Monthly Archives: May 2007

The Climate of Capital Change

Posted on
Reply

Stanford Graduate School of Business hosts the Centre for Social Innovation which aims to “inspire and educate social innovators, providing knowledge and ideas that strengthen the capacity of current and future leaders to champion social change”

The Centre shares its knowledge through the Social Innovation Review and the Social Conversations Podcasts. The podcasts provides debates and discussions on some of the important emerging themes in the social innovation area.

In the latest podcast, Eric Nee the co-host of the Social Innovation Conversations, discusses the growing Clean tech industry.

The internet boom was, in many ways, insane and wasteful. However, it was also rational and highly productive. What the boom did was kick-start an entire industry by bringing money and talent from around the world to an environment where doing something risky and even crazy was okay.

Today, we have the clean tech revolution. It hasn’t reached the frenzy of the internet boom, but it is gathering steam. Stanford University engineering students are flocking to courses on solar energy. Energy companies are setting up research centers in the San Francisco Bay Area. Venture capital firms have added solar energy and biofuel startups to their portfolios. And talent from around the world is once again flocking to startups.

There are even signs that investments in clean technology are getting a bit crazy—and this fact is a good sign. There are two companies, Planktos and Climos, which have an innovative and controversial (some say crazy) way to rid the atmosphere of excess carbon dioxide. Their plan is to grow vast fields of plankton out in the middle of the ocean that would ingest carbon dioxide from the atmosphere and sink to the bottom of the sea. Planktos already has a 115-foot research vessel out in the Pacific experimenting with the process of growing carbon-eating plankton.

If you are at all interested in the clean tech revolution, you’ll want to listen to the two panel discussions we now have on tap—dubbed Climate of Capital Change. These discussions include a number of people who are involved in the clean tech industry—including venture capitalists, entrepreneurs, engineers, and consultants. One of them is Dan Whaley, the founder and CEO of Climos, who interestingly enough was also involved in the internet boom, having founded Waiters on Wheels and Get-There.com.

Check out the related podcasts.

The Climate of Capital Change: Social Entrepreneurs
The Climate of Capital Change: Funding a Cleaner World

Energy Efficiency Opportunities

Posted on
Reply

Energy savings are an important part of resource reduction, greenhouse gas reduction and cost reduction goals.

The Australian government may be seen as a laggard in the carbon and energy reduction programs in the world, but it is bringing in small changes slowly into the system. One such initiative is the “energy efficient opportunities” program launched in 2006.

The program encourages large energy-using businesses to improve their energy efficiency. It does this by requiring businesses to identify, evaluate and report publicly on cost effective energy savings opportunities.

Energy Efficiency Opportunities is designed to lead to:

  • improved identification and uptake of cost-effective energy efficiency opportunities
  • improved productivity and reduced greenhouse gas emissions
  • greater scrutiny of energy use by large energy consumers

The program’s goals are to identify the 250 top corporate energy users in Australia “from the mining, resource processing, manufacturing, transport and commercial sectors. These corporations are together responsible for more than 60 per cent of the total amount of energy used by businesses in Australia, and around 40 per cent of all the energy used.”

In defining a large energy user, the industry guidelines (PDF) specify that the program is mandatory for corporations that use more than 0.5 petajoules (PJ) of energy per year and provides a rough guide to what this means.

0.5 PJ of energy per year is approximately equivalent to:

  • 139,000 megawatt hours of energy;
  • 9000 tonnes of LNG or 10,000 tonnes of LPG;
  • 13 megalitres of diesel; or
  • spending of approximately $5-10 million on electricity, $1.5-2.5 million on gas or $11-
  • 13 million on diesel (depending on prices).

There is a five step process for corporations in Australia. They need to determine their participation based on energy consumption (by Dec 2006), register with the Dept. for Industry, Tourism and Resources (by 31st March 2007), prepare and submit an assessment schedule (by 31st Dec 2007), conduct assessments (first assessments by 30th June 2008), and report their results publicly (first in 31st Dec 2008 and annual reports subsequently). This would run for a total of 5 years.

The website provides detailed guidelines, tools and other relevant information.

The important aspect of the program is the public reporting requirement. This will be helpful for various stakeholders (investors, customers, environmental groups, competitors, government, suppliers, consultants) to understand the current situation of the corporation. Even though the legislation does not set a specific target in terms of reduction but only aims at encouraging efficiency (which is the preferred policy of the current government) the mechanism used by the program ensures that efficient and competitive companies will reduce their energy and be ahead of the game.

For consultants working in this area this is a great opportunity to find new business and this program and its guidelines can be extended to companies consuming energy lower than 0.5 petajoules (PJ) per year but who want to have a competitive edge in the future. Rising energy prices will induce more companies to take up “energy efficiency opportunities”.

By using the Pareto Principle in prioritizing the energy reduction program, this initiative can make a difference in the energy use of Australia.

Costs, profitability and the environment

Posted on
Reply

Businesses make decisions based on costs and revenues. This fundamental fact is important to understand in the work towards a better environment.

A Grant Thornton International Business Report (IBR) explains that “raw material and energy costs increasing pressure on global business and businesses to lose competitiveness if no action is taken to combat environmental issues”.

The The International Business Report covered the opinions of 7,200 privately held businesses in 32 countries, representing 81% of global GDP.

The report concludes that raw material and energy costs are major cost pressures for many companies around the world.

Energy costs appear to be affecting Europe more than the rest of the world with five of the region’s top ten countries citing energy as having a major impact on cost pressures: Germany (58%), Ireland (47%) and France, Luxembourg and Italy (all 44%). Globally, companies in the Philippines (68%) are due to be most impacted by energy cost pressures, followed by Botswana (65%). Companies in Australia (18%) are least likely to be impacted by the cost of energy.

However, this is not true for all the countries. For example, Australian companies are least impacted by the cost of energy. Due to this they energy conservation and efficiency is not a major issue say compared to something like the Philippines where a large number of companies have energy cost pressure.

The Border Mail reports that Australian businesses are not “green enough” and that “Companies in the Philippines led the world with 410 points, followed by Brazil with 360 and mainland China with 341.”

But why is this so?

A briefing paper from the Australian Uranium Association suggests that “Australia is heavily dependent on coal for electricity, more so than any other developed country except Denmark and Greece. About 80% is derived from coal [and] Australia’s electricity is low-cost by world standards.”

The Manila Times reports that “THE Philippines has one of the highest electricity rates in Southeast Asia, having posted a national average of P6.80 per kilowatt hour (kWh) at the end of last year…Data from the Department of Energy show that the Philippines has the highest electricity rates in the 10-member Association of Southeast Asian Nations after Cambodia. Throughout Asia it has the highest electricity rates after Cambodia and Japan.”

Using data from the NSW Dept. for State and Regional Development I created this graph using Swivel.

US$ per kWh (1) by Country

As the above relative graph clearly shows, Australia’s energy costs are less than half of Japan. Philippines has a higher cost than other countries in the list.

The same can be said about raw material costs.

In comparison, raw material costs are due to have a greater impact on global businesses with companies from every continent appearing at the top of the table. Businesses in Spain (61%) are due to be most impacted by the cost of raw materials, followed by Botswana and Singapore (both 60%), and Thailand and France (both 56%). Raw material costs are due to affect businesses least in the Netherlands (29%), followed by the US, UK and Sweden (all at 31%).

In the book, Natural Capitalism, the authors provide “radical resource productivity” as one of the four strategies of natural capitalism. They believe that “nearly all environmental and social harm is an artifact of the uneconomically wasteful use of human and natural resources, but radical resource productivity strategies can nearly halt the degradation of the biosphere, make it profitable to employ people, and thus safe-guard against the loss of living systems and social cohesion”.

Alex MacBeath global leader of privately held business services for Grant Thornton International, provides their findings:

“There is a simple clear message from our findings. Unless environmental factors such as energy and raw material costs become issues that significantly affect a company’s profitability there is no incentive for it to take action, and reduce its impact on the environment. There must be motivation to take action on raw material and energy costs or companies will continue to focus on other cost pressures such as salaries and wages.

“There is also a role for national Governments to look at the long-term competitiveness of their economies and factor energy and raw material costs into that equation. Unless they take action to actively encourage businesses to invest for the future and reduce their impact on the environment, they will ultimately damage their economies.”

Unless governments provide avenues to incorporate the external costs of power generation into the cost of electricity through mechanisms like carbon trading or carbon tax, the cost of electricity will not be enough to make the change possible.

Even though radical resource productivity could be a great strategy to implement, unless the right price signal is provided it may not be implemented.

Absolute costs are not everything. Relative costs matter too. If energy costs are lower than say property and human resource costs, then businesses would tackle the higher costs first before moving towards the lower ones.

However, this report from Grant Thornton is further evidence of the fact that even though environmental issues are important to address, business will not work towards it unless it effects their bottom line. The price of raw materials and energy need to incorporate their full cost to create innovation and change.

India, the world is Watching

Posted on
1

The significance India will have on the the world in the future will be extraordinary, we’ve only scratched the surface. The thing that remains to be seen is the importance green business has in India. Tackling mass poverty is the first thing that is happening, and it should be the first thing that the country emphasizes. India will be an economic powerhouse, and could be a leader in green business if they choose to be. The direction that business takes in India will have massive impact on the world. If business leaders there recognize the vast potential that green business has, and then decide to invest time, money, and effort, the world would only benefit. India is in a very unique position right now, they could either lead the world, or potentially aid in its destruction.

India, the world is watching. What’s your next move?

Source: Future of Business via Digg

Investing in sustainability: An interview with Al Gore and David Blood

Posted on
Reply

The McKinsey Quarterly runs an interview (free reg) with Al Gore and David Blood “former US Vice President Al Gore and David Blood, previously the head of Goldman Sachs Asset Management, set out to put sustainability investing firmly in the mainstream of equity analysis. Their firm, Generation Investment Management, engages in primary research that integrates sustainability with fundamental equity analysis”

What did the history of sustainability investing teach you?

David Blood: Sustainability investing has a long history, starting back with the first wave of negative-screening strategies, where investors excluded entire sectors based on a set of ethical criteria. This strategy remained niche; returns were lackluster due to the fact that your investment-opportunity set was limited. The next wave of sustainability investing was called the positive-screening, or best-in-class, approach. That’s the philosophy of the Dow Jones Sustainability Indexes and the KLD Broad Market Social Index—these indexes replicate the underlying benchmarks but select only the best performers on environmental, social, and governance parameters.

However, the problem with this approach is that it’s difficult to get a real sense of what’s happening in those businesses, because it’s basically a one-size-fits-all approach, often using questionnaires for decision making. In addition, often one team does the sustainability research and then hands it over to the investment team to do the financial research. That approach, we believe, has too much friction in it because it misses the explicit acknowledgment that sustainability issues are integral to business strategy. So in setting up Generation, we saw the need to fully understand sustainability issues alongside the fundamental financial analysis of a company.

The Quarterly: What do those executives and companies that are doing this well see differently?

David Blood: The first is that they understand their long-term strategy. Secondly, they understand the drivers of their business—both financial and nonfinancial. The leading CEOs are the ones who explicitly recognize that sustainability factors drive business strategy.

In our minds, the best businesses have always understood the importance of culture and employees and ethics. And they get it in their soul. But what’s now becoming true—particularly for the industrials, the retailers, the pharmaceuticals, the utilities, and a broader array of industries—is that managers are realizing that there are broader factors affecting how they operate. They can recognize that over the next 25 years their strategy will depend on leveraging new opportunities and must operate within the changing context of business.

The Quarterly: Is this approach possible in all sectors? Clearly, the pharmaceutical industry is an interesting case. Can you get there in tobacco? Fast food? Or are these just sectors that are fundamentally, somehow, no-go territory?

David Blood: There are material sustainability challenges in all industries. In the fast-food or food-manufacturing industry, there’s a very strong move toward healthy living and eating, organic food, and the implications for sustainable agriculture. And how do food companies deal with the upstream challenges of these trends, challenges such as water use? While we don’t invest in it, the tobacco sector faces a whole host of issues which are very much sustainability driven—not just the health impact of the product. But, again, sustainable agriculture is a big story, as is litigation risk. In another sector, like financial services, the key sustainability issue is how a company manages its human capital. In the energy sector, climate change is one of the most significant issues. In the health care sector, we look at ethical marketing practices between companies and doctors. Even in industries like luxury goods there are issues around excessive materialism, authenticity, and consumption.

What I’m describing here is what we call a materiality-based approach to investing. Rather than looking at 50 different tick-box sustainability criteria, we think you need to tackle the three or four long-term issues that will really affect corporate profitability.

The Quarterly: Any final thoughts for executives trying to understand this trend toward sustainability investing?

Al Gore: Be part of the solution and not part of the problem. Your employees, your colleagues, your board, your investors, your customers are all soon going to place a much higher value—and the markets will soon place a much higher value—on an assessment of how much you are a part of the solution to these issues.

Climate Change Growth Index

Posted on
Reply

Jonathan Lash and Fred Wellington offered a guide to companies on how to create a competitive advantage in a warming world. Investors at the same time would like to understand which companies will be competitive. To fill this gap, RepuTex has developed what it hails as a world first climate change index based on ASX300 companies.

The backgrounder provided by the company suggests that :

“The onset of climate change presents a series of unprecedented challenges as well as opportunities for all companies in the world, including Australia. This emerging climate change-influenced economy means investors are faced with the complexity of understanding the risks and opportunities for growth and factoring them into their investment decisions.

RepuTex Carbon Series enables the investment community to better anticipate the risks and opportunities presented by climate change on company earnings and integrate these developments into informed investment decisions.”

RepuTex uses methods suggested by Lash and Wellington and goes beyond using what they call the “value chain database” – which quantifies the energy intensity of each component of a company’s operations. This approach enables RepuTex analysts to measure the impact of key risks and exposures across the entire value chain, and assess correlation with management capacity.

The following snapshot provides a view of what is covered in the analysis. Some 45 companies are part of the index now and it will be live in June.

Reputex

Tackling Climate Change – A Bargain

Posted on
Reply

The Economist writes on the IPCC’s recent assessment of the costs to tackle climate change.

Technological solutions to climate change, then, are available. But most of those on offer in the power and transport sectors cost more than fossil-fuel generated energy. Fortunately, economics comes to the rescue. Burning fossil fuels imposes a cost to society that is not reflected in their price. Economics says that it should be; and if it were, the price of using fossil fuels would rise in relation to the price of using renewable energy.

Unfortunately, the social cost of carbon is hard to calculate. Plenty of economists have tried, with unconvincing results. It requires estimating the impact of climate change on economic growth, which involves too many unknowns. So the IPCC report starts from the other end. Rather than trying to work out the social cost of carbon, and letting it feed through to reduce greenhouse-gas concentrations in the atmosphere, it starts from a manageable greenhouse-gas concentration and works backwards to a carbon price. Conveniently, it says the “social cost of carbon is at least comparable to, and possibly higher than carbon prices for even the most stringent scenarios assessed by the IPCC”.

And what is the right price? The report says that to stabilise greenhouse-gas concentrations at 550 parts per million (a level most scientists think safeish) would require a price of $20-50 per tonne of carbon by 2020-30. That is along the lines of the carbon price established the European Emissions-Trading Scheme, which varied between $6 and $40 in 2005-06. It has not bankrupted the European economy so far. The IPCC’s economic models reckon, on average, that if the world adopted such a price the global economy would be 1.3% smaller than it otherwise would have been by 2050; or, put another way, global economic growth would be 0.1% a year lower than it otherwise would have been.

Missed opportunities in climate change

Posted on
Reply

Financial Times writes about a survey by the Economist Intelligence Unit.

Business is failing to exploit the opportunities presented by growing public concerns over climate change, according to a survey of top executives from around the world.

The survey, by the Economist Intelligence Unit, found that only one in 10 of the businesses surveyed were fully monitoring their overall carbon impact, and most of the companies did not see environmental strategy as a way to improve their market position.

More than a third of the executives said carbon reduction would enhance their image. But only 15 per cent saw it as a marketing opportunity and just 7 per cent as a way of differentiating their products.

One in six companies that had started to cut their carbon emissions said the measures had already boosted profits, while a third expected a boost in the next three years. Only one in 10 complained of higher costs, now or expected in the future.

Green Software Apps – Key to Green Business Success

Posted on
Reply

Metrics drive organizations. Data and analysis are important aspects of managing a business, complying to regulation and reporting to internal and external stakeholders.

Enterprise Resource Planning or ERP softwares can make a huge difference by providing an avenue to manage environmental data in creating a greener business.

GreenBusiness Blog reports on some of these initiatives:

“So far IT’s green message has been quite defensive – it has been a case of meeting regulatory requirements and limiting energy use,” he observed. “But as being green becomes more of a positive choice for firms keen to use their environmental credentials as a marketing device they are going to need to be able to track, measure and report on their environmentally sustainable activities and that is what ERP software can deliver.”

In short, it is business applications that will provide firms with the environmental data required for them to make informed strategy decisions, optimise their processes and back up their environmental responsibility claims.

Several major software vendors have made this realisation, with many of the leading reporting and design software vendors currently investigating ways to add environmental information to their existing products and ERP specialist Lawson recently announcing plans for a dedicated suite for managing CSR initiatives.

However, Massey is unconvinced dedicated environmental management apps will be necessary, arguing that relatively simple updates to incorporate environmental information and metrics into existing business apps would provide a relatively simple means of ensuring executives have access to environmental data.

IBM tackles energy efficiency

Posted on
1

Energy efficiency is one of the best ways to deal with the energy and carbon issue. It provides a long term solution, decreases demand on a per unit basis, decreases costs and resources and brings about conservation.

In March; IBM announced that it would use its considerable resources and expertise in  tackling the environmental area. Now, NYTimes reports that IBM is tackling the energy efficiency of data centres – it’s own and for others.

I.B.M. is beginning a $1-billion-a-year investment program intended to double the energy efficiency of its computer data centers and those of its corporate customers

By 2010, I.B.M. plans to double the computing capacity of its hundreds of data centers worldwide without increasing power consumption, by using an array of hardware, software and services. These include a new cooling system that stores energy and chills the data center only as needed; software to increase the use of computers and automatically switch them to standby mode when not needed; and 3-D modeling and thermal engineering techniques to optimize the air flow through data centers.

The rise of Internet computing is behind the rapid growth of data centers and the increase in energy use. The number of server computers in data centers has increased sixfold, to 30 million, in the last decade, and each more powerful machine burns far more electricity than earlier models.

With reports that the computers around the world are responsible for 2% of carbon
emissions in the world, equal to the aviation industry there will be more companies interested in this. In fact, there are reports that Google and others are buying up land near Hydro electric projects in the US to construct data centres and utilise the cheap energy is a clear trend that there is a demand out there for these kind of services.

IBM has the technology, innovation in hardware & software and consulting services to make this happen.