Ian Fletcher, Director IBM IBV: The Trust Economy - What’s My Data Worth?

How Do Organisations Ensure We Get a Fair Return?

The driving force behind “stakeholder capitalism” – the theme of this year’s World Economic Forum meeting at Davos – is the conviction that businesses should balance the needs of all their stakeholders rather than explicitly favouring investors. I believe that’s a particularly apt reminder in the data-rich universe we inhabit today. Data is growing at a seemingly unstoppable exponential rate, as we leave indelible digital fingerprints on everything we touch; indeed, it’s now widely regarded as one of the world’s most valuable assets. But there’s mounting concern that some of the stakeholders who generate that data aren’t reaping their rewards.

In the right hands, data becomes a tool for the greater good, helping to unearth cures for previously incurable diseases, improve communications and create innovative services that enrich our lives. In the wrong hands, it becomes a weapons-grade technology, influencing our actions through the use of behavioural science and sentiment analysis, with machines predicting our every move. So it’s time that we – the real owners of our personal data – reflect on its true worth and the potential ramifications of its misuse. It’s also time that senior executives ensure we get a fair return on the data we share. IBM’s latest Global C-suite Study shows what’s required.

From Pervasive to Persuasive

Data is changing the way we live. Algorithms know what we do and where we do it, what we think and how we feel. In fact, they may even know us better than ourselves. They can be used to make product recommendations, personalise the prices of big-ticket items and nudge our purchasing choices, sometimes so subtly that we are unaware of being influenced. Increasingly, they also make important decisions on our behalf. It’s becoming almost commonplace for enterprises to ask their customers to trust a bot or an algorithm to determine whether they get insurance cover or a mortgage.

Used benignly, data enables organisations to fulfil people’s genuine needs and desires. But not all organisations are benign. Both governments and corporations have been guilty of intrusive surveillance. And in what are arguably the worst abuses, personal data has been utilised to manipulate the political choices people make, threatening the very foundations of democracy. Pervasive intelligence is evolving into persuasive intelligence – and persuasive intelligence can be put to positive or pernicious ends.

"It’s time that we – the real owners of our personal data – reflect on its true worth and the potential ramifications of its misuse."

So it comes as no surprise that many individuals are becoming increasingly reluctant to part with their personal data. In one recent survey, for example, the majority of respondents had little or no idea how much governments and companies knew about them, didn’t trust governments or companies to handle their data “properly” and didn’t believe that they were getting a fair trade for the data they shared [1].

This rising wariness on the part of citizens and consumers has profound implications for politicians and business leaders everywhere. Our personal data belongs to us, but institutions and corporations often function as its custodians. Senior executives and public servants must thus be able to demonstrate that they will treat our data ethically, protect it effectively and give us a reasonable share of the value they derive from it. They must show, in short, that they are deserving stewards of our data.

Data and Trust Entwined

In the 20th edition of the Global C-suite Study, “Build Your Trust Advantage”, the IBM Institute for Business Value (IBV) set out to explore what’s needed to lead in a world brimming with bytes. The IBV discovered that data has become inextricably entwined with trust. The widespread erosion of trust, on the part of consumers and B2B customers alike, has changed what organisations can – and should – do with data. It’s also transforming the value equation. Where data alone was once an enterprise’s unparalleled asset, it must now factor in transparency and integrity. Data matters, but trust determines its worth [2].

The IBV interviewed 13,484 C-suite executives from 20 industries and 98 countries, with surprising results. During the course of its research, the study team identified an elite group of just 9 percent of respondents whose organisations are data leaders. The IBV refer to them as Torchbearers, this group excel at innovating and managing change. They have also surpassed their peers in terms of revenue growth and profitability.

So what accounts for this stellar performance? The Torchbearers have fused their data strategy with their business strategy and operate in a data-rich culture. They also set the bar high for the value they expect to gain from data and typically exceed their targets. But what’s most notable of all is that they put customer trust centre stage – in marked contrast with the organisations represented by the rest of the interviewees (see Figure 1).

[caption id="attachment_14610" align="aligncenter" width="588"] Figure 1: The power of trust. Torchbearers focus on using data to strengthen their customers’ trust.[/caption]

Past the Tipping Point

The trust customers once gave, almost blindly, to brands and institutions has been slipping away for some time now. Data sharing among organisations has also become constrained by a mutual lack of trust. Witness the fact that 36 percent of B2B buyers in a recent survey didn’t believe they “got the full picture” from their vendor during the sales process [3].

The IBV’s analysis suggests that trust has passed its tipping point. All organisations face a future in which changing customer sentiment and new regulations could severely constrain their access to prized personal data. But the most advanced enterprises recognise that, if they want to enjoy the huge revenues that new business platforms and the application of artificial intelligence could provide, they will have to build – or rebuild – customers’ faith in them.

"Just 9 percent of the senior executives the IBM IBV interviewed head organisations that are data leaders and put customer trust centre stage."

An organisation’s ability to earn a trust advantage depends on how good it is at creating trust in data and how well it engenders trust from data. Three basic principles – transparency, reciprocity and authenticity – guide the way Torchbearers handle data and how they engage their customers.

A Clear View

The first requirement is transparency. Customers demand transparency of data associated with products and services and, in the case of personal data, assurances that it’s kept safe and used in a fair manner. Their purchasing decisions depend on detailed product information: data about how products are manufactured and under what conditions, reviews from users and influencers, accreditations from third parties and more.

Brands must prove their credentials. Often, that proof takes the form of customer reviews or buyer testimonials. But some organisations are also turning to blockchain networks, where they can verify that they have honoured their brand promise, whether that promise is speed of delivery, eco-friendly sourcing and manufacturing or anything else. Transparency constitutes evidence that an organisation and its offerings are what the organisation claims they are. Endorsements, coupled with detailed and visible information about the safety and quality of goods, go a long way in establishing trust.

The Rule of Reciprocity

Reciprocity is equally vital. Most C-suite executives understand that to get access to data, they have to give something meaningful in return. The challenge? Organisations often don’t know what their customers would consider a fair exchange. Moreover, customers sometimes have mixed feelings about the benefits to be gained by sacrificing their privacy. Unpublished research by the IBV shows that only three in ten consumers feel strongly that the risks outweigh the rewards.

Answering for Their Actions

The last element is accountability. This covers a broad range of issues, including respect for customers’ privacy and a commitment to data security. The Torchbearers prioritise data privacy: 45 percent see it as a top competitive advantage, second only to customer relationships. But it can be very difficult to discern precisely where customers draw the line. Take personalised car insurance premiums based on telematics. What one customer perceives as added value may seem like “big-brother” scrutiny to another.

Data security can, likewise, be a vexed issue. It’s clearly imperative that all organisations establish policies to combat cyber risk and protect customers. Yet security has become something of a tug of war – a battle between the need to create frictionless customer experiences and the need to authenticate transactions. Excessive caution impairs customer engagement, while too little caution endangers an organisation’s reputation and destroys customers’ trust in it, if their data is hacked.

That said, a good data privacy policy can shield organisations from the worst of the fallout from a data breach by offering customers transparency and opt-out control over their personal information. Conversely, a flawed policy can exacerbate the problems. In one study of Fortune 500 companies, firms that failed to explain their data privacy practices saw their share prices drop sharply when they experienced a data breach, whereas firms that provided customers with a high level of control saw no significant change in their share prices [4].

The Case for Self-control

Today, customers demand transparency about how their personal data is being used; tomorrow, they may insist on exerting full control over the information. People know that their data is being used, but they don’t necessarily know how, where or for what purpose. They are becoming more guarded about what they share and, if businesses cannot convincingly demonstrate the value their customers get in exchange, those customers will insist on recovering their privacy.

Some organisations, anticipating what they consider inevitable, are already making that possible with self-sovereign identity models. Self-sovereign identity puts the management of private data in the hands of individual customers and trading partners. Users supply proof of their identity in the form of digital attestations from the pertinent authorities. They can also pre-programme permission for their data to be used by different entities in different situations, including granting permission to use it for analytics.

"Get it wrong, we risk trapping ourselves in a 'matrix' of our own making."

But the crucial point is that users retain control of their data, in much the same way that people retain control of their own birth certificates and passports. Users can also choose which piece of data to share when they are required to confirm a particular claim. So, for example, an individual who needs to prove that he or she is qualified to drive could provide a statement to that effect, endorsed by the relevant agency, rather than a driver’s licence with all its additional details. The requester gets what it needs to know – and nothing more.

Self-sovereign identity models have enormous potential. They can be used by the partners in a supply chain or an industry alliance to encourage data sharing with accountability, or by airlines and other organisations cross-sharing data through industry alliances. They can also facilitate ‘just-in-time identification’ – where, instead of stockpiling personal data, an enterprise keeps the minimum required to identify a returning user and then requests any extra data it needs to execute the next transaction when the transaction is about to take place.

Of course, self-sovereign identity models still require trust, but it’s trust in a diffuse infrastructure rather than a single entity – and blockchain is the technology that makes such an infrastructure possible. It enables multiple organisations to collaborate by forming a decentralised network much like the Internet itself, with private-key cryptography to ensure the confidentiality and integrity of the data.

Big Data, Big Trust

Something certainly has to change. Digital trails are disappearing, as new legislation requires that organisations secure customers’ consent to use cookies and delete their personal data on request. Regulations are also restricting the sharing of data among business partners. In some cases, conglomerates are finding that they can’t even share data among the companies they own.

The problem is particularly acute in industries that have been dependent on third-party data to get closer to end-users. Executives are growing wary of how trustworthy that data might be and wondering whether third-party data, beset by new regulations, will suddenly dry up.

Yet the standouts in the IBV’s study aren’t daunted. Seven in ten Torchbearers already have a treasure trove of reliable, actionable customer data (see Figure 2). The business leaders who head these organisations also realise that trust is integral to its retention. Enterprises that have earned their customers’ trust are better placed both to keep the data they currently hold – since their customers are less likely to demand that it be purged – and to collect more data in the future.

[caption id="attachment_14611" align="aligncenter" width="588"] Figure 2: Feast versus famine. Torchbearer C-suites have extensive access to accurate and actionable “360-degree” customer data.[/caption]

Models For Mutual Benefit

With trust in their data as their guiding light, the Torchbearers are confident of their ability to test new models and enter new markets. New business models have become contingent on access to ever-bigger, ever-broader data. But some of the innovations made possible by new technologies seem just as likely to raise the bar on customer trust as to satisfy it. Personalised health insurance premiums based on tracking how much people exercise or make other positive lifestyle changes are a case in point.
However, organisations that have already won a reputation for integrity can stake out a differentiating position by embracing such models and seizing opportunities that are too risky for less trusted brands. The most successful examples of this approach typically involve enterprises that follow the rule of reciprocity and give customers something they truly value as a quid pro quo for the data they share. These organisations also take great pains to use the data transparently and responsibly.

Conclusion

Like it or not, we’re entering an era in which our very lives are shaped by ones and zeroes. We all have a stake in this new world and a role to play in determining whether data becomes a force for evil or for good. If we get it wrong, we risk trapping ourselves in a “matrix” of our own making, a dystopian future in which predatory institutions harvest our data, algorithms dictate our choices and a few profit at the expense of the many. If we get it right – if public and private enterprises alike use our data in a trustworthy fashion and warrant the faith we repose in them – we could enjoy a better, richer existence than humanity has ever experienced before.

[1] Global Citizens & Data Privacy. Ipsos-World Economic Forum. 2019.
[2] “Build Your Trust Advantage: Leadership in the era of data and AI everywhere”. IBM Institute for Business Value. November 2019. ibm.co/c-suite-study. All subsequent references to the report come from this source.
[3] Ellett, John. “B2B Buyers Don’t Trust Vendors—And That Is A Huge Opportunity for Marketers.” Forbes. October 10, 2018.
[4] Martine, Kelly D., Abhishek Borah, and Robert W. Palmatier. “Research: A Strong Privacy Policy Can Save Your Company Millions.” Harvard Business Review. February 15, 2018.

The views expressed are those of the author and do not necessarily represent those of IBM.

About the Author

Ian Fletcher was educated in the UK, building a successful career in IBM Global Services. With more than 30 years’ experience in technology and business consulting services, Ian leads the IBM IBV C-suite Study research for MEA. He also runs IBM’s thought leadership programme, advising clients on business transformation and strategy. Ian specialises in the impact of the Fourth Industrial Revolution and, in turn, its impact on the C-suite and society.

About IBM

IBM is a leading cloud platform and AI solutions company. It is the largest technology and consulting employer in the world, with more than 380,000 employees, serving clients in 170 countries.

About IBM Institute for Business Value

The IBM Institute for Business Value, part of IBM Services, develops fact-based strategic insights for senior business executives.

IBM Global C-suite Study: ibm.co/c-suite-study


UNOG on Perception Change Project (PCP): What Does the PCP Do for SDGs?

Negative news dominating the headlines leads people to believe that the state of the World is worsening.

This is a misconception. Positive developments related to global challenges are happening every day — so why aren’t these stories being told?

The objective of the Perception Change Project (PCP) is to tell the full story with news that highlights the challenges, while showing solutions, progress and results of the positive impact made by International Geneva.

The objectives go hand-in-hand with PCP efforts to promote the Sustainable Development Goals (SDGs), and provide simple and practical solutions to achieve them.

When the former director-general Michael Møller launched PCP in 2014, one of the priorities was to create a visual overview of International Geneva’s core expertise, along with the main SDGs on which each organisation focuses. PCP created SDG Mapping, with over 70 Geneva-based organisations participating. The fold-out map converts complex data into a clear and comprehensive visual, offering actors the opportunity to connect with like-minded organisations.

The map was updated and made interactive and accessible online. Through the online mapping tool, every researcher is able to get a snapshot of who does what for the SDGs in International Geneva.

"PCP, as a communication space, has many touchpoints to connect humanity worldwide to the SDGs, and 2020 is set to be an exciting year."

For a more in-depth understanding of International Geneva’s work, the GVAData project was launched. It is as an easy-to-navigate online compilation of all the current work of over 200 actors in International Geneva.

Using constructive feedback, the site was revamped to better address the needs of its target audiences, namely academics, but open to all interested parties. GVAData aims to become the go-to portal for information about International Geneva, and it now includes links to data sites run by other international organisations, as well as a list of SDG resources.

The PCP team wanted to raise the profile of the SDGs. One of the most effective ways to do this was by making them visible to travellers passing through airports.

The global campaign YouNeedToKnow was created in partnership with the travel retailer Dufry. It was launched at Geneva Airport and later rolled-out in 10 airports worldwide, including Zurich (during the World Economic Forum in Davos), Italy, Britain, Greece, Spain, Portugal, Bulgaria, Morocco and Algeria.

The campaign runs during peak traffic periods, and while it reaches a wide audience, PCP also focuses on awareness-driven projects to target niche audiences.

It produced a children’s SDG storybook, Fairy Tales for a Fairer World. Traditional tales were adapted to highlight some of the modern global challenges. The book, originally in English, was translated into French, Russian, Chinese, Arabic, Greek, Polish and Spanish by volunteers in the UN translation units. It has been distributed at events including Expo 2017 in Astana, the Salon du Livre in Geneva and at the UN Geneva Open Day.

Following this success, PCP created a booklet entitled 170 Daily Actions to Transform Our World. It encourages individual efforts and reminds the public that no contribution is too small to make a lasting impact. The booklet, in English and French, was distributed to over 7,000 visitors at the UN Open Day in 2018, and 25,000 copies in English, French and Spanish have been allocated to the visitors’ centre at the Palais des Nations.

The Global Communication Department at UN headquarters requested to use it as part of the SDGs website, and offered to translate it into Russian, Chinese and Arabic. UNRIC Brussels translated it into Portuguese and Greek. The Danish United Nations Association translated it into Danish, and the United Nations Baku Azerbaijan translated it into Azeri. German and Italian copies have been distributed around Switzerland to promote International Geneva. Design students have turned the 170 actions into GIFs, which have been shared on social media.

Social media is a powerful tool for promoting the SDGs. One initiative was the Impact Infographics campaign showing the impact made by International Geneva. PCP collaborated with over 100 partnering organisations to capture important data and translate them into visuals. The SDG Impact Infographics have featured on social media and in the magazine Klvin Mag.

PCP launched the SDG Studio Geneva project with UNTV and the SDG-Lab. It produces videos to communicate the work done to advance the SDGS by International Geneva practitioners. The studio is open to individuals dedicated to delivering the 2030 Agenda from governments, businesses, civil society organisations and academia. More than 90 videos have been produced and shared online.

Celebrities have been interviewed, including Neymar, Michelle Bachelet, Amina Mohammed and Staffan de Mistura. The videos have notched-up thousands of views on YouTube and Facebook — and the clip of Neymar is one of the most-viewed videos on the UN Geneva’s Facebook page.

PCP, as a communication space, has many touchpoints to connect humanity worldwide to the SDGs, and 2020 is set to be an exciting year.

About the PCP

The Perception Change Project (PCP) is a creative space in the Office of the Director-General at UN Geneva. It aims to change the public’s perception of the United Nations by promoting the impactful work of International Geneva.


How Bingo Came in From The Cold

[caption id="attachment_14638" align="alignright" width="186"] Bingo: "Bingo!" (CC BY-SA 2.0) by elizaIO[/caption]

Think of bingo and it’s highly likely that the image that first springs to mind is of a smoky, old fashioned hall packed with women of a certain age whose attention is focused on a caller announcing the numbers as they come up.

Indeed, the UK used to be covered with these kinds of halls with every town of any size having at least one to serve the community. But while the heyday of the bingo hall ran from approximately the 1950s until the early 80s, as we moved closer to the 21st century, the game’s popularity plummeted. Many reasons were put forward for this including increased aspirations and greater social mobility, but the bottom line was that bingo was being consigned to the past. That was until online gaming operators started to see its potential for a renaissance.

Bingo today is big business for the operators in question and has gained a whole new audience who come from a completely different demographic from the old-style hall-dwellers. By offering a varied range of games that can be played for cents or dollars, and with sites offering an exciting environment for playing, today’s bingo fans tend to fall within the 25-35 age bracket and come from a variety of backgrounds.

A key element that today’s operators have retained from the old days is that of sociability. But instead of face to face interaction, players can communicate in chat rooms which are integral parts of the sites and it’s this element, as much as the games themselves, that will secure bingo’s future. This is borne out by the opinion of Gabriel Chaleplis, founder of B2B Gaming Services (Malta) Ltd. When questioned in an interview last year about changes he anticipated in online gambling in general, he said, “We will see more of a personalized experience in real-time, the rise of social gaming, as players will be more apt to share experiences with other players.”  If this proves to be the case, then the number of players is expected to grow as the word is spread.

[caption id="attachment_14639" align="aligncenter" width="780"] "Bingo cards" (CC BY-ND 2.0) by sarae[/caption]

Ironically, the growing popularity of online bingo has also started to have a very positive effect on the game as it’s played in halls. As long ago as 2016 it was noted that something of a resurgence was occurring and even new halls were being opened, including a 1,000 seater venue in Southampton.

The game has also started to gain something a cult status with many nightclubs now putting on ironic bingo nights where the prizes range from boxes of breakfast cereal to life-size cut-outs of celebrities. The concept of party bingo has also started to be franchised by a number of companies, most notably Bongo’s Bingo, who are taking the concept nationwide in the UK.

So far from being a relic of a bygone age, bingo is certainly back and it’s here to stay. For players, it’s a fun piece of escapism, while for the site owners it's a valuable addition to their bottom line.


Online platforms set to continue shoring up the gambling industry

In many ways 2019 was not a vintage year for the gambling industry. In Britain, which has long been a strong gambling market, the gross gambling yield (GGY) - that's the total income minus the total value of their payouts - for the whole sector was down by 0.3% from the previous year, according to figures from the UK Gambling Commission. Exclude data from lotteries and the picture is bleaker, with a decrease of 1.4% - although the amount still topped £10bn. Suffering even more substantial declines were the number of premises (3.2%) and employees (5.5%).

One notable feature, though, was the differing performance of land-based and online gambling businesses. Land-based business fared particularly badly, with their GGY falling by a precipitous 10.3%. But the ‘Remote sector’, incorporating online gambling businesses, was more robust, with a comparably modest 0.6% decrease in GGY overall and a trend-busting 5.8% in GGY from online casino slot games.

[caption id="attachment_14643" align="aligncenter" width="900"] Dunes: “Dunes Hotel & Casino, 1980’s” by Roadsidepictures (CC BY-NC 2.0)[/caption]

The resilience of the online gambling sector is in line with global trends, in fact. The online sector is forecast to grow at a compound annual growth rate of an impressive 8.77% between 2019 and 2024. The key drivers of this growth include the increasing use of advanced computational data analysis technology, an increasing number of females choosing to gamble online, and the increasing ease with which people can send and receive money to and from online sites.

Of course, the online betting market is a diverse one. Online gambling companies offer bingo, lotteries, betting on a vast array of sports and other futures, and casino games including virtual and live games, classic and novel. Within this, it is the sports betting sector that is doing the most to drive the growth in the online gambling industry, with soccer being the most popular sport, followed by horse racing. The rising popularity of e-sports also offers an avenue for strong future growth.

But perhaps the main driver of global growth in the online gambling industry is its inherent competitiveness. Online gambling businesses do not typically attempt to differentiate themselves from one another through what games and services they provide. This is because those services are mainly widely-played games over which sites cannot claim or enforce proprietary rights.

[caption id="attachment_14646" align="aligncenter" width="900"] Chips: “Poker” by Javier Morales (CC BY-NC-ND 2.0)[/caption]

It is true that there exist cosmetic variations between games on different sites and there is a sizable amount of investment in developing new ways of playing – such as streaming live casino games. But given that most major sites offer very similar services, they mainly compete to deliver effective marketing and offering attractive deals, offers, and bonuses. This includes appearing on review sites that compile those deals - free spins and bonus funds, in particular. It will likely turn out to be easier to get your rewards here, as you can browse several casinos at a glance and pick whichever deal is the most suitable in the moment. And, due to their lower overheads, online casinos can typically offer much higher return-to-player (RTP) rates than land-based casinos, too.

With an array of emerging technologies, trends, and the fundamental economics aligning in its favor, the online gambling sector’s domination of the global market’s growth is set to continue.


Coronavirus Fears Put Stocks in Correction Territory

After the U.S. stock market had been largely unaffected by the coronavirus outbreak in China, things took a turn for the worse as the virus started spreading outside of China. A broad market sell-off led by technology and airline stocks has lasted for six days now, wiping out all year-to-date gains for the three major indices.

The Dow Jones Industrial Index shed 1,190 points on Thursday, in what was the largest single-day point drop in the index’ long history. The tech-heavy S&P 500 dropped by more than 10 percent since Monday as the GAFAM group of tech companies collectively shed hundreds of billions in market capitalization. All three major U.S. indices are now in correction territory, meaning they're down more than 10 percent from their previous short-term peak.

While news coming out of China are encouraging, with recoveries now outpacing new infections, hopes of the epidemic being largely contained there have been dashed this week. While not officially classified as a pandemic by the WHO yet, the virus’ global footprint continues to grow rapidly. The number of confirmed cases outside China more than doubled this week, sparking concerns that the outbreak’s impact on the global economy could be worse than originally expected.

by Felix Richter

 You will find more infographics at Statista

The Spread of the Coronavirus Outside China

by Martin Armstrong

This week it was warned that the COVID-19 coronavirus, originating in the Chinese city of Wuhan, is "rapidly becoming the first true pandemic challenge that fits the disease X category". 'Disease X' is a WHO category for a previously unknown pathogen which could cause a serious international epidemic.

Writing in the scientific journal Cell, WHO advisor and head of the viroscience department of the Erasmus University Medical Center, professor Marion Koopmans contrasted the current situation with the SARS outbreak, noting that since 2003: "global air travel has increased more than 10-fold, and the efforts needed to try to contain the epidemic are daunting." While there have also been great advances in containment methods since then, she remains cautious, concluding: "Time will tell whether the consolidated efforts of the Chinese authorities and the international public health and research community will succeed."

As figures collated by Johns Hopkins University show, the spread of the disease outside of mainland China has picked up pace in recent days. By far the largest share of these infections have so far been reported in South Korea, but with over 650 cases now confirmed further afield in Italy - leading to lockdown areas being enforced in the north of the country - the outbreak is thought to be on the verge of being declared a pandemic.

 You will find more infographics at Statista


OECD: Private Finance for Sustainable Development

OECD Secretary-General Angel Gurría opened the third edition of the annual PF4SD Conference, highlighting the urgent need to step up action to align finance with the SDGs. We are only a decade away from delivering on the SDGs, yet progress has been slow and hugely uneven. The environmental crisis we are facing demands radical changes in our governments and policies, in our economic systems, in our production and consumption patterns, and, last but not least, in our financial systems. Secretary-General Gurría offered an overview of the work that the OECD is pursuing to support governments step up action towards a more sustainable and inclusive tomorrow. He also launched a call to find new ways for the public and private sector to work together to ensure that existing and new investments are better aligned with the SDGs.

Remember the words of the Irish playwright and activist George Bernard Shaw: “Progress is impossible without change, and those who cannot change their minds cannot change anything”. The OECD is ready to help you change. Together, we can turn this decade into the decade of real, tangible action for a sustainable, prosperous, and inclusive future for all.

- Angel Gurría, Secretary-General, OECD

Remarks by Angel Gurría, OECD Secretary-General, 29 January 2020 - OECD, Paris, (As prepared for delivery)

Ladies and gentlemen,

I am delighted to open the third edition of the Private Finance for Sustainable Development Conference (PF4SD), and to welcome leaders and experts in development finance from so many different backgrounds and countries. Your presence here shows the strength of our shared commitment to address a critically urgent issue: the efficient financing of the 2030 Agenda for Sustainable Development.

We are only a decade away from the SDGs

Today, we are only ten years away from delivering on the SDGs, including the complete eradication of extreme poverty. This means lifting just under 10% of the world’s population – around 700 million people – out of extreme poverty over the next decade. This is an effort that we must sustain, especially now when the global economy is slowing down. In fact, there are some indications that in some regions extreme poverty is starting to grow again.

In the meantime, the climate crisis is threatening to overshadow all development challenges and to overturn hard-won gains. According to the World Bank, the worsening impacts of climate change could force over 140 million new migrants to leave their homes by 2050.

It is no longer enough to react to crises when they arise. We must get ahead of these trends with smarter investments in sustainable development. Progress towards the 2030 Agenda has been slow and uneven, and by many accounts, we are off track to meet internationally-set targets for people and the planet. Getting financing right will be critical to meet the SDGs.

The importance of private finance for sustainable development

Private finance plays a critical role in helping us to meet the SDGs. Imagine: shifting just 1% of total global financial assets – estimated at USD 382 trillion – could bridge the existing financing gap. Moreover, by joining forces, the public and private sectors can ensure that existing investments are better aligned with the 2030 Agenda; and help bridge the estimated USD 2.5 trillion annual investment gaps for delivering the Goals.

We must think outside the box. We must innovate and come up with new ways for the private and public sector to work together. We must create incentives and overcome barriers to shift more finance to sustainable development outcomes and spur innovation.

The good news is that shareholders are gradually shifting their attention from simple profit making to both profit and purpose. They are reorienting management towards more sustainable business practices to meaningfully address environmental, social and governance (ESG) issues. ESG investing has grown significantly in recent years, rising to nearly USD 18 trillion in assets, with additional USD 6 trillion in sustainable investing that capture some component of ESG. This is a sizeable amount of the overall USD 30 trillion sustainable investment universe, clearly suggesting that ESG is much more than a fad.

Impact investing is also capturing the growing attention of mainstream investors, whose market size is estimated at more than USD 500 billion and still growing. For many impact investors, the SDGs have become a guideline for key performance indicators.

But there is still a long way to go.

[caption id="attachment_14659" align="aligncenter" width="797"] OECD Secretary-General: Angel Gurría[/caption]

Our newly released data on blended finance shows that private finance mobilised by development finance reached USD 205 billion between 2012 and 2018. But the poorest countries only benefited of around 6 percent of it. Still, the majority of the mobilised private finance remains directed to upper-middle-income countries. This is clearly misaligned with our main objective of leaving no one behind.

OECD support to finance for sustainable development

Realising this shift requires co-ordinated, multilateral solutions and standards. That is why the OECD is stepping up its efforts. We have been delivering policy tools, as well as pushing for further research and discussion. And we have been supporting governments and the development community to maximise existing resources and mobilise new and additional investments. Let me share some examples with you.

First, the OECD is working hard to promote more consistent, standardised measurement of all types of flows for SDG financing. Together with the Development Assistance Committee (DAC), we are monitoring and reporting on the contribution of public and private actors through Official Development Assistance (ODA) and Total Official Support for Sustainable Development (TOSSD).

Our recently launched interactive website, the SDG Financing Lab, allows users to compare development financing across the SDGs, and identify which Goals are being met and which tend to be neglected.

We also developed the OECD-DAC Blended Finance Principles, which offer a framework to ensure blended finance is calibrated to meet accepted quality standards and achieve impact.

And we continue to pursue new evidence to measure impact. The OECD’s FDI Qualities work supports policy action to align investment with the SDGs by tracking the sustainable development impacts of FDI in destination economies. We are also helping countries shape policies to improve the social impact of private investment through the OECD Policy Framework for Investment and the OECD Guidelines for Multinational Enterprises.

Second, we are supporting countries to transform their financial systems into tools to facilitate and promote private financing for the SDGs. This is done through studies such as Financing Climate Futures: Rethinking Infrastructure, as well as the creation of the Centre on Green Finance and Investment. In developing countries, the OECD’s work on environmental, social and governance criteria helps to measure and manage the impact of sustainable investments.

And at the request of the French G7 Presidency, the OECD also delivered the report, Biodiversity: Finance and the Economic and Business Case for Action. This focuses on how the impacts and dependencies of business on biodiversity translate into risks for business and financial organisations. We are now working with the UNDP to develop a robust common framework and help align private finance and investment with the SDGs.

Last but not least, we are facilitating public and private actors to work together more effectively to provide finance for sustainable development and deliver real impact results. Our Business for Inclusive Growth (B4IG), for example, is precisely about uniting governments and businesses behind a broad-based, sustainable development agenda that places social and environmental returns at the same level as financial ones.

We are also supporting the achievement of SDG 8 (decent work and economic growth). For example, “Global Deal for Decent Work and Inclusive Growth” is bringing together governments, trade unions, employers and businesses to address challenges in the global labour market.

Moreover, the OECD Development Centre’s Emerging Markets Network (EMnet) promotes an exchange among multinationals on how to address sustainability; have a positive impact in emerging markets; and rethink business strategies to balance short-term profitability objectives with long-term sustainable development goals. Similarly, the Centre’s Network of Foundations Working for Development (netFWD) supports foundations to co-ordinate amongst themselves – and with governments – to fill gaps and identify solutions to development challenges.

Ladies and Gentlemen,

The environmental crises that we face demand radical changes. In our governments and policies, in our economic systems, in our production and consumption patterns, and, most importantly, in our financial systems. Climate change is imposing a cultural software change.

Remember the words of the Irish playwright and activist George Bernard Shaw: “Progress is impossible without change, and those who cannot change their minds cannot change anything.”

The OECD is ready to help you change. Together, we can turn this decade into the decade of real, tangible action for a sustainable, prosperous, and inclusive future for all. Thank you.

See also: OECD work by Development Co-operation Directorate

About OECD

The OECD Development Co-operation Directorate promotes coordinated, innovative international action to accelerate progress towards the Sustainable Development Goals (SDGs) in developing countries and improve their financing. Supporting the OECD Development Assistance Committee (DAC), the DCD helps set international principles and standards for development co-operation and monitors how donors deliver on their commitments. Drawing upon the whole OECD expertise, we support members and partners with our data, analysis and guidance.

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Panel: Can financial innovation accelerate the alignment of finance with the SDGs?

 Speakers:

Mathilde Mesnard, Deputy Director, Directorate for Financial and Enterprise Affairs, OECD

Florian Kemmerich, Managing Partner at Bamboo Capital Partners

Maria Teresa Zappia, Chief Investment Officer, BlueOrchard

Javier Lozano, Co-founder and CEO, Clinicas del Azucar

Sony Kapoor, Managing Director, Re-Define

This session brought together a diverse set of panellists, among which policy experts, investors, and experienced innovators to discuss whether and how financial innovation is accelerating alignment of finance with the SDGs.

Mathilde Mesnard, from the OECD, set the scene highlighted that financial innovation is part of the equation leading to mainstreaming and scaling sustainable finance, for instance by easing financial inclusion and financial literacy. Blockchain-based solutions and smart contracts are promising technologies as they can facilitate financing for SMEs and their integration in global value chains. The right policy frameworks need to be put in place to support innovation while minimising risks and reaping benefits.

Financial innovation needs to aim at finding scalable solutions. Maria Teresa Zappia, from BlueOrchard, shared insights into Blue Orchard’s UCITS Emerging Markets SDG Impact Bond Fund, a promising example of a scalable and fully liquid fund offering investors easy access to a portfolio of bonds of emerging markets’ development banks, financial and microfinance institutions, and social enterprises which have been selectively screened based on their impact and SDG alignment.

Florian Kemmerich emphasised the importance of investing in small and early-stage enterprises to have an impact, achieve transformation while also achieving financial returns. He also offered insights into the SDG500 fund, launched at Davos in January 2020 by Bamboo Capital, with a coalition of public and private organisations, including UNCDF. The SDG500 is a USD 500 million investment platform composed of six underlying impact funds using either debt or equity to bridge the missing middle financing gap in emerging and frontier markets. The blended structure of the fund allows to package smaller funds in a larger one in which institutional investors can actually invest.

Javier Lozano, from Clinicas del Azucar, provided the social entrepreneur’s perspective to the panel, explaining how financial innovation and innovative partnerships with government, impact investors, and development finance providers, allowed his social enterprise to achieve commercial viability and then scale. His social enterprise provides specialised diabetes through one-stop shop clinics in Mexico, including middle- and low-income patients.

Sony Kapoor, from Re-Define, argued that large extent of the financial innovation out there is still aiming at rent seeking and profit maximisation. According to him, the continued gap between real and perceived risk shows that financial markets have failed in providing coordination and information. Financial innovation is currently not contributing to align finance to the SDGs, as capital is still not flowing where it should, namely countries with a shortage of capital which have catch-up potential thanks to productivity gaps.

The panel stressed that we collectively need to use our best resources, financial and human, to create financial innovations that allow for a large-scale reallocation of capital towards SDGs-aligned investments.

DevCom - OECD Development Communication Network

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The OECD Development Communication Network (DevCom) is an international platform where governments find better ways to engage with citizens for sustainable development. Established 30 years ago, DevCom brings together communications and public affairs experts from the public, private and non-profit sectors to learn from one another and identify good practices.

Effective communications and public engagement have never been more important. In a complex political environment, development communicators need to rebuild public trust in international cooperation. In a rapidly evolving media landscape, they need to mobilise citizens into action for the Sustainable Development Goals (SDGs).

Download the DevCom brochure for more information on the network and on how to become a member.


Business in Times of Corona: Avoid the Herd and Hold the Line

In times of crisis, when circumstance conspires against clarity and doom inspires basic instinct, philosophy becomes a beacon of reason. “Everyone has a plan until they get punched in the mouth.” Mike Tyson was the source of that insightful yet somewhat misleading truism. Experience teaches that contingency plans and protocols conceived in peacetime usually prove woefully inadequate when the proverbial substance has hit the fan. They offer a rough guideline at best and often need daily tinkering to adapt to the disconcerting dynamics developing ‘on the ground’.

Corporations are, essentially, no different from individuals and react instinctively as they move from business-as-usual to survival mode: in order to preserve the core, outer rings are shed, and fat is trimmed as lockdown procedures take effect. The herd, panic-stricken, readies for a stampede to higher and safer ground only to find that no such place exists.

Perhaps CNBC and CNN should come with a mandatory warning: Watching may seriously affect your financial health. Brian Peston, The Money Guy of the eponymous YouTube channel, offers sensible advice: Fight all your human instincts and build a worldview that is separate from the herd. Mel Lindauer, author of The Bogleheads’ Guide to Investing, agrees and suggests ignoring the ‘noise’ whilst sticking to the original plan.

Though in the long run the grim reaper takes the prize, the short-term alternative is akin to a dissonant staccato symphony featuring a choir of headless chicken running aimlessly amok as the finite nature of their predicament takes hold – not effective, nor helpful.

Meanwhile in the real world, a deadly virus is on the rampage and threatens to erase all the certainties that glued the tightly integrated and finely tuned global village together. However, instead of fearing an apocalyptic economic meltdown, corporations can find solace in the knowledge – a new certainty – that governments will not stand by idly as markets crumble. Even though each country formulates an individual response to the unfolding crisis, there is unison in their determination to annihilate the microscopic foe by hook, crook, reason, and/or good fortune.

This may be a good time to revisit Orson Wells’ dystopian War of the Worlds, first serialised in 1897 and remade countless times since. Though it is at present hard to see how a virus can become a friend and ally, the corona threat will force the world to recognise the urgent need for collective resolve and action - to be followed by reform. That is a promising place to start looking for answers.

Whilst draw bridges are being pulled up, the virtual world remains very much intact as a place to share experiences and remain connected. The exchange of information and data, commodities that have become crucially important to contemporary economies, is impervious to biological viruses. Nor is the ability of corporations to communicate with stakeholders, ranging from clients and workers to subsidiaries and partners, in any way impeded.

However, a few basic tenets of modern manufacturing need revisiting in order to boost the resilience of supply chains that feed just-in-time processes. Modularity, evolvability, embeddedness, and redundancy are well-established concepts that have, however, been largely overlooked. Corona lays bare the underlying fragility of current corporate practices, especially in the manufacturing sector. The virus also shows that, driven by their herd mentality, markets can behave in a destructive and unhelpful manner.

As the Harvard Business Review notes, the relentless pursuit of efficiency often implies heightened vulnerability. Integrated supply chains easily get out of sync and may even collapse when disturbed. The impact of knock-on effects is well understood but rarely addressed before it occurs. Modularity that allows production lines and suppliers to be reordered and adapted on short notice offers solutions as does build-in redundancy.

Likewise, optimising for peak performance may undermine a system’s evolvability, or its capacity to instantly absorb lessons learnt in a rapidly changing environment. The ability to apply that experience-born knowledge instantly - bypassing rigid bureaucratic and hierarchical corporate structures - is key to weathering any storm.

Embeddedness is a cousin of corporate social responsibility but takes this buzzword out of the boardroom and into society. Corporations must be thoroughly aware of the fact that they operate, and prosper, in a multi-player and multi-layered ecosystem that pointedly includes other businesses and a great many stakeholders that must deal with similar challenges. This is not the time to prioritise self-interest or ditch corporate values in the face of a crisis which will only become existential if emotion overtakes reason. Companies that reach out decisively and become a proactive part of the solution create lasting goodwill – a priceless commodity.

Rather than embrace the maxim proffered by late-US president Ronald Reagan, businesses could do worse than, at least for now, ignore markets ill-equipped to deal with the pandemic and put their confidence in government – like it or not, always the ultimate arbiter. ‘I’m from the government and I’m here to help’ may at present be the most encouraging words any CEO or entrepreneur can expect to hear. Luckily, the world’s most important economic powerhouses are in good shape: money should be no object although it may yet take a few days for all governments and central banks to fully appreciate the magnitude of the corona crisis.


Business in Times of Corona: Steering Economies by Dead Reckoning

Ridiculed and even vilified last week for refusing to drive interest rates deeper into negative territory, President Christine Lagarde of the European Central Bank proved ahead of the curve as she urged – up to four times in about thirty minutes – Eurozone governments to meet the impending recession with vast outlays of cash.

As the US Federal Reserve’s move to slash interest rates by 50 basis points showed over the weekend, central banks have no meaningful monetary instruments left to provide the support needed. Predictably, markets were unimpressed by the rate cut and continued their slide on Monday. Only decisive action on the fiscal side can offer a measure of succour to frightened and highly volatile markets driven by thoroughly spooked investors.

Ms Lagarde’s appeal seems to have resonated in The Hague and Berlin where an unprecedented spending splurge is in the making. On Monday, the Dutch government hinted at the strength of its resolve by reportedly preparing a €90 billion emergency package to help businesses and workers survive the crisis. Finance minister Wopke Hoekstra, until just a few days ago the stingiest member of Prime Minister Mark Rutte’s cabinet, left no room for doubt as he displayed a surprising eagerness to deploy his country’s formidable hoard of cash. Mr Hoekstra explained that now is the time to tap into the reserves accumulated during a decade of thrift.

Next door, Germany mulls an equally forceful intervention to keep its economy afloat, and possibly, humming. Finance minister Olaf Scholz promised to ready a ‘big bazooka’ to avert the impending crisis. As a first step, state-owned development bank KfW received an additional €93 billion in government-backed guarantees, raising its financial firepower to just under €550 billion.

Economy minister Peter Altmaier had his own whatever-it-takes moment and said that the administration is making an ‘unlimited pledge’ of support to businesses of all sizes. The intervention by Messrs Scholz and Altmaier signals an abrupt end to Germany’s ‘black zero rule’ - the dogmatic policy that outlaws fiscal deficits. In a perhaps even more stunning sign that times have changed, Chancellor Angela Merkel suggested over the weekend that she might look away if severely hit countries such as Italy and Spain flout EU fiscal rules. Valdis Dombrovskis, executive vice-president of the European Commission, on Monday obligingly confirmed that the rule book has been binned. From now on, Eurozone economies are to be steered by dead reckoning.

For its part, the European Commission announced plans to redirect up to €37 billion in EU funds to initiatives that support businesses whilst finance ministers consider resuscitating the €410 billion European Stability Mechanism (ESM) set up in the wake of the 2008-09 banking crisis. After a six-hour video conference of finance ministers on Monday, Eurogroup president Mario Centeno said that the members will do - you guessed it - ‘whatever it takes’ to restore confidence and support a speedy recovery. However, ESM access is tied to strict fiscal conditions which need considerable relaxing before the fund can be of any use.

The expectation – really more of a hope – is that northern largesse may trickle southwards and help support the weaker European economies. Together, the liquidity support measures thus far unveiled, equal about 10 percent of EU GDP. That volume of funding, committed in under a week, surely dispels any lingering doubt that European governments are stuck in their more usual ‘too little, too late’ mode.

In an almost complete reversal of attitudes to markets and businesses, the Dutch government declared it will simply not allow flag carrier KLM to founder under any circumstances whilst Paris was noticeably hesitant to offer a similarly iron-clad guarantee to Air France. Though both companies merged in 2004, they have retained their respective hubs and maintain a significant degree of operational and financial autonomy - a frequent source of friction.

Now that governments have stepped up, corporations should try to resist their natural urge to batten down in the face of the corona storm. It is only a matter of days before bargain hunters step in to put a floor under the market. In Europe, preliminary guesstimates are that the economic impact of the corona crisis may cause a manageable 1 percent contraction of GDP, as opposed to the 1.4 percent growth forecasted before the virus hit.

Meanwhile, more nimble small businesses are beginning to improvise ways to maintain a semblance of cash flow. Sensing an opportunity as patrons are confined to their homes, a growing number of restaurants manage to keep their kitchen open by offering delivery services. Distributors of movies have started to offer early releases of their blockbusters on streaming platforms. Online services and logistics are the two sectors most likely to fare reasonably well as economies adapt to new and shifting realities. Out of the box thinking has become a crucial survival strategy. Corporate orthodoxy offers few, if any, answers to the burning questions that surface as economies navigate uncharted waters.

In an example perhaps worth emulating, business leaders in India are working on a Corona Vow that includes a promise not to profiteer and a pledge to invest in workforce skill development. The vow also tables a few useful suggestions such as ‘content disruption’, an opportunity for both advertisers and platforms to serve the needs of the vast number of people who suffer imposed idleness.

According to Shivaji Dasgupta of brand advisory firm Inexgro, content providers stand to do well from the crisis as long as they move smartly and quickly to engage a newly captive audience. In particular, Mr Dasgupta calls on newspaper, magazine, and book publishers to seize the moment and reclaim part of the market share lost to the print industry’s disruptors.

The new times bring not just fear and uncertainty but also opportunity. For businesses it remains, however, of paramount importance to keep calm and carry on whilst being alert to shifting consumer demand and changing consumption patterns. Help is on the way.


Business in Times of Corona: The Human Factor

War, pestilence, and other major calamities that threaten to rip apart the fabric of society, usually bring out the best in people. However, if there is one factor that strategists and planners consistently overlook as they prepare for the worst, it could well be human resourcefulness and resilience.

In wartime, carpet bombing has consistently failed to sap, let alone break, the morale of the enemy. The London Blitz stands as a proud and lasting example of the stamina shown by ordinary people in extraordinary times. The bombs dropped in vast volumes on Dresden, Hamburg, Hanoi, and even tiny Guernica in Spain – and of course Little Boy and Fat Man that obliterated Hiroshima and Nagasaki – swept those places off the map – but not for long. Survivors were rarely cowed into complete submission and started to clear the rubble and rebuild their cities and lives almost as soon as the dust had settled. Despair never lasts long whilst hope springs eternal.

There is an important lesson in these experiences as the world grapples with the corona pandemic: However devastating the consequences, they will pass without breaking the irrepressible, if not indomitable, human spirit. Instead of fostering the dark forces of nationalism and xenophobia, the new normal to emerge After Corona (AC) may well bring the long-awaited renaissance of a sense of community that brings the world together as a truly global village – adding the human dimension that was sorely missing from globalisation in the BC era.

French economist Thomas Piketty proved with hard data gleaned from historical tax registers that in the wake of cataclysmic disasters, nations sharply reduce social and economic inequality – and barrel ahead with renewed confidence in the future. In the case of war, a collective debt of gratitude is owed to the soldiers who fought and died at the behest of society and its rulers. In the case of a pandemic, that debt is owed to the medical and scientific communities and countless others who made sacrifices to protect the nation. According to Piketty, such debts act as great equalizers.

Businesses that value their survival must now take a stake on the right side of history and convincingly show that corporate social responsibility (CSR) is not just a token concept employed for marketing purposes only. Normally finely attuned to the needs of all stakeholders, and a CSR champion as well, the World Economic Forum surprisingly dropped the ball when its experts almost completely ignored the human dimension of the corona pandemic on their Covid Action Platform. Here, nearly all talk centres on the need for corporations to invest in strategic, operational, and financial resilience. Failures in governance at corporate and state level are duly highlighted as are the dangers of fake news. All important considerations, no doubt, but nothing at all about actual people or ways to address their needs and anxieties.

Much maligned by some, Amazon founder and CEO Jeff Bezos earlier this week showed how it is done: His company is adding another 100,000 jobs at its fulfilment centres in the United States to meet the expected increased demand of online shoppers. Amazon also decided to raise hourly wages across the board by $2 from the already respectable $15 minimum it currently pays. On its website, the company invites anyone made redundant or furloughed by the pandemic to apply for a job and become ‘part of the team’ until normalcy is restored, and they can return to their old job.

Whilst not every business is able to emulate Amazon’s proactive, immediate, and tangible response, the online retailer stands to harvest a bumper crop of goodwill once the crisis has abated. Governments are scrambling to underpin markets and provide the means that allow corporations to do the right thing and care for their workers even as bottom lines shrivel.

The touching videos that circulate on Facebook and elsewhere offer ample proof that solidarity exists – and perhaps already is the world’s fastest-growing commodity. Italians singing and making music on their balconies, entire cities applauding overburdened healthcare professionals, apartment dwellers hanging out their window for a game of bingo, lonely souls reaching out to each other in WhatsApp groups to enjoy a shared moment: As the social distance grows in the real world, the emotional distance is bridged in the virtual one where perfect strangers find solace together.

Businesses must find a way to plug into, and contribute to, this rapidly awakening sense of community. Credibility is key, as is the realisation that sentiment amongst the 99% has changed: For now, nobody really cares about stock prices, market volatility, or indeed revenues and profit margins. People, customers in fact, are in survival mode and will just want to know if their pay cheque keeps coming and if they have a job to return to after the virus has done its worst.

Some governments understand the needs of businesses and citizens better than others and are able to leverage their credibility to keep panic at bay. Scared people are looking for beacons of hope they can trust to tell the truth and offer solutions to seemingly intractable problems. Corporations can take a cue: Explain, reason, and then explain some more before suggesting a way forward: Stakeholders will understand as long as transparency prevails, and no hidden agendas are pursued. To quote JFK: Ask not what your country can do for you – ask what you can do for your country.


Business in Times of Corona: Trillions mobilised to Prop Up Economies

There seems to be no upper limit to the volume of funds that governments can deploy to keep the fires burning. As the US administration mulls a whopping $1.2 trillion stimulus package, the European Central Bank (ECB) on Wednesday surprised markets with an additional €750 billion for its asset purchase programme. ECB-president Christine Lagarde bluntly stated that there is no upper limit to the financial firepower of the bank. She echoed the bold assurances given earlier in the week by the finance ministers of Germany and The Netherlands who also reminded markets and concerned citizens that their reserves are practically inexhaustible.

Ms Lagarde’s had some catching up to do after her disappointingly feeble presentation last week when the ECB proved the odd one out amongst central banks for its hesitant response to the rapidly unfolding corona crisis. With the €750 billion now injected into a hastily erected Pandemic Emergency Purchase Programme, the bank aims to regain the initiative – and help cash-strapped Italy, Spain, and Greece in the process.

Markets initially responded with cautious optimism to the measure only to lose their early gains as the day progressed. This has become a trend: markets veer up momentarily as ever-larger rescue packages are unveiled only to fall prey to bears running amok. The dire reality, it would seem, remains priceless for now. However, in due time an equilibrium must be reached at which bargain hunters step in to put a floor under the market. At least that is what conventional wisdom says.

The billions and trillions now being thrown about like confetti are added to the already outsized pile of debt that the world carries. Collectively, governments, corporates, and private individuals owe a staggering $255 trillion to each other – roughly three times the size of global GDP. Stacked in $1-dollar notes, the resulting pile would reach the moon 71 times over. Who calculates such absurdisms? In light of this, to talk of a ‘mountain of debt’ is probably as misguided as is calling the Atlantic a ‘pond’.

In any case, that global stack of debt grew by about 40 percent in height since the banking crisis of 2008. In the US, the Federal Reserve did not at all manage to follow through on the intention to clear its balance sheet of the $4.5 trillion in assets the system acquired during and after the Great Recession. The European Central Bank never even tried to streamline its balance sheet and instead kept adding to it.

The US national debt now equals about 103 percent of GDP and is set to rise to 149 percent by 2049. President Donald Trump is not impressed, much less awed, by this. In a CBS interview he declared himself ‘King of Debt’ and said that he owed his fortune to that: “Nobody understands debt better than I do.”

The United States is by no means exceptional. In the UK, the national debt rose from 38 percent of GDP in 2005 to 84 percent now. That did not stop Chancellor of the Exchequer Rishi Sunak from extending £330 billion in state-backed guarantees to businesses affected by the corona scare. During his announcement, Chancellor Sunak repeated no less than five times the ‘whatever-it-takes’ phrase which now has become rather stale.

Thanks to vast QE programmes, corporate debt has piled up as well. Late last year, Chairman Jeremy Powell of the US Federal Reserve noted that for the past ten years, businesses have been taking on debt at a rate that eclipses their growth. However, Mr Powell also said that a healthy economy should have no trouble sustaining that level of debt.

However, as a result of the untold trillions shaved off global market capitalisation by the contagion, the assets bought up by central banks all of a sudden seem much less solid than before. This need not necessarily constitute a problem in the short to medium term: Behold the wonderful world of fractional-reserve banking with fiat currency.

Banks, including central banks, create money ‘ex nihilo’ – quite literally: out of nothing – which then appears perfectly balanced on their ledger. A liability is created and its component part, the cash, is duly credited to the taker’s account. Thus, a debt creates money whilst repayment destroys it. Fiat money, intrinsically without real value and not fully backed by gold or another tangible commodity, works wonderfully well as long as markets trust the issuer’s ability and willingness to guarantee its mutually agreed-upon value.

Inflation is the prime gauge of market confidence in fiat money. Most experts agree that a little bit inflation, say two percent annually, encourages economic growth since it offers an incentive to spend today rather than tomorrow when goods and services will likely be more expensive. Deflation, when money actually gains value over time, has the opposite effect and reduces economic turnover: Why buy today when prices will be lower tomorrow?

In both Europe and the United States, inflation rates are currently at or near historical lows. They have been pushed down by lacklustre growth and the resulting weak demand – so much so that the unprecedented wholesale injection of fiat money into the economy has failed to cause any noticeable effect on inflation.

In other words: No matter how much money is created out of nothing to stimulate demand, prices remain stable. In normal times – which we are not now living – demand should have skyrocketed and pushed price indices upwards. That is not happening because market confidence is at a depressing low as well: Businesses and consumers do not believe that better times lie ahead. Most corporations are therefore not investing and use their QE-windfall mostly to jack up dividend pay-outs and buy back stock, regaling shareholders. Consumers also see a glass half full and refuse to embark on a spending splurge, resulting in exceptionally high saving rates. Since interest rates are below, at, or just above zero, a vast pool of inactive cash has been created that is not employed in any meaningful way. The huge stimulus packages now being rolled out to revive near-stagnant economies only adds to that pile.

To deplore that is to miss the point. The cash itself is rather irrelevant: Central banks are only trying to bolster dampened corporate and consumer confidence in order to get the economy on the move – or prevent it from sliding into a depression. However, there is another, probably more effective, way of doing just that.

Interestingly enough, President Trump – the self-proclaimed King of Debt – has a good point when he suggests to simply dole out money directly to all Americans without any further ado, or strings attached. This concept – aka helicopter money – centres on that fact that untold millions of people have barely, or not at all, benefitted from the slow economic recovery that marked the years following the Great Recession.

Memorably called the Jams (just-about-managing) by former UK Prime Minister Theresa May, these people would most likely instantly spend any money disbursed by helicopter – or handed out on a prepaid credit card. By cutting out the middlemen – commercial banks and businesses – an immediate demand-side shockwave can easily be sent through the economy: Money which will then ‘trickle up’ to corporations that may use the almost-free funds disbursed via QE to expand production. In the face of a severe economic downturn triggered by the corona virus, it might be an idea to attack the problem from both sides. As long as inflation stays low, money shouldn’t be an object.


Business in Times of Corona: World Bank and IMF Ready to Assist Low- and Middle-Income Countries

As concerns grow over the impact of the pandemic on less resilient economies, multilaterals such as the World Bank Group (WBG) and the International Monetary Fund (IMF) are readying and deploying emergency response packages. Earlier this week, Kenya received a $60 million World Bank financing facility to help the government design and implement an effective containment policy. A further $14 million was disbursed for the fight against the locust plague that has destroyed crops.

The World Bank and the International Finance Corporation (IFC) earlier this week decided to earmark an initial $14 billion of ‘fast track financing’ to assist countries with their efforts to detect, contain, and treat corona patients, and help private businesses to survive the crisis. The bulk of the $8 billion IFC component is tagged for financial institutions that facilitate cross border trade. IFC CEO Phillipe Le Houérou warned that the impact of the pandemic on economies and living standards will likely outlive the medical emergency phase.

Writing on the bank’s blog, WBG Vice-President Ceyla Pazarbasioglu, urges policymakers to rise to the occasion and act ‘quickly, decisively, and in coordination’. She also outlined a number of steps for developing countries to take immediately such as a boost in health spending and a robust support programme for businesses and families affected by the pandemic.

Meanwhile, the IMF has made $50 billion available to low- and middle-income countries via its rapid-disbursing emergency financing facility. IMF Managing Director Kristalina Georgieva noted that economic growth will likely come in well below forecasted levels and called for a global ‘coordination mechanism’ to accelerate the post-corona recovery. Ms Georgieva emphasised that the IMF’s overall lending capacity amounts to about $1 trillion. She said that the fund is committed to offer assistance to its most vulnerable members, acting in coordination with partner institutions such as the World Bank.

Even if developing nations somehow manage to escape the brunt of the pandemic, a prospect that seems increasingly unlike, they must still deal with its economic fallout. As Ms Georgieva stated during a recent press conference, the corona crisis has hit at the precise moment that growth rates in many frontier and emerging markets were picking up at long last and returning to normal.

That trend has stopped. In a study of the impact of the virus on Africa, the Institute for Strategic Studies (ISS) points to the ‘violent sell-off’ of the South African rand, widely seen as a proxy for emerging market risk sentiment, as an ominous sign of things to come. ISS analysts worry that African countries may experience difficulty in finding the resources needed to combat the virus and shield their economy. In particular, these countries will likely test the limits of China’s benevolence. Given that most – though certainly not all – African countries struggle with fiscal deficits, shaky sovereign risk ratings, and rely on a narrow tax base, governments must cope with severely restrained policy flexibility.

The ISS study also fears that the corona scare may lead some leaders to suggest a delay in the implementation of the African Continental Free Trade Area which, the analysts note, could further curtail medium-term growth.

With the ‘commodity super cycle’ now confined to almost ancient history, demand for the continent’s export staples such as iron ore, copper, and oil is unlikely to pick up soon, depriving countries of income at almost precisely the time it is most needed. Hope that the corona virus might skirt the continent is likely forlorn: whilst still infinitesimally small, infection rates are gathering speed. That follows the now well-known viral script: contagion happens slowly at first, and then suddenly.

It is not entirely unreasonable to fear that whilst China, Europe, and the United States are fighting their own battles with increased desperation, attention to the plight of the developing world will wane significantly. Though most countries in Latin America have at least some room to formulate a decisive response, those in Africa and the less well-off parts of Asia may find little succour should the outbreak arrive in force.

Latin America Prepares

Meanwhile in Latin America, the response to the impending corona outbreak has been varied.

The discount stores that line the Rua 25 de Março in downtown São Paulo report a sharp decline in business. The crowds that normally pack the street have thinned noticeably. On an average business day, Tatiana Vasconcellos, who owns a shop selling religious articles, registers about 500 sales. Now she is lucky to welcome a hundred paying customers to her tiny shop. Elsewhere in the street and the surrounding district, shopkeepers report similarly steep declines in business.

Considered a bellwether of Brazilian consumer confidence, the sentiment on the street worries economists. They fear that the country may struggle to deal effectively with a full-blown outbreak of the corona virus. Over the last ten days, the number of reported cases has ballooned from 34 (March 9) to 642 (March 19).

The government was also slow to recognise the seriousness of the threat. Until a few days ago, President Jair Bolsonaro dismissed corona as a ‘fantasy’ cooked up by the media even as close aides tested positive for the virus. Though he has since taken charge of the still timid federal effort to limit the spread and impact of the contagion, events have forced state and municipal authorities to take the lead and order the closure of schools.

President Bolsonaro was not alone in only belatedly realising the true scope of the threat. In Mexico, President Andrés Manuel López Obrador came under fire for his cavalier attitude to the crisis. He doggedly stuck to his agenda and ignored advice to refrain from greeting, hugging, and kissing adoring fans. Instead, President Obrador suggested people revisit the classic Love in Times of Cholera by Gabriel García Márquez which, he said, offers readers a ‘calming balm’.

The initial head-in-the-sand approach that marked the response to the pandemic in Brazil and Mexico – both ruled by populist presidents – contrasts sharply with the drastic measures taken in Peru and Colombia to limit the spread of the virus. On Wednesday, the Peruvian government imposed a curfew and called out the army to patrol the streets and keep people inside. A brand-new hospital in Lima was set aside to treat corona patients. In Colombia, President Iván Duque declared a state of emergency, sealed the borders, and commended Bogotá mayor Claudia López for ordering a ‘trial lock-down’ this weekend.


Business in Times of Corona: Time to Make America Great Again

The corona pandemic rapidly engulfing the world has led to a sudden reversal in the plight of the nation state as a concept. Rescued from well-deserved oblivion, even smaller countries that have traditionally embraced multilateralism as the only viable way to further their interests, the nation state resurfaced with an apparent vengeance. The recommendations of the World Health Organisation are largely ignored whilst nations across the globe implement their own response to the pandemic, ranging from complete lockdowns to quasi-denials.

Even in Europe, coordination and cooperation between EU member states vanished almost overnight. Borders were hastily closed to travellers, but not to recriminations which followed the familiar patterns of supposed national traits. The composed and weighted response of the Dutch to the crisis caused consternation, if not indignation, in neighbouring countries fearful that a policy which allows for the ‘controlled spread’ of the virus could spill over. Belgium closed a border that had vanished in all but name, barricading countless backroads with containers and blocs of concrete to stop the flow of traffic whilst gendarmes intercepted and turned back southbound vehicles on major thoroughfares. Elsewhere on the continent, queues of traffic stretched for miles as border agents emerged out of the proverbial woodwork to seal off entire countries.

In a matter of days, the European Union’s celebrated Schengen common travel area was sliced into its 26 component jurisdictions. Land-locked Serbia, outside both the EU and the Schengen Area, saw its links to the outside world severed without so much as a prior warning, leading its president Aleksandar Vucic to conclude that European solidarity is just a ‘fairy tale’. China proved more understanding and promptly dispatched advisers, doctors, and medical equipment to Belgrade to help the government deal with the crisis. The apparently deeply grateful Serbian president said that he will listen to whatever Chinese experts have to say and follow their advice to the letter.

The big multilateral structures and entities that underpin the post-war world order have so far proved all but toothless in dealing with the pandemic. Though admittedly public healthcare remains the remit of nation states, even in the European Union, the lack of a coordinated response to a threat that recognises no borders is worrisome and lays bare the fragility of international cooperation. When Belgium and The Netherlands, arguably the world’s two most tightly integrated nations and closest friends, retreat behind their borders, the nation state is back.

Even the EU’s much-touted single market showed cracks as governments impose export restrictions on critical medical equipment such as respirators. Appeals from Brussels to respect free trade rules were simply ignored by member states, even those that usually abide by all rules such as Germany. When Italy called on fellow EU member states for emergency support, not a single one answered the call.

Former IMF Chief Economist Olivier Blanchard is unhappy with the reflexes displayed by most countries affected by the corona virus and wrote in The New York Times that the world should act in unison and with determination in the face of a common foe. Mr Blanchard reminded his readers that markets and conventions have but a limited role to play in the struggle for survival as evidenced by the vast outlays of cash required to fight World War II which at its height drove the US fiscal deficit to 26% of GDP.

Geopolitics, until recently a taboo topic in civilised discourse, is back as well. The fragmented response of western nations and the absence of American leadership create a vacuum that cannot exist for long. Writing in Foreign Affairs, former US Assistant-Secretary of State Kurt Campbell and Rush Doshi of the Brookings Institution, argue that the pandemic has brought about a new ‘Suez Moment’. In 1956, the Suez Crisis heralded the end of Great Britain as a global power. Messrs Campbell and Doshi believe the 2020 Corona Pandemic may be the event that deprives the United States of its status as the world’s pre-eminent superpower.

With considerable brawn, and ignoring its own initial missteps, the government of China is moving quickly to fill the void and convince the world of its superior approach to both the medical emergency and global crisis management. Beijing is, of course, helped by the much less effective display of brawn at the White House. Conservative wishful thinking did not help either: Likening the corona virus to Chernobyl, and expecting a similar fallout, severely underestimates the strength, resolve, and resourcefulness of Chinese authorities.

Taking a page out of the history book, China is fast becoming the arsenal of the world as an increasing number of countries grapple with the unseen viral sniper that preys on the vulnerable. Whilst European countries dithered, China has sent vast quantities of medical supplies to hard-hit Italy and even to the United States. Should the US be unable to put its domestic industry on a war footing, the country could still lead by mobilising its outsized life sciences establishment to come up with a vaccine. Instead, the Trump Administration tried to buy a German research lab by reportedly offering a billion dollars to move the company’s scientists and operations stateside – a move that irked Chancellor Merkel and prompted her to forcefully intervene.

Though the ascendancy of the nation state as an instinctive reflex to the global crisis will not likely result in calls for a return to autarky, globalisation is not expected to escape a hit. Heavily invested in global trade, China – again – is well poised to take the lead. It is the only country that pursues a clear and long-term vision on global trade with its Belt and Road Initiative – a vast network of logistics and finance – that may be adapted to best suit the needs of the post-corona world and re-establish broken supply chains, a feat that would certainly not remain without geopolitical rewards.

Against President Xi Jinping – the proverbial ‘man with a plan’ – the Western World puts up a man who wants to make his country ‘great’ at the expense of others, and a lot of small men and women cowering behind national borders waiting for deliverance. However, it is not too late for the US to escape the dreaded ‘Suez Moment’: Its resourceful entrepreneurs, capable administrators, peerless scientists, and bottomless capital markets – in other words: its unequalled heft – can still be rallied to call a panicked world to order, provide succour, and show who’s in charge of global affairs. This is the time to make America great again.


Looking for Bounce: Analysts Expect Short V-Shaped Recession

Ray Dalio, founder and CEO of hedge fund manager Bridgewater Associates, expects US corporations to lose at least $4 trillion due to the economic damage wrought by the corona pandemic. He calls for the doubling of the aid package being negotiated in Congress. Curiously, the $4 trillion is in the same ballpark as the total amount of money that companies included in the S&P 500 Index spent on stock buyback schemes between 2009 and 2019: $4.3 trillion or 52 percent of their net income. Add to that the $3.3 trillion paid out in dividends and it becomes quite clear that the era of quantitative easing has primarily benefited the share-holding part of the population and those who are indirectly exposed to the stock market via pension funds and other mutualised funds.

However, hindsight is pretty useless under the present circumstances and offers, at best, lessons for the future. The QE funds now being unleashed in various guises to lessen the economic impact of the pandemic should, first and foremost, provide ample liquidity. On capital markets around the world the search for yield has made way for the search for liquidity. Corporations are forced to sell up to and including the proverbial kitchen sink in order to obtain the cash needed for survival whilst hordes of investors are caught in a choking squeeze as banks demand coverage for leveraged positions that went sour. The much-despised short seller is again having the last laugh.

What currently scares the markets probably most is that policymakers seem slow to understand that the usual lag between Wall Street and Main Street has vanished. Under normal conditions, it takes a year or two before the broader economy starts feeling the effects of a bear market. Today, the malaise propagates with a speed no different from that of the spread of the corona virus.

It follows that governments and central banks must carry out a swift two-pronged counterattack if the goal is to preserve the ability of both the economy and the society it supports to bounce back vigorously once the virus has been defeated. Due to the volumes involved and the generic nature of the crisis, liquidity cannot be provided with pinpoint accuracy but must submerge, or at least thoroughly permeate, the entire economy if it is to serve any purpose at all.

The European Central Bank (ECB) rather wisely designed its €750 billion Pandemic Emergency Purchase Programme around the urgent need to support small- and medium-sized business – the true, yet perennially underappreciated, drivers of economic growth and job creation. The fate of large iconic corporations is for now entrusted to national governments.

In the US, the Federal Reserve finds it challenging to shift from rescuing ‘too big to fail’ corporations to extending a helping hand to smaller businesses that are as vital, if not more so, to the overall well-being of the nation. Former Fed board member Kevin Warsh suggested a small business lending programme administered through commercial banks. Mr Warsh notes that banks are in much better shape than they were in 2008 and have a vested interest in the health and survival of smaller businesses. Their disappearance would make a post-corona recovery that much harder. Donald Kohn, vice-chairman of the Fed when the banking crisis hit in 2008, said that the priority is to keep credit flowing throughout the economy in order to prevent permanent damage: “That is why the Fed on Monday hit the main markets.”

In its latest macroeconomic outlook, investment bank Goldman Sachs predicts an unprecedented 24 percent drop in US GDP in the second quarter, the largest since record keeping began in 1947. However, Goldman analysts anticipate a relatively quick bounce back with growth rates surging in the latter half of 2020, limiting the damage to a still painful and dramatic, but manageable, 3.8 percent contraction for the full year.

Bank of America Head of US Economics Michelle Meyer warns that the depth and length of the recession will depend on the intensity of the pandemic and the time needed to contain the virus. Ms Meyer pleads for ‘aggressive action’ with no upper limit to the size of stimulus and support packages. She also predicts a relatively short yet steep decline with the economy hitting rock bottom next month and returning to growth by July before barrelling ahead to make up for lost time and territory.

The losses are steep and mount fast. In Germany, the bellwether Purchase Managers’ Index (PMI) turned sharply south across all sectors with the composite output index registering a 133-month low in March. Phil Smith, chief economist at IH Markit, called the collapse of PMIs ‘unprecedented’ and used the numbers to extrapolate a quarterly drop of 2 percent in German GDP. He cautioned that the escalation of measures to contain the virus may intensify the downturn in the second quarter. IH Markit’s flash PMI update is based on responses from 85 percent of the around 800 privately-owned companies consulted monthly.

In the UK, the PMI plunged as well to depth almost unfathomable. For the service sectors, which represents about 80 percent of the economy, the index dropped to 35.7 on a scale where 50 separates growth from contraction. Analysts examining the first batch of data for March are especially worried by Japan which saw expectations for the service sector drop precipitously from 47.0 in February to 35.8 in March even though the country has so far been spared the draconian lockdown measures in force throughout Europe.

Meanwhile in the US, the always outspoken Paul Krugman takes another tack altogether and argues that the nature of the present crisis calls for disaster relief rather than wholesale corporate bailouts. Mr Krugman, who in 2008 received the Nobel Memorial Prize in Economic Sciences, says that millions of jobs are being lost to containment measures such as lockdowns and social distancing which is different from a ‘normal’ recession when unemployment is caused by stalled consumer spending. According to Mr Krugman it is pointless to try and bring those jobs back before the pandemic has faded. Instead, he pleads for the immediate implementation of a robust social security safety net to directly support families and small business owners who have lost their income.

Mr Krugman fears that handing money to big corporations will only see them buy back still more of their own stock and also wonders about the $500 billion in discretionary spending that is included in the stimulus bill now stuck in the US Senate. This slush fund, he posits, is an insult to ‘our intelligence’.

If anything, the corona crisis has made it abundantly clear that the scripts and protocols previously employed to lessen the impact of a global downturn are near useless. In that sense, the pandemic has already proved the ultimate gamechanger. Of course the trouble is that the rules of the new ‘game’ have not yet been written.


Evan Harvey, Nasdaq: Medium Is the Message - ESG Delivery and Market Distrust

Despite cultural assumptions surrounding content and interpretation, we tend to believe that the way we communicate is meaningful.

"In operational and practical fact, the medium is the message” — this sturdy pronouncement from Canadian philosopher and social theorist Marshall McLuhan appears in the first line of his 1964 book Understanding Media: The Extensions of Man — and tends to be the only thing that people remember about his work.

Which is unfortunate, because that phrase sits atop a deep and disturbing critique of machine culture worth revisiting in an age of automation and trust in artifice.

But if we focus on the medium of sustainability disclosure, the various channels through which companies champion their environmental, social, and governance bona fides, the underlying spirit of McLuhan’s catchphrase lives on. Stakeholders tend to measure disclosures in a few ways. Some may attend to the rigour, transparency, and frequency of performance data. Others may pore over lengthy narratives, searching for alignment on keywords or common ambitions.

"How are investors and others to properly evaluate the responsibility (and sustainability) of a company if that is the predominant delivery channel for performance data?"

There is another, more prevalent way to rank and rate the value of a particular ESG disclosure, and it has everything to do with the medium. Where are companies disclosing this information? Is it a mandated practice, in a mandated form, or is it voluntary and freeform? Are there real consequences (legal, financial, reputational) for inaccurate or misleading disclosures? The answers to these questions tend to influence transactional decisions and macroeconomic trends.

Changing Channels

Most companies around the world disclose ESG data in sustainability reports. These reports are haphazardly published, varied in content and length, self-edited and self-audited, and more often organised around a company’s key messaging points rather than established disclosure protocols. Given that characterisation, one can see how the medium may be undermining the message.

How are investors and others to properly evaluate the responsibility (and sustainability) of a company if that is the predominant delivery channel for performance data?

Most experts recognise the problem. “The potential for losses from inaccurate or fraudulent ESG disclosures will rise,” says Leonard Wang (ESG Disclosures—Prospects for the Future, Bloomberg Tax, August 2019). “Fraud and deception gravitate toward unguarded venues. Investor losses from ESG disclosure failures could increase pressure for broad mandatory disclosure requirements. Companies should anticipate a high probability for eventual broad ESG disclosure rules”.

Sustainability reporting in Europe has undergone a transformation in trust and acceptance because regulators stepped in. The Paris Climate Agreement (COP 21), EU Sustainable Finance Action Plan, Non-financial Reporting Directive, Taxonomy Regulation, and various individual country Governance Codes have all driven ESG reporting to maturity. Mandates to green government insurers and pension funds have increased investment; ESG-minded asset managers are offered more business than they can handle (The Remarkable Rise of ESG, Forbes, 2018).
US adoption rates have lagged. According to an RBC Global Asset Management survey, European investors are still ahead of their US counterparts. While 97 percent of UK investors said they use ESG principles, only 65 percent of Americans do the same (Responsible Investing Survey, RBC GAM, 2019). Interestingly, there was no change in US investor attitudes on this topic between 2018 and 2019 — a which saw tremendous upticks in ESG investment, particularly open-end and exchanged-traded fund flows.

Trust Is a Fragile Commodity

If measurable performance alone could drive trust in an idea, ESG would only have fervent supporters. A 2015 study in the Journal of Sustainable Finance & Investment, which itself aggregated data from 2,200 other studies, found not only a non-negative correlation between ESG performance and corporate financial performance, but also a positive relationship in a large majority. Another large study found that stock price performance is positively correlated with good sustainability practices in 80 percent of companies (The Comprehensive Business Case for Sustainability, Harvard Business Review, 2016). A report by investment bank Nordea concluded that “the relative [return price] performance between the top and the bottom ESG-rated companies differed by as much as 40 percent” (Cracking the Code, 2017).

This doesn’t even cover compelling ESG connections to product innovation, risk-resilience, resource-cost modelling, stakeholder engagement, or even an evolving understanding of fiduciary duty. Yet market acceptance of ESG as a legitimate force still seems to hang in the balance. This may sound strange to readers in countries or economies where certain issues (climate change, gender equality) are simply native to the social scene and business culture. But a fair amount of evidence suggests that the attitudes of a few key constituencies are still unformed, and that has much to do with the format of ESG data.

“The biggest obstacle to investment,” said Robert Eccles and Svetlana Klimenko in a recent HBR article, “is that most sustainability reporting by companies is aimed not at investors but at other stakeholders, such as NGOs, and is thus of little use to investors.” (The Investor Revolution, Harvard Business Review, 2019). They also point out that regulators rarely stipulate standards of disclosure and most companies avoid the scrutiny of third-party data auditing or assurance.

Most investors say that ESG performance increases their trust in a company (2019 Edelman Trust Barometer Special Report: Institutional Investors), even if they may harbour doubts about ESG as an enduring market trend. Progressive firm Generation Investment Management said in a white paper last year that current ESG metrics are “imperfect proxies” and in dire need of third-party verification.

ESG could tip over into common practice — standards will emerge, stakeholders will engage, and meaningful capital will flow — or it could become contaminated with misinformation, misuse, and mistrust. Given the crises we face, it isn’t certain that we have the time to correct this scenario.

“No society has ever known enough about its actions to have developed immunity to its new extensions or technologies,” wrote McLuhan in the same book.

Do we now know enough to create a cure…?

About the Author

Evan Harvey is the Global Head of Sustainability for Nasdaq. He also serves on the Board of Directors for the UNGC Network USA and the Global Sustainability Standards Board for the GRI.