mainstreaming sustainable...

© Brooklyn Bridge Poznan, 21 November 2006

MAINSTREAMING SUSTAINABLE INVESTMENTS

European Forum on Eco-InnovationPoznan 21 Nov. 2006


AGENDA

Introductions

Overview of Sustainable Investment

Goals-Short Term - Long Term

Low hanging fruit opportunities


Goals

Increase Investment in Eco-Innovation and Sustainability

Poznan, 21 November 2006© Brooklyn Bridge

OVERVIEW:PAST & PRESENT

SITUATIONS


People + Planet + ProfitSocial Equity Environmental Quality Economic Prosperity

SRI adds social and/or environmental value to external stakeholders, while increasing value to shareholders.

“Profit Plus” investing - profit is considered along three (or more) dimensions, instead of only one.

SRI questions if, to maintain profitability, your products or services:Worsen Social and Environmental BalanceMaintain Social and Environmental BalanceImprove Social and Environmental Balance

WHAT IS SRI/EXTRA-FINANCIAL INVESTMENT?


WHAT IS EXTRA-FINANCIAL INVESTMENT?

Here are some thoughts as to what is perceived as EFI:Sustainability and related reportingBusiness risk assessment + reputation risk assessmentProcurement policy and practiceEnvironmental and social impact of productsEnvironmental and social managementEnvironmental and social performanceCompliance with social economic environmental regulationsHuman resources management-DiversityWorker’s/contractor's rightsSocioeconomic impacts in developing countriesCommunity involvementSocial-ethical or moral issuesCorporate governance/board membershipPolitical involvementIntellectual property


NEW ECONOMIC MODELChina reaches US consumption 2031 (8% growth)

Oil 99 m barrels/day=79 m barrels/day world production

Grain 382 m tons→1.352 m tons= 2/3 world harvest

Meat 64 m tons→181 m tons=4/5 world production

Coal 2.8 b tons=2.5 b tons world production

Steel 258 m tons→511 m tons>Industrialized West

Paper 27 kgs/person→210 kgs/person= 303m tons (double world production)

Cars .77 cars person = 1.1 billion> 795 million cars on road

Add India, and 3 billion in emerging markets and the West....

©Plan B 2.0 by Lester Brown


Asset Movements

SRI funds are the fastest growing segment of mutual fund marketNearly all financial institutions have SRI products, departments, and or research units: ABN 23 staff, Credit Suisse, JP Morgan, MeesPierson, Lombard Odier, Citigroup, ING, Fortis, AGF, Adveq, Rabobank, and many moreSRI has reached 3,000 Billion worldwide Large number of sustainable private equity funds started by GEF, FE Clean Energy,Kadoories, Breninkmeijer, and various Private BanksFRR launches 20% mandate SRIDexia becomes SRI market leader

New LegislationJuly 3, 2000 UK Pension fund SRI regulation. All pension funds had to say what their policy was on SRI.UK ABI guidelines requiring UK public companies to state environmental and social riskGovernance is king: SEC regulation 33-813 1 requires US registered funds to report their shareholder voting, and Tabaksblatt CodeFreshfields Report-Fiduciary Responsibility

WHAT IS HAPPENING?


Carbon MarketKyoto agreement is moving forward without USA. (London exchange, EU Trading Exchange, Chicago exchange). $ 15 billion-1.000 billionLargest global re-insurers: Swiss RE, Munich RE - refusing to insure some activities due to climate change liabilities.California law putting co2 liability on car manufacturers

Screening MethodsGlobal Reporting InitiativeEngagement replacing Best of Class, Negative Screens

Sustainable Agreements for CorporationsEquator Principles signed by leading banks.Carbon Disclosure Project II (CDP2) sends new letter to FTSE 500 asking for environmental performance or footprint by companies, signed by leading asset management firms (managing $ 28.000 billion).Liability for non-disclosure for sustainability matters

WHAT IS HAPPENING?


SRI - PUBLIC EQUITIESCore SRI in Europe has reached €105 billion and Broad SRI has reached €1.033 trillion as of December 31st, 2005. This represents a substantial growth in SRI over the past 2 years, even after removing the overall growth of the European equity markets.

There are five major strategies: negative screening, positive screening, engagement, integration, and pioneer screening.

A number of studies suggest that SRI outperforms (Goldman Sachs) or has equal performance (CEO Briefing, Enhanced Analytics) to traditional investment methods in the long term.

Currently, there are over 700 Funds offering a variety of socially responsible public equity investments to investors globally.


SRI Growth


MICROFINANCEProvides financial services to the “bottom of the pyramid” (BOP)

Often low risk, with respectable returns of 7% - 12%, in a majority of cases.

Many lenders focus on family enterprises, rather than individualenterprises, to reduce risk.

Most MF lenders have adapted their strategy to local cultural and economic conditions.

Over 180 funds are currently available in this asset classes.

A majority of MF funds balance geo-political risks across a number of different countries.

Market expected to grow $ 11 billion- $ 20 billion 2008, with global requirements by micro entrepreneurs at $ 200 billion


Microfinance Growth

©CGAP 2006


RENEWABLE ENERGYCleanTech accounts for 11% of private equity venture investment in the U.S. and 8.6% in Europe.Energy technologies account for 91% of CleanTech private equity investmentsRenewable energy investment is worth more than $243 million in the Europe and $843 million in the U.S. alone. Fastest growing sub-segment of private equity investment.Renewable energy encompasses a wide variety of technologies:

distributed energy-microturbines, fuel cells, hydrogen generationdevelopment & exploitation of sustainable energy sourcesenergy efficiency, waste to energy, and waste reductionbattery technology and energy storageenvironmental technology-wate and waste water, clean coal gasification, emmissionsIT-net metering, demand response (energy efficiency), remote sensoringparticulate and greenhouse gas emissions reductions

Deal flow and good exit strategies continue to be concerns, however many new funds have developed strategies to cope with this successfully.The emerging Cleantech Venture Capital Investment Market is forecasted to exceed $17 Billion worldwide by 2010, with 500,000 potential jobs created and $85 Billion in related economic growth.Apax-Brenninkmeijer StoryBusiness Week - 8/14/06 - "Wall Street's New Love Affair: Why some of the world's smartest investors are betting billions on clean energy"


2006: Year of Renewables

Energy Policy Act of 2005: Ethanol and Bio FuelsTechnology Shifts underway with new technologies every 18-24 monthsConsensus Business GroupGlobal Demand for turbines, silicon and geothermal partsOver 600 US Green Power Programs UnderwayGermany ready to enter the US markets with wind, solar, and energy servicesChina committing $184 billion or renewable investment by 2015Tied to reduction of global carbon footprintVenture Capital and hedge funds entering the space now due to sustained higher energy pricesHigher prices + climate change + capital = renewables

© Copyright 2006 Energy & Environment Capital Management, LLC All rights reserved. Confidential and Proprietary


Triple ConvergenceGreenhouse Gas Greenhouse Gas

Emission Emission ReductionReduction

Renewable EnergyRenewable Energy Negawatts/ Energy Negawatts/ Energy EfficiencyEfficiency

©Global Change Associaties


LS-CD-b136501

18801860

1500

0

1000

1500

1900 1920 1940 1960 1980 2000 2020 2040 2060

Surprise

Geothermal

Solar

New Biomass

Wind

NuclearHydro

Gas

Oil & NGL

CoalTraditional

Biomass

Royal Dutch Shell ’s1996 Sustained Growth Scenario

(1860 – 2060)

Exa

joul

es

Source: Royal Dutch Shell, 1995.

World Energy Outlook

TODAY


GLOBAL RENEWABLE MARKET

Energy Growth($)©CLEAN EDGE, 2006


Cleantech Data


In the United States, buildings account for:

• 36 percent of total energy use and 65 percent of electricity consumption

• 30 percent of greenhouse gas emissions

• 30 percent of raw materials use

• 30 percent of waste output (136 million tons annually)

• 12 percent of potable water cons mption

SRPI-Social Responsible Property Investments


SUSTAINABLE REAL ESTATE& ECO-DESIGN

Environmental considerations are opportunities to create fundamentally better buildings -less wasteful of land and resources, healthier and more comfortable to occupy, cheaper to run, more productive to work in, and ultimately more profitable to build and operate

Buildings consume nearly a third of energy resources of developed nations—much of it wasted by inefficient design.

A 2001 survey for the Cahners Residential Group found that:

8 of 10 homebuyers interviewed say that new homes do not meet their expectations for environmental sustainability

96 percent said they would pay more for a home with "Green features."

More than half would pay $5,000 to $10,000 extra for a Green home.

In a 2001 Housing Zone/Professional Builder survey, consumer belief that new homes do not meet buyers' sustainability needs increased from 60 percent to 80 percent in one year, and the belief that energy efficiency is very important rose from 50 percent to 91 percent during the same period.

Sources: Rocky Mountain Institute, 2001 Housing Zone/Professional Builder Survey


SUSTAINABLE REAL ESTATE& ECO-DESIGN

Green mortgage repayments grew by 2000% from 2002 to 2004 in the UK alone. This growth is expected to accelerate in developed countries during the next five years as more mortgage products become available and more lenders enter this market.

Brownfield redevelopment is growing, with many second and third tier properties being cleaned up an developed due to a greater variety of financing programs.

The market value of the land itself, once cleaned up, may be slightly above or slightly below the combined cost of land and cleanup.

Desirable sites sit idle because they face too many hurdles for conventional market forces to overcome. Innovative financing ischanging this circumstance.

The ‘brownfield’ premium can translate into an extra 10 to 20 percent return on investment, or an additional 2 or 3 interest points on a loan rate.


Carbon Market10% of global GDP is energy,= $4.6 trillion. Global consumption 200 million barrels of oil a day equivalent$60 a barrel that is $4.32 trillion (360 days). Demand will grow to 350 million barrels/day by 2030, 90% in Asia. 10% of all energy (conservative case) comes from BOTH alternative (shale, oil sands, coal to liquids, gas to liquids biofuels and renewable energy (wind, solar, etc) then the value of the combined alternative and renewable energy market is $432-460 billion annually.Little capex spent on abatement in CO2 If U.S. federal legislation post-2010 caps CO2, then the value of the global carbon abatement market will increase dramatically (US GDP is $12 trillion, 8% energy of which 10% could be carbon constrained = very rough estimate of $100 billion. Size of the carbon trading market is approx. €4 billion, in 5 years €7-10 billion,with USA coming on board? €12 billion

These figures represent trading volumes of Carbon Dioxide offsets times the weighted average price (Energy Contango Carbon data provider for Bloomberg)


DIRECT PROJECT FINANCEProject finance, also called non-recourse or limited-recourse finance, is a form of financing for companies and governments where lenders are repaid only through the revenues generated by the project itself.

The Equator Principles, developed by the IFC and key stakeholders, ensure that social and environmental impacts are taken into account in financing large development projects through project finance methods.

There are currently 42 banks and lending organizations that havesigned on to the Equator Principles, covering 80% of the projectfinance market.


SUSTAINABLE INVESTMENT Instruments & Asset Classes


SUSTAINABLE INVESTMENT ASSET CLASSES

Public EquityCurrently, there are over 700 Funds offering a variety of socially responsible public equity investments to investors globallyThere are a wide variety of investment strategies and screening methods are available to investorsGoing in two directions: niche markets & mainstreaming

Faith-Based Funds3iG and other organizations providing guidance to religious groups on their investment practices, more assets will be placed in areas that respect religious beliefs.Some of these practices have not been without controversy.

CleanTech Private EquityPrivate Equity is a rapidly growing asset class for sustainability.12% of all venture capital funding in the United States is now invested in clean technologies.Private equity is more suitable for socially responsible investing in many ways.


SUSTAINABLE INVESTMENT ASSET CLASSES

MicroFinance & SME FinanceProvides financial services to the “bottom of the pyramid” (BOP)Often low risk, with respectable returns in many cases.

Screened BondsScreened bonds have reduced risk by screening out poor practices related to corruption, environmental degradation, and social and human rights abuses.Bonds that cover sustainable development activities are also on the rise (Sustainable Capital, etc.)

Real EstateRedevelopment of “brownfield” propertiesResidential developments implementing environmentally low impact and socially progressinve land use principlesEco-design: new environmentally friendly architecture uses less raw material, conserves energy, prevent waste, and promotes socially responsible land use planningMost faith-based and family assets are held in property and real estate


Other Alternative Sustainable Investments

Direct Project FinancingPhilanthropic Portfolios

Providing investment and charitable giving into a single portfolio.Provides the opportunity to evaluate social and environmental returns of all financial activity.

Carbon Credit TradingMarkets in London and Chicago already up and running.European Trading scheme to move forward without Kyoto Protocol

Eco-Tourism‘Green’ Mortgages‘Green’ Credit Cards


Clean Energy project finance

Sustainable Capital-Green Investment Bank Fannie Mae GM

Cleantech Private Equity- Fund of funds

SBIC type support

Investment OPPORTUNITIES


Long Term

Long Term Action Plan - Acceptance, Awareness, and Action

Incorporate Key SRI Methods in Investment Analysis and Decision-Making

Code of Conduct “Gold Class”


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