As atmospheric carbon passes the 400ppm barrier, it is a stark reminder of the outstanding leadership that will be required if we are to avoid extreme climate change.
There is no point in being depressed by this. Instead, we should draw inspiration from a small group of thinkers, companies and entrepreneurs who are already demonstrating how business is uniquely positioned to face up to this challenge.
On 10th June, Amory Lovins and his guests, Nandini Basuthakur and Andy Palmer gave the crowd a framework and real examples of how business can lead in the absence of a strong policy framework. It was a masterclass in long term thinking, and the new business models that link radical change with the profit motive.
Amory Lovins was rated by Time magazine as one of the World's 100 most influential people in 2009. He has briefed 19 Heads of State and published 29 books, including his most recent "Reinventing Fire". He is currently travelling the globe explaining his vision of a world free of fossil fuels by 2050 without acts of government and led by the pursuit of profit.
Two areas where Amory expects the greatest disruption are transport and electricity and we were delighted to welcome as his guests two leaders from organisations that are thinking very differently, and showing that radical change is possible whilst creating financial value.
Andy Palmer, Executive Vice President Nissan Motor Co., has played an instrumental role in developing Nissan's Electric Vehicle programme. In 2009, The Economist magazine described the company's $4bn commitment to zero emission vehicles as "somewhere between very risky and certifiably mad". Since then every major car manufacturer has followed suit, and in the past couple of months there are signs that the Nissan Leaf is starting to put a dent in the auto market.
Nandini Basuthakur is Managing Director for Opower. Opower was set up in 2007 to help customer save energy, and its extraordinary business model has given it a global reach into more than 15 million homes through partnerships with over 85 utilities. It has saved 2 TWhs hours of energy, enough to power a city of 500,000 people for a year, and removed $280m from their energy bills. Opower is in Forbes top 20 most promising US companies.
Following the plenary session there was a series of specialist roundtables, allowing our crowd to dig-deeper into some of the themes introduced by Amory and his guests.
DEBATE “Companies should provide working capital to reduce energy and carbon in their supply chain”. Given that paybacks in many areas are proven to be attractive, is there a case for going beyond setting targets and sharing best practice to also providing funding? The table will take a vote at the end.
“How can data management unlock successful energy and carbon strategies?" This table will discuss excel v’s structured databases, turning big data sets into actionable management information, and the connection between data and robust business cases.
Six out of eight people representing major organizations admitted using Excel software. The rest relied on a structured database.
1) Problems hindering the use of a structured carbon database:
• Not enough robust business cases
• Bad management of the database and ignorance of its important
• Software ends up being too complicated
• Overflow of data that hinders its proper structured analysis
• Overcomplicated numbers
Solution: CSR department is advised to put a specific methodology to connect good data and not just present raw numbers.
2) If excel, have you had an audit of your current reporting systems recently?
Majority didn’t have an audit for their current reporting system since quite a while. Reason being that it is too much of a headache for management leaders.
Carbon Credentials mentioned that recent findings showed that 88% of excel spreadsheets have errors
3) Do you get the right kind of actionable information out of your data sets at present?
A representative revealed that they had a 25% carbon reduction target and when they read their data they were below that target but after careful analysis it was revealed that they saved 32%.
Most of the attendees agreed that the data present good info but analysis tend up to be insufficient.
Solution: to drive data analysis we need easy to use software to look at future ambitions and goals. But data management is just the first challenge. Creating a business case then communicating the data also present a challenge to be addressed.
4) Are robust business cases easy to create from your historical data?
The table agreed that creating a robust business case from historical data is quite a big challenge
5) Have you had many requests for financing energy efficiency projects turned down in the last 2 years on the back of insufficiently robust (in the eyes of the FD/CFO!) business cases?
A company confirmed that they had some cases turned down when some of the data was insufficient given that it was at station level only.
Other key notes from the discussion:
-When choosing software you need to decide what information you want to put in it; as well as what information you want to use form it
-As inefficient the data system is, leaders will always rely on graduate analysts to solve and analyze the data; which hinders good data organization and investment in good database software
-It was agreed that behavior drives attitude (competition from other firms presenting good data might drive other firms to do the same)
DEBATE. “This house believes that carbon reduction is best done silently” A number of companies take the view that carbon reduction is a risk and efficiency issue, and not one that should be communicated to customers. Relevant issues include concerns over greenwash and the challenge of changing public opinion. How will the table vote?
I. FOR: CARBON REDUCTION IS BEST DONE SILENTLY BY FIRMS
• Nandini Basuthakur of OPower finds that energy is a boring subject for consumers, who spend on average 9 minutes per annum reviewing their energy consumption activity. Moreover, customers are not interested in energy savings as evidenced by the lack of interest in the Green Deal.
• When considering certain utility companies the branding and reputation will impact the consumers’ views. For example, British Gas is seen primarily as a gas supplier. Customers may have scepticism when receiving a green message from this sort of company.
• Identifying whether there is a need for a company to engage its consumers with carbon reduction initiatives will vary by industry. Different industries have different issues to address and as such, a tailored approach is required for each sector. For example, consumer brands with an eco message are typically not bought because they are green, but for some other unique selling proposition.
• Example: P&G: ‘Ariel turn to 30’ This product range, which could clean clothes at lower water temperatures whilst yielding the same results as other brands, did not lead with an eco message. Instead, Ariel focussed on how effective the detergent was and how people could save money by washing at 30 Celsius.
• Example: The financial savings gained by choosing a Toyota Prius, which only costs £10 a year in tax, has incentivised a number of consumers to purchase the Prius.
• People struggle to conceptualise carbon and delivering a message about carbon reduction can often prove fruitless. It is difficult to make a carbon message personal to consumers.
• Who is the consumer of carbon reduction information? Perhaps this message should be less geared towards retail consumers. It may actually be more pertinent to other stakeholders, such as staff or investors, and is best delivered through sustainability reporting.
• If there is a message to be delivered to non-retail stakeholders then the corporate (e.g. P&G) may be better placed to deliver such a message to appropriate stakeholders, as opposed to the brand (e.g. Ariel).
• It does not matter why people change their behaviour, only that they do. Green messages have yet to prove real effectiveness when it comes to behaviour change.
• Even if carbon reductions are done quietly (as opposed to silently), this does not mean the information is not available to the public.
II. AGAINST: CARBON REDUCTION SHOULD NOT BE DONE SILENTLY BY FIRMS
• Amory Lovins suggests that once customers understand the financial and ecological savings that can be gained through reduced emissions significant behaviour change will occur as a result.
• Today, people expect corporates and brands to be more responsible in making the world a better place. There is a win-win to be found in solutions that are mutually beneficial for business and people / planet.
• A key consideration for utility firms is deciding when to engage customers with their sustainability plans. Customers are usually not interested in being involved at the beginning of strategy discussions and the timing of delivering key messages can greatly impact customer receptivity.
• The problem of climate change is overwhelming, scary and can cause people to switch off. Utility firms should take the lead by being an example in managing the carbon in their value chains. Yet this appears to be a far off goal given the current state of operations, with convoluted tariffs, confusing energy plan options and unethical pricing strategies.
• Amory Lovins mentioned he is looking for significant carbon reduction in 40 years. This language signals long-term thinking and if used appropriately by business it could be a compelling message for the consumer. However, if an eco message is delivered it should relate to customers in more meaningful terms, like trees planted, well-being or EPLA, rather than emissions avoided.
• How can business drive an emissions reduction agenda without the needed framework? Government has not yet held their end of the deal. For example the failure of CRC or the Green Deal.
• Timing is a key consideration and understanding how to prioritise the carbon reduction message amongst other messages is important. Raising the message at the right time may mean it is not the first or second message raised.
• Delivering a carbon message depends on the product and the customer base. However, everyone cannot remain silent on the subject, as it must not disappear entirely from the public consciousness.
“Governments shouldn't pick winners, and let the market sort it out”. With the government's EMR seemingly in tatters, how can business develop low carbon energy solutions?"
• The initial precept that EMR is in tatters is quite negative and counterproductive. There should be more awareness about the complexity of the issues, the wide variety of viewpoints and interests from numerous stakeholders out there and their intricate inter-relationships.
• Coal is still a cheaper resource than most renewables. In the near future, especially in emerging economies, the cost advantages of coal might be a strong deterrent for investment and market predominance of renewable energies.
• Cost is a driver for industry actions, and heavily impacts decision outcomes. Unless the economics stand up, the market wont react. Policy should consider the weight of this factor when designing frameworks.
• Government second-guessing the market sends mixed signals and reduces industry participation.
• Utility companies are resilient to change and innovation. They get paid to ‘keep the lights on’ and engaging them on alternative energy solutions is challenging.
• Funding for investments is not diversified. Heavy reliance on pension funds for renewables can be a limitation.
• Intermittent, complicated and unclear policies are a barrier to innovation both at the consumer and business levels.
Red Flags (warnings)
• Ignoring traditional energy sources can be a mistake. Renewable energies are intermittent; therefore there is a need for energy supplies that can feed into the gaps, like nuclear energy. The markets need to look at a mix of energy supplies as part of energy solutions.
• Fostering new technologies, like CCS, that don’t motivate efficiency but rather encourage status quo should be taken with precaution. Technologies that deliver a transferal of emissions but don’t tackle the initial burdens of energy inefficiency might not be adequate.
• Government should not pick winners because they will choose the wrong candidate.
• Data monitoring should not infringe on privacy.
• Decentralized energy generation versus centralized energy supplies have significant benefits and some disadvantages that need to be discussed further.
• What to tackle first, energy efficiency or onsite renewables? Always energy efficiency
• Planning and the development of renewables are closely interlinked. Spatial planning can be a driver or deterrent for renewables and a deciding factor for which technologies are preferred.
• Paybacks for technologies are a major concern driving investment decisions.
• What the market decides is key in driving industry and consumers.
• The market is more efficient generating profound change and responding to market demands and trends.
• Government still has a role to play in the market. Clear, consistent policies can considerably drive industry and consumer innovation. The challenge lies in picking a strategy that will drive actions in the right direction.
• If there is a business case, industry can and does act in spite of a lack of policy. This is driven by customer demands, CSR, the need for operation efficiency and as a response to global markets and global competition.
• Data and new technology is key for driving behavior change for business and consumers.
• Market response and distribution influences action rather than regulation. Scaling down regulation or eliminating regulation could drive the development of low carbon solutions.
• Businesses need to invest in renewable energies and efficiency mechanisms to save money and increase profits despite regulation.
• Increasing transparency about energy suppliers as well as tariffs is key for utility companies.
• Solutions need to consider scale and engaging stakeholders in the development of technologies.
• Without government policy companies like Google are already investing in their own renewable energy resources to deliver low carbon solutions for their core business.
What are factors that will lead to businesses collaborating to achieve a sustainable low carbon transition? What stops them collaborating and how can these barriers be overcome?
Sharing of information:
• Red Flag: potential legal issues associated with sharing of internal information (example of DB with deforestation & energy projects)
• Currently relatively large amount of information sharing around ‘efficiency initiatives’ but less so with commercial projects within same industries (competition fears)
• Obstacles remain due to quantifying different metrics in a non standardised way (EE)
• However, easier to collaborate with others outside of the industry (Examples in travel indust)
Should business talk about their collaboration? – Sometimes, this can vary
• Example: Tesco transitioning from narrow Co2 strategies to waste, H2o, carbon (supply chain /SC). Less opportunity here, more expectation to do ‘right thing’ on behalf of consumers. Improvements were implemented in SC but not communicated to customers here.
• Red Flag: still weak corporate voice disputing the public and biz view that CC is bad for business rather than an opportunity for biz. ‘Political Meme’. GSK have found all sust initiatives have been cost neutral Amorty Lovins premise. Red Flag: ‘those companies who do not change will simply not exist by 2030/50’. Requires leading biz to speak out
• Example & Solution: GSK gaining traction and influence with suppliers, (on par with IKEA, Tesco) persuading with savings focused messages. “You have to create a win-win for your suppliers and yourself” – GSK
• Question of how to incentivise such change & decoupling? How can other sectors sell ‘negawatts’? How does Nissan sell less driving? Answer – offers mobility solutions
What stops them collaborating and how can these barriers be overcome?’
Lack of awareness in business:
• Red Flag: (WWF): Companies still not aware of interconnected nature of business problems, Solutions found by using ecosystem approach, look wider for new opportunity, used Example of Nissan with home charging devices
• Feeling that many companies not aware of risks and opportunities around transition to low carbon future – how to grow positive change in auto industry to other sectors?
• Inertia still a problem in many sectors, particularly energy utilities
Competitive Advantage: - Simply cannot collaborate on everything
• Example of GSK: collaborating on commodities means losing the ability to use finite and contested resource resulting in competitor gains
• However, large corps can share: GSK developed tools and allowed SMEs access to those
• Tesco.com: Everything can be competitive, even waste (differentiation) Business Priority:
• Sust initiatives still not top priority (Example EE): despite win-win situations, such programmes still require financing, other business priorities still take lead.
• Example Tesco.com: Customers not demanding efficiency improvements. However, profit need not come from same sources and biz models i.e. utilities being paid more for customers consuming less energy - Opower
• How to catalyse auto companies working with non-auto? How to close the loop? Bring the unlikely collaborations together. Need for a space for this to occur, dependent on individuals being proactive.
• Greater need to deploy tech available today – not future based solutions
• Sust projects still have to deliver next quarter and compete against other biz priorities BUT forward thinking companies will see the benefits before the costs (rational thinking)
• Affirmation that biz needs to understand consumers – debate on changing aspirations of youth with mobility solutions and cars
What are the best ways of embedding carbon and energy into mainstream decision-making? This table will consider potential tools, including: marginal abatement curves, moving to Whole Life Costing, incorporating a carbon price in investment decisions and the inclusion of energy and carbon in bonuses for key decision-makers
• Lack of a common language for sustainability within a given organization.
• Risk: interrupting a working business model to make it more sustainable entails a high level of uncertainty.
• It is often harder to change business models than it is to change technology.
• The difficulties involved in modeling production / design prototypes on live projects.
• The Carbon Disclosure Project awards points for carbon savings in absolute terms on a case-by-case basis, not taking into account the global benefits when a very efficient company increases its footprint by gaining market share.
• The wrong legislation can kill innovation.
• The price of carbon is far too low to impact business models.
Red Flags (warnings)
• Calls to cut carbon will not resonate well in the developing world.
• While some have faith in the market to drive carbon savings, business incentives for carbon savings are currently very misaligned.
• With product efficiency gains, customers tend to be the main beneficiaries, and customers always discount the future to a high degree.
• When companies rely on increased product sales for increased profits, they are rewarded for maximizing resource throughput.
• Pricing: use money as a proxy for efficiency / convert from kg’s of CO2 to currency / invoke NPV, ROI / “You don’t manage what you don’t value.”
• Speak your audience’s language, adjusting for different organizational levels:
o At grass-roots level, it’s about motivation
o At high levels, it’s about reputation
• Internal incentives to cut carbon that hit the (departmental) bottom line.
• Regulation setting the right standards & providing ‘tipping-point pressure’.
• Efficiency branding: e.g. some buildings can be let out more easily with energy efficiency credientials.
• Executive leadership commitment.
• Customer preference / client demand (e.g. pension funds favouring ESG investment) that may well push further than regulatory standards.
• Scenarios thinking to determine objectives and pathways with greatest benefits.
• Taking a Life Cycle approach to product development.
• Aligning incentives: e.g. if an OEM takes responsibility for a product over its full lifetime, the OEM reaps 100% of product efficiency savings.
• Talk to parties outside the usual sustainability circuit, not just the ‘usual suspects’.
• To enable a step change, change multiple things simultaneously.
• Longer term investing to support good ideas with longer payback periods.
• In the building sector:
o Increased operating efficiency, with cost savings.
o Dramatically reduced on-site wastage (Willmott Dixon recycles 94% of on-site waste).
o 2016 zero-carbon building target.
• Selling mobility by the kilometer (Riversimple) or equipment maintenance by the flying-hour (Rolls-Royce Power-by-the-hour).
DEBATE. “It is time to stop investing time and money in mitigating climate change, and get on with adapting to it”. Scientist James Lovelock was arguing this 10 years ago, and there may be a point where energy and resources are better devoted to adaption. Does the table believe we have reached this point?
Adaptation over Mitigation
• Mitigation costs money and slows adaptation process
• Human behaviour is reactive
• Every business will need to locally adapt
• Inertia in the climate (& are the effects really as bad as predicted?)
• There is little incentive for mitigation since no value if people don’t know what could have happened
• If only adapt, can easily result in increases in emissions e.g. desalination plants
• Runaway climate change would be a disaster
• Mitigation efforts make money
E.g. Mitigation strategy: Carbon Neutrality
• “So last year” - all about ‘Net Positive’ and looking at the integrated system
• Need to look past carbon neutrality to broader impacts e.g. social impacts
• Worthy if galvanises attention? e.g. Natural England policy generated employee trading system
• May generate complacency towards other aspects & easily cast out further down the line by the CFO
E.g. Adaptation strategy: Resilience (absorbance of shocks)
• e.g. building rail network above flood level for resilience
• Community strength as a form of resilience? Or only the case for short, sharp events.
Mitigation/Adaptation Overlap (consensus = need to be tackled together)
• Considerable overlap between the two
• There can be problems where only one is considered e.g. electrification of train network from diesel trains reduces emissions but leaves electric sub-stations vulnerable to flooding
• Dichotomy disappears when considering the upstream problems of unsustainable lifestyles that lead to the downstream impact of climate change
• Resilience/Adaptation argument used by Sustainable Shipping Project: with increasing oil prices need to be more efficient to adapt
• Focus on carbon overlooks the connectivity of the system e.g. resource efficiency
• Dangerous to think we can get back on the growth curve - need to scale down lifestyle expectations?
• Population growth is the elephant in the room & controls would address M&A
• Social impacts e.g. people can’t afford to eat real meat over artificial meat
• Differences in scientific opinion – how can e.g. Network Rail build infrastructure designed to last 120 years and costing £bns without good predictions (currently use local knowledge successfully)
• Risk-return curve: when do you start playing?
• Uncertainty due to lack of monetising externalities -> lack of commitment
• But human ingenuity as a considerable argument against Lovelock’s pessimism e.g. unlocking of efficiency through the internet
End vote: Consensus that the business community should be blending mitigation & adaptation approaches
“How does the use of natural capital accounting change a business model?" As a growing number of companies employ natural capital valuation, the table will explore how it can improve decision-making, and the likelihood of natural capital accounting becoming adopted on a widespread basis.
• "NCA is a nice idea but are corporates taking it seriously?"
• Short-term focus of companies – if NC doesn’t show up as a short-term risk on the balance sheet, CFOs aren’t interested
• Who should pay for ecosystem benefits? The company that delivers them or the public that enjoys them?
• Corporates could be uncomfortable with NC language? The terminology 'externality' makes the problem easier to avoid.
The big four have to operate in this area because they have to keep up with business, not because they believe in it or know what they're doing.
The role of the CFO is key but they are inherently conservative - if it's not impacting short-term profitability then they're not interested
They weren't always external costs. CFOs scared of the concept as there is too much focus on the negative values.
Can you accurately measure NC with so many uncertainties? How are uncertainties dealt with?
What's the relative social (or net) impact of certain decisions? Can you trade off social and environmental capital?
Government should be leading corporates in accounting – creating international frameworks on how to account for nature which highlights the businesses dependency on nature – who is pressuring the government to do this?
Tools need to be developed to help companies use NC information
Nestlé and Unilever setting shadow prices of water so that they are incorporating its true value.
Crown Estate – Total Contribution report (eP&L)
How serious is energy supply risk? Many utilities are predicting shortages in 2015/16, with talk of rolling brownouts etc. But there are others who believe the government will do anything to avoid an energy crisis. Should business be investing in decentralised energy to mitigate supply risk?
Red Flags (warnings): How serious is supply risk?
The recent Ofgem report emphasized the fact that due to ageing infrastructure and the shut down of coal power plants – there is a much higher risk that the lights could go off.
• In Britain there is a massive NIMBYism – weekenders don’t want to ruin their view.
• The biggest per pound saving is in efficiency. We don’t promote that as a centralized supply system drives the system.
• How properties are leased is a problem. B&Q don’t own any of their own buildings. They must deal with multiple landlords – that is the difficulty.
• There is a big issue of favoring the short-term over the long-term.
• The Treasury is the problem. Incentives are not adequate to encourage consumers to do anything – to sell rather than to save is the incentive. We must make capital available to allow investment.
• Finding solutions for decentralized energy is often less economic than focusing on demand reduction. And even in terms of new development carbon offsetting is cheaper than building PV.
• Private firms didn’t believe the government would stand by the Feed in Tariff (FIT). And then the FIT was actually cut by the government. No commitment from government means firms won’t invest.
• People are defraying responsibility onto the electricity system. We are educated to think it is someone else’s problem rather than our problem to secure long-term supply.
• It is difficult to predict the outcomes of incentives. The Merton rule seems really sensible, however, it drove perverse behavior as it lead to the investment of expensive equipment to build biomass on site.
• There are many issues – and lack of inertia means it isn’t happening.
• The UK government is too fragmented (Env. Agency, Defra, DECC) – we need centralized policy.
• The problem is – how do we define “the market”. It shouldn’t be short term. Action should be in investment and equipment in infrastructure. A contract market with a longer time scale is needed. Unfortunately we are fixated on trading energy on a 24h basis. Short-term fast transaction focus will not achieve long-term thinking needed for whole system thinking.
• Legal fees and transaction costs are enormous.
Government: Government will do anything to avoid an energy crisis? Should they intervene?
• They have to intervene. There is a massive market failure which means that the government must intervene.
• The most important leverage government have is procurement not legislation. They themselves are huge energy users. The government own estate – their infrastructure is bad or getting worse. For practical incentives: reduce waste, and improve countries all over the country.
Should business be investing in decentralised energy to mitigate supply risk? Do they have the capability?
• Smart businesses are investing in decentralized energy on their own facilities. Resilience and lack of trust in large-scale infrastructure is driving that. It is a risk minimization strategy especially in the US after hurricane Sandy events. The US military is also one of biggest movers in this.
• Investment is a hedge against future fuel price inflation and resilience. More knowledge around the context and the risk is required. And there is a CSR benefit for businesses as well.
• Bernard Mathews are about to create 90,000 pounds a year of pelleted turkey poo. All their operations will be supplied with the fuel with spare. It’s a mindset – these are not new technologies they used to pay for extraction of the waste now they realize it’s a fuel.
Is energy supply risk…. our problem or suppliers?
• The UK has the worst infrastructure in Europe. Addressing the problem from the use rather than the supply side should be an active policy issue. However, supply side controls the market.
• We need system solutions and real policy drivers. A CCHP was built for the Olympics yet there should be no demand for heat. We are pushing heat distribution for which there should be no requirements.
• We should focus on demand reduction and efficiency - that is where returns are the greatest.
• Investing in community sites is a solution: this can take a district wide approach. Decoupling is a much better way of thinking of it than from the point of view of the individual developer.
• In Germany – Wildpoldsried – produces 321% more energy than they consume. A community of farmers started anaerobic digestion, put PV and wind turbines on their land and they made a fortune. Now there are countless villages in Germany and NW Denmark. It is in their backyard but it is theirs.
• Crowd sourcing could act to drive future energy investment in communities.
• We need more innovation from the financial community: how to deal with risk, how are we discounting, and we must put a value on volatility.
• Companies must require developers/suppliers to increase their performance.
Should water and energy be better linked in corporate strategies? As water becomes increasingly scarce it requires more energy to provide it. How should companies be looking at the relationship between these resources, and what initiatives should they be introducing over the coming year?
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