Innovation

Blockchain for Beginners: What the Mona Lisa Teaches Us About the Future of Business

28 February, 2019
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"Blockchain makes it possible for a data asset to exist in the digital world just like a physical object does in the real world."

Vincenzo Peruggia was born on 8 October, 1881.  Some thirty years later on a Monday morning in 1911, the diminutive 160-cm Italian man strapped on a white smock—to blend in with the other employees at the Louvre in Paris—and walked out carrying the Mona Lisa.  He simply lifted it off the wall.  For the next two years Leonardo Da Vinci’s iconic masterpiece lay stuffed in a trunk in the thief’s Paris apartment.  Vincenzo eventually grew anxious and returned to Florence in his beloved homeland where he contacted an art dealer and attempted to peddle the famous painting.  The police arrested him in his hotel room. 

What makes this story fascinating is not that it was so shockingly easy to walk away with a world renowned Renaissance-era treasure, but that Vincenzo’s crime was doomed from the very beginning.  Everyone in the art world knew the origins of the Mona Lisa, the value of the Mona Lisa and the journey of the Mona Lisa to her home in the Louvre.  The painting’s entire provenance was well documented and agreed upon.  Introducing the stolen masterpiece back into the art world without setting off alarms everywhere was impossible.  Blockchain technology offers that same level of transparency and authenticity for everything from a Persian tapestry and a toro sushi roll to a refinanced mortgage loan, or even a single lemon.  Here’s how:

Mutually Agreed Upon Single Source of Truth

 

The first step to documenting data on a blockchain requires operational processes that focus on first-time accuracy.  From the initial step, all parties involved in a transaction must confirm the identity, value and controlling stipulations that regulate the blockchain asset.  In our story featuring Vincenzo Peruggia, for instance: This is Da Vinci’s painting, the Mona Lisa.  She hangs on this particular wall in the Louvre.  She is worth $800 million.  No, she is not for sale.  The value and circumstances have been established.  If anyone attempts to steal or tamper with the Mona Lisa, the involved parties—the world, in this case—will notice. 

With blockchain, once the mutually agreed upon initial information is captured accurately, it becomes the single source of truth.  It never needs to be verified.  Once the integrity of the data related to the information asset has been established, blockchain technology prevents any nefarious actors from being able to manipulate it because everyone in the blockchain is looking at the same information, at the same time, from their respective computers, distributed throughout the world.  Everyone is privy to the original confirmed and verified asset and what happens to that data moving forward.  Attempting to exploit or plunder that digital asset would be like trying to steal the Mona Lisa from countless, well-protected Louvres all over the world.

Intermediaries Are Not Needed

 

Blockchain technology eliminates the need for an intermediary, or middle man.  Intermediaries are commonly tasked with providing integrity to transactional processes involving parties that are not familiar with each other.  Banks serve as intermediaries for financial transactions between individuals and businesses.  Real estate agents act as intermediaries to navigate the paperwork of real estate sales.  Even illegal intermediaries, such as illicit music downloading platforms, steal significant amounts of royalties from musicians who have their songs stolen or plagiarized online.  Blockchain can eliminate the necessity and impact of all of these types of intermediaries.  

Take Eriko Matsuyama, a hypothetical 23-year-old art student at Tohoku University in Japan, who is attending a study abroad program in Paris.  Eriko, a talented painter, spends every morning camped in front of the Mona Lisa composing elaborate watercolors, each offering a unique interpretation of Da Vinci’s muse.  She even has an online store where she sells her original paintings to her fans around the world.  Through blockchain technology Eriko is able to authenticate the time, date and development of each original painting, and send both the original watercolor and an exclusive digital copy to her purchasers.  Should the purchaser decide to sell either the original print or the digital copy, the blockchain can serve as proof of authenticity.  Perhaps, 30 years in the future, Eriko has become a famous artist whose work commands millions of dollars.  Those same watercolors, and their digital copies, will hold more value because the blockchain guarantees their origin and authenticity throughout the years, regardless of how many times they’ve been bought or sold…without ever needing an intermediary to verify authenticity or assist in the process.

Data Becomes Like a Physical Object

 

The Mona Lisa is, of course, a physical object.  So are Eriko’s original watercolors, which she signs by hand; but the digital copies of her paintings are digital assets.  Today, digital assets can be anything from an individual’s health records to the deed for a parcel of land.  Blockchain makes it possible for a data asset to exist in the digital world just like a physical object does in the real world.  The data asset can exist as just one usable copy of a data file.  With a blockchain there is always only one usable and protected copy—just like the unique digital rendering of an original Eriko Matsuyama painting.  It can be bought and sold, but never manipulated, illegally copied or misappropriated.  In the span of 30 years, the digital copy of an Eriko Matsuyama watercolor migh be bought and sold a dozen times to individuals or businesses who may want it to print it for everything from T-shirts to wallpaper.  But only one digital copy will ever, and always, exist.

Supply and demand determines the price of any product or service.  If the quantity of a digital asset is limited, then that asset is considered scarce—and supply and demand dynamics come into play, just as in the physical world.  This desirability by the market creates quantifiable value that can be applied to everything from an individual asset to a cryptocurrency.

Technology is constantly driving the world forward.  In the future, the digital realm will be characterized by a matrix of digital trade routes of all sizes—each protected by the blockchain, free of piracy and disinformation.  If blockchain and modern technologies had been around in 1911, the Mona Lisa would have been reclaimed in less than two hours, instead of two years.  Today, the iconic face of the Rennaisance has even more reasons to smile.  

To learn more about blockchain read Mercer Digital’s Blockchain 101 Overview.

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Vineet Malhotra | 17 Apr 2019

Musicians, poets and philosophers have spent entire lifetimes asking the question, "Who am I?" In the not-so-distant future, the answer to that question may be stored in our personal blockchain profiles — digital "arks" that contain the details of every decision, action and purchase we've made since the day we were born. Say goodbye to your birth certificate, credit score, passport, professional resume and medical history, and say hello to the future of blockchain: your blockchain profile. Your unique answer to the question "Who are you?" will be a chronological, hyper-detailed, immutable record that says with unprecedented certainty, "This is who I am." Blockchain will not live inside our thoughts, emotions, dreams or nightmares. It will not capture the inner dialogues people reveal in personal diaries or while talking to the bathroom mirror in the morning. Blockchain will, however, never forget when you broke your arm at the age of five (climbing a bannister), how your heart rate spiked when you first met your spouse (you dropped your drink) or that you paid extra for rush delivery of a new pair of black shoes (your cousin's wedding). Blockchain may not be the "you" robed Greek philosophers had in mind, but it will be the "you" the rest of the world sees — ideally, with your permission. Know Your Rights in a Digital World   Businesses want access to your decisions. Information detailing why you choose to vacation in Vietnam, eat mussels at your favorite Italian spot every Tuesday night or only use a medium-bristle toothbrush is valuable to companies that want to sell you — and people like you — airline tickets, fresh seafood and toothpaste. Every online decision you make and action you take is data that reveals part of your personality and thought processes. In recent years, businesses and policymakers have debated how much access companies should have to an individual's personal decisions — especially what they read, click on and buy online. While there are powerful forces seeking to retain control over the data individuals create when using online services, the winds are shifting, and regulatory momentum is beginning to favor the individual. In May 2018, the E.U. set forth the landmark General Data Privacy Regulation (GDPR) that firmly establishes basic legal rights regarding data privacy, ownership, control, consent and portability for all of its citizens, regardless of where they live.1 In the U.S., the HIPPA Privacy Rule establishes national standards to protect individuals' medical records and other personal health information.2 These regulations are in place to protect citizens from organizations who may seek to use personal data for purposes other than what it was collected for, or for which consent has been explicitly given — and provide instruments to exact considerable penalties on entities that violate those laws. In an era of digital transformation, it is critical that people appreciate the value of their personal data and the extent of their rights to privacy. For Sale: Sleeping Habits and Exercise Routines   Personal data is now part of the supply-and-demand dynamics driving capitalistic enterprises. Consumers not only possess purchasing power but also access to the thoughts and activities that precede particular purchases. This information is invaluable to companies that use data-driven strategies to sell their products and services to targeted consumers. Before blockchain technology, it wasn't possible to have a comprehensive record that kept track of an individual's purchases and behaviors within the context of everything else happening in their lives. But now, it is possible. Today, blockchain makes it possible for people to have an immutable profile of unimaginable detail, one that begins on the day they're born and develops throughout their entire lives — recording everything from when they lost their first tooth to the names of their grandchildren. Every doctor visit, every homework question, every mouse click, every page view. Businesses, naturally, will develop innumerable ways to incentivize people to allow access to their data. With individual rights established as the legal default, consumers will hold the power in this relationship and can monetize their data by renting access to various aspects of their blockchain profiles — from their sleeping habits to exercise routines. As deeper access is granted and more data sources are connected, behaviors can be predicted with greater accuracy, increasing the value of an individual's profile. In effect, individuals will be able to self-identify as willing marketing targets who offer their comprehensive descriptive profiles for sale in an emerging digital marketplace for personal data — a development that will radically alter the business of advertising, data research and analytics. A World of 8.5 Billion "Personhoods"   In 2030, the global population is expected to reach 8.5 billion. By that time, blockchains could consistently, reliably and securely organize data around the individuals who comprise the world's communities and nations. This makes person-centric societies technically possible, where citizens' actions and behaviors are digitally recorded in their "personhood" — an immutable record that serves as a single source of truth to their experiences and sensibilities. People, in essence, will regularly create real-time data that is chronologically added to their collective profile — which includes health records, educational backgrounds, professional credentials, voter registrations, driver's licenses, criminal histories, financial status and any other notable aspect of being a person. "Personhood" could become the universally accepted record to which all identity-related information can be tied. All the processes once needed to validate identity will be replaced by an individual's comprehensive blockchain profile. The commoditization of personal data will profoundly impact how people relate to businesses and each other. Will being held accountable to one's own "personhood" — and knowing that the details of our lives will forever be recorded in our blockchain profile — change how we behave? Will attempting to increase the value of one's "personhood" become an extension of trying to improve their own lives? Or vice versa? The rise of "personhood" could change our collective understanding of ownership in ways the human race hasn't witnessed since the concept of personal property rights first emerged. The Future Challenges to a Blockchain World   There are always casualties to sweeping technological advancements. With the proliferation of blockchain technology and the rising value of individuals' data, societies risk becoming even more polarized along financial and class lines. Individuals with more purchasing power inherently possess data that is more valuable to businesses that sell products and services or governmental institutions that could benefit from their financial support or influence. Those without money or access to modern technologies will face profound disadvantages unless governments — especially those in growth economies — implement regulations that protect vulnerable citizens from being left behind. Growth economies must also find ways to integrate intermediaries who will fight the prospect of obsolescence as blockchain technologies become more popular. Though the future is difficult to predict, and change always creates challenges, history teaches us that where value is created, technology eventually wins. The future of blockchain presents the human race with the opportunity to understand each other, and ourselves, in unprecedented ways. By providing new insights into human behaviors, relationships and business interactions, we can learn from each other and improve conditions for everyone. Perhaps blockchain data will even convincingly demonstrate to humanity how similar we all are. In the future, the most important questions people can ask themselves is not, "Who am I as a person?" but, "Who are we as a society?" The answer to that question may create the type of civilization only dreamed of by musicians, poets and philosophers. Interested in learning more about blockchain? Check out: Mercer Digital's Blockchain 101 Overview. 1Palmer, Danny. "What Is GDPR? Everything You Need to Know About the New General Data Protection Regulations." ZDNet, https://www.zdnet.com/article/gdpr-an-executive-guide-to-what-you-need-to-know/. 2"The HIPAA Privacy Rule." Office for Civil Rights, https://www.hhs.gov/hipaa/for-professionals/privacy/index.html.  

Vineet Malhotra | 27 Dec 2018

The meteoric rise of cryptocurrencies such as Bitcoin thrust blockchain to the forefront of the daily news in late 2017, and its subsequent epic fall cast a new pall over a technology that was just beginning to overcome its early reputation as a perfect vehicle for swindlers, drug dealers and traffickers. While awareness of blockchain has increased markedly over the last few years, most organizations and people are still unable to grasp what this new technology will really mean to their businesses and lives. Today, blockchain technology is about where the Internet was in the early 1990s. It’s an exciting and important technology, but one that is still in its fledgling stage. The truth is, similar to how people were trying to figure out the Internet in the early 1990s, no one really knows exactly how it will revolutionize economies and cultures. But we do know—much like the Internet in the early 1990s—that blockchain is going to be a game changer. Blockchain: The Efficiency Revolution   Blockchain will profoundly impact the intersection of business and individuals by unleashing a new era of connectivity and efficiency. Because blockchain is secure, streamlined and can be both transparent and anonymous simultaneously, the technology will revolutionize operational processes by eliminating costly intermediaries. Suppose, for example, a VP of engineering in Beijing, China is being relocated—along with his wife and two daughters—to a new long-term position based in Perth, Australia. Historically, just finding and securing housing across borders has involved an overwhelming amount of paperwork, people and processes. Local real estate protocols are fraught with legacy registry systems, sprawling bureaucratic channels and intermediaries including brokers, title agents, title attorneys, notaries, escrow agents, land registry officials and bankers in both countries. These processes are bloated, expensive and susceptible to fraud. The streamlined transparency and security provided by blockchain technology will eradicate many of those wasteful and vulnerable practices. Blockchain enhances efficiency not by collecting data, but by securely connecting data across a decentralized network of participating computers called nodes. Nodes store the blockchain’s data, follow the rules of the blockchain’s specific protocols and communicate with other nodes, which can be located anywhere. Each follows the same rules and maintains an identical copy of the network’s immutable data set. New information is added only when the nodes agree, and the change is distributed simultaneously to each node. To alter it, would-be hackers would not have to simply hack one node, but all (or most) of the individually protected nodes distributed throughout the world. By ensuring the data is simultaneously tied together and yet independent, anonymous and secure, blockchain ensures the integrity of the data network. This allows all participating parties to know that the shared data is valid, and no intermediaries are needed to confirm that a home buyer has enough money, or if the house has water damage, or if the title deed has been signed, notarized and delivered. Blockchain In Growth Economies   Blockchain is gaining traction and disrupting growth economies at an increasing rate. Not only is it being touted as a possible solution to endemic and institutionalized corruption, but it is also gaining acceptance in important industries, especially financial services, healthcare and government. Financial Services Blockchain first gained traction in growth economies as the technology behind Bitcoin, the first digital currency. However, experts soon recognized that blockchain’s transparency and security features could significantly change the financial services industry—much as the Internet changed the media and entertainment industries 20 years ago. Banking institutions across the globe are adopting blockchain and advanced distributed ledger technologies for a wide range of functions, including trade settlements, payment processing and cross-border transactions. In fact, India recently launched India Trade Connect, a trade finance strategy that uses blockchain platforms to empower an unprecedented collaboration between IT juggernaut InfoSys and seven of the nation’s biggest banks.1 Modern blockchain technologies allow these financial entities to streamline trade finance systems and oversee international supply chain transactions at every step of the operation. Healthcare The global healthcare industry manages vast amounts of clinical and administrative data, from the pharmaceutical supply chain to patient medical records to claims management. The introduction of smart medical devices including everything from personal fitness trackers to connected surgical suites, is introducing an entirely new ecosystem of information to mine. The pool of data collected from healthcare-related devices is growing exponentially. Accurate, accessible data is critical to improving clinical outcomes and reducing waste, and blockchain’s immutability and ability to connect currently siloed information and serve as the “single source of truth” are key enablers. In South Korea, the healthcare industry has been very proactive in implementing blockchain to centralize patient information and marginalize the prevalence of counterfeit drugs through transparent supply chain management. Blockchain records of patients’ medical histories provide Korean hospitals and caregivers with a single, accurate record of a patient’s treatments, procedures and pharmaceutical needs.2 Government Governments in growth economies around the world are using blockchains for everything from property records and voting registries to driver’s licenses and financial histories. Its ability to provide a chronological and immutable digital record makes it ideal for transactions that impact populations and economies—from single individuals to entire industries. Blockchain increasingly allows governments in Africa to better organize records and services through improved identity management systems—which legitimizes processes key to successful societies, from collecting taxes to counting votes.3 For many growing nations, blockchain may soon offer the potential to leapfrog from antiquated and bloated operational processes, fraught with malfeasance, to streamlined, incorruptible systems that attract international investment and encourage entrepreneurship. Blockchain is gaining rapid acceptance with businesses and policymakers in part because the continent doesn’t have deeply entrenched incumbents or legacy systems that might resist this new technology in an effort to maintain their influence. Blockchain: The Unknowns   When the Internet gained acceptance in the early 1990s we knew that the ways human beings communicated and interacted with information was about to experience extraordinary changes. We didn’t know, however, that it would lead to the rise of other revolutionary forces such as Google, peer-to-peer file sharing platforms like Napster, ubiquitous smartphone devices such as the iPhone, or the invention of social media channels like Twitter, Instagram and Facebook. All cultural disruptors that continue to shape the world in significant ways, from unhealthy personal digital addictions to the influence of government-sponsored disinformation campaigns. Blockchain promises similar benefits and risks. The impact it will have on growth economies, international commerce and human culture cannot be fully assessed or appreciated at this point. But its potential is real and pervasive in every region of the world. Businesses, CEOs and governments should adopt strategies that don’t necessarily mandate a call to action, but a call to awareness—an earnest effort to gain a sophisticated understanding of the technology and how it can create positive changes, or negative consequences, in a world that is still figuring out how the Internet of the 1990s has transformed the human condition. To learn more about blockchain read Mercer Digital’s Blockchain 101 Overview. 1Infosys Finacle Pioneers Blockchain-based Trade Network in India in Consortium with Seven Leading Banks: Infosys Limited - https://www.infosys.com/newsroom/press-releases/Pages/pioneers-blockchain-based-trade-network.aspx 2Will Blockchain Transform Healthcare in South Korea: https://techwireasia.com/2018/06/will-blockchain-transform 3Why Africa’s Emerging Blockchain Movement Is Growing So: https://media.consensys.net/blockchain-month-in-africa-920945771100

Nicol Mullins | 13 Dec 2018

Businesses around the world are entering an age of disruption. Starbucks, for example, is changing its business model to accommodate payments made via mobile devices, which now account for 30% of transactions in U.S. stores. Disruptions driven by digital transformation are re-shaping business models and human resource structures in just about every industry. Mercer’s 2018 Global Talent Trends Study – Unlocking Growth in the Human Age revealed that businesses that self-identify as a digital organisation are twice as likely to report high scores on change agility as a differentiating organisational competency.1 A continent of different nations   While the world embraces a shared and on-demand economy, many countries in Africa continue to grapple with an old and entrenched world order. In fact, many African countries prefer familiarity over change. This mindset prolongs the influence of legacy issues that impede the advancement of labour policies in Africa, and impacts the continent on every level, from political and economic to cultural and legislative.  Interestingly, the legislative policies and culture of individual countries and nationalities shape important factors such as employee compensation and reward structures. Throughout Africa there are two distinct payment structures: Francophone (which involves multiple cash allowances) and Anglophone (which is a consolidated approach including a salary, bonus and benefits). If you compare Nigeria to Kenya, for example, the payment structures differ vastly. Nigeria’s Francophone-style market demands various allowances and remunerations based on existing practices and employee expectations, even though the nation attempted to implement legislation that would consolidate compensation through a structure based on tax benefits. Kenya, in contrast, offers few cash allowances and can be characterized as Anglophone in nature, where the salary and other benefits are consolidated. Africa’s labour market   How will disruption affect Africa’s labour market? Ultimately, it is vital for employers to take cultural nuances into account in order to hire with purpose. According to our 2018 Talent Trends study, embedding a higher sense of purpose into the Employee Value Proposition (EVP) unlocks individual potential and spurs people to be change agents. To find purpose, employees crave professional development, learning opportunities and experimentation. If employees do not experience these motivating forces, they will look for inspiration elsewhere. In fact, 39% of South African employees satisfied in their current jobs still plan to leave due to a perceived lack of career growth and opportunity.1 Embracing the pace of change   Some countries in Africa are embracing disruption better than others. For example, Ethiopia—the second most populous country in Africa—has seen massive growth since it opened up its borders twenty-five years ago. By creating more investment opportunities, Ethiopia has attracted foreign investors who now recognise the tremendous potential that lies within the consumer market, as well as the benefits of lower labour costs throughout the country. Rwanda is another notable example of an African nation embracing digital transformation, as it continues to make significant investments in technology and transitions towards smarter cities. According to the report, the African countries at the forefront of disruptive technologies are all being transformed by the speed at which businesses are adopting change. In fact, 96% of these businesses are planning an organisational redesign in the next two years, and 46% of HR executives are planning to reskill current employees for new roles. Aligning skills with opportunities   The intention and ability to embrace change is vital to business ecosystems. Fifty-three percent of executives believe at least one in five roles in their organisation will cease to exist in the next five years. However, only 40% of those executives are increasing employee access to online learning courses, and only 26% are actively rotating workers within their business.1 To take advantage of opportunities that arise from disruption and transformation in Africa, nations should invest in the potential of other revenue-driving industries. For instance, previously war-torn Liberia could develop more tourism-related businesses and enterprises—following Dubai’s example, which transitioned from a primarily oil-based economy into a tourism-based economy. Innovation and workforce skills development are critical to the future of Africa. The human capital resource strategy of “managing a pipeline of talent” is becoming obsolete as employees seek new, aspirational approaches to developing skills that are aligned with the future of business in a digital age. Though Africa faces a number of legacy challenges, it understands the need for change. By focusing on digital transformation, the continent—and the nations that comprise it—could usher in a new era of prosperity for their economies, businesses and people.   1 Global Talent Trends Study 2018: https://www.mercer.com/our-thinking/career/global-talent-hr-trends.html

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Mustafa Faizani | 30 May 2019

There is no doubt that family businesses are prominent across the Gulf Co-operation Council (GCC) in various industries. From small to renowned multinational corporations, family owned and managed companies are the foundation of the modern country. Many of these businesses have been in existence for five decades and still exist today. As the first-generation of individuals begin to step down, we're seeing a shift to second and third generation ownership. It is estimated that, in the Middle East, approximately $1 trillion in assets will be transferred to the next generation of family owned companies over the next decade.1 The transition from the first to the second generation, and increasingly, the second to third generation, will have tremendous implications on the sustainability and growth of these companies. As a result, legacy and succession planning are becoming an increasing concern for the region, as many businesses stand in a position to pass the baton over to the next generation. While existing leaders prefer to keep the business within the family, there are many challenges that can arise if there is no preparation done well in advance of the transition. This lack of preparation is common, as it's easy for leaders to be so involved in the day-to-day running of the business that they lose sight of longer-term, more strategic priorities. The penalty for failing to tackle leadership or ownership changes can be significant. Lack of a clear, strategic succession plan can cause disruption, conflict and uncertainty within the business, making it vulnerable to an acquisition or takeover. The long-term survival of a business and the preservation of the wealth that has been built, will likely depend on getting ahead of those changes through legacy and succession planning. Have a Strong Internal Talent Strategy   Planning can have many benefits. The priority is to ensure leadership continuity, which is an important factor in keeping employees engaged and ensuring retention. It also allows time to hire internal candidates for key positions, therefore avoiding the cost of external searches. Internal candidates know the organization better and tend to have a better chance of success than external hires. Additionally, promoting internally helps retain good people, because they see opportunities for growth and will stay on to pursue them. A strong talent strategy can also fill leadership positions quickly, not only avoiding the potential cost of unfilled positions and errors from a lack of leadership, but helping to circumvent legal consequences from potential missteps. Evaluate Your Operating Structure and Execute in Phases   Leaders often first look at the current reporting structure and organizational chart to evaluate who the next leader(s) may be. However, it is also important to think of an organization's operating structure and how it may change over time. Leaders must consider how functional activities will evolve as the business grows, while also looking at the experience of the shareholders during this significant change. These factors need to be reviewed before selecting the people who will take over the function. As part of this process, it's critical that succession planning is done in phases. Firstly, it is important to identify the roles critical to the business and the pool of successors that best fit the organization's requirements. Ensuring the right assessments to determine readiness levels can solidify the next generation of company leadership. Multiple assessments methods are suitable, including looking at historical measures of performance, 360 leadership behaviors tests and predictive measures of potential. Involve Executive Leadership   Lastly, executive leadership involvement is essential in the succession planning process. The organization's top leaders should be fully on board with the plan to bring in the next generation and meet frequently to discuss strategic talent management issues. The ultimate results of a business succession plan depend on the adherence and commitment to it from the organization. It requires a high level of engagement and continuous efforts to keep the succession moving forward over time, despite inevitable interruptions of operational needs and unexpected changes. To learn more about succession planning for family businesses, visit us here. 1Augustine, Babu, "Middle East's Family Businesses Get Serious on Sustainability" Gulf News, November 7, 2015,https://gulfnews.com/how-to/your-money/middle-easts-family-businesses-get-serious-on-sustainability-1.1614502.

John Benfield | 16 May 2019

Times are changing. The world is moving toward an ethical, long-term sustainable way of investing. Forward-looking governments are increasingly emphasizing the role of financial markets in fostering sustainable development. Investor demand for responsible investment (RI) solutions has increased significantly, as observed by the growth of assets being allocated to RI-related investments. Combined with the shift toward low-cost equity index tracking, this has led to an increase in the number of RI indices that are now available. We expect RI indices to become an important first step in integrating environmental, social and corporate governance (ESG) considerations for many investors with existing passive or factor-based investments. At Mercer, we define Responsible Investment as the integration of ESG factors into investment management processes and ownership practices in the belief that these factors can have a material impact on financial performance. Meanwhile, in the GCC region, with efforts to diversify the economy, governments are gaining awareness around the importance of responsible investing. The GCC makes up four of the six Sovereign Wealth Funds (SWF), which founded the One Planet SWF Working Group in December 2017 at the occasion of the "One Planet Summit" in Paris. Within the UAE itself, numerous initiatives — such as The Green Economy for Sustainable Development and Green Agenda — are propelling the country into the future of responsible investing. In keeping with the diversification strategy, these initiatives support Vision 2030 by aligning with the nation's economic growth ambitions and environmental sustainability goals. Abu Dhabi is contributing to the agenda in a major way through various developments, such as Masdar City — a multi-billion dollar green energy project.1 Meanwhile, Dubai set up an energy and environment park called Enpark — a Free Zone for clean energy and environmental technology companies.2 As the business case for responsible investing gets stronger in the GCC, there is a growing demand for incorporating ESG factors or sustainability themes into investment decisions and processes. Institutions are factoring the benefits of responsible investing, not only to their investments but also to their reputation and bottom line. Sustainable investing offers attractive opportunities to tap into the growth potential of companies providing solutions to various challenges of resource scarcity, demographic changes and changes in the evolving policy responses to a range of environmental and social issues. Studies and industry evidence have shown the benefits of integrating ESG factors on the company's long-term performance. For example, Deutsche Bank reviewed more than 100 academic studies in 2012 and concluded that companies with higher ESG ratings had a lower cost of capital in terms of debt and equity. Another study in 2015 by Hsu (Professor at the National Taichung University of Science and Technology, Taiwan) and Cheng (Professor at the National Chung Hsing University, Taiwan) found that socially responsible firms perform better in terms of credit ratings and have lower credit risk.3 With companies operating against the setting of public concerns around environmental and social issues, incorporating ESG considerations is now also considered best practice. Employees increasingly want to work for and invest in companies that make a positive environmental impact. Global initiatives and bodies, such as the CFA Institute, have highlighted the financial and reputational risks of not taking ESG considerations into account. While the GCC is beginning to understand the benefits of applying ESG, the region hasn't been too far from its concept. Sharia-compliant investing has been around for the last two decades. Both frameworks apply the negative screening approach and seek investments which provide a sustainable return. With the combination of ESG factors and Sharia screening, Islamic investors can improve investment performance while meeting social and environmental goals at the same time. As the UAE is now focusing on diversifying its investments, it can highly benefit from creating a responsible investing market and culture where strategy and processes go hand-in-hand as important steps for successful integration. When seeking sustainable growth, an additional layer of insight and oversight is extremely crucial to mitigate emerging risks, like climate change. To that end, implementing ESG assessments will help set clear KPIs and identify where and how projects generate value and mitigate risks associated with them. For example, Mercer applies an Investment Framework for Sustainable Growth with its clients, which distinguishes between the financial implications (risks) associated with environmental, social and corporate governance factors and the growth opportunities in industries most directly affected by sustainability issues. Measuring impact and mitigating risks has become increasingly important and represents a strong investment governance process. The benefits of adopting ESG are numerous. While the GCC has started with the implementation of ESG principles, more work still needs to be done in making sure governments are fully engaged with stakeholders, including investors, and strategies are aligned across the region. Regulatory pressures to meet global standards of ESG integration will only increase in the coming years. Instead of hiding from it, it is time for companies, investors and governments to come together and define a way of working that moves the GCC forward in terms of responsible investing and sustainable growth. 1Carvalho, Stanley, "Abu Dhabi To Invest $15 Billion in Green Energy," Reuters, January 21, 2008, https://www.reuters.com/article/environment-emirates-energy-green-dc/abu-dhabi-to-invest-15-billion-in-green-energy-idUSL2131306920080121 2Energy and Environment Park:Setup Your Company In Enpark, UAE Freezone Setup, https://www.uaefreezonesetup.com/enpark-freezone 3Chen, Yu-Cheng and Hsu, Feng Jui, "Is a Firm's Financial Risk Associated With Corporate Social Responsibility?"Emerald City, 2015, https://www.emeraldinsight.com/doi/abs/10.1108/MD-02-2015-0047

Danielle Guzman | 16 May 2019

Imagine you're tasked with creating a brand-new city from scratch. A broad, meandering river cuts through a level plateau of arable land, and you're responsible for whatever's to come. What do you do first? Lay out a street grid? Install emergency services? Block off land for preservation and development? Think wisely, because your next decision may determine the fate of your city's inhabitants for generations to come. At its core, this is the same decision that local leaders of the world's emerging megacities face today. They may not be starting from scratch, but tomorrow's megacities face a similar potential for dynamic growth and expansion as yesterday's frontier boom towns. What should be their number-one priority when focusing on future development? People. According to a recent report from Mercer titled, "People First: Driving Growth in Emerging Megacities," we must prioritize humans (not robots) for a competitive advantage. We must design technology with humans at the center. To quote Pearly Siffel, Strategy and Geographic Expansion Leader, International, at Mercer, "In the future, work will be less about 'using' technology and more about 'interacting' with technology." 1. Technology Is Fungible, People Are Not   The well-worn axiom that AI will transform the future of work is more true today than ever before, but it misrepresents how the future will be transformed. What may start as a race to adopt and leverage AI in the workplace will inevitably end in a saturation of technology: As soon as one firm unlocks the full potential of automation, it'll be a matter of time before their competitors replicate the model. Who wins in a world where AI is in every office? The organizations with the best talent. Consumer and workforce demands will inevitably adapt to an AI-empowered future, and the real differentiator will be the human skills, such as critical thinking, emotional intelligence and creative problem solving, paired with technology. A recent report by the World Economic Forum outlines the 10 skills humans will need to create value in an increasingly automated world, and it's a great reminder that peoplemust remain the focus if we're to build anything that works in the future of work.1 Tamara McCleary, Founder and CEO of Thulium, summarized this point well in a recent conversation we had: "If we are distracted by all that glitters with the promise of a frictionless future with AI, then we will surely miss the mark. While technology may be an economic accelerator in the future of work, people are still the core drivers of sustained productivity." 2. When AI Is Everywhere, People Will Still Go Somewhere   Everyone's familiar with the dystopic tomorrow-lands depicted in literature and film: techno-centric, automated megacities serviced by an army of robots where people are undervalued. This is not how I envision the future of work. The proliferation of AI may mean some jobs will be automated, but those displaced workers still represent remarkable potential to cities, employers and economies. McKinsey estimates that disruption from digital transformation, automation and AI will force approximately 14% of the global workforce — 375 million workers — to find new career directions.2 However, as the economy of the future becomes less murky and reskilling/upskilling becomes a staple of every career path, there will be a massive scramble to find talent to plug newly created roles in the workforce. This new economy is why people-skills will be so sought after in the future of work, according to April Rudin, CEO and Founder of The Rudin Group. "AI will be a tool to empowerhumans instead of replace them, enabling people to spend time on the things they do best: making relationships, exercising judgment, expressing empathy and using their problem-solving skills." Those cities that remain people-focused will be the ones with talent on-hand, and they'll be the ones to succeed. 3. A Clean Start Provides a Leg Up   Think about the investment that today's economic powerhouses have made in their broader commercial infrastructure. Think about public transportation systems, electrical and IT networking, private development and public zoning districts. Billions of pounds, dollars, yen, renminbi, rupees, euros and more spent on getting those cities ready for the economy of today. How will those investments pay off in the future of work? Today's emerging megacities are "unencumbered by the legacy systems of their larger and more established brethren," according to Mercer's People-First research. While it may require massive investment to install the building blocks of a future-focused economy, there's none of the wasted expense or necessary compromise that comes with retrofitting an outmoded city for the tech-enabled future. Those cities can focus time and resources on building attractive, people-centric cities where employees will want to live, work and raise families in the future. "It's hard to fathom the competitive advantage a modern, mass transportation system gives a city," says Walter Jennings, CEO of Asia Insights Circle. "When economic reforms started in China, Shenzhen was a fishing village of 50,000 people. Today, there are estimates of 12–16 million residents." What's Next?   Let's return to the city planner. You're overlooking your parcel of land, and you're trying to envision the ideal city of the future. We may not know the street names, but we have a better sense of the guiding principles for your soon-to-be booming metropolis. I leave you with my three takeaways, just one lens through which to explore the opportunities which lay ahead with people, technology and the emerging megacities that will power global growth. 1. Build your city (or company) around people. 2. Don't discard valuable assets. There will always be a place for good talent in good places. 3. Look for what will carry you into the future, not what's carried others in the past. 1Desjardins, Jeff, "The Skills Needed to Survive the Robot Invasion of the Workplace," Visual Capitalist, June 27, 2018, https://www.visualcapitalist.com/skills-needed-survive-robot-workplace/. 2Illanes, Pablo, Lund, Susan, Mourshed, Mona, Rutherford, Scott and Tyreman, Magnus, "Retraining and Reskilling Workers in the Age of Automation," McKinsey Global Institute, January 2018, https://www.mckinsey.com/featured-insights/future-of-work/retraining-and-reskilling-workers-in-the-age-of-automation  

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