GRI Equity - sustainable success

As usual in August, the world of money went on vacation, as many people took holidays and postponed decisions until colleagues return; but the world of nature was busy – northern temperate climates, as we have, experience full growth and weeding, cleaning and harvesting peak. The development of the organic garden at Ballin Temple is showing real promise and rewarding us with an amazing selection of fruit and vegetables, like black tomatoes (delicious), purple potatoes and spaghetti squash! But the bounty from the garden is partly symptomatic of a key issue facing us all today: climate change. For the first time in as long as I remember we have harvested deliciously ripe figs in Ireland (we are north of Quebec City!). Their ripening may have been encouraged by dry, warm weather in April and May, but there seems to be increasing media attention to climate change. Climate change issues were highlighted in cover stories by BusinessWeek and National Geographic. The other issue on our minds is the price of oil. The high oil price is affecting business and politics – and winter is only around the corner. This issue is in the media daily. Both climate change and oil are covered below.

The Olympics were a great success and wonderful to watch. Although doping featured highly, this is a sign of increased diligence, at last. Sport world insiders have known of the prevalence of doping for years and it will continue as long as sports success is lucrative enough to pay for the covering up. Watching some of the Olympic heats reminded me of “Asterix and the Olympic Games” in which athletes all take a potion - they all win, crossing the line simultaneously! That is not in the Olympic spirit and if the modern Olympics were to readopt a more amateur philosophy (i.e. love of sports) there would be less encouragement of doping.

Another shame of the Olympics is the nationalism that surrounds its whole presentation – the national tally of medals seems all important, not the performance or prowess of athletes. Although results are occassionally a result of dedication, as in the Kenyan clean sweep in the steeplechase, national performance is driven by national wealth, rather than individual commitment. But it was refreshing to see the ethnic diversity in the biggest posse - the US seemed to have representation from oriental, occidental, south Asian, African and other groups.

What is less talked about is the irreversible damage to the environment by the Athens Olympics and the failure to live up to promises made in Greece's 1997 bid for the games. The WWF, the environmental group, reports on an environmental assessment of the Games, marking the Athens games against the 2000 Sydney 'clean and green' Olympics and gives the 2004 Games 0.77 out of four for achievement. The lowest scores were given to the protection of fragile cultural and wildlife ares, water conservation and the use of environmentally friendly technologies. Green spaces are cherished amidst the urban sprawl of modern day Athens, but WWF claims that prized green fields have been razed to make way for, amongst other things, the table-tennis hall.

Activities

Although August was generally quiet we made good progress in developing our portfolio advisory activities. We expect to publish our expanded coverage and portfolio in mid-September which will coincide with increased stock market activity as professionals return to the market. Clients can access data in the members section. (See below for market comment.)

Spirit in Business will hold its annual gathering in Zurich in October and you are encouraged to see the agenda and consider participation. Many exceptional leaders of sustainable business, triple bottom line investing and business development will be there. The programme is here (pdf).

Among the visitors we received in August, one, an aspiring professional golfer, sported a Q-Link and attested to its positive effect on his state of mind and golf game. The Q-Link, introduced to us via our Cogbusiness relationship, is a non-herztian resonance producing device. Though the Q-Link is based on frontier science and appears to be supported by empirical evidence rather than accepted scientific wisdom, we are attracted by the idea of its method of working. Our simple analogy is with Indian music which is built on a different mathematical framework than western music (eg no octaves) but can uplift one's mood and consciousness. And Indian and western can work together well as Ravi Shankar and Yehudi Menuhin have shown.

Perspective and Market Commentary

Climate Change

The news on climate change struck us because it came from various sources and was presented with more urgency and less hype than usual. Most of us will have experienced or seen media reports on climate volatility in recent weeks from Florida storms to Bangladesh floods. Three reports are summarised here. For a broad business review see the BusinessWeek article. For pictures go to National Geographic (the graphic shown depicts the north pole ice cap in 1979 and 2003). The Ecologist also had a special report on climate change in February which focuses on China.

BusinessWeek introduces the issue as follows: "Global Warming: Consensus is growing among scientists, governments, and business that they must act fast to combat climate change The idea that the human species could alter something as huge and complex as the earth's climate was once the subject of an esoteric scientific debate. But now even attorneys general more used to battling corporate malfeasance are taking up the cause. On July 21, New York Attorney General Eliot Spitzer and lawyers from seven other states sued the nation's largest utility companies, demanding that they reduce emissions of the gases thought to be warming the earth. Warns Spitzer: ``Global warming threatens our health, our economy, our natural resources, and our children's future. It is clear we must act.'"

National Geographic's position is: "There's no question that the Earth is getting hotter—and fast. The real questions are: How much of the warming is our fault, and are we willing to slow the meltdown by curbing our insatiable appetite for fossil fuels?" It may be irrelevant whether or not its humans' fault - we may just have to change behaviour to survive nature's volatility. Either way, behaviour change is necessary.

At the EuroScience Forum in Stockholm, at a briefing by the International Geosphere-Biosphere Programme entitled Beyond Global Warming: Where On Earth Are We Going? Professor Schellnhuber says the most important environmental issues for humans are among the least understood. 12 "hotspots" have been identified so far, areas which acted like massive regulators of the Earth's environment, and if these critical regions are subjected to stress, they could trigger large-scale, rapid changes across the entire planet. But not enough is known about them to be able to predict when the limits of tolerance are reached. One example of a hotspot was the North Atlantic current, the ocean circulation pattern responsible for bringing warmer air to northern Europe, the collapse of which could lead to a very large regional climate shift. Others were the West Antarctic ice sheet, the Sahara desert, and the forests of the Amazon basin. Yet another hotspot, Professor Schellnhuber said, was the Asian monsoon system. The world has barely begun to recognise the danger of setting off rapid and irreversible changes in some crucial natural systems.

Scientists have begun to realise that change could be sudden, not gradual - in some cases it could happen within a few decades. Professor Schellnhuber urged a coordinated global effort to improve understanding and monitoring of Earth's "Achilles' heels". He said: "Such an effort is every bit as important as Nasa's valuable asteroid-spotting programme designed to protect the planet from collisions. If we can afford to gaze up at the sky looking for asteroids, we should be able to watch our own planet with as much care."

Coincidentally the UK's Royal Society also launched an investigation into the rising acidity of the world's oceans due to pollution from the greenhouse gas carbon dioxide. The investigation by the Royal Society, the UK national academy of science, will probe the potential impact of this rising ocean acidity on marine life - which at present is largely unknown. Increasing use of fossil fuels means more carbon dioxide is going into the air. Most of it will eventually be absorbed by seawater, where it reacts to form carbonic acid. The Intergovernmental Oceanographic Commission reports that some 20-25 million tonnes of carbon dioxide are being added to the oceans each day. Researchers believe such dramatic changes in the carbon dioxide system in surface waters have not been observed for more than 20 million years of Earth history.

Geopolitics

"What kind of man would put a criminal in charge of a major branch of government? Apart from, say, the average voter?" -- from Going Postal by Terry Pratchett.

In Venezuela incumbent Chavez won a referendum to remain in office. The result is a poor signal of democratisation of Latin America and surveys suggest that it is becoming less popular than in the mid-1990s. In Chile, Mexico, Uruguay, Ecuador, Argentina, Panama, Costa Rica and others, the support for democracy is decreasing since 1996. This means that less and less people answer "yes" to the question "democracy is preferable to any other kind of government". This is worrying, but the rich are protesting that it was rigged. Although observers, like the Carter Center, said the election was fair, it is not evident and a dispute remains.

The US is gearing up for its election in November and ballot issues may also be an issue. A New York Times editorial reports: "...when voters cannot locate their polling places, elections officials are often just as much to blame. This month, Claude Hawkins went to four Kansas City, Mo., polling sites, trying to vote, only to be told he was in the wrong place. No poll workers, however, could direct him to the right place. The Board of Elections phone lines were busy or not answered all day. At his fourth stop, Mr. Hawkins cast a provisional ballot, which was disqualified - because he had voted at the wrong polling place."

Terror Risk and War

Most of us have formed our views on Iraq and these will only change with new information. Issues like Abu Gharib, the financial costs, the hostages, the number of deaths and the evidence of WMD may influence opinions. Melodrama like Fahrenheit 911 is unlikely to sway, unless it offers new information. Though some opinions are changing: Doug Bereuter of Nebraska, a senior retiring Republican lawmaker who until earlier this month was the vice chairman of the House Intelligence Committee said the military strike against Iraq was "a mistake," and he blasted a "massive failure" of intelligence before the war. "I've reached the conclusion, retrospectively, now that the inadequate intelligence and faulty conclusions are being revealed, that all things being considered, it was a mistake to launch that military action, especially without a broad and engaged international coalition. ... The cost in casualties is already large and growing, and the immediate and long-term financial costs are incredible." This admission reflects a mature, positive step towards rebuilding a coalition.

A collaborative solution in Iraq is needed. An orderly exit would bring a semblance of "success" to this war despite going well over budget on time, money and lives lost. There is however, still a long way to go. Almost a year after Congress approved an American contribution of more than $18 billion to rebuild Iraq, little of this money has been spent. Very little has actually been built in Iraq, and most of what has been done has been paid for out of Iraq's own revenues.

In the last days of August Bush hinted at a more collaborative stance: saying he had "miscalculated" the post-war mood in Iraq and commented on the War on Terrorism - "I don't think you can win it". These statements struggle to explain elements of the US pursuit of terrorists around the globe that have not gone to plan. Democrats, of course, accused Mr Bush of "uncertain leadership", trying to turn one of the President's perceived strengths against him. The mud-slinging of the election does not bode well for a collaborative approach although it would help to have compromise in the US and globally to resolve Iraq, the middle-east and other geopolitical hot-spots.

In an attempt to present a more positive face of the war we reflect on what's good about the war in Iraq. While the way in which events have been handled is unsatisfactory, the attention drawn to the failures has given momentum to improvements in process and more equitable and honest policy development. It has drawn attention to the dangers of relying on cheap oil and promoted attention to alternative energy. It has raised the level of critical thinking among the electorate in the US and in developed economies.

Investment Management and Venture Capital

As August ends we enter September, the worst month for stock performance of all 12. According to the Stock Trader's Almanac, since 1950 there are three months that have averaged negative returns: February, August, and September, with an average return over that 53-year span of -0.7%. September has a bit of a streak going: five market declines in a row.

For longer term investors interested in index investing, analysis suggests that markets are expensive and economic fundamentals do not bode for improvement. Generally conditions are not favourable - interest rates are low, demand is stable, job growth is slim. Emerging markets will be more attractive as economic growth is better founded.

The line between conglomerate (especially bank conglomerate) and hedge fund is increasingly blurred. While businesses seek better returns by taking venturesome positions and structuring for tax transparency there is a danger that the risks associated will not be appropriately considered. Investors in hedge funds should similarly beware of hype and ensure that decisions are based on process and culture as much as current performance. It is rare for managers to follow a good year with another and consistent performance is derived from flexible, appropriate process rather than individual analysis.

The French market for socially responsible investment products has risen by 75% in the past year, according to Novethic, the SRI resource centre. Novethic releases a quarterly barometer on the French SRI market and covers the entire SRI field: assets under management, funds, extra-financial rating agencies and indicies. It reported that on 30 June the total assets managed by open-ended funds available in the French market reached €4.9 billion, up from €2.8 billion a year earlier.

Environment officials in Beijing have warned Chinese managers that if they fail to meet pollution reduction deadlines, they will be banned from raising stock market capital for three years. The announcement comes as the director of Beijing City’s Pollutant Control Office has announced to local media that 28 companies have been informed that they are on watch regarding their sulphur and dust emission targets.

Financial Executives International (FEI) released a report surveying 224 US-listed firms with average revenues of $2.5 billion that finds compliance costs and employee hours required to comply with Section 404 of Sarbanes-Oxley higher than earlier estimates. According to the surveyed firms, average cost per firm of compliance is $3.14 million, an increase from the $1.93 million earlier average cost estimate. The firms also say that complying with Section 404 requires more than twice the employee hours (25,000) than previously estimated (12,000). However, this is a small percentage of annual revenues and if it significantly reduces "Enron risk" shareholders would welcome the costs.

VC investment volume is decent though seems to be weighted to favoured sectors like biotech and security, while seed and start-up opportunities are finding it more difficult to raise capital. This reflects a more cautious mindset and the scandals of the past years.

Google Inc., a Mountain View, Calif.-based online search company, closed its first day of public market trading up at $100.34 per common share. The company priced its IPO at $85 per share Nasdaq today, after pricing over 19.6 million common shares at $85 per share. That represents a total IPO take of approximately $1.67 billion., but opened trading at $100.01 per share. Google previously had raised approximately $40 million in VC funding from Sequoia Capital, Angel Investors LP and Kleiner Perkins Caufield & Byers. This includes a $25 million deal in 1999 at a post-money valuation of approximately $62.5 million, and a $15.18 million deal in 2000 at a post-money valuation of approximately $445 million. Neither Sequoia nor Kleiner Perkins sold shares as part of the IPO.

The initial flurry of activity in Business Development Companies has abated for a while. The result of Apollo’s BDC aftermarket lethargy has been the disintegration of institutional investor interest in other prospective BDCs. Firms like Blackstone and KKR have shifted their strategies, withdrawing or postponing plans. Renewed interest in BDC's (from traditional PE firms) can be expected after Apollo has begun to issue some meaningful distributions later in the year or early next year.

Money to Burn by Dan Primack presents data supporting a funding overhang which may destabilise VC investment opportunities. Jesse Reyes, director of research for Thomson Venture Economics (publisher of VCJ), says that VC market overhang at the end of 2001 stood at approximately $98 billion. This is nearly double historical averages (adjusted for market size fluctuations), and was exacerbated by an unprecedented decline in VC disbursement levels. Not surprisingly, returns stumbled. The average internal rate of return (IRR) for a U.S.-based VC fund raised in 2001 stands at -18.2%, with a median IRR of -31.4 percent. Reyes estimates that the VC market overhang has shrunk to $60 billion. "I think that we could get to $50 billion by year-end, which is a historically healthy level, although that assumes that [disbursements] are increasing," Reyes says. "So a better number right now would be around $25 billion or $30 billion, but we're clearly moving in the right direction."general partners have done an admirable job in aligning their fund sizes with the decreased capital requirements of entrepreneurs limited partners are causing a new type of extended overhang to be visited upon the VC market. And, unlike last time, this latest incarnation will not be soothed by fund cuts, but by poor returns.

Jonathan Demme’s remake of The Manchurian Candidate, which originally involved Korean War veterans being brainwashed for nefarious purposes by the Chinese government (the real-life inspiration had been a group of U.S. soldiers who opted to remain in North Korea following the war, prompting allegations of brainwashing). This time around it’s Desert Storm vets, and the mind-scrambler is a "private equity firm" named Manchurian Global Corp. The firm does all sorts of nasty things, including a good deal of murder and an attempted domestic coup.

The opportunity to profit in poor areas where development is needed was highlighted by The Economist in an article Profits and poverty. The Economist highlights "The Fortune at the Bottom of the Pyramid. Eradicating Poverty Through Profits" a book that seems destined to be read not just in boardrooms but also in government offices. It is "a rallying cry for big business to put serving the world's 5 billion or so poorest people at the heart of their profit-making strategies". "If we stop thinking of the poor as victims or as a burden and start recognising them as resilient and creative entrepreneurs and value-conscious consumers, a whole new world of opportunity will open up."Of course, this is a world that we operate in and it is encouraging to see mainstream players adopt the rationale as it will accelerate development of opportunities.

Trade

As noted in last month's comment, at the end of July the WTO reached tentative agreement on how to move trade negotiations forward. The appearance of the Group of 20 developing countries - representing 22 per cent of world agricultural production and 70 per cent of rural workers - made a big difference to reaching this agreement. The G20 has established itself as an indispensable player in the search for a balanced solution to the agricultural conundrum. As Dr Lehmann Professor of International Political Economy IMD and Founding Director of The Evian Group notes: "While celebrating this milestone, let us be clear that (to paraphrase Winston Churchill) this is the end of the beginning and not the beginning of the end. We are roughly where we should have been a year ago. There are still many obstacles. ... The case for a sustainable, equitable, robust and dynamic global market needs to continue to be made. This is not a time for individual persons or institutions to cultivate their own gardens. We all need to cultivate the global garden of the global community in which the global market must thrive."

Energy

Oil prices remain high and this is making alternative energy economically attractive, even without pollution taxes (like carbon tax). Even National Geographic has taken up the refrain with a cover story: Living Without Cheap Oil. In light of the lead time to install new capacity, it is good business for big business to gear up for alternative energy sources sooner rather than later.

Japan seems to be putting more emphasis on nuclear power (currently providing 25% of electricity) which is a convenient choice. However, the safety track record is poor and the short term optimism may be replaced by long term problems, not to mention the questionable economics of nuclear. Taiwan (23%) and South Korea (40%) are also high users of nuclear and may face similar challenges.

The immediate effect of costly energy is to dampen consumer demand, which is under pressure anyway as fiscal and monetary stimuli have already been applied. Industries like transport (especially airlines) will be adversely affected, but our great dependency on fossil fuels (>90%) leaves few businesses unaffected. Even agriculture will feel the pinch as significant costs of industrial agriculture are fuel for machinery and petrochemical ingredients.

Will prices stay high? It seems so. They are still only 50% - 70% of inflation adjusted prices in 1980. The demand for energy, especially in developing economies like China, is growing. The costs of pollution are becoming unavoidable. It may be that insiders, like oil companies, producing countries and their friends, are colluding to keep prices high because it is profitable to do so (costs have not changed). And it seems that the US election would be an incentive to keep prices down, although perhaps political mudslinging is keeping consumers distracted. The burgeoning alternative fossil fuel is natural gas, whose liquification and transport costs are now competitive, which is filling a demand gap. However, renewable technology is increasingly competitive in current economics and even more so from a strategic planning perspective.

Clean wind energy is the fastest growing energy in the world. The New World Trade Center (WTC) 'Freedom Tower' will use Wind Turbines. The Freedom Tower will cost $2 Billion to construct, and will be the tallest, most advanced building in the World with Wind Turbines at the top as a source of clean power. Companies that are presently financing Wind Farms include Shell, BP, Warren Buffet, Franklin Templeton, Chevron Texaco.

Solar energy is receiving renewed interest. With production costs approaching 6c-8c per kwh the economics are becoming attractive even in the US. Capital costs are also approaching the $ 1 per watt level. Although Jimmy Carter tried to boost the industry in 1979, cheap oil in the US stalled development. Europe and Japan, however, have developed the technology and now companies in the US especially California are tapping into demand. The growth in unit sales has been around 35% per annum since the mid-1990s supporting attractive investment fundamentals.

On the other hand the World Bank’s board endorsed a statement of policy committing to continued investment in the fossil-fuel and mining industries, ending a controversial independent Extractive Industries Review of the bank’s role conducted by Emil Salim, the former Indonesian environment minister. Salim’s report called for the bank to phase out all investment in oil and mining by 2008, a recommendation rejected by the bank management. The bank invests more than $500 million a year in oil and mining projects, about 3% of its total lending. However, it should be noted that developing economies do not recognise the opportunity cost of selling crude, a limited resource, which is fueling transport, agribusiness, pharmaceuticals as well as energy industries in developed economies. It would be more appropriate for developed economies to install alternative energy sources while developed economies may be allowed to benefit from relatively cheap (polluting) energy. The Bank's head, Wolfensohn, said energy and mining resources were essential to many poor countries’ development goals, and should not be excluded from the bank’s remit. “The harsh reality is that some 1.6 billion people in the developing nations still do not have electricity, and some 2.3 billion people still depend on biomass fuels that are harmful to their health and the environment,” he said. “That underscores the need for our continued but selective engagement in oil, gas and coal investments.”

The economics of alternative energy were also presented in a more attractive light by a report from the University of Missouri. Imported crude oil has essentially zero taxes imposed on it, while a barrel of domestic synthetic crude oil has corporate, personal income, FICA, state income, local sales, and other taxes applied before workers and investors realize earnings, according to Galen Suppes, associate professor of chemical engineering. "In modern society, a nation must be able to commercialize new technology to maintain high worker productivity and an industrial base that is critical for national security," says Suppes. "When national policies inhibit this commercialization, the future of a country is inevitably compromised."

In related news affecting energy companies, eight states and New York City filed suit against five of the largest power companies in the U.S., which they say are responsible for roughly 10 percent of the country's carbon dioxide emissions. The suit is filed under a relatively obscure federal common law of public nuisance, which, according to the group's press release, "provides a right of action to curb air and water pollution emanating from sources in other states." The attorneys general are not seeking financial restitution but rather want to force the companies to substantially cut their CO2 emissions. The suit represents a direct attack by states on the current administration's policy on climate change, which makes emission reductions largely voluntary. "We can't afford to wait," said Tom Dresslar, spokesperson for California Attorney General Bill Lockyer. Grist Magazine reported that the utilities responded with a flurry of PR, saying, CO2 is not a pollutant, everybody breathes it, we're just five little companies, this is election-year politics, and so on and so forth!

Asia

Ongoing excellent coverage of the election and development of democratic process in Hong Kong, China is to be found at Civic Exchange, founded by Christine Loh.

The proposed demolition of a major building in Hong Kong by private developers has become the centre of attention for environmentalists who say it will set a bad environmental example. “Hong Kong’s landfills will reach their full capacity within the next decade; the estimated 200,000 tonnes of construction and demolition waste will over-burden Hong Kong’s rapidly dwindling landfill capacity," Greenpeace said. "Adding insult to injury, Hong Kong taxpayers will have to pay the developers an additional HK$25 million ($3.2 million) in waste treatment costs. Over the last decade, in excess of 130 million tonnes of construction and demolition waste has been created … which Hong Kong taxpayers have had to pay HK$16.3 billion ($20.9 million) to dispose of.”

On the mainland similar concerns are being voiced. Pan Yue, a deputy director of the State Environmental Protection Administration, has warned that the mainland will be a junkyard rather than the workshop of the world if authorities fail to promote sustainable development, saying that fears of the country becoming a junkyard were not unfounded. This coincides with an increase in pressure to clean up before the Beijing Olympics in 2008.

Thailand continues to impress us with statements of sustainability initiatives. The government has announced an incentive package to attract makers of “eco-cars” to the country. The plan is to encourage car makers to relocate, with the help of an excise-tax regime that keeps the price of fuel-efficient cars low, encouraging greater sales, both in Thailand and in overseas markets.

The Thai government is also offering eligible manufacturers a 40% subsidy on investments in solar-cell technology. The government grant will be bolstered by loans that may be extended to cover the remaining 60% of investments into solar energy technologies. The programme is intended to encourage the Thai manufacturing sector, the country’s biggest energy user, to convert to solar power to reduce energy costs and environmental problems. The National Science and Development Technology Agency, which is behind the initiative with the Industry Ministry, has patented a new solar technology that produces electricity and can heat water to 70 degrees Celsius, which will be used in a pilot programme.

India reported an newly launched cooperative as 268 small cotton producers become shareholders in Central India. They have received shares to a value of 1000 rupees each and consequently they become owners of the company that purchases their cotton and provides the much in demand education and consulting in organic farming.

IT and CT

Open Source Risk Management [OSRM], which claims to be “The Industry’s only Vendor-Neutral Provider of Risk Mitigation Consulting and Protection for Open Source Users,” released a study that found no less than 283 issued software patents in the Linux kernel. A third of these patents are held by Linux-friendly corporations like Cisco, HP, IBM, Intel, Novell, Oracle, Red Hat and Sony, the study said, while 27 are held by Microsoft, rather less friendly.

On the MS front, games, security software and popular business programs are clashing with Microsoft's long-awaited security update for Windows XP. Since SP2 was released to business users, reports have circulated about programs behaving differently once the upgrade is in place. Microsoft has drawn up a long list of programs that do not sit well with SP2.

While GRI Equity's systems are Linux based for stability and security reasons, we have noticed on one financial website the following warning: Windows XP Service Pack 2: If you have installed this service pack, you may encounter problems with the trading process on our site. We continue to investigate this compatibility problem with Windows XP Service Pack 2 and will give you an update through this page as soon as we know more. Sorry for any inconvenience caused.

And Linspire Linspire (a user friendly Linux distribution) has laid out some of the consumer issues of MS's latest challenge to Linux - a free "starter kit":

Buyers of the Starter Kit will still be paying a significant premium over Linspire. They will also receive a product that is quite limited when compared with its Linux counterpart. Also, Microsoft appears to have very judiciously selected only minor languages. What happens when they want to offer a product to India who requires it in English? Microsoft will be hard pressed to offer them a product since there will almost immediately be a grey market where it is re-imported into the US and other places.

The good news is that these are the seeds of healthy competition slowly germinating. Microsoft claims to have 600 people working on Starter, which is alot since Linspire has less than 100 employees and have made a product that compares very favorably to the full-featured version of of XP, let alone the version shown in the chart above. Perhaps it's time for Microsoft to consider a Linux product of their own!

LOHAS

Although the US is more traditional than Europe, its liberal values are catching up. Openness to relationships is growing – Will and Grace is a popular TV show that is based around alternative relationships and gay marriage is likely to stay in the US. Even the Vice-President is involved. Cheney is against the ban on gay marriage – his daughter is lesbian so the family is familiar with the issue and he advocates "individual freedom, freedom for everyone". And openness in religion is finding a voice: a new book by Sam Harris, "The End of Faith: Religion, Terror, and the Future of Reason" paints a bloody picture of religion from the Spanish Inquisition to suicidal terrorists and notes that "even the least educated person among us simply knows more about certain matters than anyone did 2,000 years ago - and much of this knowledge is incompatible with scripture". Harris is bold in stating that religious moderation is a delusion - tolerate others' beliefs but once your own have become unfounded give them up. Globally we see a long-term social trend toward European-style secularism, while economy and constitutional politics are becoming more American-style .

Healthy lifestyles are in the media again and not because of the death of oversized Dr Atkins. The movie Super Size Me, which has grossed more than $11 million in 13 weeks in the US, shows its maker, Morgan Spurlock, eating only from McDonald’s for a month, always accepting a supersize option or additional item if it was suggested by staff, and eating every item on the menu at least once. He added 5% to his body mass within the first week. He experienced heart palpitations, nausea, fatigue, depression, and diminished energy and sex drive. At the end of the 30 days, he had gained 24 pounds and his cholesterol had rocketed. McDonald’s has run a series of advertisements in UK newspapers telling consumers it agrees with the central claim of the documentary Super Size Me – that eating too much and doing too little is bad for you, though it notes that its average customer would take six years to eat the number of burgers Spurlock ate.

For concerned parents that have non-stick pans in their kitchen some disappointing news. Perfluorooctanoic acid, a key chemical component of Teflon and Scotchguard, has been found polar bears in Alaska and birds in the Pacific Ocean. Researchers at the University of Minnesota have detected traces of the compounds in two remote lakes in the Voyageurs National Park in far-northern Minnesota, including one lake that is 11 miles from the nearest road. Fluorochemicals have raised concerns because they do not break down and it is unclear how they become so widespread. Although the US Environmental Protection Agency does not currently consider fluorochemicals harmful, the agency is still investigating whether they pose any environmental or health risks.

3M, the original maker of PFOA, stopped production of fluorochemicals in 2000 and reformulated its Scotchguard fabric protectors to remove the compounds. DuPont, which manufacturers PFOA at a plant in North Carolina, uses the chemical to produce Teflon and other coatings. The company has come under fire for not reporting to the EPA the results of tests it conducted showing the presence of PFOA in the blood of some of its pregnant workers and water supplies near its plants in Ohio and West Virginia. This is of greater concern especially since the company is a member of the WBCSD and its Chairman and CEO authored Walk The Talk.

Education continues to get worthy coverage. A Stanford Graduate School of Business study of 800 students earning their MBA degrees at 11 top-ranking North American and European schools finds that 97 percent would accept a lower salary to work for a firm with a strong reputation for corporate social responsibility (CSR). The survey finds that the average amount that students say they are willing to forgo is 14 percent of their expected income. The survey also asked the students to rank 14 attributes they look for when making employment decisions, finding that the top three factors are intellectual challenge, financial package, and reputation for CSR.

And from Germany, which boasts the largest economy of Europe, and has sent so many to America in academic capacities, that now Germans make careers in the US. Experts attribute the emigration to higher internationally ranked, multi-tiered American universities that, unlike their German counterparts, enjoy a great degree of autonomy and tend to run their institutions like a business. In a bid to reverse the brain drain, some experts believe the German system must emulate aspects of the American system, starting with granting German universities more autonomy and the freedom to choose their own students and faculty.

In the UK the education system is under increasing scrutiny. With more people getting good grades observers believe standards are coming down rather than education improving. This is also supported by the fact that a quarter of children do not learn to read or count properly.

Recent research suggests that qualifications are not the appropriate way to screen for aptitude. It appears that a country's state economic development has more to do with aptitude levels than test performance. And aptitude is better screened by character analysis and hands-on experience.

Frontier science is taking another step to discovering the Big Picture. An international panel of particle physicists has decided the high-energy linear collider - a £ 3 bn (€4.4bn) machine for smashing matter against antimatter - will use revolutionary superconducting technology to shed light on the origin and nature of the universe. Plans for the International Linear Collider have still to be finalised, but scientists hope construction of the underground machine will begin in six years' time. The collider will be housed in a dead-straight tunnel up to 40km long. It will set a precedent by becoming the first truly globally owned instrument built by all the major countries of the world. Last year, physicists accurately measured for the first time how the universe is composed. They found only 4pc of it was made up of visible atoms, with the rest being mysterious dark matter and dark energy - neither of which entities can be seen.

Consciousness is making inroads to major US companies, albeit through a "back door" in India. K.N. Somayaji is a corporate astrologer who offers advice to some of India's top high-tech companies. Mr Somayaji has no formal business training and has never had a conventional education, but to judge by his crowded waiting room the market for his guidance is considerable. Mr Somayaji does not set rates for his services but accepts donations. American companies such as Amway, Dunkin' Donuts and 3M have consulted him about entering the Indian market.

In Brazil a prison has successfully instituted music and craft in Brazil to reassimilate prisoners. This is the right kind of initiative to rehabilitate people.

Denmark has raised the bar in healthy eating and will ban enriched cereals including Kellogs corn flakes. This comes as Kellogs is initiating a "low sugar" version of Frosties.

In other news on the food and health front, a study on "mad cow" disease suggests that susceptibility may be high among the largest genetic subgroup and that symptoms of the disease may take longer than expect to show. James Ironside, from the National CJD Surveillance Unit in Edinburgh, who took part in the study said: "This finding has major implications for future estimations of numbers of vCJD cases in the UK, since individuals with this genotype constitute the largest genetic subgroup in the population. It's absolutely possible that there may be a new epidemic, because the cases we've seen so far may be only those who are unusually susceptible or have the shortest incubation periods. I'm not in the business of scaremongering, but quite clearly the idea that this problem is on the way out is unfortunately not the case at all."

This report has been prepared for information purposes and is not an offer, or an invitation or solicitation to make an offer to buy or sell any securities. This report has not been made with regard to the specific investment objectives, financial situation or the particular needs of any specific persons who may receive this report. It does not purport to be a complete description of the securities, markets or developments or any other material referred to herein. The information on which this report is based, has been obtained from publicly available sources and private sources which may have vested interests in the material referred to herein. Although GRI Equity and the distributors have no specific reasons for believing such information to be false, neither GRI Equity nor the distributors have independently verified such information and no representation or warranty is given that it is up-to-date, accurate and complete. GRI Equity, associates of GRI Equity, the distributors, and/or their affiliates and/or their directors, officers and employees may from time to time have a position in the securities mentioned in this report and may buy or sell securities described or recommended in this report. GRI Equity, associates of GRI Equity, the distributors, and/or their affiliates may provide investment banking services, or other services, for any company and/or affiliates or subsidiaries of such company whose securities are described or recommended in this report. Neither GRI Equity nor the distributors nor any of their affiliates and/or directors, officers and employees shall in any way be responsible or liable for any losses or damages whatsoever which any person may suffer or incur as a result of acting or otherwise relying upon anything stated or inferred in or omitted from this report.

Private and Confidential

August Comment