Green Infrastructure Archives

November 23, 2010

Big Infrastructure Projects Are Nothing New in China

I'll have a few posts on China over the coming week since I spent a few days in Beijing last week. I had a free afternoon on this trip, so I got the chance to visit the Great Wall.

It's hard to convey what it's like to see this amazing feat of engineering...and folly. When has a big wall ever worked? Maginot Line anyone? Here's me on the Wall -- the haze is pollution of course. (Thanks to colleague Dr. Rhoda Davidson from e3 Associates for taking this!).

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I had some fun imagining that first meeting with an emperor in 220 BC when he said, "Hey I have this idea..." But what really struck me was that China seems to love big projects.

We can marvel at the speed of China's growth, especially in the green sphere where the country is building 16,000 miles of high-speed rail and became the largest solar panel maker in the world in just a few years.

But what I learned standing on the Great Wall is that China has done it all before.

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September 9, 2012

Politicians Who Deny Climate Change Cannot Be "Pro-Business"

It finally seems to be dawning on many Americans that there's something to this climate change thing. The historic drought has been hard to ignore. While belief in a long-term trend because it's hot out right now is a bit ridiculous, it's a start.

You can see a shift in how the media covers weather. The statement "because of climate change..." is often stated clearly without caveats such as, "what some scientists think may be a warming planet." You see it in the UN calling for action to help the hungry cope with rising food prices "in an age of increasing population, demand and climate change."

And you see it in the growing number of mega-corporations — including America's Alcoa, Coca-Cola, Cisco, HP, J&J, Nike, and P&G — signing on to the "2 Degree Challenge Communiqué," a call for the world's governments to take strong action to slow greenhouse gas emissions.

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Climate change is basically accepted as fact the world over. But you wouldn't know it watching our political conventions (or at least one of them). So while the world seems to be waking up to a fundamental, existential threat to our species (and not to "the planet," which will be fine with or without us), the US policy debate remains mostly deaf, dumb, and blind.

Climate change has become a political "third rail," harder to talk about than changing Social Security or Medicare. We didn't hear any mention of it at the GOP convention, except as a punchline, and we didn't hear much at the DNC convention...except for one quick, but important, remark from President Obama. Former President Clinton mentioned energy efficiency and Vice President Biden said the words "clean energy" once. But then President Obama, after duly noting the chance to create more natural gas jobs, spoke about building wind turbines and reducing dependence on foreign oil. Finally, he stepped firmly on the third rail: "Climate change is not a hoax. More droughts and floods and wildfires are not a joke; they are a threat to our children's future."

This is great, but let's not get too excited. One line does not a policy make.

Still, Obama's admission that climate change is real (a low bar for showing leadership these days) is light years from Governor Romney's dismissive attitude. His convention speech mocked President Obama for his earlier promise to "begin to slow the rise of the oceans." Romney offered instead to "help you and your family" — as if the health and state of our entire planet has nothing to do with the health of our families.

Here's what makes the general silence on climate and the mocking from the self-identified pro-business party so absurd: tackling climate change is the smartest thing we can do for both our public health and our private sector. Reducing carbon emissions from our power plants, cars, and factories cleans the air and saves a lot of money. At the macro level, the burning of coal alone costs the U.S. about $350 billion per year in health (asthma, heart attacks, and so on) and pollution costs. At the micro level, from companies down to households, the opportunities to get lean and save money are vast.

But more strategically, tackling carbon is an immense economic opportunity. Here's billionaire and entrepreneur Richard Branson on the upside potential:

"I've described increasing levels of greenhouse gases in the atmosphere as one of the greatest threats to the ongoing prosperity and sustainability of life on the planet. The good news is that creating businesses that will power our growth, and reduce our carbon output while protecting resources, is also the greatest wealth-generating opportunity of our generation. [There is no] choice between growth and reducing our carbon output."

This quest will drive innovation and create millions of jobs for some lucky companies and countries. Is this multi-trillion-dollar opportunity something we really want to miss out on? The other major economies are not sitting this one out. Germany is quickly moving its electric grid to renewables. China is committing hundreds of billions of dollars to energy efficiency and much more to the clean economy in general.

But let's say you don't buy the argument that fighting climate change keeps us competitive globally, saves trillions of dollars, and generates new wealth. Then how about the overwhelming national security rationale? Using less oil, for example, reduces funding to petro-dictators around the world. The former head of the CIA, James Woolsey, puts is very bluntly: "Your gas money funds terrorism."

On this score the difference between the parties is stark. The DNC's platform includes the words "climate change" at least 18 times and lists it as an "Emerging Threat" along with cybersecurity, biological weapons, and transnational crime. While "emerging" may not be the word I'd choose, it's leaps and bounds beyond the GOP' s party platform, which mentions climate change just once...and again, only to mock it. Their platform complains that the Obama administration has elevated "climate change" (with the sarcastic quotation marks) to the level of a severe threat to our security.

But let's be clear: it's not the Democrats or even President Obama specifically that declared climate change a national security threat. That would be the Pentagon in its Quadrennial Defense Reviewtwo years ago.

A strong plan to tackle climate change through government policy, business innovation, and citizen action is not just something that's not optional; it's preferable. Moving away from carbon to a cleaner economy makes us healthier, more profitable, and more secure.

My work is not political — I try to help companies create business value from sustainability and green thinking, so I normally avoid these kinds of discussions. But the discrepancy in party positions on this most critical issue has become too extreme to ignore.

There's blame on both sides, but let's not pretend the two parties neglect climate change equally. Yes, it's a shame that most Democrats will not stand up and proudly stand behind many of the positions in their own platform. But the GOP's denial of climate science, and all the risks and opportunities it presents, is surreal.

Their views and policies on climate won't help our businesses deal with, and profit from, the largest market shift we've ever seen. And they won't help prepare our country for the hard realities of life in the 21st century.

(This post first appeared at Harvard Business Online and on Bloomberg - see the active commentary on either.)

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November 5, 2012

Should Companies Care If Hurricane Sandy Was "Caused" By Climate Change?

(Catching up on re-posting pre-storm and storm week posts...happy voting day)

Hurricane Sandy has killed more than 100 people in the U.S. and the Caribbean, and caused billions of dollars in damage. The scene around my Connecticut home is not pretty, with downed trees and power lines everywhere. It's a serious time, and a time for some serious questions. Why did this happen? And from a business (or any) perspective, does it matter whether this megastorm was caused by climate change? I'd say no... and yes.

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First, the "no" part...

Regardless of the cause, the cost to society of extreme weather has been rising for decades. The insurance giant Munich Re recently released a new report on the rapid increase in weather-related losses. In North America, the number of severe events has quintupled over the last 30 years. And while the report does indeed make the climate change connection directly, on some level it doesn't really matter for business. The problems and costs of extreme weather are the same either way.

Take the example of one of my clients, a Fortune 200 consumer products company. As the VP of global risk management told me, the most expensive events in company history in every weather category (flood, earthquake, hail, wind, etc.) occurred in the last few years. After making $50 million in insurance claims in 2011 alone, the company's insurance rates will certainly rise. But that's a side issue; the real problem is the constant threat to business continuity. At one of its large manufacturing plants in Asia, a drought stopped production for 3 weeks.

This kind of disruption is only going to grow. In the Thailand floods of November 2011, both the hard-drive industry and the automotive sector experienced serious supply chain problems. As Edmunds reported, car production dropped by 600,000 units and, in particular, "only a few critical Thai-built parts laid Honda low."

In a deeply unpredictable world, the challenge for multinational businesses is how to build resilient, flexible enterprises that rely on natural resources a great deal less than today (meaning fewer fossil fuels, less water, reduced waste, closed loops on key resources, and so on).

Smart companies will be examining supply chains and operations very closely for risks associated with water shortages, floods, storms, and resource constraints. Risk assessment is going to get much sexier and much more important to global organizations. Their leaders will also seize the opportunity to offer products and services that help other companies and society deal with a world of weird weather. Think drought-resistant crops, new insurance products, distributed energy systems (so homeowners won't care if the power goes out), and perhaps boats for getting around Wall Street.

OK, now on to the "yes" part of the discussion.

First, the necessary disclaimer: Scientists say that no single storm can be tied to something as large-scale and long-term as climate change (see the active debate going on here). But in the words of NASA scientist James Hansen, we're "loading the dice" and increasing the odds of extreme events by heating the oceans and putting more moisture into the atmosphere. The devastation around New York City is exactly what was predicted to happen more frequently.

But let's get real about business impacts. If you're going to really assess risk to your operations now and in the future, you have to understand how climate change will increase the likelihood of severe events and what it will mean for your value chain. Not doing so would be costly, stupid, and irresponsible to your shareholders.

Companies are waking up to the immediate impacts. The most recent report from the Carbon Disclosure Project (CDP), compiled with the help of PwC (full disclosure: my consulting firm has a partnership with the U.S. arm of PwC), shows that most global companies acknolwedge climate-driven risks. Fully 37% of those reporting to the CDP — most of the world's largest companies — say that climate change is already creating business risk (up from 10% in just two years). Another 43% see risk to the business within the next 10 years.

So as companies wake up to this challenge, they are starting to talk about adaptation and the expense of getting ready for a hotter, dryer or wetter (depending on the location), more resource-constrained world. But adapting is just not good enough.

We really have to stop kidding ourselves that we can ride this out. We have to adapt, of course, but we also need to get going on a low-carbon agenda very quickly to mitigate the risk as much as possible. If you really listen to the scientists, the "business as usual" emissions path were facing over the coming decades could seriously destabilize the planet, which, I hate to state the obvious, supports our economy and way of life. The normal curve of expected possible outcomes is starting to include real risk to our species.

If you bring this level of threat down to the industry or company level, it causes you to rethink your business. As one tech executive said to me recently, "nobody's really going to care what operating system they have if they don't have food." Meaning, we better reduce the odds of disaster or our businesses won't matter much.

To those of you who fear that the cost of going low carbon will be too high, I have to ask: how expensive are storms like Sandy to business and society? In reality, tackling climate change is not an expense, but a very smart investment. It's a multitrillion-dollar business opportunity, or what Richard Branson calls "the greatest wealth-generating opportunity of our generation."

In short, this debate is about direction and speed. In terms of what direction your company should head to prepare for a riskier future of extreme weather, it doesn't really matter whether Sandy was caused by climate change or not. But how do we determine how fast we need to move in that direction? To answer that question, climate change does truly matter. It matters a lot.

(This post first appeared at Harvard Business Online.)

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January 9, 2014

Business Resilience Comes from Working with Nature

[Note: This post is co-authored with Michelle Lapinski, a senior advisor on valuing nature at The Nature Conservancy]

Hurricane Sandy, the superstorm that pummeled the U.S. northeast in October 2012, ranks as the second-costliest hurricane in American history, causing an estimated $68 billion in damages. One year later, the most powerful storm ever recorded to hit land devastated the Philippines.

With these once extraordinary events becoming more ordinary, it’s becoming clearer that businesses in vulnerable regions need to prepare. But how should companies go about building resilient enterprises that are ready to face extreme weather and other effects of climate change? One powerful, underleveraged option is to use nature to protect our coasts and physical assets — that is, to invest in so-called “green infrastructure” a term meant to differentiate projects from more typical “gray” or man-made infrastructure solutions (such as dams, levees, and water treatment systems) that we build to cool and purify water or defend our buildings and assets against the elements.

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Our natural world already provides immensely valuable services to make our economy and society possible. Most obviously, we get all our food, minerals, and metals from the ground, and forests provide wood and oxygen. But there are more subtle benefits: forests also clean our water and coastal wetlands and reefs provide natural defense from storms and floods. They can help us manage rainwater and wastewater. These services, which are not currently valued in the marketplace, protect both people and commercial and residential assets.

So a city or company looking to safeguard its water supply, for example, could invest in protecting or restoring lands instead of building a new water treatment plant (which is exactly what the New York City did when it bought land in the Catskill Mountains in 1997 — this initiative avoided up to $8 billion in costs for a new filtration facility and saved $200-$300 million in ongoing operation and maintenance costs).

But is this kind of green infrastructure approach generally as effective? Is it cost competitive? A recent paper by Shell, Dow, Swiss Re, Unilever and The Nature Conservancy concludes that frequently, it is.

Using standard cost-benefit analysis, the study compared some natural solutions to more traditional infrastructure investments. In all of the completed corporate projects, the green option won out toe-to-toe on capital expenditures and operational expenditures

Here’s one of the more compelling examples highlighted in the paper:

One of Shell’s joint ventures, Petroleum Development Oman LLC (PDO), uses constructed wetlands to treat produced water from oilfields. PDO’s extraction activities produce a lot of oily water as a by-product. After investigating alternative, low cost solutions to treat and dispose of the water, PDO built a natural wetland system that uses sunlight, reeds, and gravity (to flow water down in steps) in place of extensive water treatment and injection operations. The latter, gray option would have required significant electric power and produced high greenhouse gas emissions… and it would’ve cost a lot more.

On every important measure — capital expenditure, operational expenditure, and performance — the constructed wetland outperformed the traditional approach. Power consumption and CO2 emissions were reduced by 98%, which lowered operating expenses dramatically. And as a bonus, the wetland provides habitat for fish and hundreds of species of migratory birds.

In this particular case, PDO only needed the natural option, but the study concluded that hybrid solutions – combinations of green and gray infrastructure — may often provide the best mix of benefits. Together, green and gray solutions combine some of the resilience inherent in natural systems with the way an engineered solution can solve a specific challenge.

Shell isn’t the only company that discovered the savings from green infrastructure. The report includes case studies for Dow, which also utilized a constructed wetland at one of its facilities, reducing capex expense by a factor of 10. Today, Dow is exploring additional applications of green infrastructure and is engaged in a multi-year collaboration with The Nature Conservancy on valuing ecosystem services, which includes evaluating the viability of natural infrastructure at its largest production site.

Companies with common challenges can identify savvy, shared investments in green solutions for wastewater treatment, desalination, or coastal defense (using, say, wetland and reef restoration) and potentially collaborate on new green infrastructure opportunities at co-located assets.

Collectively, the companies in the report concluded that green infrastructure solutions should become a major part of the modern engineer’s standard toolkit: “Incorporating nature into man-made infrastructure can improve business resilience —and bring additional economic, environmental and socio-political benefits.” The report also provides an emerging set of performance metrics that managers can use to assess and compare green and grey infrastructure options.

As the damages from (and costs of) extreme weather and other disruptions soar, investing in resilience becomes a better deal. And nature can provide many of the solutions we need to both save money and protect our assets. So run the numbers on green infrastructure solutions. The calculations are likely to show that green options are the best investments.

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

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February 1, 2014

The Largest Risk (and Opportunity) Investors Are Ignoring

Tackling climate change — and thus keeping the world inhabitable — is an achievable goal, but it will become prohibitively expensive if we wait to act. This is the key message from a leaked United Nations study that The New York Times reported on last week. Journalist Justin Gillis wrote about the risk of “severe economic disruption” and “wildly expensive” solutions — ones that may not even exist — if we don’t leverage existing technologies to shift the global economy away from carbon over the next 15 years.

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Talk of potential risk to humanity is not new. And we’ve seen more recently the actual devastation of record weather events like Hurricane Sandy and Typhoon Haiyan. But neither the scientific warnings nor the extreme storms have prompted enough action. However, now the risk we’re talking about is financial, which, along with the enormous economic upside of taking action, may finally get the investment community moving.

The day before the stark story in the Times appeared, I attended a related conference, the Investor Summit on Climate Risk, held at the UN and run by the NGO Ceres. Hundreds of financial executives gathered, including some heavy-hitters, from state comptrollers to executives from large pension funds to former U.S. treasury secretary Robert Rubin, who declared, “climate change is an existential risk.”

The conferencewas focused on the release of Ceres’ new report, “Investing in the Clean Trillion.” Created in conjunction with Carbon Tracker, the study lays out a plan for mobilizing much more capital toward building the clean economy. The trillion-dollar number is not random: TheInternational Energy Agency (IEA) has estimated that the world needs to pour $36 trillion of investment into the clean economy between now and 2050 in order to keep the planet below the critical warming threshold of 3.6 degrees Fahrenheit (2oC). That’s $1 trillion per year.

A key target for Ceres’ work, and the main audience at the conference, is the group of institutional investors who manage tens of trillions of dollars in assets for long-term performance. The core argument to compel institutional investors to change how they influence companies and where they invest their money is simple: as the world pivots away from carbon-based energy to avoid devastating climate change, fossil fuel assets, like coal plants or off-shore oil rigs, will be “stranded” — a wonky term for “worthless.” The value of the companies owning and managing those assets, the logic goes, will plummet. As Nick Robins from the bank HSBC described to the audience, in a scenario of global peak fossil fuel use by 2020 “implies a 44% reduction in discounted cash flow value of fossil fuel companies” — or in simpler terms, a decline in share price of 40 to 60 percent.

In another Ceres meeting last fall on this topic of stranded assets, Craig Mackenzie from the Scottish Widows Investment Partnership ($200 billion in assets) spoke about the “wake-up call” investors had gotten from recent shifts in the U.S. coal market. The 20% drop in coal demand was driven mainly by the incredible increase in natural gas production due to fracking technology, not from any concern over greenhouse gases. But the rapid shift demonstrated to Mackenzie and his firm the dangers of overexposure to a class of assets. So, he says, the fund “reduced exposure to pure play coal companies to nearly zero.”

It’s easy to point out a big flaw with the stranded assets discussion: uncertainty. I spoke with executives at a few big banks who said the big question for them is when will the assets be stranded. Nobody wants to leave profitable investments too early that gets you fired. But trying to time a bubble bursting is a dangerous game. How many investors got the timing right on the implosion of mortgage-backed security assets in 2008? Nearly none, and that systemic failure of vision contributed mightily to a global financial collapse.

Given what’s at stake now — not just financial system stability, but planetary, human-supporting system stability – it’s more than prudent to avoid the game of timing the market perfectly. The investment community should be much more proactive about using its weight to a) pressure fossil fuel companies to quickly migrate their own portfolios to new forms of energy; and b) dedicate significant funds to investing directly in new technologies.

With the chilling, “it’s going to be very costly” message of Gillis’ article, and the warnings of trillions of stranded assets in the Ceres report, it’s easy to miss the very big silver lining running underneath all the dire warnings: we have the technologies today to make the shift and do it profitably.

The Clean Trillion report cites the uplifting flip side of the IEA’s calculations — the $36 trillion of investment we need will yield $100 trillion in fuel savings between now and 2050. That’s a lot of money to leave on the table, and a very good investment.

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

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