Greater sustainability – rethinking the approach to doing business

By Cassandra Mascarenhas

With the upcoming launch of Sri Lanka’s first sustainability index in the latter half of this year, it was fitting for the Global Compact Network Ceylon to base the Global Sustainability Knowledge Hub, a quarterly workshop series, on the theme ‘Global Economic Trends and Sustainability Indices’. The workshop featured the Board Member for the Middle East and Asia with the American Academy of Financial Management and Advisor on its Global Board of Standards on Wealth Management and Private Banking curriculum Michael Priess as the keynote speaker.

Board Member for the Middle East and Asia with the American Academy of Financial Management and Advisor on its Global Board of Standards on Wealth Management and Private Banking curriculum Michael Priess delivers the keynote address at the Global Compact Sustainability Knowledge Hub - Pix by Daminda Harsha Perera

It was revealed that the sustainability index will be launched in either October or November of this year and companies eligible to be a part of it would have to meet the criteria of being a part of the UN Global Compact, be listed on the Colombo Stock Exchange and release annual sustainability reports.

“In this day and age, you can’t hide; everything is very transparent. What’s happening in one part of the world will be seen less than an hour later globally and therefore it’s in everyone’s interest to be sustainable – the new economic environment is encouraging sustainability,” stated Priess when asked his views on the launch of this index in Sri Lanka.

INSEAD Social Innovation Centre Executive in Residence Ravi Fernando agreed with this, adding that the index will prove to be a competitive advantage in terms of tourism as it will allow Sri Lanka to leverage on its green coverage and drive towards being a low or even zero carbon emission country which will be appreciated in a global sense.

Commercial Bank COO Ravi Dias felt that the time was right for such an index in Sri Lanka as the corporate sector is now increasingly embracing the principles of sustainability.

When delivering his keynote address, Michael Priess stated that with the issue of sustainability, everyone has to take a step back and think about going forward, and what should be done in this context; which is why sustainability is such an important issue now because the world needs to find new answers to very complicated problems.

Analysing global economic trends, he pointed out that the fact that the world was growing was also to a certain extent a problem as well as it forces people to reconsider their lifestyles. In turn, the world economy is also growing and while that provides more opportunities, it also means more competition.

Drawing upon the example of Emirates which commenced operations in 1986, Priess examined its business model. “When I was growing up, the only markets that mattered were the US, Canada, Europe and Japan; everything else from an investors’ point of view was like Africa. Emirates connected the dots between places where people thought there was no business and increasingly, it is smaller countries trading directly with each other that are thriving,” he explained.  Taking his point further, Priess noted that this year the second best performing market in the world was in Laos which opened its stock exchange in 2011 and has only two stocks on its index. However, its currency has been rising 20% against the US dollar and while nobody looked at the country before, it is now on the map.

The current global economy is worth $62 trillion of which the US has a $14 trillion stake, the EU 27%, China 9% and India about 2%. Going forward, Priess predicted that China and India will be the largest economies in the world with China overtaking the US just like it overtook Germany and then Japan and India will go on to have a stake of 10% of the global economy, which according to him was the new world with a shift in the balance of powers. Further illustrating his point, Priess revealed that Kazakhstan bonds now have a higher credit rating than those of the state of California.

“In the old days people had money in pounds, Euros, Swiss francs maybe but in the future more and more investors will have money in different currencies in emerging markets which have strong fundamental growth, sustainable growth. The period of 2000 to 2030 shows that the global economy will experience an average economic growth of 3.6%. In a way, the recession marked the end of the Anglo-Saxon financial model as we know it – speaking of sustainability, people need to rethink their approach to business,” he said.  Identifying further trends, the world population is growing and adding more workers. Economics is essentially about demographics which is why China, Priess pointed out, is the largest economy in the world – because they have the most people. It is ultimately about population growth and young populations. According to him, sub-Saharan Africa and Asia is where the real growth is as in these parts of the world, macro-economic trends are more favourable due to their younger populations.

The growth of the middle classes, with the biggest growth witnessed in Asia, has seeing urbanisation become an increasing problem. Although emerging economies are now growing at seven to eight per cent, urbanisation is proving to be a serious bottleneck.

Priess identified the biggest competition as coming from India and emerging Asia as it is those areas in the world with potentially the highest education levels which in turn leads to creativity. “Creativity is the key. Take any Apple product for example, at the back it says designed in California, made in China. So why does the person in California make more money than the one in China – it’s because of the creativity and creativity is ultimately about education.

Why is Nokia going bankrupt? It’s because phones are now about being able to check your Twitter and Facebook, not taking calls anymore. This is why education is so important; creativity is the driver of the new economies,” Priess stated.Buy gold, was Priess’s next piece of advice as the metal was classified as being the best performing asset class last year. Gold could potentially go to $10,000 an ounce and still be cheap. Gold has also been going up in price along with the global money supply and in the future, the price of gold can go much higher.

Everybody has US dollars, he observed and although the US dollar is the world’s reserve currency, the US is also the most indebted nation on the planet and will never be able to repay the debt and the US dollar is now low against almost every currency in the world.

In 2010, equities were where the money was, he stated and Mongolia was the best performing equity market last year, with the market going up by 140%. Dubai in its heyday grew by 17%, yet the IMF predicts that Mongolia is set to grow by 33%.   “A $10,000 dollars in 30 years would be worth only $3,000. This is why over time; stocks are the best performing assets. When it comes to long term investing – you are always better off with a well diversified portfolio,” Priess said.

“Investing in companies that embrace sustainability makes more long term business sense. Europe and the US are declining, Asia is where it is.”

He advised investors to look at where money was made and lost as it then gives one an idea of trends and where to invest. Investors last year made big money in small emerging markets, while Greece, Cyprus, Italy and other European markets were some of the worst performing markets globally.