Balancing profit and motive

Balancing profit and motive

The Edge Singapore
11/12/18, 08:02 am

SINGAPORE (Dec 10): On Dec 5, the UK government published a trove of internal Facebook emails and other documents that suggested the social media platform sought to trade users’ data with advertisers, or wield it for strategic advantage with third-party applications. Facebook has been under increasing scrutiny amid privacy concerns, and the backlash to the news was to be expected. In its defence, Facebook said it was seeking a way to ensure the sustainability of its business.

As a business, Facebook should indeed be looking for the best way to monetise or leverage its assets — users’ data — to ensure the platform is a success for its shareholders. But the reaction to its attempt to do so is telling, in how wider society is no longer tolerant of a company’s making a profit at any cost.

This provides somewhat of a backdrop for our story this week on how sustainable investing, or an investment strategy that considers social and environmental good in addition to financial returns, is becoming mainstream. The challenge, though, is in properly tracking and quantifying the impact of such investment.

Some US$24 trillion ($32.9 trillion) that is currently under professional management has been allocated to sustainable investing, according to Global Sustainable Investment Alliance. That amount works out to roughly one in four dollars, of the total assets under management globally, and has grown by about 25% between 2014 and 2016. Indeed, in a positive portend for the future, the wealthy are increasingly interested in seeing their money make a difference in the world.

Leading the charge are the millennials, despite all the stereotypes painting them as self-involved individuals with an eye only on the now. They hold roughly US$17 trillion of the world’s private wealth, an amount that could rise to US$24 trillion by 2020. Importantly, according to studies by private banks and professional services firms, a great proportion of them believe that businesses in which they invest should do more than just make money. “Millennials appear particularly willing and able, as the next guardians of global capital, to use their private wealth for the public good,” said private bank UBS in a report on millennials last year. “We would argue that millennials’ lead in promoting a more sustainable and equal world is likely to spread across cohorts, demanding coordinated efforts from more stakeholders to marshal capital into projects with positive social and environmental returns.”

On the face of it, investment dollars are going towards mitigating or alleviating many of society’s ills. As we report, for instance, a “philanthropic investment firm” started by eBay founder Pierre Omidyar has a pure impact investment mandate, focusing on areas such as financial inclusion. Elsewhere, billions of dollars are going towards the micro-financing of farmers and micro-business owners among the rural poor; clean technology and energy; and sustainable agriculture, among other causes.

GIIN notes that the performance of about half of impact investing is measured against the UN Sustainable Development Goals. Some fund managers have said, however, that it is neither sufficient nor comprehensive. It does not cover “negatives”, or ventures that are not responsible or do not contribute to sustainability, and should therefore be avoided, such as genetic engineering or fossil fuel businesses. In fact, there is no one way to define “sustainable”, nor are there global standardised metrics to track the impact of investments.

Regardless, there is one industry that is almost certainly not on the radar of environmental, social and governance (ESG) or impact investing funds: palm oil producers. Instead, the companies producing what is arguably the world’s most versatile and widely used vegetable oil have been in the crosshairs of environmental groups. The plantations cover sweeping tracts of land in tropical areas such as Borneo and Sumatra, which also happen to be in the same region as virgin rainforest that is home to endangered orangutans. Expanding plantations involves clearing the rainforest or peat land, usually by burning, which affects flora and fauna, and in the case of peat land, releases carbon into the atmosphere.

Consequently, the industry has been vilified for a litany of sins — from destroying the environment and endangering wildlife, to forced labour and the displacement of indigenous people. Palm oil is used in the manufacture of myriad consumer products — from soap and shampoo to noodles, ice cream and breakfast spreads. But the manufacturers of these goods, as well as the supermarkets that stock them, have distanced themselves from it.

Yet, experts have also acknowledged that any alternative to palm oil, such as other vegetable oils, could actually be worse for the environment. For one, palm oil is the most efficient crop compared with other common oilseeds — rapeseed, sunflower and soy. One hectare of plantation yields on average 3.8 tonne of palm oil, but only 0.8 tonne of rapeseed oil, 0.7 tonne of sunflower oil, and 0.5 tonne of soybean oil. The oil palm is a perennial crop, unlike rapeseed and soybean. And, boycotting the crop could simply shift the same problems onto another, less efficient and potentially more destructive, commodity.

In the wake of criticism, the industry has banded together to address the issues. There is the Roundtable for Sustainable Palm Oil, which seeks to establish global standards of sustainability. Individual companies have set about working with smallholder farmers to ensure they do not burn land to clear it for planting. And, in September, the Indonesian government extended the moratorium, for three years, on the issue of new permits for oil palm plantations.

For a time, the palm oil companies were raking it in, amid the commodity price boom and keen investor interest as a result. These days, however, earnings have been hit by deflated crude palm oil prices. Stock prices are also languishing amid investor apathy, whether from the companies’ poor financial performance or pressure from environmental activists.

It remains to be seen whether the palm oil industry’s efforts will mitigate the damage caused, or at least appease environmental groups. But it is clear that investors, and broader society, are no longer looking at profit as the main motive for, or indicator of, success.

This story appears in The Edge Singapore (Issue 860, week of Dec 10) which is on sale now. Subscribe here

Right timing: STI stays intact, but Hong Fok is at extreme overbought high

SINGAPORE (Mar 23): Although quarterly momentum appears ambivalent as it is consolidating beneath its own moving average, prices are intact. They have established support at the confluence of the 50- and 200-day moving averages which are moving into an increasingly positive stance at 3,217 and 3,186 respectively. The index may well be able to regain its 50-day moving average as short term stochastics is turning up from the bottom of its range. Since medium term indicators are neutral and drifting sideways, short term indicators could keep the STI afloat. However the range is likely to be ....

EY Singapore launches 18th edition of Entrepreneur Of The Year awards

SINGAPORE (Mar 22): The search has started for the 18th EY Entrepreneur Of The Year, as part of the bid to promote entrepreneurship and shape a new role model for the business community. Ernst & Young LLP, organiser of the annual awards, observes that entrepreneurs in Singapore, and the world, have built some of the world’s most enduring companies. The businesses they build don’t just create employment and contribute to the GDP. “Their creativity, tenacity and courage serve as an inspiration for many. In many ways, the way they overcome the odds, the power of their influence, a....

Challenger Tech's 2.94% shareholder says offer price too low, calls for higher dividend payouts

SINGAPORE (Mar 22): Pangolin Investment Management, which holds a 2.94% stake in Challenger Technologies through its Pangolin Asia Fund, is calling on other shareholders to reject Digileap Capital’s delisting offer at the company’s upcoming EGM.   Pangolin says the offer price of 56 cents per share, which translates to a price-to-earnings ratio of 9.9 times, is too low and thus unfair to minority shareholders. In a letter sent to The Edge Singapore on Friday, Pangolin explains its reasons for strongly advising other Challenger shareholders to reject the offer, which it deems “....