I criteri ESG fra investimenti e leadership

ESG criteria - Between investment and leadership

On February 8, 2022, the Italian parliament definitively approved a bill that includes protection of the environment as a fundamental principle of the Constitution.

Specifically, it amended the second and third paragraphs of Article 41 of the Italian Constitution concerning the exercise of economic initiative.

Without prejudice to the precept of the inviolability of human dignity, security and freedom, the second paragraph now also references the health and environmental issues that must always be observed and protected during the exercise of all economic activities. Thus, the law is increasingly focused on enhancing the principles of sustainability.

The financial field by now reflects this approach in the well-known "ESG" criteria, which increasingly permeate the activities of investors, financial institutions, entrepreneurs and companies.

Actually, if in the past investing according to these criteria was only an objective for specific thematic funds, or was an ancillary and rewarding principle, today it has becomes a functional element for the entire investment chain on which basis the individual risk level is determined.

Including "Environmental, Social, Governance" factors, the terms in the ESG acronym, in one's portfolio certainly improves the risk profile and optimizes long-term return.

So, specifically, what are they?

"Environmental" refers to the environmental factors related to climate change. This criterion seeks to raise awareness for protecting the environment, biodiversity and natural resources, while minimizing harmful emissions into our ecosystem.

"Social" considers the impact of a given activity on the social context where this work is carried out. Inclusiveness, equality, child labor are just some of the parameters considered in this criterion.

"Governance", on the other hand, evaluates the system by which a company is administered and governed. By verifying certain parameters, such as: economic strategies, the structure of the board of directors, executive remuneration, tax practices, corruption, abuse of office, respect for meritocracy, codes of conduct and various company policies, the risk and sustainability of different companies are assessed. This factor presently affects the creditworthiness of the individual company also and its attractiveness to potential investors, such as private equity funds.

In March 2019, the European Commission also reiterated, by issuing various regulations, the importance of encouraging the development of "responsible" companies and investments, thrusting them towards sustainability.

Value for the shareholders and market confidence are also achieved by integrating the "ESG" criteria in their own conduct and within their administrative, production and investment system.

In my opinion, these criteria are consistent with the aims of what I call - and I promote among the young students at the Gabelli School of Business - discerning leadership. Leaders today must contribute to building a virtuous "biosystem", where business and profit combine with sustainability and inclusiveness.

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Nuove competenze per nuovi investimenti alternativi

New skills for new alternative investments

As was emphasized in a previous article, private markets, alternatives to the traditional assets listed on the market, have entered the awareness and convictions of investors. Strengthened through their limited correlation to financial market performance, they can offer very interesting profits, especially during periods of high stock market volatility and market stress, even in this time of fluctuation due to the continuing economic fallout of the pandemic. It is no coincidence that this market today represents a rapidly growing trend, from both sides, of qualified investors who are selecting it and Italian small and medium-sized enterprises comprising its main users.

This is the reason that I believe in-depth training on this topic is fundamentally important for economics students and future business leaders, whose solid preparation in this matter could confer great professional satisfaction. In a global and complex context like this one, keeping up with the times is an obligation, and private markets represent a strategic area with great potential for young people who want to invest in their skills.

What skills are these?

Based on my experience, certainly the most important is mastery of the technical skills in the field of finance, including aspects linked to the variety and management methods of the instruments available in this new sector.

The ability to evaluate the most diverse businesses must be included in order to recognize the most interesting investment opportunities. This means having information on the target realities, in terms of strategies and growth plans and, no less, it also means knowing how to evaluate the skills of key persons for success in that specific activity. In addition to the technical knowledge, refinement is not to be underestimated in the mindset required of new business leaders operating in this sector, whose positive attitude can make the difference in finding adequate answers to different situations.

In any case, those with leadership positions in the market of alternative assets must act as a guide capable of inspiring: listening and communication are basic skills that cannot be lacking. Often, it is precisely personal qualities, such as a good name and reputation, that attract capital and enable the investment operations to take place.  Knowing how to communicate by transmitting trust, reliability and authority thus becomes a success factor, just like technical skills.

Young business students have to be well aware that good relationships and a good reputation are built day by day, in a career devoted not only to the pursuit of profit, but also to one's professional and personal improvement. Improvisation never pays. It is study, commitment, perseverance and passion that allow us to reach our goals, which must also include - as I often repeat - discernment, meaning the habit of reflecting before acting. All these resources combine to translate a vision into reality.

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Private markets and collective benefits

The last 20 years of evolution of modern society have been marked by epochal events that have strongly influenced economic choices and financial strategies.
The internet, the digitization of production processes, artificial intelligence, the start-up and fintech phenomenon, globalization and continuous metamorphosis of international geopolitical assets have radically changed our way of "doing business". Investors and entrepreneurs have had to adapt quickly to sudden events, not least the pandemic, that can completely change the status quo.

However, the one constant remaining for entrepreneurs in this continuous change of events is the need to raise funds and, for finance, to find new advantageous formulas for the use of capital.

One alternative area offering new investment opportunities than those more traditional and where lifeblood may be drawn is certainly the private markets, particularly interesting now for channeling resources towards SMEs.

Private markets, starting in the United States and subsequently landing in Europe, are arousing strong interest both on the Old Continent and in Italy, where they are spreading in a very lively manner. These are investment solutions designed for finance companies not listed on regulated markets and, therefore, more difficult to know and less accessible for investors. A method that is very well suited to small and medium-sized companies with significant growth potential and for private investors looking for long-term profitable investments for their capital.
Private equity, private debt and venture capital are generally the best known instruments. In the case of private equity, the investor, usually a fund that has first raised capital from private and institutional investors, provides capital to selected companies with significant growth prospects, bringing resources and know-how to improve their development plans and results.
In venture capital, investors take equity stakes in the company to support its start-up or even expansion phase.

Private debt, on the other hand, includes investments of a bond nature issued by unlisted companies to finance strategic and development activities. The flourishing of further private asset formulas, such as invoice trading, minibonds, direct lending and other similar products, clearly demonstrates how the Italian economy is receptive to following alternative paths favoring the delicate balance between capital and business.

What are the benefits? First of all, these are investments unaffected by market fluctuations that have a medium/long term duration. Another interesting prerogative is investment stability; in fact, investors cannot arbitrarily "disinvest" their capital, as it remains bound to the established deadline. This is a condition allowing the company to carry out its development plans and create value.

The investments required are always substantial and are riskier than other traditional instruments. This is why they are reserved for professional investors, able to better evaluate this type of commitment and also support the company by bringing experience, expertise and opportunities through their network.
Without a shadow of a doubt, therefore, private markets in Italy are also a very interesting growth lever that is gaining momentum, as can be seen from the data from the private equity and venture capital collection which in 2020 recorded a growth of 32% over 2019.

Entrepreneurs and investors thus have a great variety of instruments and options at their disposal as an alternative to banking, which provides more dynamism and opportunities to the market.
The need, now, for entrepreneurs and investment bankers, is precisely this, to foster a synergistic relationship between entrepreneurship and finance, between business and capital which, through new development models and new financial instruments, can support the changes taking place with a discerning perspective, anticipating the future and enhancing the Italian economy.

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Cybersecurity oggi una priorità per i leader

Cybersecurity, a priority for leaders today. Not only operational and financial risks any longer

Humans have always had to provide for their own security to protect themselves from impending threats and dangers by investing in energy and capital. Over the centuries, the concept of security has evolved with the times: if the ancient Romans protected themselves with fortifications and weapons, today the battlefield has expanded into the technological sphere, as digitization systems are advancing and now involve every area of human activity.

In fact, the Internet allows organizing business production processes of (just about) any kind, to administer government, institutional and professional platforms and manage financial flows globally. The imperative now is: "saving time to be more efficient" by speeding up all the management and production processes.

However, every digital process, resource, database or virtual platform is vulnerable to cyberattacks, such as Ransomware, Phishing, Malware, Social engineering viruses, Adware, Spyware and Worms.

The damage caused each year by these attacks is extensive, ranging from theft or loss of sensitive data to extortion, identity theft, intrusion into critical infrastructure or government processes and breaching banking systems. According to estimates by Canalys, a leading technology industry analytics company, approximately 30 billion data points were stolen in 2020 alone, more than from the past 15 years combined.

The problem has global significance. The World Economic Forum has recently defined cybersecurity as a priority activity on the agenda of the leaders of all nations, not only for the economic implications, but also for social impact. Cyber defense includes various types of countermeasures. These include a new generation response proving to be very effective, Artificial Intelligence which, by using specific algorithms, recognizes the "normalcy" of a digital environment, detecting any alteration caused by possible attacks, immediately protecting the area of relevance assigned to it. This intelligent system, which is likely to be used increasingly by governments and large corporations in the future, is estimated to act at least nine times faster than a team of people assigned to the same task.

Thus, cyber risk has become an issue that CEOs must make a top priority. Without international security protocols for reference, it is crucial to provide training that adequately prepares leaders and their collaborators in the basic principles of cyber security in order to provide companies with adequate defensive tools.

In today's connected world, digital transformation is a crucial challenge for today's leaders tasked with reviewing their business models and operational architectures to adapt for security in their information infrastructures. Awareness of this subject is growing steadily, as shown also in a Canalys report "Now and Next for the cybersecurity industry," attesting a 10% growth in cybersecurity investments in 2020, at 45.2 billion euros.

Technology, pervasive and eclectic, has allowed us to create operations that we thought impossible until recently. The net has "shortened the distances"; it has given us speed and efficiency and, as a function of this, our way of doing business has radically changed.

Cyber space is therefore a "great virtual crossroads" full of opportunities that every leader should be able to seize, with the awareness, however, that there are significant risks, which must be addressed with the same attention as financial and operational risks.

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Gli USA e l’Afghanistan: un cambio di leadership o un cambio di strategia?

The USA and Afghanistan: a change of leadership or a change of strategy?

The climax of the dramatic events that took place in recent weeks in Afghanistan has deeply shaken public opinion and created strong concerns within the international community.
The news and images coming from the Afghan territory and, in particular, from Kabul, the capital quickly reconquered by the Taliban, deeply saddened me, with a deja-vu of scenarios unfortunately experienced already in the past, of violence, fear and mass exodus.
The future of millions of Afghans is now uncertain, but especially for women, who in all likelihood will watch any hope for the emancipation won with so much sacrifice and determination in the last 20 years fade away.
Nothing foreshadowed such an epilogue, specifically, that just three months from the withdrawal of Western forces, in particular, as the leader, the USA, the Taliban would regain the land wrested from their control, thereby nullifying the effects of the military and humanitarian efforts in the area in a flash.
This operation is causing a change in the global geopolitical order, which could destabilize the Middle East and cause important economic-political and humanitarian repercussions in Europe and the USA also.
At this point, one wonders for what reason Biden decided to authorize the withdrawal of American troops from Afghan territory, and why right now, triggering the escalation of events which sadly we all know. Several hypotheses are possible.
Is this a sign of weakness or a US abdication from its international leadership as some are claiming? Probably not at all.
From the White House, in a speech to the nation, Biden declared that he did not want to repeat the mistakes of the past, formally attributing the reasons for his operation to a very onerous military commitment for American taxpayers, both in economic and financial terms as well as human lives lost in a civil war that was not its own, which seemed to never end.
However, it is reasonable to think that the US move is part of a broader strategy, which is worth questioning.
I have already stressed several times how the historic international leadership of the USA today is threatened by newly emerging powers, above all China, which, unlike the Americans, "at least formally" seems not to privilege military campaigns, but to favor strategic diplomacy to make the most of the economic return. One method of action that China will certainly also use with Afghanistan serves the countless interests linked to the New Silk Road, which could bring great benefits, from opening new trade borders with the countries of Central Asia to improving relations with Russia and Iran.
Additionally, China would get access to new mineral resources, such as gold, precious stones, copper, uranium, lithium etc. (with an estimated value of potentially 3 trillion dollars) essential for its own economy, and also for the Taliban, which would see huge gains stemming from mining and related commercial activities.
What is certain is that the American military occupation had represented, also for Russia, a guarantee of stability in that region of the Middle East adjacent to other small states considered potentially unstable, which line the southern border of the former Soviet empire, still considered by the Russians within its own sphere of influence.
China and Russia, at this juncture, potentially have a lot to gain but they must get it while confronting a highly unstable counterpart, whose Islamic fundamentalism worries both superpowers.
The exit from the Middle Eastern team of the USA and NATO, in this articulated geopolitical rearrangement, leaves "an open door", behind which, however, there might be many pitfalls.

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Leadership and resilience: an example from Italian SMEs

In the last few weeks, we've been experiencing a constant back and forth between concerns about a pandemic surge and expectations for recovery, supported by sufficiently positive economic data.
As I had occasion to examine some time ago, the emergency has, at a global level, brought uncertain reactions and untimely interventions, highlighting the ineffectiveness of many leadership models, which turned out to be obsolete and unable to adequately address the changes taking place. However, the excellent data on Italian exports allow me the opportunity to observe how small and medium-sized Italian companies have dealt with the situation strategically, demonstrating very forward-looking leadership. Above all, I was struck by how they managed to transform the forced production slowdown into crucial time to reflect and behave, developing actions to be promoted both immediately and in the future.

Small and medium-sized enterprises, the backbone of our economy and the banner of "Made in Italy" - always undisputed for excellence and appreciated by the international market - have taken advantage of this uncertain period with lucidity and discernment for self-improvement and development, which makes their attitudes more and more flexible, backed by experience and competence.
Italian leaders have prepared for the impending change by investing in customer loyalty, communicating their production chain and adopting ethical and transparent policies aimed at increasingly eco-sustainable growth. They are also committed to increasing the development of alternative business models that can adapt to the multiple market fluctuations, promoting technology and disseminating it internally by profitably using Smart Working. From the internationalization standpoint, the protection of "Made in Italy" has also moved in guaranteeing the product's origin and enhancing its geographical origin.

The result of so much effort and forward-looking strategies can be seen in the Italian export statistics for last April, which recorded important figures. According to ISTAT , on an annual basis, exports to the United States grew by 112.5%, to France by +116.6% and to Spain by 120.8%. It's true that after the shock of 2020 an economic rebound was foreseeable, but achieving certain results still necessitates working well, without improvisation and with great determination.
The captains of Italian enterprise have always done this, constantly seeking to create and promote their products and services with originality, creativity and innovation. A legacy that we have from a strong identity 2,500 years old in history and culture. It is not by chance that a product "Made in Italy" is synonymous with "beautiful and well made."

Italian companies and the "Italian System" therefore are confirmed as an example to be emulated: they have always been appreciated in the world for their ability to maintain good commercial relations also, thanks to a refined and effective quality of dialog with foreign counterparts.
Europe also believes in the efforts made by Italian SMEs to safeguard their brands in this period of crisis. In fact, Ecofin has recently given its final approval to Italy's "National Recovery and Resilience Plan" submitted by the Draghi government, which will soon produce an initial "injection" of 25 billion euros into our economy.
I trust that the leadership of Italian entrepreneurs will continue to be an example of credibility and reliability. Certainly, the intelligent use of its creative and original talents can direct our SMEs towards a more and more eco-sustainable future, one more technologically innovative and in continuous relationship with the world.

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Il tempo della leadership in tempo di pandemia: fermarsi o correre?

Leadership in time of pandemic: fight or flight?

The quote "life is a great teacher" is so true. Always ready to teach us that unexpected events can happen at any time, in any place and in unpredictable ways.

Contemporary society proposes us a constant becoming of multiple scenarios in continuous metamorphosis, an accomplice also the incessant technological progress.

While mankind of the past was often unable to face changes - as demonstrated by the collapse, over the centuries, of governments, empires and entire civilizations - mankind of the present faces it by trying to predict future events through the study of complex analytical systems, based on probability and statistics. Is this a sufficient approach?

The answer is not so obvious, as we see how the results of actions based on predictions are not always as we hoped they would be. Instead, while everything is "fleeing," sometimes, it might make sense to stop, instead of trying to outrun events in an endless chase of predictions.

At first glance, it may seem like a counterproductive point, but stopping doesn't necessarily mean a lack of productivity. On the contrary, it can be a useful opportunity to better understand what is going on around us and to better understand which direction to move in.

The life experience of St. Ignatius of Loyola is one of the most fitting examples of how an unexpected dramatic event and a period of enforced inactivity generated extraordinarily beneficial effects. It was during his convalescence that St. Ignatius, immobilized by a battle wound, was able to devote himself to reading sacred texts. These readings made him reflect on the meaning of his existence, bringing about a profound inner change that led him to abandon his military career and take care of those most in need.

He did not object to the change, but rather reacted to the occurrence of an unexpected event by changing his predisposition towards life.  The time of forced inactivity was useful for him to reflect and develop a true spiritual renewal: his conversion. The productive use of this time activated a virtuous mechanism, later transferred to his life discipline: to use his time available, be it planned or imposed upon him by chance, to obtain an objective judgment detached from human weaknesses. This, he called discernment.

Similarly to what happened at St. Ignatius, the pandemic period caught us unprepared, forcing us into a period of prolonged inactivity full of concern.

At a juncture such as the present, the true leader is required to "make a virtue of necessity." Not so much in taking refuge in the semblance of activity provided by mathematical models, but by using the time available to understand the change, to confront it in a discerning way, to ensure that the actions resulting from its operation are the most appropriate possible to solve the needs of the case.

Often, the time dilation caused by a long period of crisis offers unexpected insights. Only leaders who, however, practice detached and lucid reflection are able to seize these opportunities, transforming a period of adversity into an opportunity for the future.

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Una leadership per il futuro: discernimento e valori Ignaziani

Leadership for the Future: Ignatian Discernment and Values

On several occasions, I have emphasized how the current state of global emergency has challenged traditional leadership models, which have often fallen short of expectations in dealing with the prolonged state of uncertainty we are experiencing. In conjunction with the beginning of the Ignatian year, I would therefore like to inspire reflection on what leadership capable of responding to the needs of our time might look like, starting with the teachings of St. Ignatius of Loyola, founder of the Society of Jesus.

By now, I think the only thing that is certain is that there is no certainty and humanity will have to learn to live with this situation permanently. The absence of certain references and the absence of timely solutions can provoke in the community a reaction of generalized immobilism, where fear, anxiety, and indecision suppress the will to act, characteristic of the human soul.

However, maintaining this will, even in a condition of uncertainty, is essential. According to the teachings of St. Ignatius, only discernment, that is, the ability to consciously choose and take effective and responsible action, can offer a concrete response to contingent and future problems.

In this sense, a leader must always know how to act thoughtfully in the face of volatile events. This is not an innate aptitude, but rather a skill that can be learned through training designed to fortify the mind, temper the character, and overcome uncertainties and fears. Thus, the determination to pursue a goal becomes unwavering, even in the face of adversity.

This is known as "Discerning Leadership." Leadership that can be summarized well by the Ignatian quote that reads: "Act as if everything depends on you, knowing then that in reality everything depends on God."

In other words: act in a measured way, with detachment from negative feelings - even under the most difficult circumstances - and do everything humanly possible, without ever sparing yourself.

Such leadership, I believe, has the energy to offer the world a new way of looking at things, where the unexpected becomes an opportunity for personal and professional growth, where difference becomes opportunity and not division, where collaboration becomes strength and not weakness, and where reflection becomes not inertia but a call to action.

To what extent are these values present in traditional leadership models? Possibly, still too little. But I have faith in the future, because I see many leaders with these characteristics dedicating themselves to imparting their experience to the younger generation. In so doing, they stimulate and encourage them by promoting their creativity, originality, and willingness to innovate and experiment.

The hope is that today's youth, in turn, will pass on these values to their fellow human, and to the generations that follow, teaching them to invest in the most precious resource that man has at his disposal: himself.

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Geopolitica all’International Business Week del 2021 di Gabelli School of Business

Global geopolitics at Gabelli School of Business 2021 International Business Week

With great pleasure, again this year, I attended the International Business Week organized by Gabelli School of Business.

It is always a precious opportunity to broaden students' perspective on international current topics and give them a concrete vision of what it means to "be in the world" today. A global world, let’s remember,  of greater complexity. According to the educational values ​​transmitted by St. Ignatius, founder of the Society of Jesus, it is important that young business leaders have a constant dialogue with experienced business executives in their learning journey.

Below there is a brief account of what emerged from the International Business Week of 2021.

https://www.gabelliconnect.com/featured-events/global-business-and-culture-explored-at-international-business-week/


Il modello pedagogico ignaziano: l’azione responsabile come scopo dell’educazione dei giovani

The Ignatian pedagogical model: responsible action as the purpose of educating young people

To educate or just pass on culture? A question that, I think, is asked by any good teacher or anyone, like me, who aspires to make a valid contribution to the education of young people. Personally, I have the privilege of providing my business experience to the growth of business students at Fordham University Gabelli School of Business, a prestigious American university within the Jesuit tradition.

In the year that celebrates the canonization of St. Ignatius of Loyola, the founder of the Jesuit order, I see the educational values that he left us as a beacon that is coming back into the limelight in this hectic and uncertain reality.

The purpose of the Jesuit methodology, in fact, is to foster the integral education of the person, that is, to form men and women capable of living their existence, both personal and professional, not in a passive way, but by contributing to the welfare of the future society with their actions.

The fundamental stages of this educational approach start from the direct encounter with experience, where theoretical arguments are mixed with practical arguments; ending in critical reflection and discernment, that is, the ability to make well-considered choices with responsibility and awareness; to arrive at specific action, made up of decisions. This is the main purpose of the educational model proposed by St. Ignatius.

An education of this kind is essential, especially today, amidst the experience of the new generation of business leaders, whose preparation cannot be separated from a continuous confrontation with realities, as diversified as possible. For a business student, it therefore becomes extremely educational to attend events and conferences with influential internationally accredited business managers, whose contribution of life experience and professional activity is of great teaching and inspiration. These are educational activities, typical of schools in the Jesuit tradition, that allow young people to gain independence, self-confidence and become proactive.

Each student will always be required to strive to excel as much as possible, but to never stop at the mere expressions of notions or theory, but rather setting goals to achieve them.

It is action, accompanied by solidarity, gratitude and courage, that is the true strength of Ignatian pedagogy that accompanies young and immature students on their life journeys, delivering them as mature men and women and leaders of tomorrow's society.

"Whoever was given much, will be asked for much." I always carry this passage from Luke's Gospel with me. To educate, in my opinion, is also to give something to others, helping them to become what they "could be".

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