Monthly Archives: June 2007

Vinod Khosla’s Energy Porfolio

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Vinod Khosla is one of the most successful venture capitalists in the world, mostly as a General Partner at Kleiner Perkins and before that he was one of the founders of Sun Microsystems. He recently started Khosla Ventures where using his own money he has been making investments in the areas of clean tech, environmentally friendly technologies and micro-finance. (Trivia: I had the opportunity to work in Deeshaa Ventures which was based on the idea of RISC (Download : RISC paper) co-authored by Atanu Dey and Khosla)

For sometime now he has been a big proponent of alternative energy and the way to end the reliance on oil. On his website he provides a good set of resources on his ideas in these areas.

Khosla gave a speech as part of the Management of Technology Lecture Series earlier this month at the Haas School of Business in Berkeley. VC Ratings was there and provides a fantastic overview of his energy portfolio. (Hat tip: Peak Energy Delicious)

Most of the companies are based around the general themes of making coal, materials, efficiency and oil more efficient. Then, he further refines them by grouping his investments according to the type of energy that the portfolio companies are trying to improve or harness. Here are the specific investment themes and companies that fall into each category:

1) Cellulosic – Mascoma, Celunol, Range Fuels, 1 stealth startup

2) Future Fuels – LS9, Gevo, Amyris Biotechnologies, Coskata Energy

3) Efficiency – Transonic Combustion, GroupIV Semiconductor, 1 stealth startup

4) Homes – Living Homes, Global Homes

5) Natural Gas – Great Point Energy

6) Solar – Stion, Ausra

7) Tools – Nanostellar, Codon Devices, Praj

8) Water – 2 stealth startup

9) Plastic – Segetis, 1 stealth startup

10) Corn/Sugar Fuels – Altra, Cilion, Hawaii Bio

The list of startups provides far more information about Khosla’s efforts in this area than has been revealed before. Khosla’s web site only lists two cleantech startups. And a few others such as Altria and Cilion have been publicly announced listing Khosla Ventures as an investor.

The best part of the above list is not even the sheer scale of his investments. It is his understanding of the big picture in energy options and dividing all his investments based on specific area including energy efficiency. He is betting wide in this area which may suggest that one, he is not yet decided on the best combination of alternative energy options that will be needed or two, we can interpret that it is a combination of sources combined with energy efficiency measures that will make the difference.

All in all, this is amazing and one to follow.

A Conversation with Amory Lovins

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The Rocky Mountain Institute has an interview with its’ co-founder Amory Lovins (Hat tip: Peak Energy)

What impact has RMI had over the past 25 years?
More than we often realize or dared to hope. We’ve created much of the
basic intellectual capital — in technology, policy, and business
strategy — that underpins natural capitalism (www.naturalcapitalism.org), the energy and water efficiency revolutions, green real-estate development, renewable energy, Factor Ten engineering (www.10xe.org), and profitable solutions to the oil (www.oilendgame.com), climate, and nuclear proliferation problems. We’ve been a key driver in saving over half the oil and natural gas, a sixth of the electricity, and two-thirds of the water that the U.S. now uses per dollar of GDP (vs. 1975), and similarly in dozens of nations.

Our syntheses of new approaches to energy, cars, hydrogen, security, and several other fields are starting to be adopted. Our reframings — end-use/least-cost, the right size for the job, resilience — now informmany disciplines.

Hundreds of our alumni/ae are making important contributions. And thousands of people I meet all over the world say we’ve inspired them to rekindle hope and commit to action.


How would you contrast the issues and methods of RMI in its early years with the work it does now?
We’ve become more disciplined without losing our spark, more capable
without losing our agility. We’ve gotten better at aikido politics,
more astute about how to harness causality and influence, and far more
deeply engaged with commerce as our prime instrument of outreach and
effectiveness. Now we’re poised for a whole new level of effectiveness.

What do you see as the best strategy RMI can undertake to ensure that its ideas go to scale in the market?
Hypercar Revolution
So far we’ve implemented our efficiency concepts mainly by helping early
private-sector adopters succeed so conspicuously that their rivals are
forced by competitive pressure to follow suit or lose share. We’ve
begun to use the “demand pull” of huge organizations like Wal-Mart and News Corporation to change wider market behavior. We’ve begun to get better at injecting new business models into troubled industries at critical moments, to practice institutional acupuncture, and to inform the enormously powerful private capital market. But we’re always seeking more and better trimtabs.

Our biggest puzzle is how to make natural capitalism (www.naturalcapitalism.org)
into a beneficial social virus that propagates itself exponentially
with network mathematics, rather than our having to introduce it to one
company at a time, which works well but isn’t fast enough.

Sustainability and Banking

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Financial Times and IFC have concluded their Sustainable Banking Awards for 2007. The winner all the way was ABN AMRO; winning in both; overall and the emerging markets category.

In the lead-up to the awards, FT provided an opportunity for readers to query Rachel Kyte, director of IFC’s Environment and Social Development Department, and Leo Johnson, co-founder of Sustainable Finance Ltd, the technical advisers for the FT Sustainable Banking Awards, on how banks are integrating environmental, social and corporate governance considerations into their business and the challenges ahead.

I have highlighted some of the questions and the responses below.

What is the biggest unrealised opportunity in sustainable banking?
Virender Singh, Delhi

Rachel Kyte: I think there are two. Finding the financial products that will value natural resources in situ and let communities sustainably harvest them or protect them. These will be forest bonds, commercial ecosytem payment schemes and water pricing instruments. We are very close – but the world’s natural infrastructure needs the same kinds of investment innovation as the world’s built infrastructure needs.

Second, finding ways to bring services to the poor – the next billion – not just microfinance, but services that let them create wealth through health insurance, life insurance and education funding. This is already beginning – but is a huge untapped opportunity for all

Can sustainable banking be delivered by a corporate culture driven by large city bonuses encourage employees to focus on short term individual goals, whereas sustainable objectives are usually long term and collective in nature?
Rev Patrick Gerard, Solihull

Leo Johnson: The glib answer is no. But is that about to change? TXU is an interesting case – 11 coal fired power plants fast-tracked for approval by the governor of Texas, Rick Perry. What happens? The allegation emerges that they are going to produce 78m tonnes of CO2 as the alleged footprint of the projects. The campaigns begin. The media, the banks, the NGOs. What happens next? Private equity steps up to the plate.

Texas Pacific, along with KKR make a $40bn plus proposal that is called the world’s first leveraged environmental buyout. In an all night meeting they convene TXU’s management and the leading NGOs and make the case that the only way for this company to succeed financially is to close down eight of the 11 and adopt good practice technologies for the remaining three. There is now a private equity counter bid based around the same sustainability strategy. That was private equity. That is the power of the bonus. If social and environmental externalities are starting to get internalised into the balance sheets, we will start seeing the most incentivised as the most powerful agents of change.

The recent forestry deal by Bank of America underscores the innovation in finance suggested by Rachel Kyte above. The financial industry has seen some amazing innovations over the past decades. Junk bonds revolutionized the leveraged-buy out mechanism in the US. The ability to package assets into bonds like mortgage backed securities provided new avenues of generating funds and transferring risk. Derivatives changed the way risk was hedged. Carbon trading is creating new opportunities to value forests and financial transactions like Joint Implementation as part of the Kyoto Protocol are helping to provide a low-cost method of decreasing carbon-di-oxide. Now in the same way a new wave of financial innovation in the environmental sector will fund the growing needs of sustainability.

As Leo Johnson suggests above; as externalities are being internalized it creates powerful new incentives to create change. Atanu Dey makes a powerful statement about incentives.

Incentives matter and just like you can explain all sorts of natural phenomena by understanding the law of gravitation, you can explain all sorts of diverse economic puzzles by asking what are the incentives.

One important learning for me is that as the economic structures change; sustainability is creating a new perspective/lens for business. A lens which creates innovation, opportunity and growth. A perspective which can literally create change.

Carbon ranching

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Business works on the basis of costs and benefits. The same can be achieved in many cases for the services provided by nature to man. The important aspect of doing this is the concept of value and the common denomination to compare. The common denomination is usually money but the concept of value is generally the tougher one. It is not easy to ask questions like “What is the value of a tree?”; “What about an Elephant?” and provide an easy answer. The generic question is “What is the value of a natural resource?”.

Economics gives an answer. Economic valuation provides two types of value – Market value and non-market value. Market value is easy to find if it is possible to trade the resource. In environmental valuation there is an understanding that there is more to life then what its use are. For a lot of natural resources this is not possible and hence, there is a large emphasis on non-market value. The non-market value then breaks down into Use value (eg: hunting a deer) and non-use values (eg: photographing a deer).  Non-use values are further divided into existence value, option value, and bequest value.

Cost benefit analysis (Resource: NCEDR tool in relation to Environmental issues) provides a way to measure these benefits provided by nature and compare it. The NyTimes reports on carbon ranching; which values the rainforests of Madagascar and in doing that takes the step forward for actually saving them.

DEEP within Madagascar, more than 1,300 square miles of rainforest continue to breathe in carbon dioxide and breathe out oxygen every day, helping to keep the planet cool. That may not seem like a big achievement for a bunch of trees, but elsewhere around the world tropical forests like this one are being felled to make way for timber and mining operations, cattle ranches and, increasingly, sugar and palm oil plantations to fuel the world’s growing thirst for ethanol.

So how did this particular rainforest — a tropical paradise whose canopy teems with rare lemurs and serpent eagles — avoid destruction? Its survival is the fruit of one of the first experiments in carbon ranching: allowing polluters to make up for their greenhouse gas emissions by paying third world countries like Madagascar to preserve their tropical forests. Madagascar uses the money it gets from multinational corporations to safeguard the forest and pay for poverty reduction programs…

…Reversing tropical deforestation could be surprisingly cheap and easy because it can be driven by simple economics. Right now, it’s worth more to a logging company or a peasant to convert the rainforest to stumps or soybeans than it is to leave that rainforest intact. One hectare (about 2.5 acres) of forest cleared and converted to ranchland or crops produces a piece of land worth, on average, $200 to $500. But that’s nothing compared to the value of preserving the rainforest as a sponge for carbon dioxide…

…On European markets, the right to emit one ton of carbon dioxide trades today at more than $20. With each hectare of intact rainforest storing around 500 tons of carbon dioxide, that means that each hectare has a value of $10,000 as carbon dioxide storage, far more than the value of even the most productive tea or soy plantation.

The interesting thing in this case is that the natural benefit of carbon sequestration provided by the tropical rainforest has generally been a non-market use value. However, with the advent of the Kyoto protocol and the ability to create a price for carbon-di-oxide this non-market value has been transformed into a market value. Without even considering the other non-market values provided by a rainforest; the carbon price provides a easy way to value rainforests and then compare them to other market uses. This eventually makes a better case for saving the rainforest than the general discussion of its importance and benefits without providing a common comparison unit.

Carbon trading winners and losers

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Deutsche Bank has analysed the likely winners and losers if the emissions trading scheme suggested by Prime Minister John Howard comes into place.

TRANSPORT, utilities, construction and households stand to lose the most from an emissions trading scheme, according to one report, with another showing the longer carbon trading is delayed, the greater the impact will be on household energy bills.
…”Although these sectors will incur a cost for their emissions under a trading scheme, the degree to which they ultimately bear the cost will depend on their ability to pass this cost on to customers,” the report says…Australia’s largest energy retailer, AGL, could be worse off than rival Origin Energy due to its “higher exposure to carbon” through its brown coal-fired power station in Loy Yang.

CSR and Sustainability – The case of Posco in Orissa, India

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The Mint reports that Posco, the South Korean steel giant is trying to implement a range of social and health programs “in the areas where it still needs to acquire land.”

Since the announcement of its $12 billion (Rs49,200 crore) proposed facility—which represents the single largest foreign investment in India—the company has tried to ramp up social initiatives in the areas where it still needs to acquire land. Though the walls haven’t been erected yet (the company has vowed to start construction in October), Posco has begun operating in the area—in activities unrelated to steel.

A mobile health van goes to some villages at least one day a week, young women have trained as beauticians, doctors have flown in from Korea to fix the cleft palates of local children, scholarships for study have been awarded and street lights have been erected.

On an international level, corporate social responsibility (CSR) has been a major focus for Posco, the only major steel company listed in the Dow Jones Sustainability Indexes, which track the performance of leading companies deemed to operate in a socially responsible manner. Its efforts in India coincide with increased attention to the subject.

“The idea behind doing all this CSR is to earn the goodwill of the community and grow along with them,” says Posco spokesman Shashanka Pattnaik.

“What companies really need to make sure they do is to engage the community. You need to make sure that you truly understand what the issues are,” said Jane Fiona Cumming, director of London-based corporate social responsibility consultancy. “If, however, you’ve come in to buy the community, that as a strategy doesn’t work.”

Posco says it has listened closely to the community in Orissa, developing a three-pronged strategy based around rural development, education and healthcare after canvassing the villages that lie in the path of its steel plant.

This is a very interesting case. Posco has started providing basic health services in areas where it needs to acquire land. It is providing these services to villages which need to be emptied in order to acquire land.

Engaging in the community for consultation is an important part of stakeholder management however, providing health services in areas where the company has not even started working? What does mean in terms of CSR? Is it CSR? Better still, what is CSR?

Corporate Social Responsibility (CSR) is becoming a big concept in the management of business. Personally, I am not aligned with the concept of corporate social responsibility. Before we go on, lets hear from Milton Friedman in his essay “The Social Responsibility of Business is to Increase its Profits” .

Of course, in practice the doctrine of social responsibility is frequently a cloak for actions that are justified on other grounds rather than a reason for those actions.

To illustrate, it may well be in the long run interest of a corporation that is a major employer in a small community to devote resources to providing amenities to that community or to improving its government. That may make it easier to attract desirable employees, it may reduce the wage bill or lessen losses from pilferage and sabotage or have other worthwhile effects.

…In each of these–and many similar–cases, there is a strong temptation to rationalize these actions as an exercise of “social responsibility.” In the present climate of opinion, with its wide spread aversion to “capitalism,” “profits,” the “soulless corporation” and so on, this is one way for a corporation to generate goodwill as a by-product of expenditures that are entirely justified in its own self-interest.

As Friedman suggests, is Posco cloaking its activities in Orissa as CSR? Is it doing these activities for its own self-interest?

CSR is not the same as Sustainability.

To understand this we need to understand the role of business and the role of government.

Atanu Dey has been writing a Fake Speech of the Prime Minister of India delivering an address to the captains of Industry in India. In his third installment he talks about “fair and just profit”.

…Why has profit become such a profane word in India? I believe that it is due to a failure to fully comprehend the nature of what humans do when they engage in economically productive activities and what results from that action...The government’s duty is to create a society that is free, fair, equitable, just and peaceful. Unfortunately, we are well aware that we have not achieved the ideal society and to a very large extent it is the failure of our government. Although it is fashionable in certain circles to lay the ills of our society on corporate doorsteps, I will not do so because it would be clearly hypocritical of me. Furthermore, it would be pointless to expect corporations to address those social ills which it has neither created nor has any particular expertise in addressing.

So what is the basic responsibility of corporations? Stated most simply it is this: To make a profit. Ours is a deep and ancient culture. Our cultural legacy not only includes profound spiritual values but also ethical business values expressed compactly in the dictum of “Shubh Labh” or “Fair and just Profit.” When you make a profit honestly supplying goods and services to society, it implies that society gains since the benefits (represented by the price paid) exceed the costs incurred to produce the good or service precisely by the amount of profit. Making that fair and just profit is your corporate social responsibility and nothing else.

Is erecting street lights, providing health services and fixing the cleft palates of local children the role of a steel giant? Should it fund this? Posco’s three-pronged strategy is based around rural development, education and healthcare.

Isn’t this the normal role of a government?

Because the government has failed to do its role in this case; there is an opportunity for a company like Posco to provide these services and gain community goodwill. Is this CSR? I do not think so.

Then, what is sustainability and can that be part of a corporations’ responsibility to make a fair and just profit.

Here are some excerpt’s from Gil Friend’s Declaration of Leadership for a Sustainable business.

-business activity has a profound impact on the ability of nature to sustainably provide those services,

- we are committed, as business and community leaders, to the well being of both economic and ecological systems, of both humans and other living things,

-meet human needs in the most efficient and economical means possible, in order to include the greatest percentage of humanity.

- consider the requirements of the earth’s living systems in all design and operating decisions

- work to eliminate “waste” of all kinds from our operations, and to find safe, productive uses for any “non-product” that we are not yet able to eliminate

- treat employees, customers, suppliers and stakeholders fairly, honestly and respectfully

- take responsibility for the safety of our products/services in their intended use

Meeting human needs is a big opportunity, and by being efficient and economical it is good for the shareholders. Considering the earth’s living system in design and operating decisions is being fair. To treat stakeholders with respect is just. To be committed to the well being of both economic and ecological systems is ethical business.

As the Dow Jones Sustainability Index defines it : Corporate Sustainability is a business approach to create long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments.

Sustainability; from a business point of view; is all about “Shubh Labh” – to make a fair and just profit.

Strategic Procurement for Government

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Hon Lianne Dalziel, Minister of Commerce, Minister for Small Business, Minister of Women’s Affairs, MP for Christchurch East from New Zealand provides her views on the importance of procurement to government and its connections with sustainability in a ‘CIPS’ Strategic Procurement Forum opening address.

Some excerpts from her speech:

Procurement is too important to be treated as a technical, administrative activity that sits somewhere in the finance or corporate services section with little senior management interest and attention. It is the government’s view that it is time to raise the profile of the profession.

The reality is that good procurement is essential to the government’s ability to achieve its wider policy objectives. Procurement is a strategic delivery tool and therefore requires a strategic approach.

It is important to remember that the government is a significant purchaser of goods and services. In particular sectors, such as ICT, the government is the single largest customer in the domestic market.

The total size of the government procurement market is difficult to estimate, but OECD averages suggest that government procurement expenditure in New Zealand is in the range of $14 – $20 billion per annum.

For example, by promoting sustainability in the government’s own operations and in business development New Zealand firms can lead the market for goods and services that are sustainable.

Sustainable procurement is one of a package of six projects developed in the context of the government’s aim to make New Zealand the first truly sustainable nation, and the need for long term sustainability strategies to meet the challenges New Zealand faces in the 21st century.

The project that will be of particular interest is enhanced sustainable procurement. This is again led by the Ministry of Economic Development. It builds on progress made by the Ministry for the Environment’s Govt3 programme in achieving the necessary “cultural change” within the public sector to recognise and embed sustainability factors in procurement decisions.

As well as integrating sustainability into a single government procurement policy and implementing a national framework for sustainable procurement, this project involves setting standards for sustainable procurement; developing sustainability performance indicators, targets and reporting mechanisms; and implementing a carbon costing methodology for procurement decisions.

By September this year specific standards will be mandated across public service departments. These include: paper (including recycled content and default duplexing); timber and wood products (to ensure they are legally sourced); travel (for motor vehicles and air travel versus video conferencing); and light fittings (for energy efficiency). These will be rolled out to the wider state sector over longer timeframes. A wider range of sustainability standards will be developed over time targeting areas of greatest impact, such as buildings, ICT equipment, white goods, textiles, uniforms and cleaning products.

…procurement decisions should be based on best value for the taxpayers’ dollar over whole-of-life and this will demand careful judgements by procurement practitioners over a range of factors that will inevitably include price, origin of supply and more.

Stanford Business School Gets in on the Sustainability Action

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The ME222: Design for Sustainability program at Stanford has a blog on of its own. The authors blog about the new Stanford 5-day course in “business strategy and sustainability”.

A month ago, Stanford Business School announced that it would begin a new program dealing with sustainability and corporate responsibility. This new initiative, called the “Business Strategies for Environmental Sustainability Executive Program” will consist of 5-day workshop to be offered in the fall at the Stanford Sierra conference center, located on Lake Tahoe (perhaps to inspire some appreciation for natural resources?). The workshop is targeted at senior executives of private, public and non-profit organizations

Faculty director William Barnett had this to say about the motivation behind the program:

Today, environmental sustainability has become an objective both in our public policies and our business strategies. Consequently, best practice in environmental sustainability needs to be understood by business executives, environmental activists, public administrators, and regulators alike. The goal of our program is to bring together executives from each of these worlds, to expose them to state-of-the-art knowledge on environmental sustainability in business, and to facilitate their learning from one another. The program aims to be a watershed event in each participant’s career, accelerating the development of those who will shape tomorrow’s sustainable business and public policies

The IT Energy Crunch

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Businessweek.com on the increasing costs of energy for IT products.

…when HP began constructing a new 50,000-square-foot building to house high-powered computers, it sought advice from Pacific Gas & Electric (PCG). By following the California power company’s recommendations, HP will save $1 million a year in power costs for that data center alone, PG&E says.

Like HP, companies across the globe are adding equipment to keep up with surging computing needs—and then are forced to make substantial changes to curtail the leap in costs associated with running the big buildings, or data centers, housing all that gear. “Data centers use 50 times the energy per square foot as an office [does],” says Mark Bramfitt, principal program manager at PG&E.

Industry experts say the power consumption of data centers is doubling every five years or so, making them one of the fastest-growing drags on energy in the U.S. “The IT industry is where the automotive industry was 20 years ago,” says Rakesh Kumar, research vice-president at consulting firm Gartner (IT). “We are so backwards when it comes to using alternative-energy and energy-efficient technologies.”