MacroScope is pleased to post the following from guest blogger Stewart Armer. Stewart is head of socially responsible investing at Fortis Investments. He outlines here how huge stimulus plans could boost sustainable economic development. His team blogs on this issue at SRI Blog.

While we are still debating if the worst is over, it has become clear that economic crisis has turned into an opportunity for sustainable economic development.

Our recent analysis of the fiscal stimulus packages of G-20 countries shows that almost half of the announced spending will be spent on the environment and social sectors.  The major recipients include healthcare ($333 billion), sustainable transport ($209 billion), education ($151 billion), social housing ($95 billion), clean and efficient energy ($84 billion), and clean water and air ($68 billion).

This $1 trillion spending effort is already being recognised as a global “Green New Deal”. The original “New Deal” in the 1930s was about more than fiscal stimulus –- the U.S. government asserted itself as a positive agent in the marketplace and concepts of social welfare were given new prominence.

Echoing this historic turning point, unparalleled spending efforts are now coinciding with demand for change. Over the past decade, the understanding of sustainability and the associated technological platforms has gradually matured. Boosted by stimulus funding, promising concepts can now be rolled out on an unprecedented scale. This marks a step change in sustainable development.

Until now, efforts to promote sustainable development have largely been focused on developing policies and regulatory infrastructure with little financial backing. The stimulus packages mark a radical change: never before have funds been made available on such a scale globally to boost sustainable development.

More than a “nice to have,” investor sentiment is running heavily on the side of environment, social and governance (ESG) factors, according to the latest Thomson Reuters Perception Snapshot.

Feedback from 25 global buy-side investors found that 84 percent evaluate ESG criteria to some degree when making an investment decision.

The remaining 16 percent say ESG issues are not considered until a company’s ability to generate high returns is hindered by these factors.

Some of the selected comments:

“ESG only plays a role to the extent that it is an overhang on the stock. There is no moral component to investing. We are value neutral when it comes to our investment decisions, but we are not value neutral in our lives. We have a fiduciary duty to our clients, to the people who give us money to manage to maximize returns, which means that we can not be limited by our own personal morality. If I see a cigarette company that looks interesting I may invest in it even though I might not like it
personally.” - U.S. Hedge Fund Investor

“I am convinced that companies that follow the philosophy of social and economic responsibility are performing better in the long-term than those that do not.” - European Core Growth Investor

The report dovetails with Tuesday’s push by U.S. President Barack Obama to push for tougher industrial standards aimed at lowering greenhouse gas emissions.

Obama ordered the U.S. auto industry, where the hand of government is firmly in control (GM and Chrysler, but not Ford) to make more fuel-efficient cars to cut emissions and increase gas mileage.

The House of Representatives started its debate on the 946-page Democratic bill on Tuesday. Republicans are arguing the legislation would burden the economy with higher energy costs.

Does that matter, when scientists reported on Tuesday that global warming’s effects this century could be twice as extreme as estimated just six years ago?

Massachusetts Institute of Technology scientists estimate the Earth’s median surface temperature could rise 9.3 degrees F (5.2 degrees C) by 2100. That’s up from the 4.3 degrees F (2.4 degrees C) estimate in 2003.

The U.N.’s Intergovernmental Panel on Climate Change said seas would rise by between 18 and 59 cms (7-24 inches) this century. But it pointed to big uncertainties about ice sheets in Greenland or Antarctica — one IPCC estimate was that this ice could add up to 20 cms to sea level rise.

A fertile planting ground for tech, biotech and even some energy offerings, Nasdaq OMX has historically struggled to lure listings in some other areas, notably financial services.

Now, that could be about to change, Nasdaq OMX President Magnus Bocker said at the Reuters Exchanges and Trading Summit. As Nasdaq looks for ways to attract new listings and end a virtual drought in IPOs, it sees financial services firms as one of the most promising areas.

That Nasdaq would at least be hoping to narrow the gap in financial services listings with NYSE, the traditional ruler of the space, is not as out of left field as it might sound.

The exchange has already made some inroads and can point to some recent conquests like CME Group, which moved from a dual listing on Nasdaq and NYSE to a sole Nasdaq listing. Northern Trust, the fund administrator which has weathered the financial crisis with relative ease compared with some larger rivals, is another bright point.

And looking forward, such longtime NYSE stalwarts as Morgan Stanley and Citigroup have both recently been reportedly eyeing spinoffs of high risk units -- like Morgan Stanley's trading desk and Citigroup's Phibro energy unit. And there's even talk that Bank of America could eventually spin off Merrill Lynch.

Oil prices have been trading in an unusually strong positive correlation with equities markets over the past few months on hopes that signs of an economic recovery could mean a boost for energy demand.

But with oil and product inventories swelling and little sign of demand improving in the United States and other big developed economies, analysts warn that the linkage may be hard to maintain, especially if U.S. motorists cut back on vacations this summer.

As a fallout in emerging markets — once hailed as a safe-haven from the global financial crisis — gathers pace, asset managers are scrambling for newer markets.

What about North Korea? The Stalinist country boasts large untapped natural resources with deposits of gold, coal, zinc and other minerals. It has virtually no capital markets and its banks are all state-owned — making it a true safe haven from the global financial crisis.

The communist state has a good logistics route. It has borders with China, Russia and of course South Korea and a short sea route to Japan. South Korean firms such as Hyundai and LG already invest in the North.

KoryoAsia Limited has just launched subscription to the ChosunFund, a fund designed specifically for investment in North Korea. It is seeking to raise an initial $50 million.

“The DPRK (Democratic People’s Republic of Korea) has effectively been cut off from the international business community for decades. The country holds huge natural resources but is capital starved and lacks the technology and management skills with which to develop them.” Colin McAskill, Executive Chairman of KoryoAsia, says.

The fund will focus on North Korea’s extractive industries and energy sector, as well as the country’s defaulted London Club Debts. Its investment objective is cash flow plus capital growth with investors getting part of their money back initially through redemption of the loan capital, followed by dividends.

But this may be for long-term investors only — it has an initial life of seven years. McAskill also warns that the fund perhaps has more risk attached to it than most funds.

Investors may also want to look at the country’s rocket sector — the ex-”Axis of Evil” country says it is preparing to launch a satellite on one of its rockets, which analysts have said would actually be the test-firing of a long-range missile designed to strike U.S. territory.

The heat is on for hedge funds with commodities bets.

Earlier this week Ospraie Management told investors it is shutting its flagship fund after it plunged 27 percent in August. The fund’s energy and commodities stock positions fell as investors worried if a global economic slowdown will mean less demand for resources.

And now RAB Capital’s Philip Richards is giving up the CEO role to focus on his funds after an awful period of performance for his once high-flying Special Situations fund.

Losses on small-cap mining stocks, as well as its high-profile error in buying into troubled bank Northern Rock, meant its listed feeder fund fell 38.1 percent from the start of the year to Aug. 21.

One of the potential danger areas for hedge funds in this area is liquidity - how quickly they can dump stocks when investors decide enough is enough and want to pull their cash out.

The problem is that during the commodities boom of the last five years the flood of investor money has encouraged some funds to invest in less crowded areas such as smaller companies. These are easy to trade in a bull market but buyers can quickly disappear in a downturn.

Ospraie has told investors it will give investors their money back in stages, with the least liquid 20 percent taking up to three years to be returned.

Given the size of recent losses in this area, the illiquidity of some hedge funds’ positions and investors’ increasing nervousness as hedge funds continue to struggle, there are likely to be more such closures.

As George Bush might say, the EU is addicted to Russian energy. While no member wants to kick the habit totally, Brussels would like the bloc to reduce its growing dependence.

Even before Moscow invaded Georgia, the main non-Russian route for exporting Central Asian and Azeri crude and gas to Europe, the EU watched Russia’s regular cuts in energy supplies to neighbours with concern.

But EU members have been reluctant to take the hard measures that would allow them to bypass Russia, so analysts think their reliance on Moscow will grow.

What should European countries to ensure it has sufficient oil and gas in the future? 

Should EU nations be prepared to put cash behind its energy diversification goals?

Is a common EU energy policy even possible when oil and gas is so important that no country seems prepared to risk its own energy security for that of the bloc?

Do oil price spikes cause recessions? It is a controversial question and one that is very much a propos. It is all very chicken-and-egg, of course. If oil is soaring because of overheating economic demand, is it the demand or the ensuing rise in oil prices that causes the crash?

Britain’s Centre for Economic Policy Research has had a go at trying to answer this with a report written by Natalie Chen and Andrew Oswald from the University of Warwick and Liam Graham from University College London. The twist was that the academics used terrorist incidents as an instrumental variable. Roughly, they looked at the impact of a sharp rise in oil prices on the profitability of various industries. By using terrorist events, they stripped out macroeconomic drivers and focused on something that was separate from the business cycle.

The researchers say their findings are not definitive but that they “lend” support to the claim that oil-price spikes can be a source of recessions. They urge caution, however, in the absence of study on the impact of microeconomic mechanisms linking oil to recessions. That may be the key to unravelling the oil-macroeconomy relationship, they conclude.

The last-minute collapse of the 12 billion pound sale of British Energy to EDF raises the question of how well banks behind the deal were plugged in with major shareholders, who ended up vetoing the acquisition.

Having worked on a sale for months, banks were told by private shareholders EDF’s bid of around 775 pence per share was too low. The news clearly left all the parties in disarray.

Such deals are always risky, but the withdrawal of major British Energy shareholders after months of haggling over the price suggests a full-blown row. After all, an indication of where the price was heading had been floating around for at least a week.

A source told Reuters that British Energy shareholder Invesco was involved in the decision. Prudential was another, according to media reports. Merrill Lynch advised EDF, while Rothschild advised British Energy and UBS the British government, a major shareholder in the nuclear generator.

If a deal cannot be revived, British Energy has said it will look for partnerships with other companies. Some even think Britain’s Centrica may now renew its plans to bid for British Energy, which is 35-percent owned by the British government.

A dramatic last-minute hitch to plans for France’s EDF to buy British Energy leaves managements, shareholders and especially the British government in a quandary.

It was a 12 billion pounds ($24 billion) deal that was supposed to relaunch Britain’s nuclear energy programme. Everyone had been told to expect it. In fact, the collapse of talks came too late for French newspapers, several of which had been briefed on the deal and splashed it prominently on their front pages on Friday.

In end, however, big insitutional investors persuaded British Energy to reject EDF’s offer as low-ball, despite the best endeavours of the British government, with a 35-percent stake. 

So what happens next? Talks are continuing and British business minister John Hutton says he remains convinced an EDF takeover makes sense; yet the gulf between the EDF and British Energy boards on price is clearly substantial. British Energy says there can be no certainty of any deal.

It is yet another headache to spoil Prime Minister Gordon Brown’s summer holiday, as his popularity slumps to a record low .

(Reuters photo: A sign is seen on the security fence of British Energy’s Heysham nuclear power station)