Bose / Dong / Simpson The Financial Ecosystem

The Role of Finance in Achieving Sustainability
1. Auflage 2019
ISBN: 978-3-030-05624-7
Verlag: Springer International Publishing
Format: PDF
Kopierschutz: 1 - PDF Watermark

E-Book, Englisch, 436 Seiten

Reihe: Progress in Mathematics

Long term asset owners and managers, while seeking high risk-adjusted returns and efficiently allocating scarce financial capital to the highest value economic activities, have the essential and formidable role of ensuring the sustainability of return. But generally accepted financial accounting methods are ill-equipped to provide clear signals of the risks and opportunities created by scarce natural and human capital. Hence many investment managers in global financial markets, while performing due diligence on portfolio companies, examine metrics of non-financial performance, especially environmental, social and governance (ESG) indicators. Broken into three sections, this book outlines the rationale for and methods used in six areas where financial acumen has been harnessed to the goal of combining monetary return with long run sustainability. The first section offers an introduction to the role of finance in achieving sustainability, and includes an overview of the six areas-sustainable investing, impact investing, decentralized finance, conservation finance, and cleantech finance. The methods section of the book illustrates analytical tools and specialized data sources essential to those interested in increasing the level of social responsibility embedded in economic activity. The applications section describes and differentiates each of the six areas and their roles in advancing specific measures of sustainability.
                            

Satyajit Bose is Associate Professor of Practice at Columbia University, where he teaches sustainable investing, cost benefit analysis and mathematics and serves as Associate Director of the Program in Sustainability Management. Satyajit is also Co-Chair of the University Seminar in Sustainable Finance, a forum for faculty and finance practitioners to discuss and research methods to use the financial system, with the help of technology, innovative design and disruptive change, to mobilize capital for sustainable development and widespread beneficial impact. Satyajit was previously the Faculty Director of the joint Earth Institute-RFK Compass Education Program which trained institutional investors how to incorporate environment, social, human rights as well as corporate governance issues as integral elements of risk mitigation and return optimization.
Guo Dong is Associate Research Scholar and Associate Director of the Research Program on Sustainability Policy and Management at Columbia University's Earth Institute. Dr. Guo teaches courses on Microeconomics and Quantitative Methods for masters students in Columbia's School of International and Public Affairs. Dr. Guo's expertise lies in impact and evaluation methods and his research interests include sustainability metrics, sustainable development, environmental policy and Chinese education.
Anne Simpson is Director of Board Governance and Strategy at the California Public Employees Retirement System (CalPERS). She oversees CalPERS' sustainability strategy across the total fund. This includes CalPERS' work on advocacy, engagement, and integration, and working through partnerships. Her strategic priorities include issues framed by CalPERS Investment Beliefs and include data and corporate reporting; manager expectations with a focus on climate change, diversity, and inclusion; and alignment of interest.

                                                   

Autoren/Hrsg.

Bose, Satyajit

Dong, Guo

Simpson, Anne

Inhaltsverzeichnis

1;Preface;7
2;Contents;10
3;About the Authors;12
4;List of Figures;14
5;List of Tables;16
6;Chapter 1: The Role of Finance in Achieving Sustainability;17
6.1;The Role of Finance;18
6.1.1;The Resource Allocation Role;18
6.1.2;The Risk Transfer Role;20
6.1.3;The Decentralized Signaling Role;21
6.2;What Is Sustainability?;23
6.3;The Equivalence of Sustainability and Long-Term Value Creation;26
6.3.1;The Principles of Responsible Investment;27
6.3.2;The Time Horizon and Principal-Agent Problems;28
6.4;Sustainable Finance;29
6.5;Concluding Remarks;31
6.6;References;33
7;Chapter 2: The Financial Ecosystem;35
7.1;The Circular Flow of Income;36
7.1.1;Interactions Between the Circular Flow of Savings and Natural Capital;38
7.2;Planetary Boundaries;40
7.3;A Taxonomy of the Financial Ecosystem;42
7.3.1;Savers;45
7.3.2;Shareholders;46
7.3.3;Liquidity Providers;46
7.3.4;Insurance Providers;47
7.3.5;Deposit-Taking Intermediaries;47
7.3.6;Payment Facilitators;49
7.3.7;Investment Consultants;49
7.3.8;Brokers and Lawyers;50
7.3.9;Supporting Institutions;50
7.3.10;Governments and Regulators;50
7.4;Interactions in the Financial Ecosystem;52
7.5;Concentration in the Financial Ecosystem;54
7.6;Concluding Remarks;57
7.7;References;60
8;Chapter 3: Governing the Corporation;63
8.1;Introduction;63
8.2;Inventing the Corporation: A Brief History;65
8.2.1;VOC and the Advent of Permanent Capital;67
8.2.2;EIC and the Imperial Corporation;69
8.2.3;Speculation and the Pause in Incorporation;71
8.2.4;The Anglo-American Proliferation of Corporations in the Nineteenth Century;72
8.2.4.1;Widespread Access to the Corporate Form in the United States;72
8.2.4.2;Joint-Stock Companies in Britain;73
8.2.4.3;Limited Liability as the Antidote to Communism;74
8.3;The Problem of Dispersed Ownership and the Advent of the Universal Owner;76
8.4;Other Models of Corporate Ownership;78
8.5;The Purpose of the Corporation;80
8.6;Corporate Governance in the Financial Ecosystem;82
8.6.1;Natural Limits to the Rigidity of a Corporate Governance Regime;87
8.7;Global Convergence in Corporate Governance;89
8.8;Concluding Remarks;91
8.9;References;93
9;Chapter 4: Accounting for Sustainability: Frameworks for the Aggregation of Financial and Non-financial Metrics;98
9.1;The Measurement of Earnings and the Rate of Return;99
9.2;Limitations of the Focus on Accounting Earnings;102
9.2.1;Incentives for Earnings Management;103
9.2.2;The Decision-Theoretic Basis for Integrating ESG Information;105
9.2.3;Measurement of Externalities;106
9.3;Broadening of Performance Metrics by Investors and Other Stakeholders;107
9.4;Sustainability Measurement;108
9.5;Sustainability Frameworks and Standards;108
9.5.1;GRI: Stakeholder Reporting;109
9.5.2;IIRC: Integrated Reporting for Investors;111
9.5.3;SASB: Focus on Materiality;112
9.5.4;IRIS: Simplified Metrics for Impact;113
9.5.5;B Impact and Future Fit: SME Assessment;113
9.5.6;Climate-Related Frameworks;114
9.5.7;Other Frameworks;114
9.6;Societal Broadening of Performance Metrics: From MDGs to SDGs;115
9.6.1;SDG Indicators;118
9.6.2;Critique of the SDGs;119
9.7;Concluding Remarks;120
9.8;References;122
10;Chapter 5: Signals of Scarcity and Financial Performance;125
10.1;Introduction;125
10.2;The Problem of Analytical Monocultures;128
10.3;The State of Regulatory Initiatives;134
10.4;The Financial Performance of Corporate Sustainability;136
10.4.1;Meta-analyses and Surveys;136
10.4.2;Selected Individual Studies;138
10.5;The Financial Case for Sustainability Within Corporations;140
10.5.1;Cost Efficiency;140
10.5.2;Revenue Generation;142
10.5.3;Intangible Factors;144
10.6;Concluding Remarks;145
10.7;References;146
11;Chapter 6: Cost-Benefit Analysis and Discounting;151
11.1;Introduction;151
11.2;Cost-Benefit Analysis;152
11.2.1;Willingness to Pay;153
11.2.2;Value Creation in a Business Context;154
11.2.3;Antibiotic Resistance: A CBA Example;155
11.2.4;Shadow Prices;157
11.2.5;Revealed Preference Methods;158
11.2.6;Stated Preference Methods;160
11.2.7;Benefits Transfer;161
11.3;Discounting;163
11.3.1;The Social Rate of Discount;164
11.3.1.1;Harberger’s Market Rate;164
11.3.1.2;Ramsey’s Prescriptive Formula;165
11.3.2;Declining Discount Rates for Intergenerational Impacts;166
11.4;Limitations of the Cost-Benefit Analysis Approach;167
11.5;Concluding Remarks;168
11.6;References;169
12;Chapter 7: The Monetization of Natural Capital in Corporate Investment;174
12.1;Introduction;174
12.2;Valuations of Flows of Goods and Services;177
12.3;Valuation of Biodiversity;178
12.4;Corporate Valuations of Underlying Ecosystem Services;183
12.5;Climate Reporting Frameworks;186
12.5.1;CDP;186
12.5.2;CDSB;187
12.5.3;TCFD;188
12.6;Concluding Remarks;189
12.7;References;191
13;Chapter 8: Human Capital and the Returns to Stakeholder Relations;194
13.1;Human Capital: From Cost to Asset;194
13.2;Human Capital and Worker Rights;197
13.2.1;The International Labor Organization;199
13.2.2;The Universal Declaration of Human Rights;200
13.3;The Relationship to Financial Returns;203
13.3.1;Human Capital Management;203
13.3.2;Stakeholder Relations;204
13.4;Investor Demands for Human Capital Disclosure;205
13.4.1;Diversity;207
13.5;The Role of NGOs in Civil Regulation;209
13.6;Falling Short on the Corporate Human Rights Benchmark;210
13.7;Concluding Remarks;212
13.8;References;213
14;Chapter 9: Capital Structure and Social Capital: Diverse Forms of Investment;217
14.1;Introduction;217
14.2;Dow Chemical: Creating Shared Value with Natural Capital?;219
14.3;Shared Value with Human Capital: Private Equity and Education;222
14.4;The Diffuse Benefits and Costs of Corporate Sustainability;226
14.5;Social Network Analysis: A Test of the Diversity of Capital;227
14.6;Bridges and Arbitrage;229
14.7;Curating Capital Sources;232
14.7.1;Public-Private Partnerships;232
14.7.2;Securitization and Municipal Finance;232
14.8;Concluding Remarks;233
14.9;References;234
15;Chapter 10: Sustainable Investing and Asset Allocation at Global Scale;237
15.1;Modern Portfolio Theory;238
15.1.1;Mean-Variance Optimization;238
15.1.2;Factor Models;239
15.1.3;The Capital Asset Pricing Model;240
15.1.4;Arbitrage Pricing Theory (APT);241
15.1.5;Portfolio Theory Versus Practice;242
15.1.6;Covariance as the Tip of an Iceberg;242
15.1.7;Broadening Conceptions of Non-diversifiable Risk;245
15.1.8;The Feedback Loop Between Portfolio Choice and the Ecosystem;246
15.2;Asset Allocation;247
15.2.1;The Salience of Liabilities and Incentive Alignment;247
15.2.2;The Largest Asset Allocators;249
15.2.2.1;Defined Benefit Funds;251
15.2.2.2;Sovereign Wealth Funds;252
15.2.2.3;Defined Contribution Funds;253
15.3;The Value of Systemic Engagement;255
15.4;Concluding Remarks;258
15.5;References;259
16;Chapter 11: Impact Investing;264
16.1;Impact Investing Defined;265
16.2;Evolution of Impact Investing;268
16.2.1;Concessionary Versus Non-concessionary Impact Investment;271
16.3;The Impact Investing Ecosystem;272
16.3.1;Asset Owners and Impact Investment Funds;273
16.3.2;Service Providers;275
16.3.3;Investee Companies;276
16.4;Investment Instruments;277
16.4.1;Fixed Income: Green Bonds, Social Impact Bonds, and Revenue-Based Loans;278
16.4.2;Real Asset Investments;279
16.4.3;Private Equity/Venture Capital Investment Funds;280
16.4.4;Other Asset Classes;280
16.5;Challenges and Progress;281
16.5.1;Additionality Test;282
16.5.2;Impact Evaluation;283
16.6;The Way Forward;287
16.7;References;290
17;Chapter 12: Decentralized Finance;294
17.1;The Value of Decentralized Decision-Making;295
17.2;Polycentric Finance;297
17.3;Divergence Is a Signal of Decentralization;299
17.4;The Curation of Capital;300
17.4.1;The Benefits of Securitization;301
17.4.2;Green Banks;302
17.5;Thematic Investing;307
17.6;The Potential and Pitfalls of Blockchain;312
17.6.1;Blockchain Functionality;313
17.6.2;Applications to Sustainable Finance;315
17.6.3;The Limits of Blockchain;316
17.7;Concluding Remarks;317
17.8;References;318
18;Chapter 13: Conservation Finance and Payment for Ecosystem Services;322
18.1;Introduction;322
18.2;Conservation Finance Defined;325
18.3;Public Capital;325
18.3.1;Debt-for-Nature Swap;326
18.3.2;Conservation-Related Taxes;328
18.3.3;Large Government-Sponsored Programs;328
18.3.4;Other Government Instruments;329
18.4;Philanthropic Capital;330
18.4.1;Conservation Trust Fund (CTF);330
18.5;Payments for Ecosystem Services (PES);332
18.5.1;Carbon Finance;333
18.5.2;Mitigation Banking;335
18.5.3;Payment for Watershed Services;336
18.5.4;Nutrient Trading;337
18.5.5;Tourism-Based Revenue;338
18.6;Bioprospecting;340
18.7;Environmental Impact Bonds;341
18.8;Concluding Remarks;345
18.9;References;345
19;Chapter 14: Financing Clean Technology Innovation and the Transition to Renewable Energy;350
19.1;Challenges of Financing Cleantech R&D;351
19.2;Stages of Clean Technology Development;352
19.3;Angel Investors;355
19.4;Venture Capital Funding;355
19.5;The Role of Government Incentives;360
19.6;Asset Finance;363
19.6.1;Energy Investment Partnership (Green Banks);364
19.6.2;Green Bonds;365
19.6.3;YieldCo;368
19.6.4;Asset-Backed Securities (ABS);369
19.6.5;Asset Finance versus People Finance;369
19.7;Corporate VC Investment in Early-Stage Cleantech;370
19.8;Cleantech Financing Needs;372
19.9;Concluding Remarks;373
19.10;References;375
20;Chapter 15: The Cooperative Movement and Social Enterprise;380
20.1;The Cooperative Movement;380
20.2;Social Enterprise;383
20.3;The Social Entrepreneur;385
20.4;Social Enterprise and Poverty Alleviation;388
20.5;Social Entrepreneurship and Sustainability;391
20.6;Social Entrepreneurship and Localized Innovation;392
20.7;Challenges and Opportunities;394
20.7.1;Conditions for Entrepreneurship;395
20.7.2;TVEs: Social Entrepreneurship with Chinese Characteristics;396
20.7.3;Key Lessons for Financial Intermediation;398
20.8;Concluding Remarks;398
20.9;References;399
21;Chapter 16: Toward the Common Wealth and the Common Weal;403
21.1;References;407
22;Index;408