Journal of Sustainable Finance & Banking SM

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1 January 2014 Journal of Sustainable Finance & Banking SM Featured Editorial Big Data in the Social Sector Sonal Shah, Hollie Russon Gilman p.17 Sustainability and the Digital Dilemma Matthew Swibel p.20 Featured Domain SustainabilityMapping.com: The Interconnectedness of Things Kathee Rebernak p.22 Global Sector Research Not a Team Sport: The State of Play in Global Shipping Robert DiMarsico p.24 Water Scarcity as a Business Risk and Opportunity William Sarni p.27 Open Source Excellence The Value of a Sustainable Brand Michelle Greene p.33 Enhanced Analytics Investment Storytelling through Enhanced Analytics Brad J. Monterio p.35 agsandrew Shutterstock Accelerating Impact Join #thebigshift and Accelerate the Transformation to a Sustainable Future Dr. Sally Uren p.44 Corporate Governance Insights The Challenge of Unburnable Carbon John Wilson p.46 Sustainable Standout Efficiency Meets Big Data Ben Dear p.50

2 CEOs Letter on Sustainable Finance & Banking This month in the Cornerstone Journal of Sustainable Finance & Banking (JSFB), as global markets move into earnings reporting season with trepidation about the ability of share prices to consolidate gains in 2014 and move ahead further, we focus on DATA. We consider Big Data, the Principles for Responsible Data, Data for Environmental, Social and Governance (ESG) Analytics, and Data Overload. As leaders at Davos including Cicso and Microsoft discuss everything from Global Standards for Data Storage to The Internet of Everything, the debate rages on regarding an appropriate balance between the imperative for security and the right to privacy. We offer this report from leading experts around the world working towards excellence across the capital markets. Erika Karp Founder and Chief Executive Officer of Cornerstone Capital Inc. and Former Head of Global Sector Research at UBS Investment Bank In the near-term, while investors digest news of the pricing of an IBM/Lenovo deal for the low-end server business, we also ponder the longer term potential for the IBM Watson Business Unit and the opportunity in Cognitive computing and what IBM terms a Smarter Planet. The promise of commercializing the transformation of complex decision-making processes also reminds us of the wisdom of Albert Einstein. One of his most well known and loved quotes is that Not everything that can be counted counts, and not everything that counts can be counted. But in the context of this edition of the JSFB where we consider the subject of data in all its manifestations, we also note Einstein s admonishment that The intuitive mind is a sacred gift and the rational mind is a faithful servant. We have created a society that honors the servant and has forgotten the gift. So, rather than just hoping that computing power will ultimately be able to understand nuance and leverage intuition, we present the insights of colleagues such as Sonal Shah of the Case Foundation and the Institute of Politics at Harvard University. In her Featured Editorial entitled Big Data in the Social Sector, Sonal calls for rigorous policy debate given the complexities of crossreferencing data so that we have appropriate context and so that we can avoid damaging distortions of reality. Further on the Principles for Responsible Data, Cornerstone Analyst Michael Shavel offers a status report on the extent to which shareholders need to be acutely aware of a company s data governance policies as they react to the need for data integration, data quality, data lifecycle management and data security. Just as Sonal looks for algorithm s that contain not just data but also critical elements to bring about social good such as responsibility, compassion and empathy, Kathee Rebernak of Framework LLC looks for a deeper understanding of corporate excellence in our Featured Domain this month. In Cornerstone Journal of Sustainable Finance & Banking SM / January 2014 / 2

3 an article on SunstainabilityMapping.com Kathee highlights the extent to which great companies can better understand the interconnectedness and interdependence of their inventions, the economy, and our human and natural resources. This systems-level approach will allow for greater prosperity for all. Turning to Sustainability and the Digital Dilemma this month, we include an article from Matthew Swibel, the Director of Sustainability, Reporting and Stakeholder Engagement at Lockheed Martin Corporation. Here, Matthew points to the exponential growth in cyber incidents costing society an estimated $388 billion in 2012 and trumpeting the need for Information Security to rise dramatically higher on the Sustainability Agendas across the globe. While it may be difficult to model the economic impact at hand, and while Information Security may not fit neatly into any ESG scorecard, the debate regarding increasing non-financial disclosures must be elevated. Speaking of corporate disclosure, this month in the JSFB we feature an article on Investment Storytelling Through Enhanced Analytics from Brad Monterio, Managing Director at Colcomgroup. This article highlights the extent to which the ground has been paved for the more consistent formatting, structuring, and deployment of ESG data. Given the paradigm shift today where the vast majority of corporate information is found outside the financial reports, the time for XBRL has come. Given all the complexity in this subject, the time too has come for some thoughts from Cornerstone Capital Inc s Head of Valuation & Accounting Janet Pegg to discuss: Disclosure Overload: Don t Throw Investors out with the Bathwater. As Mary Jo White has made a review of disclosure requirements a priority, and FASB has called for a study of a principles-based disclosure framework, we applaud and encourage investors to engage for a rationalization of the quality and quantity of information disclosed. And now, turning to a truly Sustainable Standout this month as data is leveraged to drive investment performance, we feature an example of where Efficiency Meets Big Data. This month the JSFB highlights the work of Ben Dear at Osmosis Investment Management. As Big Data can put us on the cusp of a new wave of innovation and productivity, Ben deploys his Model of Resource Efficiency in an investment strategy reflecting the market rewards available to companies which are able to adapt and manage their businesses in a resource constrained world. While Ben highlights the unequivocal data regarding natural resource consumption and input price trends, John Wilson, an expert in Corporate Governance and formerly of TIAA-CREF, turns to The Challenge of Unburnable Carbon. Here, John highlights aspects of both a global mitigation effort and the prospects for adapting to the inevitable climate trend, while discussing the need for constructive engagement by the financial community. Investors, unaccustomed to managing unquantifiable risks, must Cornerstone Journal of Sustainable Finance & Banking SM / January 2014 / 3

4 have a sound strategy to assess valuation implications even before specific policies take shape. The future will not be like the past and in light of all the data at hand, it would be irrational to make that assumption. There are pivotal questions which must be asked and answered if we are to make material progress. In addressing another existential challenge at hand, this month in a Global Sector Research article on Water Tech, we feature a report on Water Scarcity as a Business Risk and Opportunity from William Sarni of Deloitte Consulting. Will reviews the available data and calls out the extreme disconnect between the price and the value of water. As Will states it, achieving the desired outcomes for 21 st century water management will imply way more than enabling the status quo. And so we turn to the Accelerating Impact and Open Source Excellence sections of the JSFB with calls to action by Sally Uren, Chief Executive Officer at Forum for the Future, and by Michelle Greene, Senior Vice President and Head of Corporate Responsibility at NYSE Euronext. With Sally, we feature #thebigshift to Accelerate the Transformation to a Sustainable Future and argue for a systems-level approach to corporate sustainability and evolution. With Michelle we highlight The Value of a Sustainable Brand and the inextricable value of great companies, great governance, great brands, and great stock performance over the long-run. And finally this month, in #thebigshift while Sally addresses the need to address innovation across entire business value chains to drive progress (as with the Sustainable Shipping Initiative ), we offer one more piece of Global Sector Research. From an investment standpoint, practical opportunities to reshape the industry are at hand, and since investors derive little value from traditional data points such as the Baltic Dry Index (BDI), we need to find broader perspectives to gain insight. We argue that caution may be warranted with regard to the cyclicality inherent in the shipping business. Robert DiMarsico of Poseidon Capital and FTI Consulting reminds us that Shipping is still Not a Team Sport: The State of Play in Global Shipping. We hope this summary of the content in this month s Journal of Sustainable Finance & Banking proves helpful, and we invite continued dialogue and feedback as we evolve this publication. And, as noted in the past, this letter is being distributed to a broad group of capital markets participants. To receive the complete Cornerstone Journal of Sustainable Finance & Banking, we invite you to subscribe click here for more information. My sincere regards, Erika Erika Karp Chief Executive Officer Cornerstone Journal of Sustainable Finance & Banking SM / January 2014 / 4

5 Table of Contents CEOs Letter on Sustainable Finance and Banking p. 2 Market Summary Overview Market & Global Sector Performance, Monetary Policy & ESG Data p. 7 p. 9 Featured Editorial Big Data in the Social Sector Sonal Shah Senior Fellow at the Case Foundation p. 17 Hollie Russon Gilman Democracy Fellow at the Ash Center for Democratic Governance and Innovation, Harvard Kennedy School Sustainability and the Digital Dilemma Matthew Swibel Independent Director of Cornerstone Capital Inc. and incoming Advisory Board member of Cambridge University (UK) Centre for Risk Studies p. 20 Featured Domain SustainabilityMapping.com: The Interconnectedness of Things Kathee Rebernak Founder and CEO, Framework LLC and a member of the Cornerstone Capital Board of Directors p. 22 Global Sector Research Not a Team Sport: The State of Play in Global Shipping Robert DiMarsico Managing Director, Poseidon Capital and Senior Advisor to Shipping Practice, FTI Consulting p. 24 Water Scarcity as a Business Risk and Opportunity William Sarni Director and Practice Leader, Enterprise Water Strategy Sustainability, Deloitte Consulting LLP Principles of Responsible Data Michael Shavel, CFA Research and Business Analyst, Cornerstone Capital Inc. Open Source Excellence The Value of a Sustainable Brand Michelle Greene Senior Vice President and Head of Corporate Responsibility, NYSE Euronext p. 27 p. 30 p. 33 Cornerstone Journal of Sustainable Finance & Banking SM / January 2014 / 5

6 Enhanced Analytics Investment Storytelling Through Enhanced Analytics Brad J. Monterio Managing Director at Colcomgroup p. 35 Valuation & Accounting Disclosure Overload: Don t Throw Investors Out with the Bathwater Janet Pegg, CPA Head of Valuation & Accounting, Cornerstone Capital Inc. p. 41 Accelerating Impact Join #thebigshift and Accelerate the Transformation to a Sustainable Future Dr. Sally Uren Chief Executive Officer, Forum for the Future p. 44 Corporate Governance Insights The Challenge of Unburnable Carbon John Wilson Formerly the Director of Corporate Governance at TIAA-CREF and the Director of Socially Responsible Investing at the Christian Brothers Investment Services Sustainable Standout Efficiency Meets Big Data Ben Dear Partner at Osmosis Investment Management p. 46 p. 50 Upcoming Events Global ESG Calendar p. 54 Journal of Sustainable Finance & Banking Subscription Form Articles Cornerstone Capital Team p. 56 p. 58 p. 59 Cornerstone Journal of Sustainable Finance & Banking SM / January 2014 / 6

7 The Cornerstone Journal of Sustainable Finance & Banking SM Subscription Form A regular electronic journal discussing global perspectives on progress towards sustainable finance, banking and capitalism across regions and industry sectors. The JSFB will feature proprietary content from our Board, our Staff, and our Global Advisory Council. Sections including the Capital Markets Roundup, Corporate Resource Optimization Strategies, Governance and Human Capital Excellence, Product Sustainability Reviews, and the latest Sustainable Finance Research and Events will be highlighted. In addition, we will highlight a featured domain. Standard One-Year Subscription $1,800 Along with this subscription intended for both professionals at Financial Institutions and Corporate executives from all industries, subscribers will gain global perspectives on the articulation of strategies intended to benefit both the bottom line, and the major societal and economic imperatives of our day. In particular, our expert commentary on the latest research into environmental, social, and governance metrics and business integration, will allow for optimal assessments of risk-adjusted-returns in the capital markets. The JSFB is intended to lend investment insight into both micro-and macro-economic outcomes. Premium One-Year Subscription $3,600 In addition to receiving the JSFB, subscribers will also receive access to exclusive Cornerstone events and a consultation with a Cornerstone Executive or Global Advisory Council member. Periodic Special Reports from Cornerstone and prior editions of the JSFB are also included in the premium subscription. Subscriber/Entity Information Additional Subscribers Company Name Please complete the information for each additional subscriber. Subscriber Name Name Phone Number Address Address Subscription Type Standard Premium Subscription Type Standard Premium Name Billing Address Address City, State, Zip Code Subscription Type Standard Premium Country Name Mailing Address (if different) Address City, State, Zip Code Subscription Type Standard Premium Country The Subscription Agreement annexed hereto is incorporated and made part of this Subscription Form. The Cornerstone Journal of Sustainable Finance & Banking SM / January 2014 / 56

8 The Cornerstone Journal of Sustainable Finance & Banking SM Subscription Form (continued) Subscription Quantity Premium $3,600 Standard $1,800 Payment Options Bill me later Payment Enclosed Bill my credit card Credit Card Details American Express Mastercard Visa Name on Credit Card: Number Expiration Date Card Code Billing Address (if different) Signature Please return the subscription form to Cornerstone Capital Group or contact us to expedite your order. Cornerstone Capital Group 1180 Avenue of the Americas, 20 th Floor New York, NY The Cornerstone Journal of Sustainable Finance & Banking SM / January 2014 / 57

9 Recent Articles from Cornerstone Capital Group Cornerstone Journal of Sustainable Finance & Banking December Cornerstone Journal of Sustainable Finance & Banking November Cornerstone Journal of Sustainable Finance & Banking October Inaugural Edition Wall Street Week: Embrace the Grey by Erika Karp, Derek Yach September Forbes: The Power to Convene by Erika Karp December Forbes: Sustainable Capitalism If Not Now, Then When? by Erika Karp November Forbes: Could Sustainability by Unsustainable? by Erika Karp September Wharton Magazine: The Clients of my Clients...Sustainable Selling by Erika Karp July 2012 whartonmagazine.com/blog/sustaining-selling-success/ Wall Street Week: Leaving Rio...and Going Towards Corporate Sustainability by Erika Karp June Harvard Business Review HBR Blog Network "Why Go it Alone in Community Development?" by Andrew MacLeod June Forbes: Sustainable Investing and Moments of Truth by Erika Karp March Wall Street Week: Investing in Diversity Painful but Profitable by Erika Karp March Wall Street Week: Noise Cancelling Investment Research - ESG Analysis and Sustainable Investing by Erika Karp February Forbes: Superheroes of Capitalism by Erika Karp January Forbes: Superheroes of Capitalism: Part II - The Women by Erika Karp January Wharton Magazine: The Poetry of Sustainable Investing by Erika Karp January The Cornerstone Journal of Sustainable Finance & Banking SM / January 2014 / 58

10 1180 Avenue of the Americas, 20th Floor New York, NY The Cornerstone Capital Inc. Team Erika Karp Founder and Chief Executive Officer Kara McGouran Assistant to the CEO Joel Beck Chief Operating Officer Helen Nickells Head of Marketing & Operations Gail Kamhi Manager, Human Capital Mauricio Barbeiro Latin America Business Development Michael Shavel, CFA Research & Business Analyst Janet Pegg Head of Valuation & Accounting Margarita Pirovska Policy & Sustainability Research Juan Lois Director of Business Development Matthew Daly Research Product Manager Cornerstone Capital Inc. doing business as Cornerstone Capital Group is a Delaware corporation with headquarters in New York, NY. The Cornerstone Journal of Sustainable Finance and Banking (JSFB) is a service mark of Cornerstone Capital Inc. All other marks referenced are the property of their respective owners. The JSFB is licensed for use by named individual Authorized Users, and may not be reproduced, distributed, forwarded, posted, published, transmitted, uploaded or otherwise made available to others for commercial purposes, including to individuals within an Institutional Subscriber without written authorization from Cornerstone. The views expressed herein are the views of the individual authors and may not reflect the views of Cornerstone Capital Group or any institution with which an author is affiliated. This publication is for informational purposes only and nothing in this publication is intended or should be taken as investment advice. This is not an offer or solicitation for the purchase or sale of any security, investment, or other product and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as recommendations to purchase or sell such securities. Information contained herein has been obtained from sources believed to be reliable, but accuracy and completeness are not guaranteed. Cornerstone Capital Group cannot accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. The Cornerstone Journal of Sustainable Finance & Banking SM / January 2014 / 59