Change (Behavior/Psychology) Archives

June 17, 2010

How to Drive Change the IDEO Way

Last week I enjoyed listening to Bruce MacGregor, Managing Partner of design giant IDEO, at the Sustainable Brands Conference in Monterey, CA.

His talk was focused on how you drive change. He name-checked Nudge, Predictably Irrational, and other recent, important books on changing behavior. Some fun examples included this crowd favorite: Airports that etched a little fly into urinals for men to aim at saw an 80% reduction in, well, pee on the floor.

MacGregor demonstrated how hard change really is with one shocking statistic: Only 10% of people facing a life-threatening situation — as in the doctor says change your behavior or you die — make the changes necessary.

Here were his three principles on driving real change:

1. Speak joy, not fear. Example: The Wii Fit gets people playing and exercising without guilt; instead of focusing on a message of fear ("get up off the couch or else!"), the Wii promised fun — and fitness was a side benefit.

2. Use judo: harness existing momentum towards a new goal. Example: Bank of America's "Keep the Change" program, which rounds up your debit purchases to the nearest dollar and puts that extra in a savings account. Customers have saved $2 billion so far.

3. Create the crowd. Example: Japan's Cool Biz program. When the country wanted to get companies to raise the thermostat in the summer (it was so cold in most office buildings, that you needed to wear your jacket), it had the Prime Minister come out in public in short sleeves with no tie. They also held a fashion show with execs wearing no jacket or tie.

These ideas have important meaning for the sustainable business (and social) movement, particularly the principle of creating joy, notfear. For forty years of Earth Days and ever since the iconic "crying Native American" ad that disparaged modern environmental recklessness, "doom and gloom" has dominated environmental messaging (often for good reason: the Gulf spill is exhibit 1). Advocates for environmental awareness have often played off fear to create a sense of urgency in the general public.

But companies and environmental NGOs need to paint a picture of what a sustainable world could look like and describe how much better, healthier, and profitable our lives and businesses could be.

Successful eco-products follow the pattern of the Wii story. The Toyota Prius — putting aside for the moment the recent safety issues — has been extremely successful because it's an exciting new technology that people have fun using. And as I mentioned a couple weeks ago, Pepsi is trying to make recycling more fun with its new "Dream Machines"that take your bottles and give you points toward rewards.

The three IDEO concepts are deceptively simple, but powerful reminders of how to drive real change. Focus on what brings real fulfillment and joy, leverage momentum, and gather a crowd to build more profitable, lean, and yes, fun, organizations.

[This post first appeared at Harvard Business Review Online]

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September 16, 2010

The Competing Black Swans of Climate Change

According the metaphorical story that opens Nassim Nicholas Taleb's The Black Swan, until the discovery of Australia, everyone in the Old World knew that all swans were white. Years of empirical evidence proved it — nobody had ever seen anything but a white swan.

It came as a shock then when the sighting of a single black swan destroyed such a simple theory. All it took was one example to overthrow the status quo.

The world faces some big shocks in the realms of sustainability and climate change, and the ways of thinking about the future described in Taleb's book will come in handy. In Taleb's view, a Black Swan event...

  • Lies way outside the realm of regular expectations — it's an outlier
  • Carries extreme impact
  • Seems explainable after the fact

The event that perfectly fits this bill, and the reason Taleb's book is so vital today, is the financial meltdown of 2008. It fits all three definitions.

The subprime mortgage market was predicated on the idea that housing prices nationally would continue to go up; after all, they always had. This conclusion represents one of the logical fallacies Taleb shows we all fall into where we "preselect segments of the seen and generalize from it to the unseen: the error of confirmation." Falling housing prices and subprime mortgage defaults certainly lived up to the "extreme impact" test, since they brought down the world economy. In retrospect, many pundits and analysts provide some explanations for the mass delusion that swept the financial world, the government, and homebuyers (see Michael Lewis' amazing The Big Short for a look at the few people who saw the collapse coming).

When I think about the challenges of sustainability, I see Taleb's principles and dynamics all over the place. From this point forward, two Black Swans will shape our world. First, we face an extreme outlier with unimaginable impact in the reality of climate change — it's the ultimate Black Swan. But we will require the appearance of another Black Swan to get us out of the hole we've dug.

Black Swan 1: Climate change itself. What really makes for a Black Swan is the fact that massive numbers of people are sure it can't be true. Even in the face of overwhelming evidence of climate change and resource constraints — the two heavy-hitter forces driving sustainability — many people struggle with believing any of it.

And it's not a big surprise that it's hard to believe. In our entire human history since the last Ice Age, our climate has not changed enough to threaten the viability of the species. So we make the error of confirmation and assume that it won't change that much going forward. We also make another of the logical errors that create problems: the narrative fallacy. We look for a story that makes sense of the facts in front of us. Look at this from a skeptic's point of view. The resource-constraint doomsayers throughout history, such as Thomas Malthus in the late 1700s and many in the modern environmental movement, have, it seems, been wrong. So the predictions of devastation will be wrong again, right?

Unfortunately, we're feeling the effects of the climate change Black Swan today. Russia burns, Pakistan and Nashville flood, and 2010 is the hottest year in recorded history. (Every climate scientist would, at this point, give the caveat that no single weather event can be ascribed to climate change, but the pattern is bad. Personally, I'm getting tired of the caveat, since it's useless — of course long-range climate models don't predict the weather, but the climate is changing before our eyes.)

So what will get us out of this mess?

Black Swan 2: Worldwide action. We'll need to change so much about the way the world works as to make it nearly unrecognizable. Imagine companies creating radically new energy supplies, entirely electric transportation systems, and non-toxic and completely recyclable products. Picture massive increases in resource efficiency, waterless manufacturing and agriculture, and everyone engaging in tough, heretical conversations about our consumption and what it means to live a good quality life.

The kind of collective will and action we'll need to create not only new markets and products, but also new lifestyles, is unprecedented. In human history, when has any group faced limits and made the changes necessary to survive and thrive? I'd be happy to hear an example, but if you follow to the work of Jared Diamond of Guns, Germs, and Steel and Collapse fame, the answer is basically never (think Easter Island).

Taleb addresses climate change in the second edition of his book and answers those who want to use his theories to do nothing: "The skepticism about models I propose does not lead to the conclusion endorsed by anti-environmentalists and pro-market fundamentalists. Quite the contrary: we need to be hyper-conservationists ecologically, since we do not know what we are harming with now. That's the sound policy under conditions of ignorance and epistemic opacity." That's his fancy way of saying that the Black Swan of climate change has so much downside, we need to be very careful. But to handle this challenge, we'll need to do something we've never done and it thus seems impossible as well. That's the second Black Swan here.

In that sense, though, Taleb's work gives me hope — the unexpected not only can happen, he says, it's really the only thing that ever changes history. Which Black Swan will hit first? Will it be climate devastation and resource shortages ... or collective action to create more profitable, healthy, and sustainable companies, communities, and countries?

The first Swan has left the gate and we have some catching up to do, but I'm betting on the second.

(This post first appeared at Harvard Business Online.)

November 10, 2010

Reality is Overrated as a Motivator

Right before the big election last week, I found myself thinking about beliefs and what people are absolutely sure they know, regardless of the facts. Two stories that appeared on the front page of the New York Times on the same day, demonstrated Americans' remarkable ability to kid ourselves.

- First, a story about how virtually everyone in America — and especially the anti-tax advocates — thinks their taxes have gone up or stayed flat under President Obama. They don't realize that taxes actually went down for, as the article says, "95% of working families." That cut to nearly everyone's withholding tax was a pivotal part of the stimulus bill.

- Second, a story titled, "In Kansas, Climate Skeptics Embrace Cleaner Energy," about a Midwestern non-profit, the Climate and Energy Project, that has gotten people to reduce energy use and emissions...by not mentioning climate at all.

The first story is a microcosm of every accomplishment the Democrats managed to keep hidden from the American public, but I'll leave real comment on that phenomenon to the politicians and economists.

But the second story is right up my alley — it's about how to motivate people to pursue the societal and economic benefits of going green. The Climate and Energy Project is cleverly avoiding the climate debate and thus any discussion at all that triggers arguments about the really bad misinformation out there (the article, for example, points out the shocking statistic that only 48% of people in the Midwest agree that there is actually warming going on — whether you think it's human-caused or not, temperature measurements are clear on this point).

Instead, Nancy Jackson, Chairman of the Climate and Energy Project, has hit on three alternative arguments to going green: personal thrift, the benefit to the community of promoting green jobs, and a religious appeal to "creation care." The program has targeted everything from home weatherization to getting the community to lobby Siemens to build a wind plant in the region. They've also gotten towns to compete with each other to save energy.

Their success has been remarkable; according to the Times, "energy use in the towns declined as much as 5 percent relative to other areas — a giant step in the world of energy conservation, where a program that yields a 1.5 percent decline is considered successful."

This group's work goes to the heart of a critical debate moving through the climate policy world. I recently took part in a meeting of green thought leaders to discuss why the climate bill in the U.S. failed this summer and what we can learn. We all asked ourselves, what's the right messaging to reach Americans? The only real divide in the room was over the question of whether to talk directly about climate change.

On the one hand were respected thinkers who said, "You can't solve climate without talking climate." On the other side came the argument that talking about saving money, jobs, the economy, and other drivers of action would do the job. Although I think that we probably have to talk climate change to policy makers, when it comes to reaching everyday Americans, I tend to fall into the latter group (see "8 Reasons You Should Cut Carbon (Aside from Climate Change)").

The lesson in Kansas is clear to me: it does not really matter if you believe in climate change. The logic of decoupling our country, our businesses, our communities, and even our homes from carbon, and from oil in particular, remains incredibly strong. At the macro level it's about national competitiveness, national security, and not relying on declining, ever-more-expensive resources.

But this applies on the personal level as well. Who doesn't want to save money and use less energy? Who wouldn't want their town to depend on locally-created, free energy?

For businesses wondering how to promote their green initiatives and products, I see lessons in how to talk to both consumers and employees. For employees, the best motivators are proven cost savings, good data, and competition. The Kansas program used all of these to great effect.

When talking to consumers, the lesson seems to be to use whatever combination of these works, plus throw in some values and religious mores, if that fits the audience. A call to save mother earth for purely environmental reasons might work well in Berkeley, but in Kansas make the subtle shift to talk about creation care, or don't go down that road at all.

So even though I titled this piece a bit sarcastically, the Kansas program works so well because it IS based in reality -- the savings you can yield, the jobs you can attract to your town, and the connection to religious values you can feel are all real. It's just not the reality of climate change.

The end result is the same — people are saving money and energy and starting to build a new economy. And if we move down the path to a cleaner world, who really cares how?

(This post first appeared at Harvard Business Online.)

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December 2, 2010

Why Climate Negotiations Keep Failing

The world is meeting in Cancun this week to talk climate change. Is there any hope of a large-scale agreement on capping emissions around the world? Most pundits would say no.

Why can't we agree to do something? The answers are varied and all contain some truth. There are, for example...

* The inherent challenges of tackling a problem so diffuse and long-term with responsibility laying with all 7 billion of us
* Psychological barriers to change
* A media that paints all issues as having two equal sides even if it's 99 to 1
* Powerful, vested interests in the old, fossil-fuel-based economy
* The fact that the U.S. has no federal climate policy, which makes global negotiations nearly impossible. (And with the recent U.S. election bringing to power more climate deniers, we're moving further away from ever having a federal policy.)

All of these problems, and many more, contribute to the repeated failure of global climate summits. But the hurdle that keeps coming up year after year and is perhaps the hardest to get over is the radical difference in perspective between the developed world and the up-and-coming powerhouses of China, India, and Brazil.

I spoke at a meeting of corporate execs in Beijing a couple of weeks ago and got a glimpse of these different viewpoints. Before my talk, a Chinese academic gave an overview of climate science and policy. He spoke in Chinese, so I understood little (ok, none) of the language, but the charts he put up were crystal clear...carbon dioxide levels over time, commitments for greenhouse gas (GHG) reductions by country, and so on.

But first he set the stage with a chart that gets to the core of the issue. It's data that we rarely discuss in the West, but seems to be pretty important over there. I'm talking about the cumulative CO2 emissions, by country, since the industrial revolution.

In his version, China was responsible for a tiny sliver. I looked up the numbers myself and created the pie chart below - it may not be perfect, but it's close enough. China is responsible for about 8% of the historical emissions from 1850 to 2002, but clearly the developed world is primarily responsible for the climate problem to date.

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This historical responsibility is irrefutable. But at the same time, the projections for emissions growth show that the new economic powers will be contributing the lion's share going forward. According to the International Energy Agency, China will be responsible for over one-third of the worldwide growth in energy demand over the next 25 years (full pdf report here).

This reality about future responsibility has been very convenient for those who want to drag their feet on climate action; it was one of the main reasons President Bush used to avoid climate negotiations. Why should we join the Kyoto Protocol, he'd say, if China and India don't have responsibilities?

This is not a new debate, especially to anyone who has watched the climate policy world at all. But I still found it useful to be reminded of the historical figures. It's sort of surprising to see it in hard numbers...and it explains so much.

Here's the crux of the problem: When the West/North says, "you will be the largest emitter going forward, so you have to cut back" and the East/South says, "you created the problem, so you should go first," they're both right. Can you think of a tougher situation for negotiation than when both parties are absolutely correct and yet their positions are so far apart?

But the reality is that Nature doesn't care who started this. When you find yourself in a boat that's leaking and sinking, you start bailing. You can't spend too much time worrying about who poked the hole. So while I believe the developing world's moral position is unimpeachable, it doesn't matter. The science will win, and the data tells us that putting any more carbon in the air is incredibly dangerous for our species. So everyone has to change.

I'd like to think that the world is moving away from these old debates, but they're still seething not too far from the surface. China's negotiating position in Cancun, according to the New York Times, is that the West should cut emissions, pay for the shift to a cleaner economy, and provide technologies to developing countries. Again, this is sort of hard to argue with - everyone must bail out the boat, but the responsible parties can pay for buckets. But given the fiscal and political realities in the developed world, us paying more for anything seems remarkably unlikely.

So my hope is what it always is: the business community will take the lead from the governments of the world and continue investing in and implementing clean technologies, regardless of the success or failure of the global negotiations.

Given how deeply felt the convictions are on every side - and the fact that they're all based in reality and truth - hoping for the business world to lap the policy world may be the only reasonable hope we have.

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April 21, 2011

How Can We Build a Culture of Disruptive, Heretical Innovation?

The forces driving the business world toward sustainability are vast, powerful, systematic…and growing. In recent months, we’ve witnessed massive climate disruptions everywhere from Russia and Pakistan to Brazil and Nashville. Resource constraints are a reality, with serious discussions about peak oil, peak coal, peak coffee, and, well, peak everything. Technology-driven transparency is creating a mad rush to capture product and company sustainability data, and companies continue to push new demands aggressively up their supply chains.

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And the mega-force to beat all – the relentless rise of population and living standards in the developing world – continues unabated. So how will we provide a good quality of life to what will be 9 billion people on a resource-constrained planet?

In short, we need some very large changes to “business as usual,” requiring radically new ways of thinking.

Over the past couple of years, I’ve written frequently (in my last book Green Recovery in particular) about the need for “heretical” innovation – that is, asking very hard questions that challenge the very nature of a business or product. I wrote recently about two companies, Waste Management and Xerox, in the middle of deep transitions. From hauling waste and getting paid by the ton, to managing recycling streams and helping customers achieve zero waste goals. Or from selling as many printers as possible to helping customers reduce the number of devices and do less printing over all. Asking customers to use less of their core products – that’s heretical.

Some will point out that this is similar to the concept of “servicizing”, and of course it is. But I believe there’s a deeper heresy at work than just turning a product into a service. After all, Xerox could offer outsourced printing services and try to print as many pages as possible. It’s the combination of service and talking openly to customers about using less in total that makes it novel.

So I have a paradoxical task in mind: figuring out how to systematically and logically ask illogical, wacky, heretical, leapfrog questions. I’m looking for ideas from the assembled knowledge and experience of the sustainability leaders reading this.

My three main questions are:
1) How do we cultivate a culture of heretical innovation (how do we make it ok to ask wacky questions)?
2) How do we identify and support the true innovators, intrapreneurs, and heretics in even the largest organizations?
3) Is sustainability-driven innovation fundamentally different than ‘regular’ disruptive innovation, and how?

On the first question at least, I have a few broad ideas. Here’s a starting list for budding corporate heretics:

Start with value-chain data to identify big risks and opportunities. With solid data, managers can focus limited resources on tackling the real footprint and drive toward new ideas and questions. For example, Pepsi’s Tropicana brand is experimenting with low-carbon fertilizer after discovering that growing oranges was the biggest part of its GHG footprint. And more famously, P&G launched Tide Coldwater to address the largest (by far) portion of detergent lifecyle emissions, washing clothes in hot water.

Use open innovation. The hottest concept in innovation today is inviting people in to solve your problems. P&G has opened up its innovation pipeline to anyone with a good product idea. A few companies are sharing some of their best ideas (and patents) with the world – as Nike and others do with GreenXChange – and then hoping for reciprocal karma.

Try “co-creation” (the second hottest concept in innovation and a subset of open innovation perhaps). IBM has had great success in recent years with “Innovation Jams” that allow all employees and customers to throw ideas into the mix. Cross-fertilizing people from radically different disciplines, and from outside the organization as well, can lead to some novel questions.

Show personal leadership (walk the talk). Have senior execs take part in jams and brainstorms. Let them publicly generate wacky ideas and support pilot projects to explore them.

Systematize innovation. 3M and Google famously set aside a portion of everyone’s time for whatever strikes their fancy. More companies should emulate this practice, but also make a point of focusing specifically on sustainability pressures.

Award the wackiest ideas, even the ones that don’t pan out. Some public pats on the back and recognition for employees who show bravery and try new things can go a long way.

Create competition. Sharing data on sustainability performance internally can drive real competition and learning across divisions or products. Or utilize public prizes, like the famous X Prize or the $1 million Netflix Prize.

All of these paths can help us regularly ask the toughest, most interesting questions. Only then can we match the scale of innovation to the scale of the sustainability challenge.

These are just a few ideas (after all, this is a blog, not a book). There are many more. So please send me your thoughts on how to drive breakthrough innovation and how to find the heretics in the organization. Finally, any examples of heretical questions within your organizations are very welcome. (andrew@eco-strategies.com).

(This post first appeared on Corporate Eco-Forum's site.)

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May 1, 2011

Consumers Never Liked to Pay More for Green to Begin With

A week ago, the New York Times breathlessly declared in a cover story that during the recession, "As Consumers Cut Spending, 'Green' Products Lose Allure." It's a nice headline and makes it sound like the green product and business movement is in trouble. But the story, while interesting, doesn't really change the reality for business.

First, consumers never liked to pay more for green and, second, consumer pressure is not the biggest force driving the greening of business.

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Here's the story. The Times piece focuses on the rise and (sort of) fall of Clorox' Green Works cleaning products. Launched with much fanfare in 2008, Green Works quickly became the biggest player in the niche green cleaning space, hitting $100 million in sales before falling to $60 million in the recession (which is still a very respectable number in this market space). The Times crows that "As recession gripped the country, the consumer's love affair with green products, from recycled toilet paper to organic foods to hybrid cars, faded like a bad infatuation." So green products are on their way out, right?

Not quite.

First, as the next sentence points out, "sales at farmers' markets and Prius sales are humming along now" (fyi, Prius sales jumped 70% in February as oil prices rose). So two of the three categories the Times uses to make its point are actually growing, not fading.

Second, at the end of the article, a fascinating chart shows the "green share" of household products holding steady at about 2 percent over the last few years. The conventional brands like Clorox have flattened out — even as Clorox sales dipped, the total number of entrants has continued to grow. The niche brands, such as Method and Seventh Generation, have continued to nibble away at market share and actually grew during the recession.

To the extent that the premium-priced green products named by the Times have taken a hit, consumers' disdain isn't news: Recession or not, mass consumers never loved paying extra for green.

Asking people to pay more for green is usually doomed. Green has always been most effective as the "3rd button" (as my co-author and I called it in our book Green to Gold) to press in marketing pitches, after price and quality. The Prius is the premium-priced exception that does not disprove the rule. It's is a special case, since the purchase confers a range of emotional and value-laden benefits that household products just don't have (critics call the pride of ownership smugness — and, yes, I own one).

Therefore, in the trenches of consumer product development, the real story is the pursuit of more sustainable products that, as P&G execs say, create "no tradeoffs" for customers. Why ask people to pay more?

As more companies present green products at no additional cost, Wal-Mart and others will be happy to give them more shelf space, because what's really happening with consumers is subtler than a supposedly fading infatuation with green. As the Times story indicates, there is no rise in the percentage of "true green" consumers who will pay more for sustainable products. But there is a serious rise in the number of so-called "conflicted" or "conscious" consumers, which has been building for years. These buyers, which are quickly becoming the majority of consumers, not a niche segment, want it all. They demand more sustainable products at the same or lower price. The last sentence of the Times article actually captures this phenomenon:

"Sarah Pooler, 55, said she did not normally buy green products but would pick them up if they were on sale...'Bottom line, if it's green and it's a good deal, I'll buy it', said Ms. Pooler.

And so the race is still on to provide green products at the same price and quality.

But exactly because Ms. Pooler and millions of other buyers are still waiting for that price equality, I would argue that what is and has been driving the greening of business is not consumer pressure but a mix macro-level forces and operational sustainability success stories, the countless examples of reduced packaging, lowered toxicity, and condensed versions of products(in detergents for example) that save shelf space and tons of energy in shipping and storage.

At the macro level, the greening of products and companies is accelerating because the sustainability drivers are only getting stronger. Rising resource prices, ever-increasing transparency demands about what's in every product, and continuing pressure up the supply chain from business customers are just a few of the big forces.

Does anyone in the consumer product space seriously think Wal-Mart (and other retailers) will stop demanding sustainability-driven operational and product changes just because of the recession? On the contrary, the need to lower costs in the face of rising commodity prices is making eco-efficiency even more economic.

So even if consumers develop fickle infatuations with certain products, the business world is clearly developing a deep, abiding love of — or at least growing respect for — the power of sustainability.

(This post first appeared at Harvard Business Online.)

June 21, 2011

Nissan (Finally) Gets the Pitch Right on the Leaf

As a car, the all-electric Nissan Leaf has received mostly great reviews. But as a positioning statement, Nissan has, in many marketers' eyes, missed the boat. After some missteps, Nissan may now be on the right path. An ad I pulled from Fast Company recently hits all the right marks.

The debate — or more accurately criticism — began last year with a now infamous ad showing a polar bear lugging himself from the Arctic to some guy's suburban driveway to hug him for buying a Leaf. The ad was gorgeous, no doubt, and the YouTube version has been viewed 1.3 million times, which isn't bad. But some green marketing leaders, such as Jacquie Ottman, found it a bit heavy-handed and way too focused on the hyper-green benefits vs. driving experience.

But even before getting to ads, some have pointed out that the name itself is a problem. A "Leaf" doesn't exactly speak to the same part of the male brain that car ads usally target — the caveman lobe that asks, "How will this car make me sexy and powerful?".

As one ad agency exec with a specialty in green marketing told me, "What guy is going to the pub and saying, 'Hey, I test drove a Leaf'?" As she pointed out, the print ads have focused on images like seals and kelp — it's basically the worst of green marketing, "like it's packaged in burlap."

Instead, experts suggest that the Leaf should be positioned in a much more exciting way, as the first electric car for the masses and a true innovation. This, Nissan could trumpet, is a new era of mobility!

So skip to the latest print ad, in which Nissan does something new. A fascinating, colorful graphic shows different cars on a spectrum of fuel efficiency. The axis is not, however, miles per gallon, but "miles traveled for one dollar." As the ad says in small print: "comparing miles per gallon is suddenly irrelevant."

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The traditional mpg metric has always been really odd: who thinks that way? And the government has had a devil of a time plugging (forgive me) electric cars into their normal rating system. What the heck does miles per gallon mean if you use no gallons?

But showing how far I can go for each dollar I spend? Now that's dead on. This is brilliant marketing, in tight economic times or at any time. Nissan has declared a new metric for a completely new model of transportation. Bravo.

(This post first appeared at Harvard Business Online.)

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July 6, 2011

A Swedish Burger Chain Says "Minimize Me"

Last week I wrote about how eating less meat was the best way to reduce your food's carbon footprint. But what do you do if you want to be a responsible corporate citizen and you sell fast food? Well, I think your company would look a lot like Max Burgers, based in Sweden.

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I recently spoke to Richard Bergfors, the CEO (and son of the founders) of this unusual 44-year-old "fast" food chain. With 3000 employees and about $200 million in revenue, Max Burgers is a great example of how a midsize company can carve out a profitable niche through a focus on sustainability — even in an unexpected sector.

In 2000, the company set a new strategy focused on the word "fresh." The leaders looked closely at every ingredient and reduced fat, salt, and sugar, and eliminated genetically modified organisms (GMOs) and trans fats. The menu got healthier, with multiple side options besides fries, 10 drinks with no added sugar, and a selection of darker, healthier breads. The company now sources 100% of its beef and chicken — and 90% of all its product — locally.

To explore its broader climate impact, the firm started working with Swedish thought leaders Natural Step, which, not surprisingly, identified beef as the biggest problem for the company (80 to 85 percent of the footprint). Bergfors acknowledges that industry-wide climate-friendly beef is still a long way off, so Max Burgers plants trees in Africa to offset its carbon footprint. New stores also use solar panels for 15 to 20 percent of electric needs.

But perhaps the most surprising thing this company does is try to influence its customers to buy less meat. Quick reminder: the chain is called Max Burgers. This counterintuitive strategy is the kind of heresy I love — asking customers to use less of your core product. Max Burgers accomplishes this by adding more non-meat items to the menu, prominently displaying climate footprint data in store (there's transparency for you), and suggesting customers buy chicken, fish, or veggie sandwiches periodically (a là Meatless Mondays).

In 2004, a golden marketing opportunity came along with the launch of the documentary Supersize Me, which followed director Morgan Spurlock as he ate only McDonald's food for 30 days. Max Burgers decided to launch a tongue-in-cheek "Minimize Me" campaign. A customer, much like Subway's famous Jared, ate only Max Burgers for 90 days and lost 77 pounds. Two years later, the company re-ran the promotion with multiple people competing on the Max-only diet.

The result of all these efforts is a more sustainable burger chain that's telling everyone to eat less meat, and doing so profitably. The mix of non-beef products is 30% higher than it used to be. But the profit margins are very high.

Bergfors reports that his stores are averaging 11 to 15 percent profit margins versus 2 to 5 percent at the big name competitors. He says Max Burgers is the most profitable, fastest growing chain in Sweden, expanding at 20% per year (and 5% same store sales growth) in a flat market. Granted, higher-end niche brands generally do have higher margins, but this is not an overly small company, and it doesn't seem to be sacrificing anything with its "minimize me" strategy — quite the contrary.

Of course a family run company always has more leeway to act on values (see Patagonia, the prime example). As Bergfors told me, "we've always done things a bit differently — the goal is greater than to just maximize profit." But it's still a business, and in the next breath he said, "we're profit driven and like to make a profit like everyone else...but we don't put profit first...we don't have to maximize profit and we can care for people and the planet we're living on."

But given Max Burgers' profit levels, it seems that maximizing all value, not just profits, can be darn good business.

(This post first appeared at Harvard Business Online.)

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July 26, 2011

Innovators, Meet Your Old Friend: Government Regulation

In the midst of the debt ceiling debacle, the House recently found the time to vote on (and fail to pass) a bill that would've repealed the so-called "light bulb law" that raised energy efficiency standards for lighting. The mandate was considered by authors of the repeal attempt — and apparently by 233 House representatives — as a "government intrusion."

Hear, hear! I'm tired of all these higher government standards. I want to retain the "freedom" to buy a refrigerator that uses as much energy as possible (and runs on coal you can shovel into the front), buy clothes and furniture as flammable as possible, purchase food without any safety standards and take my own darn risk of e.coli. Oh, and I want drive my car without that annoying life-saving seatbelt.

Kidding aside, this vote was absurd. If the bill hadn't been brought to the floor under some arcane two-thirds majority rule, it would've passed. The House has continued its attack by trying to defund enforcement of the bill. This is a really bad idea.

It may seem heretical in today's anti-government mindset, but I'll say it: many regulations and standards are very good for business. Here are a few reasons that the continued attack on the light bulb bill makes no sense, and in fact, why we should be passing a lot more laws like it:

1. Government standards, and particularly energy efficiency standards, are, well, standard.

Quick history: President Bush, who I think was a Republican, signed an energy bill in 2008 which raises efficiency standards for all new light bulbs starting in 2012. And the anti-freedom Congressman who put those standards into the bill: Rep. Fred Upton, also a Republican (he has now, as the Times put it, "reversed his position on the standards he authored").

In short, before recent hyper-political times, this country passed bipartisan safety and energy standards for decades on everything from boilers to cars and trucks to heating and cooling systems.

Critics claimed this particular law was the end of the incandescent bulb. But the bill does not pick technologies; it says how much energy the bulbs can use. It's the classic and most effective use of government mandates: set the standards and let the market decide how to meet them.

2. Efficiency standards drive innovation and save lots of money.

To be fair to critics, the standard did effectively rule out most incandescent bulbs at the time it passed. But then something totally expected happened: companies got creative. As the New York Times reported on July 5, "Incandescent Bulbs Return to the Cutting Edge." Apparently, some people didn't get the message that regular bulbs were dead. Instead, companies like Philips — while innovating around the new CFL and LED technologies — took the 100+ year-old bulb and made it 30% more efficient and last three times longer.

This pattern in common in industries affected by efficiency standards. Look no further than the dramatic innovation in refrigerators. Art Rosenfeld, the godfather of California's energy efficiency movement, likes to show the powerful chart shown here (from NRDC's David Goldstein). Due in large part to aggressive efficiency standards, the energy use and price of new refrigerators has plummeted — all while the size more than doubled. The innovation has saved consumers many billions of dollars.

(Note: Rosenfeld's work has been at the core of California's amazing record of holding per capita energy use flat for 40 years while the rest of us increased energy use 50%).

3. The companies most affected by these standards aren't complaining that much anymore. (Hint: higher product quality and efficiency makes companies more competitive)

One of the biggest battles over efficiency is often waged around automobile miles per gallon targets. The creativity of the auto industry over the last decade or two has been driven (sorry) by higher oil prices at times. But high standards on vehicle miles per gallon around the world have been even more effective (see page 18 of this UN report for chart comparing EU, Japan, China, and the trailing US on mpg standards).

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The U.S. is in this game also — the Obama administration is proposing a new rule that would force automakers to raise their fleet average to 56.2 mpg by 2025. The Washington Post reports that this rule could save us 4.7 billion barrels of oil and $705 billion over the next 20 years. Even with these benefits, we'd normally see the auto companies fight hard, and there's always haggling. But this time it's a bit different. GM has broken from the pack and indicated that it would figure out a way to meet the standard. As GM's North America President, Mark Reuss put it recently:

It's our job to [figure out] what it takes to do it. The auto industry does not get easier. It always gets tougher. That's the challenge and that's what our jobs are. If even-stricter guidelines require billions more in investment, so be it. It's not an either/or thing. It's how we get there with cars and trucks that consumers really want to buy at a [price] that doesn't put unreasonable cost on them.

GM, after lagging for many years on product efficiency — a strategy that basically killed the company in 2008 when oil prices spiked — seems to get it now. As Reuss indicates, high standards push companies toward what consumers will demand. And in a world of expensive energy and tight resource supplies, they'll want cars that sip fuel.

In short, those who complain that higher expectations on energy efficiency will "kill jobs" or be destructive to industry aren't giving our business leaders much credit. Companies can and will innovate. It's in their best interest for many reasons, including the fact that the rest of the world continues to raise the bar. Multinational companies need to keep up to stay competitive.

And it's in our vital national interest to continue getting more efficient as quickly as possible. While energy efficiency standards may not be a complete solution, they have represented a rare bright spot in the nearly defunct national energy and climate policy realm. So let's stop the silly votes, move forward, save everyone some money, and help drive innovation.

(This post first appeared at Harvard Business Online.)

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February 27, 2012

Eco-Labeling: The Critical Questions to Ask

Will we see the day when all products carry environmental labels with data on carbon emissions and other impacts? Recent news tells us a definitive...maybe. Within a couple days of each other, GM announced new eco-labels for some Chevy models, while UK mega-retailer Tesco pulled back from an important 4-year experiment in carbon labeling.

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The attempt to give corporate buyers and end consumers more sustainability data about the products they are purchasing has had a somewhat tortured history. The Tesco experience in particular highlights a few big questions about green data labeling.

Tesco has been a leader in sharing carbon footprint information with consumers, having reviewed and labeled over 500 products. The company's efforts came on the heels of Pepsi's first foray into labeling with its Walkers potato chips brand, also in the UK. Since then, however, it has been running up against the most important questions about how to make data labeling work:

Which products "need" it? It makes a lot more sense to put information on a car, which is a purchase people research heavily and one that has a significant impact on a household's carbon emissions. Your potato chips, not so much.

What type of information should be provided (if any)? Is the carbon footprint the most useful data for customers to have? Or total energy use during the product's lifetime? The best thing to share will depend heavily on the product - the labels on energy hogs like light bulbs, air conditioners, and cars should tell us the total energy use and cost to operate over a year or the product's lifetime. For milk or snacks, the energy used to get it to shelves makes sense, but again, may not be helpful for consumers. So even without the specific grams of carbon, a combination of qualitative and quantitative info, like on Chevy's new labels, could still make sense in many cases.

Can you even summarize the sustainability of a product in a label? This is perhaps the toughest question and the literally hundreds of highly varying eco-labels out there attest to the challenges of trying. In some cases, like a car, maybe the concept of "sustainability" is fairly straightforward given how much of the impact comes in the "use phase" of the product — if you're getting 50% better fuel efficiency, you know you're reducing the impact a great deal. But how sustainable is 80 grams of carbon for a bag of chips? Heck if I know.

How much work/cost does it take to research and produce the label? Tesco made it clear that a core reason it's stopping this process is that each product takes "a minimum of several months' work." It's an interesting time to reach that conclusion because the tools for calculating footprint are evolving fast. But, and this is a big caveat, we're a lot closer to knowing the "hot spots" in most product lifecycles (e.g., for detergent, the largest part of the footprint is the washing machine in the home), than we are to knowing the exact grams of carbon per product. That level of sophistication will come with better data and carbon allocation methods (mirroring, I suspect, the cost allocation tools accountants have developed for a century). But isn't directionally correct information good enough in most cases?

Do consumers even care? This is the critical question, but the answer for now may not matter. Did people "care" about nutrition labels when they first came out? Probably not much, and it's unclear if they do now, given how unhealthy Americans are in general. But then, maybe our obesity problems would be worse without the labels.

But what's really interesting about all of this is that the consumer side of the discussion, while getting more media attention, has been less important in actually forcing change. It's in the business-to-business world that the demands for more information on every product have really been rising. From the Sustainability Consortium for retail and consumer products — which saw its own shakeup recently with the exodus of its Executive Director after only 8 months on the job — to the Sustainable Apparel Coalition for outdoor gear and clothing, industry groups are coming together to gather data and set standards for measuring footprints.

I am confident that Tesco and other major retailers will continue to ask suppliers for carbon data and other sustainability data when picking products for their shelves and setting up special promotions. The greening of the supply chain is the most dependable of trends in the sustainability sphere because there is so much clear benefit to companies when they know their value-chain footprint, from cost savings to risk reduction to better brand storytelling.

So much of this data-gathering and ranking work will continue unbeknownst to consumers. Given how much power retailers and other B2B customers have to transform products and pre-select better options for consumers, maybe it's actually better this way.

(This post first appeared at Harvard Business Online.)

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April 25, 2012

Growth Isn't Going to last Forever

Aside from tiny Bhutan and their pursuit of Gross National Happiness, every country bases economic policy on the pursuit of endless GDP growth, and companies are right there with them. But common sense tells us that nothing can grow forever, and thus national and corporate-level goals alike have a sizeable blind spot.

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This recent humorous Platonic dialogue between a physicist and economist, as told by the physicist Tom Murphy, reveals the absurdity of expecting steady growth in energy use (or economic growth) indefinitely.

To be fair, it's not like economics is the only discipline with magical assumptions — high school physics is filled with Newtonian models of frictionless environments. But teachers are describing theoretical "laws" to further our understanding of the universe, not perfectly predicting everyday experience, or basing policy on the perfect scenario.

Physics accepts that there are limits. If you push something on a frictionless surface, it will accelerate in proportion to mass and force, no more, no less. There is no perpetual motion machine. In mathematical terms, these models have asymptotes that can never quite be reached. But in the economics, business, and political realms, very few seem to admit that there's an upper limit on the growth of an economy or resource use.

So in Murphy's mock debate, the physicist wins — not because he's a better debater, but because, in the end, math and physics trump all by exposing the fallacy of that kind of perpetual motion. Here are some fun stats that Murphy uses to make his point:

Apparently, for a few hundred years, the total energy demand of humanity has risen steadily at about 3 percent per year. We've gotten more and more out of that energy, with quality of life for increasing numbers of people rising even faster. But even if you assume energy use will grow at a slower 2.3% indefinitely, Murphy says (and I ran the calculations as well), we start to hit some silly quantities over the coming centuries. In 1400 years, we would be consuming all of the energy that the sun produces (in just 400 years, it would be all of the solar energy hitting the earth).

You might say that the world 1400 years from today doesn't matter much now. But consider thisfascinating article in Time by Fareed Zakaria about a totally unrelated topic, the struggle of many countries in the Arab world to embrace democracy. A new study proposes a theory: it was the Arab conquering of these lands in the early 600s (yes, 1400 years ago) that led to their challenges today. So what we're doing now can have real impact on real people living 1400 years in the future, even if it seems remote.

Of course we have much more pressing problems today than what the world could look like 1400 years from now, but the point is the same — what we do today matters to the future. And expecting compound growth will get us into trouble long before another millennium, or even another century, is out. In the shorter timeframe, the real pressing problem is not just total energy use, but where that energy comes from. Too much carbon in the atmosphere is the pressing problem.

If we stop using the dead-plant, fossil-based forms of energy, and move fast to renewable energy, we can provide all our possible power needs for many centuries and avoid the problems of compounding carbon in the atmosphere. We can also decouple the growth of quality of life (basic needs, plus rising fulfillment and joy) from the growth of energy, possibly allowing us to set rising economic targets for much longer before we hit a physical wall (we'd still need to deal with other limits like water).

Then we can move on to worrying about where we'll get another sun to power our needs in the year 3412.


(This post first appeared at Harvard Business Online.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter@GreenAdvantage)

December 22, 2012

Top 10 Sustainable Business Stories of 2012

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It's time once again to try and summarize the last 12 months in a handy list. But before I dive in, some quick thoughts.

It was an odd year for green business, and it began with some mixed signals about how far companies were coming on sustainability. A GreenBiz report indicated that progress had slowed or even regressed, but MIT and BCG also declared that sustainability had reached a "tipping point" with more companies putting sustainability "on the management agenda."

In reality, both views were right. Corporate sustainability lost some of its sexiness from previous years, as it grew more entrenched in day-to-day business. Some parts of the agenda — eco-efficiency and resource conservation for example — are widely accepted now, and it's rare to find a big-company CEO who doesn't have sustainability on his or her radar.

The mega forces driving sustainability deep into business — such as climate change, resource constraints, and transparency — are getting stronger. We may not be keeping pace with these pressures, but leading companies continue to evolve more sustainable strategies and tactics. Let's look at some top macro- and company-level stories.

Macro Trends

1. Historic drought and Hurricane Sandy sweep away (some) climate denial
For many people this year, climate change moved from theoretical to painfully real. Mega weather took many lives and cost over $120 billion in the U.S. alone ($50 billion for the drought, $71 billion for Sandy). After Sandy raged across the eastern coast, Businessweek blared on its cover "It's Global Warming, Stupid." New York Mayor Bloomberg, a Republican, endorsed President Obama in the election, titling his open letter, "A Vote for a President to Lead on Climate Change."

As bad as Sandy was, the relentless drought across the middle of the country may prove more convincing in the long run. Corn yields per acre fell 19%, food prices rose, and water disappeared —the Mississippi River may soon struggle to support commerce. Individual companies are feeling the bite: analysts at Morningstar estimate that input costs at Tyson Foods will rise by $700 million — more than its 2012 net income.

Over one-third of the world's largest companies surveyed by the Carbon Disclosure Project arealready seeing the impacts of climate change on their business. So with life-and-death consequences and vast costs, we must have moved quickly to tackle climate change, right? Sort of...

The year ended with the failure, yet again, of the international community to come to some agreement on climate change. But country-level and regional policy moved forward: Australia passed a carbon tax, South Korea approved carbon trading, and California just began its own trading experiment.

Many countries also committed serious funds to build a clean economy: Saudi Arabia pledged $109 billion for solar, Japan declared that a $628 billion green energy industry would be central to its 2020 strategy, and China targeted $372 billion to cut energy use and pollution.

In the U.S., a backdoor approach to climate policy took over. The Obama administration issued new standards to double the fuel economy of cars and trucks, and the National Resources Defense Council (an NGO) proposed using the Clean Air Act to reduce emissions from power plants by 25%.

2. The math and physics of a planetary constraints get clearer
Arithmetic had a big year: Nate Silver's nearly perfect predictions of the election gave him the oxymoronic status of rock-star statistician. The math and physics of sustainability got some serious attention as well.

Writer and activist Bill McKibben wrote a widely-read piece in Rolling Stone about climate math — how much more carbon emissions the planet can take — and followed it up with a national awareness-building tour. Based on similar numbers, both McKinsey and PwC UK calculated how fast we must reduce the carbon intensity of the global economy (PwC's number is 5% per year until 2050).

And on the resource constraint front, Jeremy Grantham, co-founder of the asset management firm GMO ($100 billion invested), continued his relentless numbers-based assault on the fallacy of infinite resources. In his November newsletter, he demonstrated exactly how much of a drag on the U.S. economy commodity prices have become.

Nobody can really deny that, in principle, exponential growth must stop someday. Grantham, McKibben, and many others are making the case that someday has arrived.

3. The clean economy continues to explode
The rapid growth of natural gas production (the biggest energy story of the year) and the high-profile failure of one solar manufacturer (Solyndra) have confused people about the prospects for clean tech. In reality, the clean economy is winning. The share of U.S. electricity coming from non-hydro renewables doubled to 6% in the last 4 years. On May 26, Germany set a world record when it produced 50% of its electricity needs from solar power alone. In a mini political tipping point, six Republican senators publicly supported an extension to the wind production tax credit in the U.S. (which will expire in days), and got an earful from a Wall Street Journal editorial.

It wasn't just energy. One auto analyst declared 2012 the "Year of the Green Car," with more high-MPG models, 500,000 hybrid sales in the U.S., and plug-in sales up 228%. To cap the year, the pure electric Tesla Model S was selected as the Motor Trend Car of the Year.

Company Stories

This year, there were countless eco-efficiency stories about companies saving millions of dollarsand developing new tools to make buildings, fleets (Staples and UPS, for example), and manufacturing much leaner. Aside from that overall theme, the following stories grabbed me because of their connection to larger trends.

4. The green supply chain gets some teeth: Walmart changes incentives for buyers
This year, Walmart finally added a key element to its impressive green supply chain efforts. The retail giant's powerful buyers, or merchants, now have a sustainability goal in their performance targets and reviews. For example, the laptop PC buyer set a goal that, by Christmas, all of the laptops Walmart sells would come pre-installed with advanced energy-saving settings. It was by no means a hiccup-free year on sustainability issues for Walmart, with deep concerns about corruption in its Mexican operations. But the subtle change in buyer incentives is a big deal.

5. Transparency and tragedy raise awareness about worker conditions
Early in 2012, Apple took some serious heat for the working conditions at Foxconn, the giant company that assembles a huge percentage of our electronics. Later in the year, tragedy struck Dhaka, Bangladesh when a fire at the Tazreen Fashion factory killed or injured hundreds of people. The company that owns the factory serves Walmart, Carrefour, IKEA, and many others (but in fact,some companies didn't even know that Tazreen was a supplier). It's unclear if any of these human and PR disasters will affect the companies downstream, but transparency and knowledge about the lives of the people who make our products will continue to rise.

6. Data gets bigger and faster: PepsiCo and Columbia speed up lifecycle assessments
The rise of Big Data was an important theme in business in general this year, but especially in sustainability. And nowhere is good data needed more than in the onerous and expensive task of calculating a product's lifecycle footprint. PepsiCo has had great success with the method, finding ways to reduce cost and risk for key brands, but execs wanted to apply the tool across thousands of products. To make the exercise feasible and affordable, they turned to Columbia University, which developed a new algorithm for fast carbon footprinting. This isn't just a wonky exercise: As PepsiCo exec Al Halvorsen told me, "the real reason you do an LCA is improve the business, to put more efficient processes in place, and innovate in the supply chain."

7. Sustainability innovation opens up: Unilever, Heineken, and EMC ask the world for help
This new world of social media, where everyone has a voice, can be tough on companies. Consumers can gather around a green issue and pressure companies to change their behavior. Some notable change.org campaigns this year challenged Universal Pictures (about its green messaging around The Lorax), Crayola (recycling markers), and Dunkin' Donuts (Styrofoam cups). But companies can also use "open" innovation tools to generate new ideas and invite the world to solve problems together.

Unilever, which has my vote for leader in corporate sustainability right now, held an online discussion or "jam." Then the company posted a list of "Challenges and wants" and asked for ideas on solving big issues such as how to bring safe drinking water to the world's poorest regions.Unilever has received over 1,000 ideas and is "pursuing 6 to 7 percent of these with internal teams." Other notable open innovation models this year included Heineken's $10,000 sustainable packaging contest (which yielded some very fun ideas like a roving tap truck) and EMC's eco-challenge with InnoCentive on e-waste.

8. The economy gets a bit more circular: M&S, H&M, and Puma experiment with closing loops
On the heels of Patagonia's "Don't Buy This Jacket" campaign (one of my top 10 stories from last year), British retailer M&S began a program called "Schwop" that asked customers to bring back old clothes every time they bought new ones. This month, H&M also rolled out a global clothing collection and recycling effort.

Puma, after making last year's list with it's Environmental P&L, kept the momentum going andannounced a new "InCycle" collection with biodegradable sneakers and shirts, and recyclable jackets and backpacks. Remanufacturing has been around a long time, but closing loops is getting more popular every year.

9. Dematerialization gets sexier: Nike's knitted shoe shows off sustainable style
Keeping the apparel theme, um, running, check out Nike's new shoe with FlyKnit technology. The upper part of the shoe is constructed from a single strand, which greatly reduces waste and lightens the shoe dramatically. It's a great thing when a more sustainable design also coincides perfectly with customer needs. Enough said.

10. Zero becomes more the norm: DuPont, GM, and John Elkington show the way
The idea that organizations should send zero waste to landfill was once a niche idea, but it's quickly becoming the ante to enter the waste management game. Announcements on waste may not be exciting, but they demonstrate how companies can turn a cost center into a source of profit. DuPont's Building Innovation Products business reduced its landfill waste from 81 million pounds to zero in three years. GM announced that it would ramp up its already extensive waste reuse and recycling efforts, which are now generating $1 billion a year. And a plug for a fellow writer: In a new book, sustainability thought leader John Elkington made the case that the future would belong to the "Zeronauts," the "new breed of innovators determined to drive problems such as carbon, waste, toxics, and poverty to zero."

Five Questions For 2013

Some other promising stories are in the "too early to tell" stage, but bring up some key questions:

1. Can we standardize sustainability, which some smart folks began to do around rankings (GISR) and accounting (Sustainability Accounting Standards Board)?

2. Will we find a way to value externalities like ecosystem services and internalized, intangible benefits? (A focus of some of my work as an advisor to PwC US). For example, Microsoft launched an internal carbon tax and some major companies (Coca-Cola, Nike, Kimberly-Clark, etc.) pledged to value natural capital at Rio+20.

3. Will government get in the way or help, like when the U.S. Senate allowed the military to keep investing in biofuels?

4. Hertz and B&Q (Kingfisher) have delved into collaborative consumption (see WWF's Green Game-Changers report), but will the sharing economy make a dent on sustainability issues?

5. Finally, how much will we challenge the nature of capitalism, and what will that mean for how companies operate? (This is the focus of my next project.)

So many stories, so little time... on to 2013. Happy holidays and have a safe and wonderful New Year!

(This post first appeared at Harvard Business Online.)

(Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)

February 12, 2014

How Exactly Will We Move Away from Fossil Fuels?

Investors who have significant money tied up in the fossil fuel industry — every pension and market fund, essentially — are facing a massive risk. The logic, according to the International Energy Agency (IEA) and banks like HSBC, is this: as the world migrates away from carbon-based fuels, trillions of barrels of oil and billions of tons of coal — the assets sitting on the books of energy companies — will become “stranded,” or worthless.

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It’s a compelling argument, but only if we can answer a key question: How exactly will those assets become stranded? That is, what will prompt a fast enough migration from fossil fuels to cause their value to plummet? I see a few plausible paths: government regulation, straight economics (when cleaner energy crowds out fossil fuel investment because the returns are better), or a social movement that propels voluntary action. Let’s quickly look at each.

1. The Stick: Regulation

The organizations talking about stranded assets seem to assume that governments will price carbon at some point. As a recent report on the subject from the NGO Ceres said, “According to the IEA, more than two-thirds of the world’s proven reserves of fossil fuels will be unusable prior to 2050 if necessary carbon regulations are enacted [emphasis added].”

That’s a mighty big “if.” While some regions are experimenting with carbon taxes, and Clean Air Act regulations in the U.S. are making coal plants more expensive, regulation is not truly impeding global fossil fuel use.

Ultimately, the political will for fundamental change is lacking. In the State of the Union speech last Tuesday, President Obama said that climate change was a fact and touted the growth of solar energy in America. But he also bragged about increased production of natural gas and oil. Very few politicians will take on those powerful lobbies, so a price on carbon is likely a fantasy in the U.S. for now. And partly because of America’s intransigence, 19 years of global negotiations on binding limits on carbon have led nearly nowhere.

2. The Carrot: Money

On this path, we choose renewables because they’re cheaper, which is far more plausible every day. In significant swaths of the world, wind or solar power is more than competitive with fossil fuels. About half of the new energy capacity put on the grid globally is now renewables, and the picture going forward is even better. Bloomberg New Energy Finance has estimated that between now and 2030, around 70% of the power generation the world will add will be renewables.

This level of investment is happening because the economics work. But it doesn’t mean we’ll be stranding many assets any time soon – the installed base of carbon-based energy systems is really large. Renewable energy does provide 21% of electricity globally, but modern renewables (like solar and wind, not hydro), which would really displace coal and natural gas, only provide 5%. Renewables are a long way from dominating electricity enough to make fossil fuel energy a bad investment.

And when you look at mobile energy use (that is, cars), the story is even clearer. To strand oil assets, we’d need to drive mostly electric vehicles or use a lot more public transportation. And while the new electrified vehicles market is growing fast, it’ll be many years until those technologies dominate.

3. The Guilt or Enlightenment: Moral Suasion

We could, in theory, see a vast voluntary movement toward clean energy by companies and individuals — even faster than what they’re purchasing already where the economics do work. But it is tough for public companies in particular to spend money when they think it doesn’t pay back in traditional ROI terms.

That said, organizations could recognize that the additional benefits from a larger, quicker move to onsite renewables — including having a hedge on fuel prices, inspiring employees and customers, and building resilience to extreme weather and grid outages — adds up to real value, even if it’s hard to measure. Companies and consumers could also decide it’s cool to use clean power. The Toyota Prius sold millions of units not because it saved money on fuel, but because of what detractors noticed was a certain smugness or pride in driving it (I’m guilty as charged).

We could also see moral pressure to move away from fossil fuels. The growing divestment movement, led by the NGO 350.org, is an attempt to make investing in fossil fuel companies morally equivalent to investing in South Africa during the anti-apartheid movement. The next generation — the students leading the campaign now — may never work for or buy from the old energy industry.

But moral campaigns are highly unpredictable and we can’t count on this path to get us there.

Ultimately, the second path is clearly the most likely, and the clean economy will dominate over time on purely economic terms — a variable cost of basically zero for renewable energy will win out. But will it be fast enough to turn fossil fuels into stranded assets any time soon? I doubt it, since companies and countries aren’t even doing all the clean energy projects that pay back quickly, or don’t require any money down. It’s not just about economics.

That’s why we need all of these efforts to work in conjunction — movement on any one of them will give momentum and credibility to the others. The social and government pressures will accelerate investment and thus improve the economics. And in return, if companies start buying a lot more renewable energy, they will help build the market, improve the economics, and give cover to politicians to take action.

In short, all three paths are valid and tough, but together, they should do the trick. They’d better.

(This post first appeared on the Harvard Business Review blog network.)

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June 23, 2014

It's Time Climate Change Believers in Business Came Out of the Closet

[Still catching up a bit on articles I've posted at different places over the last few months. Here's one that appeared on The Guardian. To lend even more momentum to the shift I'm describing here, see the NY Times op-ed just a couple days ago from former Treasury Secretary Hank Paulson.]

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"I think climate change is one of the greatest hoaxes ever perpetrated on man." So said a colleague at a recent meeting of tech executives I spoke at. It was hardly the first time I've heard such a statement. But what happened next was a first in my 13 years of working in the intersection of business and environment. Another executive, someone in the insurance industry (but not coming from an environmental role), actually mocked the climate denier and laughed in his face. "Are you kidding?" he said. "Something like six of the most expensive insurance years in history happened in the last eight years."

We may be seeing a change in cultural norms in business, where it's less acceptable to espouse dated views on some big topics. Take the issue of gay rights in the US. In Arizona a few weeks ago, governor Jan Brewer vetoed a law that would have allowed a bakery, for example, to refuse to make a cake for a gay wedding. But I doubt Brewer had a moral epiphany. In reality, she felt pressure from a business community that feared real economic consequences if the law passed. A range of companies made their displeasure known publicly and the National Football League made a not-so-veiled threat that it might move the 2015 Super Bowl away from Phoenix. In a separate case, Mozilla's CEO, Brendan Eich, resigned under pressureshortly after it emerged he had donated $1,000 in support of Proposition 8, which would have prevented equal marriage in California.

Is the same kind of attitude shift happening on climate change? In addition to watching the late-night mocking of an ill-informed colleague, I recently had another surprising experience with the top 10 executives from a large consumer products company. I polled them with an admittedly leading question:

"Robert Rubin, the former US treasury secretary, said recently that climate change is 'an existential threat' to our species. On a scale of 1 to 5, do you think that …

5 – Yes, it is an existential threat to humanity.
4 – Climate change is a serious challenge, but we can adapt and/or it's not imminent.
3 – Climate change may be a problem, but it may be natural variation.
2 – There may be mild problems from climate change.
1 – It could be a hoax or there is no problem.

The anonymous voting actually shocked me. Every executive in this conservative, careful company chose 4 or 5 in anonymous voting.

My examples of a business awakening are anecdotal, but there is some quantitative evidence of a priority shift in the works. In the latest World Economic Forum Global Risks survey, which polls CEOs and world leaders, the top 10 risks identified by respondents were in essence variations on a couple of themes: economic uncertainty or climate and resource-related issues ("water crises", "failure of climate change mitigation and adaptation", "greater incidence of extreme weather events", and "food crises").

This dawning realisation of the extent of the climate problem is welcome news. But the real question is whether we're acting on a newfound conviction with the urgency required. If more executives believe this is a "5" issue, an existential threat, what does that imply?

Let's imagine for a moment a similar scenario in personal health. Let's say that 97 out of 100 doctors tell you that you have an imminently life-threatening level of, say, obesity and diabetes. If asked how serious it was, you might say "5", which would demonstrate a conviction that drastic changes in diet and exercise are now the top priority in your life. With a "4" vote, you'd be saying that you might consider some tweaks to your lifestyle, but only if it's not too inconvenient or expensive. If you select "3", you're saying you're not sure the doctors are right (maybe it's just holiday weight you put on) and you'd adopt a wait-and-see attitude. And a "1" or "2" shows disdain for both the diagnosis and the doctors and a belief that you can eat whatever the heck you want.

The equivalent of a "5" vote on climate should be dramatic changes in our energy diet – a decarbonisation of industry and society at 6% per year from now on (as calculated by PwC). The list of what that pace of change would require of business leaders includes the following: dramatically increasing energy efficiency and use of renewable energy, supporting government policies to make the change more economic (a carbon price would be extremely helpful), pushing back on investors obsessed with quarterly results at the expense of investments in longer-term health, and deeper conversations both with suppliers and customers about how to cut impacts. These are some of the elements of a profound shift in "business as usual" that I'm calling "the big pivot".

Very few companies are acting on all these fronts with urgency. It's time for business leaders to get more vocal, come out of the closet of denial and talk openly about climate change as a serious challenge and opportunity. As self-help programmes have taught us, the first step is admitting you have a problem. At least on this front, both anecdotally and by survey, there seems to be real progress.

(Andrew's new book, The Big Pivot, is out! Get your copy here. Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)