Hurdles and Challenges Archives

August 14, 2007

Rocky Mountain Institute 25th, Part I

Last week I spent a couple of days at the RMI 25th anniversary gala, celebrating a quarter century of cutting-edge thinking from Amory Lovins (and many others who have passed through his halls). I was honored to speak on a panel (I spoke a bit about the seeming oxymoron of corporate environmentalism -- see previous post here), and I was thrilled to hang out with a veritable who's who of green business and sustainable development — Interface founder and eco-evangelist Ray Anderson, reluctant capitalist and founder of Patagonia (and "alpinist" as James Murdoch called him) Yvon Chouinard, Segway inventor Dean Kamen , as well as politicos from former New York Governor Pataki and President Clinton. It was really something.

But more interesting than the sustainability star wattage was the in-depth conversation, led by master of ceremonies, famed columnist, author, and thinker, Thomas Friedman, who gave one of the best talks I've ever seen about the green imperative, roughly titled "green is the new red, white, & blue" (his next book). My favorite quote: "It's not about the whales anymore every time you look in the mirror, you're looking at an endangered species.

Anyway, I'll probably do a few posts on some themes and interesting conversations I had or heard. First up, the key question of hurdles to going green. Friedman continually asked the basic question, If this is all so great and being more efficient makes so much sense, why doesn't it happen more? This is one of the undercurrent themes of Green to Gold of course — the fact that there are real hurdles.

There was some good discussion on this core question. Some great quotes from Ray Anderson. "Why aren't companies doing more? I'll give you two words: Milton Friedman." Ray pointed out that Friedman's "the business of business is business" thesis is still driving a lot of resistance to a broader corporate social agenda. "But," Ray continued, "I don't know a single CEO who will stand in front of his maker and talk about shareholder value or market share."

Dean Kamen added that it's not just about the overwhelming logic of sustainability. "don't make the irrational assumption that people are rational we don't make the right decisions and we all make short-term decisions to give us what we want.

These are great perspectives, but clearly the problem goes beyond these important issues. It's not just a philosophical Friedman-esque problem (although that's powerful), and it's not only about short-term thinking (which is rampant). Companies face real hurdles and there are real trade-offs. The "Middle-Management Squeeze" from Green to Gold is a critical problem. For managers charged with really executing on corporate strategy, green goals often conflict, at least over the short-term, with other goals like throughput, cost, and quality. Managers face tight resources — both human and financial capital — and have to make tough choices. Yes, taking into account longer term considerations helps break this decision barrier, but it's a real challenge. On top of the organizational challenges, we all face the problem of unintended consequences. Thinking about full value chain impacts is tough, and reducing impact in one way in one part of the chain can cause rebound effects elsewhere.

None of this is easy, but I will say this: the brains in the room at the RMI gala certainly have a shot at fixing our collective problems if anyone does.

November 19, 2009

Finding the Money to Green Your Business

Contrary to the popular misconception that going green is expensive, in a very large range of cases, environmental initiatives don't raise costs, they lower them — and fast. In operational areas such as facilities (heating, cooling, lighting), fleet, IT, and waste, leading companies continue to find large savings in shockingly simple actions, such as changing lighting or using outside air to cool a data center.

But even for the most head-slappingly obvious changes with super-fast paybacks, companies still need to find the capital to buy the new bulbs, optimize the HVAC system, or add auxiliary power units (APUs) to trucks. And even if one sees these initiatives as investments, not costs (which is the right way to look at it), there will still be competition for dollars. During a recession — heck, at any time — it's normal to struggle to get funds for even worthy projects. So what to do?

A few leading companies have hit on one incredibly simple solution to this problem — set aside funds for green priorities. I don't mean coming up with a new pool of money; just assign a percentage of the existing capital expenditure budget to green priorities.

In 2008, to find hidden gems of savings, DuPont set aside 1% of capital expenditures solely for energy-saving ideas. With $50MM of spending, the company found $50MM of savings per year — a one-year payback that keeps on giving. All projects still met the corporate hurdle rate, so there was no special dispensation besides making the money available for worthy initiatives managers had overlooked. Building products maker Owens Corning goes even further, dedicating 10% of capex to energy projects. This is a tool nearly anyone can use. Set aside the funds for green and you'll unleash a wave of creativity and short paybacks.

So if there are so many quick, high-ROI projects sitting around, why aren't companies jumping on them? Two big reasons. First, energy efficiency just hasn't seemed sexy. Dawn Rittenhouse, DuPont's director of sustainable development, told me, "If business units can invest in growth or energy efficiency projects, it's more glamorous to go after growth." But in tight times, saving money starts to feel a lot more exciting, doesn't it?

The second reason is the classic problem of the urgent versus the important. Most capital expenditures go to fix things that are already broken. But as Frank O'Brien-Bernini, Owens Corning's chief sustainability officer, puts it, "It's really about redefining what 'broken' means." Think about it: a process that wastes energy may not feel broken with oil at $40, or even $80, a barrel. But it may look like a money-eating disaster at $200 a barrel. In essence, when it comes to energy and resource efficiency, all companies are broken.

Of course reserving some funds could meet resistance. One of my clients pointed out that their capex budget is not one pool, but really a bunch of sub-budgets for different groups. A green set-aside would have to draw money from somebody's hard-fought budget. But DuPont only allocated 1% to great effect. So it doesn't necessarily take a giant land grab to make this operational and cultural shift happen.

So when people say you don't have the money to invest in green, show them that you do. The reality is that unless you're in liquidation, you have a capex budget, even if it shrank this year. You're spending money on things all the time; it's simply an issue of where you place your bets.

Take a piece of what you're already spending, point it in the right direction, and you will find enormous green savings to help survive these (still) hard times — and invest in the future.

[This post first appeared on Andrew's blog on Harvard Business Online]

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.

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

November 16, 2012

The Challenge of Climate Math

A nerd hasn't been this popular since, well, ever. Nate Silver, the creator of the election poll statistical hub FiveThirtyEight was declared the clear winner in the Presidential election. And on Fox News, election math was at the center of one of the most bizarre on-air moments in memory.

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The numbers discussion then seeped over from polls to other politically charged topics such as climate change. David Frum, President George W. Bush's speechwriter, tweeted this gem: "Horrible possibility: if the geeks are right about Ohio, might they also be right about climate?"

This awakening about the math (and physics) of climate change has coincided with climate activist Bill McKibben's "Do the Math" tour, an awareness-raising series of events criss-crossing the country this month. The tour was inspired by McKibben's incredible essay in Rolling Stone magazine, "Global Warming's Terrifying New Math."

In this article, McKibben lays out 3 fundamental climate numbers: to stay below (1) 2°C of warming(the limit the world's scientists have said might help us avoid the worst of climate change), we can only burn (2) 565 more gigatons (a billion tons) of carbon dioxide, which will force a battle with the fossil fuel industry since it has (3) 2,795 gigatons in reserve. These are important numbers to wrap your head around, but what do they really mean for countries and companies? How fast do we have to change?

To answer these tough questions, we can turn to two of the world's best number crunchers, McKinsey and PwC (full disclosure: I have a consulting partnership arrangement with PwC US). Last week PwC released its Low Carbon Economy Index 2012 report, which calculated one simple, powerful number: In order to meet the 2°C warming target, we will need to reduce the global carbon intensity (how much carbon it takes to produce every unit of energy or GDP) by 5.1% every year until 2050. For perspective, in 2011 carbon intensity improved just 0.8%.

This number provided another view on some similar math from McKinsey, which concluded that the ratio of global GDP per ton of CO2 would need to rise tenfold by 2050.

OK, so the math is not pretty, but it is what it is. And it's not like the world is ignoring the challenge entirely. Here are some numbers that make me feel better:

  • $2.2 trillion: The size of the "climate economy" by 2020 according to the bank HSBC
  • $372 billion: China's budget for energy conservation and anti-pollution measures over the next few years
  • $260 billion: Global clean energy investment in 2011
  • $109 billion: Saudi Arabia's planned investment in its solar industry over 20 years
  • 50%: the portion of Germany's entire electric demand satisfied by solar energy during one sunny day in May, a world record
  • These are great macro stats. But the brutal logic of the McKibben, PwC, and McKinsey numbers applies at the microeconomic level as well. Meaning, I believe, companies need to acknowledge the math and shoot for a 5% reduction in carbon per year.

    It's not so crazy. The early leaders have a good start. Dow Chemical has reduced energy costs $9 billion since 1994. Walmart has improved the fuel efficiency of its distribution fleet by 69% since 2005. A large consumer products company — which tells me it will be going public with this story very soon — has already cut carbon in its own operations by 80%.

    Of course, the entire private sector will not achieve these results on its own. We will need strong global policies and a price on carbon. But given how profitable many organizations are finding the low carbon quest to be, they shouldn't wait.

    While it's a myth that companies make all decisions on ROI calculations (what was the exact return on that Super Bowl ad?), we do claim to love hard-nosed numbers. Let's not let politics or fear of the size of the task ahead get in the way of today's climate math.

    Climate data has trumped politics in the past. According to Sunday's op-ed by Cass Sunstein, the Harvard professor and co-author of the great book Nudge, Ronald Reagan embraced aggressive action to solve the problem of ozone depletion because he believed the cost-benefit analysis. Basically, it was cheaper to act than not to. Similarly, the math on climate action is getting better every day as the costs of inaction rise. As Sunstein points out, Hurricane Sandy will likely cost the country $50 billion (New York's Governor Cuomo has already asked for $35 billion in federal aid).

    Climate math is simply a constraint on the imaginary formula that is business as usual. But constraints drive innovation. We in the business community respect numbers and the best companies love challenges. Let's prove it.

    (This post first appeared on Harvard Business Online.)

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