Reflections from a week in the land of the rising sun

By Alberto Furger, AMARA Holding, Founder & CEO, Indonesia

December 1, 2022

The city of Kitakyushu in the South-West of Japan is not the most prominent place that comes to mind when you think of Japan. Yet, in the world of sustainability, Kitakyushu is world-class and one of only four recognized ‘Green Growth Cities’, together with its more famous peers Paris, Stockholm, and Chicago.

It is also Asia’s only city that the OECD selected in 2018 to participate in its SDG territorial approach program. It was, therefore, no big surprise that the 2022 Horasis Asia meeting was held this year in the city of Kitakyushu and for the first time specifically dedicated to topics around ESG standards and SDG frameworks

Social hedging

The field of sustainability is vast, multi-layered, and multi-disciplinary. Until now, most ESG investments have been geared toward environmental initiatives and ventures. Europe and the United States have been leading the way and today account for more than three-quarters of all ESG investments. In Asia, Japan is the largest ESG investor market.

My personal focal point is to create equal opportunities and social impact in general and financial inclusion in particular. Why do I think it matters? Firstly, because in most economies, consumers are the most significant contributing factor to GDP, and secondly, only about 1 billion people globally have attained some ‘Western-style’ standard of living. That leaves the vast majority behind, but eager to catching up, particularly in the global South. This is significant, especially considering the demographic growth patterns over the next 80 years. By way of example, Nigeria, with a population of just over 200 million today, could grow to over 700 million by the end of the century.

Therefore, the successful realization of decarbonized, sustainable, and prosperous societies in the decades to come must already today focus on the inclusion of those who will consume the most in the future. The term “social hedging” describes a model that arbitrates between space and time; from the global North to the global South and from today to tomorrow, and both dimensions in the context of sustainability. 

Free enterprise economies

The purpose of capitalistic markets is to allow for the private ownership of instruments of production, such as land, property, assets, and labour, and for-profit maximization –  this is the traditional, single bottom-line business. In its purest form, consumers are free to buy whatever they like, and producers are free to produce whatever they want; the same goes for employees who are free  to work wherever and investors who can allocate capital where they get higher returns on their invested capital. The government is not expected to interfere and curtail the economic freedom of the interacting stakeholders in the economy. The government will likely confine to its minimum legislative, executive, and judicial roles, maintaining law and order and protecting its people from internal and external conflicts. In a democratic governmental system, the state’s role is to protect the individual members of society and create a framework in which individuals can function efficiently.

At its core, capitalism is to improve the standard of living for all members of society. Since Adam Smith, and for the last 200 years or so, undoubtedly, the average standard of living has significantly improved worldwide; all indicators point to this. By the same token, so has inequality. Today, we live in a world more divided than ever, the gap between the haves and have-nots is more significant than ever, but ESG or SDGs offers an excellent opportunity to close this gap and bring the world closer together. By way of example, there are still over 1 billion un- or underbanked globally that lack primary access to financial services. Closing the gap today is of paramount importance, also from from an ecological point of view, because increasing standards of living will come with more resource consumption. Imagine how the world would look if only half of the global population would consume what the average Western person consumes today. Chartering pathways towards a greener global economy to achieve sustainable targets, must factor in all members of society.

Photo credit: Pixabay, Avocados


Any business should create a double or better triple-bottom-line business and include ESG elements into the core business strategy. To do this, a lot of work will be needed. Take Starbucks, for example: The coffee company has committed to sourcing its beans only from fair-trade suppliers, therefore, vertically integrating ESG into its modus operandi. But how about an avocado farmer? Avocado is an incredibly healthy food, but in parts of Central and South America, growing only one avocado consumes up to 300 litres of water, but that is nothing compared to Mangos, which consume twice as much water. Only about 3% of all water is freshwater, and most of these freshwater reserves are inaccessible to humans because they are locked up in polar ice or stored too far underneath the Earth’s surface to be extracted. This leaves us with only about 0.5% of the Earth’s water used for commercial use (agriculture) and consumption (drinking water). With that in mind, becoming sustainable for those farmers will be a tough challenge. 

Photo credit: Pixabay, Shinkansen

Standards – and asset washing

What a sherpa in Nepal has in common with a mam-and-pap shop owner in Indonesia and a city banker in London is one thing: money. The topic of sustainable finance, or as I prefer to call it, ethical finance, is an underestimated, yet pivotal element in achieving sustainability goals, no matter the focal point around E, S, or G. After all, any transformational journey sooner or later requires capital in some shape or form. And this brings me to what I call “asset washing.”

ESG-themed investment strategies are booming. There is hardly any reputable investment house that does not offer ESG-centric investment solutions. Studies estimate that the ESG investment universe will reach over 50 trillion USD in just a few years from now. New standards and frameworks are rapidly popping up – almost as the same speed as we discover new galaxies. What started in the 90ties with ‘only’ corporate responsibility, and later evolved into corporate social responsibility, ultimately led to today’s ESGs standards & SDGs goals. In between, an array of frameworks, checklists, and recommendations.

A lot is happening; from the EU’s CRS disclosure rules, the SEC and its version of the same, to the ISSB and its (IFRS) accounting and reporting standards, rating, and certification agencies; there is no shortage of boxes to be ticked. Don’t get me wrong, I am a big fan of standards, and standards provide guidance and create benchmarks that allow measuring performance, like the bullet train for example. But what are we exactly standardizing and measuring?

I vividly remember the 2008 Global Financial Crisis, and I can’t help but recognize some similarities, and it makes me slightly worried as we are creating a fairy-dust ESG-bubble. Looking at some prominent ESG investment funds, you will most likely find the portfolio composition interesting. If I consider ESG and find some of the largest positions in funds in companies like Facebook, Amazon, and Google, I can’t help it, but be slightly puzzled. I ask myself if these companies are the obvious choices for being associated with sustainable transformation? As you can tell, and reading between the lines, I have my doubts.

In addition, and more importantly, capital market asset shifts do not inject new capital into the ESG system; selling publicly traded shares in an oil producer and buying shares in a publicly traded technology company does not create new productive ESG investment. This type of implementation strategy might give the illusion to an asset manager of say, a pension fund, that they have executed the ESG ask to become more sustainable. Still, if we are honest, that is just a paperwork exercise with no transformative real impact.

Venture washing

While public markets are busy with themselves, all eyes look at what is left – the private capital market that can inject fresh capital to finance transformation. Private capital mean different things to different people, from angels to venture capitalists (VC), family offices, foundations, endowment funds, or even supranational organizations. I cannot talk about all of them, but as far as the venture space is concerned, and based on my personal experience, I see some interesting things happening in this segment.

The VC world is risky and competitive. I get it. Everyone is looking to invest in the next decacorn, and the VCs have done well – the historical performance of VCs has outperformed the public capital market by a significant order of magnitude. That said, and I am not a marketing expert, I wonder why many VCs publicly proclaim to invest ‘only’ in sustainable ventures with huge impact potential when they don’t. A VC, in most cases, relies on LPs to back them, and many LPs want, first and foremost, ROI at high multiples, and the sooner, the better. If a portfolio company ticks the ESG box, even better. The question is, to what extent are LPs willing to jeopardize capital return for impact return?

So, if the VCs are also caught up in their world, who is left to inject fresh capital into the sustainable transformation the world needs to achieve SDG goals? The first push must come from either a) visionary financiers, b) foundations, c) endowment funds, or d) supranational organizations, i.e., government-backed organizations. The Asian Development Bank is one example and has recently committed to supporting financial inclusion in Indonesia with $500m. This goes to show who is leading the way. How the 500m are allocated and if these funds eventually reach the target audience, however, as yet to be seen.

Closing remarks

Don’t get me wrong – everything helps; even an EFT fund investing in a company that has a lovely CSR brochure is better than nothing, but to transform the world, these are drops in the ocean; we need radically and truthfully meant fundamental changes in capital allocations, and I urge policymakers and the entire industry to think hard how to provide adequate incentives, e.g., via tax-breaks, etc. to facilitate capital market transformation.

Part of that is also to start discussing the cost of capital. While money per se is value-neutral, its price, i.e., its interest rate, is determined by models made ages ago, which are incomplete and not up to date because they don’t consider factoring in sustainability components. If we assume that the capitalistic model shall prevail, then the CAP models are due for an overhaul and bound to be refined. To this effect, we are working hard to develop a dynamic pricing model as in a new benchmark interest model like ‘LIBOR’ that can be applied to any triple-bottom-line business.

In closing, I would like to return to Japan. The country has been through ups and downs, certainly in its recent history, at least for the last 30 years, economically speaking – think of Japan’s lost generation. Still, I am bullish and believe that we will witness a revival of the 3rd largest economy in the world, not necessarily because of its relative power or fundamental strength, but because of the Japanese mindset to do the right thing. This is my hope and after a week in Japan, I can certainly feel that this spirit is alive.