Fundamentals of Islamic Finance

Islamic finance is a financial system based on Shariah, or Islamic law, which guides both religious and secular life for millions of Muslims around the world. Shariah law prohibits certain fundamental elements of conventional finance, such as interest and speculation. As a result, financial institutions that serve customers in regions with large Muslim populations have had to create customized and often complex alternatives to traditional financial products. These products must be certified as Shariah compliant by Shariah scholars who are experts in Islam.

While Islamic finance has been around for decades, the industry has entered a boom period, where Islamic financial assets have grown to an estimated $1 trillion globally. From 2004 to 2006 alone, the issuance of sukuk, non-interest bearing securities based on Shariah, quadrupled from $7.2 billion to approximately $27 billion. While the banking sector in much of the developed world came close to collapse in 2008, Islamic banking, which forbids derivatives and mortgage-backed securities, continued to grow at a healthy 20% per year, on average.

The majority of Islamic financial institutions are located in Malaysia, the Middle East or one of six countries that are part of the Gulf Cooperation Council (GCC) – the United Arab Emirates, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait.

Attracted by the region’s large pools of capital – from the ongoing oil boom and the need to reinvest to diversify economies – international financial institutions have begun entering the Islamic securities market. Today, local players, including Saudi Arabia’s Islamic Development Bank and National Commercial Bank, Bahrain’s First Islamic Investment Bank, and UAE’s Dubai Islamic Bank and Abu Dhabi Islamic Bank, which are joined by such western financial institutions as HSBC and Standard Chartered, have set up local Islamic Finance-only offices throughout the GCC. These offices will seize opportunities to further capture market share and the customer demand for Islamic financing in corporate and consumer financing markets.

In order for a financial product to be certified as Shariah compliant and ultimately traded within the Islamic financial system it must meet the following rules:

• Association with businesses that are considered haram, or forbidden, such as those selling pork products, pornography, or firearms is prohibited.
• Debt must be backed by an underlying asset.
• Gharar, or excessive risk and uncertainty due to lack of clarity in contracts or financial dealings, must be avoided.
• Riba, or usury, is forbidden and therefore the paying or earning of interest is not permitted.
• Businesses must share in both the risk and reward of each transaction with their clients.

International financial institutions providing Islamic financial products typically have dedicated Shariah departments that help with the product-development process. Each product is reviewed internally before it must be approved by a Shariah Board. Once a product is designed and approved, it must also be executed in a Shariah-compliant manner. For example, if an asset is sold, the financial institution must have had title to that asset the previous day. Experts within a financial institution’s Shariah department review each transaction daily to make sure it meets these requirements.

GE’s Growing Role in Islamic Finance

Through Mubadala GE Capital, financing solutions offered to businesses can be structured conventionally or through an Islamic structure, depending on the customer need. In situations requiring an Islamic structure, Mubadala GE Capital will work with a local bank to structure a Shariah-compliant financing facility.

Most of GE’s industrial equipment sales in the region, in long-term industrial projects, may be ideal for Islamic financing. Since the projects involve tangible, high-grade assets, such as turbines and power generation equipment, they can meet the requirements of investors seeking to invest their capital in Shariah-compliant ways. In addition, GE often enters into leasing arrangements with these assets, which meet the requirements of Shariah law because GE remains the owner of the asset and charges customers a rental fee.

In 2009 GE became the first U.S. corporation to issue an Islamic bond. The five-year, $500 million denominated sukuk was sold across the Middle East, Asia and Europe and was met with strong demand. Unlike regular unsecured bonds, sukuks must be backed by assets. Instead of earning interest, bond holders get a share of the profit earned by that asset. For GE, which currently owns $5 billion in aircraft assets in the Middle East alone, finding an asset to back the sukuk was fairly obvious.

Challenges in the Islamic Finance Industry

While the rapid growth of the industry is pulling many international financial institutions into Islamic finance, there remain significant challenges that are keeping the industry on the cusp of entering the mainstream.

For one, there is a shortage of qualified Shariah scholars. Shariah scholars not only need expertise in Islam, but also in international finance, so they can understand what is commercially being offered. They need to know English, in order to read international law documents, and Arabic, in order to read the Quran. This combination of skills and expertise could create a bottleneck in the industry as financial institutions compete for the same resources. It is not unheard of for the same Shariah scholar to sit on the Board of many banks.

There is also a lack of consistency in the interpretation of Shariah law which poses risks to financial institutions interested in offering Shariah-compliant products. To address this risk, the industry needs a governance structure that reassures financial institutions that their products meet a standard requirement for Shariah compliance across the world.

“What if there is a swing back to conservatism in a country like Saudi Arabia? There is a risk that some financial products would no longer be considered Shariah compliant,” said McCollum.

The Islamic Financial Services Board in Malaysia has created governance guidelines to mitigate the risk of decertification, but they have not yet been embraced in the Arab region.

In addition, while the region is quite diverse, it is also rife with political risk, which is not uncommon. In recent months civil unrest has spread throughout the Arab world and toppled autocratic regimes in Tunisia and Egypt. Many of these countries have a burgeoning youth population combined with slow job growth, leading to some of the highest rates of youth unemployment in the world. However, such unrest underscores the need for global companies, like GE, to be in the region.

“Mubadala GE Capital is focused on financing private-sector companies in the region because we all recognize that these countries need to have a vibrant private sector in which businesses can thrive and create jobs,” said Herman.

Achieving Citizenship Goals with PPPs

Aligning PPPs with integrated corporate citizenship initiatives enables companies to test the waters on an issue, and ensure that it’s coordinated with the overall goals the company aims to achieve as responsible corporate actors. PPPs can help companies make progress on key environmental, social, and governance (ESG) issues identified as material to the business.

“For companies, doing right used to be philanthropy only,” said Mark Nordstrom, senior corporate counsel of Labor and Environment Law in GE’s corporate legal staff, speaking of human rights issues in emerging markets where the company’s global operations are expanding. “However, today GE looks at ways we can be responsible in preserving or securing human rights in emerging markets. Through the GE Foundation, we funded innovative research. The UN Global Compact and Maplecroft used these philanthropic dollars to develop different scenarios for addressing human rights issues such as freedom of association, living wages, and other issues in emerging markets like Brazil, Russia, India, and China, as our business expands globally in these places.”

It’s also important for companies to ensure that their citizenship activities align with their public policy goals. According to Karan Bhatia, vice president and senior counsel, International Law and Policy at GE, the company’s public policy work focuses on three main categories:

• Globalization and free trade;
• Policies that stimulate innovation; and
• Strengthening the rule of law.

GE recognizes that it cannot tackle these issues alone, and that it must partner with governments, civil society, and fellow private sector players to make true progress. By establishing clear goals for both corporate citizenship and public policy, partnerships can be designed in ways that ensure effective efforts on one side are not being undermined on the other.

Fundamentals of Strong PPPs

Most public-private partnerships face many of the same challenges. For one, the public and private sectors often move at very different paces. On the whole, business tends to move more swiftly and decisively, given its natural drive toward efficient use of resources and orientation to bottom-line results. On the other hand, government agencies tend to move slowly in comparison, with multiple layers of approval, and a longer-term focus on issues they face. Civil society organizations can often fall in between, sometimes taking a more cautious approach initially on conducting feasibility studies or research on a partnership or issue, or by contrast feeling urgency to act quickly on pressing challenges. Civil society and governments both tend to look 10, 20, or even 50 years out on an issue, and tend to grapple with some of the toughest problems facing the world, such as climate change or corruption and bribery. Strong corporate citizens balance this perspective with a drive for quarterly and annual results.

Despite these fundamental challenges, public-private partnerships can be constructed to address a variety of issues. They can focus on building infrastructure, such as bridges, or they can address medium-term projects such as opening markets for renewable energy on the road to tackling the much larger global issue of climate change. PPPs can also involve large-scale, multiyear commitments to establish frameworks for change on an international level, taking on issues like corruption and bribery, or building viable workforces in emerging economies. PPPs can even be as straightforward as a contract between a company and a government agency to provide a good or service, but which takes into account the needs of society and the political climate at hand.

Keys to Effective PPPs

Despite this wide variance in the nature of PPPs, there are some key ingredients, outlined in the subsequent pages, that every effective partnership should have.

A clear focus and stated goals at the outset.

Partnerships that clearly articulate their objective, goals, and desired outcomes at the design phase will be more successful than those that are left open-ended. Clear goals and defined roles give the partnership solid direction, break down complicated tasks, and coordinate efforts among the partners.

Alex Perera, co-director of Business Engagement in Climate and Technology at WRI, says partnerships need a clear objective and vision for what they seek to achieve. Partners should develop a clear, compelling vision, in conjunction with goal setting, measurement, and verification, early on. In some cases, the lessons learned may even prove more important than the actual results achieved—so in addition to goals, it’s useful to track important learnings and incorporate them into next steps during or following a partnership. WRI is not a think-tank, but a “do-tank,” says Perera. “We can’t do the work we do, or have the global research we have, without partnerships. It’s in our DNA to work with partners on the ground to achieve our goals.”

She encourages companies and organizations to discuss taking successful partnerships to greater scale, noting “if it works in two countries, let’s see if we can achieve the same results in 20.” Finally, she also notes the importance of participants maintaining independence in a partnership, especially one where there is both a private sector partner and an NGO. There needs to be financial support, along with some expectations as to how the partnership will work. Also, opinions on either side of the partnership might differ at times, so the entities must be able to communicate and maintain their independence in order to not compromise their missions as individual entities.

Flexibility to adapt to changing conditions.

Particularly for longer-term projects, conditions on the ground, in markets, and in political climates will change from the time of the project’s inception to when it meets its goals. To achieve their goals, partners should design a structure that allows for change and flexibility along the way.

Partnerships around issues like corruption require a longer-term vision, while still keeping up day-to-day on the progress. Many private sector companies that Transparency International works with are bottom- line driven and want to work quickly, but on issues such as transparency and corruption Transparency International has worked to deepen its relationships with companies over time in order to address the challenges they face.

GE has worked with Transparency International throughout the years by helping to mobilize different kinds of support for increased transparency by leveraging its network, or by bringing technical, financial, and political capital to the shared agenda as well as to the organization, depending on what is needed. The issue of transparency can often be highly technical, and “ financial capital is critical, but technical expertise and networks are also key,” Boswell notes. “Companies in different industry sectors can contribute important technical expertise and perspectives to the development of solutions to specific challenges.”

Similarly, WRI uses its analytical approach and its network of partners to drive change that is environmentally sustainable for the long term. Business partners and others inform the analysis that WRI conducts, which enhances the results for the beneficiaries. The organization designs all of its partnerships to create transformation on the ground. At times, this can be a challenge for an organization that is focused on issues that are global in scope and playing out over decades.

In one partnership aimed at tackling climate change, WRI joined with companies to help open markets for renewable energy. The goal of the partnership was to create options for companies to buy renewable energy, and it was designed from the outset to ensure that all participants get something useful out of it. With the big picture in mind, the partnership set interim goals based on what would be transformative for expanding use of renewable energy.

In aiming to scale up over 10 years, WRI leveraged many of the key characteristics of successful partnerships. The organization set goals early on, held quarterly calls to track progress, and then consistently raised the bar amongst the partners to continually push toward greater and greater uptake. Over time, the corporate partners began to compete against one another to see which could utilize more renewable energy. Perera states that eventually, “this sharing of insight unlocked the competitive spirit within the group, and there was healthy competition around achieving the goals. We designed milestones and ways to accomplish these goals, and tracked performance, while regularly raising the bar.”

Respect amongst partners.

Michael Bloomfield, founder and executive director of the Harmony Foundation, notes that “having partners at the table that bring important, relevant, and necessary expertise is essential. Often, partners differ widely in scale and size; however, respect should not be based on the size of the partner, but on the skill that the partner brings to the partnership.”

Neither should respect be based on which partner brings the most financial resources to the table. While money is an important ingredient, organizations that bring resources other than funding should not end up in a position where they compromise their mission in order to maintain financial support for the project.

WRI’s Perera warns that in some situations, partnerships can evolve over time in a way that might not be in the best interest of the mission-driven organization involved. When an emerging partnership begins, it might be innovative and groundbreaking. However, as an issue underlying a partnership matures, more experts and consultants might enter the marketplace and partnerships can begin to resemble consulting- type relationships. Companies might begin to rely on partnerships for this type of consulting work because they are less costly than hiring external advisors. Perera notes the importance of setting an exit strategy for all parties involved at the outset of a partnership so that it is clear when it is time to sunset a partnership after the goals have been met.

Conclusions:

By taking into account the wide range of lessons learned from many different types of partnerships, and aligning PPPs with a company’s efforts at being a good corporate citizen, best practices in public-private partnerships include balancing the interests and needs of the entities involved with the goals of providing improved access or service for communities and beneficiaries. Key areas where such partnerships should focus their efforts include:

• Setting goals that maximize the strengths each partner brings to the table
• Communicating clearly
• Reducing and sharing risks across partners
• Involving multiple stakeholders for input, expertise, and thought leadership
• Mobilizing resources effectively and efficiently
• Maintaining flexibility and adaptability of the partnership as conditions change
• Achieving long-range goals
• Sharing lessons learned

The Shanghai Summit was GE’s second Supplier Summit and the first held outside the United States. China was selected as the venue not only because it is a major part of GE’s supply base, but also because it offers a distinct set of challenges. China’s manufacturing industry has grown immensely over the past decade, faster than its environmental controls and the availability of skilled managers. Thirty percent of GE’s suppliers covered by the company’s Supplier Responsibility Guidelines Program are in China, yet more than half of the environmental and labor standard findings under the Guidelines Program have been identified in the country. Many factories continue to struggle to meet standards and local laws regarding overtime, occupational health, and environmental permits.

The Limits of Annual Auditing

Learning from others: adidas’s approach

Since 2005 adidas has been developing and rolling out a set of Key Performance Indicators (KPIs) for suppliers which not only assesses whether their factories are in compliance on the day of the audit, but also whether they have the capacity for ongoing continuous improvement and performance management.

The KPIs look at the commitment of senior management and whether there are effective systems in place for performance management, worker communication, training and transparent reporting. Suppliers are rated on a 5-point scale, which is used to inform sourcing decisions and serves as the basis for negotiating plans for progressive improvement with strategic suppliers. Suppliers that reach the highest level on the scale, demonstrating best practice, are able to transition towards self- governance.

Learning from others: Wal-mart’s approach

In 2009 Wal-mart announced a change of direction with its responsible sourcing approach, deciding to stop focusing on routine audits and instead use third party service providers for these checks. At the same time the company set up a Supplier Development Program to help suppliers develop capacity for self-evaluation, root- cause analysis, and continuous improvement. Wal-mart associates continue to conduct spot checks and investigation audits in response to external allegations.

While the company aims to have all its direct suppliers sourcing 95 percent of their production from factories receiving its highest ratings, they also recognise that at times factories may have problems and fall below the expected level. The company has therefore made transparency the cornerstone of the program and offers suppliers the commitment that they will work with them to resolve issues as long as they are honest about problems.

Moving forward

The Supplier Summit provided GE with a number of quality ideas to consider, many of which reinforced supplier program modifications the company had already begun. The input from suppliers and the experience of the other companies supported GE’s experience that suppliers need coaching and best practice sharing with a focus on “how to” manage labor and EHS issues effectively.

For example, the need to reduce worker exposure to chemicals and other physical hazards was one of the challenges discussed. Since 2005, GE has been sharing its safety practices and expertise with the Chinese government’s Disease Control and Prevention Center to share GE safety practices and share expertise with both officials and business counterparts. In August 2009, GE signed a cooperation agreement with the Shanghai Municipal Health Bureau, becoming a training and practice base for occupational health inspectors. The company will continue to work closely with the Health Bureau on this important effort.

GE has also been working with peer companies, including Wal-mart, adidas, Honeywell, Citibank, and SABIC Innovative Plastics to support a new EHS Academy in China’s Guangdong province. The Academy is training a cadre of EHS managers who are working in supplier factories.The leadership of the Academy, as well as the Institute for Sustainable Communities (a nonprofit organization focused on community-based solutions) participated in the Supplier Summit and collectively identified several supplier needs that could be met by the Academy.

GE also benefited from the case studies presented by peer companies. In 2009, GE began including management systems questions in its audits. Now, the company is reviewing the adidas KPI model, the Wal-mart Supplier Development Program, and our own lessons learned over the past two years. The goal is to improve GE’s current management system focused approach and create a tool to recognize suppliers that are developing their own commitments and performance systems. GE will also be piloting a Supplier Partnership Program to identify key suppliers that would benefit from more focused capacity building.

We are very grateful to the government officials, the suppliers, and the peer companies that were generous with their time and experience at the Summit. Given the scale of the challenge, this collaboration and best practice sharing will be critical to making sustained progress in the global supply chain.

A Three-Pronged Approach

Recognizing the need to incorporate conservation into alloy development, the GE Reclamation Program is an effort to combat costs, curb dependency on this rare element and simultaneously minimize the need for extraction. A three-pronged approach involves the following:

• 1. Recycling metal grindings from the manufacturing process
• 2. Developing alloys that require less or zero rhenium
• 3. Reclaiming rhenium from used engine parts

In 2006, GE partnered with a metals-processor to recover engine-run hardware from GE customers around the world. The supplier picks up unserviceable hardware directly from each customer site and processes it at the supplier’s facility. The fully-processed material is then reintroduced into the GE supply chain. With this approach, all of the metals contained in the alloy are recycled and reused. The positive impact of that recovery on the environment and the carbon footprint is substantial.

The process also has numerous benefits for GE customers, who receive significant value for the scrap metal that they return. The U.S. Navy was one of the first participants of the GE Reclamation Program, and has already reaped benefits worth hundreds of thousands of dollars in savings. Approximately 50,000 pounds of material have been picked up from the U.S. Navy’s Fleet Readiness Center in Jacksonville, Florida, and recycled. That includes out-of-use F414, F404 and T700 engines, which are also the models that have the highest rhenium content.

Captain Ted Fink has driven the program for the U.S. Navy, and explained the numerous benefits that the Navy acquires through its participation. “When the Navy was disposing the material, there was a cost for storage, shipping and other costs with rendering the material safe. By collaborating with GE on disposal, we receive payment for the material, which goes toward offsetting the cost of engine materials we will buy in the future.” Captain Fink further elaborated, “The process also gives GE a predictable source of material. In addition to being a cost benefit to both parties, it is a risk reduction effort. Over time as we get more and more material retained in the supply chain, it reduces the risk of supply and provides an offset on the price volatility and the expensive nature of the materials in these engines.”

GE Aviation is working to increase the proportion of reverted material used for each part. “Currently, a significant portion of the material used in one casting pour to produce a blade is reclaimed — and that portion is growing,” said Eric Beutel, a financial analyst for GE Aviation.

GE is also working to expand the recycling program to other types of alloys and in encouraging more customers to participate in the reclamation program. Dozens of commercial and military customers are signing up. Participants span the globe and include Air France, ASA, Austrian Airlines, Delta Airlines, KLM, Korean Airlines, Lufthansa, Air Canada, American Airlines, British Airways, Shanghai Airlines, Spring Airlines, Croatia Airlines, Aveos, China Eastern Aviation, ST Aerospace, Shenzhen Airlines, MTU Zhuhai, SR Technics, the U.S. Air Force, the U.S. Navy, Turkish Airlines and Saudi Arabian Airlines.

Capacity Building at Nonprofit Organizations

By 2009, GE had the traditional “bucks” and “brawn” well institutionalized, annually investing an estimated $220 million and more than one million hours of volunteer time in communities where GE employees live and work globally.

“I have seen highly educated people painting a fence at a nonprofit,” said Laura Clancy, Managing Director for New Sector Alliance, which provides consulting and volunteer services to nonprofits. “They can also have a huge impact by going inside and working on operational issues.”

Thus, the need for the third leg of the stool: Brains.

Over the years, GE has provided Girls Inc. Dallas with both bucks and brawn, such as funding for critical programs and large-scale employee volunteer efforts, including 175-plus employee volunteers on a single day. Then, in February 2010, seasoned professionals from the Access GE team at GE Capital, Americas provided targeted training to the entire leadership team at Girls Inc. Dallas’s operation, including CEO Lori Palmer and Chief Development Officer Lisa Rossi.

The agency had gone through a comprehensive effort to develop a five-year organizational plan and needed processes and tools to manage the plan’s implementation. After a series of discussions, the Access GE experts developed a two-day workshop to focus on project management and change management, the same kind of training that’s offered to GE Capital’s top commercial clients.

Heather Wilson, an Access GE leader for GE Capital, Americas who developed and delivered the workshop for Girls Inc. Dallas, was unsurprised by how easily GE’s tools, resources and insights transferred to the nonprofit sector. “Nonprofits operate with very limited resources, so effective project management is particularly important to avoid going over budget and missing deadlines,” said Wilson. “And clear and effective communication can help avoid duplicative efforts. It’s similar to what a lot of our commercial clients face.”

Kristi Webb, the GE Capital, Equipment Finance executive sponsor of the engagement with Girls Inc. Dallas, noted that the Access GE teachings “would resonate with any nonprofit or any business.”

“They left with tools to use as they execute their strategy. They learned a common language to speak, metrics to gauge their improvements and techniques to hold each other accountable,” she added.

Girls Inc. Dallas is now using GE tools like Work Breakdown Structure, Project Status Reporting, and Project Definition Documents on a daily basis to manage their operations. As a result, the organization is no longer missing deadlines, and it has a process in place to monitor progress against its five-year plan.

Lisa Rossi, chief development officer at Girls Inc. Dallas, further elaborated on the impact the workshop had on the organization. “We have surprised a large number of people, especially in the nonprofit world,” Rossi said. “People are astonished with how quickly we are operationalizing our strategic plan. In fact, we have already achieved many of our 2010 goals and are on track to meet goals for 2011.” Girls Inc. Dallas has been so successful in the implementation of its transformational five year plan, that Palmer has been invited by Girls Inc. Dallas’s national organization to participate in a nationwide strategic planning process.

Partnership of Equals

GE Volunteers who have been part of the capacity building work both with Girls Inc. Dallas and with Strive — or any of the numerous other nonprofits that GE supports — ―said they felt proud to work for a company that encouraged them to get involved in their communities. In fact, they felt re-energized and motivated to work with passionate community leaders who are dedicated to their causes.

Volunteering also provides seasoned GE employees with new ways to put their skills to work and demonstrate leadership and teamwork. In some cases, GE employees meet for the first time during a community engagement effort. But most importantly, GE Volunteers are helping to build and enhance the communities where they live and work. Not only does that help the company retain high-caliber people, but it also helps ensure a future source of talent — a critical component of GE’s success as a company.

Key Success Factors of GE’s Approach

GE’s approach to community building is unique and effective for three main reasons:

• GE takes a three-pronged “bucks, brawn and brains” approach in our support of community organizations, meaning we provide financial support; volunteers to help execute and meet the daily needs of an organization; and intellectual capital to build capacity and increase the efficacy of each organization with which we are involved.
• GE makes sustained, long-term commitments to nonprofit organizations. We can take a long time to learn the strengths and weaknesses of an organization in order to provide the most impactful, meaningful support. This also builds strong relationships between corporate volunteers and nonprofit employees, which enriches the experience for both groups.
• While GE strives to support all of the volunteering interests of employees, large-scale community investment efforts focus on a few key areas that align closely with the company’s mission and core competencies, with education as the top priority.

GE brings a rigorous, results-oriented approach to excellence to the nonprofit sector because we recognize that these organizations face many of the same issues that our commercial customers face. That’s how GE is able to achieve our goal of strengthening the communities in which we operate.

A Problem of Tragic Proportions

Although significant strides have been made by expanding immunisation and improving water, sanitation and nutrition, child survival remains a major public health concern in most countries in Africa.

What’s more, the first hour of life is still the most critical time of the most critical month. For infants in sub-Saharan Africa, it’s a perilous time indeed. The majority of deliveries still take place without the basics of a skilled birth attendant equipped with simple midwifery tools such as a fetoscope, basic linen to dry infants and keep them warm, and basic suction for clearing mucus, enabling babies to take their first breath. At least 50 percent of global births occur in underserved urban settings where access to affordable technology remains limited.

The results are predictable. Every minute, eight infants one month old or younger die, mostly from preventable causes; nearly as many are stillborn. In places with high infant mortality rates, newborn deaths routinely go unrecorded, and those who live are often not named until they have survived that first month. The vast majority of these deaths could be prevented if women and their babies had access to basic skilled care during pregnancy, childbirth and the first days after delivery.

Making a Real Difference

GE has taken a multi-faceted approach to addressing the problem of infant mortality.

In total, this program has already impacted nearly 5 million lives in these regions. At the same time, our employees have a first-hand opportunity to understand the needs of these non-market environments.

Commercial Development:

GE is also making major investments to develop healthcare products for the individual needs of these markets — including investments in our Maternal – Infant Care business, which is devoted exclusively to designing and delivering much-needed healthcare solutions to mothers and infants worldwide.

Among these solutions are products that have been validated for the GE healthymagination initiative — a $6 billion commitment to healthcare innovation. Launched in 2009, this initiative is designed to help deliver better care to more people at lower cost.

There are already 24 products in the healthymagination portfolio; our target is to bring to market 100 such innovations by 2015, many to meet the specific needs of developing nations.

Ensuring Sustainability

In too many countries, equipment goes unused because there’s no one to operate it, maintain it, or replenish consumables or spare parts. In fact, equipment that can’t be used is a common sight in public hospitals and rural health clinics in developing countries.

GE is addressing this challenge in a variety of ways.

For example, to promote proper application, maintenance and repair, we make education and training available for every piece of equipment we deliver, whether through commercial contracts or philanthropic donation.

Another example: Members of our GE Healthcare Maternal – Infant Care team have been working to educate the medical community in developing nations on specific infant care processes and procedures — for instance, preventing hypothermia by keeping newborns warm. GE experts have conducted seminars on such subjects for doctors and nurses at conferences in South Africa, and have provided hands-on training in nations such as Namibia and Kenya.

Education is not just for doctors and nurses, however. As part of the Developing Health Globally program, GE is building biomedical technology training programs to enable the repair of vital, life-saving equipment, to help ensure its longevity and to optimize its utilization over its intended lifetime.

To reinforce formal training, GE is also creating a series of training videos. Caregivers and maintenance staff alike will be able to learn at their own pace about everything from using our products to ensuring that they are operating at peak performance.

The Big Picture

Much of the attention on achieving the UN’s Millennium Development Goals has focused on the delivery of proven solutions such as vaccination, contraception or mosquito nets. These approaches are attractive because they have a direct impact on urgent health challenges and can be delivered on any scale.

Building on these programs, we are partnering with a wide range of organizations to deliver comprehensive solutions that promote the safety of mother and child alike in clinics and hospitals worldwide — and especially in developing-world nations. Toward that end, we are now focusing our efforts on implementation, in order to make today’s progress part of each nation’s infrastructure, and part of each healthcare worker’s routine to bridge the “know-do” gap.

Successful organizations are great problem-solvers. At GE, we believe we have a great opportunity to help enhance each nation’s ability to solve local healthcare challenges. Through healthymagination, Developing Health Globally, innovative product development and comprehensive educational initiatives, we are committed to helping nations worldwide achieve dramatic and sustainable improvements in infant survival rates.

Therefore the GE Healthcare team, working with the Ecoassessment Center of Excellence at GE Global Research, initiated a study of the full life cycle impacts of the WAVE Bioreactor versus more traditional equipment, following the ISO (International Organization for Standardization) standards for life cycle assessment. The results are still being finalized, but early indications state that the disposable option saves energy and water over the full life cycle of the product, even when the manufacturing of disposable components is factored in.

Not every new product needs the full life cycle assessment treatment. This kind of detailed evaluation is typically used to help crack the most complex design challenges — where there are difficult trade-offs, or where customers need assessment of product impacts. In other cases, GE engineers are able to use simpler tools to identify environmental impacts and take environmental factors into account early on in the product design process.

Healthcare and Beyond: Design for a Healthy Planet

As the pressure increases to become more and more efficient, it will become more important than ever to find new opportunities to be greener using smarter design solutions.

In healthcare, this will mean redesigning not just products or hospital buildings but also every aspect of healthcare delivery systems. For example, virtual healthcare can reduce costs and the need for energy intensive buildings and transportation, while enabling patients to be monitored and treated at home. Hospitals are also looking at the food they provide to patients, both because good nutrition is fundamental to the healing process, and also because hospital food catering supply chains contribute to local and global environmental impacts. Hospitals are also developing local transport plans, working to ensure that the facility is accessible by public transportation which is part of a campaign to promote healthy cities that encourage walking or cycling.

Customers in the healthcare sector are particularly interested in design for the environment, because they understand the critical link between the health of the environment and the health of people. However, safer chemicals, renewable energy and energy-efficient technologies are needed in every industry, not just healthcare. At GE, designing for the environment is becoming a fundamental engineering element to provide the customer with what they want and need while promoting a greener world.

Challenges

The challenge of measuring, assessing and communicating complex environmental impacts will continue to escalate, and so will the need for refined tools and protocol. One area where this is being addressed is in the development of more standardized protocols for assessing the greenhouse gas footprint of a product across its whole life cycle. As part of this effort, GE is road testing the Greenhouse Gas Protocol Initiative’s draft standard for analyzing and communicating a product’s greenhouse gas emissions footprint up and down the supply chain from materials acquisition through production to end of life. This new standard is a joint initiative by the World Resources Institute and the World Business Council for Sustainable Development.

These kinds of initiatives are helping to develop the crucial scientific and technical basis for embedding environmental considerations into product design and procurement.

There is clearly more work to be done — from equipment and hospital design, to healthcare systems. Life cycle assessment makes clear that the impacts of products can only be understood and addressed in the context of the way they are produced and used. Innovation that goes beyond better products and systems requires a deeper collaboration between producers, suppliers, purchasers and users, as well as supportive policies and regulation.

Accelerating progress depends on all stakeholders having the ability to assess and communicate the impacts of their products and processes on ecosystems, and finding ways of internalizing the value of ecosystems into the way they think about and account for the value they create. GE is in the early stages of developing and implementing design for environment tools such as life cycle assessment, but believes this will become a fundamental way of doing business in the future.

In June 2009, continuing GE’s decades-long relationship with Singapore, GE Water & Process Technologies and the National University of Singapore (NUS) celebrated the opening of the NUS-GE Singapore Water Technology Center. The Center brings together GE and NUS scientists and engineers to pursue innovations in advanced water treatment and collaborate with governments and industry in Singapore and beyond to test, demonstrate and commercialize new water technologies.

• Watch a video on the GE Water web site to learn more about this water reuse project.

Looking To The Future

Although existing technology gives us powerful tools to conserve, clean and reuse water, solving water shortages around the world will require further innovation in addition to the implementation of new water policies, regulations and incentives.

GE is working with governments, communities, nonprofit organizations and thought leaders around key water issues. In 2008, GE issued a white paper titled, “Addressing Water Scarcity Through Recycling and Reuse: A Menu for Policymakers,” that examined four major policy approaches to increase water recycling and reuse, including support for education and outreach, removing barriers, providing incentives and establishing mandates and regulation. And at the “From Used to Useful” water summit held in November 2009, GE convened water experts from the public and private sectors to establish a dialogue about how best to promote and facilitate water conservation and reuse.

It is critical also to recognize water’s relationship to the issue of human rights. The private sector’s role in this relationship is vast, complex and affects or involves a wide range of industries. Recognizing the human rights implications, and resulting societal consequences, of restricted water access, GE joined with the Institute For Human Rights and Business and other leading partners to understand collectively the links between water and human rights, in an effort to advance the overall debate on this important issue.

• Read the white paper that was drafted as a result of this business roundtable. (PDF, 920KB)

Emphansis On Flexibility, Affordability And Leadership

Sponsor companies like GE have representatives on the EHS Academy's Curriculum Development Committee, which oversees the fundamental and leadership type courses that are integrated into the training. GE's contribution includes its unique expertise in lean operational processes, energy efficiency and best practices from the company's ecomagination initiative. “Cooperation between companies and academics at the Academy makes the curriculum workable and the learning curve shorter. Combining academic knowledge with practical experience provided by a variety of companies allows a menu of EHS tools and best practices from which participants can tailor to their particular situation.” said Gretchen Hancock, EHS project manager at GE.

A critical aspect of the EHS Academy is accessibility. To gain the most out of GE's investment, the academy aims to train as many suppliers as possible. Since many suppliers operate on thin margins, the EHS Academy offers flexible, affordable training with course fees that are significantly less than other options. In this way, suppliers often find a positive return on their investment as the EHS Academy training often pays for itself through energy efficiency savings and other improvements.

Courses are also customizable to a supplier's specific needs and can also be delivered on-site any day of the week. “When suppliers join the EHS Academy, the cost is good, the timing is good, and they know the content is good because the training is organized by GE, Honeywell, Adidas and other companies that the suppliers know are leaders in EHS practices,” said Waldo Wu, EHS manager for GE China.

Another advantage of the EHS Academy is the opportunity for continued professional development. With a faculty of seasoned professionals, all with 10 or more years of EHS experience with Chinese or multinational companies, students have access to top experts in the field and opportunities for peer networking. At the end of the day, the main objective of the EHS Academy is to provide managers with the training they need to involve everyone — from the production line to the CEO — in achieving and sustaining successful EHS performance.

Collaborating With The Chinese Government

As the Chinese government and multinational companies continue to raise the bar on standards, the EHS Academy must continue to update and support suppliers with the best tools available. Local officials are among those invited to participate in the EHS Academy, to share new regulations and also learn from the attendees and trainers at the program. In this way, the academy is one of the channels available to the government to reach suppliers and educate them on changes to regulation— how policies are being implemented and the consequences if standards aren't met.

The more insight GE has into its suppliers' operations in China the better. The EHS Academy aligns not only with GE's overall framework for being a good corporate citizen, but also with the company's efforts to have a positive impact in the communities where it does business. Says Lucent Lu, “Training like this is fundamental to GE's success. This program allows us to form long-term, strategic relationships with our suppliers, enabling them to make a bigger contribution to GE's business growth in China and around the world.”