Gil Friend

Via @ccoletta & @thejoelepstein on Twitter: CEOs for Cities reports New York City's $19B "Green Dividend"

When does a bike lane become an economic stimulus? When it's part of an alternative transportation system that puts $19 billion into New York City's economy each year.

Because New Yorkers drive substantially less than the average American, they realize a staggering $19 billion in savings each year — money that their counterparts in other large U.S. metro areas spend on auto-related expenses. This is the principal finding of New York City’s Green Dividend, a report by CEOs for Cities for the New York City Department of Transportation released on Earth Day 2010.

It's a big number, and a great story. If only it held together better. As I read it, some 8.3 million New Yorkers drive an average of 9 miles per day, well below the national average of about 25 miles per day. Extend that 16 mpd savings over 365 days, at 40c/mile (probably low, but the figure used in the report), and you get $19.38 billion in savings. Excellent.

But that's the gross saving. "About 75 percent of households report using transit on at least a weekly basis." There's a cost for that, and for the taxis that provide one of the key options to driving. (Walking is another, but that's not tallied.)

The basic story -- big savings from not needing to own or drive a car -- still holds, and has multiple benefits:

New Yorkers who spend less on transportation have more money to spend in sectors of the economy that have much larger local multiplier effects. According to Internal Revenue Service data, about 73 percent of the retail price of gas (back when it was under $2.00 a gallon, by the way) and 86 percent of the retail price of cars is the “cost of goods sold,” which immediately leaves the local economy. The $19 billion New Yorkers save on car travel translate into more than $16 billion that are available to be spent in the local economy. Because this money tends to be re-spent in other sectors of the economy, it stimulates local businesses.

(And then there's the beneficial impact on balance of payments, due to avoided oil imports, 23 million tons of carbon emissions avoided annually, and more. Including having some coin for more expensive housing. ;-)

So is this a good thing? Absolutely. And brilliant to frame it as economic stimulus. But if we truly want to transform the global economy in our lifetimes -- which is the task, kids, nothing less -- even good guys gotta do the math. And know the difference between gross and net.

Here are some of the key places I 'll be speaking over the next few months.

Urban planning and transportation design for a carbon-constrained future
WDHB
May 6 2010
Berkeley

Keynote: The Three Barriers to Building a Sustainable Economy
Sustainable Enterprise Conference
May 7
Sonoma CA

Measuring What Matters, Part 2
Presidio Executive Education program
May 7 2010
San Francisco

Keynote: Sustainable Brands
June 8 2010
Monterey CA

Integral Education + Integral Ecology: From Cradle to Kosmos
Aug 3–8
Mount Madonna, Watsonville CA

Keynote: Beyond Bottle Bills
California Resource Recovery Association (CRRA)
Aug 8 2010
Sacramento CA

Keynote: Association of Energy Engineers annual conference
September 8, 2010
Downey, California

(As always, you can find the complete list here.)

As you know, I think and speak a lot about subsidies, and their impacts in market distortion as well as environmental & social damage.

Data unfortunately is hard to come by, so please let me know any good sources you know of. Two suggested to me today: Earthtrack, and the Global Subsidies Initiative which says (in their Policy Brief Achieving the G-20 Call to Phase Out Subsidies to Fossil Fuels (PDF)

It is difficult to postulate a global figure for fossil-fuel subsidies, but the GSI estimates that the annual figure could be at least $500 billion—the majority (around $400 billion) from subsidized end-user prices, and the balance from producer subsidies. Roughly $500 billion a year is equivalent to 1 per cent of world gross domestic product, the figure that the Stern Review1 estimated was required to limit global warming to no more than a 2° Celsius rise in temperature.

Got that? Subsidize energy, or limit global warming. Same price. You pays your money and you takes your choice.

Concise and to the point: the four "care instructions" for the planet, and us.

As our friends at The Natral Step say:

Think you can explain The Natural Step Framework and basic sustainability principles in two minutes?

Look what Real Eyes Sustainability Ltd., out of Dublin, Ireland, pulled together - we think it's great!

Well, that was the plan.

Sustainablog's 2010 Pedal-Powered Blogathon is underway, and the plan was to blog my brains out this afternoon. But the combination of jet lag and other pressing commitments is valving down my contribution -- to this announcement, and maybe one or two more before I pumpkin on out.

But it should be happening -- through tom'w -- with or without me, so check it out! #susbppb

Christine Arena interviews me for the CSRreport on 3BL Media. Why most companies Corporate Social Responsibility (CSR) initiatives are "woefully inadequate" -- and leave money on the table.

One data point in particular stands out for me in The Business of Sustainability report (produced by MIT Sloan Management Review and The Boston Consulting Group) that we reported on in January. It’s not that 92% of the more than 1500 executives surveyed said their company was “addressing sustainability in some way.” It’s not that nearly 75% say they have not reduced sustainability investment due to the recession.

It's this: "More than 70 percent of respondents said their company had not developed a business case for sustainability."

In fact, "the majority of sustainability actions undertaken to date appear to be those limited to those necessary for meeting regulatory requirements." – which is far from a business case, and about as exciting – or as strategic – as flossing your teeth. It’s a good thing to do, a good defensive move, but hardly a path to adding value and enriching your life. Or your business.

Most companies won't move without understanding the business case. And sadly, most people – whether in business, government, or NGOs – still assume that sustainability, environmental performance and social responsibility will inevitably cost money. The more optimistic assume it will at least cost money “in the short term”, while potentially adding value in the “long term”.

There are several problems with this perspective:
- It’s mired in the short term thinking that plagues modern business.
- It sees “sustainability” only as a cost, not an investment.
- It demands higher hurdle rates from sustainability investments than other investments.
- Like many assumptions, it blinds people to the facts. (I’ve had countless interactions where people literally couldn’t see the attractive ROIs on the page because they were so convinced that environmental improvement had to cost money.)

Also: it’s fundamentally wrong.

In our experience – based on Natural Logic’s strategic work with dozens of leading companies, efficiency assessments of hundreds of facilities, and tracking the work of many other companies and practitioners – there simply is no necessary conflict between sustainability performance and economic performance. In fact they often go hand in hand. As we say on the cover of The Truth About Green Business, “You don’t have to choose between making money and making sense.”

Why else would Henry Kravis, co-founder of private equity giant KKR (Kohlberg, Kravis Roberts & Co.), say, "The business case for environmental management has never been stronger"? (In fact, KKR just announced that it’s expanding its Green Portfolio Program to cover 20 percent of the companies in its portfolio.)

If you believe sustainability is a cost, a rational CFO will delay this investment as long as possible, and do only what is required by regulators. If you believe sustainability can add value, a rational CFO will accelerate this investment, and accelerate the harvest of value.

As I wrote in 2004 in “Risk, CFOs, and the Sustainability Business Case”, Dupont CFO Gary Pfeiffer understood this well, and thought that Wall Street did too:

Wall Street’s legendary focus on the short term… is more precisely a focus on discounted future cash flows. Wall Street is happy if a company will (a) make more money in the future; (b) make money sooner rather than later; and (c) face less risk that could reduce or delay the money they might make….

A and B argue for using sustainability perspectives to guide the invention of better products and services — ones that can profitably meet present and anticipated market needs, meet them sooner than the competition, and turn them profitable faster than the competition…

The third element, C, demands reducing the risks that could weaken that cash flow – barriers to market entry from future regulatory hurdles, missing shifting market expectations or competitor innovations, facing unanticipated calamities like Bhopal or fully anticipated ones like rising sea levels — is equally subject to management’s ability to see into that landscape.

Making the business case has to include three elements, in three dimensions. It has to: provide a good return on investment of money, time and brand; generate more value than other potential uses of that time and money; and do this in financial, operational and strategic dimensions.

“Indirect” returns, though not always easy to measure, can be worth more than tangible ones like energy savings. These include impacts on productivity and quality; on intangibles like brand (which can itself be worth much more than the book value of a company), employee perceptions (which impact recruitment and retention), customer and analyst perceptions, and a host of other factors typically left out of financials. They may hard to monetize, but smart companies rarely make decisions only on the numbers, so at least list the intangibles, and include them in strategic discussions.

It’s critical to consider risk as well as benefit. Volatile times demand that companies “factor the future” into these assessments, with explicit consideration of risk in the sustainability business case. For example, the prospect of rising energy prices should be an explicit factor in considering the risk and determining the net present value (NPV) on any investment. Do you expect oil prices to hover around $70/barrel, drop significantly, or settle above $100 -- or even $200/barrel? What could be the impacts on your cost structure – or supply chain – of dramatic changes in energy prices, or even availability? How can you design a portfolio of strategies that “future-proof the company” by diversifying your risk going forward?

What other “inevitable surprises” await? Changing regulations – or customer expectations – at home or aboard? Financial crises? Rising sea levels? Competitive innovation eating your lunch? You can’t predict “the” future, but you had better be prepared for possible futures.

Adequate consideration of these risks is part the fiduciary duty of business leadership, and directors and executives at many companies (as we argued in the Wall Street Journal in 2005) are needlessly exposed – especially since these avoidable risk often hold significant business opportunities, not just cost avoidance.

But here’s a deeper question about the “business case”: How do you use it? To determine what you should do? Or how to do it?

The numbers can’t tell you what you should do. They can only tell you how well you’re doing it – and perhaps help you make and defend the case, and sometimes help you recognize and evaluate opportunities.

As to what you should do, you already know the answer: You should look to your core purpose, your reason for being, and do what you – and your business – are really here to do. (But that’s a matter for a future article.)

A “business case” is not substitute for insight, leadership and courage. “If you try to anticipate every possible use for new business models,” says Creative Commons CEO Joi Ito, “it won't work. You have to allow for applications that are hard to predict, locally driven, and full of weirdness.” And you have to make decisions, commit capital and sometimes bet the farm on worlds that are still coming into being, and futures that no-one can predict.

The question is not "Can you find a viable business case for the carbon-constrained world that is rapidly heading your way?" The question is "How can you create one?" Because you will find one, create one or die.

Challenging enough for you? If not, let me remind you of Bill Gates’ astute observation: "If you can show me the business case, you're too late."

# # #

I’d be remiss if I didn’t point out that Natural Logic's Full Cycle Sustainability™ program can help you cut thru this “lack of business case” problem, starting with a one day strategic briefing with your senior team -- a frank dialog in which your leadership and ours:

• share our respective views of your business landscape and the sustainability trends you face;


• examine the business case for embedding sustainability into your core business goals; and


• lay the foundation for sound, profitable business strategy that will deliver those results.

I'm not sure how it happened, but finance firm RoseRyan has rated me one

one of the top 25 clean tech leaders in the Bay Area -- which is of course Action Central in this field.

Thanks - to whoever's responsible!

I love this. Because designer Jane McGonigal "makes games that give a damn."

EVOKE is an online game designed to teach collaboration, creativity, knowledge networking, entrepreneurship, courage, resourcefulness, sustainability, and vision.

Our goal: to empower young people all over the world, and especially in Africa, to start tackling the world’s toughest problems: poverty, hunger, sustainable energy, water security, conflict, disaster relief, health care, education, human rights.

EVOKE trailer (a new online game) from Alchemy on Vimeo.

EVOKE is free to play, and open to anyone, anywhere in the world. It launches on March 3, 2010 and concludes on May 12, 2010. EVOKE was developed by the World Bank Institute, and directed by alternate reality game master Jane McGonigal.

Reserve your spot now at urgentevoke.com

A cartoon circulating during COP15 showed a climate denier in the audience gesturing to a PowerPoint at the front of the hall that listed "Energy Independence. Preserve rainforests. Green jobs. Livable cities. Renewables. Clean water, air. Healthy children. Etc, etc."

"But what if it's a big hoax," the skeptic grumbles, "and we create a better world for nothing?"

Indeed. What if!

The COP15 negotiations in Copenhagen could have gone one of three ways: breakthrough, breakdown, or something in between. The odds favored something in between, and that's what we got, with players and analysts still arguing over how good or bad the outcome was.

What do we know, in the midst of the murky outcome?

• There is growing recognition, despite the vagueness, that this issue is real and important. The fact that 192 countries came together at all is some measure of progress on this issue.


• On the other hand, there is no evident sense of urgency - from any of the major players - comensurate with the scale of the challenge

What does it mean for you? I'll get to that in a minute.

Observers differ in their opinions of COP15. Jonathan Lasch of WRI felt that the "last-minute agreement at Copenhagen marks turning point for the world".

Greenpeace and the Wall Street Journal were jointly skeptical, pointing to carbon price drops as a signal that Copenhagen was either a "cop-out" or a "disappointment".

The New Yorker (remembering, perhaps, Ben Bradlee's admonition to "follow the money") highlighted China's aggressive renewable energy program. Watch what we do, not what we say?

If [national] governments won't act, Bill Becker says, "businesses, consumers & communities must step up."

And in fact that's happening. As Terry Tamminen observes in Copenhagen Coal in the Stocking,

The Gang of Five may... have done the world a favor by blowing up the UN process in Copenhagen, because it cleared the way for parallel international alliances to blossom. California Governor Arnold Schwarzenegger announced the creation of the R20, a new “sub-national UN” (starting with 20 regions of states/provinces/cities) that will coordinate the work of these climate leadership governors and mayors, but with a major difference from the old UN. The R20 will set high standards for cutting carbon and creating green economies, then invite others to join -- if they can meet the same goals. By contrast, the UN has struggled because it needs every nation in the tent and can only get things done when all 192 agree -- something that rarely happens unless goals are watered down to the lowest common denominator.

Closer to home, the White House is "poised" to require climate impact studies for new Federal actions.

I ended my pre-COP15 post last month with:

The only question is this: What does leadership in a carbon-conscious economy look like?

Ultimately, the coming carbon regulations give executives the same choices they've always had: resist, follow, or lead. This time, though, it's for real -- and the stakes are stratospherically high.

The good news: this changing business climate offers an opportunity for smart companies -- like yours? -- to deploy integrated, game-changing sustainability strategies that leapfrog regulations to drive exceptional environmental performance, profits, market share and brand value.

Climate change is just the tip of the iceberg -- a doorway into a world of new possibilities.

But what does all that mean for you? Let's bring it down to earth, for your company, state, city or household. How do you remove the apparent "economic necessity" of tinkering with the climate? What's your path of action?

• Understand your footprint. How big are your carbon emissions? Where in your operations and supply chain do they come from? How are they changing over time? (Precise analysis can be time-consuming and expensive; fortunately, new rapid analysis techniques can bring you actionable conclusions quickly.)


• Eliminate it, profitably. Earth's living systems are carbon neutral; what would it take for your company to do the same? And remember: Carbon emissions are proxies for your spend on energy, materials and movement of materials; done right, reducing emissions will also put money in your pocket.


• Use the challenge as a driver of innovation and engagement.
  Tamminen again: "So what does this mean to businesses, investors, and consumers? Carbon will have a price globally by 2012. Period. [T]he price of everything will change -- some going up and others going dramatically down." If that's the case, how will you invent strategies, operating practices and new offers in the marketplace that will put your company on the right side of those changes?


• But don't get stuck on carbon. It's not the only issue of import. Water is close behind as "the next carbon". Biodiversity, hunger, health care and many others hover in the wings. (In the face of that array, some throw up their hands and say "it's too much." Some say "let's focus on just one issue now, and deal with the others later." Some -- count me and Natural Logic among them -- say "systems problems require systems solutions."


• Reject "lowest common denominator" compromise, the compromise of settling for equitably shared misery; embrace the compromise of harnessing shared concerns to drive innovation that embraces and transcends differences.

Here's how I put in back in 1996:

In practical terms, that means that competitive advantage shifts to those who can learn to prosper economically without depending on jiggering the global climate…for whom tinkering with the climate is no longer an economic necessity.

Or, in other words:
Cogitate.
Deliberate.
But don't wait.

Happy 2010 everyone!

For last year's words belong to last year's language and next year's words await another voice. - TS Eliot

Hopefully Alex Steffen's 2010's prediction:

We're sailing the sea of weird now, and normal is a country whose shores we'll never see again.

My 2010 promise:
Regular blogging resumes - one longish piece per month, to start with, shorter ones as they happen (hopefully weekly) and of course lots of continued action at Twitter).

Starting next week! (Subscribe the the feed - upper right on this page - so the posts can come to you. ;-)

COP15 -- the 15th Conference of the Parties climate negotiations in Copenhagen this month -- is the latest clarion call for business leadership in meeting the climate challenge.

The recent tempest over embarrassing emails from a few climate scientists has contributed to public confusion over the overwhelming scientific understanding of anthropogenic global climate change -- confusion that has been well nurtured by the denial axis and their deep-pocket backers -- and clarified by Scientific American, among many others. (This just in: the Associated Press conducted an "exhaustive review" of the stolen climate emails, which shows they “don’t undercut the vast body of evidence showing the world is warming because of man-made greenhouse gas emissions.”)

The real story for business leaders lies beyond the buzz, and demands careful attentions by executive leadership, boards of directors and and owners.

COP15 will produce a series of emissions reductions pledges from participating nations -- which will be hammered out into regulations over the next 12 months to be ratified at next year's meeting in Mexico City. But, that's not the real story either. Not for anyone who has any smidgen of strategic vision.

The real story is that the business landscape -- regulatory, competitive, and financial -- is changing rapidly. And resistance is futile -- both because the process of climate change now seems inexorable, and because the business opportunities it presents are so significant.

Consider:
* Current and upcoming state and federal regulations will offer real teeth to curbing carbon emission, and changing what your value chain produces--and how they produce it.
* Regulations and market realities will give real economic value to curbing carbon emissions
* The process of curbing those emissions (despite the rant about the cost) will be an innovation driver -- for the wise. California is leading the way in the US, with AB32 kicking into gear in 2010 as cornerstone of the state's efforts to reduce emissions 25% by 2020 and 80% by 2050. Emissions charges are expected to triple during the first few years -- and then California's cap and trade program is slated to launch in 2012, as other regional carbon markets open.

The US EPA has just declared its intention -- and legal authority -- to regulate carbon emissions, and will require annual carbon reporting from manufacturing facilities starting in 2011.

WalMart is considering (as UK retailer Tesco has been doing) asking for carbon footprint labels on every item on every shelf; and what WalMart "asks" for has a way of happening.

(Visit one possible scenario of the carbon regulation landscape over the next three years in this excellent blog post from Terry Tamminen (former Secretary of CalEPA) at our ally Pegasus Capital Advisors.)

All of these events should inform the one-, five- and ten-year plans of all companies, regardless of industry. If you keep your head in the sand, you're risking your fiduciary duty to your shareholders (if you have them), your family (if you don't) and your own integrity.

The only question is this: What does leadership in a carbon-conscious economy look like?

Ultimately, the coming carbon regulations give executives the same choices they've always had: resist, follow, or lead. This time, though, it's for real -- and the stakes are stratospherically high.

The good news: this changing business climate offers an opportunity for smart companies -- like yours? -- to deploy integrated, game-changing sustainability strategies that leapfrog regulations to drive exceptional environmental performance, profits, market share and brand value.

Climate change is just the tip of the iceberg -- a doorway into a world of new possibilities.

To be continued -- with more specifics on what to do, and how to do it. Meanwhile, feel free to follow my more frequent COP15 comments and links on Twitter.

(This post is adapted News from Natural Logic, the monthly newsletter of my sustainability strategies consulting company, Natural Logic. Thanks to Benjamin Privitt for contributing to that article and this post. Please join our mailing list and/or subscribe to this blog to stay up to date.

OK, here's the plan for the "happy" part (Courtesy of n-judah love song. And Laleh Shahidi.)

The "thanksgiving" part is up to you.

(But Jon Carroll can help.)

Sustainable business strategies often hit a surprising roadblock -- the limiting (and false) assumption "green" will cost money, require sacrifice, and delay profits. The problem isn't that companies can't afford to operate sustainably. The problem is that too many businesses just can't count -- operating with accounting systems that miss real value and consistently leave money on the table.

To address this assumption, businesses -- and the economic systems within which we operate -- need to overcome three key barriers: Business must get the prices right, break the addiction to "stuff," and tell the truth about purpose.

Get the Prices Right
Adam Smith observed that perfect markets depend on perfect information. In the absence of perfect information -- that is to say, "In the world we do business in," companies and customers operate from a distorted sense of the real cost of things. The myth of environmental impacts as "externalities" suggests that ecological degradation is something external from our lives, when in reality it's fundamental -- to the economy as well as to life itself.

Consider: if you had to pay the full the external costs of gasoline, an estimated $10-20 per gallon, would you drive the car you drive today? Would anyone try to make or sell the car you drive? Consumers can make decisions and changes when they make purchases. Until external costs are built into prices at the point of purchase, the best we can do is to regulate and make policies to rein in the negative environmental impacts made by others. So like Sisyphus, we push the sustainability boulder up the regulatory hill, only to watch it roll back down again.

Get Off the Stuff
Most macroeconomic policy (including the free trade agreements of recent decades) has been aimed at removing all impediments to the flow of stuff across the planet. The challenge is that the maximization of the extraction, refining, manufacture, shipping use and even recycling of stuff also means (all other things being equal) the maximization of environmental impacts. But as demonstrated by Ray Anderson and the people at Interface (and by Hertz and Xerox before them), there are ways to decouple money and stuff, to increase profit, maximize value to customers, and minimize the flow of stuff. The challenge for business is to build economic value on less stuff, not more consumption. It's a profound challenge, one very few companies have taken this on, but it's a real key to getting sustainability done.

Get Real With Your Purpose
Most people assume that the purpose of business is that its function is to maximize profits and returns to shareholders. It's not. AP Giannini, the founder of The Bank of America, understood this. The purpose of his bank was to make credit available to under-served immigrant communities of San Francisco. If we do that well, he predicted, Bank of America would make plenty of money. Giannini knew that profit was the consequence of business, not its purpose, and the purpose was what the bank was really there to do.

Actually, everybody understands this. No one goes to work thinking, "My purpose is to pay the the electric bill." You have to pay it, of course, and you have to pay shareholders for the use of their capital, but why think the purpose of the company is to pay shareholders any more than it would be to pay the utility company?

So what is the purpose of your business? What are you really here to do?

(This commentary is adapted from my recent presentation at The Commonwealth Club: "The Truth About Green Business - The Potential for Jobs and Prosperity." You can watch or listen to the speech here. And read more about these ideas in The Truth About Green Business, and my next book, Profit on Purpose.)