Renewables Archives

November 8, 2010

The Winds of Support for Renewables

A cover story in the NY Times today declares, "Cost of Green Power Makes Projects Tougher Sell." Apparently wind turbines are not flying off the shelves as fast as a couple of years ago (when oil hit $145/barrel in mid-2008, it was a pretty good boost to the renewables industry).

While China and other countries ceaselessly invest in renewables, we continually see these kinds of ebbs and flows in our commitment depending on the politics of the moment. In the inexorable march toward a clean energy grid and economy, these slow-downs do take the wind out of your sails (pun intended).

But this is why the now-dead climate bill was so vital. A price on carbon would accelerate the transition and smooth out these ups and downs, providing some predictability to investors in these new markets.

I'm 100% convinced we will see a 100% renewable-based grid at some point. The problem is that it won't happen fast enough to stave off some very bad effects of climate change. It might take 40 to 50 years on current economics, but we need to do it in more like 20.

So the political reality of a carbon tax being impossible with Republicans ascending is bad enough. But what's really sad about this story was that this supposed cost barrier is negligible. From the Times...

“The ratepayers of Virginia must be protected from costs for renewable energy that are unreasonably high,” the regulators said. Wind power would have increased the monthly bill of a typical residential customer by 0.2 percent.

In Kentucky, the article says, the number is 0.7 percent. To put those figures in perspective, if you paid $300/month on electricity, your bill would be higher by 60 cents each month in Virginia and $2.10 in Kentucky. And that's if fossil fuel prices don't go up much (don't bet on it). I firmly believe that traditional energy prices are fundamentally rising over time as demand around the world continues to grow. So why wouldn't we want energy sources with zero variable cost?

As the wind company CEO featured in the article put it, "They have to look for the ratepayers’ long-term interest,” he said, “not just the bills this year.”

Especially if those bills go up just 60 cents.

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December 23, 2010

The Top 10 Green Business Stories of 2010

Here's my attempt to capture the most important stories that affected the greening of business in 2010. To keep this to blog length, it's going to be quick, so see the links for more on these stories.

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The first five are macro-level issues that affect the context for business:

1. The climate bill dies in the U.S. Senate. Any hope for a national approach to tackling the largest challenge facing humanity petered out pathetically this year (see the complete, sad tale in a Pulitzer-worthy New Yorker article). Unfortunately for every other country, this is a global story. When the U.S. can't get its act together, the world can't create global policies, and thus the Cancun meeting last week resulted in some nice agreements to raise funds for adaptation -- arranging the deck chairs on the Titanic, anyone? -- but no binding targets on carbon.

2. Nature strikes back/Climate change is real. Ironically, given the rising debate in the U.S. on the science, the world got hotter, a lot hotter, this decade and this year. Russia saw its worst drought in 1,000 years (video), and Pakistan was overcome by flooding (video). Scientists will always give the caveat that you cannot blame climate change for any single weather event, but let's get real - this is what devastating climate change looks like on the ground. These weather events also directly affect resource availability, bringing me to my next point...

3. Resources get very tight. The drought in Russia destroyed 40% of its wheat crop, so Putin pulled wheat -- 1/6 of the global trade in the crop -- off the global market, driving up wheat prices. The floods in Pakistan helped double the price of cotton. And I could write a book on the topic of rare earth metals, those precious elements that make nearly every green technology possible and go into every iPhone. China mines 95% of these metals, and it needs them all now, making the U.S. "vulnerable to rare earth shortages." We're also vulnerable on fossil fuels. We learned from the massive spill in the Gulf of Mexico that readily accessible oil is a thing of the past -- we don't dig one mile under the ocean for the heck of it. So most natural resources are getting more scarce, from oil to metals to crops. Smart companies like Hitachi are trying to find solutions, such as its new plan to develop rare earth recycling technologies.

4. China, China, China. Did I mention rare earth metals? Or the rise of the world's largest solar producer from a manufacturing base of nearly nothing a few years ago? Or how about China's unparalleled (and some would say illegal) support for its renewables companies, which has the World Trade Organization fretting about trade barriers? China is very serious about its green ambitions, with support from the very top, and the business community is taking note.

5. Renewables are for real and moving fast. Ok, there's some good news. The market for renewables is growing fast. About 45% of Portugal's electricity comes from renewables, and this is up from 18% in just five years. Germany, not really the sunniest country in the world, added 1% of its electric needs in solar in 2010 alone (it took 10 years to get the first 1% online, and just 8 months for the second 1%). No wonder HSBC says the market for clean tech and climate change solutions will top $2.2 trillion by 2020.

Now for the company-level stories:

6. Supply chain pressure continues to rise (a.k.a., Wal-Mart doesn't slow down). Even coming out of the recession, this was a big year for green supply chain announcements. In February, Wal-Mart said it would eliminate 20 million metric tons of GHG emissions from its supply chain. Then in October, the retail giant announced it would double the amount of locally-grown produce on its shelves (and former sustainability exec Matt Kistler indicated this year that products getting higher scores in its Sustainability Index would get more shelf space). We also saw big announcements from P&G and Kaiser Permanente on supplier scorecards, IBM greatly increasing its demands on suppliers, and Pepsi using detailed carbon lifecycle data to make suppliers rethink how they grow Tropicana oranges.

7. Zero is the new black. Companies seem to be tripping over themselves on the path to "zero waste." GM announced that 62 of its plants now send zero waste to landfill, and UK retailer Marks & Spencer reached a 92% diversion rate on the way to its zero goals. And Sony one-upped everyone by setting a goal of zero environmental impact across its operations by 2050.

8. Big goals were back. Recession-schmecession. Sony wasn't the only one setting aggressive targets. Panasonic said it wanted its GHG emissions to peak by 2018 and it would greatly increase sales of eco-products. Unilever has probably gone the furthest, announcing it would double sales by 2020, but halve total environmental impact (among other big goals). Unilever's leaders are serious about driving these plans into the operations of the whole company.

9. Electric vehicles storm the market. The Nissan LEAF was just named 2011 European Car of the Year, and GE announced it would buy 25,000 electric cars. Since the auto industry is one of the biggest in the world, there will be ripples from this movement. Enough said.

10. Small guys can do it too. It's easy to get caught up in the tales of giant companies. So one of my favorite stories of the year is a simple example of eco-efficiency and savings from 10-employee Bowman Design with just 2,000 square feet of office space in Southern California (where else?). See founder Tom Bowman's description of his company's path to a 65% reduction in GHG emissions and $9,000 savings annually (ok, I'll admit that I didn't mind that Tom name-checked my book Green to Gold in his article, but I don't know him).

11. (Bonus!) The Military gets serious about green. Honorable mention to the government and military, which is technically not "green business". But they're not kidding around, from plans to greatly reduce reliance on oil and diesel in Army operations, to Navy sustainability plans and test flights of planes running on biofuels. Go military green!

Looking Forward to 2011

No list would be complete without utterly over-confident predictions of the future. It's obvious that the pressures/themes above will continue to get stronger in the coming year. In particular, and in addition...

  • Supply chain pressure will evolve and get more sophisticated (such as retailers who said in August they would not buy fuel from Canadian oil sands). This shift will be partly driven by...
  • A data explosion around green is brewing. Companies will know more than ever about their impacts up and down the value chain.
  • Water will become a very big topic for business (it began this year, but there will be some great stories in my 2011 wrap up a year from now). My first couple of blogs of the New Year will look at water strategy.
  • Biomimicry, the design principle that suggests looking to nature for great ideas, will gain currency
  • Energy innovation will be the order of the day (e.g., the Paris metro station that captures body heat to warm a nearby building)
  • But here's my final, shocking prediction: climate change policy won't matter (much). Even though the failure of the bill was my #1 above, #2 through 10 tells me that for business, the logic of green does not depend on believing in climate change, or in having a law in place. The natural resource, supply chain, innovation, and profit drivers are just too strong.

    Business will be getting a lot greener in every sense of the word, no matter what political battles are waging. We're going to stop debating climate in the business community and just focus on the larger case for prosperity, for companies and countries alike.

    I'm sure I missed many, many great stories. Please share your favorites here, and have a merry green 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 @GreenAdvantage)

August 25, 2011

Headlines You'll Never Read About Renewables...

The New York Times reported today that geologists have “sharply cut” their estimate of how much natural gas exists in the rock formation called the Marcellus Shale. They now guess it holds 84 trillion cubic feet, down 80% from the Energy Information Agency’s estimate just this year.

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Seeing this headline got me thinking about some of the benefits of renewables, and what we’re unlikely to see reported in the future…

  • Meteorologists Sharply Cut Estimate of Amount of Sun Hitting Earth
  • Off-shore Wind Farm Explodes, Massive Wind Spill Coats Coast of Gulf
  • Algae Mine Collapses Burying 33 Chilean BioFuel Farmers
  • Heat Source for Geothermal Plants Drying Up
  • Tides Seem to be Slowing Down
  • Troop Deployment Begins to Defend Vast Sun Fields Abroad
  • Scientists Concerned That We’ve Reached Peak Sun and Peak Wind

Kidding aside, it seems clear that our days of relying on fossil fuels are numbered. That’s not a political or moral statement – it’s a scientific one. The 84 trillion cubic feet is still a lot, but getting to it is fairly difficult. Easy oil and easy gas are almost oxymoronic at this point. Getting our traditional energy will be expensive and dangerous – think digging a mile under the ocean – from now on.

I’m sure the snarky will point out that renewables have their problems – intermittency being the big one. But the challenge of how to store energy that comes and goes is solvable – more and better battery technology, for example. Or millions of electric vehicles acting as a massive, mobile power storage unit…one that is parked and plugged in at night when the wind blows on the grid.

But more importantly, I can guarantee that we’ll never run out of the heat of the earth, the sun beating down on the planet (ok, in 5 billion years we will), or the wind driven by the sun’s heat. These sources will not be harder to get to tomorrow than today. They will only get cheaper in comparison to the buried kind of energy, with a variable cost of about zero.

Those seem like some pretty solid business reasons to invest and switch our economy quickly.

December 22, 2011

Top 10 Green Business Stories of 2011

Yes, it's December again somehow: time to look back on what we've learned and oversimplify into a handy list. Here's my take on the 10 big stories in sustainability and green business this year:

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1. The usual sustainability drivers got stronger
Ok, this one is cheating a bit, but on a fundamental level, the top themes in green business haven't actually changed too much (see the 2010 list). So, rather than take up valuable list real estate with these perennial favorites and big-picture drivers, I'll quickly list them in one big bucket of mega-trends:

  • The rise of the consumer around the world, related to...
  • China, China, and China. From relentless demand for resources to bamboo-like 9% growth to vicious competition for the technologies and industries of the future, China will be the big story for a long time.
  • The greening of the supply chain. Big organizations keep asking more of their suppliers.
  • Increased demand for transparency and its close partners, (a) the quest to define and develop useful sustainability metrics and (b) the growing sustainability data explosion.
  • The military continues to lead the way on energy and climate.
  • The ongoing failure of policy at a global level (with the important exceptions of some successes/workarounds such as new mileage targets for cars and trucks and a carbon tax in Australia).

These drivers underpin a number of stories from 2011, but a few new themes came out as well. Here's the rest of my top 10 stories, with callouts for companies and examples that typify the trend.

2. Malthus strikes back: Coca-Cola takes an $800 million hit on commodity costs
Coca-Cola was not alone in facing increasing costs in 2011; one of my clients, Kimberly-Clark, took an earnings hit from record pulp prices. These companies are notable victims of a new reality: resources are constrained and input prices are fundamentally rising.

For over 200 years, from Thomas Malthus to the Limits to Growth gang, many people have made the case that it won't be long before we'll run out of food, energy, materials, and on and on. It's an idea that has enthralled many, but has seemed to be wrong. But this year, something felt different as we hit 7 billion hungry, striving humans on the planet. While "running out" isn't really the right phrase, it's clear that delivering many commodities to market is getting harder and more expensive (we don't dig for oil a mile under the ocean for the heck of it). And the dangerous mix of supply crunch and rising demand is only increasing, across nearly all commodities.

In January, China "seized" its rare earth metals (meaning it wouldn't export them anymore). In June, the New York Times declared a warming world hostile to food production. The best analysis of the resource scarcity mega-trend came from asset manager Jeremy Grantham. His analysis of commodity availability on a finite planet is compelling, thorough, and absolutely fascinating. Here's the gist: after 100+ years of fundamentally declining resource prices, the data show a rising trend for nearly every input into our society. Business as usual is no more.

3. Climate Change Arrives: Texas weather triumphs over (some) ignorance
Climate change is here. The list of "once-in-a-century" storms, floods, and droughts this year is too long to list. I know, I know — no single storm or season "proves" climate change. Was a year like 2011 possible in a world without climate change? Of course. But please. Was a year like 2011 likely? Not at all. In the words of climate scientist Jim Hansen, we've loaded the dice in favor of extreme weather events.

From Thailand to Pakistan to Texas, some areas are deluged with water, while others have absolutely none. Please look at the numbers for how dry and hot Texas was this summer (I'll wait). The data speaks for itself: Texas' heat was literally off the charts this year. What was once temporary drought is looking more like permanent change. For another angle on a changing "normal," read Jeff Goodell's piece in Rolling Stone on "Climate Change and the End of Australia." Finally, if the immediacy of the "look out the window" method of gauging climate change didn't work for some, at least one major climate skeptic changed his tune based on longer-term data. Richard Muller ran the models himself and discovered that, surprise, the thousands of scientists before him had gotten it right. It's probably wishful thinking, but I believe the climate debate is actually over (and a solid majority of Americans agree).

4. High-profile "failures" shake up clean tech: Solyndra has its day in the, um, sun
What can one say about the failure of solar company Solyndra? It certainly has become a media darling for clean tech skeptics. Soon after this quasi-fiasco, a few other stories seemed to indicate that corporate America was backing off of green tech. Google stopped its high-profile pursuit of cheaper-than-fossil-fuel renewables, and California utility PG&E quietly pulled the plug on its carbon offset program. In my view, none of this is all that distressing. So one technology and company failed miserably (and perhaps the government made a bad investment choice). And some initiatives didn't work out as planned. So what. Whether it's government money, venture capital, or corporate initiatives, you gotta place lots of bets to get some winners. These were all experiments, and you always learn from what doesn't work. But the real reason I'm not too worried is that...

5. ...clean tech is rising fast: Renewable investment tops fossil fuels for first time
Markets have a remarkable way of sorting the wheat from the chaff. While the overall carbon emissions news is not good, the renewable energy market is growing very fast. The sector is larger than most people realize, with clean tech investment hovering around $200 billion globally. Total investment in new power generation is a good indication of where we're headed, and for the first time renewables beat fossil fuels globally. Right now, the U.S. and China are entering a trade battle over solar subsidies, which tells me it's a real market now. They wouldn't be arguing if the prize were not very large.

5b. Nuclear on the outs

Following the nuclear meltdown in Fukushima, Japan, the once-resurgent nuclear industry is flatlining: generation actually fell globally in 2011, with Germany alone shutting down 8 gigawatts' worth. In September, Siemens, one of the world's largest nuclear power plant suppliers, exited the business. CEO Peter Loscher declared Germany's plans to move aggressively toward renewables "the project of the century."

6. Water rising — both literally and as a serious issue for business: Honda's supply chain gets slammed, Levi's gets creative
A list of floods that devastated lives, homes, and countries this year would be tragically long. So it's no wonder that business started to wake up to the serious danger that storms and shortages present to their operations, both from direct damage to property and from massive production interruptions (i.e., "business continuity"). Think back to the January floods in Australia which covered an area larger than France and Germany combined. The extreme weather seriously disrupted coal production, one of the most important economic engines in the country. At the microeconomic level, consider what Thailand's floods have done to the market for disk drives, or to supply chains for Honda and Toyota (which are dealing with a double flood hit from the tsunami as well).

On the use side of the water issue, companies with products that depend on water in production (beverages) or in use (shampoo, apparel) are also seeing the writing on the wall and getting creative. Levi's announced a low-water jeans production method, Unilever started asking customers to shorten showers, and beverage companies are working with farmers and NGOs to drive water use down throughout the value chain (see my last blog, co-written with Andy Wales from SABMiller). In 2011, the phrase "water footprint" became a lot more common.

7. Value chain and transparency partnerships growing: The apparel industry bands together
One of my favorite new partnerships is the new Sustainable Apparel Coalition, an impressive mix of powerful retailers, apparel manufacturers, and NGOs. The group is leveraging extensive data from Nike and the Outdoor Industry Association on supplier sustainability performance (energy, water, toxicity, etc.) for "every manufacturer, component, and process in apparel production." The goal: to reduce negative environmental and social impacts of the $1.4 trillion market for clothes and shoes.

The larger trend here is the continued growth of "open" — open data and open innovation, including new value-chain business partnerships and cattle-call contests inviting in any and all ideas. The movement has been building for years, from P&G opening up its product development pipeline early in the 2000s to the launch of the GreenXchange for sharing green patents early in 2010. But the trend accelerated this year, with GE's expanded Ecomagination Challenge and other coalitions and open competitions.

8. Valuing and internalizing the externalities: Puma Calculates its Environmental P&L
A few very cutting edge companies are starting to ask some deeper questions about the value they create and destroy in the world. Puma, in a surprise leap to the front of the sustainability leadership pack, commissioned TruCost and PwC (full disclosure: I have a partnership with PwC) to assess the value of its total environmental impacts from operations and supply chain, including carbon pollution, water use, land use, and waste generated. The total: 145 million euros. In a similar vein, Dow Chemical launched a 5-year, $10 million partnership with The Nature Conservancy to "value nature" (so called "ecosystem services") as an input into their businesses. It's unclear what companies can do with these numbers since externalities are by their nature, well, external to the regular P&L. But it's the beginning of something very important — companies are starting to understand the real value and costs of their businesses, to themselves and to society. Watch this space.

9. The people speak: Keystone and OWS
Speaking of getting companies and governments to think longer term about value and costs to society: against all odds and expectation, the protests against the Keystone XL pipeline from Canada — led most prominently by uber-environmentalist Bill McKibben — were successful (for now). And what can one say about Occupy Wall Street? The movement is, in part, about this larger question of value and values. Do we value the right things (equity, fairness, justice) or just promote growth and profit above all? Currently, our businesses are driven entirely by quarterly profits. Pursuing the short-term payback can cause a firm to deviate wildly from actual, long-term, sustainable profitability. This disconnect was bound to stir some passions eventually. Whatever your politics, ignoring or dismissing this movement is a big mistake. The concerns underpinning the anger out there stem from concern about what's good for the long-term, and what's truly sustainable. None of these questions are going away.

10. A path to sustainable consumption begins to emerge: Patagonia asks us to buy only what we need
Perhaps the most heartening business story of the year came from perennial thought (and action) leader, Patagonia. Its Common Threads campaign/business model questions consumption at its core. The company announced that it would take back its clothing and refurbish, resell, reuse, re-whatever. The website proposes a grand bargain - we make clothes that last, and you don't buy what you don't need. A holiday ad got more specific and demanded we "Don't buy this jacket." Patagonia is testing new ground and it's not a gimmick — it's a sign of the future.

Looking Forward to 2012 and beyond: New business models coming
Patagonia has always been at the leading edge; it was one of first companies to buy organic cotton or to turn recycled plastic into fleece. Now it's showing the way to new business models. I've written about this kind of heresy before, but the few examples out there are generally B-to-B (Waste Management, Xerox). Patagonia's move is a warning shot over the bow that the consumer-facing consumption question is coming. The near future will hold more questions about how businesses can and should operate in a resource-constrained, hotter, drier (or wetter) world. And companies will increasingly question the wisdom of focusing on quarterly profits. It won't all come to fruition in 2012, but it's on its way.

As usual, I'm sure I'm missing many great stories in my list. I look forward to your suggestions. Happy holidays and Happy 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 @GreenAdvantage)

February 10, 2012

Walmart Broadens the ROI for Green Power

At the recent GreenBiz Forum in New York, I was surprised by an on-stage interview with Fred Bedore, an executive from Walmart. I've followed the greening of the retail giant fairly closely for years, so I wasn't expecting a lot of new information from Bedore, Walmart's Senior Director of Business Strategy and Sustainability.

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But amidst a seemingly scripted set of responses on Walmart's supply chain and operational greening efforts, the discussion took an interesting turn. When addressing the company's aspirational goal of using 100% renewable energy, Bedore said two noteworthy things.

First, 75 percent of Walmart's California stores now have "some kind of renewable energy system." Renewables are still providing only a tiny percentage of the company's total electricity demand, but it's definite progress. And the commitment to green energy has helped Walmart take third place on the U.S. EPA's latest list of the top 50 renewable energy buyers.

Second, Bedore spoke about how Walmart thinks about its investments in green power:

"There is an ROI calculation on all sustainability investments like on all projects, but...we look at where the investment gets us. [For example] the longer term payback on solar helps us get to scale down the road."

In essence, Bedore was saying that Walmart recognizes that it can help take the solar market to scale, thus lowering its costs in the future. It also recognizes that, in the meantime, operational managers will gain valuable experience and knowledge about how to optimize the new power systems. The company can also reap the immediate variable cost benefits of free power.

In short, Walmart has tweaked its ROI requirements for green power initiatives to reflect more of the big picture.

Of course, investing in projects with a hard-to-measure payback — such as a new marketing campaign or entry into new geographic or customer markets — is a normal part of business strategy. And making choices that do have measurable, but longer-term, strategic value should be par for the course as well. So it shouldn't be a surprise that Walmart is doing this.

But in my experience, this larger view of a company's goals has in recent years taken a back seat to a relentless pursuit of quarterly earnings. We worship internal rates of return (IRR) to our detriment.

When it comes to green projects, this narrowly-defined measure of "payback" is particularly destructive. The typical (but evolving) view is that all sustainability initiatives are either an expense and/or should only happen if they meet the strictest hurdle rate. For years I've made the case that companies should shift their decision-making and investment criteria to take into account intangible and longer-term benefits that are missed in normal IRR calculations. But only a handful of leaders do this consistently.

For their part, Walmart execs have said repeatedly (and justifiably proudly) that all their sustainability projects thus far — such as dramatically improving the energy efficiency of stores and the fuel efficiency of the distribution fleet — have met normal ROI requirements. Bedore said as much...until he added the critical caveat that in the case of green power, Walmart bean counters were looking beyond the near-term payback.

Investments in renewables are an important case where this kind of flexibility of thinking is required. The actual cash payback periods are getting shorter, but they rarely meet the typical 2-year (or so) ROI required by most large companies.

But green power initiatives yield other important benefits, from reducing risk by lowering reliance on volatilely priced resources to enhancing brand value by putting visible symbols of green commitment on stores. These paybacks are real, even if they're hard to measure, and they need to be accounted for strategically when considering the ROI on green projects.

We need a lot more flexible thinking going forward. Hurdle rates are important to provide some means of comparison between projects competing for capital. But an internal rate of return cannot be a straitjacket.

If the lords of low cost recognize the strategic value of green investments, so can the rest of us.

(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)

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.)

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

September 28, 2012

The Supposed Decline of Green Energy

Here's a surprising new fact about energy in the United States: the percentage of our electricity coming from the greenest sources — that is, the non-hydroelectric renewables such as solar, wind, geothermal and biomass — has doubled in just four years to nearly 6 percent. (Thanks to climate uberblogger Joe Romm for uncovering this data from the Energy Information Agency).

Solar%20Jobs.jpg (Thanks 350.org for this image)

This significant win for clean energy has gone mostly unnoticed in the press. If anything, the story has been the opposite: recent reports herald the decline of wind, and for a year the media has made a big deal out of the demise of solar panel manufacturer Solyndra.

Given this negative drumbeat, it's not surprising that the business world tends to perceive renewable energy as an altruistic, rather than fiscally prudent, investment. But this view is dead wrong. The renewable energy industry is growing very fast... and not because it's a philanthropic effort.

Let's look at the plight of solar panel manufacturers again. Every growing industry experiences painful shakeouts driven by rising competition. In the case of solar, vast investments in production capacity in China have quickly brought down the cost of panels — a jaw-dropping 65 percent slide in just 18 months. This is good news for people buying solar, but it's not great for many manufacturers. By lowering the "China price," the world's low-cost manufacturer is doing to solar what it did to the apparel and electronics sectors: driving higher-cost producers (usually in the West) out of business.

Aside from China's role specifically, all of this should look familiar to any students of business history. Adam Shor studies the solar sector for the Electric Power Research Institute. As he put it to me, "Show me a mature industry with more than five big players." In the most oft-cited parallel example, a century ago there were hundreds of car manufacturers.

But all of this context misses a critical point that most businesspeople are overlooking: problems for manufacturers do not equal problems for the entire sector.

Jigar Shah, a well-known clean tech entrepreneur and former CEO of the Carbon War Room, gave me this perspective: Solar cell manufacturers account for only three percent of the roughly 100,000 U.S. jobs in the solar sector. Another quarter make other components and the rest, making up a large, growing and local job base, work elsewhere in the value chain. Thus the fastest growing players are young companies that sell, install and service solar: soon-to-be household names like SunEdison (which Shah founded), SunRun, Sungevity, and SolarCity. In a lengthy article on these solar entrepreneurs, The New York Times recently reported that Sungevity, for example, has seen its revenues explode 16-fold in just two years.

So back to this doubling of the share of electricity. Once technologies take off, doublings can happen pretty fast — just ask the investors in the Internet, mobile or social media. Will renewables' share double every 4 years? As Shah pointed out to me, the solar business is growing 30 percent per year (see the Solar Energy Industries Association site for general info in the U.S. solar market). Here's a math check: doubling every 4 years requires 19 percent annual growth.

The power of exponential growth and economic tipping points work wonders: in just three more doublings in share, non-hydro renewables would provide nearly half of our electricity needs — more than we get from coal or natural gas today.

The scale and pace of change I'm describing is not a fantasy — it has already happened elsewhere. Portugal transformed its electric grid from 17 percent renewables to 45 percent in just five years (as of 2010). And in the first half of 2012, renewables provided over 25 percent of Germany's electricity. On one sunny day this past May, Germany set a world record by generating 50 percent of its peak electricity needs solely from solar power. Shah predicts that next spring, the number will be closer to 70 percent.

It was easy to write off renewable energy as a side show at one or two percent of total electricity generation. But it isn't good business to ignore it now, as the economics get better and better. Making the assumption that solar or all green energy won't work because one company didn't pan out is absurd. In 2000, were all technology investments poor bets because Pets.com went under?

The cost of using renewable energy, either through power purchasing agreements that cost nothing up front or through direct investment, is dropping fast. This reality changes the calculus on green energy for homeowners, governments and corporations alike. Upfront costs are falling, which makes the ongoing variable cost of renewables — that is, zero — even more attractive. Better yet, zero is a predictable cost, which CFOs love.

In recent years, several corporate energy managers have told me that when they run the numbers on renewables, the payback just isn't quick enough.

I'd suggest running the numbers again.

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

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

November 8, 2012

The Fantasy of the "Sad Green Story"

(Note: This blog is co-authored with my colleague Jigar Shah, a partner at Inerjys and a board member of the Carbon War Room, where he served as its first CEO. Jigar also founded SunEdison, helping to create the multibillion-dollar solar services industry.)

To get back to some non-election topics...A couple weeks ago, New York Times columnist David Brooks wrote an op-ed entitled "A Sad Green Story" about the (supposed) travails of the green movement over the last 10 years. The idea that the clean technology sector is failing, or that it's a bad investment, is common enough in the business world and pundit class. But it's patently false. So what is Brooks talking about and what's really true here?

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Brooks focuses in part on whether Al Gore has made money on clean tech — a total distraction that has no bearing on the reality of climate change or the growth of clean tech. What's more important is Brooks' absurd logic that an entire sector of the economy is a "sad story" because some government-supported companies struggle, go under (Solyndra), or get acquired (battery maker A123). And how can Brooks tear down the government's involvement in promoting the deployment of American green innovation while providing no tangible idea of how he would do it better?

Most of us watching or working with the clean tech sector agree that government shouldn't try to pick winners (see Jigar's take on Solyndra's failure here), but we can propose a plausible model of how the government might play a more productive role. This ranges from providing a roadmap for remaking the multitrillion-dollar energy sector, to providing leadership by example (and scale) when purchasing new technologies.

For proof of how crazy all of this criticism of clean tech is, we need look no further than a recent Times-reported story on natural gas. Natural gas is a booming industry. But as the paper of record reports, it turns out that one key part of the natural gas value chain — that is the step of actually digging it up — is struggling financially. Small, scrappy entrepreneurs like Exxon Mobil are, according to its CEO, "losing our shirts today... Were making no money. It's all in the red."

This is exactly the same economic story that Andrew described a few weeks ago about the solar industry. The manufacturing end of the chain, experiencing a glut of supply, is losing money. But downstream users of the product, solar panels in one case or natural gas in the other, are doing very well. The financial struggle for some companies in both solar and natural gas is a sign of a boom, not a bust.

So we assume David Brooks and other green skeptics will soon write about the "sad brown tale" of the (also) highly subsidized industry of fossil fuels, which, since some people are losing money, must be shut down and mocked. We'll hold our breath.

Brooks' column is also filled with fantasies and misstatements that would be easy to correct with a simple Google search. As Andrew mentioned in his previous blog post, the percentage of our electricity coming from green energy has doubled in just four years — that doesn't seem like much of a sad story. Brooks also dismisses the idea of green jobs with no data to back up his position. Of course there are green jobs — there are 100,000 people working in solar in this country today. And, not for nothing, but the fastest growing green jobs markets are in politically red states. (We'll stop there and let climate blogger Joe Romm tear apart some of the more subtle Brooks fallacies.)

From a practical perspective, green technology is succeeding in part because we have oil prices that are stuck near $100/barrel, and water challenges that are creating deep competition between agriculture and oil and gas in places like Colorado. At some point Brooks and others will also have to acknowledge what the U.S. military, particularly the Navy, has already determined: future conflicts will arise over resources like oil and water; climate change is a security threat; and pursuing a renewable energy future is a safe, logical path.

In the end, fact-free attacks on all things green need to stop. Like in all industries, some paths are profitable and some are not. But we'll only find out what works if we invest in new growth sectors and not act like the sky is falling — or that there's some devious green investing cabal secretly making money — when some companies fail. Sad business stories become happy ones through persistence and overcoming failure. Not understanding that is Brooks' greatest fantasy.

(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)

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.)

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

June 25, 2014

The EPA's Carbon Plan Won’t Hurt Corporate America

[This was an op-ed I recently posted at Fortune.com.]

President Obama has said that fighting climate change is one of his top priorities. He finally made good on that promise when he announced federal regulations that will force states and power plants to reduce carbon emissions by 30% by 2030 (from a baseline of 2005 emissions). As widely reported, the regulatory mechanism is meant to be flexible, with four main options now open to the states – states can choose from energy efficiency, shifting from coal to natural gas, investing in renewable energy and discounts to encouraging consumers to move to off-peak hours.

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It all sounds wonky and focused only on the power sector, but these new rules could bring deep change for all businesses and all citizens. Those fighting progress are of course crying foul and shouting about economic devastation from burdensome regulations – the U.S. Chamber of Commerce put out an absurd “analysis” of the regulations before they were released. There will obviously be a cost for utilities to comply, but industry generally overestimates – often by an order of magnitude – the expense to meet tougher standards.

And to say, as the Chamber does, that these regulations are the prime source of uncertainty for utilities, is an exaggeration at best. The utilities were already at a point of no return even without regulations, and investors have begun to figure it out. Barclays bank recently downgraded the corporate debt of the entire U.S. utility sector to an “underweight” rating in its portfolio. The bank declared that an industry that was once “seen by many investors as a sturdy and defensive subset of the investment grade universe” was now risky because of the threat of cheap solar power. Clean tech innovation is already well under way and deeply impacting older industries. The new regulations will only accelerate the move.

Regulating power plants and utilities is going to propel innovation across many sectors – not just power technology, but anything that improves energy efficiency, including new technologies for buildings, agriculture, electronics, and even water (we use 13% of our electricity to move, heat, and treat water). So, yes, dirtier power will get more expensive – and that’s part of the point – but we will innovate. We will drive total energy use down and use of clean energy up.

There will be other ripple effects making the carbon reductions from these regulations greater than they seem. Electricity, as some critics point out, is “only” 32% of U.S. emissions, but that’s only part of the story. Transportation makes up another 28% of our carbon pollution. As we make power generation cleaner, plugging a Tesla into the grid will kill two very big birds with one electric stone.

So all of that said, what should a company that isn’t in the business of generating power do to prepare for what’s coming? I’d suggest moving to renewable energy as fast as possible, if only to avoid uncertainty. Will utilities be able to pass along whatever costs they incur? That is, will our energy costs rise? Who knows, but it does seem likely that traditional, dirty energy will be getting more expensive. It’s very simple in theory – the less energy you use in total, and the more clean energy you use, the less vulnerable your business (or home) is.

Consider the organizations – mainly retailers and big tech companies – that have been moving aggressively to renewable energy already. IKEA will make 70% of its own power by 2015 (and over 100% of its needs in the U.S.). Wal-Mart gets 24% of its electricity from renewables (granted, two-thirds of that comes from the green power their utilities are already generating, but it’s still a lot of clean power onsite or near to stores). Apple gets about 100% of its power for its data centers from the wind, sun, and fuel cells.

I could go on, but the key question is this: How much do these companies care about these new rules and the cost of dirty power? Well, I’m guessing IKEA cares about 70% to 100% less than some of its lagging peers. As a homeowner making over 50% of my own power from the sun, I know I’ve got less directly at stake in this debate.

Regulations and laws aren’t fun. They’re not sexy. The battles over these laws will be bloody, so why not avoid the war? It’s time for companies to actively seek ways to dramatically reduce their energy use and shift their supply.

For utilities – and all companies really – the writing is not just on the wall, it’s now on the books.

(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)

July 30, 2015

Taking Action on Climate is the Ultimate No-Brainer Business Strategy

[Just some summer catch up on re-posting things I've written in other places. I posted this on The Guardian's site a few months ago. It's one of those "going green is a win-win" stories that I wish were not necessary anymore. For the knowledgeable sustainability folks, this is a 'duh'...and I could've written this in almost the same way years ago -- except for the part of the story about the precipitous drop in the cost of renewable energy. So I expected more pushback from readers on 'we've heard this before', but I got almost entirely positive feedback on how I'm making the case (again). The larger point is that we do need to tell this story over and over -- the misperception remains that if it's green, it must cost more. Let's put a stake through that.]

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(Photo: Flickr by h080)


Recently, as I finished speaking to a group of fund managers, I was asked two questions that have become increasingly common. The first was: “What if scientists are wrong and the climate thing doesn’t turn out to be so bad?” The second was: “Will companies regret doing something about it?”

On the bright side, these questions are a big improvement over the one I kept getting asked a year or two ago – namely, whether climate change was happening at all. While climate change is more than reason enough for a deep reconsideration of how we do business, I suppose it’s not an unfair question to ask if going green has other benefits. The short answer is yes.

To get a feel for how tackling climate change can benefit a business, it helps to look at the four major categories of corporate action that fall under the banner of “doing something” about carbon:

  • Eco-efficiency in all its forms: slashing energy and material use in production, packaging, distribution and business operations, as well as redesigning products and encouraging customers to reduce their energy draw
  • Using renewable energy: either investing in energy-generating assets or signing long-term power purchasing agreements for renewable electricity
  • Ensuring the supply chain is working on eco-efficiency and renewable energy
  • Lobbying for a tax on carbon or encouraging other policies that would help drive all of the above

No regrets

It’s hard to see which of these actions might be regrettable. The first category, eco-efficiency, saves money and makes companies less dependent on resources that can disappear or get more expensive. Most companies looking at these investments tie themselves to an arbitrary two-year hurdle rate, but even if a company went further down the payback list, what would the regret be? Lowered operating costs after payback?

The second point, renewables, has often been a harder sell. Renewable energy has been the poster child for the most expensive – and, presumably, anti-profit-maximizing – way to go green. But this view is incredibly outdated: solar and wind prices have dropped 60-80% over the last five years, and “grid parity” – the point at which unsubsidized renewables are as inexpensive as fossil fuels – is quickly approaching in most countries.

Because of these trends, more companies are now able to sign power purchasing agreements to buy renewables for the same price or less than they’ve been paying for non-renewables. Financing options also mean they don’t have to start off with any capital investment, which further eases the transition.

Of course, it’s possible that these companies will regret locking in a price if energy costs plummet. But that contingency seems unlikely: recent oil price drops aside, basic commodity prices have been trending upward since the beginning of the century. In fact, even at recent lows, oil costs twice what it did in 2000.

More importantly, energy prices are incredibly volatile, so locking in prices brings stability, risk reduction and increased resilience. All of these benefits are real, even if we don’t put numbers on them.

But what about those companies that buy their own power-generating equipment – like solar panels – and face a longer payback than the normal hurdle rates? Even in this case, there isn’t much to regret: getting a significant portion of energy at zero variable cost holds zero risk.

The same logic broadly applies to pressing the supply chain to reduce carbon. Driving suppliers to lower operating costs and increase reliability and resilience is good for their businesses.

As for the final point, putting a price on carbon accelerates the benefits of all of the other actions. The only regret might be if we go too fast for the economy to adjust to rising prices for dirty fuels. Then again, I wouldn’t bet on global policy action moving too fast any time soon.

The big picture

Moving beyond the corporate level to the macro perspective, these benefits multiply. Cutting carbon means cutting overall pollution, not to mention the serious and expensive health consequences of burning fossil fuels. Perhaps most importantly, it makes us more energy independent. After all, nobody can raise the price of sunlight and wind – or cut off the supply.

This isn’t to say that there won’t be any losers in a clean economy. The entrenched technologies and the workers in those sectors – like coal miners – will be hurt. But we can, as a business community and society, work to ease that transition rather than deny the overall benefits that will come from doing so.

Looking at the situation as a whole, asking about the regrets that we might face if we slash carbon emissions is a bit like asking what would happen if smoking wasn’t as bad for our lungs as doctors say. Would we regret avoiding all the other problems like increased risk of heart disease and stroke? Would we regret eliminating the $10 per pack expense from our lives?

The question about whether we’ll regret moving to a clean economy is usually put in terms meant to sound careful and risk averse. The truth, however, is that not going clean is riskier. After all, a key part of risk management lies in considering the “tails” of the curve of probable outcomes. In other words, if you’re asking what happens if science is overstating the problem, then you have to ask what happens if they’ve understated the problem. And, given the consistent trend of headlines like this, this side of spectrum seems far more likely.

How much will a company – and all of us – regret not taking action if the outcomes are much worse? Given the day-to-day benefits of moving to a clean economy, corporate action on climate is the ultimate no-brainer.

(This post first appeared on The Guardian online.)

(Andrew's new book, The Big Pivot, was named a Best Business Book of the Year by Strategy+Business Magazine! Get your copy here. See also Andrew's TED talk on The Big Pivot. Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)

October 23, 2015

The Arguments Against Climate Action Are Crumbling Fast

[There's been incredible movement on climate change in the last few months. I wrote up 7 big myths that you hear for why we shouldn't take action on climate or build the clean economy and described how those arguments are crumbling. A version of this was posted as a Q&A with me with some helpful additional context by HuffPo's Jo Confino -- of course the comments section is where the climate denial comes out...

But the good news is, we're winning this argument in a big way. Here's my original piece...]

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It’s getting very hard for the “go slow” crowd on climate and the clean economy. All of the best talking points are completely falling apart. Here are 7 core arguments about why the U.S. acting on climate change, or building a clean economy, are bad ideas…and some recent news that obliterates each one.

1. It’s expensive and/or “destroys the economy”

The best estimates on what climate change will cost the world – versus the investment costs of acting to avoid the worst of it – have for years pointed away from this fallacy. From the Stern Review in 2006, to the more recent New Climate Economy and Risky Business reports, the numbers show clearly that not acting on a changing climate is a horrible fiscal choice. The most recent analysis, the powerful Energy Darwinism report from Citi, puts some absurd numbers out there: between now and the middle of the century, unchecked climate change could cost the world up to $72 trillion. Citi also calculates what the world should spend on fuel and capital expenditures (on energy and transportation infrastructure) to create a clean energy future: $190 trillion. That sounds like bad news until you compare it to Citi’s estimate for the business-as-usual, fossil-fuel-heavy scenario: $192 trillion.

So, we’re going to invest huge sums of money in energy either way, and we may as well spend $2 trillion less to avoid tens of trillions of economic (and human) damage. And we’ve done it for years – OEC countries grew 16 percent over the last decade while cutting greenhouse gas emissions more than 6 percent. In short, we can increasingly decouple growth from fossil fuels, so acting on climate is a big win-win.

2. China’s not doing anything, so why should we?

Besides missing the point that building the clean economy is good for us no matter what anyone else does, this favorite nugget has been untrue for years. China built the world’s largest solar and wind industries in less than a decade, driving down the cost of those technologies for all of us. The shift is already over there. There’s more wind energy in China than nuclear and the country built more solar in the first quarter of this year than exists in France in total. And what about all that coal? It’s still a problem, but China reduced coal imports by 42% in the first quarter as well. But this persistent myth about China’s inaction was truly destroyed 2 weeks ago when President Xi Jingping committed his country committed to launch a national cap and trade system to control carbon pollution in 2017. Yes, the market-based solution that American conservative economists and politicians basically created back in 1990 to fight air pollution – but then stopped supporting when President Obama tried to enact it to tackle climate change – will be launched in communist China.

3. Business doesn’t want this

Well, that’s partially true – for a coal company, tackling climate change is an existential threat. And oil and gas companies also have some challenges in the long (for awhile though, the natural gas business wins as coal declines). But for everybody else, the clean economy is a great deal, and a growing number of the world’s largest companies are realizing this. A new batch of multinationals recently joined RE100, a group committed to using 100% renewable energy (disclosure: I’m on the initiative’s steering committee). The new signatories include Walmart, P&G, J&J, Starbucks, Nike, Salesforce, and Goldman Sachs…and they joined current members like IKEA, Swiss Re, Nestle, Philips, Unilever, and SAP. Adding to the momentum, six major banks – Bank of America, Citi, Goldman Sachs, JPMorgan Chase, Morgan Stanley & Wells Fargo – announced their support for global and national policies that fight climate change.

4. Investors won’t support the clean economy

The six banks pledging support for policy also specifically pledged “significant resources toward financing climate solutions.” That’s the ‘carrot’ of clean economy finance. On the ‘stick’ side, the fossil fuel divestment movement has gained significant steam. Just a few fringe universities had signed on a year ago, but now Bloomberg reports that “portfolio managers have pledged to steer $2.6 trillion in investments away from fossil fuels.” The largest addition to the movement is likely the state of California, which will get out of coal investments.

5. God gave us dominion over nature to do whatever we want

The Pope begs to differ. The spiritual leader of a billion Catholics came to the U.S. in part to reinforce the messages in his powerful encyclical, Laudato Si. In this 40,000 word manifesto, the Pope makes it clear that, among other things, he finds the science of human-caused climate change compelling and that any interpretation of the Bible that lets humans run roughshod all over creation is dead wrong. In his words: “we Christians have at times incorrectly interpreted the Scriptures, nowadays we must forcefully reject the notion that our being…given dominion over the earth justifies absolute domination over other creatures..."keeping" means caring, protecting, overseeing and preserving.”

6. Republicans at the national level will never support action on climate

This one was true until a couple weeks ago and the US Republican party is the only major conservative party in the developed, democratic world to challenge climate science. Then 11 Congressional GOP-ers put forward a bill acknowledging climate change and promoting action (that the leader of this little insurrection is Catholic is not random). Yes, it’s less than a dozen, but it’s 11 more Republicans than we’ve seen come forward in years.

7. Renewables can’t power a modern society and/or there’s no feasible plan to get us there.

There’s so much evidence to the contrary, it’s hard to narrow it down. The costs for solar and wind have dropped from 70 to 80 percent over the last five years, with “fossil fuels losing their cost advantage” over the renewables. Deutsche Bank now predicts that most of the world experience “grid parity" – the point when renewables without subsidies are cheaper than the older technologies – within a couple of years. And the idea that renewables can’t power a modern society is mostly a myth – yes, we need advances in storage technology for when the wind isn’t blowing or sun is down, but those are coming fast also. Multiple studies suggest 100 percent renewable energy is possible by 2050 (or sooner), at least on the grid. And in transportation, does anyone think Tesla-style vehicles are a pipe dream anymore?

In short, the arguments against a clean economy are imploding and sounding weaker every day. In the words of the CEO of We Mean Business, a group of organizations pursuing the clean economy, “the shift to a low-carbon economy is inevitable, irreversible, and irresistible.”

So let’s get going.

(Photo: Flickr, 4 Seasons Hotel Implosion, Ian)

December 18, 2015

On Climate Change, Skepticism is Getting Old...Optimism is Warranted

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Is the Paris Climate Agreement good enough? Can the world build a low-carbon economy fast enough?

These are critical questions for the future of humanity, so it’s important to consider them carefully. But too many people in the press and in the business world are unnecessarily dour about the whole thing.

Consider two important voices that spoke up at the start of the Paris COP 21 climate conference. First, David Brooks, the quasi-self-appointed “reasonable” voice of moderate U.S. conservatism, penned a skeptical op-ed about the prospects for global change. Although he gave his arguments a veneer of tech optimism, he mainly focused on how hard will be to reduce carbon emissions. Brooks lamented, “the pain in reducing carbon emissions is individual but the good is only achieved collectively. You’re asking people to impose costs on themselves today for some future benefit they will never see.”

Second, listen to Alan Murray. He’s the editor of Fortune magazine, a publication that has covered the greening of business fairly extensively and positively for a decade, going back to an important cover story, “Green Machine,” which was accompanied by the cover line “Wal-mart Saves the Planet.” But Murray personally is clearly wary of a large-scale move to a clean economy, tweeting, “Sadly, U.S. is split between those who deny climate change and those who embrace wildly unrealistic solutions.”

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He goes on to say the quest for a low-carbon world could “destroy the economy.”

These views on the cost and feasibility of building a low-carbon world are not uncommon in the business world. But they are dated, damaging and dead wrong. We need a broad coalition of business, government and citizens to tackle a problem as large and complex as climate change. Telling people it’s not possible is worse than unhelpful. Luckily, most of the world is now ignoring the naysayers.

A Serious Response to a Serious Problem

Before addressing their biggest concerns, let’s stipulate something. Fossil fuels brought billions of people out of poverty. Society has invested for 150 years in infrastructure to power modern life. So of course it’s daunting to contemplate moving the world away from what we know. And many fossil fuel companies and petro-dictatorships are fighting the transition with their immense influence and power.

Nobody said it would be easy.

But throwing up our hands and saying “this is all too hard” is not much of a response to a serious problem. And, more important, the reasons for optimism are now bountiful.

Let’s look at Brooks’ commentary more closely. He says there are costs, which is a deceptive (or perhaps uneducated) way of referring to smart investments: All business or government expenses are choices about where to put capital. But the weirdest and most dated part of his statement is saying we’ll “never see” the benefits of a clean economy. Quite literally, China will see clearer air by reducing coal use and traffic in Beijing and other megacities. And for business, there’s an enormous range of initiatives that slash costs quickly — such as lighting and building retrofits, efficiency, and now even renewables. Companies like Walmart, Google and Apple are cutting carbon, buying tremendous quantities of renewable energy and saving money doing it. So when is this “never” that Brooks speaks of?

The idea that it’s just too expensive to go low carbon is one of thebig myths that are crumbling right now. If anything, the best economic analyses show that not moving away from fossil fuels will be devastating to humanity and our economies — a possible US$72 trillion expense over the next 40 years, according to a report from Citi. The bill for inaction is already starting to come due. Look at the costs of droughts like the one in California, or the immense human and economic toll of the “once-in-a-century” rains and floods in Chennai, India. Ford, BMW and many other multinationals have factories there. Lost production is expensive.

Citi’s study also suggests that we can take the trillions of dollars we will be spending on infrastructure and fuel in the coming years and point it toward renewables instead of old, dirty technologies. The total bill will be the same or less, just without the carbon and climate risk. So, far from destroying the economy, the low-carbon world will save it.

It’s true that it is a big job to turn over the world’s energy systems. But the need to cut carbon fast is not driven by love of polar bears. It’s about keeping the planet livable and productive for humans and our businesses and economies.

The continuing good news is that the new technologies are getting much cheaper all the time. Solar and wind costs have plummeted around 70 to 80 percent in the past five years, and a number of analyses tell us that, as the International Energy Agency and Bloomberg noted, “fossil fuels [are] losing cost advantage over solar, wind.” The world seems to have noticed this economic shift: More than half the new energy built today is renewable.

Murray has his concern about wildly unrealistic expectations, but I have a practical point. It’s true that it is a big job to turn over the world’s energy systems. But the need to cut carbon fast is not driven by love of polar bears. It’s about keeping the planet livable and productive for humans and our businesses and economies. We’ll do what’s required because we have to, based on physicsand economics.

It’s a strangely defeatist attitude to declare visionary thinking as unrealistic. Imagine rewinding the clock 25 years, when some were likely predicting a cellphone in every hand or magical portable computers that would give everyone access to the world’s knowledge. I’m sure many said it was impossible, but most in business probably eagerly embraced the massive multi-trillion-dollar build-out of the mobile industry in the 1990s and 2000s. So why not get excited about the trillions moving us toward a more resilient, distributed-energy, renewable-based world?

Predictions From Optimists

I prefer to get my predictions from optimists — people like Tesla’s Elon Musk who are painting a world of electric cars and renewable energy and moving forward to build it. And now we have the biggest source of optimism to date: In what is perhaps a first in human history, representatives from nearly 200 nations agreed in Paris to cut emissions over the next 10 to 15 years.

Yes, the deal has huge flaws. It has limited repercussions for countries not meeting targets, the tracking and transparency could be stricter, and even if we meet the current targets, we come up far short of slowing warming to 2 °C.

Companies are coming off the sidelines now for real, committing to serious reductions in carbon and massive investments in renewables.

But these are all problems we can deal with if everyone is on board. And, most importantly, the deal tells business and the markets that governments are serious. Investing in building the low-carbon economy just got even more rational. Why, then, is the carping from the sidelines usually couched as the more reasonable, sober position versus pie-in-the-sky or naïve activists wanting a renewable-powered world?

It’s easy to be depressed about the situation we’re in. Corralling close to 200 countries to act in collective best interest is obviously hard. And the science is not helping, because the climate problem is moving fast (I’m sick of seeing headlines like “The Arctic is melting faster than scientists thought”).

But the reasons for hope are now plentiful: from rapidly improving economics, to serious action in the business community, to global citizen and political will-building. Those denying we have a problem are being sidelined within nearly all governments (except the U.S. Congress) and increasingly, I find, within executive suites and boardrooms. Companies are coming off the sidelines now for real, committing to serious reductions in carbon and massive investments in renewables.

Globally, we’ve finally achieved a consensus that there is a serious problem. We’re nearing consensus that it’s in our economic and moral interest to do something about it. So it’s time for everyone to join the parade, criticize only when it’s productive and suggest real solutions that help us build a thriving world.

(This post first appeared at Ensia online.)

(Andrew's new book, The Big Pivot, was named a Best Business Book of the Year by Strategy+Business Magazine! Get your copy here. See also Andrew's TED talk on The Big Pivot. Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)

December 28, 2015

10 Sustainable Business Stories that Shaped 2015...and Some Questions for 2016

(I published the below, my annual list of the top 10 stories in sustainable business, last week in HBR. One change this year: I won't call evidence of climate change a "story." So consider the extreme weather that has devastated lives and businesses in Chennai, India. That’s not fodder for a top 10 list. It's unfortunately just part of the harsh reality of living life and doing business in the 21st century. It should be obvious that climate change is here and, as Citi calculated recently, will cost the world unfathomable amounts of money if it goes unchecked. And it's increasingly obvious that building the clean economy is good for business. So here it goes...)

The year 2015 was a pivotal time when humanity turned more decisively toward building a thriving and sustainable world. On our largest shared challenge, climate change, most of the major hurdles to action — both imagined and real – started to crumble. And an unlikely group of new voices joined the fight. From the Pope to global CEOs to almost all the world’s political leaders, the most powerful people got on board.

It was a year of amazing progress — mostly. Here are eight cross-cutting themes and stories from 2015 that are driving us toward a sustainable world (and two that are doing the opposite):

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1. The Pope reminds us that we’re all connected. The Pope’s encyclical, Laudito Si, is a manifesto asking that we reconsider how we treat each other in a threatened and divided world. He challenged the current form of capitalism and made a powerful case for tackling climate change and inequality on moral and economic grounds (I’ve summarized his paperhere and here).

The Pope is, at least nominally, the moral leader of 1.2 billion Roman Catholics around the world. His voice carries enormous heft with all leaders. By adding a weighty moral dimension to the discussions of climate and equity, and for linking them effectively, I believe his manifesto and continued vocal support for the issues make this the top story of the year.

Ideas can affect the world more deeply than even historic treaties or agreements. Consider that other power brokers, such as Jim Yong Kim, President of the World Bank, echoed themes similar to those the Pope raised. Kim said in September, “we have no hope of ending extreme poverty unless we tackle climate change.”

2. In Paris, all countries say with one voice, “We will tackle climate change.” The deal reached on December 12 might be one of the first times in history that representatives of every human being on earth agreed on, well, anything. It’s big news and a very good start, but the deal has a major flaw: the commitments will not keep the world from warming 1.5 degrees Celsius, or even 2 degrees (the stated long-term goals). That said, with 187 countries pledging collective action to cut carbon emissions, the deal will have vast repercussions for business, particularly as governments put into place policies to remake our energy, transportation, and building systems.

The lead-up to Paris gave us a taste of what’s to come. For example, China committed to implement a carbon cap and trade system, Britain said it would phase out coal plants by 2025, and President Obama vetoed the Keystone pipeline. Besides possibly saving humanity, the deal has another big upside — it signals to financial markets and businesses that the low carbon economy is worth investing in. Multi-trillion-dollar markets are in play and there will be many more winners than losers.

3. Companies line up like never before for climate action. One of the reasons the Paris talks succeeded was the clear support of the business community. CEOs from some of the world’s largest companies put out public statements backing a strong climate deal. Sectors calling for action included banking (Bank of America, Citi, Goldman, JPMorgan, Morgan Stanley, Wells Fargo), the apparel industry (including Levi, Gap, Adidas, VF), and the World Economic Forum, which brought 79 CEOs together to urge action. Even oil giants from Europe (including BP, Eni, Shell, Statoil, Total) advocated for a price on carbon.

Some big names went even further than this nudging and took direct action to lower their carbon emissions and costs by buying large amounts of renewable energy. The giants contracting for hundreds of megawatts of wind and solar included Apple, HP, Kaiser Permanente, Google, Dow, Amazon, as well as GM and Owens Corning. Many of these companies are also shooting to use only renewables.

4. Companies and global governing bodies set visionary global goals. Goals matter. Big, aggressive targets drive organizations (like the ones above) and countries forward. And we’ve seen a lot of them this year.

To start, the UN, in a parallel with the climate negotiations, released in September the ambitious Sustainable Development Goals. Also called the Global Goals, these 17 statements (and 169 targets) create a vision and destination for building a thriving world — no poverty, zero hunger, health and well-being, equity and equality, and action on climate change, just to name a few.

Many companies also set visionary goals this year, often based on science — and some achieved big targets like Coca-Cola’s 100% water replenishment goal. A few examples:

This all leads to a huge breakthrough:

5. The vision of an all-renewable energy system comes into focus. In November, two professors from Stanford and the University of California at Davis mapped out how 139 countries could rely entirely on renewable energy by 2050. As the progress countries and companies are making shows, this isn’t just science mixed with wishful thinking. The world has already begun the shift — and the numbers bear it out.

Of all the new power generation built globally over the past two years, renewable sources accounted for over half. In the U.S., in the first six months of 2015, 70% was renewable. This is in part because every clean energy technology is rapidly getting cheaper. As Bloomberg reported in August, for example, “fossil fuels [are] losing cost advantage over solar, wind.” This means that solar will reach the point where it costs the same as traditional options — what’s called “grid parity” — in 80% of the world by 2017. To keep the renewable sector humming along toward that economic watershed mark here in the U.S., the congress passed tax credits for solar and wind at the last minute this year.

6. Wall Street wakes up. For years, asset owners with longer-term horizons, like pension or sovereign wealth funds, have pressed companies to better manage environmental and social issues. This year, the shorter-term investors (shorthand: “Wall Street”) started to join in.

Blackrock, with $4.7 trillion in assets, has been pushing the investment community to get serious on climate. Larry Fink, Blackrock’s CEO, also sent a letter in April to S&P 500 CEOs suggesting that they invest more for the long-term and stop putting so much money into stock buybacks and dividends (a $1 trillion boondoggle for investors this year). And at Morgan Stanley (in what I believe was a first), an analyst raised the stock price target for companies — in this case three apparel giants (Nike, Hanesbrands, and VF) — based on how well they manage environmental, social, and governance (ESG) issues.

In other investor news, the fossil fuel divestment movement grew quickly, gathering together universities, cities, and other institutions that have more than $3 trillion in assets. And Bill Gates gathered some friends to create the largest clean energy fund in history to invest in R&D. So-called “impact investing” is moving out of the niche world and into the mainstream. Blackrock, again, created a new ESG-friendly mutual fund.

7. Consumers (finally) show interest in sustainable products. Blackrock’s new fund was specifically aimed at Millennials, the group of workers and consumers that are demanding more environmental and socially sound products. A Morgan Stanley report found that Millennials are twice as likely to buy from brands with good management of environmental and social issues, and twice as likely to check product packaging for sustainability performance. For packaged goods and food in particular, it’s the era of what many call the “clean label.” It’s a sweeping change in expectations, as people want to know how everything is sourced, made, and delivered.

There’s real money here for the good actors. Mega-retailer Target, for example, assesses thousands of products it sells and scores them on sustainability performance. For a segment of the highest-ranked products, sold under the “Made to Matter” banner, sales at Target are growing much faster than regular products (and will total $1 billion this year). And Walmart took a fascinating step, trying to help choosy customers by labeling thousands of more sustainable products online as “Made by a Sustainability Leader.”

8. Companies challenged, and were challenged by, their supply chains. For many sectors, supply chains are becoming both a major source of risk and also an opportunity for positive change. The food business is an important case study. At a UN event I moderated in Paris, the CEO of Kellogg’s talked about the risk to the company’s supply chain from climate change. It’s one reason that the food giant set a new carbon reduction goal for its whole value chainas did competitor General Mills.

Why? The previously mentioned clean label movement is a key part of what the New York Times called “a seismic shift in how people eat.” This shift in consumer demand is rippling up through supply chains as food giants race to change the food system. This year McDonalds experimented with organic beef, Subway committed to buying antibiotic-free meat (following many others in the sector as well as Perdue and Tyson), General Mills said it will drop artificial flavors and colors from cereals, as will Kraft with its mac and cheese. The list goes on, and the trend won’t stop at food and personal care products.

In addition to these steps forward, 2015, like all years, included some steps back.

9. Commodities continue their relentless plunge in price. During the 20th century, the price of nearly everything that goes into making our society – energy, metals, food, and so on – dropped steadily. Then from 2000 to 2014, everything got wildly more expensive, doubling and tripling at least. But since the end of last year, the prices of most commodities have plummeted. Oil is nearing a 14 year low.

This massive shift has many fathers, from overproduction and over-investment in capacity to a general slowdown in China’s economy. And it’s worth noting that lower costs are good for most businesses (except commodity producers) in the short-term. But the rising cost of doing business was a core driver of the move to a more circular, sustainable economy. The logic of tight resources has not vanished, and investments in renewables have not slowed as much as lower fossil fuel energy prices would’ve suggested. But making investments in dematerializing value chains, or in designing products for end-of-life, is harder to justify right now. That’s unfortunate in the long run.

10. VW cheats and Exxon’s true colors. Warren Buffet once said, “It takes 20 years to build a reputation and five minutes to ruin it.” VW quickly learned this this harsh truth when it came out that the company had cheated on emissions tests to make its diesel cars seem cleaner burning. Credit Suisse says VW’s actions could cost the company $86 billion, andsales in November in the U.S. dropped 25%.

But this story does not call into question every sustainable product claim out there. No, this was about fraud. But it does perhaps make diesel less compelling as a clean transportation technology. VW found it was difficult to achieve high fuel efficiency, power/torque, and low emissions … but not impossible. It turns out, by the way, you can get all three: just look at Tesla.

And as for Exxon, it was the least surprising “scandal” of the year that the company knew about climate change for decades and spent millions of dollars calling the science into question. At least the exposure of VW’s and Exxon’s misdeeds demonstrates that transparency is a powerful tool coming for everyone.

Looking Back — and Forward

This year will likely go down as the time we began, in earnest, to make some important and deep changes in “business as usual.” Climate change is becoming an accepted reality to address; renewable energy is starting to outcompete fossil fuels; the private sector is taking the lead in building more sustainable products and pleasing ever-more demanding customers and workers; and investors are following the money toward a cleaner economy.

The coming year will be filled with more companies facing global challenges and considering tough questions about their purpose and role in society. But of course many predictions will go out the window as reality intrudes. Some questions that we can only answer with time:

· Will commodity prices stay low or skyrocket again?

· What companies will take advantage of, or get tripped up by, the increasing demands for more information and transparency?

· Will another storm like Hurricane Sandy hit the U.S. and elevate climate to a top tier issue for the 2016 election?

· As Millennials become a larger part of the economy (half the global workforce by 2020), what will they demand?

· How will technology, big data, and sharing economies drive change in business and help make the world more sustainable?

I look forward to a fascinating and more sustainable year to come. Happy holidays and best wished for a wonderful 2016!

(This post first appeared at Harvard Business Review online.)

(Andrew's new book, The Big Pivot, was named a Best Business Book of the Year by Strategy+Business Magazine! Get your copy here. See also Andrew's TED talk on The Big Pivot. Sign up for Andrew Winston's blog, via RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)

June 22, 2016

It's Time for Companies to be Strategic About Energy (A New Report)

Last year, networking giant Cisco Systems worked with one of its contract manufacturers in Malaysia to deploy 1,500 energy and temperature sensors on its manufacturing equipment. These more “intelligent assets” read performance data, giving Cisco a detailed view of energy consumption — one that had not been available before.

Last week, at an internal Cisco meeting, the company’s VP of Supply Chain, John Kern, proudly reported that the project had identified ways to cut energy use by approximately 30%, which will likely save $1 million per year. (Disclosure: I was at the meeting as a paid speaker on sustainability strategy.)

When Cisco rolls out the sensors globally, these savings will add up. But to me, the most fascinating thing about the whole initiative is the organizational mindset shift it’s creating: a realization about the value of getting smarter about how — and where — operations use energy. As Kern put it, “We always manage costs so closely, but we weren’t really measuring energy — we didn’t know how much we spent! Through digitization initiatives such as this, we now have a way to measure, monitor, and manage energy…this is huge since energy is typically a factory’s largest variable cost.”

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In many of the most sophisticated companies with top tier operational practices, energy has mostly been treated as a cost line item, watched only by mid-level managers or execs, if at all. This black box approach can’t last. It’s time to move energy into the C-suite so executives can manage this critical component of operational performance in a more strategic way.

In addition, with the global climate accords signed now by 175 countries, the world is clearly turning attention to carbon emissions. How a company manages its carbon footprint and approach to energy in general is becoming a top-tier operational issue — and a big deal to regulators, customers, employees, and investors.

Some sectors have woken up already. In the tech world, for example, energy is now the largest component of variable costs for running a datacenter. Logically then, many of the companies investing most heavily in renewables are tech giants like Google, Apple, Microsoft, and Facebook. Heavy industry is also diving in, and companies like 3M, Dow, and Owens-Corning have bought many megawatts of renewable energy and found billions of dollars in energy savings. In agriculture, carbon emissions and energy use throughout the value chain are increasingly a core operational issue as well.

Every sector should be taking energy this seriously. Even if it’s not a large cost or risk issue in direct operations, it certainly is somewhere else in the value chain. The importance of energy to the global economy, to geopolitics, and to corporate bottom lines — plus the pressing need to tackle carbon emissions to ensure a stable planet and global wellbeing — all combine to make a powerful case for managing energy much more strategically at all levels, from facilities to total operations to strategy.

This basic argument, and its repercussions, are laid out in a new strategy guide that I co-authored with PwC’s George Favaloro and Tim Healy, the CEO of EnerNOC, a leader in energy intelligence software. For our paper, Energy Strategy for the C-Suite, we analyzed research and data on energy use at hundreds of companies, and included perspectives from an advisory council that included corporate energy executives and government and academic thought leaders (I also sit on that advisory group).

Aside from describing the mega-trends coming to bear on companies — such as climate change; new expectations of increased transparency about business operations; tech breakthroughs like big data and the internet of things; and dramatic shifts in how energy markets work and how to source energy — we identified 15 emerging best practices that can help companies create more value.

Here are a few examples of what we recommend in this new framework:

  • Develop a global energy strategy with C-suite and cross-functional accountability. We believe energy could be viewed in many organizations as a “keystone metric” — i.e., a primary indicator that aligns the whole organization around the pursuit of operational excellence. Optimizing energy and slashing carbon can drive overall operational improvements.
  • Set ambitious, science-based goals for energy and carbon. Dozens of leaders, from many sectors have set goals to cut carbon 40 to 100% in line with climate science (Cisco, Disney, Alcoa, Sony, J&J, EMC, and many more).
  • Track energy data at all levels, from the enterprise down to the product, using new tools to understand better how energy connects to overall business performance and metrics (like cost of goods sold). For example, Saint Gobain’s Ohio factory produces 30,000 different products, each with its own energy demands. Much finer energy intelligence data has helped the company understand its true cost per product line. It has adjusted its product prices accordingly, improving margins or just finding a more competitive price point in the marketplace
  • Use advanced financing mechanisms to expand energy project options. In addition to power purchasing agreements (PPAs) for corporate renewables, companies are increasingly able to buy energy as a service, not a product. Consider McCormick & Co, a Fortune 1000 spice manufacturer. When the company needed to replace old air conditioning units, it contracted with Constellation Energy Group to build a brand new chiller plant. Constellation owns the chiller and charges McCormick for cold air, freeing up McCormick’s capital to invest in other operational improvements and the business itself, not in energy infrastructure.

In total, energy is one of the largest components of company cost structure, and it’s a complicated operational issue. But it’s rarely seen as something that can provide deeper strategic insight. With new tools in a much more connected world, executive can better manage this most basic of inputs into the economy. Energy is just too important to be managed as a line item.

(This post first appeared at Harvard Business Review online.)

(Andrew's book, The Big Pivot, was named a Best Business Book of the Year by Strategy+Business Magazine! Get your copy here. See also Andrew's TED talk on The Big Pivot.

If you enjoyed this blog, please sign up for Andrew Winston's RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)

August 10, 2016

6 Ways the North American Clean Economy Agreement Will Affect Business

(Happy summer all. I'm a little slow on the reposts. This is from a month ago, following up another post on my analysis on the North America clean economy agreement. In short, it's aggressive, but do-able. I also did an interview for SeaChange Radio on this piece. There was some discussion -- and some debate in the comments section of the radio program -- about whether we need nuclear to meet the 50% renewable target. My point was that while nukes are incredibly expensive, especially to build new plants, the question is whether we should shut down existing nuclear assets while building the clean economy future. I think it could be unwise given the very short time frame to get global emissions under control. We need a bit more time to get storage up to scale also.)

Within a week, two continents embarked on widely divergent paths. Europe’s union took a potentially fatal blow, while North America committed to a deeper relationship: Canada, the U.S., and Mexico issued a joint commitment to building a clean economy. It’s a big step forward for cross-border cooperation, and the ramifications for energy producers and users (that is, everyone) could be enormous.

The North American Climate, Clean Energy, and Environment Partnership covers a lot of ground. The biggest commitments are:

  • Generating 50% clean power by 2025
  • Reducing methane emissions from the oil and gas sector by 40% to 45% by 2025
  • Aligning appliance, equipment, and vehicle fuel efficiency standards
  • Further integrating the electric grid across borders to build resilience and security
  • Implementing policies that support the historic Paris climate accords — i.e., limiting global temperature rise to 2 degrees celsius, and perhaps even holding it to 1.5 degrees celsius
  • Phasing out fossil fuel subsidies by 2025, and calling on G-20 to do the same

The agreement touches on a range of other issues that could impact many industries. But just looking at these big commitments, they’ll clearly reverberate through governments and business in six key ways.

North%20America.jpeg

The U.S. must lead on renewables. The 50% clean power target initially made the biggest splash, and for good reason. Let’s unpack what it means for the energy system. The goal sounds aggressive, but the continent is closer than you’d think. The definition of “renewable” here includes not just the obvious (wind, solar, and geothermal), but also the more controversial sources of hydropower and nuclear. By that broad definition, North America is already at about 38%. So the goal is tough, but achievable.

But make no mistake: according to my model, reaching the goal is almost entirely on the shoulders of the United States for two big reasons. First, the U.S. generates 82% of the energy on the continent. Second, Canada is already well beyond the 50% mark (with 59% from hydro alone). So even if Mexico hits its aggressive target of going from 22% to 35% renewable, the U.S. will have to go from 33% to 46%.

It’s a big move. In a simplistic scenario where the U.S. only built more wind power, we would need to add 3 times as much as we did over the last decade. If only solar, we would need to average eight times the amount built in 2015, every year, through 2025. The growth in renewables is phenomenal, so the sector could be up to the task. But there’s a problem in another part of the equation, nukes, which could shift attitudes toward that source of power.

I spoke with Cristin Lyon, the Partner and Practice Lead for Grid Transformation for management consulting firm Scott Madden. She pointed out that states and utilities are currently planning to close some nuclear plants. “To the extent that we continue to take nuclear plants offline,” Lyon said, “we’re going in the wrong direction.”

No matter what your view on nuclear power, the math gets harder if we close those down during this critical decade in the climate fight. But, even so, the economics of renewable energy continue to get better fast. And the growth of corporate renewables is accelerating. Big guys like Google, Apple, Dow, Owens Corning, Microsoft, Cisco bought 3.4 Gigawatts of wind and solar last year.

There will be increased pressure on utilities and energy giants. A deep shift in energy markets, including the agreement’s goals on making the grid more flexible and resilient, will change how utilities and energy companies need to operate. It’s continuing the bad news for coal — but that’s already priced into those companies’ valuations, which have dropped more that 90% in the last 5 years.

Utilities, too, will face more regulations and pressure to increase the percentage of renewable energy on their grids. To aid in this, the U.S. government will need to lean into the Clean Power Plan, which pressures energy providers to cut carbon (that is, assuming the eight Supreme Court justices leave the law standing after temporarily freezing it while challenges move through the lower courts).

The natural gas industry will have to face its “leakage” problem. The new partnership’s methane goal is particularly fascinating. A bit of history: As the fracking boom took off, carbon emissions in the U.S. actually went down…in theory. Measured at the power plant, natural gas burns much cleaner, so the numbers initially looked good.

But methane leakage at fracking sites, in long distance gas pipelines, and in transportation — really everywhere in the value chain — goes largely unmeasured. It’s a huge problem. Since raw, unburned methane can trap 100 times more heat than CO2, many studies suggest that the natural gas business is actually worse for the climate than coal. But the industry doesn’t really know for sure. This commitment should put pressure on gas producers to get their house in order, measure emissions better, and stop the leakage.

The three countries individually, or the continent as a whole, will have to put a price on carbon. As citizens and policymakers consider how to limit global warming to the level agreed to in Paris, a whole range of aggressive policies will need to be on the table. We certainly can’t hold the world to 1.5 degrees, or probably even 2, without increasing the price on carbon and incentivizing faster investment in clean energy. Luckily, North America has some significant climate policies to build on. The Western Climate Initiative, a carbon-trading program, already covers 7 U.S. states and 4 Canadian provinces. Whatever form a carbon price takes — either direct taxation or this kind of cap-and-trade scheme – it will deeply impact industries reliant on fossil fuels, like chemicals. And it would affect energy spending for all companies.

Clean tech will win big. These governments will continue to direct spending toward cleaner technologies. That helps drive costs down for everyone buying efficiency products and renewable energy. Rising standards for appliance and vehicle efficiency raises the prospects for those companies who can meet the challenge. Clean tech companies making all of these technologies will see fast-rising demand. In short, it’s all good news for the clean economy providers, as well as the millions of people working in those industries.

Corporate targets for clean energy and GHG reduction will have to be rethought.This is a smaller point, but if the agreement does result in a grid that’s much greener, there’s an interesting ramification for how high businesses set their sights. A large and growing number of companies — over half of the world’s largest businesses — have set energy and greenhouse gas goals (and a growing list of global leaders are setting ambitious, science-based targets).

These companies — which often don’t know exactly how they’ll, say, cut carbon in half by 2025 — may find their task a lot easier. Since a big part of a most companies’ carbon footprint comes from the grid-based energy they use, as the grid itself gets greener, the companies decarbonize without technically doing anything. This is great news for companies seeking carbon reductions, but a greening grid should encourage more aggressive goal setting.

But all of the above assumes some continuity of government. All bets are off if Donald Trump wins the Presidency. He’s said many times that climate change isa hoax and denied that California is in a drought. His recent energy speech in North Dakota pushed for more fossil fuel production. For her part, Hillary Clinton laid out an ambitious climate plan (albeit one without a price on carbon). So if the polls hold out, President Clinton will likely continue this impressive legacy of cross-border cooperation.

The U.S., Canada, and Mexico have put their foot to the pedal to accelerate the move to the clean economy in North America. The business of making, using, measuring, or conserving energy will likely never be the same.

(This post first appeared at Harvard Business Review online.)

(Andrew's book, The Big Pivot, was named a Best Business Book of the Year by Strategy+Business Magazine! Get your copy here. See also Andrew's TED talk on The Big Pivot.

If you enjoyed this blog, please sign up for Andrew Winston's RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)