or 3.5 percent of global GDP and a third of their profits. HYBRIDS, SHAMPOO AND GRAPHENE Schroders makes three key points for equity investors. First is that governments will eventually need to regulate to find a sustainable balance and markets will lean that way too. Second, financial systems will then reward companies with efficient processes and resource usage. And third, companies that innovate to solve these problems will be winners. Among examples, it cites Toyota's leadership in hybrid and electric cars and Unilever's development of water efficiency with dry shampoos and single-rinse laundry products. On technologies, it pointed to research into graphene - the one-atom thick carbon sheet, 100 time stronger than steel, which can be used to strengthen copper without reducing conductivity and is also being investigated for use in water desalinization and DNA sequencing. "Any investor with a long-term horizon should be minimizing portfolio risk by ensuring they invest in resilient companies with highly efficient resource usage and the flexibility to adapt quickly to changing conditions," the report said. So, how prevalent is this sort of investing already and has it been successful to date? In highlighting future key trends now affecting investment management, HSBC recently included SRI/ESG in its top 10. The cache of companies in these indices varies from firms simply sensitive to public policy issues or passing governance tests - a hot topic among investors in China right now - to those actively addressing environmental or ethical concerns. But there's little doubt demand is rising. HSBC data shows SRI assets under management in Europe jumped to over $8 trillion in 2010 from next to nothing in 2005 and is about $3 trillion in the United States. Crucially, pension funds and others are increasingly demanding investment along SRI/ESG principles, in part because greater transparency on fund holdings is becoming an issue for savers and trustees. Data from pension fund consultancy Mercer, cited by HSBC, show that such pension fund ratings right now are "dismal", with under 10 percent in the top half of a 1-4 scale. The bigger question for return-hungry investors is whether these assets actually perform despite their supposed ethical, environmental or political correctness. To date, the lukewarm reviews reflect the fact that both the MSCI World ESG index and the Dow Jones Sustainability World Index have underperformed global benchmarks by anywhere from two to six percent over the past two years. But if the mounting economic problems are still way into the future, maybe the potential returns are out there too. "ESG is a concept that will expand further," HSBC concluded. "This is certainly an area that fund managers will need to spend more time on." (Editing by Ruth Pitchford) ============== If only we knew Ethical economy: Admit economic ignorance 31 October 2012 | By Edward Hadas Print Email Share Comment Save . It is time for economists to admit that they are stumped. Four years after being blindsided by Lehman Brothers’ collapse, the profession is still stumbling in the dark. Policymakers and pundits still make confident pronouncements, but the conclusions are radically different. The expert disagreements give away the truth: ignorance reigns. Here are six crucial questions which professionals should stop pretending they can answer: 1) What creates retail inflation? If, as some economists think, ample supplies of money push up prices, then the current inflation rates of around 2 percent are inexplicably low. After all, monetary and fiscal policies have never been as generous. If, as other professionals believe, prices fall when there is excess supply of goods and labour, then inflation rates are inexplicably high. Production is still well below trend levels and unemployment rates have rarely been as high. 2) How do financial asset prices affect the real economy? Before the credit bubble burst, most economists believed high prices in financial markets were a sign and a cause of a strong economy. Now bull markets seem more dangerous. But then again, low or falling asset prices seem to discourage economic activity, and they are presumably more dangerous when leverage levels are high. 3) Do big fiscal deficits damage the economy? Austerity fans are persuaded that deficits are harmful, stimulus fans are equally certain they are not. The evidence, from Japan, Europe and the United States, is inconclusive. The largest government budget shortfalls ever in peacetime have neither clearly held back nor obviously increased either GDP growth or employment. The situation might have been much worse with smaller deficits, or the current high deficits may actually be storing up terrible trouble of some sort for later. No one really knows. 4) What does quantitative easing actually do? Central banks’ balance sheets certainly expand when they use newly created funds to buy government debt. Other than that, nothing much is clear. The weight of the additional money may depress bond yields or the fear of inflation might eventually increase them. QE may encourage banks to increase lending, or it may not. Governments may feel less restraint on fiscal policy, or they may not. 5) How much leverage is too much? Some amount of debt is desirable in an economy; the borrowing and corresponding savings reflect a beneficial shift of resources from those with too much to those in need. Some amount of debt is too much; when relatively small defaults can start a chain reaction of institutional failures. There does not seem to be any way to know when the boundary line between helpful and dangerous levels has been crossed. 6) How to deleverage without damaging the economy? The debt danger line was certainly crossed sometime before the 2008 financial crisis and the subsequent euro crisis. Now policymakers are trying to reduce debt levels without harming the real economy. As yet, they have managed to do little more than shift debt from private to government balance sheets. That might prove more harmful than helpful, if the euro zone’s sovereign crises prove the first of many. This list of economic mysteries is far from complete. The experts cannot determine whether or when capital controls are useful, how changes in foreign exchange rates effect production, what can reduce persistent high unemployment rates, or where confidence comes from. They are at a loss to explain the financial implications of the shift in the global economic balance to favour developing countries. Economists who can answer any of these questions deserve Nobel prizes. There is a generation’s worth to be won. Unfortunately, while the prizes can wait, policy has to be made now, in confusion and ignorance. The world has been here before, during the 1930s Great Depression. Then John Maynard Keynes provided helpful insights about the appropriate role of the government in the economy and the way that the supply of money and credit interacts with economic activity. He came late, though. If his insights had been believed after World War One, the second one might have been avoided. Global war is not on the horizon, but the cost of ignorance about basic economic questions is still substantial: four years of disappointing growth and unacceptably high unemployment in most developed economies, without even a clear improvement in financial conditions. There are signs that the worst may be over, but the steady GDP growth that was taken for granted before the crisis remains a distant dream. While waiting for definitive answers, economists should strive for humility. They have much to be humble about. Besides, the admission of ignorance can open the mind. Socrates, the father of Western philosophy, said that while he knew no more than his Sophist rivals, he was a “tiny bit wiser” because at least he knew that he did not know. ==================== 4 Days’ Training Workshop on Measuring the Impact of Intervention- A Detailed Insight into “Social Return on Investment” - Thailand Introduction: There is increasing recognition that we need better ways to account for the social, economic and environmental value that result from our activities or interventions. The language varies – ‘impact’, ‘returns’, ‘benefit’, ‘value’ – but the questions around what sort of difference and how much of a difference we are making are the same. Understanding and managing this broader value is becoming increasingly important for the public and private sectors alike. Training Contents: What is Social Return on Investment (SROI)? Establishing scope and identifying stakeholders Mapping outcomes Evidencing outcomes and giving them a value Establishing impact Calculating the SROI Reporting, using and embedding Objectives of the Training: After attending this training, participants will be able to: Understand the concept of Social Return on Investment Setup an Impact Map to be used to understand and calculate the SROI. Valuating (quantifying) their outcomes and compare them with their objectives and social investment Understand what are the emerging issues to be addressed to ensure better SROI in their respective organizations? What are the initiatives they can take to attain better SROI ================