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Advantage Ethical Enterprise Ecological Footprint Europe

The study, prepared by Advantage with the collaboration of Stephen J. Brown, Professor Emeritus of Finance, Leonard N. Stern School of Business, New York University, identifies a methodology for assessing the company’s ecological footprint, explores the relationship between a set of measures relating to the environmental impact of European listed companies and their probability of insolvency.
The statistical approach used, and developed in subsequent studies together with other co-authors, successfully captures the impact of operational risk on the default risk of companies and funds.
For more information on the Ecological Footprint study, contact the Advantage team.

Sustainble Development Goals

The speech of Sergio Mercuri, Coordinator for Sustainbility’s themes, Ministry of Foreign Affairs and International Cooperation at Advantage Footprint for Trade and Growth held in UNIBA for G7 on May 11, 2017 at Università degli Studi di Bari


When on September 2015 the United Nations General Assembly adopted the Resolution Transforming our world: the 2030 Agenda for Sustainable Development, commonly known as Agenda 2030, a complex international political process, lasting for decades, was finally fulfilled by achieving a significant and astonishing outcome.
The 35 pages of Agenda 2030 were providing the entire world, and for the first time in history, with a major strategic document where expectations and needs of both, developing countries and advanced economies, were simultaneously reflected. The logic of the Millennium Development Goals, the MDG adopted in 2000, focusing almost uniquely on development cooperation activities, was superseded by a new global framework addressed to developed as well as to developing countries. Furthermore it was much more aware of the interlinkages among various goals, different territories and their populations and time factors effects.

This year we celebrate 30 years since the publication in 1987 of the Brundtland Report (“Our Common Future”), the first international document aimed at harmonizing the needs of economic growth, environmental protection and social equality. Since then these three pillars
two of Sustainable Development were defined from the seminal work of a group of experts and brought forward through successive international conferences.
Presently the list of the 17 Sustainable Development Goals, detailed into 169 targets, is not just a catalogue of indistinct expectations. Each target is referred to a measurement system to be performed both at national and global level. At this moment around 230 indicators have been formally adopted by the relevant UN bodies and this new “metric” – although quite heavy to manage – is bound to produce in time a better set of reference data for the SDG implementation.


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Mobilizing Green Finance for SMEs – Bari, May 2017

The speech of Mustapha K. Nabli, North Africa Bureau of Economic Studies Intl at Advantage Footprint for Trade and Growth held in UNIBA for G7 on May 11, 2017 at Università degli Studi di Bari


 Population dynamics: from Tunisia to the Sub-Saharan Africa challenge

Tunisia’s population increased from 6,4 million in 1980 to 11,2 million in 2015, and will increase only by another couple of million by 2050. Tunisia had a relatively strong state capacity, undertook lots of reforms and policies, including those which led to a dramatic reduction in fertility and population growth since the 1960s.

But despite the many favorable conditions, and the relatively good economic performance and improved social indicators over the long run, the country faced a major political shock in 2011, with its long democratic transition, domestic political and security instability. Tunisia has been the source of migration pressures in Europe, including Italy. Over the same period the population of North Africa doubled from 92 in 1980 to 182 million in 2015. (North Africa’s population will increase by another 90 million by 2050 or about 50%.) The same conditions in neighboring countries as in Tunisia resulted in the contagion which led to the political instability we have witnessed in Egypt and Libya.


But these demographics have to be compared to the prospects in SSA!

  • It population has almost tripled between 1980 and 2015 (from 371 to 962 million: x2,6 times). Over the next 35 years the population of SSA is expected to more than double from 1 billion now to 2,2 billion by 2050.
  • This will result in a huge youth bulge and high rate of growth of the labor force.
  • If we assume a continued increase in access to education, including higher education, the dynamics we have seen in Tunisia are likely to be seen in SSA on a much larger scale.

In view of these prospects one can only guess the challenges these population dynamics will cause:

  • Political instability and security issues
  • Challenges of growth and employment
  • Migration pressures which will felt in North Africa and Europe. What we have been observing in terms of migration pressures across the Mediterranean are only early indicators of much more to come!

In view of these challenges it is worth looking a bit more closely to what happened in Tunisia recently to learn lessons and assess risks.


The growth and employment story in Tunisia pre-revolution

During the 15 year period before the revolution: macro indicators were broadly positive

  • Relatively strong growth 4,5 to 5% per year
  • Slowdown of population growth, to less than 1% per year
  • High rate of labor force growth: 2,7 to 2,4 % per annum
  • But even higher employment growth contrary to what is often believed: 2,9 to 2,5% per annum

In view of the above indicators, one would have thought that labor market conditions would be improving! And that Tunisia succeeded in overcoming the peak of growth in the labor force with relative ease.

But trouble was actually brewing:

  • True the total unemployment rate was slightly declining
  • But the nature and composition of unemployment was changing dramatically
  • A new type of unemployment was exploding:
    • The share of the unemployed with tertiary education degrees increased from 4% in 1997 to 28% in 2010
    • The unemployment rate of people with tertiary education increased from 8% in 1997 to 23% in 2010.
  • There was clearly a major disconnect between what the economy was creating in terms of jobs and the supply of labor
  • Many policy changes in the education system was churning an accelerating number of university graduates
  • But on the demand side, the jobs being created were for low skilled labor both in the tradable and non-tradable sectors
  • Trade was expanding strongly: the ratio of exports to GDP increased from around 45% in the early 1990s to 56% around 2010.

This huge disconnect in the labor markets was one of the main factors behind the social unrest and uprisings which led to the collapse of the political regime in early 2011. The demographic transition did eventually catch up with the country and create political and social instability.

And I would like to suggest here that this has a lot to do with SMEs and the ability to foster their growth!

The SME problem as the center of these developments

Let us consider the following data for Tunisia during the period 1996-2011 about firm dynamics:

  • A healthy rate of firm creation +11% per year
  • But also a high rate of exit -8% per year
  • A highly skewed distribution with predominance of very small and even micro firms, mostly self-employment
  • Very weak growth dynamics:
    • Few firms sustain their growth, especially from small to medium sized
    • Very few firms grow from medium to larger sized firms: only 2% of 10-50 size become 100+ after 15 years
Size distribution Average rate per year1996-2011
1996 2011 Entry Exit
Total number of firms 100% 100% +11% -8%
   No employees 83% 87% +12%
   1-9 employees 15% 11%
   11-99 employees 1,8% 1,7% +3%
   100+ employees 0,3% 0,3% +1%


With these firm dynamics, the economy was able to generate only demand for low skilled and low quality jobs. Large numbers of jobs created, but often self-employed, of low quality ones! No job growth in dynamic SMEs and larger ones who can employ the large number of new university graduates!

  • The main policy problem has been how to support the expansion and growth of small and very small firms?
  • Policy-making has ben unsuccessful, as in many countries in MENA, to find approriate and effective solutions?

This problem is key to meeting the demographic and employment challenge in the decades to come in MENA and SSA.

The MENA challenge: What to do about SMES?

The SME problem in Tunisia is similar to that in almost all of the MENA countries, and is also relevant for SSA. There is a huge gap or “missing middle” in the size distribution of firms: while the rate at which start-ups is created is similar to what happens throughout the world, the rate of survival and growth is very low. This leads to low rate of SME and missed opportunities for job creation and growth. In addition to the general issue of the difficult business environment there are three causes for this gap which are well understood:

  1. Access to finance
  2. Weak skills and capabilities to manage the transition from micro and start-up stage/often informal to larger enterprises
  3. Access to markets.

The solutions lie in policies which aim at:

  • Providing access to flexible and patient financing
  • Providing, bundled with finance, support to enhance skills and capabilities
  • Supporting access to markets
  • Improving the business climate.

These are obviously domestic policy issues.

But here I would like to suggest that there is ample room for international cooperation. We are facing a challenge of gigantic proportions in this corridor going from SSA, to NA and the Southern Mediterranean. It has implications for the stability and welfare of the whole region with lots of spillovers and interdependence. I have to say that cooperation between North and South in order to learn from experience and support actively such policies to support the growth of SMEs have been limited. There is clearly a role Italy and Europe can play, which has not been sufficiently emphasized and acted on despite lots of pronouncements!


This leads to another question related to sustainability and the role of SMEs in the MENA-SSA region:

  • Could the package of policies and reforms to help develop SMEs in MENA include a “green dimension” or “sustainability dimension”?
  • Could such inclusion improve the prospects for the development of SMEs or would it be an additional hindrance/burden?

Answering such questions would be most helpful and useful. So let me make a few remarks in this respect. One can argue that life in such countries for SMEs is difficult enough and that pushing for taking into consideration ecological factors would be penalizing. But one could also argue that including a “green dimension” may have positive effects along a number of aspects:

  • A signaling effect about seriousness which adds credibility to an SME.
  • Opening new markets and niches
  • Possible integration into regional value chains.

It would seem that introducing the option of “green business” in the packages which aim at supporting SMEs is worth considering. The additional cost may be minimal given the extent of support required to SMEs, a cost which may be significant but has large payoffs for the development and stability of a region, when looked at in the broader context I suggest, which will be facing huge challenges.

The link between entrepreneurship, sustainability and international trade and cooperation

The speech of Carole Kariuki, KEPSA’s Ceo, at Advantage Footprint for Trade and Growth held in UNIBA for G7 on May 11, 2017 at Università degli Studi di Bari


On behalf of my country Kenya, and the Kenya Private Sector Alliance, I take this opportunity to express my gratitude to the Italian Government who through the Ministry of Environment and the Ministry of Finance have organized this meeting. Allow me to say a few about things about Kenya Private Sector Alliance – the organisation I represent, before continuing with the topic of discussion




KEPSA is the apex and the umbrella body for the private sector in Kenya founded in 2003 as a limited liability membership organization with a mandate to unify the entire business community to tackle the challenges pertinent to doing business in Kenya as one voice. We work closely with the government at all levels (county, national and regional levels), development partners, civil society and all stakeholders, to ensure that the environment encourages businesses in all sectors of the economy start, grow and thrive.


Today, our membership has grown to over 500,000 members organized under different BMOs, and corporates from 16 sectors of the economy; and the strength of our PPD engagement has made KEPSA a role model for other African countries and cited from around the world. Importantly, the real impact of what we do is felt by the businesses in Kenya. We have been passionate in supporting the growth of the private sector in Kenya and the region at large. As the private sector thrives, we are always keen to mind the well-being of the environment. This has informed our advocacy work in Kenya and we have engraved sustainability in our agenda. At KEPSA we have been part and parcel of a number of initiatives that focus on the protection of the environment. Among these initiatives is the Sustainable Inclusive Business (SIB) and the SWITCH Africa Green project.


Sustainable Inclusive Business (SIB)


The Kenya Private Sector Alliance is also spearheading the Sustainable Inclusive Business (SIB) which has assisted businesses measure and report on sustainability with a focus on the Sustainable Development Goals. It also collates knowledge, networks, studies, publications, trainings and expertise, and makes them accessible to the business community. Under SIB-Kenya we have managed to create awareness within the Private Sector on how Sustainable inclusive business as a “business model creates value by providing products and services that have a positive impact on People, Planet and Profit rather than Business engaging in philanthropy or charity.” So far we have 15 Businesses making Inclusive Business an intentional business model for their operations.


We have reached out to 350 Businesses and over 3000 people both directly and indirectly through different platforms like Annual conference, Sector specific workshops, SIB portal and the media. These forms 85% of the growth within the SIB Network. Sustainable Inclusive Business Kenya has also managed to strengthen the link between Sustainable inclusive business models and how they help the private sector in achieving the SDGs in Kenya. This has brought about over 45 Businesses sharing their sustainability and inclusive business model and their impact on the SDGs. Moving forward, through SIB, we continue to develop a dynamic new sustainability Web presence that will incorporate tools such as databases, metric-gathering instruments and social media.


SWITCH Africa Green project


KEPSA implements the “Capacity Enhancement for Green Business Development and Eco entrepreneurship in the Agriculture Sector.” The project is funded by the EU and implemented by the United Nations Environmental Programme (UNEP) in collaboration with United Nations Development Programme (UNDP) and United Nations Office for Project Services. The project’s main objective is to enhance the capacity of Micro, Small Medium Sized Enterprises (MSMEs) to develop, adopt and implement appropriate frameworks for Sustainable Production and Consumption (SCP) practices. Some of the key interventions under the project include: awareness creation, MSMEs needs assessment and training, mentorship, monitoring and Evaluation, as well as policy advocacy.


To date, 16 MSMEs have been trained on selected SCP best practices to enhance adoption of energy and water efficiency, labelling and standards, eco-innovation and sustainable green growth. Technical monitoring has also been conducted and MSMEs guided on how to address various SCP hotspots. As a result of the project, MSMEs are taking steps to improve resource, water and energy efficiency with notable improvement in waste management, water and energy efficiency and sales increase. Some of the early results that have been tracked by the project include: Waste Management with a 51.43% reduction, increased sales for the participating MSMEs because of Branding, Quality and Standards 38%, 48.80% reduction in Water Consumption, and 24.17% reduction in Electricity Consumption.


It is important for us to hold in high regard the issue of environment and sustainability as we expand trade and international corporations. You will agree with me that what started as an economic crisis is turning out to be a social and environmental crisis. African economies are not growing at the same pace as our youth population, neither are they instituting mechanisms to safeguard the environment.

Currently in Africa, the youth population stands at 226 million accounting for 19% of the global youth population, while Africa’s average GDP growth stands at 5.4%.  And as we foster investment we have no option but to focus on sustainability. The reality today is that Profits kill people and planet, and thus we have to engrave sustainability into our companies’ DNA. As the private sector, therefore, it is our call to use our resources to protect the environment. Money is our greatest weapon; we can choose to use it to destroy or re-invest it into the environment. The Private sector controls a huge amount of wealth in the global economy, contributing more than 70% to the global GDP; a representation of a major actor in the ecological change.



As I conclude, it is important to note that there is a window of opportunity for the private sector to participate in Sustainable Development through adopting the SDGs. Importantly, engaging in inclusive business offers the potential to unleash the economic power of the private sector to realize the SDGs. Studies show a surge in social and environmental investment at more than Kshs.5 trillion (USD 50 billion) in total assets globally. In the next 10 years, researchers predict, this “impact investing” has the potential to grow to about 1 per cent of total managed assets, which would result in Kshs.50 trillion (USD 500 billion) in capital directed at social and environmental impact. Lastly, there is no business without the environment and people. Let us jump into the green train and safeguard all for inclusive benefits.

Not just to create new jobs, but to create new entrepreneurs

The speech of Francesco Confuorti, Advantage Financial President, at Advantage Footprint for Trade and Growth held in UNIBA for G7 on May 11, 2017 at Università degli Studi di Bari


The topic of the conference will be growth supporting trade and cooperation between Italian entrepreneurs and African entrepreneurs. Some participants are from the private sector, other from the government or NGO.  To me You all, and many in the audience as well, are nothing less than entrepreneurs, who spend Your energy across different spaces, the economic, the social, the ecological and the political space. My dear guest speakers, You all bring us their different perspectives and experiences, and I am sure that by sharing this diversity in a constructive way, we will create the seeds for more learning and also more cooperation between us, the institutions that we represent, and our country of origin and of residence. Let me first introduce the conference with some data on the structure of trade between Italy and three high growth countries such as Tunisia and Kenya, which are represented by keynote speakers in this meeting, and Romania, which is another country we are going to work with.  I will then start the debate   by summarizing what we have done at Advantage Financial in the last few years.

Some data on trade structure

The first chart I want to show You (CHART 1) is a map of the world measuring where colors  measure how diversified and sophisticated is the industrial structure of each country.  The most sophisticated countries are red, the less sophisticated are light yellow. Notice that Tunisia and Romania are orange, namely are relatively sophisticated, and Kenya is in dark yellow,  which means it is one of the most sophisticated economies in Africa. The level of sophistication of a country relative to its income bracket has been found a very good, in fact the best predictor, of future growth, and  Kenya is scored by this index as having the highest growth potential of all world countries.    [1]

I then show some slides detailing the structure of how much Italy import from and export to Tunisia, Romania and Kenya (see CHART 2,3 and 4). Each square is proportional to the size of trade. Colors measure sectors (e.g. light blue is for the mechanical sector, apparel is green, food is orange and energy is brown. Notice that the colours of import and exports from Italy to Tunisia (and Romania) are similar. This means that the two value chain of the two economies are very integrated. This leaves space to improve the ecological footprint of individual exporters  thanks to the subcontracting process.

This is not the case of trade between Italy and Kenya, which is still based on specialization, with Kenya exporting commodities and energy and Italy exporting manufactured goods. The main area of overlap , hence of cooperation, is in the agri-food and construction business. But I would add that financial services and telecoms, which belong to the service sector and are not tradable and hence are not included in the table are very important area of cooperation, for example via FDI.

Advantage Financial Footprint initiatives

I am sure we will go back to some of these issues in the next speeches. Let me now move on and tell You a few words on how we look at these issues at Advantage Financial. Since 2012 at Advantage Financial we are doing research on the link between the ecological footprint and the cost of debt. In addition, we have just launched a sustainable finance initiative called, which covers B2B, credit, and sustainable consumption of food, household and durable goods, and that should be soon flanked by a specialized on-line magazine posting readers accordingly

Dulcis in fundo, we have just signed a remarkable R&D agreement with the University of Bari Aldo Moro, which is hosting the conference. More such agreements are to come next, starting with the Strathmore University of Nairobi form Kenya, a country which I happen to represent as Honorary Consul in Italy. Let me give some introductory remarks based on our vision and experience at Advantage Financial.  I will dwell on three main themes.

a) I will start with finance and look at the different ecological footprint between green and brown bonds. We measured in a number of studies the link between the ecological footprint and the cost of debt and we find a strong link, much stronger than on the cost of equity.

b) Most of the companies that disclose fooprint data are capital intensive. I will argue instead that we need more indicators, in order to better track the ecological and footprint of the Made in Italy sectors, which are capital light, with a larger share of SME and are more reluctant to disclose data. Our green, as well as other initiatives in pipeline, is a step in this direction.

c) I will conclude by detailing the scope of our agreement with the University of Bari, which is also the focus of the speech of the Magnifico Rettore Antonio Uricchio.

a) Green and brown bonds and their relative cost of debt

At Advantage Financial, we approach financial debt sustainability by envisaging a continuous scale between Green bonds, which finance environmentally friendly projects, and Brown bonds, which finance environmentally dirty projects.  We measure the ecological footprint of companies based on their ESG disclosure and map it in a continuous way to some indicators of the cost of debt. Our approach is more general than the typical approach, which focus on the relatively small green-subset of the bond market. We ask whether the bond market is able to discriminate between the brown and green bonds by charging a differential spread.

The idea, which we developed some years ago at Advantage Finance, is that ecological risk as a type of tail risk, which is better priced by debt rather than equity markets.  We find strong evidence of this link. For those who are interested, all our research papers are published on our website Our first study we look at a sample of more than 1100 nonfinancial listed companies who reports ecological footprint data. We find a significant impact of the ecological footprint of issuers on the cost of debt financing. SEE  Chart 5 reporting our results for the consumer cyclical sector (a proxy of the food sector).

Our next studies, which focus on the capital and energy intensive sectors and confirm a strong link between the ecological footprint and the cost of debt. The 2014 study, contains very detailed estimates of plant level data ecological footprint, based on the EEA disclosures of CO2 intensive sectors (energy, utilities, industrial metals and cement), that are matched to the interest coverage ratio of the plant owner company.

The 2015 study focuses on Electric Utilities focus the energy mix of each utility, which is a way to define how green or brown is the bond mix of each utility.  The shift in energy mix toward green (brown) bring on average to lower (higher) credit spreads.  SEE CHART 6.

b) The sustainability of the Made in Italy sectors

When we think about sustainability, we need to make a difference between capital and energy intensive sectors, which are the main direct contributors to CO2 emissions and also of various forms of toxic waste in the air, in the soil and in the water, and more capital light sectors of the Made in Italy, such as food, apparel and furniture.  For these sectors, we need to find additional footprint indicators and collect data on them (SME are not always willing to bear the cost to collect and disclose such data.

One new dimension relates to the intense international trade of food we experience in this globalized world.  This creates environmental costs for moving food along the planet (some think that trade in food is in fact a proxy for trading water, especially in poor and middle-income countries).

Further, trade in food creates a commitment to social responsibility for those food manufacturers who source basic inputs from farmers around Italy and around the world. This is an area of great potential, and as Honorary Consul of Kenya in Milan, I can tell that Kenyan farmers are very innovative and there is potential for a more ethical trade between our two countries.

Finally, when we speak about food we cannot forget the related dietary and health issues. This gives me the opportunity to move to the next topic, which is sustainable fintech for trade and growth.

c) Sustainable fintech

My future activities at Advantage Financial, which I describe below, are in the sustainable  fintech area. Firstly, we are fostering the creation of a Confidi system for local SME and entrepreneurs in Africa, starting from Kenya, and closer to home, in the Balkans. I am confident that  we will do very well by joining forces with fintech entrepreneurs both in Italy  and in Africa and New Europe (Think about the potential of Kenya, which is the world leader in smartphone based payment industry). The International lending institutions, such as the African Development Bank and the BERS will possibly be part of it. Secondly, our innovative app green, promotes sustainable consumption, thanks to its data architecture  which tracks the ecological, social and nutritional  impact of individual consumer product and brands.  The theme of creating apps for promoting sustainable consumption is the focus on the recently signed R&D agreement between Advantage Financial and the University of Bari and other Universities.

Both project entails the creation of one or more start-ups in cooperation with academic institutions and go to the core of the main themes we are going to debate today. Our goals is not just to create new jobs, but to create new entrepreneurs, which are multiplier job creators. I feel that our initiative will foster trade, growth, harmony and sustainability in some societies such as those from Africa, which share a common culture to Italy. It will also help forge a more constructive approach to the huge geopolitical problems such as the globalization backlash and the immigration drama we are experiencing in our times.

[1]  This chart is taken from “The Atlas of Economic Complexity” (Source:  The Index of Economic complexity was developed by economists and network scientists at Harward/MIT and tracks the complexity of national manufacturing systems, in terms of diversification and  specialization of productive structure. This is a proxy of the know-how of each country.  The ranking is different from the typical income per capita, educational or institutional progress which is used to measure growth potential, and is indeed a much better predictor of growth.


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Mobilizzare finanziamenti verdi per le Pmi

G7 Environment Meeting – Green Finance for SMEs

Conferenza del 5-6 aprile a Venezia

di Francesco Confuorti, CEO, Advantage

È un grande onore per me essere qui oggi di fronte a questo illustre consesso. Mobilizzare finanziamenti verdi per le PMI e così metterle in condizione di perseguire uno sviluppo sostenibile dal punto di vista ambientale è una dimensione fondamentale del nostro futuro comune.

Come ben sapete, le PMI sono da sempre e rimangono la spina dorsale dell’economia italiana e del marchio, famoso in tutto in mondo, del Made in Italy. Oggi è arrivato quindi il momento di padroneggiare l’innovazione tecnologica nell’industria finanziaria e di mobilizzare fondi pronti ad essere investiti in progetti verdi promuovendo così uno sviluppo sostenibile delle PMI. PMI, finanza verde e Fintech sono la tripletta dalla quale emergerà un futuro promettente per l’Italia così come per tutti i paesi del G-7.

È in questa prospettiva che Advantage ha cooperato con entusiasmo col Ministero Italiano dell’Ambiente, organizzatore di questa conferenza. L’UNEP ha lavorato per anni per affrontare la sfida di mobilizzare finanziamenti per lo sviluppo verde; vogliamo quindi riconoscere il dovuto merito a questi sforzi e al contributo dell’UNEP a questa conferenza.

Permettetemi di condividere con voi in queste mie considerazioni introduttive al lavoro che abbiamo fatto in Advantage, poiché è strettamente collegato ai temi discussi nella conferenza. Questo lavoro si incentra sul finanziamento dello sviluppo sostenibile in tre aree:

• Rapporto fra costo dei finanziamenti e impronta ecologica
• Aiutare le PMI espandendone l’accesso a dati e informazioni, e
• Fintech al servizio dello sviluppo sostenibile.

1. Costo del finanziamento con strumenti di debito e impronta ecologica

Essenzialmente, il nostro lavoro mostra come vi sia una forte correlazione fra il costo dell’indebitamento di un’azienda e la sua impronta ecologica, un legame molto più forte che con il costo del capitale azionario.

Ad Advantage, affrontiamo il tema della sostenibilità del debito finanziario prevedendo un  continuum fra bond verdi, che finanziano progetti con un impatto positivo sull’ambiente, e bond Marroni, che finanziano progetti ad impatto negativo sull’ambiente. Misuriamo l’impronta ecologica delle aziende sulla base della loro misura di “governance ecologica e sociale” (ESG), e mappiamo questa impronta, in modo continuo, su alcuni indicatori del costo del debito dell’azienda.

Il nostro approccio è più vasto della tradizionale concentrazione su un sottoinsieme relativamente piccolo di titoli verdi nel mercato obbligazionario. Il mercato dei titoli verdi è l’argomento della prima sessione di questa conferenza, e sono ansioso di confrontare la mia visione sulla questione con gli altri speaker.
Ci chiediamo se il mercato obbligazionario è in grado di discriminare fra titoli verdi e marroni, facendo pagare uno spread addizionale. L’idea che Advantage ha elaborato da qualche tempo è che il rischio ecologico è un tipo di rischio agli estremi della distribuzione statistica (“tail risk”), che viene prezzato meglio dal debito che dalle azioni di capitale. Le nostre analisi empiriche trovano forti prove di questa correlazione. Per coloro che siano interessati a questa analisi, tutti i nostri paper di ricerca sono pubblicati sul nostro Sito Web,

  • Il nostro primo studio esamina un campione di più di 1.100 società non finanziarie quotate che riportano sui propri bilanci i dati sull’impronta ecologica. Scopriamo che l’impronta ecologica ha un impatto significativo sul costo del finanziamento attraverso emissione di debito. (vedi i grafici 1 e 2).
  • I nostri studi successivi si concentrano sui settori ad alta intensità energetica e di capitale, confermando una forte correlazione fra l’impronta ecologica e il costo dell’indebitamento.
  • Lo studio del 2014 contiene stime molto dettagliate dell’impronta ecologica, con dati a livello di singolo stabilimento industriale, basati sulle informazioni EEA fornite dalle aziende nei settori ad alta intensità di emissioni di CO2 (energia, servizi pubblici, metallurgia e cemento), informazioni che sono associate al rapporto di copertura degli interessi della società proprietario di ogni stabilimento. (vedi grafico 3)
  • Lo studio del 2015 si concentra sull’aziende pubbliche di Servizi Elettrici e sulla intensità energetica di ogni industria, un modo per definire quanto verde o quanto marrone sia ogni industria. Uno spostamento di questa intensità verso il verde (marrone) conduce in media a un costo del debito più basso (più elevato). (vedi grafico 4)

2. Un settore delle PMI sostenibile e lo sviluppo del marchio “Made in Italy”

Quando pensiamo alla sostenibilità, dobbiamo distinguere fra settori ad alta intensità di capitale e di energia, ovvero quelli che contribuiscono più di tutti alle emissioni di CO2 e anche ad altre forme di rifiuti tossici distribuiti nell’aria, nel terreno e nelle acque, e i settori a minore intensità di capitale ed energia del Made in Italy, come alimentare, vestiario e mobili. Per questi settori, dobbiamo trovare altri indicatori di impronta ecologica e raccogliere dati su di essi (tenendo conto che le PMI non sempre sono disposte a sostenere i costi necessari per raccogliere e diffondere questi dati).

  • Una nuova dimensione è correlata con l’intenso commercio internazionale di alimenti che ha luogo in questo mondo di globalizzazione. Ciò crea costi ambientali connessi allo spostamento di alimenti attraverso il pianeta (c’è chi pensa in verità che il commercio di alimenti sia una proxy del commercio di acqua nel mondo, specialmente per i paesi poveri e a medio reddito).
  • Inoltre, il commercio alimentare crea un impegno alla resposabilità sociale da parte di quei produttori di alimenti che fanno originare gli input di base da agricoltori in Italia e in altre parti del mondo. Questa è un’area di grande potenziale che può essere di grande beneficio in particolare per gli agricoltori del Kenya, attraverso iniziative molto innovative e che offrono una possibilità di fare un commercio internazionale più etico tra Europa, Italia e Africa.
  • Inoltre, quando parliamo di alimenti, non possiamo scordarci le questioni connesse di salute e di dieta. Il consumo sostenibile non può prescindere dal tracciamento dell’impatto ecologico, sociale e nutrizionale di ciascun prodotto e marchio al consumo.
  • Guardando al futuro, in primo luogo, stiamo promuovendo la creazione di una piattaforma B2B e di Garanzie di Credito (Confidi) per le PMI locali e gli imprenditori in Africa, cominciando dal Kenya, e nei Balcani.
  • Infine, vorrei menzionare il fatto che Advantage ha firmato numerosi accordi di Ricerca e Sviluppo (R&D) con università del calibro dell’Aldo Moro di Bari e la Strathmore University di Nairobi in Kenya, con ulteriori accordi già in pista.

3. Dall’innovazione finanziaria al Fintech sostenibile

Advantage guarda sempre al futuro, stavolta mettendo assieme sostenibilità e Fintech. Questi sviluppi hanno lo stesso grado di dinamismo del lancio di nuove imprese. Si tratta infatti di un’attività su mercati emergenti e di frontiera.

  • Se la finanza rappresenta il passato recente, Fintech e sostenibilità sono il futuro, e come professionisti dei mercati finanziari o ci adattiamo a questo nuovo paradigma, o semplicemente scompariremo nell’irrilevanza. Questa è una transizione più facile per soggetti flessibili e imprenditoriali come ADF. Probabilmente l’unico modo di soddisfare i bisogni di finanziamento delle PMI nell’industria e nei servizi è di creare un’industria di piccoli e medi intermediari di Fintech.
  • Sono fiducioso nel successo derivante dall’unire le forze con gli imprenditori di Fintech in Italia, Africa e nella Nuova Europa (si pensi al potenziale del Kenya, che è il leader mondiale nell’industria dei pagamenti attraverso smartphone).
  • Infine, le istituzioni finanziarie internazionali, come la African Development Bank, la BERS e lo stesso Ministero dell’Ambiente, possono avere un ruolo di sostegno di grande importanza.
  • La seconda e terza sessione, che si concentrano rispettivamente sul ruolo degli intermediari finanziari tradizionali e degli imprenditori di Fintech, ci forniranno sicuramente degli spunti interessanti.

4. Guardando avanti e conclusioni

I progetti di Advantage prevedono la creazione di una o più start-ups. Il nostro obiettivo non è solo quello di creare nuove opportunità, ma nuovi imprenditori, che sono a loro volta creatori di posti di lavoro.

  • Quest’iniziativa promuoverà una crescita accelerate, armonia e sostenibilità in società che condividono una cultura comune con l’Italia.
  • Contribuirà inoltre a forgiare un approccio più costruttivo agli enormi problemi geopolitici, come gli effetti negative della globalizzazione e l’immigrazione, questioni con cui dobbiamo fare i conti attualmente.

Permettetemi di concludere le mie considerazioni introduttive dando il microfono a Nick Robins di UNEP e Paolo Bersani di PwC, che presenteranno i loro paper.

Scarica le slide dell’intervento

Advantage Financial work on the ecological footprint and the cost of debt

Speech of Mr. Francesco Confuorti at the Formiche meeting of March 17, 2016


F_Confuorti_120_002by Francesco Confuorti, Ceo, Advantage Financial


In this speech I would like to summarize the my ideas on the relationship between the ecological footprint of corporations and their cost of capital. I am an investment banker rather than an academic, but I always interacted with them, starting from my mentor back in my Chicago years, the late Prof. Rudi Dornbusch, who used to say “Francesco, with other people I study, with You I do business!”.

Since 2012, I have been wondering how to marry ecology and finance. Most commentators argue that the main link comes from the stock market. Corporations which are more attentive to their ecological impact would create more shareholder value. As most commentators know, this positive link is elusive and context dependent, it does not always work.

I wondered at the time if the channel between the cost of debt rather than the cost of equity does warrant more attention. This requires us to think about the environment as a risk rather than an opportunity. More importantly, as a form of tail risk. If You think about the issue in this way, it makes much sense. What about global warming causing the melting of Greenland? What about environmental accidents such as the New Horizon oil spill? What about new ecologically friendly regulation making whole business model obsolete? Think about what the famous scientist Jared Diamond claims about Mining in his book Collapse: in his opinion if mining companies would have to pay for the true disposal costs of the solid waste, part of it toxic waste, they do create, they would be all bankrupt.

Let’s move a step closer to home

Historically, the most contentions ecological impact event In Italy as related to dioxin contamination in, Seveso, Lombardy. Given the restructuring of many manufacturing sectors, and the exit of our country from some of the high capital intensive industries such as the chemical- pharmaceutical industry, steel is probably the most polluting industry located on our premises (Ilva, Thyssen-Krupp). The other sensitive area is that of power plants, which are scattered across the country. The ongoing dispute between Enel and Greenpeace on the planned start of new Enel coal power plants is one of the most notable ones. Projects by Croazia, for Deepwater oil Search in the Adriatic sea, are another notable development.

The next step is simple. If ecological risk is a form of tail risk, which asset should price it? Naturally it should be priced by credit not by equity. Over the years, with the help of some distinguished academics such as Professor Stephen Brown from Stern School of Business at NYU and Monash University, and in the spare time with my internal fund managers at Advantage Financial, we have collected some evidence that corroborates the link between the ecological footprint and the cost of credit for a large number of corporations, sectors and geographies.

Most of this evidence has been channeled in annual research reports which Advantage Financial made available to the Ministry of the Environment of the Republic of Italy since 2013. In this brief tall I would like to summarize the evidence we have collected so far and anticipate which issues and sectors we are going to focus in the future to increase our knowledge in this area.

  • Since 2013, Advantage Financial has been exploring the relationship in three main samples and sectors. The first study, dated January 2013, considers the corporation at the issuing level and covers a large sample of nonfinancial firms listed in European and North American Exchanges.
  • The second study, dated spring 2014, looks at European industries with an important ecological footprint, by using plant level and business unit data.
  • The third study, dated Spring 2013, looks at the Utilities sector across Europe and compares the differential impact of clan or dirty energy mix for the cost of debt of each utility.

What we have learnt so far

Our first study is a Special Report prepared by Prof. Stephen J. Brown on behalf of Advantage Financial Inc. Luxembourg. It is titled: Ecological footprint and the probability of default in Europe.

The study is based on a large sample of more than 1100 listed corporations. This sample has three main advantages. First, most issues of bonds and credit is implemented at a relatively centralized level in corporations; the best measures of credit risk are performed at the consolidated balance sheet level, so that one can take into account how all business units create cash flows to service any debt along the control chain in the corporation. Second, we can easily compute proxies of credit risk for those corporations without looking at individual bond issues. We can use credit default swap quotations for the larger of these issuers. Even when no CDS are available, we can develop good measures of credit risk by crossing information of firm leverage with information coming from the stock market (we use all listed firms in this sample). This is the celebrated Merton model of credit and default risk, which is known to predict default risk better than issuer ratings and which is available on the Bloomberg platform. Third, listed corporations are more likely to disclose ecological footprint data in their ESG disclosures.

This ecological factor, which is a linear combination of ecological indicators, and as a consequence allows us to compute an individual “ecological rating” indicator for each firm, is then regressed against our preferred measure of the cost of debt. Here are out two main results:

  • The Merton Probability of default regression has a climate factor coefficient of 0.6, which is statistically significant. This regression, where we also have a set of sector dummy variables plus a constant, has an R-squared of 7.7%.
  • Knowing the climate factor coefficient for the sample as a whole, we have been able to compute the value of the ecological factor for each individual firm. If the ecological rating is just the slope of the regression, e.g. 0.6 in the Merton regression, multiplied by the value of the ecological factor for that individual firm. The individual sector does not seem to market except for the energy (and maybe the communication) sector, which warrant a separate and more (less) conservative rating.

Here is a summary of the main results of our second report, dated February 2014 and titled The Ecological Impact of the European Industry and its relation to the cost of debt. The sample we use here is based on plant level data and business unit data for European corporations operating ecologically intensive sectors such as Energy, Utilities, Metals and Construction. The advantage of this sample is that we collected measures of the ecological impact of greenhouse and toxic air emissions at plant level, as they are made available by the European Environmental Agency. We then aggregated these plant level data at business unit level data by matching the plant data with unlisted annual report data made available by the Boureau Van Dijck database. Here are the main results:

  • We find a positive relationship between the ecological footprint of industrial plants and the probability of bankruptcy. This confirms our results for a positive link between the ecological footprint and the cost of debt of a sample of large international companies, with the universe of the most polluting plants operation on the soil of the European Union.
  • For all sectors, we get a significan impact of ecological foootprint on the cost of debt. The impact of the ecological fottoprint is larger in the Power Sector, which is the focus of a specific report (see below) The Oil & Gas sector is the only one where we find no discernible impact. Some sectors, such as Metals, Chemical and Steel have a very small number of observations.
  • In this study, we performad a benchmarking analysis of the major steel producers in Europe by matching the EEA air pollution costs scaled by sales and compared them with two measures of financial performance, the interest cover and the ROA. The EEA performance of ILVA, if scaled by revenues, is average, and better than most of the performance of the ArcelorMittal subisdiaries, even if ILVA lags ThussenKrupp, as alreaddy noted. The fiancial performance of ILVA, despite being bad in absolute terms, is average in the sector, and on average better than most of the ArcelorMittal subsidiaries.

Most recently, we looked at a specific sectors. Last Year the Advantage ecological footprint report focused on the important Utilities sectors . This study is titled The Environmental Footprint and the Cost of Capital in the Utilities sector, dated spring 2015.

  • In this report we ask if the utilities that showed the highest deterioration in GHG emissions shows the highest increase in the implicit probability of default, which is the main determinant of credit spreads. We find that this is the case, at least on average: a deterioration in the level of GHG emissions is mostly related to an increase in the use of for dirty sources of energy, such as coal, at the expense of more clean sources, such as natural gas or renewables.
  • We also find a positive correlation between a measure of the toxic impact of air pollution by electricity generation plants, and the implied cost of debt. In general, the plants with the highest ecological footprint are coal plants. They are more likely to fail annual environmental and health security tests. In extreme cases the regulator and the courts may ask for suspension of production, which also impact their revenue generation capacity and their risk of default. Similar problems may result if green activist protest against the operation of new or existing coal plants.
  • Further, we collect evidence showing that the higher is the share of renewable electricity generation at firm level, the lower is, on average, the implied cost of debt measured by the Merton probability of Default. These results are interesting because many commentators hint at the very bad economic performance and related bankruptcy of many startups active in the production of solar panels. In general, renewables are a good source of diversification for the electric generation business. This is not only related to the economic subsidies that this kind of generation enjoys, but also to the priority in capacity generation over non-renewable sources of energy and to the increasing impact of economies of scale in the unit cost of renewable energy.

Next steps

For the future, we will look at the construction and infrastructure business, which is critical both for creating more growth and also for improving the depleting stock of capital in Europe. Even if we are addressing an IT revolution, without progress in managing the health of the planet an in moving and delivering good and services in the economy of things, as opposed to the economy of bits, as well as in finding new areas of interaction between the two worlds, such as in the novel internet of things, the chances for Europe to greater growth and to make our large stock of debt economically sustainable, are slim indeed.

I am positive that knowing better of the ecological footprint of corporations affect the cost of capital, and how to create an ecologically friendly infrastructure and construction business is an important route to the creation of a better world for our kids.


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Patrick Obath at the 7th Advantage Forum (Panel III)


Patrick Obath, Kenya Private Sector Alliance, speaking at the 7th Advantage Forum, Global Perspectives for Growth, panel III (Hotel Monaco, Venice, April 27, 2015). Original English audio