Burgess COMMENTARY

Peter Burgess

Gmail Peter Burgess How Will SRI, ESG, TBL, Impact etc Be Remembered? Stuart Williams via LinkedIn Mon, Mar 17, 2014 at 12:08 PM To: Peter Burgess LinkedIn Stuart Williams

Dear Peter,

I am a huge fan of integrated reporting and would offer the below.

Dear Celina,

Passionate people have been fighting for over 25 years to have variations of ESG, SRI, TBL and Impact Investing embedded in the total return stream strategies of large investment funds. However, it is my belief that each of these ethical, conforming and frankly prudent investment theses must die a graceful death if the intent behind them is to flourish.

It is far from a stretch to believe that long-term investment value will be implicitly generated by financial assets, real assets and or portfolio companies that embrace the future imperative business and investment thesis of People, Planet, Profit. Even today, consumers and investors are increasingly voting with their wallets and conscious resulting in the need for business and investment leaders to embrace the use of globally accepted environmental and humanitarian initiatives and screens if they wish to create value. However, if we wish to have the thesis that ESG, SRI, TBL and Impact etc., are built upon be adopted by the “main stream”, we need to take a “main stream” approach to achieving it.

As an example, getting an existing rating agency (and it is not impossible) to start overlaying environmental and humanitarian screens on the historical financial only methods of determining a rating would be a huge win. They have the infrastructure, the market penetration (for example Fitch avoided he debacle of the derivative and ABS meltdown), and the capital to do this. As I believe this is going to have to occur in certain countries such the UK and South Africa that are ready to adopt a mandate for integrated reporting, it might be prudent to start preparing for it today.

Needless to say credit ratings are for the public markets, however, there are now entities pursuing the adoption of standard language and transparency in all PPM's. Additionally, many GP's look to the public markets for their realizations, and as such, in the future the portfolio companies they wish to take public will need to abide by whatever the new standards are for long term value investing. Yes, there will always be those who benefit from syndications by buying on the initial offering and selling almost immediately, but after that, the leaders of newly minted public companies will have to focus on delivering long term value to their stock holders. To wit, Nico Sand at Zanbato, Stuart Valentine at Centerpoint Investing and Hazel Henderson at Ethical Markets have already developed a technology platform through which Private (direct) investments can be sourced using appropriate screens. I know of others such as Mission Markets and many others mentioned in this discussion.

My entire thesis on this important subject is that by segmenting SRI, ESG, Impact, etc., we are inadvertently (or maybe for many it is deliberate) creating an 'asset class' which is hard to adopt into a total return strategy for a $50, $100, $150 Billion or higher plan sponsor. The reality is that by using the screening methodology that SRI, ESG, Impact, etc. have brought to light, large allocators will be investing under the thesis each stands for but using it across all sectors and asset classes as a prudent way of identifying long term value.

Long term value investing has always been about finding the financial instruments, real assets or portfolio companies that a manger believes will produce the best returns over the long haul. Additionally, the fact that the role of the consumer is changing in that they are beginning to globally dictate the kinds of companies/assets/products they will invest in and or spend their money on, corporate leaders and therefore investment leaders will have to react accordingly.

In summary, I believe that if we are to truly expedite the rate at which the imperatives that ESG, SRI, TBL, Impact Investing, etc., stand for are adopted by the main stream, we have to go a 'main stream' route to get there. As an aside, this will also open up something I see as a current choke point which is the lack of supply of products (based upon the trillions of dollars managed by the large allocators) that are currently deemed appropriate to be labeled SRI, ESG, TBL, Impact etc.

SRI, ESG, TBL, Impact, etc. are not asset classes, they are incredibly prudent ways of identifying long term value investments where investors are likely to find the most sustainable market returns in the future, and every investment sector, asset class, and allocator can benefit from that.

Kind regards, Stuart