Corporate Knights Capital: Sustainability Reporting - Empowering Responsible Investing for Long-Term Prosperity

[caption id="attachment_8873" align="alignright" width="161"] Toronto[/caption]

Last September, the Rockefeller Brothers Fund announced its pledge to divest its fossil fuel holdings as part of a larger divestment movement that aims to derive the industry of up to $50bn. Later that month, the Montreal Carbon Pledge was launched where investors commit to measure and publicly disclose the carbon footprint of their investment portfolios on an annual basis. To date, investors representing assets under management of $1.2 trillion have committed to the pledge.

Add to the above the fact that there is currently about US$45 trillion of assets under management by 1,314 United Nations Principles for Responsible Investment (UNPRI) signatories – up from only $4 trillion back in 2006. UNPRI signatories commit to integrate six principles covering environmental, social, and governance issues into their investment decision making and ownership practices.

Clearly, responsible investing is growing in importance – not only because it is good for our planet’s long-term prosperity but also because there is mounting evidence that it can lead to superior investment returns. For instance, by subjecting equities from the high-carbon sectors in a given index to a performance test, related to normalised greenhouse gas emissions, and removing the ones with a below-average performance relative to sector peers, it is possible to obtain a portfolio of securities with a lower carbon footprint while achieving superior total returns compared to the original index.

The Low Carbon US

In the simulated case below, the “Low Carbon US” achieves a 56.7% reduction in normalised greenhouse gas emissions with the bonus of an extra 7.8% in total returns compared to the original index over the time period January 1, 2008 to August 31, 2014.

“The increased investor appetite for responsible investing has been made possible in part by the remarkable rise in the availability of sustainability data.”

The increased investor appetite for responsible investing has been made possible in part by the remarkable rise in the availability of sustainability data. Over the past decade, the number of corporate sustainability reports – the most common format for corporations to disclose their periodic environmental, social, and governance performance – has grown to 7,445 in 2013, from a mere 644 in 1999. A combination of heightened investor demand, activism, and mostly regulatory intervention, coupled with a move towards greater transparency initiated by leading corporations, have all combined to drive increased sustainability disclosures.

[caption id="attachment_8875" align="aligncenter" width="611"] Figure 1: Historical Performance of the Low Carbon U.S. vs. S&P 500 (January 2008 – August 2014).[/caption]

For instance, on October 17, 2014, the Singapore Stock Exchange announced its intention to adopt a comply-or-explain mechanism for sustainability reporting for all its listed companies. When implemented, this piece of regulation will add to the inventory of close to 170 policies in force around the world that are meant to encourage or mandate corporate sustainability reporting.

More, Not Better

While the number of sustainability reports has increased substantially, a closer look reveals some important findings. In its latest analysis of sustainability disclosure trends among the world’s stock exchanges, Corporate Knights Capital found that a sizable chunk the world’s large listed companies are failing to disclose their performance on the seven basic sustainability metrics – employee turnover, energy, greenhouse gas emissions (GHGs), injury rate, payroll (total employee compensation), waste, and water. These seven basic indicators are objective measures of corporate sustainability performance that are broadly relevant for companies in all industries. Moreover, they are generally accepted as being the most widely tracked core sustainability metrics by various stakeholder groups including investors.

For instance, only 39% of the world’s 4,609 large listed companies disclosed their GHGs for the year 2012. For water, that percentage is 25%. As for employee turnover rate, it is a paltry 12%. While disclosure rates vary by sector, it means that a majority of the world’s large companies are still not disclosing these seven basic sustainability metrics – in the case of GHGs, arguably the most universally recognised strategic sustainability issue, it has not been reported by 61% of the world’s large listed companies. Even more disconcerting is the finding that only 128 (2.8%) of the all the world’s large listed companies disclosed all the seven basic sustainability metrics for the year 2012.

[caption id="attachment_8876" align="aligncenter" width="430"] Figure 2: Sustainability Metrics Reporting by Large Listed Companies, 2012.[/caption]

Essentially, the remarkable rise in the number of sustainability reports has not been accompanied by a similar increase in the reporting of the basic sustainability metrics.

Equally troubling is that disclosure rates on the seven basic sustainability indicators appear to be plateauing. As one illustration, the number of large listed companies that disclosed their energy use increased by 88% from 2008 to 2012 but only by 5% from 2011 to 2012. A similar reporting slowdown is occurring on the other six metrics.

Clearly, a majority of companies are still not transparent enough to allow investors to make well-informed investment decisions over the long-term horizon by integrating foundational sustainability criteria. A point has been reached where virtually all of the large companies which would have engaged in the reporting of the basic sustainability metrics have done so already and the remaining large companies likely have little or no intention of doing so under present circumstances.

Investors Demand Data

This is in stark contrast to investors’ growing interest in building sustainable investment strategies. Despite the notable progress made in corporate sustainability reporting, as is shown above, there is still much room for improvement – not only in terms of quantity but also in terms of consistency and timeliness. While virtually every company has reported on their financial performance six months after their year-end, only 63% of these companies have disclosed their sustainability performance by then.

It is therefore not a surprise that In October 2014, the United Nations Principles for Responsible Investment (UNPRI) and Ceres’ Investor Network on Climate Risk (INCR) launched an initiative to convey investors’ demands for more timely, comparable, and material disclosure of corporate sustainability information to the International Organization of Securities Commissions (IOSCO) in order to inform their investment decisions.

[caption id="attachment_8877" align="aligncenter" width="611"] Figure 3: Basic Sustainability Metrics Reporting by Large Listed Companies, 2008 – 2012.[/caption]

The IOSCO stands in a critical position in this regard through its direct relationship with member stock exchange regulators. Investors of all description are encouraged to demand swift and decisive action from the IOSCO to provide greater clarity around sustainability reporting requirements, ideally to be integrated as part of existing financial disclosures.

The necessary tools are already available. For instance, IOSCO can take inspiration from UNCTAD’s Best Practice Guidance for Policymakers and Stock Exchanges on Sustainability Reporting Initiatives to facilitate a consistent implementation of corporate sustainability reporting requirement among member exchanges. This guidance is a voluntary technical aid to assist stock exchanges and regulators who have responsibility for corporate reporting practice and are contemplating the introduction of a new initiative – or further development of an existing one – to promote corporate sustainability reporting.

Johannesburg Model

The relative success of the Johannesburg Stock Exchange in spurring sustainability disclosure amongst listed companies through the implementation of the listing requirement incorporating the King III Code of Corporate Governance stands as a benchmark for aspiring investors and stock exchanges around the world. Ceres’ Investor Listing Standards Proposal, Recommendations for Stock Exchange Requirements on Corporate Sustainability Reporting, which engages global stock exchanges via the World Federation of Exchanges (WFE) on a possible uniform reporting standard for sustainability reporting by WFE members may also serve as a basis for the implementation of corporate sustainability reporting requirements among member exchanges.

Likewise, governments stand in a pivotal position to influence corporate sustainability reporting and are encouraged to renew their efforts in this direction. Existing policies around the world vary in many respects in terms of whether they are mandatory or voluntary, broad or narrow (i.e. applies to various industries as opposed to only one or few specific industries), and prescriptive or principles-based (i.e. states which specific items of sustainability performance metrics are to be reported and how).

These wide differences in the type of policies may in part explain the differences in disclosure performance by the large listed companies of the seven basic sustainability metrics among the world’s stock exchanges as shown in Corporate Knights Capital’s latest report on corporate sustainability disclosure trends. However, it was found that there is a strong association between policies that are mandatory, broad, and prescriptive and better corporate sustainability disclosure performance. Policy-makers may use this finding as a framework to identify case studies and benchmarks for implementation in their own jurisdictions.

Disclosure Frameworks

The advent of non-governmental standard-setters such as the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), and voluntary disclosure frameworks such as the CDP and the Climate Change Reporting Framework, have without any doubt helped to popularise sustainability reporting. However, there exists a proliferation of fragmented and often competing reporting standards and frameworks when it comes to sustainability reporting which may bring confusion to both the reporters and the users.

A rapid and successful conclusion of the work among the participants to the Corporate Reporting Dialogue will bring about much needed clarity and comparability in corporate sustainability reporting which will encourage more corporations to embrace more coherent and useful disclosures of sustainability performance. The Corporate Reporting Dialogue brings together financial reporting standard-setters and sustainability reporting frameworks to promote greater alignment, consistency, and comparability between corporate reporting requirements, standards, and frameworks. An endorsement by the major groups of users of corporate disclosures – both financial and non-financial – of the outcome of the work of the Corporate Reporting Dialogue will also help in determining the de facto global standard in corporate reporting.

The explosion in corporate sustainability reporting over the last ten years or so has certainly helped to fuel the remarkable rise in responsible investing. Responsible investing is a much heralded practice whereby investment decisions consider long-term economic, social, and environmental sustainability. However, current corporate sustainability reporting practices are at odds with the needs and level of interest from investors such that a renewed effort is needed to bring sustainability reporting to the next level. Governments, regulators both private and public, business and non-business organizations, and investors all have an important role to play to make this happen. i

About the Authors

Doug Morrow has eight years of experience in the equity research and consulting industries, with a focus on environmental, social and governance (ESG) investment research and product development. He is currently Associate Director of Thematic Research at Sustainalytics. Prior to joining Sustainalytics he worked for three years at Corporate Knights Capital, where he helped launch the world’s first suite of sustainable smart beta indices, and at ICF International (ICF) where he consulted for the Inter-American Development Bank, The Blackstone Group and the International Finance Corporation. Doug also worked for three years at Innovest, where he helped develop one of the world’s first carbon tilted corporate bond indexes (in partnership with JP Morgan Chase) and long/short equity products (with UBS). Doug is a member of the United Nation’s International Standards of Accounting and Reporting (ISAR) Group of Experts on Sustainability Reporting and the Association of Chartered Certified Accountants (ACCA) Global Forum for Sustainability. His work has been cited in the Financial Times, New York Times, Business Week, Environmental Finance and The Globe and Mail.

Michael Yow is the lead analyst at Corporate Knights Capital. Michael works with clients to analyze and benchmark their sustainability performance and disclosure practices so that they become industry leaders. He leads the corporate sustainability assessment function, including the annual Global 100 Most Sustainable Corporations in the World ranking. He is in charge of research on various sustainability topics and is the co-author of an annual report assessing corporate sustainability disclosures among the world’s stock exchanges. Michael is also involved in academic research work at York University. Before joining Corporate Knights Capital in 2011, Michael worked as a consultant in international financial and fiduciary services. Michael holds a Master in Business Administration from the Schulich School of Business, York University.

About Corporate Knights Capital

Corporate Knights Capital is an investment advisory and research firm based in Toronto, Canada, with over a decade of experience quantifying corporate sustainability. Corporate Knights Capital’s parent, Corporate Knights, Inc., publishes the world’s largest circulating responsible business magazine, and serves as the secretariat for the Council for Clean Capitalism. It is a global leader in building investment strategies that integrate high quality corporate sustainability data. Corporate Knights Capital is a certified B Corporation and a proud signatory of the United Nations Principles for Responsible Investment. Its mission is to accelerate the transition to long term, sustainable capitalism by building world-class investment portfolios for the global investment community.


Cityscape Jeddah 2015

Cityscape Jeddah 2015, the Jeddah Urban Development and Real Estate Investment Event, will give you the best view into the region’s largest real estate market, as well as providing you with an unrivalled opportunity to network with the largest gathering of real estate stakeholders in Saudi Arabia and beyond.

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Taking place on 5-7 April 2015 at the Jeddah Centre for Forums & Events, Cityscape Jeddah will include a number of features; the largest Real Estate Exhibition in Saudi Arabia; the Jeddah Real Estate Workshops, involving discussions on strategies for real estate growth and investment in Jeddah; and the Cityscape Awards for Real Estate in Saudi Arabia, celebrating those companies that have excelled in the Saudi Real Estate sector.

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Cityscape Jeddah is Saudi Arabia’s most established show with an expected attendance of more than 9,000 visitors and over 70 exhibitors. Complete event details are available at ww.cityscapejeddah.com.

Click here to register.


Principles for Responsible Investment: Investors Must Commit to Engaging Policymakers

The recent mobilisation by institutional investors over the climate change issue has captured media attention around the globe, clearly demonstrating the power investors have when it comes to engaging policymakers.

While investor engagement with policymakers is not new, what has changed over the past decade is the emergence of responsible investors seeking policy change that promote sustainable value creation.

This goal dovetails with the needs and interests of policymakers who are interested in long-term economic growth, competitiveness, job creation, environmental protection, and social stability.

In a report published earlier this month, the United Nations-supported Principles for Responsible Investment (PRI) examined the case for long-term investors to engage public policymakers. For some the case is already clear, but for most, it’s not.

“The importance of public policy for long-term investors has grown in recent years as governments look to institutional investors as a source of long-term financing.”

The report surveyed PRI’s 1,300 signatories and found that 92% support further work to address obstacles to sustainable financial markets that lie within “market cultures, structures, and regulations.” A further 76% ask the PRI to influence public policy with respect to responsible investment.

However, of 814 investors completing the PRI’s annual reporting framework, only 332 state that they have in fact engaged with policy makers. We needed to know the reasons behind this shortfall.

Stumbling Blocks to More Widespread Engagement

The report found various reasons why organisations are failing to actively engage with policy makers. Some express scepticism about whether public policy engagement will make a difference. Others are concerned about the costs and timeframes involved, and that competitors will free-ride on their work. Most say that their organisation lacks understanding on how to influence policy processes or they fear that policy engagement is the same as political lobbying.

[caption id="attachment_8903" align="aligncenter" width="586"] Click to enlarge[/caption]

Equally, policy makers can distrust investors. “Investors say they speak on behalf of their beneficiaries, but that is not always the case,” one policy maker told us. Another reminded us that “investors are often not the most important stakeholder.” These sentiments explain why investors are often consulted late in the policymaking process, if at all. And, while some of these concerns might be legitimate, there can also be a lack of understanding by the policymaker of the varying needs and interests of market participants.

The importance of public policy for long-term investors has grown in recent years as governments look to institutional investors as a source of long-term financing. Similarly, investors have become increasingly aware of the impact of environmental, social, and economic factors on their ability to deliver long-term returns, engaging policy makers to tackle questions of market failure, such as climate change, misaligned incentives, and information asymmetry. This means that both sides must find a way to put aside their differences so that meaningful discussions about ESG (environmental, social, and governance) issues can be effected.

“The aim of policy engagement is not to replace the market, but correct it,” says Nick Robins, co-director of a United Nations Environment Programme inquiry into sustainable financial markets. “Well-developed policy can end innovation bottlenecks in order to promote research and development, develop market standards and generate higher returns. Active, engaged owners will also lead to greater accountability and governance between shareholders and corporations.”

Breaking Down the Barriers

To facilitate engagement, the PRI seeks to explain the range of policy options; regulation can be mandatory, stewardship is not, some regulation is national, some cross-border, some applies to capital markets, some specific to pension funds, and so on.

The PRI breaks this down into three categories. First, “wider economic policy,” for example, Japan’s Abenomics, or Germany’s energy policy. Second, “financial sector regulation and policy,” like the US’ Dodd-Frank or Europe’s Solvency II. And finally, “ESG regulation and policy,” like the Code for Responsible Investing in South Africa (CRISA) or France’s Grenelle Laws articles 224 and 225.

Within ESG regulation and policy there are various tools available to policymakers. At its simplest, a policymaker can enforce mandatory exclusions, like cluster munitions. Policymakers can also force investors, or the companies in which they hold positions, to report on how they manage environmental, social, and governance risks.

Case Study: Solvency II

Strengthening financial sector regulation has been a priority in the wake of the global financial crisis. However, in addressing one set of policy problems, it is not uncommon to create others. The Solvency II Directive, which sought to strengthen risk management in the insurance sector, may actually increase the sector’s focus on short-term financial performance and reduce its ability to invest in areas such as unlisted assets, infrastructure and private equity.

In the late 1990s, there was wide recognition that the insurance sector was lagging behind banking in terms of risk-based regulation. There was pressure to establish a new regulatory framework for the European insurance industry.

The need to modernise the regulatory framework received further impetus in the early 2000s following the market collapse post-Enron. The agenda was strongly supported by insurance companies, who wanted to be able to better manage their risks, and by regulators who wanted all risks (e.g. balance sheet, credit, market, operational) to be assessed and reported so they could get a better picture of the risk profile of the industry.

Solvency II was intended to consolidate relevant legislation and bring the legislation up to date with modern insurance practices. The framework has three main pillars:

Pillar 1 sets out the minimum capital and solvency capital requirements for insurers, i.e. the ability to withstand a 1-in-200 year financial event lasting for one year.

Pillar 2 sets out requirements for the governance and risk management of insurers, as well as for the effective supervision of insurers.

Pillar 3 focuses on disclosure and transparency requirements.

Following preparatory work and extensive consultation with regulators and stakeholders, a legislative proposal was presented to the European Parliament in 2007, and the final version of the Solvency II Directive was adopted in November 2009.

Insurance companies played an active role in the discussions surrounding Solvency II. Much of this was led by trade bodies, such as Insurance Europe, the Pan-European Insurance Forum and the Chief Risk Officers Forum.

These trade bodies invested significant time in identifying priority issues and in developing a common agenda concerning these issues for the industry as a whole. This included whether solvency capital would be calculated using a formula developed by regulators or whether the industry could use its internal models, and the specific amount of capital that needed to be held against liabilities.

Following the financial crisis, the industry recognised the implications of market volatility and pressed for changes to reflect the nature of the risks and the characteristics of the liabilities. In particular, ways of reconciling the fact that assets were to be valued on a mark-to-market basis while liabilities were valued on a risk-free basis were considered.

This meant that insurance companies were exposed to market movements on assets but not on liabilities, which created problems in volatile economic conditions, and ignored the fact that insurance investors may not have needed to sell at these points in the economic cycle, thus reducing the incentive to invest in long-term infrastructure.

The insurance industry therefore engaged intensively with the European Commission to introduce appropriate corrective mechanisms for this problem. In 2013, a compromise was agreed that addressed investor concerns by allowing them to use mark to market valuations for both their liabilities and their assets. Following an EU Parliament vote in March 2014, the Solvency II Directive was scheduled to come into effect on 1 January 2016.

Solvency II is a case study of how financial services can work effectively with policymakers to deliver the desired policy goals, in this case strengthening the industry’s risk management processes in an economically effective manner.

However, it also highlights the risks of unintended consequences; in this case, the unintended consequence is that Solvency II may reduce insurance companies’ willingness to invest in long-term infrastructure. This is because the standard risk-based approach in Solvency II results in longer term investments carrying higher capital charges.

To promote active ownership, a number of governments have introduced stewardship codes, including Japan’s, to encourage foreign investment in companies. Stewardship codes are voluntary, but generally speaking, market forces encourage compliance. Finally, policymakers can require ESG integration, as we see with Grenelle’s article 225, requiring companies, including financial entities, to report on their commitment to sustainable development, and on the environmental, social, and societal impact of business activities.

Policy engagement is not easy. It requires time, patience, and resources. It also requires stamina. Policy engagement can be across multiple departments, or even countries. Perhaps, in the case of tackling climate change, it never ends. Policy and politics can, at times, also seem analogous. Investors need to be objective, engaging on facts.

To scale up public policy engagement, investors can use the “5C” checklist; commit, construct, clarify, collaborate, and communicate.

By committing to public policy engagement, a long-term investor will adopt a formal position statement, allocating necessary resources. Investors can assemble a structured process that promotes engagement in policy, clarifying the key policy issues that are of concern to the organisation.

Investors should collaborate to pool resources and achieve greater impact, and ensure that traditional investor bodies incorporate responsible investment in their policy engagement. Finally, investors must communicate, reporting annually on policy engagement to savers and beneficiaries.

Likewise, policymakers must actively seek the input of long-term investors, ensuring key individuals and organisations are properly represented on relevant working groups and advisory panels. Policymakers would do well to better understand the needs and interests of long-term investors and their end beneficiaries, recognising how these differ from other institutional investors, banks, and companies.

Future Outlook

Heading into 2015, there will be no shortage of critical policy decisions where responsible investors will need to collaborate and commit. At the international level, three stand out. The first is the G20 discussions on long-term financing to close the infrastructure funding gap, and the need to ensure that these policies fully incorporate environmental, social, and governance factors.

The second is the launch of the new set of Sustainable Development Goals, where there is a sharper focus on how to mobilise private capital alongside essential public finance.

The third is the climate change negotiation, culminating in the Paris Conference in December 2015 where the initial compilation of pledges made in New York will need to come to fruition.

These three priorities are of course deeply intertwined. And one of the real contributions that investors can make is to show why a joined-up policy framework is so badly needed to avoid unintended consequences of regulatory change and deliver a truly efficient allocation of capital for the long-term interests of the world’s savers.

Investors have great power at their disposal and can effect change. The good news is that policymakers appear to have their office doors open. Jean-Claude Juncker, president of the European Commission, said in an October 2014 speech: “We are facing an investment gap. We have to work to bridge that gap”. The time is now.

About the Author

[caption id="attachment_8902" align="aligncenter" width="231"] Author: Helene Winch[/caption]

Mrs Helene Winch is director of public policy and research at Principles for Responsible Investment (PRI) – an investor initiative in partnership with UNEP Finance Initiative and UN Global Compact.


Ginni Rometty: Steering a Behemoth onto the Cloud

 Considered the world’s most powerful woman in business in 2012, IBM Chairperson and CEO Ginni Rometty is steering her company to the cloud. Not one to set modest goals, Mrs Rometty wants IBM to reclaim its dominant position by identifying the next high-profit areas of computing and moving decisively into them. She is also looking to tap into yet underdeveloped markets by partnering with large local players.

In China, IBM teamed up with Internet provider Tencent to develop and market cloud-based services to business customers. While not a household name in the West, Tencent provides Internet connectivity and value-added services to literally hundreds of millions customers. In the US, Mrs Rometty recently signed a deal with Twitter to help that platform expand into the corporate market. IBM is to provide Twitter with a suite of business apps that connect directly to the vast amount of consumer data gathered by the social network.

Though Mrs Rometty has not mentioned any numbers, she did indicate that the revamped company will see its revenues soar before long. For the past ten quarters, IBM has suffered shrinking revenue streams. Mrs Rometty is not only moving IBM onto the cloud, she is also shedding underperforming business units and “rebalancing” the workforce.

From a supplier of hardware, IBM is now in the process of becoming a company of creative ideas. Last year, it committed over $1bn to porting its peerless natural language analytics engine Watson to its Bluemix cloud services platform which is now in direct competition with similar offerings from Google and Microsoft. With Bluemix, IBM also managed to expand its partnership with German business software provider SAP which was actively being courted by Amazon.

“Her decision to largely get out of the hardware business was a particularly smart one as most large corporations – IBM’s premier market – are now renting IT infrastructure rather than buying it.”

Though Mrs Rometty expects cloud services to bring in at least $7bn by 2015, she has not entirely moved the company away from its hardware roots. IBM is set to launch a new family of superscalar multiprocessors developed in-house and designed specifically to power cloud servers. In a first, Mrs Rometty decided to make the Power8 processor’s design freely available under an open source license in an attempt to set a new standard. The company has also set aside $3bn to develop microchips that are not based on silicon.

A native from Chicago, Mrs Rometty graduated with high honours from Northwestern University’s School of Engineering and Applied Science in 1979. After obtaining a degree in computer science and electrical engineering, she briefly worked for the General Motors Institute before joining IBM in 1981 as a systems engineer.

Throughout her career at IBM, Mrs Rometty has worked to involve the company in business analytics and away from hardware. As such, she is seen as making amends for the wrong bet the company placed in the early 1980s when it handed the development of software for its then-revolutionary 8086 processor architecture to outside parties – first to Digital Research (now defunct) and then to start-up Microsoft, which took the bait.

While transforming IBM into a company of ideas, Mrs Rometty has continued the somewhat controversial share buyback programme she inherited from her predecessors, committing another $5bn to propping-up the stock in a clear sign that the company is not lacking in confidence when it comes to the future. Since the turn of the century, IBM has spent $108bn on buying back shares.

Mrs Rometty manages a company that stands at a crossroads. Her decision to largely get out of the hardware business was a particularly smart one as most large corporations – IBM’s premier market – are now renting IT infrastructure rather than buying it. Still, it will be quite a feat to reshape a company the size of IBM. With a revenue of close to $100bn annually, some 430,000 employees, and a market cap of almost $170bn, IBM is everything but nimble.

Others before her have tried – and failed – to change IBM’s corporate direction. However, with her bold and decisive moves, devoid of ambiguity, Mrs Rometty may very well succeed and thus reinvigorate one of the icons of US business.


Europe & Greece: The Gathering of the Perfect Storm

[caption id="" align="alignright" width="250"] Simela Pantzartzi/European Pressphoto Agency[/caption]

The bears took hold of most European markets earlier today on news that the Greek government is determined to end austerity and will not be seeking an extension of the bailout agreement with its creditors.

In a defiant speech delivered before a fully-seated parliament, Prime-Minister Alexis Tsipras on Sunday said that his administration will prioritise the needs of “long-suffering ordinary people” over those of creditors. While the prime-minister assured that Greece will do its utmost to reach a deal with the country’s creditors, he was adamant in affirming that austerity policies are off the table.

Prime-Minister Tsipras on Sunday unveiled a comprehensive set of initiatives aimed at lessening the social agony, including a return of the minimum wage to its 2011 level of €751 monthly, a halt to the sell-off of state-owned businesses, and changes to the tax code.

On Monday morning, Finance Minister Yanis Varoufakis sought to calm markets with assurances that talk about Greece’s impending exit from the euro is just unhelpful “chatter.” Mr Varoufakis reminded that his country’s fate is inextricably bound to that of Europe: “We can find the accommodation between Greece and our creditors, our partners, the EU, ECB and IMF.”

“In a defiant speech delivered before a fully-seated parliament, Prime-Minister Alexis Tsipras on Sunday said that his administration will prioritise the needs of “long-suffering ordinary people” over those of creditors.”

Mr Varoufakis also said that the policy of “contractionary contraction” to which Greece has been subjected simply does not work: “There is no economist I know in the world who thinks this programme has worked, or will work … it couldn’t work. It’s not a question of willpower or intelligence: it simply cannot be done in a depressed economy that has no viable or properly functioning banking system.”

In parliament, Mr Varoufakis said: “The time has come to say what officials admit when the microphones are turned off and say out in the open. At some point someone has to say no. That role has fallen to us, little Greece.”

Perfect Storm

Former US Federal Reserve Chairperson Alan Greenspan weighed in on the discussion, concluding – yet again – that the euro is doomed and Greece’s ditching of the common currency just a matter of time. Greenspan’s words resounded in London where Prime-Minister David Cameron snapped to prompt attention ordering the Bank of England to prepare a contingency plan to be implemented in case a “Grexit” is followed by a market meltdown.

With the Eurozone apparently shaking on its foundations, the European Central Bank pumping untold billions in faltering economies, and neighbouring Russia in the grip of a man on a rampage, one could be forgiven for thinking that a perfect storm is gathering over Europe.

Yet something quite remarkable has happened. In a first for Europe, a collective of intellectuals, university professors, and neophyte politicians has claimed power. A revolution of sorts is indeed in the making. The now dethroned aristocracy of Greece – corrupt powerbrokers and other parasites – would be well advised to start trembling: their days have been counted and their future looks bleak.

The overblown ado about Greece’s outsized national debt, and the need to service it until the end of days, is akin to a smoke-and-mirrors show: it detracts attention from a few more important – if less convenient – developments such as the shakeup currently underway at Athens’ government offices.

Sporting a Suit and Tie

Deputy Minister of Administrative Reform Giorgos Katrougalos – easily recognisable in cabinet meetings for being the only one sporting a proper suit and tie – is the man to watch. Mr Katrougalos, a civil engineer by trade, vacated his seat in the European Parliament to help his long-time friend Alexis Tsipras – now Greece’s prime-minister – clean up the corridors of power: “I want to help shape a new national beginning. Only a left-wing government can tackle the kind of reform that is urgently needed.”

Though not affiliated with any political party, Mr Katrougalos holds significant sway in the cabinet. He is the confidant and go-to guy of the prime-minister and few decisions are made without his input. Mr Katrougalos has been put in charge of dismantling the system of patronage and clientelism that has perversely pervaded the Greek public administration since the beginning of modern times.

Discouraging and even prosecuting the misuse of power is seen as a most promising way of saving taxpayers’ money: “We want to save on expenses as much as the previous government did. The difference is that we shall do so on the back of politicians instead of the people.” Mr Katrougalos also plans to revisit the famed Lagarde List of over 2,056 possible tax dodgers with undeclared accounts at the Geneva branch of the HSBC bank.

The list, rather a spreadsheet, was named after then-French Finance Minister Christine Lagarde who obtained it from the police and forwarded the file to the Greek government in October 2010. Nothing happened until two years later when the media reported the existence of the Lagarde List.

After hauling the journalist who found the list off to court for breaching privacy law – a charge promptly thrown out – the government half-heartedly launched an investigation which, to the surprise of few but the fury of many, failed to produce any noticeable results. The same fate befell yet another list of tax evaders – this one handed to the Bank of Greece and containing the names of around 54,000 people who spirited some €22bn out of the country at the time of the last crisis.

Truth be told, the Lagarde List is but a subset of a much larger cache of data containing some 130,000 names of possible tax dodgers. Though this data was forwarded to the relevant authorities in most EU member states, it did not result in the expected flurry of prosecutorial activity. Thus, Greece is by no means the only country to have largely failed to investigate the people whose names appear on this list.

Checking the Lists

Still, Mr Katrougalos is determined to have a second look at both lists, though not necessarily to nail the rich. He just wants them to refrain from buying government favours and start paying taxes. While working on the creation of a more transparent public administration, Minister Katrougalos has set the tone with a few minor, but symbolically important, changes.

All but a handful of top officials have lost their chauffeur-driven limousines while over 3,500 previously sacked public servants have been rehired. Perhaps more importantly, the hordes of consultants have been decimated. These professionals were hired at great expense to replace the civil servants made redundant by repeated austerity drives.

Vilified in Germany, The Netherlands, and Finland – Europe’s holier-than-thou poster boys of fiscal prudence – the Tsipras government argues that its administrative reforms are both profound and far-reaching and as such will break the nefarious cycle of political ineptitude that caused the crisis to begin with.

Finance Minister Yanis Varoufakis repeated – ad nauseam – that he fully understands and subscribes to the criticism levelled at Greece regarding the poisonous intertwining of public and private interests. While previous administrations may have provided lip-service to these ills, the current government has already put policies in place that will usher in an era of public probity.

The Greek government now needs some time to sort out the mess it inherited. It has asked its creditors for a reprieve of three to four months during which time the fiscal balance is to be maintained and most – though not all – policy directives imposed by the troika will be adhered to.

It would seem a reasonable request. Most likely, it will be granted – albeit grudgingly. The alternative leads to a scenario simply too dire to consider. Blowing up the Eurozone over Greece seems the utter folly and, paradoxically, will hurt the biggest creditor nations most. After all, no country benefited more from the euro than Germany did. Greece is a small enough price to pay for that blessed state of affairs.


Luxury Living: Music Delivered the Old-Fashioned Way

The news of its death was greatly exaggerated. Sales of vinyl records are spinning through the roof. According to Nielsen – an American company that monitors global media usage – sales of records are on track to exceed six million in 2014, up fully 40% over 2013 – the year in which digital music sales, peddled by the likes of iTunes, took its first dip ever, sliding 5.7%. The only media segment growing at a higher rate than vinyl is on-demand streaming (up 42%).

In Britain, the resurgence of vinyl records reached a milestone in November 2014 passing the one million mark for the year. The British Phonographic Industry (BPI), a trade association, predicts that vinyl sales will amount to 1.2 million for the entire year. Worldwide vinyl sales revenue has exploded from barely $55m in 2007 to well over $210m in 2013. Though representing only about 3-6% of total music sales, vinyl is now firmly back in business with most major recording artists releasing their work on long-play records as well as on CDs.

The vinyl record is not the only timeworn technology currently being resuscitated. Valves (aka tubes in the US) – glass bottle-like devices from a distant era when semiconductors were yet to be fully developed – are also making a rather unexpected comeback.

Ritual

Connoisseurs swear by the combination of these two analogue audio technologies. Playing vinyl on a turntable hooked-up to a valve amplifier has – reportedly – no equal in the digital domain. It requires something of a ritual as well. Lowering the diamond needle onto the spinning long-play record, a dry plop comes through the speakers followed by soft scratching noises giving way, eventually, to a majestic soundstage.

“In Britain, the resurgence of vinyl records reached a milestone in November 2014 passing the one million mark for the year. The British Phonographic Industry (BPI), a trade association, predicts that vinyl sales will amount to 1.2 million for the entire year.”

“For the generation that grew up with sterile CDs and MP3s, the music captured in vinyl is nothing short of mesmerising. This explains why record sales are mostly driven by young people. They have embarked on a voyage of discovery and found that not all forms of progress necessarily lead to improvement,” says Peter Qvortrup of Audio Note, a UK company that designs, builds, and markets high-end valve-based audio equipment.

While contemporary digital gear boasts impressive technical specifications, the numbers do not necessarily translate into listening pleasure. In fact, a small but vociferous fringe of the growing “bottlehead” movement insists on employing 1920s technology for sound amplification.

Considering that the perfect amplifier would be represented by a wire producing a gain in amplitude, “single-enders” base their gear on a design first proposed by engineers EH Loftin and SY White in the January 1929 edition of Radio News. In its most basic version, this Loftin White circuit has but four components: two valves, a capacitor, and an output transformer that couples the circuit to a loudspeaker.

Unimpressive Specs

The specs of the Loftin White amplifier look rather unimpressive. Its power output is positively feeble at only a couple of Watts, distortion is nothing short of horrendous, while the frequency range is only slightly better than that of a telephone receiver. Yet when hooked up to a suitable speaker, this flea-powered amplifier brings music to life as few other devices can, creating a massive soundstage in which an exquisite sense detail is not drowned out. In a words: valves swing in a way that is both unique and captivates listeners.

Audio engineers are mostly at a loss to explain why equipment that underwhelms in the lab, outperforms kit of impeccable specification. In its 1998 study The Cool Sound of Tubes, the Institute of Electrical and Electronic Engineers (IEEE) draws attention to a few lesser-known technical parameters that may help explain the resilience of valve technology. Higher operating voltages tend to result in a wider dynamic range while valves also do not suffer from excessive clipping at high volume levels. Instead of clipping into raw distortion as semiconductors do, valves smoothly adapt and cope gracefully when faced with overloading.

Though these technical contemplations may extend far beyond the interest of even the most dedicated music-lover, they may help explain why valves – an ancient technology – have not been remanded to museums. UK valve amp manufacturer Audio Note finds ready buyers for its kit. Hand-build amplifiers costing up to £100,000 are being shipped regularly. Even “entry-level” kit goes for multiple thousands of pounds and finds many eager buyers.

Extinction Undone

In Switzerland, venerable record player manufacturer Thorens has been resuscitated – after its 2000 bankruptcy in Germany – and now stand once again at the apex of turntable technology. Business is good and getting better by the year. An entire new range of record players has been launched ranging from budget models to exotic and massive high-end models.

Another classic that simply refuses to fade into oblivion is British SME (Scale Model Equipment) in West Sussex. In the 1950s, the company successfully moved into precision engineering. With designs that have remained unaltered for almost half a century, SME tone-arms still are state-of-the-art.

The British excel in timeless design. A few years back, sound equipment manufacturer Quad reintroduced a range of classic gear to great acclaim and with results surpassing all expectations. Established in 1926, Tannoy is another well-known name in British audio equipment manufacturing, famed for its loudspeakers designed specifically for use with valve amplifiers. Tannoy’s proprietary dual concentric speakers – using a single driver for the entire frequency spectrum – power systems that have not changed since the late 1940s and still have but few peers.

In even the world’s most advanced recording studios, bristling with digital paraphernalia, audio engineers still make ready use of valve-equipped microphone amplifiers, limiters, expanders, gates, and whatnot from the 1950s and 1960s in order to get the warmth that modern devices are just incapable of delivering in bits and bytes.

China Takes Note

The back-to-the-future trend in audio has been noted in China as well. Originally a source for tooling machines for the manufacturing of valves – equipment carted to the scrapyard elsewhere in the world – China has now become the world’s largest supplier of both valves and valve-based equipment. New valve manufacturing plants have sprung up, old designs dusted-off, and retired engineers invited back to share their almost-lost knowledge and skills in the rather darkish art of sticking anodes, cathodes, heaters, and grids into a glass bottle.
Electronics shops in Hong Kong now feature their apparently timeworn products alongside the latest miniature gadgets and other devices of digital technology. In Tokyo, an entire shopping district is dedicated to hi-fi enthusiasts with a penchant for the nostalgic. The Akihabara District is advertised as the audiophile’s dreamland. Shops as Kounan Denki, Akizuki, Sato Musen and many others cater to the discerning listener and are now seeing business boom thanks to the renewed interested in retro technology.

The remarkable resilience of both vinyl records and their equally old-fashioned ancillary gear poses some interesting questions regarding the uses of technological progress. While today’s equipment offers unparalleled ease of use and convenience – streaming vast libraries of digital music, controlled by smartphone apps, around the home – sound quality has, in fact, deteriorated. Most of today’s manufacturers no longer seek to compete on high fidelity – a concept originally coined to describe the quest for equality between live and reproduced sound – preferring instead to offer ergonomic advantages.

While not likely to become mainstream anytime soon, or indeed ever, both vinyl and valve technology have retreated from the brink of extinction, saved by the curiosity of a generation of music lovers increasingly bored with existing technology. As retro becomes hip, out goes the new, and in comes the old.


Book Review: Plus ça Change, Plus c’est la même Chose

This Changes Everything: Capitalism vs. the Climate by Naomi Klein

[caption id="attachment_8934" align="alignright" width="144"] Naomi Klein[/caption]

Naomi Klein has seen the future and it does not look good. Right at the beginning of her new book – This Changes Everything: Capitalism vs. The Climate – Mrs Klein rhetorically asks: What Is Wrong with Us? She then proceeds to answer the question in great detail over the following 560+ pages of the tome.

Indeed, there is plenty wrong with us. We consume way too much and, by doing so, deplete the earth’s resources and warm it up to boot, potentially unleashing a vast and terrifying range of disasters. The culprit is, of course, capitalism and its sibling, consumerism. These evil twins reduce people to helpless beings that covet superfluous products and useless services.

Mrs Klein’s solution is seductively simple: Just do away with capitalism. She strongly disagrees with those who argue that climate change may be tackled by the adoption of smart policies designed to steer future growth in a more sustainable direction. That clearly won’t do. According to Mrs Klein, the status quo cannot be maintained and radical change is called for if disaster is to be averted at the eleventh hour.

“Interestingly enough, the huge investments with which Mrs Klein proposes to right both climate change and social wrongs are to be coughed up by a shrinking economy.”

The shrill tone that environmentalists – born again or otherwise – usually employ to deliver their message never fails to amaze. Oftentimes debate is stifled at the very get-go by the taking of uncompromising positions that advocate the downfall of economic and political systems built on centuries of societal tinkering.

Leveraging the Climate

In her most recent book, Mrs Klein not just addresses climate change; she seeks to use the impending disaster as leverage to deal with social ills such as enduring poverty. The massive investments required to save the world are to benefit the have-nots as well:

“It could bring the jobs and homes Martin Luther King dreamed of; it could bring jobs and clean water to native communities; it could at last turn on the lights and running water in every South African township. Climate change is our chance to right those festering wrongs at last – the unfinished business of liberation.”

Interestingly enough, the huge investments with which Mrs Klein proposes to right both climate change and social wrongs are to be coughed up by a shrinking economy. De-growth is to replace the capitalist promise of endless growth. Only by imposing a lasting economic depression is it possible to cut emissions by the required degree to decelerate global warming. People will have to cut back on consumption and corporations need to reduce – and even eliminate – profits.

Mrs Klein warns that governments must again engage in long-term planning with the free market relegated to the margins, if not the history books. This will do nicely if de-growth is to be the objective of humankind’s collective efforts.

Though held in great esteem as a debater, Mrs Klein falls woefully short on the specifics of a shrinking world economy. She pays much attention to the need for systemic change but fails to explain how the resulting economy is to function, i.e. how global society should manage “de-growth” (Orwellian doublespeak for economic depression) and still ban poverty.

The few answers Mrs Klein does provide bespeak of an utter negation of common human character traits. Capitalism’s much-deplored triumph is but the product of the natural propensity of people to better their lot. Since the dawn of time, keeping up with the Joneses has encouraged folks to find ways of self-improvement either through work or innovation. Somehow, going down with the Joneses lacks the same appeal.

Are we – in Mrs Klein’s world of de-growth – to work hard but consume ever less, or are we to sit back, relax, and refrain from consuming anything beyond the most basic necessities to sustain our now rather empty, and quite possibly dreary, lives? What if one of us should rebel against this dystopian world and decides, as a latter-day Winston Smith, that he wants to consume more than his fair share and is willing to put in an effort to do so?

No Choice

Mrs Klein repeats ad nauseam that global society has no choice: It is systemic change and de-growth or die (or fry). Environmentalists advocating gradual adaptation and those who express a trust in technological progress and innovation, are summarily dismissed as capitalist running dogs. Admittedly, Mrs Klein does not quite use that expression, but she comes close – calling those who dispute the urgency of the need for a de-growth revolution, a “bunch of nutcases” and “hard-core ideologues.”

Rather than offering a depressing read, Mrs Klein has written a book that overflows with optimism: To her, climate change may just be the catalyst that brings about a more just world order. There is, however, plenty wrong with the amalgamation of all issues plaguing humanity into a single challenge to be tackled with, of all things, de-growth.

First, de-growth is a “solution” devoid of any sense of reality: All attempts at forging a new man are doomed to fail – it runs counter to nature and has been tried before with regrettable results. Second, climate change is one issue, and world poverty quite another. Trying to unify these problems is akin to the search for the Theory of Everything that keeps hordes of physicists gainfully employed. The theory may very well exist; it has not yet been found. Notwithstanding her impressive intellectual powers and prowess, Mrs Klein has so far not unearthed a unified approach to all the world’s ills.

While it may be politically correct to applaud anyone drawing attention to the Armageddon that awaits a warming world, Mrs Klein sorely misses the point in This Changes Everything. Global warming, in fact, changes little to nothing: The seismic systemic shift that Mrs Klein advocates will simply not occur as it denies human nature.

Also, climate change-inspired de-growth will not get rid of world poverty. It is nothing short of ludicrous to state otherwise. If a reasonably prosperous world cannot eliminate human want, one with only half as much wealth at its disposal will certainly not succeed.

Implicitly recognising that de-growth is highly unlikely to succeed, Mrs Klein happily concludes that the world is doomed. This fate, however, is not quite sealed. Human ingenuity knows few, if any, bounds – something Mrs Klein has entirely overlooked. While humankind will muddle on, conquering peaks and navigating valleys, some of us will undoubtedly come up with innovations that may yet save the day.

Rather than lamenting the destructive ways of human development and proposing an impossible way out of the resulting predicament, it may perhaps be a good idea to focus human ingenuity and place our collective trust in the genius of man.


Another Inconvenient Truth: Vice Pays

The politically correct and socially sustainable is, though certainly laudable, not particularly profitable. Investors shunning sin stocks manage portfolios that are, on average, significantly less profitable than those possessed by shareholders without similar scruples.

A study released earlier this week by the London Business School (LBS) concludes that the historically already higher-than-average returns offered by industries preying on human frailties have received an additional boost from recent efforts by institutional investors to clean up their portfolios.

According to LBS Professor Emeritus Paul Marsh, one of the study’s authors, the glut of stocks sold for reasons other than those related to corporate performance represent a boon to investors less bothered by ethical considerations: “Shares in well-run companies may now be acquired at a considerable discount.” Some investment funds have tapped this segment and offer a mix of vice stocks as vicious as profitable.

Prof Marsh and fellow researchers Elroy Dimson and Mike Staunton calculated that a single dollar invested in a US tobacco company in 1900 would have turned into well over $243,000 today. In case reinvested dividends are taken into account, that original dollar would now be worth close to $6.3 million. Conversely, had that dollar been used to buy stock in an engineering company, it would have grown to just $2,280.

“Shares in well-run companies may now be acquired at a considerable discount.”

- Paul Marsh, Emeritus Professor of Finance, London Business School

“Bizarrely, this would be evidence that the faith-based investors of the first half of the 20th century, and all sorts of ethical investors in the second half, had an effect,” says Prof Dimson. However, it may not quite have been the effect anticipated. The LBS study, commissioned by Credit Suisse for its Global Investment Returns Yearbook, shows that tobacco has been the most profitable US business segment since 1900. In the UK, the market was led by the alcohol industry with big tobacco trailing closely.

Dividend yields of vice shares are also generally superior. The S&P 500 Tobacco sub-index boasts an average dividend yield of 4.23% as compared a market average of just 1.97%. The gaming industry also offers a dividend yield about twice as high as the overall market.

“Ironically, responsible investors may be partly to blame for the higher returns from sin. If a large enough proportion of investors avoids sin businesses, its share prices will be depressed, thereby offering the prospect of elevated returns to those less troubled by ethical considerations,” says Prof Dimson who also revealed that over the long run, sin stocks from countries ranked low on the transparency index tend to offer superior performance.

While sin stocks usually outperform the overall market, attempts to peddle these shares openly have met with mixed results. One of the few sin stock funds to survive the 2008 market crash, Vice Fund – set up by USA Mutual Advisors in 2002 – recently changed its name to the less brazenly obvious Barrier Fund. Allocating its capital to select companies in the alcohol, tobacco, gaming, and arms industries, Barrier Fund manages a $242m portfolio that, at first glance, seems to offer a rather modest premium over the overall market.

However, when compared to the Vanguard FTSE Social Index fund, set up in 2000 and investing only in sustainably-run corporations, Vice Fund’s performance seems positively stellar. A thousand dollar invested in the Vice/Barrier Fund in 2002 would have turned into $3,364 versus $2,679 for the Vanguard Fund.

Fund managers eschewing investments in ethically reprehensible sectors face an uphill battle. However, there is hope. The LBS study also shows that a “washing machine” approach may deliver the best results. Institutional investors tasked with social responsibility may want to take a stake in less sustainable corporations in order to gain a seat at the table, engage with the company, and work for positive change.

Prof Marsh et al have found that such a strategy oftentimes results in above average returns while ensuring compliance with the trustee concerns. Passively screening out sin stocks, or divesting from vice and violence, is too simple a policy. Instead, socially-responsible investors may want to buy up a few discounted shares from companies deemed distasteful and get to work improving their ways. Changing the world was never going to be a stroll down easy street.


Roderick and Floris Wolters: Freezing the Sun

[caption id="attachment_8948" align="alignright" width="402"]<img class=" wp-image-8948" src="https://cfi.co/wp-content/uploads/2015/02/rfw.jpg" alt="Floris Wolters (left) and his brother Roderick (right) of Solar Solutions Worldwide accept the Jan Terlouw Innovatieprijs (Innovation Award) 2014 from Mr Terlouw (centre), an acclaimed author, scientist, and former minister of economic affairs and member of parliament. The award is given out annually by the kiEMT Foundation of the Netherlands to the most innovative entrepreneur in the field of sustainable energy. Photo: John Voermans" width="402" height="348" /> Floris Wolters (left) and his brother Roderick (right) of Solar Solutions Worldwide accept the Jan Terlouw Innovatieprijs (Innovation Award) 2014 from Mr Terlouw (centre), an acclaimed author, scientist, and former minister of economic affairs and member of parliament. The award is given out annually by the kiEMT Foundation of the Netherlands to the most innovative entrepreneur in the field of sustainable energy. Photo: John Voermans[/caption]

Rummaging through the archives of Twente Technical University, two enterprising students struck gold: An experiment carried out around the turn of the century but not taken to the next level. After a bit of tinkering, the brothers Roderick and Floris Wolters managed to improve on the original design and finish the job with stellar results. They then rushed to the patent office and started Solar Solutions World Wide to bring their invention to the market.

The Wolters brothers have found a way to reduce heating costs to zero for private homes and most businesses. Their system extracts energy from water. As water starts to freeze, it releases vast amounts of energy moments before the liquid turns to ice.

A water reservoir – essentially a bag measuring nine metres square – is installed in a crawl space or a basement with its contents being warmed by a few solar panels. A small heat pump is connected to cool the water down to -1 degree Celsius. This process, an endless cycle, produces copious amounts of energy – up to eighty times the amount put in and enough to heat an entire house even through the dead of winter.

The Solar Freezer is now ready for market. Demo setups have shown the system’s viability with results that exceeded expectations. The first housing societies have come knocking on the start-up company’s door and the Wolters brothers are confident that before long their Solar Freezer will be a household name. “It is somewhat of a no-brainer: The setup does not require extensive modifications to the building, is not at all invasive, and is a plug-and-play affair. Once properly installed, it just keeps running with minimal maintenance,” says Roderick Wolters.

The brothers estimate that well over 80% of the Dutch housing stock can accommodate the Solar Freezer without any alterations to the building. The installation cost may be recouped in about 6-7 years. Fiscal incentives and direct subsidies can shave two or three years off this timeframe.

“The Wolter brothers have so far been involved with three successful start-up companies which they passed on to others as new opportunities arose. However, this is the first time they have struck out on their own with a proprietary technology that promises to revolutionise the way heating is provided to homes and businesses.”

The average household in The Netherlands spends about €2,000 annually on heating, mostly for natural gas. “This entire bill can be wiped out unless the cooking range is gas-powered in which case a savings of about 97% may be obtained. Moreover, our system is of course carbon-neutral and as such in sync with present environmental concerns,” explains Roderick Wolters.

The brothers set up their company on the campus of Twente University in Enschede and receive the full support of the institution. The premises of Solar Solutions World Wide are part of the university’s “Knowledge Park,” an incubator for innovative businesses devised and run by students.

The university’s business developer Kees Schöller is excited: “The Wolter brothers have so far been involved with three successful start-up companies which they passed on to others as new opportunities arose. However, this is the first time they have struck out on their own with a proprietary technology that promises to revolutionise the way heating is provided to homes and businesses.”

Manon van Essen of the Dutch Homeowners Association is also thrilled: “The Solar Freezer may indeed solve the issue of energy storage. For a long time, we’ve been trying to figure out how to store solar energy for release at moments when it is most needed. This system seems to offer a way to do just that.” Mrs Van Essen explains that most homeowners are less than excited to feed their excess solar energy into the public grid: “They’d much rather save that energy for their own use.”

Though encouraged by the massive and positive response to their invention, the Wolters brothers are not about to order Maseratis or sail into the sunset aboard a private yacht. They remain first and foremost brilliant tinkerers with a passion for technology and the ways in which it can contribute towards a better world.

[caption id="attachment_8948" align="alignright" width="402"] Floris Wolters (left) and his brother Roderick (right) of Solar Solutions Worldwide accept the Jan Terlouw Innovatieprijs (Innovation Award) 2014 from Mr Terlouw (centre), an acclaimed author, scientist, and former minister of economic affairs and member of parliament. The award is given out annually by the kiEMT Foundation of the Netherlands to the most innovative entrepreneur in the field of sustainable energy. Photo: John Voermans[/caption]
Rummaging through the archives of Twente Technical University, two enterprising students struck gold: An experiment carried out around the turn of the century but not taken to the next level. After a bit of tinkering, the brothers Roderick and Floris Wolters managed to improve on the original design and finish the job with stellar results. They then rushed to the patent office and started Solar Solutions World Wide to bring their invention to the market.

The Wolters brothers have found a way to reduce heating costs to zero for private homes and most businesses. Their system extracts energy from water. As water starts to freeze, it releases vast amounts of energy moments before the liquid turns to ice.

A water reservoir – essentially a bag measuring nine metres square – is installed in a crawl space or a basement with its contents being warmed by a few solar panels. A small heat pump is connected to cool the water down to -1 degree Celsius. This process, an endless cycle, produces copious amounts of energy – up to eighty times the amount put in and enough to heat an entire house even through the dead of winter.

The Solar Freezer is now ready for market. Demo setups have shown the system’s viability with results that exceeded expectations. The first housing societies have come knocking on the start-up company’s door and the Wolters brothers are confident that before long their Solar Freezer will be a household name. “It is somewhat of a no-brainer: The setup does not require extensive modifications to the building, is not at all invasive, and is a plug-and-play affair. Once properly installed, it just keeps running with minimal maintenance,” says Roderick Wolters.

The brothers estimate that well over 80% of the Dutch housing stock can accommodate the Solar Freezer without any alterations to the building. The installation cost may be recouped in about 6-7 years. Fiscal incentives and direct subsidies can shave two or three years off this timeframe.

“The Wolter brothers have so far been involved with three successful start-up companies which they passed on to others as new opportunities arose. However, this is the first time they have struck out on their own with a proprietary technology that promises to revolutionise the way heating is provided to homes and businesses.”

The average household in The Netherlands spends about €2,000 annually on heating, mostly for natural gas. “This entire bill can be wiped out unless the cooking range is gas-powered in which case a savings of about 97% may be obtained. Moreover, our system is of course carbon-neutral and as such in sync with present environmental concerns,” explains Roderick Wolters.

The brothers set up their company on the campus of Twente University in Enschede and receive the full support of the institution. The premises of Solar Solutions World Wide are part of the university’s “Knowledge Park,” an incubator for innovative businesses devised and run by students.

The university’s business developer Kees Schöller is excited: “The Wolter brothers have so far been involved with three successful start-up companies which they passed on to others as new opportunities arose. However, this is the first time they have struck out on their own with a proprietary technology that promises to revolutionise the way heating is provided to homes and businesses.”

Manon van Essen of the Dutch Homeowners Association is also thrilled: “The Solar Freezer may indeed solve the issue of energy storage. For a long time, we’ve been trying to figure out how to store solar energy for release at moments when it is most needed. This system seems to offer a way to do just that.” Mrs Van Essen explains that most homeowners are less than excited to feed their excess solar energy into the public grid: “They’d much rather save that energy for their own use.”

Though encouraged by the massive and positive response to their invention, the Wolters brothers are not about to order Maseratis or sail into the sunset aboard a private yacht. They remain first and foremost brilliant tinkerers with a passion for technology and the ways in which it can contribute towards a better world.


MIGA (World Bank): FDI - Treading Carefully into Fragile and Conflict-Affected Situations

[caption id="attachment_8953" align="alignright" width="178"] Author: Petal Jean Hackett[/caption]

More than 1.5 billion people – about one in five of the global population – live in what the World Bank Group terms “fragile and conflict-affected situations” (FCS). For many investors, these countries are “no-go” zones due to their weak governance systems, limited financial and institutional capacity, and elevated levels of violence. These are often considered insurmountable barriers.

According to UNCTAD (United Nations Conference on Trade and Development), last year FDI (foreign direct investment) into fragile and conflict–affected markets was only about 4.5% of the total volume of investments destined for emerging markets or less than one-tenth of FDI into the BRIC countries.

However, it is precisely these countries that are most in need of the financing, skills, and technology that foreign investors can bring. Countries affected by conflict and fragility often lack basic infrastructure such as housing, schools, factories, communications networks, roads, and trade links. These may all have been severely degraded or destroyed during conflict. Foreign investment can help bring much needed financing and expertise to close this infrastructure gap.

“With demand for electricity growing at an estimated eight percent annually, increased generation is urgently needed in Côte d’Ivoire.”

Similarly, displacement of populations and the disruption of training programmes may have seriously diminished human resources available to these countries. Foreign investors may be able to offer job opportunities, including training and skill rehabilitation. Furthermore, investments can have a stabilising effect on conflict itself.

The World Bank’s 2011 World Development Report explores how lack of economic opportunities and high unemployment often elevate the risk of conflict, especially when combined with internal and external stresses and weak institutions. First-mover FDI can also enhance confidence in a country as an investment destination, encouraging successive generations of investors to take advantage of the opportunities presented by a rebuilding process.

Is It Worth It?

Benefits of such investments do not rest only with the host countries. Investors who accept the challenge are usually rewarded with returns that are higher than those to be found in other developing economies. At the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA), we use UNCTAD data to analyse the rate of return on inward investment and found that, for the period 2006-2011, the average rate of return on investments into fragile and conflict-affected countries was approximately 50% higher than the average for investments into low-income countries as a whole.

[caption id="attachment_8954" align="aligncenter" width="602"] Côte D’Ivoire: Azito Thermal Power Plant[/caption]

It may go without saying that investors moving into these high-risk environments employ various risk mitigation techniques, and tend to use political risk insurance at higher levels than investors active in the emerging market class as a whole. Combining the FDI data with data from the Berne Union - the leading association of public, private, and multilateral insurance – we found that 2013 political risk insurance coverage for developing countries overall was about double the coverage for FDI on a global basis (7% versus 15%).

When we drill down to look at political risk insurance issuance for fragile and conflict-affected countries, political risk insurance coverage jumps to about 59%. Over the period 2006-2013, political risk insurance coverage for all countries, developing countries and fragile and conflicted-affected countries registered at 4.5%, 13% and 35%, respectively.

For MIGA, supporting investment into the countries that need it most is a key part of its operational strategy and essential to achieving the World Bank Group’s twin goals of ending extreme poverty and boosting shared prosperity. Over the last three years, MIGA has tripled its exposure to these countries and last year, it launched a Conflict-Affected and Fragile Economies Facility (CAFEF) which combines donor contributions with MIGA guarantees to insure even more investment projects in places affected by conflict.

The facility, which has a twenty-year lifespan, operates as a first-loss mechanism, enabling MIGA to assume higher risk and insure more projects in the most difficult contexts. Current contributors to CAFEF include the governments of Canada, Sweden, and the UK.

Restoring Infrastructure in Côte D’Ivoire: the Azito Thermal Power Plant

After a decade of political turmoil, Côte d’Ivoire emerged from conflict in 2011 and began the long process of recovery. The World Bank, the International Finance Corporation (IFC), and MIGA stepped in, alongside other partners, to support the government’s rebuilding efforts. Specifically, MIGA and IFC are helping to mobilise private finance for Côte d’Ivoire’s critical power needs.

With demand for electricity growing at an estimated eight percent annually, increased generation is urgently needed in Côte d’Ivoire. In 2012, shortly after the civil crisis of 2010/2011, MIGA and IFC together supported the expansion of the Azito Thermal Power Plant, which will see the existing 290 megawatt simple-cycle plant converted to a combined-cycle plant with increased capacity of 430 megawatts. Upon completion the facility will become one of the largest independent power generators in sub-Saharan Africa. The conversion to combined-cycle also has strong environmental benefits for the country, helping avoid 225,000 tons of carbon dioxide emissions per year.

Given the critical nature of the infrastructure needs in post-conflict Côte d’Ivoire, launching the project within a short time after the conflict ended was imperative. In this context, participation by MIGA and IFC was critical in mobilising private investor participation. IFC arranged a $350 million debt package, consisting of $125 million on its own account with the balance coming from five European development finance institutions and the Banque Ouest Africaine de Développement (West African Development Bank). MIGA provided the equity investor and lead sponsor, Globeleq, with a guarantee against the risk of breach of contract for an amount up to $116 million. This ground-breaking transaction was recognised as “African Power Deal of the Year 2012” by Project Finance International.

MIGA’s commitment to stimulating investment at a crucial moment in Côte d’Ivoire’s history means that we have also insured other recent infrastructure and power projects during the post-crisis period, totalling $840 million in exposure.

Risks, Rewards, and Tools

While the risks associated with investing in fragile and conflict-affected situations should not be underestimated, such opportunities do warrant careful consideration given their higher return on investment (on average) and the broad range of available risk mitigation tools. MIGA is committed to its mission of promoting FDI into developing countries and hopes to expand its activity further in fragile and conflict-affected contexts over the coming years.

About the Author

Petal Jean Hackett is an economist at the Multilateral Investment Guarantee Agency, the political risk insurance and credit enhancement arm of the World Bank Group.


Greece vs The Euro Righteous: Waiting for the Other Guy to Blink

[caption id="attachment_8964" align="alignright" width="250"] Jeroen Dijsselbloem[/caption]

So far, nobody in Brussels blinked. However, before the week is out somebody will. An eleventh hour compromise between Greece and its creditors is more than likely. According to the analysts at Morgan Stanley, the probability of a Grexit is still only about 20%. In the most European of outcomes, both parties will probably be allowed to claim victory while the real hard issues are skilfully dodged and marked for discussion at a yet-to-be-determined future date.

The drama unfolding in Brussels contains an above-average amount of political posturing. Greece must be castigated for its recalcitrance, or at least seen to be punished. Therein lies the clue: away from the microphones and cameras most Eurozone finance ministers reluctantly admit that the Greek have a point and that austerity is not the way forward – Greece must be allowed a breather, albeit a modest one.

However, these same ministers need to keep an eye on the home front. Here, patience tends to run thin and tempers high. Concessions to Greece will not be appreciated. It is thus that on Monday Greece was told by the finance ministers of the Eurogroup to hoist the white flag or face annihilation. There was no ambiguity in the message delivered by Eurogroup President and Dutch Finance Minister Jeroen Dijsselbloem: Greece simply must accept an extension of the €172bn bailout programme including its many harsh conditions.

"The drama unfolding in Brussels contains an above-average amount of political posturing. Greece must be castigated for its recalcitrance, or at least seen to be punished."

Interestingly enough, Greece has not received an either-or ultimatum. The “or” is implied and may – or may not – represent a rather tumultuous exit from the Eurozone. Greek Finance Minister Yanis Varoufakis doesn’t think this is a scenario likely to play out. He is probably right. As a debtor nation, Greece is not entirely bereft of power. In fact, the Greek would seem to hold a trump card, or two, up their sleeve.

Should Athens persist in its refusal to accept the conditions attached to the bailout programme, it will forfeit access to the billions the country needs in order to meet its financial obligations in 2015. In order words, without the bailout billions, Greece is set to default on its debt.

The country needs at least €6bn in March, €3bn in April, and another €16bn throughout August to meet maturing debt obligations. Its banks also need access to the emergency liquidity assistance (ELA) facilities provided by the European Central bank (ECB). Without this lifeline, Greek banks would crumble almost instantly.

All this creates a most interesting reality. So far, Eurozone member states have not lost money on Greece. In fact, most have made a tidy profit by co-signing loans for Greece and charging for the privilege. In case the country is forced into default, tens of billions of euros must be written off as nonperforming loans. Governments – not banks – will take a severe hit.

Exposure

European governments and the International Monetary Fund (IMF) together have underwritten around €216bn of Greek debt in addition to €38bn of securities under the Securities Market Programme (SMP). Official creditors (governments and multilaterals) are on the hook for 94% of Greece’s debt to non-residents.

Interestingly, banks have recently increased their exposure to Greek debt. Initially, UK banks reduced their exposure to Greece from €13bn in March 2008 to €4.3bn in December 2012 only to increase it to over €10bn by the end of 2014. US banks moved along similar lines: from a high of €14bn in September 2009 to a low of €2.5bn in December 2012 and back up again to €8bn in September 2014 (after spiking at €13bn in June 2014).

Euro area banks behaved differently. They reduced their exposure to Greece from €128bn in 2008 to about €12bn in September 2013 and have kept it at that level ever since. Curiously enough, the only banks to have increased their exposure to Greece are the German ones. After first limiting their potential downside to €3.9bn by the close of 2012, German banks now have again around €10bn in Greek debt on their books.

Contagion

Still, the contagion risk of a Grexit would be minimal. During 2011-12 crisis it was widely feared that by ditching the euro, Greece could cause other troubled countries – Portugal, Spain, and quite possibly Italy – to tank as well. Those fears have largely dissipated. Over the past few years, the weaker Eurozone nations made significant progress in strengthening their banking system and balancing budgets. Today, they are nowhere near tumbling.

Thus Greece is an isolated case. However, its exit from the Eurozone is a Herculean (or rather Heraclean) undertaking not for the faint-of-heart. The Maastricht Treaty that called the euro into existence does not contain an exit clause. In fact, no legal mechanism exists for a Eurozone member state to revert to its national currency.

Currently, the only way out is to exit the European Union entirely. Any EU member state may of course leave the union at any time and for whatever reason, but nobody – least of all the Greek – is contemplating such a move.

No Way Out

So there is no legal framework that allows a Eurozone country to stop using the common currency. Crossing this line, the EU will be entering virgin territory, an exercise fraught with unforeseen dangers. Also, the absence of an exit clause in the Maastricht Treaty is not a design flaw: it actually has a good reason.

From its earliest days, European integration was conceived as a linear, one-way exercise in nation building on a continental scale. A Grexit would dispel the EU’s foundational myth and open a Pandora’s Box of terrifying questions: which country would next shift into reverse gear and can EU member states pop in and out of the euro at their convenience? Is a Spanish euro the same as a German one and can free trade be maintained when some seek a competitive edge via devaluation?

Although rather inexperienced – if not positively hapless – as a politician and none too convincing as a financial ironsides, Dutch Finance Minister Dijsselbloem will undoubtedly not want to be remembered for causing the euro project to falter and fail through personal intransigence. Mr Dijsselbloem is but an intellectual featherweight compared to his Greek colleague Yanis Varoufakis – an accomplished academic and original thinker, and dangerously well acquainted with the dark art of game theory.

The president of the Eurogroup may exercise some control over the purse strings, he runs the risk of ending up on the wrong side of history. For all his Calvinistic righteousness, Mr Dijsselbloem may also cause Eurozone countries to lose untold billions in unrecoverable Greek debts.

Not all is lost. After Monday’s clash in Brussels, French Finance Minister Michel Sapin revealed that in between the shouting “some consensus” was reached. Most finance ministers agreed that Greece should indeed be allowed to reduce its primary budget surplus from 4.5% to 1.5% in order to free up some additional money for spending on social programmes. In return, Greece has agreed to shelve any and all suggestions regarding a debt haircut. That idea – always a nonstarter – is now off the table.

European Commissioner for Economic and Financial Affairs Pierre Moscovici on Monday also insisted that the negotiating process is still in full swing and will require a measure of flexibility on both sides: “There needs to be room for politics. There is not one paper or another paper. There are contributions to a global agreement.” While Mr Moscovici remains convinced that a solution is possible, he also admitted that there is no Plan B.

Greece Star Pupil

The lack of an alternative – aka TINA (There Is No Alterative) – and of an exit mechanism, plus the high price that the remaining Eurozone members are liable to pay after provoking a Greek meltdown, all imply that a solution of some sort will be reached before long. Apart from financial considerations, there is also a moral dimension to the conundrum surrounding Greece: no other country has done more to improve its ways. That merits recognition.

Fair enough, Greece had some catching up to do; but contrary to popular belief, successive Greek governments have bitten the bullet and amassed an enviable track record on reform that – according to the OECD (Organisation for Economic Cooperation and Development) – is without equal (see graph below).

The new government in Athens merely argues that is has done quite enough for now and needs some time – measured in months rather than years – to rebuild its battered house and lessen the social cost of seven years of imposed austerity. It is not an altogether unreasonable request. To deny Greece the reprieve it desperately seeks and needs – and do so out of a misplaced sense of fiscal justice – is both silly and dangerous, if not reckless.


Sustainable Stock Exchanges - A Conversation with Nasdaq Vice-Chairperson: Sandy Frucher

[caption id="attachment_8971" align="alignright" width="209"] Sandy Frucher[/caption]

What is the sustainable stock exchange movement?
When we talk about the sustainable stock exchanges project specifically, we’re talking about a UN-based project that has been in the works for several years now. This initiative aims to explore how exchanges can work together with investors, regulators, and companies to enhance corporate transparency, and ultimately performance, on ESG (environmental, social and corporate governance) issues and encourage responsible long-term approaches to investment.

But there’s another parallel – but no less global – effort going on as well. The Sustainability Working Group (SWG) investigates the material need (if any) for exchanges to seek, standardise, and/or publish environmental, social, and corporate governance (ESG) data. Through careful analysis of existing data forms and reporting frameworks, group members seek to understand the real impacts, both positive and negative, on our business. Furthermore, the SWG reflects upon the role of exchanges in the formation and sustenance of a fair, open, and transparent economy – and the proper leverage that exchanges may exert in promoting more sustainable business models.

How many exchanges are involved?
The UN SSE project started with five founding members: NASDAQ, BM&F BOVESPA in Brazil, Borsa Istanbul, the Johannesburg Stock Exchange, and the Egyptian Exchange. It has since grown to include eleven others, including Deutsche Börse, NYSE (now ICE), Kingston (Jamaica), Bombay, Bogotá, Lima, London, Mexico City, Lagos, Bangkok, and Warsaw.

Evan Harvey of NASDAQ chairs the WFE sustainability working group, with Corli LeRoux of the Johannesburg Stock Exchange as the vice-chair. Other participants include Brazil, both the Bombay and the National Stock Exchange of India, Istanbul, Malaysia, Deutsche Börse, Egypt, NYSE/ICE, Japan, Mauritius, Shenzhen, Singapore, and Toronto. We also have other kinds of exchanges in the mix, like CBOE (Chicago Board Options Exchange) and CME (Chicago Mercantile Exchange), which broadens the scope of our work.

Can you give us an update on progress? What are the latest developments?
At the WFE (World Federation of Exchanges) annual meeting in Seoul, Korea in October, we presented a chairperson’s statement and draft working group guidance to the WFE working committee, including original research illustrating the current state of exchange ESG reporting. I was elected to another 3-year term on the WFE Board of Directors. Juan Pablo Córdoba, CEO of the Colombia Exchange, was elected Chairman. Bahrain Bourse, Euronext, the Nigerian Stock Exchange, and BATS (Better Alternative Trading System, in Lenexa, Kansas) were also confirmed for WFE membership.

On a WFE panel discussion with IOSCO Secretary General David Wright, I made my case for the materiality of sustainability (or ESG) metrics. I honestly believe that some of these indicators – the way we consume or preserve carbon and other resources, for example – are absolutely indicative of long-term strategy and viability. Investors want this data. They would be better informed by it, and thus more willing and able to make long-term investments. I was pleased to hear that Mr Wright seemed to agree with me on this point. We’ll see if IOSCO will get involved, but I hope they do.

Why are exchanges getting involved?
Exchanges are in a unique position. We have a unique relationship with the markets we make and the companies that list with us. It is regulatory, certainly, and exchanges bear the burden of representing investor interests as vigorously (perhaps even more vigorously) than those of our stockholders or stakeholders. But we also have business relationships with these companies. In a real sense, we are partners, and we want these companies to succeed, thrive, and list on the market for many years to come. So how can we help to accomplish that? By demonstrating the value of best practices, and even requiring companies to behave in certain ways.

What can exchanges do to drive change?
There’s a range of mechanisms available to exchanges. They could petition the government or their local regulator for a rule change, create their own listing rule, separate companies into higher and lower performance tiers, provide best practices guidance, and so on. Many exchanges, including NASDAQ, already offer expertise and guidance to their listed companies about the value, purpose, and structure of ESG disclosures. If asked, we will connect CEOs with expert NGO partners, so that progress may continue.

What is the downside? Are there risks associated with this project?
We really need to find global consensus on these issues. If every exchange believes that ESG metrics are material disclosures, then virtually every public company in the world will disclose ESG metrics. It’s that simple. There are very few exchanges that would unilaterally mandate change. The true pioneers in our industry - South Africa, Brazil, and now many of the Asian markets – decided to move forward anyway, just because they believed it was the right thing to do.

Why did you get involved in this? Does the project resonate with your personal beliefs or values?
First and foremost, I absolutely believe that this is the best thing not only for our business, but for the general health of the markets. But yes, I also have a deep and longstanding commitment to some of the key ideas here: Environmental protection, economic empowerment, fair and efficient business practices, market transparency, and so on. I believe that investors have the right to know much more about the companies they invest in. Exchanges are essential in this struggle. In some ways, we have to rebrand ourselves as economic engines for good – which is what we aspire to be.

What is the future? Where is this movement headed?
The status quo will not suffice. Our planet is in peril, and the residual consequences of climate change, resource scarcity, and economic inequity will wreak havoc. Even the most robust and redundant systems can fail, especially if you’re willing to accept bad data or indulge bad judgment. As leaders, we have both the right and the responsibility to observe new evidence, revise our opinions, and create a better future. A few simple changes to our corporate disclosure rules, to our evolving interpretation of materiality, to the way we run our boardrooms and fill our break rooms – can help create a fair, sustainable, and inclusive market.


Valerie Jarrett: The Power of Whispers

One of only three senior advisers to US President Barack Obama, Valerie Jarrett holds more power than anyone else in the world, with the possible exception of her employer. That latter assertion is, however, questionable. It was Valerie Jarrett who in 1991, while deputy chief of staff to Chicago Mayor Richard Daley, hired Michelle Robinson, then employed at a private law firm and engaged to Barack Obama, to work at City Hall.

Before accepting the job, Michelle Robinson arranged for Ms Jarrett to meet her fiancé for what would turn out to be a dinner that changed the course of contemporary history. Michelle Robinson accepted the job and a little later got married. For her part, Valerie Jarrett soon became a mentor to the Obamas and introduced the couple to the powers that be in Chicago – the same ones that would eventually propel Barack Obama’s political career to heights then still unsuspected.

As the newly-elected president prepared to move into the White House in 2009, Ms Jarrett was one of the first to knock on the door as the co-chair of the transition team charged with getting the incoming administration up and running. Since then, she officially holds the position of Assistant to the President for Intergovernmental Relations and Public Liaison. If anything, the cumbersome length of the job title is meant to hide the fact that Ms Jarrett has a say on nearly any topic likely to be discussed in the Oval Office and the adjacent corridors of power.

Currently, Ms Jarrett heads the White House offices of Public Engagement, Urban Affairs, Sports, and Intergovernmental Affairs. She also chairs the Council on Women and Girls and the Task Force to Protect Students from Sexual Assault. In fact, there is little that Ms Jarrett doesn’t control. In the polarised world of Washington politics, that much power begets plenty animosity.

Recently, Ms Jarrett was widely criticised for using her Secret Service security detail as a personal valet service having agents run errands outside the official agenda. Republican Senator Pat Roberts from Kansas, no great friend of the Obama Administration, in October told talk radio host Hugh Hewitt that he is convinced of Ms Jarrett’s involvement in the politically-motivated targeting of conservative groups by the Internal Revenue Service (IRS). Senator Roberts said that an investigation into this affair by the Senate Finance Committee was called off at the behest of the White House.

Conservative groups revel in describing Ms Jarrett as President Obama’s Rasputin for the sway she holds over the first family. They point to her outsized staff of 36 as proof that Ms Jarrett is running the Obama Administration, if not by stealth than by omnipresence. Her guidance is said to be responsible for an untold number of failures such as the US policy for the Middle East and the overreach of the intelligence community.

As the Obama Administration seems increasingly stuck and confined to responding rather than setting the agenda, it is perhaps unsurprising that Ms Jarrett receives part of the blame. Former Obama speechwriter Chris Matthews recently lambasted the president for being “intellectually lazy” and “listening to the same voices all the time.” Even Jonathan Alter of Bloomberg News, author of a hurray-book on Obama, now wonders if the president has become “atrophied into a little world peopled only by Valerie Jarrett and his wife Michelle.”

In both the pro- and anti-Obama camps, there is little doubt that Ms Jarrett is the power behind the throne in the White House. There is a growing consensus that her prominence may not be all that beneficial to either President Obama or the nation. So far, however, there are no signs that Ms Jarrett’s influence over events at the White House is diminishing. As it befits a true éminence grise, the lady seems stoically unimpressed and unfazed by the criticism levelled against her.