There is no doubt that capitalism is under serious pressure at the moment. The good news is that we can respond well to a bit of pressure, and now is the time to re-imagine what the system can do.
There is a growing craving for somebody, somewhere, to focus on public goods. There is a certain loss of confidence in the state to protect public goods – particularly those that sit beyond national borders. Climate change is perhaps the ultimate example of this, but there are many others that are also tremendously complex, such as the collapse of fisheries and the depletion of other public goods that support the economic system upon which we depend. As I think about my own experience in building enterprises to deal with some of these problems, I have a few observations.
I used to be an international lawyer, and my mentor gave me a phrase that I’ve clung to ever since: ‘Law is, in many senses, a will to perfection.’ It is a way of making the best of ourselves, and it also offers constraints against our worst excesses. In some ways, I believe the current craving we are witnessing is a craving for rules.
Corporations need rules, too, as they are societies-within-a-society that make a material difference to the world in which they operate.
In my own experience in building a couple of those enterprises, I have had to draw in mainstream investors who perhaps didn’t share the same ideals and would not have responded to a ‘let’s make the world a better place’ proposition. Yet we managed to raise money from mainstream pension funds.
In the boom times, it was easy to get funds under management; we raised a billion and half dollars very quickly. I remember in one particularly exciting period, we raised about 900 million Euros in six months. Those days are definitely gone, and believe me, with the declining interest in climate change it has been quite difficult to run a business called Climate Change Capital in recent years. Just look at the media reporting and the usage of the word ‘climate change - it is down about 40 per cent in the last year, and heading south. It has also dropped down the political agenda and it has been extremely difficult to raise capital; there is much less risk capital available and many of the mainstream investors have just been sitting preparing balance sheets and are not venturing into difficult areas.
Much of our company’s investment has been in emerging markets, and coupling climate change and emerging market risk has been extremely difficult in the last three years. But thankfully, we were able to raise money in better times and deployed it in mainstream asset classes like real estate as well as more adventurous areas driven by carbon prices and clean technology. Most of our funds are 10-year funds, and I’m pretty satisfied that they will do well by comparison to mainstream investments and that our investors won’t have lost out due to our focus on the environment and sustainability.
One thing we need to do more of going forward is what I like to call ‘radical cooperation’. We partnered on an initiative with Capricorn Investment Group that is putting unlikely elements together in furtherance of a sustainability ideal and producing good returns. Here’s what we did: together, we made an investment in a rice farm in Tanzania. It took a long time to negotiate the land ownership; it isn’t easy for an external investor to buy 5,000 hectares in a country like Tanzania but we had someone who was situated locally and knew the country very well and this helped us purchase the land.
As is often the case, there were many small holders on the land who had no property rights whatsoever. Most businesses would have used the power of the state to clear them off the land; but we didn’t do that. Instead, we created a space within the property for them. We did some of the usual things, such as implementing community structures, but we also transferred expert knowledge on how to improve the yields on small holdings. In so doing, we not only combined what we wanted to achieve for the larger land holding - i.e. bringing in some irrigation and different types of seed -- but we also worked with the small holdings to help them with marketing their business. We created a new brand; there had never before been a rice brand in Tanzania. The whole poin
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[This article has been reprinted, with permission, from Rotman Management, the magazine of the University of Toronto's Rotman School of Management]