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Sustainability will eat the World

I always get asked as many other investors: “what’s the next big thing to invest in…?” The standard…

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I always get asked as many other investors: “what’s the next big thing to invest in…?” The standard answer to this is: AI, Voice platforms, Insurtech, Aviation to some extend, diagnostics in health, any alternative than Ads to monetize and some other fields. Standard advise is: Avoid topics like advertising, B2C business based on reach, digital verticals and tools, backward looking technologies, etc.

Sustainability eats the World

What I am interested in since beginning of last year is anything pushing sustainability. The times of “making the quick win” are over. Even though Trump’s USA is thinking different by abandoning Paris climate protocol. Norway just set a target by law to only allow electric powered cars to be sold from 2025 onwards. 50% of all new registered cars in Norway in 2017 are electric or hybrid. Norway’s wealth is coming from oil in the North Sea. So cutting on your financial lifeline is the way to go for innovation and entrepreneurship.

Interesting enough there are three other countries investing heavily in this field which don’t come to your mind: UAE, Saudi Arabia and Germany. UAE is setting up a lot of initiatives to focus on sustainability: from accelerators to government funded investment funds. Attracting companies to set up businesses in this field is one strategic move. Saudi Arabia just invested heavily in the New Vision Fund of Softbank founder Masatoshi Son, who is all about innovations in economic adjacent fields. Germany was the first G20 country abandoning nuclear energy from its future and invested heavily in wind, solar and other environmental focused energy sources. The land of Mercedes, BMW and Porsche is able during summertime to produce more energy from those sources than it consumes. Extending the number of days in a year even to spring and fall is one goal for the future. Imagine the country is able to produce enough energy to support electric and hybrid cars with those energy sources: Germany would be less depending from oil and gas, which it needs to import today. The trade deficit will sky rocket even more — a nightmare for Mr. Trump.

Start small and love your city

Not every Startup is a Tesla and will not struggle with the part of scaling as Elan Musk will do in the coming years. But a lot of young companies will push innovation and set new trends. They will be rewarded by trade sales and a good share for their founders. Because it will start small, I was looking in those trends more closely in recent months and discovered some hidden champions.

If you look on our daily consumption and the waste we produce, mostly unrecognized by its scale, first thing comes to your mind are bottles. Simple as that, even returning models and more sophisticated plastic materials are still not overcoming the basic problem of drinking from bottles. Less even talking on profits and economics of this business. It’s all about driving costs low in producing, selling and maintenance. But there is one company who rose by revenue from $10mn to $100mn in year on year by 2016 and it looks for more growth this year: Swellbottle. The ultralight metal bottles are made for reuse and will keep liquids cold for 24h and warm for 12h. The trick of this company seams to be, using brand and collections as a driver for sales along side influencer marketing. Offering only limited editions combined with environmental project support is the basis of their strategy. Having the right sense for colors, e.g. offering rosegold months before Apple introduced this color on it’s iPhone shows their talent. Looks like they found a profitable business through marketing and partner offerings, as you can see with a special edition for Starbucks last year. Those fashionistas interested in a cooling companion will be happy to know it will keep your white wine cool while heading out to the picknique with friends in the park.

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It isn’t a long way from water to coffee. As a friend of this brown gold I watched the baristas growing fast in my hometown over the last years even pushing Starbucks back in any part (or Veedel) in Cologne. Healthy fresh food with coffee combined is offered everywhere and with that the problem of paper cups used for coffee-to-go. While the small town of Freiburg started the “reusable and bring back to any coffee shop” model there is still a long way to go. In Germany 320.000 coffee-to-go cups are wasted per hour which results in a year for over 3bn pieces. This is a huge market to tackle considering Germany has 82mn citizens. Europe has 750mn people — so you do the math behind that. First approach was to introduce less plastic in a cup, but this will obviously not solve the problem. Next phase is to give a price reduction if you bring your own cup. Currently most baristas offering cups to purchase and to bring with you in the future. But most of those are either made from plastic (just postponing the environmental problem) or porcelain (too heavy for everyday carry and having rubber made tops again increasing plastic usage). On top those cups are priced at $15, which is way to expensive while standing in front of the counter. The ultimate solution on this is a coffee-to-go cup made from Bamboo. Next to its sustainable material the price is as low as $5 per cup and its ultralight. Making now the other baristas accepting those cups in a return model for a fee of $1 like in Freiburg, this would cut a big chunk off the 3bn problem Germany has today. Making it into a mandatory model by law would be a solution lawmakers have to think about. Currently those models are investigated by city halls in most mayor cities in Germany like Cologne, Hamburg, Munich, Berlin.

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The next thing in this line on the daily usage are bags. From Rucksack (backpack) to Weekender and smaller bags. Another big market for sustainability products to take over. From kids in Kindergarde to school and adults in university and office jobs. Avoiding back pain and looking cool through personalization. There is a company in Cologne named ‘Fond of Bags’, which is focusing on the whole field of bags: from kids to hipsters, Instagram fashionistas and office workers. They combined seven bag companies so far and are still growing. Their brand pinqpong is leading the sustainability part of the business, hopefully it will outgrow the others and have a positive influence on the other brands as well. So pinqpong is offering those kind of bags, people should be using in the future from an environmental perspective.

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When Services will catch up on environment

Discovering those trends and products while taking a walk in my neighborhood the Belgium Quarter in Cologne I realized that this town has much more focus on this topics than other German cities. Found of Bags is located in Cologne as some others as well. However this is not just about products but it is also about services and shopping. While you need the products to be available, there is another big step to be achieved: Putting it into a plastic bag would actually damage all the good will, you had in the first place. So lets introduce you to the concept of “Tante Olga” and others: a plastic free supermarket. Overcoming the little plastic bags for your fruits and vegetables, having pasta and cereal bagged in foil and all other items sealed in plastic is a huge challenge. Some shops like “Tante Olga” started to sell products without that package in either more friendly natural bags or offering to bring your own glasses and containers to take in those groceries right in the shop.

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Reaching the shops is part of the game

Cologne stands out in terms of mobility for a couple of reasons: There is an airport outside the city which is a hub for Eurowings, Easyjet and Ryanair bringing in and out a lot of people on business and for leisure. Jobs will make people commuting in and out of city center as well between Dusseldorf and Bonn. Hence public transport is on the edge of its capacity most of the time and people tend to use individual options for transportation. To make things worse the city was marked as one of the worse areas for bike riding — too dangerous and narrow while cars seams to be getting the advantage if city planing in the last decades. But this has changed in recent months with more infrastructure projects being started to favor bike riding and preventing cars from entering the city center. Streets are getting more narrow from two lanes to one. Parking lots are converted into outside seating for cafes, restaurants and even cocktail bars. This trend of parklets was born in San Francisco in 2012 and spread around the world since then.

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Limiting parking lots is driving business in summer times, hence people want to enjoy sun as long as there is some and it serves the purpose of keeping cars away. This among other obvious reasons will lead to an increase usage of car-sharing offerings like car2go, drivenow, cambio and scooter-sharing like scoo.me. Interesting enough cambio was the first car sharing offering in Germany and it started in year 2000 in Cologne, Aachen and Bremen. The next obvious movement will be to prefer bike riding in the future within urban planing even more.

Why Cologne will be part of the Sustainability movement

Looking on the history of all those trends and products I recognized Cologne being an early adopter and early mover of various parts of this development. From small startups to larger corporations adopting the trends and finally urban planing and city hall pushing towards this direction. Building a startup around this ecosystem and supporting the overall trend looks obvious from an investors perspective. Products and service in this area will need time to prove itself and gain their trusted communities. This will be much easier to build and test in an experienced and supportive city. It doesn’t need to overcome the general hurdles of a new beginning and it will benefit from an experienced ecosystem giving feedback during the long hard times of the early days of a startup. However Cologne seams to be the perfect testbed for such ventures — much more than Hamburg, Berlin or Munich.

The most common hashtag used for Cologne is #LiebeDeineStadt(meaning: love Your city). The obvious double meaning of a campaign with focus on sustainability would serve any startup company setting its base in this city.

Source: https://thomasgr.tumblr.com/post/162231600095

Private Equity

Demand for central London office space sinks as thousands of staff work from home

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Demand for office space in central London sank in the third quarter as staff at major occupiers such as banks, insurers and asset managers continued to work from home as a result of the coronavirus pandemic.

A survey from the Royal Institution of Chartered Surveyors showed that 77% of surveyors reported a drop in demand for London office space.

The survey comes as banks such as HSBC confirm they are looking at a hybrid model of remote working and office working that could lead to a steep drop in the amount of prime office space needed by financial-services firms.

Availability for London’s office space grew for the eighteenth successive quarter, the survey showed, with availability growing at the strongest pace since 2009.

Over the next year, prime office rents in the capital are expected to fall by 6.8% as demand shrinks.

Tarrant Parsons, RICS economist, said: “Occupier demand across the office sector remains in decline and may continue to come under pressure going forward as businesses reassess their office-space requirements following the increased prevalence of remote working.”

Deutsche Bank and HSBC are among lenders that have announced that they will embrace the model of workers who opt to spend some days in the office and some days out.

The announcements come as a Morgan Stanley survey found that some 63% of office workers said they believe their employers will allow one or two days working from home in the future.

About one in five, or 18%, in the bank’s survey said they think their bosses will allow even more days than that. More than 90% of London office workers have been working from home during the pandemic — the most of any major European city.

Surveyors who commented on the RICS survey predicted that the coronavirus pandemic could lead to long-lasting changes in the way that companies use offices.

David Apperly of Apperly Estates said: “The biggest impact of coronavirus will probably be long term for office demand; rental growth is likely to be subdued for 10+ years.”

Gregory McGonigal of Ashdown Phillips said: “We are highly unlikely to return to anything like we were all experiencing in 2019 for at least five years and certain sectors will be changed permanently. The pandemic has caused, and will continue to create, a seismic shift in the UK property sector.”

Simon Wood of Downing Intervention simply said: “Winter is coming.”

To contact the author of this story with feedback or news, email James Booth

Source: https://www.penews.com/articles/demand-for-central-london-office-space-sinks-as-thousands-of-staff-work-from-home-20201029

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Private Equity

BlackRock wants global standards for sustainability reporting

Previous demand for firms to follow with existing standards led to a 400% increase in compliance

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BlackRock, the world’s largest asset manager, has called for the creation of a single global sustainability standard, claiming existing frameworks are making it difficult to compare companies and leading to confusion for investors.

“BlackRock is calling for convergence of the different private-sector reporting frameworks and standards to establish a globally recognised and adopted approach to sustainability reporting,” the $7.8tn New York-headquartered group said on 29 October.

BlackRock claimed the proliferation of existing disclosure initiatives, many of which are overlapping, has meant companies are reporting the same information more than once and that there is a lack of consistent and comparable data.

“We believe that this could be resolved by aligning and converging to establish a globally recognised sustainability reporting framework and set of standards,” BlackRock said.

“Ideally, these would be developed by those with domain expertise in the private sector and supported by public policymakers as they move to require more comprehensive corporate reporting.”

The call from BlackRock comes after it asked companies in January to publish their climate-related disclosures in line with the Sustainability Accounting Standards Board standards and the Task Force on Climate-related Financial Disclosures framework — two of the world’s major reporting standards.

BlackRock said it would consider voting against company management where sufficient progress had not been made.

Companies appear to have heeded BlackRock’s warning. According to a report by the fund manager’s investment stewardship team, by the end of September, there had been a 400% increase in companies reporting under the SASB standards.

“The uptick is encouraging,” BlackRock said. “However, one of the top challenges to greater adoption we hear from the directors and leadership teams is the confusion caused by the various frameworks or standards.”

Efforts are already under way to develop a common approach for sustainability disclosure.

The IFRS Foundation published a consultation in September to assess demand for global sustainability standards. The IFRS said it would assess to what extent it could help develop such standards if demand proved strong.

Also in September, a group of five sustainability-reporting organisations — the SASB, the Global Reporting Initiative, the International Integrated Reporting Council, the CDP and the Carbon Disclosure Standards Board — said they planned to work together to develop “a comprehensive global corporate reporting system”.

BlackRock has singled out an approach proposed by the IFRS Foundation as the “most practicable and likely to succeed”.

“Progress may take some time,” it said. “BlackRock will continue to advocate for TCFD and SASB-aligned reporting until a global standard is established.”

To contact the author of this story with feedback or news, email David Ricketts

Source: https://www.penews.com/articles/blackrock-wants-global-standards-for-sustainability-reporting-20201029

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Comment: Don’t overestimate the coronavirus recovery

At this point in the Covid-19 crisis, governments have only one good option: further aggressive fiscal stimulus complemented by coherent virus-containment strategies

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The world economy has risen from the depths of the initial Covid-19 plunge. But the recovery has been tepid, uneven and fragile – and is likely to remain so for the foreseeable future.

Start with the good news. World merchandise trade has rebounded strongly, consistent with indications of a revival in household demand for goods in many economies, even as public-health restrictions and consumer concerns continue to hobble demand for services.

Moreover, financial markets have held up surprisingly well, with stock markets in many countries regaining or even exceeding pre-pandemic levels. Despite near-zero interest rates, banking and financial systems seem largely stable. And consumer and industrial demand has buoyed commodity prices, with even oil prices having recovered somewhat.

But as the latest Brookings-Financial Times Tracking Indexes for the Global Economic Recovery update shows, many economies are experiencing essentially no growth, or are even contracting. With private sector confidence depleted, and the struggle to contain the virus far from over, the risks of substantial and long-lasting economic scarring are on the rise.

This is true even in the economies that have returned to growth, such as the United States. In some ways, the US seems to have turned the corner. Industrial activity and the labour market have regained some lost ground. The unemployment rate is falling, and employment levels are up.

But unemployment remains significantly higher, and employment significantly lower, than before the pandemic. The increase in long-term unemployment, together with ongoing service sector disruptions, portends a difficult path to a more robust and sustained recovery.

It doesn’t help that fiscal stimulus measures have largely lapsed, and negotiations on a new relief package have repeatedly broken down. As household disposable income has declined, private consumption growth has weakened. Similarly, business investment continues to contract – a trend that does not augur well for sustained growth.

Even stock markets, which experienced a sharp rebound earlier in the year, seem to be taking a breather. This may reflect concerns about the virus-containment strategy (or lack of) being pursued by US president Donald Trump’s administration. In any case, as next month’s presidential election approaches, heightened political and policy uncertainty is likely to keep consumer and business confidence muted.

The eurozone is in even worse shape. Not only has the pandemic decimated short-term growth; deflation is now setting in, raising the risk of a deep and prolonged contraction. While manufacturing in Germany and elsewhere has rebounded, the positive effects are more than offset by the enduring services slump, reinforced by ongoing public health restrictions.

The United Kingdom’s services sector, by contrast, has experienced a revival. Yet the combination of erratic lockdown policies and far-reaching uncertainties surrounding Brexit are contributing to a continued economic contraction. Meanwhile, on the other side of the world, Japan is also in serious economic peril, though it has so far avoided sliding back into deflation.

Most emerging market economies have not fared well, either. India is experiencing a sharp slowdown in economic activity, which could be exacerbated by a devastating acceleration in Covid-19 cases, fuelled by the easing of lockdown measures. The government has pushed through some agricultural and labour market reforms, but a banking system hobbled by bad loans remains a powerful constraint on growth.

Brazil and Russia have fared little better. Both have experienced substantial economic contractions, and have few policy levers available to revive growth.

The one country experiencing a strong recovery is China, where, thanks largely to the country’s apparent success in bringing the virus under control, both industrial production and services have rebounded. Retail sales and manufacturing sector investment have also bounced back. By many indicators, the country’s economic performance is now even stronger than it was before the pandemic.

Yet, unlike in the wake of the 2008 global financial crisis, China’s strong performance is not likely to do much to buttress the rest of the world economy, not least because of the growing push towards deglobalisation. China’s recently unveiled “dual-circulation strategy” – whereby the country will increasingly depend on the domestic cycle of production, distribution, and consumption for its long-term development – will reinforce this trend.

Making matters worse, central banks now have far less firepower than they did after the 2008 crisis. To be sure, the major central banks have pulled out all the policy stops since the Covid-19 crisis began, pursuing unprecedented monetary expansion in order to support economic activity and, in some cases, to fend off deflation. Some – most notably, the US Federal Reserve – have even adjusted their policy frameworks to signal tolerance of higher inflation. The central banks of some smaller advanced economies, such as Australia and New Zealand, and emerging economies, such as India, have also resorted to unconventional measures.

But the limits of monetary policy for boosting growth are becoming increasingly apparent. Meanwhile, large-scale purchases of corporate and government bonds, together with the direct financing of firms, are generating serious risks – not least to central-bank independence.

Against this background, governments have only one good option: further aggressive fiscal stimulus, ideally in the form of well-targeted government expenditure that could spur private investment. Whatever risks the increase in public debt may generate, they do not compare – especially in today’s low-interest-rate environment – to the long-term economic pain that countries will face without such stimulus.

To be effective, however, fiscal measures must be complemented by coherent virus containment strategies, which credibly enable safe economic reopening. Without such strategies, demand and confidence will remain subdued, and global growth will continue to falter well into the future.

Eswar Prasad is a professor of trade policy at Cornell University’s Dyson School of Applied Economics and Management and a senior fellow at the Brookings Institution. Darren Chang and Ethan Wu, undergraduate students at Cornell, assisted in the writing of this commentary.

Copyright: Project Syndicate

Source: https://www.penews.com/articles/comment-dont-overestimate-the-coronavirus-recovery-20201029

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