On March 19, 2020, Cornerstone Capital Group held a conference call addressing concerns about the current coronavirus pandemic and its impact on the markets, the economy, and importantly, the changes in how we think about the infrastructure of our society over the longer term. Cornerstone’s Erika Karp, Craig Metrick and Michael Geraghty were joined by two equity managers on the Cornerstone platform: Cathie Wood of Ark Investment Management, and Garvin Jabusch of Green Alpha Advisors. The full call replay can be accessed here.

Managing Portfolio Risk Through Integrated Analysis

The participants on the call focused on the benefits of integrating environmental, social and governance (ESG) factors into the investment process in an effort to de-risk long term portfolios and identify critical growth opportunities.  Both Ark and Green Alpha look at multiple risk factors at a systemic level to minimize exposure to threats such as climate change. This extends to investing in methods to address risk — such as pandemic crisis. In their view, by focusing on innovation and the future while considering all stakeholders instead of only shareholders, investors may experience better long-term returns with lower volatility.

Kicking off the discussion, Erika highlighted that “sustainable investing is a proxy for quality. It’s a proxy for innovation and a proxy for resilience. And that is precisely what we need right now.” She asked whether, when we emerge from this current crisis, we would be forever changed:

“We have to think about issues like distance learning, telecommuting, distributed health systems. We have to think about supply chain logistics. We have to think about surge capacity. We have to think about virtual entertainment, emergency service centralization, obviously food safety, water quality, hygiene standards. We have to think about mental health provision. We have to think more proactively and in an innovative way about investing. Going forward to attack these challenges, we remind everyone that impact and sustainable investing is just investing.  But a more conscious, predictive way to invest.  Impact investing is the new cornerstone of capitalism.”

Michael Geraghty, Cornerstone’s market strategist, discussed the volatility of the markets under the current coronavirus situation. He doesn’t believe the markets will stabilize until the virus is either contained or a vaccination is developed and made available to the public. Michael notes, however, that this is a short-term shock to the system and not a structural one. That’s not to say that this pandemic won’t have a profound effect on the economy or the markets near term.  The consumer accounts for 70% of U.S. Gross Domestic Product (GDP). If consumers are staying home and hunkering down, a cut in rates by the Federal Reserve and a payroll tax cut by the Federal government won’t have a strong impact on consumer behavior.

Craig Metrick noted that Cornerstone focuses on long term investment objectives while creating an investment plan which is designed to achieve social and environmental impact. He then interviewed Cathie and Garvin as to their views on the longer-term implications of the current crisis.

Investing in Disruptive Innovation and Strong Governance

Ark Investment Management focuses on investing in disruptive innovation over a five-year time frame.  Its five core themes are: DNA sequencing, robotics, artificial intelligence, energy storage and blockchain technologies. Cathie Wood noted that the companies her firm invest in are not typically in any indices. Other managers are selling these names while buying names in the indices, such as the S&P 500, giving firms like hers an opportunity to buy these innovative company stocks at lower valuations. Over the long haul, she believes these investments should outperform older economy names that still dominate the indices.

Garvin Jabusch noted that a recession is already priced into the markets and his firm is looking for companies that will perform well out of the downturn.  Bottom-up analysis is key, in his view. He looks for companies that are good stewards of capital, are innovative and create solutions that will make the economy more productive. Green Alpha is a long term buy and hold manager. The firm focuses on innovative companies that can help de-risk the economy such as those engaged in decarbonization, biotech and electrification.

Summing up the discussion, which included a very lively Q&A, Erika noted: “When it comes to ESG analysis, the “G,” governance, is first among equals. Because if we’re talking about a well-governed company, then by definition it is looking at environmental and social issues. And if a company is not looking at environmental and social issues, it is by definition not well-governed. It’s tautological.”

Ark Investment Management and Green Alpha are two of the strategies included in the Cornerstone Capital Access Impact Fund. Click the link to view standardized performance and the Fund’s top ten holdings:  https://cornerstonecapitalfunds.com/quarterly-commentary

You should carefully consider the investment objectives, risks, and charges and expenses of the Fund before investing. The prospectus contains this and other information about the Fund, and it should be read carefully before investing. You may obtain a copy of the prospectus by calling 800.986.6187. The Fund is distributed by Ultimus Fund Distributors, LLC. Cornerstone Capital Group is the adviser to the Fund. Investing involves risk, including loss of principal. Applying ESG and sustainability criteria to the investment process may exclude securities of certain issuers for both investment and non-investment reasons and therefore the Fund may forgo some market opportunities available to funds that do not use ESG or sustainability criteria. Securities of companies with certain focused ESG practices may shift into and out of favor depending on market and economic conditions, and the Fund’s performance may at times be better or worse than the performance of funds that do not use ESG or sustainability criteria.


At Hetrick-Martin Institute, the nation’s oldest and largest non-profit service provider focused on serving LGBTQ youth, we know resilience when we see it. In the financial and risk industries, building resilience is about helping companies or governments achieve success in an ever-changing world of challenges. When it comes to building resilience among young people, the strategies might look different, but the results — clients that thrive — are very much the same.

40% of homeless youth identify at lesbian, gay, bisexual, or transgender (LGBT), yet LGBT youth represent only an estimated 7% of all youth in the US. Why are the numbers so high for LGBT young people and what can we do to help?  While there are many, often compounding, reasons that youth experience homelessness, family rejection is the leading cause among LGBTQ youth. Over 30% of LGBTQ youth reported being kicked out of their homes when they came out and many face negative reactions from their families and communities.

Looking to the the broader world outside of home: discrimination, rejection, and violence against LGBTQ youth persists. When asked, the majority of young people reported witnessing acts of violent discrimination towards LGBTQ people at school. When it comes to safe working environments, over 90% of transgender people asked reported experiencing discrimination in the work place. The data gives us examples of the challenges and shows that these challenges exist for LGBTQ youth across many different environments. What is needed is a two-pronged approach to meet the immediate needs of young people and meet the need for systemic change to make environments safer and more inclusive for LGBTQ youth.

Emery Hetrick and Damien Martin, founders of Hetrick-Martin Institute, set out to tackle both when they heard the personal story of a young man who was assaulted and kicked out of his group home for being gay. They immediately recognized that self-realization starts with safety. A young person needs to feel safe before they’ll sit and have a bite to eat, before they can pause to talk about their day, before they can look around and evaluate their life goals. So we start with safety. We create safe spaces for youth to be themselves, to explore themselves, to questions themselves, to access safe housing, to have a hot meal, to seek legal and medical support, to learn to read, to learn to add, to learn what life has to offer. But beyond the walls of a safe space, how does one bring change into the world? Advocacy.

Being able to present, share and discuss discordant points of view is the heart of social progress. HMI teaches its young people to self-advocate on the interpersonal level and also on the systemic level. There are government officials and state institutions ready to learn, ready to talk, and ready to expand the ways they serve us, we the people… we the people need to build up the tools we are giving to the next generation to build safer and more supportive communities, that won’t reject or forget those who are different or “other.”

Including all-too-often marginalized young people in the conversation, we can begin to shift the paradigm, recognizing the historically described voices of the oppressed as the powerful leaders of tomorrow, the voices of the resilient. That is why honoring our leaders and visionaries at galas and luncheons, like the WOMEN WHO LEAD event on April 28th, where we will be honoring Erika Karp and Fern Mallis, are so important. The bravery and intention that moves us forward as a society needs to be celebrated to give our young people something to work towards and something to aspire to… proof that being tenacious and resilient and taking steps towards change can lead to so much more than the next step, and it can lead to more than career success, it can lead to a stronger community and better society for all of us.

For more information go to: www.hmi.org/womenwholead

Ross Schwartz is a recognized New York public relations professional, LGBTQ activist and advocate for social justice. He serves as the Communications Director at Hetrick-Martin Institute.

Last week at the New York Stock Exchange, Ecolab hosted an event to unveil a new version of its Water Risk Monetizer (WRM) solution. WRM, a financial modeling tool, was developed through Ecolab’s partnership with sustainability data firm Trucost and in collaboration with Microsoft. The event focused on WRM’s new operating features.

Alongside the debut of the technology updates, the event featured a panel discussion amongst corporate leaders who discussed best practices and lessons in implementing water risk management strategies for their businesses. Also present were representatives from the financial sector to discuss the investor’s perspective on water efficiency strategies. Panelist included representatives from Microsoft, Marriott International, Coca-Cola, BASF, S&P Dow Jones Indices, CERES, and Cornerstone Capital’s own Sebastian Vanderzeil.

The opportunity for the WRM arises from regulation (or lack thereof), growing public pressure, and rising demand by investors for disclosure. WRM enables companies to understand the impact of water quality and quantity in their business, turning water risk into an actionable element of their overall strategy. The upgraded WRM can now provide comprehensive monetary analysis of the incoming and outgoing water risks, including the future cost of water, pollution and water treatment costs, the potential revenue at risk, and the enterprise risk.

Several key themes emerged during the panels and concluding remarks:

Water risk management has “arrived” as a strategic issue for corporates. Firms must consider both the operational role of water and the reputational consequences of mismanagement of water strategy.  Creation of a “smart water culture” requires awareness of water efficiency and risk at all levels of the organization and the embrace of water management strategy.

Water risk is a multi-stakeholder issue, with engagement of local communities a key to successful risk management. Companies must understand the social and political issues relevant to water sources and uses and align their strategies accordingly.

Water is already an investment strategy, with both passive and active approaches possible. The creation of investment indices can serve to pressure companies to adopt more proactive water risk management practices. Managers may also face a push from “dark green” investors, who want to understand the material issues and emerging technologies.

Metrics are in the early stage of development. However, existing metrics, such as Global Reporting Initiative (GRI) standards, can help companies prioritize efforts; for instance, by assessing the materiality of water relative to other environmental issues and by providing a framework on how to consider the relevant issues. Sound governance requires companies to demonstrate effective policies and outcomes to stakeholders, including investors. Technology solutions like WRM can help companies deal with the risks.

Alfonso Carrillo is an analyst with Cornerstone Capital Group.  He holds an MBA from Babson College where earned the Dean’s Leadership award. Previously Alfonso worked for a family office focusing on business development opportunities in e-commerce and fin-tech. He is a member of the Guatemalan Bar Association, and prior to 2014, he worked on fraud and insolvency cases, as well as anti-corruption cases against Guatemalan authorities. Outside his professional training, Alfonso helped create, and still holds advisory positions on, various youth and social-impact organizations in Guatemala. 

As part of Cornerstone’s ongoing research on antibiotics and livestock production, we attended the FAIRR Initiative’s event on antibiotic resistance and investment risk in New York City on Monday, March 20, at BlackRock’s office. (FAIRR, or Farm Animal Investment Risk and Return, is an investor initiative that aims to put factory farming on the ESG agenda.)

The event was well attended by a mix of investors, industry participants, and NGOs. Dr. Lance Price of the Milken Institute School of Global Health gave the keynote presentation. Erik Olson, Director of the Health Program at the Natural Resources Defense Council (NRDC), provided a policy and market trends update. The event closed with a session with panelists from Aviva Investors, Green Century Capital Management, Chipotle, and Perdue. Attendees who were new to the topic received a useful overview, while those that have been following the issue were presented with valuable perspective.

With increasing global demand for animal protein, traditional farming methods are being replaced by a new industrial model – the factory farm. While this new method has increased food production and lowered prices for consumers, antibiotics are being utilized more in the process. One speaker said Pew Charitable Trust data shows that approximately 80% of all antibiotics used in the US are fed to farm animals. We note that the Animal Health Institute refutes this figure, saying it was deduced by comparing two data sets that are not comparable. While the number may be debatable, our research indicates that the proliferation of antibiotic resistance is primarily attributed to the misuse and overuse of the drugs in human medicine and animal agriculture. (See our October 2015 report Antibiotics and Animal Health: Value-Chain Implications in the US, as well as subsequent updates.)

One of the most concerning developments is the discovery of the mcr-1 gene on Chinese pig farms and on meat in supermarkets. This single, easily spreadable gene makes the bacteria that carry it resistant to colistin, our “antibiotic of last resort”. The scientific report that originally reported this issue also presented evidence that the mcr-1 gene has already been transferred from pigs to humans.

From a regulatory standpoint, Maryland and Oregon are considering legislation like California’s SB 27, a bill limiting the use of medically important antibiotics (MIAs) in animal agriculture. In addition to prohibiting antibiotics for growth promotion, SB 27 prohibits the use of MIAs in a “regular pattern” (i.e., for growth promotion and disease prevention), thus going beyond federal policy outlined in the FDA’s Guidance for Industry (GFI) 213. This addresses concerns that animal producers may use antibiotics for growth promotion under the guise of disease prevention. As we have discussed in prior research, the potential for more restrictive regulation (as seen with SB 27) and shifting consumer demand poses a risk to antibiotics sales for animal health companies.

A discussion of company policies on antibiotic use at various points in the value chain provided valuable insight. One speaker said that in 2012 less than 10% of chicken was raised with no routine antibiotics. In 2015, that number had grown to 45%, illustrating the speed at which industry is reacting to changing consumer preferences. Perdue began the process of removing antibiotics from production in 2002 and by 2006 had completely removed antibiotics used for growth promotion. The company finished removing antibiotics in hatcheries in 2014 and in 2016 pulled animal-only antibiotics (ionophores). Currently, Perdue only uses antibiotics when chickens are getting sick, which occurs in about 5 percent of its flocks. This means that 95% of the company’s production eligible to be sold under the label “no antibiotics ever.”

Our prior research assessed poultry producers’ antibiotics use policies and we highlighted Perdue as a leading performer and Sanderson Farms as lagging. Sanderson does not believe the antibiotic-free (ABF) movement is grounded in proper science and ethics, and believes competitors’ efforts are a marketing gimmick aimed at charging higher prices. While Sanderson’s view about strict ABF policies compromising animal welfare is worthy of examination, we question the company’s strategy to combat shifting consumer demand. In February 2017, a non-binding shareholder proposal requesting that Sanderson phase out the use of MIAs for growth promotion and disease prevention failed, though it received support from 30% of votes cast.

In the restaurant space, KFC stands out as a major laggard in the NRDC’s 2016 Antibiotics Scorecard, which grades the US’s top 25 restaurant chains on their policies and practices regarding antibiotics use and transparency in their meat and poultry supply chains.

While most companies have been focused on reducing antibiotics in poultry, pork and beef are beginning to attract attention. One speaker said pork is where chicken was a few years ago and noted that the pork industry is more vertically integrated than commonly believed (he believes it is about 80% integrated). Vertical integration should, in theory, make the process of reducing antibiotics more achievable. The beef industry is “significantly” more diffuse. Companies’ recent actions also suggest movement on phasing out antibiotics from pork and beef. Subway committed to serve antibiotic free beef and pork by 2025, Tyson and Smithfield now have “no antibiotics ever” pork product lines, and Perdue purchased Niman Ranch, which adds an array of antibiotic free beef and pork to its product portfolio.

Rounding out the conversation, speakers discussed alternatives to antibiotics. Probiotics, vaccines, and biosecurity are being viewed as promising areas for growth. This supports our prior research highlighting investment opportunities in companies producing probiotics (e.g., Novozymes) and biosecurity products (e.g., Neogen). We also believe vaccines can help offset the pressure on animal health companies (e.g., Zoetis and Phibro Animal Health) due to falling sales in medicated feed additives.

Michael Shavel is a Global Thematic Analyst at Cornerstone Capital Group.  He is responsible for researching industries, companies and trends in the field of sustainable finance.  Prior to joining the firm, Michael was a Research Analyst on the Global Growth and Thematic team at AllianceBernstein where he covered the energy, industrials, and materials sectors. He holds a B.S. in Finance from Rutgers University and is a CFA Charterholder.


While reverberations of the surprise US electoral outcome will unfold for quite some time, at Cornerstone Capital Group we wanted to take a moment to consider the landscape in which we and our clients operate in the field of sustainable finance.

As policy proposals and realities evolve, and while uncertainty and volatility will persist, there is no doubt that macro and structural trends in the US and Global markets are bigger and more powerful than any administration or regulatory regime over the long term. At Cornerstone we believe that the private sector will power progress in meeting the world’s imperatives including addressing everything from climate change, water scarcity, income inequality, gender equity, and healthcare provision, to infrastructure building. We believe that shifts in the political landscape aside, the rising influence of “universal owners” and advisors with a fiduciary duty to their clients will also continue to move the needle on corporate social responsibility.

We argue that promoting the health of the capital markets through transparency and collaboration will empower the innovation necessary to meet any challenge. Our discipline of deeply integrating the analysis of the pivotal Environmental, Social & Governance (ESG) factors into all investment processes allows for the alignment of our clients’ values and investments. And in seeking those Managers and those Companies in which we place our faith over the long-term, we will aspire to corporate excellence and sustainability. We will remain in relentless pursuit of material progress towards a more regenerative and inclusive global economy.

And we will continue to leverage the power of positive investing. We will stand by those who seek to accelerate the flow of funds into sustainable investment strategies as they demand competitive financial returns. We will highlight the essential nature of an inclusive society where rifts between people and communities are repaired. We offer this view that this shift in political landscape is a call to action … to focus the power of thoughtful and responsible capital markets facilitating solutions to the most critical imperatives of our time.

Click here for a pdf of our note.

For information on our investment advisory services, contact Jan Morgan. For information on our corporate advisory services, contact Alice Petrofsky.

Erika Karp is the Founder and Chief Executive Officer of Cornerstone Capital Inc.

On June 2,  Sustainable Insight Capital Management (SICM) hosted Dr. Robert Scheller of Portland State University and Charles Bullard, Fellow at Harvard Forest, as part of an event titled “Forest ecosystems and climate uncertainty: investment implications along the supply chain.” Investors, data providers and consultants who are active in forestry convened to hear a presentation from Dr. Scheller and discuss the role investors in forestry and forest management can play in addressing climate change impacts.

Dr. Scheller is a leading scientist on the impact of climate change on forests. His team has developed a forecasting tool, Landis II, which models different scenarios to forecast the impact of climate change and forestry management activities for forests around the world.  His research focuses on the role of people and management actions in addressing the impacts of climate change on forests.

Dr. Scheller discussed the spectrum of forests’ response to climate change, from resistance to adaptation, with resilience the key factor in a forest’s response. Resilience is further categorized as organic (how much the forest can absorb change by itself) and managed (how much can human management activities help the forest absorb change). At one end, resistance seeks to preserve the forests in a pre-climate-change state while adaptation sees major change in the forests to adapt to climate change.

The view expressed during the presentation is that the fate of forests under climate change goes beyond the physical impacts and, more importantly for us, depends on management actions of we take in response. The questions, therefore, are:  1) How can management shape the trajectories of forested landscapes? 2) What management strategies are reasonable and effective? 3) When and where should they be deployed? 4) What role should managed resilience play?

Management actions are linked to the economic value of the forest, its cultural significance and legislated mandates; the value humans place on a particular forest will guide its stewardship. Therefore, forestry management in the face of climate change is rooted in what we value about the forest, what it can adapt to naturally, and what management actions we can cost-effectively take to build resilience and adapt.

Dr. Scheller did note that some forests may not be able to be saved at all. Recent studies predict that the southwest of the U.S. will be too hot for forests in
50-70 years. Therefore, it may not be practical to undertake management actions and these forests may be lost. In other parts of the country, such as the Oregon Coast, climate change could actually benefit the forests and management actions may not be necessary. Modelling by Landis II showed that the high rainfall and relatively connected landscape of the Oregon Coast engendered relatively high natural resilience. A practical application of the Landis II tool could be the identification of forests that would benefit the most from management activities and then developing carbon projects (linked the Californian carbon trading scheme) that fund these activities.

Sebastian Vanderzeil is a Research Analyst at Cornerstone Capital Group. Previously, Sebastian was an economic consultant with global technical services group AECOM.

Bruce Kahn, Ph.D., is a Portfolio Manager at Sustainable Insight Capital Management.  Bruce has over 26 years of academic, environmental and investment management experience. For more information on this event please contact bruce.kahn@sicm.com.




Technology has changed the world — yet our diets are behind the times, especially when it comes to efficiency. We base our diets on calories, not nutrients, and our food conversion leaves a lot of unhelpful material inside the body and a lot of waste.

But improving nutrition efficiency is possible.  We can improve the amount of nutrients we extract from our food by introducing supplementary enzymes.

Supplemental Enzymes: Proven Benefits

Our body naturally produces enzymes designed to break down the components of the foods we eat into molecules our body requires to survive, repair, and protect itself. As one ages, and as one eats a narrower variety of foods, these enzymes become less effective, preventing optimal uptake of nutrients from foods and increasing the volume of waste products produced from digestion and metabolism.  The same process occurs in livestock, and it is through research and development in the agricultural sector that the industry has discovered the effects of feed and supplemental enzymes on animal health and digestion.

The results of feed and feed combinations on cows have been exhaustively studied, documented, and applied in the agribusiness industry for years. Cattle on a grass-fed diet, the optimal calorie source for their digestive systems, have been shown to be healthier and produce better quality yields than those on corn- or soy-based feed. However, when supplemental enzymes were added to the latter diet, those cows produced around 30 percent less greenhouse gas emissions (in the form of methane through flatulence) and delivered increased protein weight versus unsupplemented corn- or soy-based feed. Because cows are not naturally disposed to consuming these feeds, their digestive systems lack the enzymes to properly extract nutrients from them. Cattle producers discovered that the innovation of enzyme supplementation allowed livestock to adapt to a diet their systems were not necessarily designed for.  Nutrient efficiency isn’t just a matter of good livestock health – it’s also good business, as animals that can better digest their food produce more milk, more meat, and less waste per kilogram of feed. They require less pasture land and water as well.

These innovations in enzyme supplementation can be applied in other sectors too. Farmed tilapia, the new darling of the aquaculture industry, suffers from a significant drop in protein quality and beneficial omega-3 fatty acids, not to mention bland flavor, as a result of switching from their natural insect- and fish-based protein sources to the commonly used soy- and grain-based feed many fish farms rely on to keep costs down and profits up. Supplemental enzymes provided along with the feed of these new “chickens of the sea” may be the key to maximizing the nutrient quality of farmed fish, which continues to be dwarfed by that of wild varieties.

Challenges to Extending Impact to People

Finally, at the top of the food chain, nutrition experts and health gurus have been exploring the possibility of supplemental enzymes to improve the quality of nutrition human beings gain from the food they eat. There are many challenges for the earnest pursuit of enzyme supplementation, however. One of the greatest is the lack of a regulatory framework to properly categorize and validate the content of supplements. The US supplements industry is notoriously unregulated, leaving a difficult environment for consumers to navigate, with little to rely on for guidance other than manufacturers’ claims and anecdotal evidence from testimonials. The Food and Drug Administration’s hands-off approach simply does not encourage the supplements industry to pursue the costly scientific research necessary to provide consumers with proof of their products’ effectiveness in the form of hard data and results.

Regardless of the well-placed doubts about the supplements industry as it operates today, we should not throw the baby out with the bathwater. Serious consideration should be given towards the study of the potential positive effects of enzyme supplementation on our own ability to optimally extract nutrients from the foods we eat. “As above, so below,” the axiom goes, and it would make little sense to assume that enzyme supplementation, which has been proven effective for years in livestock, would not yield the same or similar benefits for our species.

Nutritional Efficiency’s Role in Combating Malnourishment

Previous articles I’ve written have spoken at length on the success gap between solving the hunger crisis and the continuing problem of malnutrition. In many of the instances where famine was ended through hardy hybrid crops and improved farming practices, monoculture has led to mono-nutrition. Eating cassava root fried in palm oil, for instance, might be a

cheap supply of calories, but the quality and variety of nutrients provided by such a meal are limited by how our bodies are designed to extract nutrients from these foods. The same goes for the nutrient-poor diets of Western and emerging markets, where obesity and malnutrition are rising in tandem. Food producers invest a great deal of resources in “fortifying” their products with vitamins or minerals, but these efforts are fruitless if we cannot properly extract the added nutrients from these foods. Perhaps enzyme supplementation would be a way to bridge this divide in human diets? Medical science has already proved the positive effects of dietary probiotics to aid in digestion and metabolism in people. Enzymes may be the solution for improving nutrition across the wide spectrum of human diets across the world.

One of the primary guarantors of food security is efficiency. Making sure that resources we put towards food production are used optimally is just one part of the equation. The other part lies in increasing the efficiency of nutrient extraction by those that consume the food we produce. For every calorie consumed, we must ensure the maximum nutrient yield to ensure our resources don’t ultimately end up as waste; and this is true whether you are a cow, a fish, or a person walking down the street.

Karla Canavan is Director of Sustainable Finance for Bunge, where she develops new opportunities in the food and energy sectors to achieve triple-bottom-line returns for investors. She has been involved in trading, finance, and agribusiness for more than 20 years.




Consider these facts:

So, what would happen if the traditional investors in maritime financing downsized their commitment to funding the construction or secondary sale and purchase of the ships that the global economy relies on for international trade? It could be reality, if the current apathy towards the industry continues and alternatives are not sought. In this article we explore the possibilities, including the role alternative finance may play.

Unprecedented Forces of Change Are Afoot

We all acknowledge that the business cycle faces periods of growth, followed by adjustment phases correcting misallocations, usually caused by credit-fueled expansion. The 2002-08 maritime asset investment boom was no exception, but was also driven by China’s 2001 ascendancy to the WTO. The reality is that eight years on, we are still faced with a large dislocation between supply, demand and asset prices that are outside of traditional trend levels. In a broad sense this is actual (in dry bulk ships particularly), but in some other sub-sectors it is perceived (container feeder).
These perceived dislocations are building more immediate upside risk into the asset class, which is a positive that has been missed by many. In areas of actual overcapacity, with asset life averaging 20-25 years, the industry is fast approaching the halfway period of much of tonnage deployed around the time of the credit crisis. With ongoing low levels of profitability, there is a strong likelihood of accelerated scrapping of older or less well maintained vessels.

Adding to the pressures on financing for the maritime industry is the debate around the global trade fundamentals that drove much of demand, specifically whether the reliance on export-oriented strategies and the associated trade imbalances are correct. This is not helped by the collapse of asset inflation, the decline in debt-based consumer consumption, and new banking rules surrounding the financing of risk-weighted assets. This controversy will not be solved overnight. Therefore, no matter who the maritime tonnage owners are, they are going to have to change their approach towards finance in order to survive.

Chart 1: New Build Prices Index

Chart 1: New Build Prices IndexSource: IPSA, Clarksons

Change, but with Wider Consequences

In 2014, Deutsche Bank estimated the value of the maritime tonnage responsible for cargo transportation to be US$820 billion.[1] Traditionally, maritime assets have seen equity funding provided by high net worth individuals, family offices and privately held corporates who operate outside of the main institutional investment forums. This has been matched by a small number of banks who are comfortable with shipping providing junior and senior debt facilities. Of this last group, circa 80% of the senior funding was historically supplied by banks in Europe, some of which were severely hit by the credit crisis and have formally announced lower exposure going forward. Many of the capital providers to the industry have fewer financial resources at their disposal.

Heightening the pressure on maritime industry financing are Basel Banking Accords surrounding risk-weighted assets. Maritime asset funding is in one of the higher-cost categories. Some of largest traditional senior and junior debt providers are, as a result of these rules, forced to downsize their commitments. Moreover, Asian and Middle Eastern banks face the same rules, and also tend not to have the expertise and therefore the risk appetite to fill the gap. But even excluding these constrained balance sheets, it is estimated that the industry is still facing a US$100 billion shortfall in funding[2].

Yes, press headlines highlight oversupply and that’s fine when global economic growth is anemic; but what happens when it isn’t? After all, there is on average a two-and-a-half-year lead time for delivery of new ships, and supply dynamics are beginning to adjust back towards equilibrium. As referred to above, industry assets have a finite life.

With current low returns in certain sub-sectors and a broader perceived uncertainty, there is an increasing risk of under-investment in the sector in the next decade. A prolonged disruption to finance, be it origination or refinancing of the maritime sector, could create systemic risk and cost of capital implications for industries reliant on global trade.

When Passive Participation Moves Toward Active

Finance has been a key driver for the maritime industry for centuries, be it the building of vessels sent to explore new worlds and find trade opportunities, or risk mitigation through Lloyds of London, which was established in 1871.

Whilst historically finance has played a passive role, it has been an active tool in developing global trade. Despite the current macro debates, the themes of outsourcing, an emerging middle class and urbanization are driving more active participation for a number of reasons:

The equipment and its infrastructure are more capital intensive than two decades ago. Not only have ports needed to be constructed to handle oil and petrochemicals, iron ore, coal and containers, but the assets in their own right are now larger in size, as trade volumes have increased and lower unit costs are demanded by end customers. The sheer size and cost of these assets is requiring financiers to consider the amortization of investments over longer periods of time. In some cases, the traditional seven-year tenors are now as long as 12-17 years. Traditional commercial banks have struggled to accommodate these demands. Alternative finance can meet this demand, if matched to the right counterparty, but in these circumstances investment management needs to be more active and industry specialized.

Direct ownership through default: Traditional and alternative financial firms are becoming increasingly involved in the ownership and operation of intermodal assets. Initially, this arose from the evolution of international trade, but more recently it has been a result of the credit crisis and the untimely demise of some traditional owners who over-indulged in cheap credit.

With real-world assets, diversification is required: Aircraft leasing, water treatment plants, PPP/PPE assets, ports and airports in the late 1990s fell into the illiquid bucket of many pension, insurance, private equity and sovereign wealth funds, and therefore were considered non-mainstream. However, over the 2000’s, assets were acquired at multiples not to be imagined a decade earlier as funds looked for new asset classes. As a result, these assets were increasingly perceived as liquid and mainstream, a perception encouraged by the active involvement of a variety of financial firms and ratings agencies. International commercial vessel fleets have not yet shifted to this profile, mainly because they didn’t need funding prior to the credit crisis. However, due to the above-mentioned changes to the financing of these assets, maritime asset owners and operators are beginning to review the structuring of asset cash flows and residual values. This move, coupled with returns in other real world assets being bid away by the competition for a smaller number of deals, is beginning to build a more active and direct focus by traditional investors.

Maritime asset exposure offers portfolio diversification and lower volatility for multi-asset and alternative investment managers: This profile is starting to drive investment in commercial maritime assets, particularly those that offer steady income, as they provide institutional investors, such as pension and insurance firms, with a tool for asset-liability matching, portfolio diversification and competitive yield. Moreover, the asset class offers lower volatility over time to investors, if specialist management is deployed. Furthermore, it is in most cases compliant with the principles of Islamic financing.

Chart 2: Industry unlevered returns IRR% versus New Build Prices

Chart 2: Industry unlevered returns IRR% versus New Build Prices

Source: IPSA Capital, Clarksons.
The Average IRR is a weighted average of 3-, 5-, 7- and 10-year holding period return across the three key sub-sectors — Dry Bulk, Container, Tanker — weighted on fleet capacity measured in dead weight tonnes. Purchase price is the new build price.
Exit price is taken as secondhand price corresponding to the holding period. Revenues are 12-month time charter rates. Operating expenses include dry docking expenses amortized over the appropriate period. S&P commission: 1% charged on purchase price and exit price, allowing for deal expenses. Charter commission: 2.5% of 12-month charter rates is deducted from cash flows. Past returns are not a predictor of the future. Furthermore, typically new build vessels can be delayed, meaning returns are estimates and allow for a framework for discussion. Rates are assumed at 12-month/1-year charter rates; in practice contracts can be for shorter or longer periods, which could smooth volatility and boost returns.

Chart 3: Portfolio diversification provision

Chart 3: Portfolio diversification provision

Source: IPSA Capital, Clarksons, Reuters.
Average risk and return of various asset classes starting from 1990 until December 2015. Global Bond Index is comprised of JP Morgan GABI index from 1990-2013 and Barclays aggregate bond index for 2014 and 2015. Commodities Index is CRB index up to 2005 and Thomson Reuters Index to Dec.2015.

Risk management is no longer just through insurance, but via synthetic financial instruments and provision of regulatory capital as well:  Shipping derivatives, while relatively young compared to mainstream assets, evolved out of the high volatility seen in the maritime markets and are designed to help manage risk.
This risk emanates from fluctuations in freight rates, bunker prices, vessel prices, scrap prices and the more traditional areas of interest rates and foreign exchange rates. Maritime principals cannot provide this liquidity or expertise.

Often, direct exposure by financial institutions is not preferred or needs to be investment grade. However, the benefits of industry financing can also be enjoyed through regulatory capital relief trades. This arises from the evolution of the Basel banking rules. It is widely expected that alternative investment managers, with expertise in the shipping arena, could shortly deploy equity relief capital to well-managed shipping banks. This has been recently seen in the SME funding, infrastructure and auto finance sectors to name a few. The benefit to the banks is a lower cost of equity and a multiplier effect on existing equity allocated to their shipping portfolios. The benefit for the investor is a return competitive to alternative sectors and assets and greater protection from any asset price pressure. This is similar to Collateralized Loan Obligation trades, but allows for the underlying bank to remain the front-facing name. Although the success of this trade is going to highlight the need for specialist investment managers should the loan fall into default. This way, investors have a manager with the knowledge of how to protect capital in a work-out scenario through their knowledge of the asset and network to redeploy it.

What Is Required to Achieve Best Practice?

Acceptance by the maritime trade that its relationship with the financial community is set to change will take time. Once seen as an industry that repelled mainstream institutional investors providing direct or alternative finance, it is likely that inclusion is to be driven by necessity. This, we believe, will take another three to five years. Meanwhile, challenges will need to be overcome, namely:

Is the Current Approach Best Practice?

To date, regrettably for some limited partners, alternative investment has come from mainstream alternative investment houses, some of whom have limited industry knowledge or networks, and have in some cases ignored fees and costs or available strategic knowledge investments. This high-cost approach comes at the detriment to limited partners’ returns, which has therefore curtailed investor appetite for the asset class. Moreover, it has for now slowed maritime owners’ and operators’ acceptance of alternative funding.

The simple fact is that investors in this space are best served by using specialist real world asset managers in navigating the maritime industry to achieve optimal risk/reward parameters. The industry, while critical to global trade, remains small and is at its simplest based on relationships. Use of specialist managers who have these networks and relationships helps considerably to bridge the current gaps in knowledge and expectations that exist in both the finance and maritime industry.

One way or another we expect change to occur. The reality is demand for finance by operators is at a cyclical low. As such, we are yet to see the true demand for finance in the brave new world that is coming over the horizon. It is hard, though, to imagine that the cost of capital for operators and owners is set to be lower in the medium term than it is today. Therefore, the true rewards are going to be reaped by those prepared to act now to be positioned for the coming up-cycle and do so with specialist advice and industry partnerships.

David Lepper is Founding Partner and CIO of IPSA Capital, a global asset management and advisory group specializing in alternative assets and special situations. He is formerly Head of MENA Research for HSBC and Pan Regional Head of Asian Small-Mid Cap Research and Global Coordinator for Shipping Research for UBS.

[1] Deutsche Bank (DB) Arab Maritime Forum May 21, 2014

[2] Makan, Ajay, and Mark Odell. “Wave of Private Equity Money Flows into Shipping” — FT.com, October 27, 2013




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This month in the Cornerstone Journal of Sustainable Finance and Banking (JSFB), we consider the issue of “Relativity” in the capital markets. Einstein showed that even though the laws of physics are the same everywhere, people experience time and space differently.  It follows that individual perspectives on change are relative to one’s own current position.

So, in this edition of the JSFB, we seek some investment insight from Einstein and we think longer term about sustainable global economic value creation rather than short-term market performance.  Einstein said that one should “Try not to become a person of success, but rather become a person of value.”  The same goes for market participants, who should know of the efforts of the World Ocean Council (WOC) to create sustainable economic value by engaging private sector stakeholders in working on “complex, intertwined, international ocean sustainable development issues,” as outlined in WOC CEO Paul Holthus’s Accelerating Impact article.

From J.D. Lindeberg of Resource Recycling Systems, we learn that the differences in relative effectiveness of strategies to reduce food waste are laid out in a new report by the nonprofit initiative “ReThinking Food Waste through Economics and Data.” Further, in our Open-Source Excellence section, Levi Strauss & Co VP of Sustainability Michael Kobori discusses the firm’s decision to offer its proprietary denim-finishing technology to industry competitors, illustrating the greater relative value the firm places on tackling water scarcity than on maintaining a cost-reduction edge.

We also note the importance of language to any discussion. Two contributions to our Sustainable Editorial section tackle issues of language.

Highlights from the May issue:

Regional and Sector Strategy: May Update
By Michael Geraghty  

The World Ocean Council, Corporate Ocean Responsibility and the Ocean Investment Platform
By Paul Holthus, World Ocean Council 

ReFED: Impact Investing in Food Waste Reduction
By J.D. Lindeberg, Resource Recycling Systems Inc.

ESG “Infractions” a Predictor of Accounting Issues
By Shivaram Rajgopal, PhD, Columbia University

The Power—and Danger—of Suggestion
By Kate Rebernak, Framework LLC

The Water Imperative: Open Sourcing Pushing Change in Apparel Industry
By Michael Kobori, Levi Strauss & Co

Your Doctor, Your Data
By Alex Cahana, MD, Ark Investment Management

Establishing Common Ground with Data and Language
By Linda Cornish, Seafood Nutrition Partnership

The Inaugural Peter G. Peterson Distinguished Lecture on National Security and Fiscal Policy
By Sebastian Vanderzeil

NYSE Cyber Investing Summit
By Sebastian Vanderzeil

If you are a subscriber click here to login and read the complete edition.  For more information about the JSFB click here  or contact us to learn more about Cornerstone’s research and service offering.


[groups_member group=”premium”]

This month in the Cornerstone Journal of Sustainable Finance and Banking (JSFB), we consider the issue of “Relativity” in the capital markets. Einstein showed that even though the laws of physics are the same everywhere, people experience time and space differently.  It follows that individual perspectives on change are relative to one’s own current position.

So, in this edition of the JSFB, we seek some investment insight from Einstein and we think longer term about sustainable global economic value creation rather than short-term market performance.  Einstein said that one should “Try not to become a person of success, buy rather become a person of value.”  The same goes for market participants, who should know of the efforts of the World Ocean Council (WOC) to create sustainable economic value by engaging private sector stakeholders in working on “complex, intertwined, international ocean sustainable development issues,” as outlined in WOC CEO Paul Holthus’s Accelerating Impact article.

From J.D. Lindeberg of Resource Recycling Systems, we learn that the differences in relative effectiveness of strategies to reduce food waste are laid out in a new report by the nonprofit initiative “ReThinking Food Waste through Economics and Data.” Further, in our Open-Source Excellence section, Levi Strauss & Co VP of Sustainability Michael Kobori discusses the firm’s decision to offer its proprietary denim-finishing technology to industry competitors, illustrating the greater relative value the firm places on tackling water scarcity than on maintaining a cost-reduction edge.

We also note the importance of language to any discussion. Two contributions to our Sustainable Editorial section tackle issues of language.

Highlights from the May issue:

Regional and Sector Strategy: May Update
By Michael Geraghty  

The World Ocean Council, Corporate Ocean Responsibility and the Ocean Investment Platform
By Paul Holthus, World Ocean Council 

ReFED: Impact Investing in Food Waste Reduction
By J.D. Lindeberg, Resource Recycling Systems Inc.

ESG “Infractions” a Predictor of Accounting Issues
By Shivaram Rajgopal, PhD, Columbia University

The Power—and Danger—of Suggestion
By Kate Rebernak, Framework LLC

The Water Imperative: Open Sourcing Pushing Change in Apparel Industry
By Michael Kobori, Levi Strauss & Co

Your Doctor, Your Data
By Alex Cahana, MD, Ark Investment Management

Establishing Common Ground with Data and Language
By Linda Cornish, Seafood Nutrition Partnership

The Inaugural Peter G. Peterson Distinguished Lecture on National Security and Fiscal Policy
By Sebastian Vanderzeil

NYSE Cyber Investing Summit
By Sebastian Vanderzeil


Access the full edition here.




The global ocean covers 71% of the planet and generates USD 2.5 trillion a year of goods and services — making the ocean the 7th largest economy in the world.

Sustainable use development of the dynamic, interconnected global ocean presents unique opportunities and challenges for the private sector. As ocean health and resources decline, ocean industries are being increasingly held responsible for their impacts. As a result, private sector access to ocean resources, services and space — even by companies with the best environmental record — is at risk from the loss of the social license. There are many efforts by responsible companies to differentiate themselves from poor performers and try to do business more sustainably. However, the efforts of one company or even a whole sector are not enough to address collective global impacts by a diverse range of industries in a shared global ecosystem.

The private sector is well placed to develop and deliver solutions in response to society’s demands that marine ecosystem use is responsible and industry impacts are minimized. A cross-sectoral ocean business community of leadership and collaboration is needed to address marine environmental issues, differentiate good performers, create collaboration with like-minded companies within and across sectors, engage ocean stakeholders — and attract investment to those companies leading the way in ocean sustainable development.

Industry leadership is essential to ensuring both the long-term health of ocean and responsible industry use of marine space and resources. Responsible industry performers are well positioned to develop and drive business-oriented solutions to marine environmental challenges and to collaborate with other ocean industries and stakeholders in ensuring the health and continued economic use of the seas. There is business value in ocean industries engaging in a coordinated, systematic approach to addressing the challenges affecting the future of ocean business, creating opportunities for collaboration and economies of scale in developing solutions.

To address ocean sustainability issues and opportunities critical to business, the World Ocean Council (WOC) was established, creating an unprecedented global, cross-sectoral industry alliance for “Corporate Ocean Responsibility.” The WOC brings together the diverse international ocean business community (i.e. shipping, oil and gas, fisheries, aquaculture, offshore renewable energy, seabed mining, etc. — including investment companies) to catalyze leadership and collaboration in addressing ocean sustainable development, science and stewardship. In addition to its 80+ WOC Members, the WOC network includes 35,000+ ocean industry stakeholders around the world.

Many companies do want to address marine environmental issues, differentiate themselves from poor performers, collaborate within and across sectors, and engage other ocean stakeholders. Now, with the World Ocean Council, there is a structure and process for companies to work on complex, intertwined, international ocean sustainable development issues. The WOC is harnessing this potential for global leadership and collaboration in ocean stewardship by responsible ocean companies that are well placed to develop and drive solutions to address cross-cutting issues in support of responsible business, reduced risk, continued access and sustainable development.

Protecting the seas to protect your business makes good business sense, e.g. through the economies of scale that can be achieved in joint research on shared problems. A growing number and range of companies share the WOC vision of a healthy and productive global ocean and its sustainable use and stewardship by responsible companies.

The WOC is creating international multi-sectoral/multi-stakeholder “platforms” to tackle cross-cutting priorities for ocean sustainable development, e.g. ocean governance/policy, marine spatial planning, marine sound, pollution, the Arctic, marine invasive species, marine debris, marine mammal impacts, port reception facilities, the adaptation of ports and coastal infrastructure to sea level rise/extreme weather events, data collection by ocean industries (ships/platforms of opportunity).

Many of the environmental and sustainable development challenges facing the ocean industries can be addressed by innovative solutions. The WOC has been working to create business opportunities for companies that are developing solutions by raising awareness among the large ocean industry operators of these solution providers and bringing the parties together.

The WOC is launching the “Ocean Investment Platform” in 2016 to bring together: 1) Investors, 2) Leadership companies from major ocean use sectors, e.g. fishing, aquaculture, shipping, offshore energy, etc., and 3) Enterprises that provide the solution innovations, technology or services. The global, cross-sectoral Ocean Investment Platform will catalyze interaction among investors, ocean industries and solution providers. The platform will provide a common process to identify, articulate and evaluate ocean industry investment opportunities and risk.

The Ocean Investment Platform will provide 3rd party information that characterizes the issues affecting major ocean users, identify the kinds of technology solutions needed, elaborate and evaluate the investment opportunities, and foster and facilitate investment community interaction with ocean users and the technology developers/providers. Initial investment portfolio areas under consideration for the Platform include: port infrastructure adaptation to climate change, port reception facilities (for shipborne plastics and other wastes), sustainable aquaculture, and offshore renewable energy. Additional areas will be evaluated, e.g. technology for ocean data collection, solutions for biofouling and invasive species.

The WOC is pulling together a growing cadre of individuals from across the investment community to collaborate in the design and setup of the Ocean Investment Platform. We will convene this group of interested parties and begin the work of developing the Platform in 2016. Parties from the investment community interested in the ocean/blue economy and the WOC Ocean Investment Platform are invited to contact the WOC CEO to participate in the group. The Ocean Investment Platform will be a major feature of the 2016 Sustainable Ocean Summit (SOS), Rotterdam, 30 Nov-2 Dec. The SOS is the only global gathering of the multi-sectoral ocean business community around the challenges and opportunities for growing the responsible ocean economy – including investment.

Paul Holthus is founding President and CEO of the World Ocean Council. He works with the private sector and market forces to develop practical solutions for achieving sustainable development and addressing environmental concerns, especially for marine areas and resources. His experience ranges from working with the global industry associations or directors of UN agencies to working with fishers in small island villages. He has been involved in coastal and marine resource sustainable development and conservation work in over 30 countries in Europe, Asia, the Pacific, Central America and Africa.


One of the reasons some neighborhoods never seem to climb out of an underperforming economic rut is that they have a hard time retaining the talent they produce.  It’s common to disregard these communities on the basis of their high poverty rates, low educational attainment, poor health stats, property values and home ownership rates.  This perception is often shared by people both inside and outside these communities.

Many well-meaning programs and projects aimed at educating those with potential follow a resource-extraction paradigm, a.k.a. “brain drain.”  It’s the Cinderella Story idea of making it out of the bad neighborhood.  For the individual, it can be great.

But in such a paradigm the investment in individuals does not result in a statistically significant benefit to the community.  Hard-working, talented young adults are taught from an early age to measure their success by how far they get away from their home communities. They are expected, even encouraged to leave before the community can benefit from their income-generating potential.

Community “Talent Retention”

Many companies realize that keeping talent is cost-effective.  Apart from salary, many of today’s successful companies use creative and compelling lifestyle-supporting benefits that keep people engaged.  When employers invest in new trainings, well-designed workspaces, flexible hours, and or free cafeteria food for employees, the employers benefit because they create an overall environment that people find appealing.  This incentivizes employees to want to stay, and builds mission buy-in, which is something money can’t always buy.

The same forces can be put to work on a community level.

Lifestyle assets such as parks and trees, walkability, and quality “third spaces” like cafés and restaurants are important factors when people determine their personal geography. Certain businesses and services broadcast “low status”—e.g., check-cashing shops, rent-a-centers, cruddy convenience stores, community centers, and a higher density of pharmacies dispensing medication meant to address the lifestyle-related illnesses that abound in this environment.  If we wait for the “market” to see the opportunity in investing in desirable alternatives to that scenario, it’s too late.

However, if we take risks in low-status communities to support the lifestyle pursuits of its most successful individuals, and not just the “needs” profile of the community, we can help change the trajectory for both, and for the better.  A Talent Retention strategy may be the key that unlocks new sets of solutions to address long-standing social challenges.

The current cost of doing nothing produces a reinvestment gap that manifests itself in numerous ways, none of them good.  As America’s reurbanization trend continues to pick up speed, those commercial and residential property owners who were able to purchase during the post-war era of “white flight” are not experiencing wealth creation in the face of increasing property values in previously overlooked areas. These property owners, and their heirs, most often liquidate the asset, with little to show for the windfall profit five years after the sale.  The new real estate developments and property values increases proceed without them.  Keeping local community members vested in the redevelopment trend can help turn around the yawning wealth creation gap that is only going to make things harder for those excluded from wealth, and the government agencies, charities, and subsidized housing that will be expected to solve growing social inequality.

My work focuses on keeping, and not just attracting, talent.  Record numbers of college-bound teens in low-status communities are resulting from the educational efforts of the past decade and a half.  Getting people to value something they have been trained to believe is valueless is not easy—in part, because a non-profit industrial complex has grown up around maintaining the misery that we know, instead of exploring the potential that requires us to be creative about supporting.

More successful real estate developments can happen, and more of them can have wider positive impact, in my opinion.  The tools are not new or all that complex, but changing our perspective is.  Our team will continue to explore how we make this happen so that everyone can honestly believe that they don’t have to move out of their neighborhood to live in a better one.

Majora Carter is an urban revitalization strategy consultant, real estate developer, and Peabody Award winning broadcaster.  She is responsible for the creation & successful implementation of numerous green-infrastructure projects, policies, and job training & placement systems.