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A new tack in African agriculture

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Whether it’s making loans for refrigeration trucks serving a fishery in Sierra Leone, or financing an organic cotton undertaking in Uganda, more investment groups are following in the footsteps of grant-making philanthropists as they put their money to work on projects in some of the world’s poorest countries.

“It is the decade of agriculture in Africa. Food security will become the next tradable commodity,” said Soros Economic Development Fund President Stewart Paperin. “You don’t have to swoop in and say I’m going to take all of your crops.

“You can operate in a responsible way and still make money,” he said. “This is just basic blocking and tackling – how you build an economy.”
A number of charitable foundations, including the Rockefeller Foundation and the Bill & Melinda Gates Foundation, have targeted the continent for years with programmes to help improve food production through agricultural upgrades.

A watertight case

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Switched-on businesses know about the importance of climate change.

But increasingly they also know about the importance of water. Or rather, its scarcity. Water shortage is a tragedy for people, affecting their every-day life, health, education and income. For business it’s also about how a lack of water can hit corporate profits, a company’s public relations image and – if the underlying problem is bad enough – your on-going business model and the future of your company.
 
It sounds obvious, of course, in a world decimated by not just droughts but, increasingly, floods and rising sea levels. Anders Berntell, Director of the Stockholm International Water Institute (SIWI), sees a far greater awareness of the issue, especially in the business environment, but would like to see more.

“Business,” he says, “has started to realise the fundamental role of water for economic development. From a business perspective, an increasing number of companies can see how vulnerable they are to their dependency on water, particularly manufacturing industries. The food and fibre industries are hugely dependent on water.” Food, in fact, is a huge consumer of water. It’s estimated that irrigation takes around 70 percent of all water used. Which means using less water to grow food is increasingly important.

Companies like Nestlé have been taking a lead on the issue for some years says Berntell. “They’ve addressed it in a very structured way, I would say. Other companies in the food business, soft drinks and textiles are also increasingly opening their eyes to the challenges,” he says. But it is clear in Berntell’s tone of voice that the speed of progress is nowhere near fast enough for many.

Everyone’s connected
A big part of the problem is that too many companies don’t realise their innate dependence on this precious, often taken-for-granted resource. “I remember,” recalls Berntell, “talking to one company – an IT firm – who it said it could quite clearly see the importance of water for many businesses, but because their business was IT, they had no real connection with it. But in fact it takes a lot of water to make micro-processors and it also requires water of very high quality, very clean water.”

The financial sector is a huge industry in the US and UK (and increasingly so in Asia and mainland Europe as more of us buy into private pensions and look for alternative investment sources as interest rates drop ever lower). “It too has started to wake up here,” says Berntell. “Insurance companies, for example, are now very advanced in assessing risks from a water perspective. In general, many are more interested in understanding their connection to water.”
That goes too for people like fund managers who have the responsibility of allocating where money is invested in their portfolios. In some parts of Europe, governments are increasingly insisting that large public sector pension funds direct their resources towards sustainable “green” and “water-wise” projects, representing a substantial degree of investment. 

Finding the formula
There remain several stumbling blocks to promoting more water awareness on the business front. One of the drawbacks is an internationally agreed formula for calculating a company’s own corporate water footprint. Berntell says a number of international networks are trying to develop methodologies to do this, but it’s a very complex undertaking to take on. “It’s a field, yes, that’s under development,” says Berntell. “And there’s also a lot of interest in it. But you also may have to apply different methodologies, in some instances, for different industries, as well as extract different levels of detail.”

Then there are other companies who have decided to work towards a new labelling system and a better understanding of their own impact on water. “Some companies that do calculate their water footprint are involved in a stewardship alliance, another way of addressing the challenges, developing structures, like the Forest Stewardship Council (FSC).” But a tried-and-tested formula for all industries? That’s still a long way off.

Joined-up thinking
The more governments make the connection between their relationship with water and economic growth the better, says Anders. “Water is a prerequisite for economic growth. We know from looking around other parts of the world that a lack of water or bad water management has a huge impact on countries’ economies and prospects for growth.”

The most obvious is effects of inadequate sanitation and its effect on health and general operational safety. Many dangerous, virulent diseases are water-born. That means getting basic infrastructure and sewage right. Think of the consequences of polluted water and the tourist sector. When you have really bad water, tourist rumours spread fast, especially in cyberspace.

But what Berntell wants to see is more government-driven programmes that in turn also generate more private investment.

Water is a unique resource; there is no substitute for it. Which means there are huge opportunities too for business, as well as huge contradictions and risk. Water is a valuable  resource, without which hardly any economic activity can exist, yet its global provision is hugely unbalanced across the world. How, then, will your company behave?

Directors blame crisis on internet

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One key villain is the internet, which eats into traditional audiences and has made it hard for directors to get films made, said Irish director Neil Jordan, the competition jury at the Tokyo International Film Festival.

“There’s a real crisis in filmmaking right now, and that’s evidenced to me by the fact that every director I know is unemployed. Or almost everyone,” said the Oscar-winning Jordan, whose credits include “The Crying Game” and “Company of Wolves.”

Jordan, who heads the jury, added: “I think the crisis in cinema-going is caused by the internet. Like every other industry – music, publishing, film. The internet is absolutely changing peoples’ habits and so everything is in a state of flux.”

Ironically, the festival opened with a screening of “The Social Network,” a movie about the founding of social media site Facebook.

There are 15 competitors for the $50,000 top Sakura Prize, selected from over 80 countries and regions.

Among them are two films from China, including “Buddha Mountain” by director Li Yu, three from the Middle East including “Flamingo No. 13” by Iranian director Hamid Reza Aligholian, and “Post Card” by 98-year-old Japanese director Kaneto Shindo.

Host country Japan, which gave the world greats like Akira Kurosawa – the 100th anniversary of whose birth will be honoured at the festival – is far from immune to the cinema world’s woes, with film attendance drifting slowly down from a decade ago.

Its once-vaunted appetite for foreign films has fallen as well.

Imported movies accounted for 43 percent of Japan’s 206 billion yen ($2.53bn) box office last year, far off a peak of 73 percent hit in 2002, according to the Motion Pictures Producers Association of Japan.

Jordan said that while he was sure cinema-going would revive, it was currently extremely hard for good movies to break out from the confines of an increasing number of festivals into wider audiences.

 “I think it’s very important that films do not find themselves in a ‘ghetto’ of festivals,” he told a news conference.

 “Festivals are enormously important because they’re one of the few avenues left for serious filmmaking, but it’s also important that films leap beyond the festival circuit to find audiences around the world.”

Singapore plays for wealth crown

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The scene is almost European. And for long-time residents of this Southeast Asian city-state at the crossroads of some of the world’s busiest shipping lanes, a bit bemusing. Just a couple of years ago late-night revelers used to tumble out of ill-lit pubs and grimy, illicit brothels on Duxton Hill.

The transformation is a microcosm of the reinventions Singapore has undergone to keep an island with almost no resources and roughly the size of New York City competitive in a neighbourhood of fast-growing emerging markets.

Boutique funds, advisory firms and brokerages are putting down roots in a revamped Duxton Hill, where opium and gambling dens run by Chinese triad gangs flourished last century.

Singapore has attracted hundreds of such firms in the past decade, lured by its light-touch registration requirements and relatively benign regulatory climate, even as Switzerland, the world’s leading wealth manager, gets tougher on bank secrecy.

“Our vision of this place is the Singapore version of London’s West End,” said Ed Peter, 47, a Swiss-born fund manager who has been buying up shophouses in Duxton Hill.

The neighbourhood, in truth, bears little resemblance to London’s theatre district, but it’s also a far cry from its shady past.

“It’s going upmarket. It’s cool. It’s funky,” said Peter, speaking effusively at his office in a three-storey building which housed an Elvis impersonator bar just two years ago. “You’ve got half the financial community here.”

Next door, the raunchy Aristocats pub closed shop a few months ago, providing space for Daun Consulting, a private equity adviser, to expand from its upper-level offices.

Peter, Deutsche Bank’s  head of asset management for Asia Pacific, Middle East and Africa before setting up his own firm in Singapore, manages about $650m.

The squeaky clean city of 5.1 million, nicknamed the “nanny state” for its propensity for micromanagement, is fast emerging as one of the world’s hottest destinations for wealth — and the wealthy, who now have casinos and theme parks for play, and seaside mansions and penthouses to stay.

The Monetary Authority of Singapore (MAS), the central bank, estimated overall assets under management in the city totalled a record S$1.2trn ($900m) at end-2009 – the most in Asia and up about 40 percent from a year ago.

The Boston Consulting Group estimates private banks alone in Singapore manage about $500bn in assets. The numbers are dwarfed by the estimated $2trn in private wealth managed in Switzerland, but the growth in Singapore is startling, wealth managers say.

“In the last 10-12 years I’ve seen Singapore really take a leadership role in changing the landscape of the wealth management industry,” says Deepak Sharma, chairman of Citi Private Bank.

“The regulatory environment in Singapore is one of the finest. It has one of the best standards in the world, but at the same time, it is consultative. It engages the industry.”

Go east young man
The big players, including Swiss giants UBS AG and Credit Suisse who have a global stranglehold on private wealth management, are among those looking East. UBS, usually chary about its plans, says it will hire 400 new staffers in the Asia-Pacific region in the next few years.

Credit Suisse said net new assets from clients in Asia climbed to 11.5 billion Swiss francs ($11.78bn) in 2009 from 8.4 billion in 2008. In the first six months of this year, net new assets came in at 7.1 billion Swiss francs.

Morgan Stanley plans to double its Asia headcount in wealth management over the next three years, largely focusing on the top end of the market.

JPMorgan Chase & Co plans to triple its private banking assets in Asia over the next five years and plans to increase its headcount in the region by 40 percent over the current 400, a company spokesman in New York said this week.

“I believe Singapore will be the true private banking hub,” said Massimo Hilber, managing partner at private Swiss bank Marcuard who, like Peter, has an office on Duxton Hill. “All the big players are here, and the smaller players like us. You have to be here.”

Why Singapore?
First, assets held by Asia-Pacific’s high net worth individuals – people owning more than $1m excluding home, collectibles and durables – surged 31 percent in 2009 to $9.7trn, overtaking Europe, according to CapGemini/Merrill Lynch.

Second, high net-worth individuals seeking high-return investments are turning to emerging markets. Accordingly, portfolios of such individuals included 22 percent in Asia-Pacific investments in 2009, up from 19 percent in 2008, and will soon overtake Europe, the CapGemini study says.

Many of these changes are focused on Singapore, which is at the crossroads of new wealth being created in China, India and Indonesia, some of the fastest growing economies in the world.

Singapore, which has the world’s highest concentration of millionaires, is poised to grow its own economy 13-15 percent this year, possibly the fastest rate in the world.

Hong Kong is Asia’s other big financial centre, but tends to focus on investment banking and deal-making in China rather than in the management of private wealth, bankers say.

“Hong Kong probably makes great business sense from an investment banker perspective, but I don’t think it has invested as much in itself in creating a place for families to live,” says Nick Pollard, Asia chief executive of private banker RBS Coutts.

“What Singapore has done very well is that it has almost created a whole infrastructure, not just a place to work, but also a place to live, a place to educate your children, a place to have great fun.”

Fine city
Stuffy. Staid. A “fine city” where every minor transgression attracts a fine. Where the sale of chewing gum is banned, and caning is prescribed for offences such as vandalism.

That was, and in some cases still is, Singapore.

But about five years ago, the government launched a concerted effort to change the image. Two casinos sprang up this year at a cost of about $11bn in a city where gambling had been banned. It’s the only country in the world where the Formula One Grand Prix is held at night.

Singapore impeccably conducted its third F1 race on September 26, with Fernando Alonso winning on a balmy tropical night, driving his Ferrari through 61 laps around the city’s business district.

Top music acts including Mariah Carey, Sean Kingston, Chris Daughtry and Adam Lambert performed at different areas around the circuit. Some of the jet-setting crowd partied after the race at a newly opened rooftop bar at the $5.3bn Marina Bay Sands casino resort, built by Las Vegas Sands on reclaimed land around the mouth of the Singapore River.

Sentosa island, just offshore Singapore, is being redeveloped as a home for the seriously wealthy, with golf clubs, a sailing marina and sea-facing bungalows priced at $20m and more. Genting Singapore’s Resorts World casino and Universal Studios theme park opened in February, raking in S$503.5m ($369.9m) in the first three months.

“Rebranding Singapore as a global city and tourism hub fits in very well with its natural advantage, which is its strategic location in the centre of Southeast Asia and good transportation links,” said Kit Wei Zheng, a Citigroup economist.

The aim is simple. Make the city more attractive for high-end foreign talent and wealth. Turn tourism into a money spinner. Focus on services as manufacturing shifts to lower-cost countries in the region. And make it easy for foreigners to work.

It is the latest incarnation of a city that emerged from British colonial rule in the 1960s as a gritty port town. Founding father Lee Kuan Yew and his People’s Action Party – dressed in trademark white shirts and pants – set out to scrub the city clean of corruption in all its manifestations.

By the 1970s, the port had become one of the world’s busiest and was soon complemented by the opening of top-ranked Changi international airport.

By the 1980s, Singapore was a regional manufacturing hub, particularly for electronics. Then it reinvented itself as a financial hub, and by the 1990s was one of the world’s leading centres for foreign exchange trading. A decade algo, the PAP patriarchs began building an education and bio-tech hub.

Number 10
The common denominator for each Singapore incarnation has been to make it easy to do business. Be the fastest shipper, the most proficient manufacturer, the state with the least red tape.

For the Singapore financial industry, that comes from what they call “Number 10”. That’s 10 Shenton Way, not Downing Street but the address represents an institution similarly powerful – the headquarters of MAS, the central bank.

“The regulatory environment is fair as opposed to arbitrary, random and difficult,” says Peter, the fund manager. “The rule of law is incredibly important. This is probably the best-managed country on the planet. It’s managed in a pro-active business-friendly way.”

Funds with less than 30 institutional investors can set up shop without a license from MAS. While MAS is set to introduce tighter rules next year, Singapore remains one of the easiest jurisdictions for funds to begin operations.

But as regulation is tightened in Europe and the US following the 2008 financial crisis, and Switzerland responds to concerns about its bank secrecy laws, Singapore, too, has come under the spotlight.

In November, Singapore was taken off the OECD “grey list” of nations not implementing international disclosure standards, but has yet to sign a tax treaty with the US.

“The business model for private bankers is going to change – they can no longer tell customers just to put their money in Singapore and they will make sure no one ever knows about it,” said Edmund Leow, principal at law firm Baker & McKenzie, Wong & Leow.

“Instead, bankers are already marketing themselves as providing the best advice on how to legitimately minimise the amount of money their customers have to pay in tax.

“This is a global trend. I think Singapore is doing what most other countries are doing and shouldn’t be disadvantaged compared with other wealth management centres.”

Risks of reinventions
Singapore’s seismic reinventions were possible because the government nipped any political opposition in the bud and voters who have seen their per capita incomes grow seven-fold over the years were not inclined to grumble much.

But as Singapore undergoes its latest manifestation as a “global city”, with an ever-mounting proportion of foreign residents crowding the roads and competing for space and jobs, the government is having to soothe escalating criticism from the “heartland”, the sprawl of government housing blocks in te interior of the island where much of the citizenry lives.

Take, for example, Pipit Road, where a public housing compound is set amid factories and warehouses. People there live in tiny one-room apartments and are among the least well-off in Singapore.

Elderly residents shuffle along through corridors to the open area at the ground level, many with vacant stares.

“Look at my life. Do you think I have the time?”, said Seet Siew Buay, a 49-year-old woman when asked if she had seen the casino resorts or heard of the F1 race. “I have to look after them,” she said pointing to a 26-year-old son with learning and speech disabilities and an unemployed common-law husband.

They subsist on the S$300 given to the son each month in welfare, and Wong’s savings from his days as a carpenter. Singapore households earn an average income of S$7,440 a month, according to government statistics, but the bottom 20 percent earn only S$1,274.

There is some anger in the Pipit Road housing block at what is seen as the headlong rush to attract foreign investment and wealth.

“The bloody government will get the money,” said a middle-aged man, who called himself Jack. “We will get nothing. But somehow we still vote for them.”

Having a super-rich pool of foreigners in the city poses the risk of accentuating social tensions. Already, housing prices are rising faster than in the rest of the region. Porsches, Jaguars and Ferraris flash by in the streets. The number of international schools in the city catering mostly to foreigners has risen five-fold in the last decade or so.

The number of overseas workers – mostly for menial and blue collar jobs – has also risen rapidly to around 1.8 million, a figure that also includes foreigners who have become permanent residents. That means one in three people in Singapore is a foreigner, one of the highest such proportions in the world outside the Middle East.

Prime Minister Lee Hsien Loong addressed those rising concerns in his August 9 National Day speech saying that without an inflow of workers to make up for “the shortage of workers and the “shortfall of babies in our population”, the economy and society would stagnate.

“I understand Singaporeans’ concerns about taking in so many foreign workers and immigrants. Some of us wonder: Will it change the ethos of our society? Will it mean more competition for us at work, or for our children in schools? Will the new arrivals strike roots here? Can they adjust to us, and we to them? These are valid concerns which we must address.”

One way to ensure some trickle-down effect from Singapore’s rapid growth is on public spending.

The government plans to spend $44bn alone in the next decade on extending the commuter rail network to cope with a population projected to grow another 25 percent in the next few years following a 25 percent increase the past decade.

“There is a certain degree of discontent, but it is not brewing over and spilling out into unrest,” said Gerald Giam, an executive councillor of the opposition Workers Party. “It is something we need to keep a watch on.”

St. Jack
Over at Duxton Hill, it’s getting to evening and executives are winding their way home, some hailing a cab, one or two clambering onto bicycles.

It’s still a ribald place around the edges. Some of the old bars still operate. In a few corners, one can almost imagine Jack Flowers, the protagonist of Paul Theroux’s novel “St. Jack” about Singapore in the 1960s, rifling his deck of porno cards in a seedy shophouse doorway and asking a tourist: “Can I get you anything? Anything at all you need?”

For Peter, the fund manager, Singapore has what he needs.

“This place works,” he says, strolling down the cobbled street on Duxton Hill. “Take a look at the airport. In how many countries in the world do you find your luggage on the carousel when you come out? In Geneva, you wait 25 minutes. In the US of A, you worry, will your bags show up?”

Peter, who worked in private banking in Europe and Hong Kong before setting up in Singapore in 2005, is also involved in a chain of wine shops in Singapore, and vineyards in Australia.

On Singapore’s social tensions, he becomes reflective and says: “It’s a new risk that’s worth watching. Is it a big risk? No.” Then reverting to his natural ebullience, he says: “This place has the potential to be Monaco and Luxembourg, and Geneva or even London.”

The other side of the story

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Txus Parras, who has been squatting in the Tacheles building in downtown Berlin since the wall fell two decades ago, says he won’t leave it without putting up a fight.

“Berlin is changing in a negative way, and it’s not just about Tacheles, there is a force out there trying to destroy the city’s freedom,” said 47-year old Spanish-born Parras at his atelier in the former bombed-out department store.

“I am part of the artist resistance,” he said, sporting clothes dyed with symbols for love and peace, nose and lip piercings and lime-green felt earrings.

“I am going to make things very difficult for these people.”

Artists from all over the world have been drawn to Berlin since the end of the Cold War, attracted by open spaces, low rents and the charms of a city Mayor Klaus Wowereit once described as “poor but sexy”.

Parras, who has taught street art worldwide but keeps getting drawn back to Berlin, says Tacheles once housed 200 artists with 130 nationalities.

The five-storey building was occupied by artist squatters shortly after the fall of the Berlin Wall in 1989, and has since become a rabbit’s warren of open ateliers, theatres and grungy bars. Walls are sprayed in layers of graffiti and plastered with posters, while a hint of marijuana lingers in the air.

“When you come in, it’s a bit intimidating but I’m happy I did,” said Italian tourist Fabrizio Biole, 33. “It’s unique.” Tacheles – meaning “straight talking” in Yiddish – has become a top tourist site, yet it remains a symbol of Berlin’s edginess and anarchic creativity.

Petitions
Tacheles is threatened with extinction, with its squatters locked in a drawn-out battle with property developers who want to build a massive residential and commercial complex on the prime real estate site in the heart of Berlin.

Visitors are asked to sign a petition stating “I support Tacheles” and posters protest the encroaching “grey men”.

Tacheles is not alone. Just down the street, photography forum C/O Berlin is struggling to extend its lease in an ornate former post office which a new investor is keen to revamp.

Further along the Spree river, a sprawl of clubs and venues for alternative culture such as the Young African Art Market based in a former bus depot are staging lively demonstrations against plans to build offices for media companies there.

“The whole neighbourhood is being changed,” said Heinrich Buecker, 56, whose “anti-war Coop cafe” in the former East German district of Mitte serves as a meeting point for artists and organisers of Berlin’s alternative scene.
 
“The alternative scene had its roots here,” he said. “But now it is being pushed out to districts further out.”

Many locals and visitors have rallied to the cause, while others protest that the buildings legally belong to new investors who are injecting much-needed capital into a city that has long teetered on the verge of bankruptcy.

“I’m not signing any petitions because western society and all our freedoms are founded on property rights,” said Erik Higgins, an 18-year old student from Canada, as he perused artworks on sale in Tacheles.

“It’s a beautiful place … but you do wonder why they have to do something like this on land that is not theirs.” Given that Berlin is 60bn euro in debt and has a high unemployment rate, it cannot afford to buy buildings like Tacheles or to push away investors, said Berlin’s state secretary of culture Andre Schmitz.

City planning
Tacheles’ motley crew of creatives argue however they have been looking after the building for decades and are responsible for regenerating the entire area.

“We have been here for 20 years, taking care of this building and making it into the third most visited place in Berlin,” said Parras, as tourists streamed past his studio along Oranienburger Street which now buzzes with restaurants and bars.

They say they offer a free space for culture, without charging any entry fee or receiving state subsidies – unlike official cultural venues such as museums.

“The city should be thankful to us and support us,” he added. “And if the city wants an alternative art culture, it should buy these buildings for us.”

Organisers of Berlin’s alternative culture scene foresee a drastic fall in tourists if it is forced to retreat into venues further out of the city centre in the face of gentrification. “Over 50 percent of tourists in Berlin are under 30 years old,”
said event organiser Lotar Kuepper at the Coop cafe.

“That means either city planning policy will be changed to relieve the pressure on the subculture, or the only real working industry in Berlin will collapse – as will half the tourists.” Schmitz says he is relaxed about the alternative scene’s future given how many empty spaces and buildings remain.

Critics say however that even if it reinvents itself elsewhere, it is the very the eclectic socio-cultural mix that forms Berlin’s allure which is under threat, as gentrification pushes artists and people with lower incomes out of the centre.

“It is a very free city, the social milieus are porous – New York was like this in the 70s and 80s, very relaxed, but it became expensive, clean and orderly,” said C/O spokesman Mirko Novak, sitting in a half-renovated room crammed with books.

“Berlin just needs to be careful if it wants to keep its image of an open and creative city.”

A smart approach to the future

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By 2030, power consumption is expected to have grown from today’s 20,000TWh to roughly 33,000TWh; that’s a leap of over 60 percent.

The primary cause of growth is demographic change – more people need more electricity. As living standards improve, so does the use of electrical devices, equipment and machines. This is especially pronounced in urban centres.

As demand growth continues and energy prices rise, countries are also looking to reduce their reliance on foreign energy sources. We have to optimise the use of energy sources that are becoming increasingly scarce. The whole sustainability issue, combined with the global pressure to cut CO2 emissions, has seen a massive move towards renewables. In Europe and the US more renewable capacity, in particular wind, has been added than any other form of generation. These renewables have to be effectively integrated into the grid.

Siemens is the only company with products and solutions for the entire energy chain, from oil and gas production to power generation, as well as distribution and transmission, right down to private homes. This means Siemens is well∞positioned to meet the global need for increased electrification and the supply of clean, sustainable power.

Growing demand and urbanisation calls for greater grid investment in order to improve electrification. China is a good example of where Siemens’ high voltage direct current (HVDC) systems are being used to transmit clean hydropower over large distances to where the power is needed. Utilising hydropower in China is also a good example of making use of sustainable resources.

At the same time, it helps to cut CO2 emissions. Siemens is a strong player in clean renewables. Siemens Wind Power offers highly efficient, solid and reliable wind turbines for both onshore and offshore wind farms. Siemens’ solar business is also growing rapidly. We are focusing on two technologies – large-scale photovoltaic plants and concentrating solar plants. Our unique expertise and experience throughout the entire energy conversion chain helps us take advantage of the full potential of these technologies and make the most of an investment in solar power. We are also improving the efficiency of our fossil fuel plants, which in turn reduces fuel use and emissions.

So the question is: What is the role of the power grid in meeting the goals of the changing energy sector and what are the limitations of today’s grids?

The power grid plays a crucial role in the changing generating mix. In the future, the huge demand for energy will, to a greater extent, be met by renewable sources. The growth in generation from variable sources, such as solar and wind, is having the biggest impact.

Such a high degree of renewables cannot be properly accommodated without a properly adapted transmission and distribution grid. Most of today’s power grids were built decades ago and do not have the capacity or flexibility to handle the amount of variable generation coming on to the grid. Today, generation from fossil energy sources follows load –  i.e. the generation is adjusted according to forecasted load. By the end of the 21st century, in a sustainable energy system, load will follow generation – i.e. the load is managed according to generation from renewable energy sources. Therefore we need a grid that can balance fluctuating renewable generation with demand and we need to achieve a scenario where load follows demand. Additionally, consumers may turn into “prosumers’ – entities that both produce and consume electricity. The grid will also have to be adapted for the eventual rollout of electric vehicles – a prosumer that not only needs to have

a charging infrastructure but also has to be able to feed energy back into the grid to help balance fluctuating generation.

These new highly efficient grids therefore need to be made ‘smart’ so that they can respond to load shifting.

Importantly, they also have to be blackout-proof, with built-in capabilities to prevent outages and effect automatic restoration in the event of emergencies.

Developing a grid with these capabilities will require significant deployment of IT to provide an intelligent network that allows bi-directional communication between electricity suppliers and prosumers. Smart grids will permit the control of distributed and renewable generation, as well as more reliable forecasting and planning. Decentralised power generation would be managed like a single power plant, allowing power producers to optimise generation costs and the use of grid assets. This will all be balanced against the maximum use of CO2-free energy.

Through Smart grids, energy providers can offer smart metering and better billing. The benefits for the consumer could be tremendous. They will have the possibility to monitor and manage their energy use. Controlling smart equipment in their homes, for example washing machines and other domestic appliances that switch on automatically when tariffs are low, would also be possible.

Siemens covers every aspect of the smart grid. We have provided intelligent energy automation solutions for many decades and have the know-how for complex interacting systems in grid operation. Siemens is already a world-leading provider of technologies like HVDC and FACTS, energy management systems and products for grid automation. We cover everything – generation, grids, consumption, buildings and industrial automation. Siemens has worked with its customers to develop tailored solutions in several areas.

The ONCOR project in the US for example utilises the implementation of a smart energy management system on a distribution grid covering a 120,000km2 area. The system helps to reduce outage time by delivering solutions for outage management, energy management and mobile workforce management.

We have also implemented a ‘Virtual Power Plant’ or VPP for RWE, which has already been in operation since 2008. A VPP aggregates the capacity of many diverse distributed energy resources (DER), to create a single operating profile. Essentially a customer’s portfolio of buildings and optimised supply and demand-side energy resources is transformed into a 24/7 virtual power plant. Siemens’ decentralised energy management system (DEMS) helps generators get a grip on all the above-mentioned distributed energy sources and intelligent loads. With DEMS, distributed power generating units can be combined with intelligent loads to form a large-scale virtual power plant. The system uses important information, such as weather forecasts, current electricity prices, and energy demands, which forms the basis for drawing up and monitoring a generally optimised dispatch plan.

In the area of transmission system reliability and security, we provide a software solution called SIGUARD, which processes data of connected Phasor Measurement Units in real time. This system is used to monitor power system dynamics and to analyse large area outages in detail. This is a powerful tool that helps to reduce the risk of blackouts.

New requirements are arising for automation, monitoring control and protection of distribution substations and ring main units. Today’s distribution grid operation is mainly characterised by manual procedures. To meet the challenges of tomorrow’s grids we are enhancing our control centre solution to enable a smart, self-healing grid, combining excellent capabilities for integration of distributed and renewable generation and demand response.

Siemens offers complete solution packages for smart metering and distribution network automation. Our ‘Meter-to-Bill’ solution combines sophisticated metering functions, the management of distribution networks, and the integration of back-end IT systems. It is specifically designed to suit the new challenges that liberalised energy markets pose to distribution network operators and energy retailers.

On the demand side, Siemens’ smart building solutions help users to take advantage of automated demand response programmes to optimise interactivity with the smart grid for maximum energy savings.

Our uniquely broad presence in the energy sector is definitely an advantage. It gives us a full understanding of how the various links in the energy conversion chain connect. We are therefore one of the few players able to meet the challenge of delivering the complete smart grid.

Further information:
Heike Onken
Siemens AG Energy Sector
Power Distribution Division
Energy Automation
Humboldtstr. 59
90459 Nuremberg
Germany
heike.onken@siemens.com

Crack down on coke

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With the sudden burst of a fireball and a blast of heat, another clandestine cocaine lab in a remote jungle valley on the front line of Peru’s drug war goes up in flames.

Minutes earlier, drug runners fled the makeshift cocaine kitchen when they heard the phwap-phwap-phwap of the police helicopter arriving. They ran away before finishing their lunch – rice and beans in blue plastic bowls.

With one drug lab torched, Captain Acero, whose nom de guerre means Captain Steel, yelled orders to his team of 15 to hurry on to raid the next camp. Moving quickly, they doused another cache of coca and chemicals in kerosene and set it alight.

This year, the United Nations said that Peru has overtaken Colombia – which has received billions of dollars in US aid to fight drugs – as the world’s number-one coca producer, the main ingredient for cocaine.

The fallout has put additional pressure on Peruvian President Alan Garcia to ramp up efforts to seize more drugs, but the inhospitable valleys have dealt the army and police repeated setbacks. They are frequently ambushed in the middle of the night by hit-and-run traffickers armed with grenades.

The VRAE, as the mountainous jungles are known, has 42,000 acres (17,000 hectares) of coca farms and its expansion, combined with other coca planting areas in Peru, has occurred despite a decade of booming growth in the economy and jobs.

The drug trade, fueled by consumers in the United States and Europe, is so lucrative that coffee and cocoa planters in the VRAE say they cannot find enough people to pick their crops.

On any given day, police torch up to 20 drug labs, usually built along the banks of creeks and rivers. When helicopters are not available, reaching the labs requires slogging through thick forest on foot for hours at a time.

‘Sacred leaf’
To locate the labs and Shining Path rebels, police rely on a network of informants who sometimes double-cross them. Villagers view police skeptically as they often rely on planting coca to make ends meet in a world of wooden shacks, dusty streets and pit toilets.

Local mayors, widely suspected of collaborating with drug runners, build statues in town squares honouring the “sacred leaf” of coca, which has been used in the Andes as a food and religious symbol for centuries.

Though the Shining Path’s leaders were captured in the early 1990s and the group no longer poses a threat to the stability of the government, Peru’s army and police consider the VRAE a conflict zone and say they have yet to “pacify” it.

Residents in the village of Canayre have long felt abandoned by the government and still weep about the terrifying day in 1989 when Shining Path fighters massacred some 40 people in the town with machetes.

Maribel Herrera, 30, whose tanned face is aged and wrinkled beyond her years, lost her father in the killing. She has spotted Shining Path rebels near her house in recent months and holds little hope they will abandon the drug trade.

For farmers, coca provides a new crop every three months, whereas alternative crops that the government promotes – like coffee and cocoa – usually only provide one harvest a year.

Milquiades Ayala, 61, says he is aware that part of the coca raised on her farm probably ends up being made into cocaine, but says he has no other options and needs to $250 he gets four times a year by selling coca.

“These alternative crops like cocoa, coffee and sesame, give us only one crop a year,” he said. “They aren’t like coca, which gives you a constant yield.”

The changing nature of risk

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It is fair to say that not many gatekeepers came out of the financial crisis well. Banks would not put a brake on their risk-taking and shareholders lazily accepted flawed boardroom strategies and warped remuneration schemes. Credit rating agencies gave unacceptable blessings to investments they either knew were dangerous or simply misunderstood, while regulators worldwide were caught playing catch-up, trying to police financial products that were already being mis-sold. Governments have also shown themselves to be largely powerless to take repercussions or even a firmer hand three years after the crisis erupted.

Risk managers are still scratching their heads as to where it all went wrong for them

And while the banking sector may be recovering from the crisis that it created with good summer news of regained multi-billion dollar profits, risk managers are still scratching their heads as to where it all went wrong for them, what their responsibilities to the board and stakeholders are, and how the profession needs to progress.

The process may take some time. According to a survey called ‘The Convergence Challenge’ by accountants KPMG and the Economist Intelligence Unit, nearly half of companies are not clear about who in their organisations are in charge of governance, risk and compliance. Paul Taylor, director of risk assurance at manufacturing firm Morgan Crucible, says that there is a danger that the lines of responsibility between who is responsible for identifying risk and who is responsible for managing it become blurred.

“Despite the title, risk managers do not generally manage risk,” says Taylor. “The UK’s corporate governance code puts risk management firmly as the responsibility of the board. Many executives focus on strategic risk, and are less involved in operational and financial risk. That is a real mistake. The board has a responsibility for all corporate risk – not just parts of it.”

Other experts agree that boards seem reluctant to get involved in all aspects of risk management, believing that some risks do not need board level involvement. Furthermore, recent research also suggests that board members may not appreciate the levels of risk that their organisations face, or understand sufficiently how these risks may impact the business. Pascal Macioce, Ernst & Young’s assurance leader in Europe, Middle East, India and Africa, says that the latest research carried out by the firm shows that audit chairs greatly underestimate the breadth and intensity of regulatory and compliance risks facing European companies, particularly those operating across borders. Audit committees have been repeatedly criticised for failing to understand business risks, or challenging the board on their understanding of them.

Public servants
“Currently, audit chairs are being too narrow in determining the extent of the ‘regulatory risks’ facing their companies,” says Macioce. “Audit committees must think more broadly about the way that government interventions – both nationally and at G20 level – has significantly increased existing compliance risks. These risks will continue to increase until such time that new regulations bed down on both a national and global level.”

One industry sector has already reprioritised its risk registers – the financial services sector. Bankers are complaining that political interference is now the biggest risk facing the banking industry and that the “politicisation” of banks as a result of bailouts and takeovers now poses a “major threat” to their financial health, according to the annual ‘Banking Banana Skins’ report from professional services firm PricewaterhouseCoopers (PwC) and the Centre for Financial Innovation. It is the first time in 15 years of the study that “political interference” has even featured as a significant risk, let alone coming top. The top risk is closely related to the third – “too much regulation” – and the concern that banks will be further damaged by an over-reaction to the crisis. Other dangers on the list include credit risk (at number two) and the economy (at number four). Poor risk-management quality also made the list of top-ten risks.

The fall-out from the current banking crisis has forced risk managers in general to re-assess how they evaluate, report and manage risk, and what skills they may need to buy in or develop to ensure that they can provide adequate assurance to the board. Phil Ellis, CEO of Willis’ structured risk solutions practice, says that the approach to risk in organisations will become a lot more scientific and there will be a much greater emphasis on ensuring value for money from the risk management function. “Over the next ten years we will see a heavy investment in catastrophe experts, actuaries and mathematicians as the C-suite demands greater assurance in more technical areas of operational, strategic and financial risk. We will also see the rise of the chief risk officer and he will have a seat in the C-suite,” he says.

But some risk managers fear that their duties, responsibilities and focus may be shaped by other factors that are beyond their control. Dieter Berger, head of insurance at Swiss-based power generating company Alpiq and president of the Swiss Association of Insurance and Risk Managers (SIRM), says that the future of risk management will be affected by increased regulation and standards on corporate governance, and – more worryingly – the increased desire to sue organisations and individuals for perceived wrongdoing.

“There is a real danger that risk management will be led backwards and become a ‘box-ticking’ compliance function rather than a value-adding part of the business because of over-prescriptive regulations,” says Berger. “The front end of every organisation wants to create strategic opportunities for the business and the last thing they want is for somebody to come up and continuously say that these things can’t be done. Risk managers are going to be very unpopular if they are always perceived to undermine business plans. The function needs to be value∞adding, but there is a real possibility that it could be seen as stamping on business plans if compliance issues take too much priority.”

Given the furore in some quarters about how risk has been poorly recognised, understood, mitigated and controlled, it is perhaps unsurprising that in a recession, senior management may want to shift its focus towards business survival rather than considering “low-level” risks or compliance issues and so prompt employees to take more responsibility for their own actions and take a greater role in decision-making.

Eye on the prize
But therein lies a problem. Employees may recognise some risks, but it does not necessarily follow that they know how to mitigate, control, or leverage them. Added to that, it is unlikely – especially without any training or instruction – that they will share the same view of “risk” and “risk appetite” as senior management or the board. This could mean that staff take more risks than the board would like, or – on the other hand – they view “risk” negatively, try to avoid it altogether or try pushing it on to someone else to manage. As a result, effective risk management may be in danger as senior management tries to delegate greater risk control to people who do not share the same view of risk, or even understand the concept.

The term “risk appetite” has its home in the financial services industry where it has been interpreted to mean the financial quantification of acceptable risk exposure. But a number of international bodies have also tried to define it so that it is applicable to non-financial services organisations. The enterprise risk management (ERM) framework of the Committee of the Sponsoring Organisations of the Treadway Commission (COSO), set up in 1985 to help counter fraudulent financial reporting, describes “risk appetite” as an overall limit stated in broad terms, and “risk tolerances” as specific limits placed on key measures of performance.

“Risk appetite” is also referred to in the British Standards Institute’s BS 31100:2008 Risk management – Code of practice. It states in section 4.5.5 that the process of a risk review “should be repeated until the level of residual risk is within the risk appetite and pursuing further control changes does not seem worthwhile”.

But critics complain that such wording is unclear and unhelpful. Deciding what is “worthwhile”, they say, requires further consideration of risk. Just as budgets limit spending without ensuring that money is well∞spent, so risk limits place an upper boundary on risk-taking without ensuring that good risks are selected.

Last year, the Institute of Chartered Accountants of England and Wales (ICAEW) published a report into risk governance of non-financial companies called Getting it Right. It found that while companies recognise the phrase “risk appetite”, they tend not to use it internally. It also said that the terms “risk governance” and “risk appetite” were unclear and created scope for confusion, adding that “risk attitude” is “a better descriptor of what most corporates understand to be useful, and in most corporates it is communicated to management implicitly, by inference from the board’s decisions”.

The UK’s corporate governance regulator, the Financial Reporting Council (FRC), has removed the phrase “risk appetite” from the newly updated Corporate Governance Code released in June following complaints from respondents during its consultation phase. Instead, the new text says that “the board is responsible for determining the nature and extent (italics added) of the significant risks it is willing to take in achieving its strategic objectives.”

But just because the term has been dropped from the code, it does not mean that its use will suddenly disappear overnight. Nor is it likely that in the current economic climate senior managers will defer from encouraging staff to take on more risk management responsibilities.

Dr Sarah Blackburn, managing director of internal audit consultancy The Wayside Network, says that “people often do not know what the risk appetite of their organisation is and this comes down to two reasons: they are not the ones setting the risk agenda because that’s the job of the board, and more simply, they do not understand what ‘risk appetite’ actually means.”

The risk fence
Dr Blackburn also says that people tend to be unaware of how much risk they actually take on board with their work or what impact their attitude to risk has on the organisation as a whole. “It is tremendously common that employees have no real idea how risky or risk∞averse their approach to work is. If you ask people whether they are risk takers or if they are risk-averse, whatever they say may be at variance with what they do in practice,” she says.

Even what appear to be the most mundane – and obvious – courses of action for an organisation can present enormous risks and challenges to the organisation, warns Dr Blackburn. “For example, in a downturn, there is a general move to cut costs and squeeze efficiencies, and this can result in poor service provision, increased incidents of error, and safety problems. But how many people regard ‘sensible’ cost-cutting as a risky strategy in a recession?”

Other experts complain that the terminology surrounding “risk” is not clear and often relies on a personal view of what constitutes “risk”, rather than what might be in the best interests of the organisation. Matthew Leitch, who runs internal audit consultancy Matthew Leitch Associates, says that a sense of familiarity with phrases like “risk appetite” and “risk tolerance” is not the same as a true understanding.

Leitch says that while most definitions of risk appetite refer to a single limit placed on assessed risk, in practice organisations have used a wider variety of definitions to try to explain what they mean by risk appetite and how it affects and benefits the organisation. According to Leitch, these include using statements in words as well as numbers, which may give the impression that there is more than one “acceptable” value or limit on risk, and highlighting certain activities as having a particular risk limit.

“For example, many organisations use terms such as ‘high risk’, ‘medium risk’ and ‘low risk’ or rate risks on a scale of one to ten, but both are seriously flawed. They are too vague and encourage people to follow a particular course of action based on a personal view of what is acceptable risk, rather than what is in the best interests of the organisation.”

Leitch adds that putting maximum limits on risk can also be detrimental: it encourages people to aim for the maximum level allowed, even though logic might dictate taking a different view. For example, a bank might have a written policy that only a maximum of five percent of all loans should be made to NINJAs – people with no income, no job, and no assets. Does that mean that sales people have to hit a target of five percent, or should it be less, and if so, by how much? Furthermore, if that policy has been approved by senior management and the board, should employees challenge it?

“It is very easy to misinterpret risk appetite and acceptable levels of risk. It happens in projects all the time,” says Leitch. “When senior management signs off a project, those in charge of implementing the work sometimes ignore the threat of certain risks, believing that they have been accepted by management as part of the project. But this is not the case: management has approved the plan based on perceived benefits: it still wants these risks to be controlled and minimised – not ignored.”

Because of the potential confusion surrounding what constitutes “risk appetite” and how it should be managed, Leitch believes that “it’s just better to avoid the phrase altogether”.

“Many people regard the term as implying a psychological construct. It is seen as something personal, like a facet of a person’s personality or mood, rather than what is best for the organisation. Consequently, some people are inclined to see ‘risk appetite’ as something that cannot be objectively wrong. The whole area is a potential minefield,” he says.

While some regulators around the world have accepted these criticisms – the UK being one – the phrase “risk appetite” is likely to remain in use if leading markets, such as the US and Canada, retain the term. Perhaps the constant revision of financial methodology in itself is unhelpful – just as executives get their heads around one set of jargon, they have to learn another. Hopefully, though, it will not take another financial crisis and global recession before boards understand what risks their businesses face, who is responsible for dealing with them, and what a “risk” actually is.

Time for a rethink?
The financial crisis has highlighted the need to improve risk management in the financial services industry, but should banks be looking at how Chilean salmon farmers deal with viral diseases, or how firemen combat forest fires, to re-evaluate their approach to understanding and managing risk? Apparently so, says the World Economic Forum (WEF).

In its latest report, ‘Rethinking Risk Management in Financial Services: Practices from Other Domains’, produced by a cross-disciplinary team including Swiss Re, the WEF postulates that practices in other complex, high-risk domains such as aviation, fisheries and pharmaceuticals can also be valuable for the financial services industry. The report brings forward proposals on how the industry can prevent another crisis and how it can manage better if one does strike, including proposals related to governance and culture and the search for early warning signals.

For example, consider the airlines’ approach to risk management and disaster planning. Pilots train extensively on flight simulators to prepare for multiple emergency scenarios, including severe (yet infrequent) events. Furthermore, most commercial pilots are required to log a minimum number of simulator hours every year to stay up-to-date on procedures. In some countries, pilots must be re∞evaluated and re-trained on simulators every six months in order to keep their licenses.
Telecommunications providers also make detailed contingency plans for emergency situations. These plans are tailored to specific regions since the probability of various threats – especially those related to weather – differ by geography. There are also generic contingency plans that providers put in place. For example, if the central control room shuts down, mobile trucks with operating equipment can be used to avoid network failure.

During the course of the recent financial crisis, a series of financial institutions faced bankruptcy. But the WEF points out that “in each case the response of regulators and the government differed: some were bailed out while others were propelled into shotgun marriages”. In September 2008 it was Lehman Brothers’ turn. The Federal Reserve Bank of New York called in prominent financial CEOs to figure out a plan. However, the government declined to rescue the firm, and potential suitors backed away. Lehman Brothers had to declare bankruptcy, the largest in US history.

When the markets opened the following Monday, trust had disappeared and trading froze. This took market participants and regulators by surprise and almost led to the collapse of the global financial system. Reflecting on this “near miss”, the WEF says that the financial services industry could benefit from better preparation for severe events and systemic crises, using detailed contingency plans based on associated simulations. The WEF also says that it is important that institutions and regulators across jurisdictions co-ordinate efforts.

Naturally, the WEF’s suggestions are merely recommendations and have no binding force, so it remains to be seen how many – if any – financial institutions take note. But the point of learning from other industry sectors – rather than focusing exclusively on your own – may  just prove to be a useful way forward.

The global financial crisis is forcing all countries to review how boards view and determine what risks are acceptable, and what further disclosures should be made to inform regulators and shareholders.

Though the financial crisis may have been caused by the collapse of the sub-prime mortgage market in the US, regulators all over the world are now forcing directors to take a keener interest in risk management – especially when boards are legally liable for corporate failings.

In May Canada’s financial regulator warned that board directors at Canada’s financial services companies need to get a better grip on risk management. “The old excuses – the risk is too complicated, I don’t want to second guess, I don’t have enough time – just aren’t good enough anymore,” said Ted Price, an Assistant Superintendent at the Office of the Superintendent of Financial Institutions (OSFI). “Boards need to be risk∞literate. Directors need a clearer understanding of the types of risks facing the institution, and the techniques used to measure and manage those risks,” he added.

The OSFI has launched a corporate governance review, which Price said would look at risk governance practices across the country’s largest banks and life insurance companies. He added: “A major area of focus will be risk appetite – how it is defined, measured, monitored, controlled, and reported. How does risk appetite link into an institution’s strategic and capital planning processes?”

Price said financial companies should consider the risk-related skills they need at board director level. He also encouraged them to create stand-alone risk committees that include “independent members who have extensive experience in the financial business and risk management.”

India has attempted to improve investor sentiment by beefing up its corporate governance regime. Indian companies will have to raise their boardroom practices to comply with a new corporate governance code aimed at reforming corporate India after the Satyam scandal, a massive fraud involving one of the country’s largest IT companies. The new voluntary code, produced by the Ministry of Corporate Affairs last December, tells listed companies to separate the role of chairman and CEO, change their external auditor every five years, and conduct an annual review of internal control effectiveness. The code also cuts the number of directorships one person can hold from 15 to seven.

At the end of February Japan’s financial services regulator, the Financial Services Agency (FSA), announced that listed companies will have to disclose more information about their corporate governance practices and how much they pay directors. The new disclosures, which came into effect at the end of March, require companies to reveal the names of any directors earning more than ¥100m and give a breakdown showing salary, bonus, stock options, and pension payments. Companies will also have to disclose the roles of their independent directors, whether they have any financial or accounting expertise, and the details of their relationship with the company’s internal audit function.

Meanwhile, the Saudi Capital Market Authority (CMA) has cracked down on insider trading, non-disclosure and other violations. The Saudi authorities say they are eager to promote “best practice” funds in the market. In April the National Investor, an Abu Dhabi-based investment company, launched a fund that it says is the first European Union-compliant vehicle to focus on the Middle East and North Africa region. Registered in Dublin, the fund is the first in the region to obtain a “Ucits” licence (which stands for “undertakings for collective investments in transferable securities”) and is a Europe-wide initiative designed to guarantee the quality of a fund’s governance. Such a licence will allow the fund to be marketed to institutional and retail clients in the EU, a market inaccessible to most offshore funds. However, investors are still wary of weak corporate governance and the speculative trading of retail investors, particularly as the Saudi market is 90 percent dominated by individuals.

Das boom

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Internationally acclaimed directors from Quentin Tarantino to Roman Polanski are flocking to film in the German capital, churning out hits like “Inglourious Basterds” and “The Ghost Writer”, while home-grown talent such as Til Schweiger and Roland Emmerich have returned from Hollywood to join the party.

And what Berlin’s film industry lacks in size, ranking well behind Hollywood, it makes up for in prestige, landing dozens of prizes in the past few years including a handful of Oscars.

“Berlin has some key success factors: one is the city itself – people simply want to be in Berlin,” said Carl Woebcken, the chief executive of Babelsberg, the world’s oldest large-scale studio complex just a short train ride from the city centre.

Since German reunification two decades ago, Berlin has metamorphosed from a divided and beleaguered city into a sassy cultural mecca for creative types looking for cheap rents and an escape from the establishment.

“It’s a very affordable city so it’s relatively cheap to make films here,” Woebcken says in a spacious office overlooking the 100-acre studio site.

“We also have a very high variety of locations around Berlin which other places don’t have – all these military bases and so many different types of architectures from old to new, from communist East German to Nazi,” said Woebcken.

Berlin’s film industry once rivalled Hollywood, producing classics like “The Blue Angel” featuring a vampish young Marlene Dietrich and Fritz Lang’s futuristic masterpiece “Metropolis” before the Nazis took power in 1933.

Under the Third Reich and East German communist rule, the industry, facing censorship and used to produce propaganda, lost much of its talent and reputation.

But it is staging a comeback, with some 300 productions shot here each year, and even drawing on this turbulent past.

Recent films made in Berlin and taking advantage of historic locations include the Oscar-winning “The Lives of Others” about an East German secret police agent and World War Two drama “Valkyrie” starring Tom Cruise.

Subsidies magnet
Generous state subsidies for films in Berlin and Europe at large, from soft loans to tax credits, have proven all the more crucial in the face of the global credit crisis.

These have helped small European studios avoid the fate of their US independent counterparts, which were more dependent on hedge funds and banks and saw financing dry up.

“Given that the films in Europe depend less on private investors, they were also less impacted by the crisis,” said Kirsten Niehuus at Medienboard Berlin-Brandenburg, a local funding board which doled out nearly Ä30m in 2009.

“You could clearly notice filmmakers trying to get financing from elsewhere in reaction to the financial crisis. And this offers Germany a chance to work with exciting, international talent,” said Niehuus, adding that this know-how transfer had brought the competence of German crews up to top standards.

International stars such as Kate Winslet, who won an Oscar for best actress in “The Reader” which was filmed in Babelsberg, have heaped praise on German crews for their professionalism.

The creation in 2007 of the German Federal Film Fund (DFFF), offering filmmakers grants worth up to 20 percent of a film’s budget, gave the Berlin film industry an extra boost.

Some of the money must be spent in Germany, said Niehuus, but the DFFF imposes fewer restrictions than funds in other countries such as Britain or France, thereby attracting more international co-productions.

“It is all about financing, closing the finance and producing cheaply,” said Woebcken. “Going to the sets and having dinner with the director: that’s the fun part of the business, but the reality of course only has to do with numbers.”

The euro’s weakening against the dollar during the crisis has made Berlin all the more attractive to US filmmakers.

And while some fear European film funds could suffer from impending austerity drives, Germany’s has so far been ring-fenced from deep state spending cuts, said Niehuus.

Cutbacks elsewhere could drive more filmmakers to Berlin. In July Britain announced plans to axe the UK Film Council, which lobbies for the British film industry and invests £15m a year in local features.

Digital revolution
Founded in 1912, Babelsberg is just one of more than 50 studios in and around Berlin but epitomises the rich cinematic heritage and fickle fortunes of the city’s film industry.

Once one of the world’s top studios setting the cultural agenda, it has produced both some of the most admired and detested films, from Metropolis to anti-Semitic propaganda.

Woebcken and his business partner Christoph Fisser acquired the studio from French media group Vivendi Universal in 2004 for a symbolic Ä1 and pulled it out of the red, getting rid of over half the employees and making production leaner.

Rather than seeking to revive its prewar heyday, they decided to rent out its sets and services to filmmakers from Germany and abroad. Berlin’s film industry has thus in a sense become the production centre for many major US studios.

“The definition of a studio in America is that you own the rights and have the money to exploit the rights – distribution and everything,” said Woebcken, sitting in front of an imposing Rothko imitation painted in Babelsberg’s arts department.
“That requires a capital base we don’t have, so we are basically a supplier – like everyone else in Europe.”

Thanks to its long history, Babelsberg can cater to nearly all stages of production, with sprawling props and costume warehouses on site as well as the arts department ranging from carpentry through to locksmiths’ workshops.

But Woebcken said Berlin now needs to focus on developing visual effects skills, which were reducing production costs and revolutionising the film industry.

“You can create scenes digitally with much less expense than if you had to build them physically,” he said. “The whole team of the new Emmerich film “Anonymous” is sitting in that building opposite now and completing the film – digitally.”

Systematic measurement key to green success

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SCA’s Resource Management System (RMS) plays a crucial role in the Group’s ability to make continuous reductions of its CO2 emissions. The system has been developed in-house to systematically manage the collection, analysis and presentation of a wide array of sustainability data from the Group’s operations around the world. SCA’s systematic focus on measurement and follow-up through RMS has enabled its sustainability practices to evolve from good to great.


Sustainability core part of strategy

Sustainability is an integral part of SCA’s worldwide operations and a key dimension of the Group’s strategy for growth and value creation. SCA’s four sustainability targets, of which our ambitious CO2 target is one, are incorporated in the Group’s overall strategy.

This ensures that our long-term sustainability ambitions are prioritised at both Group and business-group levels. Also, SCA’s financial calculations include the effects of planned investments on the company’s CO2 target.


Group-wide resource management system

SCA has always believed that action speaks louder than words. Therefore, we make sure that our sustainability-related activities are measured and followed up in a transparent manner to earn credibility internally as well as externally. This approach demands a comprehensive system for managing the collection, analysis and presentation of sustainability data from our operations around the world.

SCA has since the late 1990s developed and refined its Resource Management System (RMS), which contains data for individual production facilities and business groups as well as on Group level. RMS allows SCA to analyse data that describe how different parts of the company use raw materials, water, energy and transportation, the emissions they make, and the solid waste produced and how it is handled.

One of several important dimensions of RMS is how it optimises the Group’s ability to track its investments in various sustainability projects worldwide – which enables us to measure and follow up how effective they are, both from an environmental and financial point of view. RMS covers about 180 production sites around the world, thus providing a comprehensive picture of SCA’s resource utilisation.

Also, RMS is used to assess the company’s sustainability performance in connection with acquisitions. For instance, in due-diligence processes carried out before potential acquisitions, SCA conducts a risk assessment to highlight potential business practice issues related to the company’s sustainability targets, including its CO2 target.

RMS is third-party verified on an annual basis by PricewaterhouseCoopers.


Ambitious CO2 target

SCA has long recognised the need for a global reduction in greenhouse gases, in particular CO2. To that end, in 2001 we began a group-wide effort to reduce our CO2 emissions. During the next few years, we accomplished a great deal, including the systematic replacement of coal and oil with biofuels and natural gas.

A more recent important step in SCA’s fight against global warming is how we in 2008 formulated a quantified CO2 target: Through to 2020, emissions from fossil fuels will be reduced by 20 percent, using 2005 as a reference year. A detailed investment plan on projects in order to reach this target is in place.


Broad spectrum of CO2-related activities

SCA pursues concrete activities to lower the Group’s CO2 emissions and to reduce the environmental impact of its products and solutions by, for example, investing in new production and energy technologies.

SCA’s broad operations mean that the company has many opportunities to contribute positively to reduce the total volume of CO2 emissions from fossil fuels.


Examples of CO2-related activities
Reduced consumption of fossil fuels: Over the past years, SCA has implemented a long-term programme to reduce the

Group’s use of fossil fuels. At present, the Group’s use of biofuel accounts for 43 percent of the Group’s total fuel balance. Only about five percent is derived from oil and one percent from coal.

On-site energy co-generation: SCA mills use substantial amounts of electricity. While most of it comes from electric grids, about one quarter of the electricity used at our mills comes from on-site co-generation. Investment in these on-site combustion plants, while expensive, yields great improvement in energy saving and emission reduction.

Growing biofuel production: Our raw material, the wood fibre, is not only used for the production of high-quality products. Residue from one process is, to a large degree, used as raw material for another process. Logging residue is increasingly used as biofuel. Sawdust is processed into fuel pellets for large heat plants as well as for household heating.

As a result, SCA is a major supplier of biofuel to Swedish municipalities, companies and households, delivering 3.3 TWh of unrefined biofuels in 2009, including wood chips to SCA’s own production of pellets.

Increased proportion of renewable energy: SCA and the Norwegian energy company Statkraft formed a joint venture for wind power production in Northern Sweden in 2007. Plans include annual production of 2.4 TWh of wind power electricity from six wind farms. Statkraft will arrange funding of SEK 20bn, while SCA will grant the use of land for the wind farms. The project consists of 455 wind turbines.

More efficient use of energy: SCA continuously works to enhance the efficiency of its energy consumption. In 2002, SCA initiated its Group-wide E-SAVE programme, designed to reduce energy consumption and CO2 emissions. Since its launch, more than 1,000 small-scale projects have reduced fuel consumption and cut CO2 emission. These projects have also resulted in annual savings of €50m.


Large-scale forest management

Forest management is an important way to counter climate change. Every year, seven million hectares of forest disappear from the earth, corresponding to 0.2 percent of the world’s total forestland. The amount of CO2 that can be sequestered by trees and land declines accordingly.

For SCA, being Europe’s largest private forest owner, the situation is reversed. The net growth in our forests entails an annual net absorption of CO2 of 2.6 million tonnes, which is approximately equivalent to the total amount of CO2 released by all of the Group’s production facilities. As a matter of fact, if half of the earth’s forestland was managed in the same way as SCA’s forests, the amount of CO2 sequestered in a growing forest would be sufficient to offset the use of fossil fuels.

Further information: patrik.isaksson@sca.com; www.sca.com


About the author

Patrik Isaksson is Vice President of Environmental Affairs at SCA.


About SCA

SCA is a global hygiene and paper company that develops and produces personal care products, tissue, packaging solutions, publication papers and solid-wood products. Sales are conducted in some 100 countries. SCA has many well-known brands, including the global brands Tena and Tork. Sales in 2009 amounted to SEK 111 billion (€10.5bn). SCA has approximately 50,000 employees.