Monthly Archives: November 2013

Joseph & Pharaoh: A Lesson for a Time of Climate Change

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by Peter Kinder

I’ve been reading Global Crisis:  War, Climate Change & Catastrophe in the Seventeenth Century (Yale Univ. Press, 2013) by Ohio State history professor Geoffrey Parker.

Parker has convinced me that the environmental, social and governance standards investors apply to securities issuers – governments and companies alike – require an overhaul.  What we know about the direct and indirect effects of climate change demands it.

Parker’s descriptions of mass starvations in the 17th century brought to mind the story of Joseph that makes up the last quarter of the Bible’s first book, Genesis.  Three and a half millennia ago, he foresaw a famine that would ‘consume the land’ and saved the greatest nation of his time, his family and himself.

Today’s rulers, with the nightmares of climate change all about them, should heed Joseph’s example.

***

Beginning as Shakespeare and Cervantes aged and died (in 1616), the people of the northern hemisphere, buffeted by the effects of the Little Ice Age, suffered a rampage by the Four Horsemen of the Apocalypse:  Conquest, War, Famine and Death.

And I looked, and behold a pale horse: and his name that sat on him was Death, and Hell followed with him. And power was given unto them over the fourth part of the earth, to kill with sword, and with hunger, and with death, and with the beasts of the earth.

So wrote in the late first century St. John the Divine in his Revelation[1], the Bible’s last book, as translated in 1611.

Death and the other three horsemen, Prof. Parker shows over and over again, trampled the people of the 17th century.  The historical record, as I wrote last week, is clear on how climate change affects our habitat and how humans tend to respond to it.

***

Biblical chronicles aren’t ‘history’ as we now define the discipline.  That doesn’t mean they lack fact or truth.  The story of Joseph holds both.

At seventeen[2], Joseph was the little brother from Hell, beloved of his aged father, Jacob, and cocksure – based on dreams he recounted to all who’d listen – of his future importance.

His ten older brothers had enough of him.  They sold him for 20 pieces of silver to passing merchants who took Joseph from Canaan, where he’d tended his father’s flocks, to Egypt.  There, they sold him to Potiphar, the captain of Pharaoh’s guard.[3]

Resisting temptations offered by Potiphar’s wife won him imprisonment.[4]   While locked up, he interpreted accurately the dreams of two fellow prisoners.  One, Pharaoh’s chief butler, promised not to forget Joseph when he was restored to his place.  But, he did.[5]

Two years later, Joseph, now 30[6], was running the prison for his jailer.[7]  One night, Pharaoh had a dream which ‘all the magicians of Egypt, and all the wise men thereof’ could not interpret.[8]  Then the chief butler remembered Joseph.[9]

***

And Pharaoh said unto Joseph, I have dreamed a dream…:  and I have heard say of thee, that thou canst understand a dream to interpret it.

And Joseph answered Pharaoh, saying, It is not in me:  God shall give Pharaoh an answer of peace.[10]

The last four words tip the story.  Joseph was a most cunning man.

Now, Pharaoh’s nightmare:

…In my dream, behold, I stood upon the bank of the river:

And behold, there came up out of the river seven kine [cows], fat-fleshed and well-favored; and they fed in a meadow:

And, behold, seven other kine came up after them, poor and very

ill-favored and lean-fleshed, such as I never saw in all the land of

Egypt for badness:

And the lean and the ill-favored kine did eat up the first seven fat kine:

And when they had eaten them up, it could not be known that they had eaten them; but they were still ill-favored, as at the beginning.  So I awoke.

And I saw in my dream, and, behold, seven ears [of wheat] came up in one stalk, full and good:

And, behold, seven ears, withered, thin, and blasted with the east wind, sprung up after them:

And the thin ears devoured the seven good ears….[11]

The wheat ears are ‘blasted with the east wind’ off the Arabian desert, not watered by the westerlies from the Atlantic – the reason North Africa was Rome’s granary.  Modern humans would say the westerlies would move north allowing the east wind to dominate weather.

Joseph’s interpretation is succinct.

…God hath showed Pharaoh what he is about to do.

The seven good kine are seven years; and the seven good ears are seven years….

And the seven thin and ill-favored kine that came up after them are seven years; and the seven empty ears blasted with the east wind shall be seven years of famine….

Behold, there come seven years of great plenty throughout all the land of Egypt:

and there shall arise after them seven years of famine; and all the plenty shall be forgotten in the land of Egypt; and the famine shall consume the land;

and the plenty shall not be known in the land by reason of that famine following; for it shall be very grievous.[12]

***

Like a smart modern consultant, Joseph had a solution to Pharaoh’s problem.

Now therefore let Pharaoh look out a man discreet and wise, and set him over the land of Egypt.

Let Pharaoh do this, and let him appoint officers over the land, and take up the fifth part of the land of Egypt in the seven plenteous years.

And let them gather all the food of those good years that come, and lay up corn under the hand of Pharaoh, and let them keep food in the cities.

And that food shall be for store to the land against the seven years of famine, which shall be in the land of Egypt; that the land perish not through the famine.[13]

‘Land’ here means ‘kingdom’, not ‘countryside’.  Prof. Parker’s examples of 17th century catastrophes remind that the first two horsemen are Conquest and War.  England’s 17th century civil wars and revolution reverberated in North America for 250 years, as I wrote here.

Pharaoh needed no lecture on the implications of famine for his regime.

***

So how did Joseph’s plan work out?  Brilliantly, since Pharaoh was smart enough to appoint Joseph to run it.

 

And the seven years of plenteousness, that was in the land of Egypt, were ended.

And the seven years of dearth began to come…: and the dearth was in all lands; but in all the land of Egypt there was bread.

And when all the land of Egypt was famished, the people cried to Pharaoh for bread: and Pharaoh said unto all the Egyptians, Go unto Joseph; what he saith to you, do.

And the famine was over all the face of the earth: and Joseph opened all the storehouses, and sold unto the Egyptians; and the famine waxed sore in the land of Egypt.

And all countries came into Egypt to Joseph for to buy corn; because that the famine was so sore in all lands.[14]

***

Food security in times of stress can make the difference between political stability and regime change of an unpleasant sort.  It is fashionable to lampoon the Romans and their heirs, the Byzantines, for relying on bread and circuses.  But they knew what Joseph and Pharaoh knew.

The most important sentence in their story is, ‘God shall give Pharaoh an answer of peace’[15] which Joseph promises before he hears the dream.  Geoffrey Paker’s Global Crisis contains 704 pages of examples of what happens when rulers discern no ‘answer of peace’.

The story of Joseph and Pharaoh suggests the kinds of thought and action we social investors must look for in companies and governments.  What we now know about climate change and its effects demands a rewrite of the standards we use to gage their performance.

Among corporations and governments, one Joseph won’t be enough.  We need a host.

 

Notes

1.  Revelation 6: 8.  All Bible quotations are from the Authorized (King James) Version of the Holy Bible (published 1611).

2.   Genesis 37: 2.

3.  Genesis 37.

4.  Genesis 39.

5.  Genesis 40.

6.  Genesis 41: 46.

7. Genesis 39: 20-23.

8.  Genesis 41: 8.

9.  Genesis 41: 14.

10.  Genesis 41: 15-16.

11.  Genesis 41: 17-24.

12.  Genesis 41: 25-27, 29-31.

13.  Genesis 41: 33-36.

14.  Genesis 41: 53-57.

15.  Genesis 41: 16.

* Peter D. Kinder was the co-founder and president for 21 years of KLD Research & Analytics, Inc.  He now consults on socially responsible investing and blogs at www.thebell.us.

The New Normalcy: Lawrence Summers & Paul Krugman’s Pall on Parade

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by Peter Kinder

No administration was more tumultuous than Woodrow Wilson’s second (1917-21):  World War I entered and won; the fight over the League of Nations; Prohibition’s start; the influenza pandemic; the Red Scare and dragnet; women got the right to vote; a severe post-war recession….

Little wonder that in the spring of 1920 the words of dark-horse candidate, US Sen. Warren G. Harding (R-Ohio) resonated:

America’s present need is not heroics, but healing; not nostrums, but normalcy; not revolution, but restoration; not agitation, but adjustment; not surgery, but serenity; not the dramatic, but the dispassionate; not experiment, but equipoise….[1]

‘Normalcy’, a word before unknown in English, made Harding president in 1921.

The concept retains nostalgic potency as its impossibility becomes ever clearer.

***

The word of today isn’t likely to get anyone elected.  But its effects will.  Paul Krugman’s Nov. 18 New York Times column begins:

Spend any time around monetary officials and one word you’ll hear a lot is “normalization.”

It is risky proposing a definition for a Nobel Prize winner, but I’d suggest he means a return to the economic cycles of 1946-2008 which central bankers more or less managed by tightening or loosening the money supply in response to the ‘irrational exuberance’ or lack thereof in the business cycle.

Krugman continues:

Most … accept that now is no time to be tightfisted, that for the time being credit must be easy and interest rates low.  Still, the men in dark suits look forward eagerly to the day when they can go back to their usual job, snatching away the punch bowl whenever the party gets going.

But what if the world we’ve been living in for the past five years is the new normal? What if depression-like conditions are on track to persist, not for another year or two, but for decades?

For Prof. Krugman, this is not a new question, and his answer, ‘yes’, has been consistent.  What’s new is his supporter.

***

Lawrence Summers has Krugman’s qualifications (apart from recognition by the Nobel Committee) plus real administrative experience.  See HBR editor Justin Fox’s Nov. 15 interview with Summers on the fascinating decision making that resulted in the 2009 auto industry bailout.

Summers made a much-quoted speech on Nov. 8 to the International Monetary Fund.  Its major takeaway: ‘secular stagnation’ has replaced the economic cycles of the post WW II era.

Krugman defines ‘secular stagnation [as] a persistent state in which a depressed economy is the norm, with episodes of full employment few and far between’.  ‘Secular’ has an ordinary English definition of century-over-century.  Amongst economists, it refers to something that is genuinely long-term – not the five to ten years of the financial services industry.

And if Mr. Summers is right, everything respectable people have been saying about economic policy is wrong, and will keep being wrong for a long time.

***

In a blogpost, Prof. Krugman asserts correctly he’d made Summers’ arguments before Summers but acknowledges ‘…Larry did a better job.’  Krugman’s Nov. 16 blogpost on the Summers speech is considerably more detailed – and well-worth reading – but no different in its conclusion.

We all know the financial crisis we perceive to have caused the present malaise ended four years ago.  But according to Krugman, Summers discerns a darker past than most recall.

Before the crisis we had a huge housing and debt bubble.  Yet even with this huge bubble boosting spending, the overall economy was only so-so — the job market was O.K. but not great, and the boom was never powerful enough to produce significant inflationary pressure.

Mr. Summers went on to draw a remarkable moral:  We have, he suggested, an economy whose normal condition is one of inadequate demand — of at least mild depression — and which only gets anywhere close to full employment when it is being buoyed by bubbles.

And that trend, Krugman continues, dates to the mid-1980s.  Hence the national delusion Summers implies about the good years under Presidents Clinton and Bush II.

***

The lessons Summers draws are shocking, as Krugman relates:

Why does all of this matter?  One answer is that central bankers need to stop talking about “exit strategies.”  Easy money should, and probably will, be with us for a very long time.  This, in turn, means we can forget all those scare stories about government debt, which run along the lines of “It may not be a problem now, but just wait until interest rates rise.”

More broadly, if our economy has a persistent tendency toward depression, we’re going to be living under the looking-glass rules of depression economics — in which virtue is vice and prudence is folly, in which attempts to save more (including attempts to reduce budget deficits) make everyone worse off — for a long time.

The past’s economic verities are the future’s falsities – and the present’s.  No country saved its way out of the Great Depression.  President Franklin Roosevelt tried to implement his promise to cut deficits in 1937 and threw the improving economy into reverse.

As Prof. Krugman said on his blog:

…saving may be a personal virtue, but it’s a social vice. And in an economy facing secular stagnation, this isn’t just a temporary state of affairs, it’s the norm. Assuring people that they can get a positive rate of return on safe assets means promising them something the market doesn’t want to deliver….

From City Councils to Congress, we need representatives who understand the new normalcy.  And, you must contact your financial adviser – or find one who understands the futility in expecting normalisation.

***

Update Nov. 19, 2013:  Robert Kuttner says ‘Krugman Boots One’, and he corrects by expanding on the Krugman-Summers ‘Secular Stagnation’ view.

Kuttner is spot on when he writes:

The point is that what looks like “secular stagnation” is often nothing but depressed purchasing power combined with the hangover from a financial collapse. And it could indeed continue indefinitely, just as Krugman’s column warns—unless and until the government gets off the austerity kick. I was on a panel with Krugman when he made exactly that point.

                                                          Notes

1.  Russell Baker, “Back To Normalcy,” New York Review of Books, February 12, 2004, p. 14.  The opening phrase has been corrected in accordance with Frederick Lewis Allen, Only Yesterday [1931] as reproduced in Only Yesterday & Since Yesterday (New York:  Bonanza Books, 1986), pp. 41-42.  This is a photo reproduction of the original volume.  The unpaginated text is available at Project Gutenberg Australia.

* Peter D. Kinder was the co-founder and president for 21 years of KLD Research & Analytics, Inc.  He now consults on socially responsible investing and blogs at www.thebell.us.

World Bank – G4 Reporting Pioneer!

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559719_615384138487346_109625660_a[1]by Hank Boerner – Chairman, G&A Institute

Stay Tuned to the World Bank – it’s a Pioneer in G4 Sustainability Reporting!

The World Bank, composed of the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA), is a vital source of financial and technical assistance to developing countries around the world.
Since its inception in 1944, the World Bank has expanded from a single institution to a closely associated group of five development institutions.

Their mission evolved from the International Bank for Reconstruction and Development (IBRD) as facilitator of post-war reconstruction and development to the present-day mandate of worldwide poverty alleviation in close coordination with their affiliate, the International Development Association, and other members of the World Bank Group: the International Finance Corporation (IFC), the Multilateral Guarantee Agency (MIGA), and the International Centre for the Settlement of Investment Disputes (ICSID). Today the institution has a staff of engineers, financial analysts, economists, sector experts, public policy experts, and social scientists.

The newly-endorsed goals of the Bank are to end extreme poverty and promote shared prosperity by fostering growth at the bottom 40 percent of every country. To accomplish this, the World Bank — operating in over 130 countries around the world — offers its members low interest loans, interest-free credits, and grants as well as a wealth of technical assistance and knowledge sharing.

The World Bank sets an example for its clients and partners in reporting and public accountability.

So it is fitting that one of the first institutions to embrace the new GRI G4 (fourth generation) guidelines would be the World Bank. Spearheading the effort is Monika Kumar, the Bank’s sustainability coordinator. When the report landed on our platform, we reached out to Monika to ask her about the effort – here are highlights of our conversation.

G&A Institute: Monika, congratulations on being one of the first U.S. based institutions to embrace G4 for reporting. What was the experience like, moving from G3.1?

Monika Kumar: We started with the premise that the G4 would be similar to the G3.1, simply with a few additional indicators, but were pleasantly surprised. The emphasis on materiality was something that we had to understand better, and inform our internal stakeholders about. In our preparation, we reviewed each and every one of the Aspects and Indicators to assess the relevance to the World Bank, which falls within this unique mix of a public-financial-development institution. We also had to ensure to link content material to the Bank as a development institution, such as how we address issues of food security in our client countries, with the appropriate GRI indicators.

G&A: How long has the World Bank been reporting?

MK: Our first report was published in 2005, covering our 2004 fiscal year. We began first using G3 and then shifted to G3.1 for our Content Index and over time included the Financial Services and the Public Agencies Sector Supplements. In 2008, we moved to an on-line platform, with a standalone GRI index report where we addressed every GRI indicator, explaining inapplicable indicators where needed. So, every year, we’ve learned from our experience – trying to make our reporting process more efficient and the report more reader friendly.

G&A: Talk about your Materiality process – what is involved?

MK: G4 required that we dedicate a considerable amount of time to carrying out a materiality assessment and disclose that methodology in the specific indicator responses (G4-19-21).

We had to develop a methodology that applied to our development-oriented business model, incorporated feedback from our myriad stakeholder groups (clients, civil society, investors, to name a few), and simultaneously allowed us to determine the sustainability impact of the aspect considered.

We looked at the AA 1000 five-step process, ISO 14001, and the Natural Step process, and then created our own approach to meet our specific needs – one that looks at financial and reputational risk, stakeholder concern, and sustainability impact. This is the first time that we applied the approach and since G4 is so new, we really had no good examples to follow. You will note we have a simplified version of the methodology on our website currently. We hope next year to validate the process and upload a more robust response.

G&A: What’s the worldview of the institution as you prepare your “progress report” for the user base?

MK: Lots of exciting things are happening at the Bank right now. We are undergoing a period of change, one that would help us achieve the two goals we have set: reducing extreme poverty globally to 3 percent by 2030, and boosting incomes for the bottom 40 of the population in developing countries. President Kim has made it clear that sustainability frames these two goals – a sustainable path of development and poverty reduction would be one that: (i) manages the resources of our planet for future generations, (ii) ensures social inclusion, and (iii) adopts fiscally responsible policies that limit future debt burden.

In this effort, addressing climate change is key. We are currently working with 130 countries to take action on climate change—helping cities to adopt green growth strategies and develop resilience to climate change, developing climate-smart agricultural practices, finding innovative ways to improve both energy efficiency and the performance of renewable energies, and assisting governments to reduce fossil fuel subsidies and put in place policies that will eventually lead to a stable price on carbon.

A lot is happening, but I’m really excited that we began tracking the GHG footprint for specific sectors including energy and forestry within our lending portfolio. Within the next three years we expect to be publishing this information – as currently we only report on our corporate carbon footprint – in both our annual sustainability review and the Carbon Disclosure Project (CDP). We are working towards more comprehensive reporting.

This is important, not just for us being a model of a sustainable institution, but also for our stakeholders, especially sustainable and responsible investors who invest in our “green bonds,” that benefit projects related to climate change.

We are proud to say that the World Bank helped start the development of the quickly-expanding green bond market – the program recently reached a milestone of USD 4 billion in issuance, helping create and develop a market that raises funds to support climate activities – one that will support future climate finance.

I’ll stop there and urge the reader to read more about the Bank’s efforts to achieve its ambitious goals in the Sustainability Review online (http://crinfo.worldbank.org).

G&A: Thank you Monika. We will be watching as other financial sector institutions transition to G4 guidelines over the next two years. The World Bank example will be helpful to the financial sector partners, we’re sure.

Footnote: As we prepared this blog post, news came from the Global Reporting Initiative (GRI) that as of November 4, 2013, 84 organizations had signed on to the new initiative – the G4 Pioneers Program. Organizational Stakeholders (OS), organizations that support the GRI, commit to producing a G4 report in their next (reporting) cycle. The program is interactive, and designed to be knowledge-sharing (webinars, focus groups). We will be following the Pioneers and will bring you updates on the program’s progress.

For Financial Services Sector Managers – Materiality Reporting Workshop, G3.1 and Preparing for Transition to G4

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by Hank Boerner, Chairman, G&A Institute

Materiality – for corporate managers, and sustainability report users (asset managers, analysts), materiality really does matter.  But the question is asked — what matters?  To whom? What are our peer companies reporting?  What is best practice in determining the materiality of issues?  What about our sector…industry?

To help answer some of these questions for Financial Services Sector managers, two leading consultancies have teamed to present a workshop on November 20, 2013 at Baruch College / City of New York University.  The “how and why” of determining and reporting on materiality for the sector will be explored and research presented on the 2012 GRI reporting activities of almost 200 companies in the global Financial Services Sector. G&A Institute is teaming with ISOS Group, certified GRI trainers, and host Baruch College / The Zicklin Center for Corporate Integrity, to present an all-day workshop on materiality in the Financial Services Sector.

Participants will learn (and get advice on) what companies in North America and other regions are addressing in their materiality processes, and what they are including in their GRI reports. G&A Institute is the exclusive Data Partner for the GRI in the United States and over the past year has conducted a comprehensive study of corporate reporting using the GRI guidelines, sector-by-sector.  Findings will be shared at the workshop.  ISOS Group conducts the two-day GRI workshops around the country and will discuss the transition to G4 from G3.1, and important aspects of determining materiality for the GRI reporting process.

*NEW IN THE USA: As part of this workshop, participants will receive their Certificate of completion of the “GRI Certified Training Module on Defining Report Content” directly from the Global Reporting Initiative.

The workshop is timely — companies using the Global Reporting Initiative (GRI) for their sustainability reporting are preparing for transition from the present third generation (G3.1) to the new G4 guidelines. There is increased emphasis on the materiality of content of reports in G4. So -what is considered “material?” (Depends on the company’s operations, sector, industry, peer group reporting practices- and very important, stakeholder views on what is material to them.)

Companies experienced in sustainability reporting develop robust materiality processes, which include engaging with a range of stakeholders and developing feedback on their views of materiality (as well as internal processes to identify material issues).. So – looking at 2012 corporate reporting – what are companies choosing as their most material content element? The least material? What’s in the middle? What varies sector-to-sector, industry-to-industry?

The G&A Institute team will provide answers to these questions. We are just completing a year-long study of 1500 global companies in 30+ sectors and their responses to the GRI 3.1 guidelines. We’ll be releasing results over the coming weeks. The first unveiling of the most-to-least responses will be for the global Financial Services Sector.

On November 20, the one-day workshop on Financial Services materiality disclosure and reporting trends agenda will cover many items dealing with Materiality.

Guest speakers include Hideki Suzuki of Bloomberg LP,  Marjella Alma of GRI Focal Point USA, and Herbert Blank of Thomson Reuters (new) TR CR Indexes and benchmarks..

Registration for the workshop is open — information is at: www.isosgroup.com/gri-certified-reporting/trainings/materiality