Questions for a sustainable world

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“A prudent question is one half of wisdom.”

Francis Bacon

What’s it all about?

The quest for a sustainable future is all about questions. Some are big and some are small. Some are about the nature and purpose of our systems of value, and some about how we value our loved ones. Sometimes the smallest questions have the biggest answers.Questions questions

Human beings are good at asking questions. We start off very good indeed.

Children’s ability and commitment to asking questions often outstrips our ability to answer them. This is not merely that an incessant stream of ‘why?’ questions is tiring, it’s also that some of the time we genuinely don’t know the answers to the questions we are asked or are unprepared to deal with their true implications.

As we grow up, we often keep questioning, but the scope of those questions can narrow due to the practical need to balance a sense of wonder with passing an exam or earning an income. We still question aspects of life but often these become more about the details and less about the overall purpose. This ‘bounded rationality’, keeps our questions within a less examined frame of reference and is one of the challenges our species faces in breaking away from unsustainable ways of being and creating new ones that may differ slightly or radically.

Some questions demand answers

“I don’t pretend we have all the answers. But the questions are certainly worth thinking about.”

Arthur C. Clarke

In essence, sustainability is about one of two things; doing the same things very differently or doing very different things.

Maintaining our status-quo commits us to a collision course with the very real limits to possibility on this wonderful though populous planet.

To follow a path to sustainability we need to ask and then answer some fundamental questions of economics, finance, culture and business. Not just “can we do business with less impact?” but “how do we connect finance with a flourishing future in the first place?

Over previous centuries immense logic and ingenuity have been applied in the creation of our systems of value and enterprise. However, we face challenges which require a rejuvenation of our thinking because the logic of the past often falls short of the obstacles of the future.

Unless we ask the big questions “What is the point of capitalism?” and “How do we value a sustainable future?” we will be unlikely to find answers which meet the scale of the challenge.

The current rules of the game for capitalism are undermining its own long-term existence. Any game includes winners and losers, creativity, luck, cooperation and competition, and should do so in order to deliver creativity, innovation and the chance of individual and collective choice, reward and well-being.

Changing the rules of the game such that capitalism seeks to deliver sustainability wouldn’t affect the range of possible outcomes and types of choices within the game. Indeed it would guarantee that we all had more chance to play for longer, and indeed might guarantee that more of us might ‘win’.

Whatever will be, will be

“If single human beings — if one single rickety infant — can be born as it were by accident and die futile, why not the whole race?”

H. G. Wells

Towards 9 Billion asks some big questions about the nature of things and some naïve questions as to whether things must be as they are.

Humans tend to love and despise systems in equal measure. The systems of economics, capitalism and enterprise which surround and drive us are required and beloved but also feared and doubted.

Our writing is intended to present and explore new ideas and hopefully provide some inspiration about how we might think differently about a sustainable future and the route to achieving it.

  • Why do our systems of value and production function as they do and might they be capable of becoming truly planetarily compatible?
  • How can our markets give rise to behaviour so perverse that it’s in no one’s interest to leave them untouched?
  • Might there be a larger purpose behind these systems and might we aspire to more human approaches for the good our home and our species?
  • Do our current systems of value contain the seeds of the next ones?
  • Must profit for one always mean loss for another?
  • Must we learn to leave behind our expectations of linear cause and effect in an increasingly changeable world?
  • How do we move to a positive sum economy, where common good and private interest naturally align?

Coming soon – Towards 9 Billion book series

Such questions are at the heart of this blog.

In order to add a little weight to the questions we pose, and also some of the answers we suggest, we are packaging a range of our writing over the last few years into a series of short, free E-books, to be available from September 2015.Whats the point book cover

 

Here are just some of the kind things people have said about our writing:

Big ideas for massive challenges: Terrafiniti’s Towards 9 Billion provides a wide range of solution-oriented perspectives on the prospect – often seen as daunting – of accommodating 9 billion people within the remits of our one planet.

David Nussbaum, Chief Executive, WWF-UK

Towards 9 Billion addresses the critical issues that face our planet in the 21st century, from business and economics to sustainable energy and technology. I love its wide-ranging intelligence, lucid prose and interdisciplinary approach to scoping a new economics for our age.

Jane Gleeson-White, author of “Six Capitals: The revolution capitalism has to have – or can accountants save the planet?

With this series of e-books, Terrafiniti continue to not only pose the most important questions of our time – namely, how do we sustain and thrive on a planet of 9 billion people – but also propose some fantastic ideas as to how we might do just that. A must read for anybody interested in where the planet is headed – and finding solutions to our most pressing challenges.

Jeremy Leggett, author, environmentalist, activist and solar pioneer

 Sowing the seeds of a sustainable world?

Just as plants and animals broadcast seed and progeny in vast numbers in the hope that some will survive and flourish, we hope that our ideas might have the chance to do the same; to find receptive places in which to thrive.

We hope that our writing and the books might play a small but useful role in imagining and building a future fit for people and the planet.

If you would like to be notified when they are published please get in touch.

 

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Against a dark background – the limits of certainty

 

“Chaos is found in greatest abundance wherever order is being sought. It always defeats order, because it is better organised.”

Terry Pratchett. Thief of Time

Through a glass, darkly

Certainty and predictability are fundamental elements for any planning process, and utterly vital for economic and investment decisions.Tunnel Vision

However, the scale and scope of ecological and social disruption envisaged by many reliable organisations and institutions over the coming decades raise some hard questions (see these from the Strategic Foresight Group) about how well humanity will fare in the coming decades.

The coming decades may result in new limits to certainty. Put simply, in a fast changing world, the assumptions that have steered us to where we are now are increasingly ill-suited for guiding our pathway forward.

The increasing dissonance between how far we can see, what we see when we look and how far we are planning, manifests in two dimensions:

  • Firstly, the divergence between the future that many studies show is coming – of restricted resources, competition for food and water, unstable climate and social disruption – and the future that we are currently planning for – a continuation of business as usual, and:
  • Secondly, the impacts that a “business as usual trajectory” has upon the predictability of the future. This is a feedback loop. The more we ignore the need for change the less predictable the change we will be forced into undertaking will be.

The first category was highlighted recently by no lesser figure than the Governor of the Bank of England, not a role usually held by a scaremonger or Jeremiah. In a speech to the World Bank in December 2014, Mark Carney highlighted what he called a “tragedy of horizons”, an emerging dissonance between recognisable problems with clear future implications and the adequate integration of the risks into corporate planning, financial valuation and risk analysis. This means that the value of companies today is calculated without enough reference to the fundamental contextual challenges that they will face in the future.

A simple expression of this challenge would be a car heading to a business meeting hurtling off the road and towards a ravine. Meanwhile, inside, the passengers discuss how rich the deal they are (still) planning to execute will make them.

This mismatch of ambition and likely outcome was categorised by Mark Carney as a “market failure”. I have previously categorised it (with wilful understatement) as a “Restraint of Future Trade”.

The second category is somewhat more difficult to get your head around, because it requires us to acknowledge and come to terms with just how much we don’t know, and furthermore don’t understand, about the world, its complexity and the limits of reliable prediction.

A light in the darkness – the Lyapunov exponent

 “…no gluing together of partial studies of a complex nonlinear system can give a good idea of the behavior of the whole.”

Murray Gell-Mann

Don’t despair though! There is a useful (if only in a metaphorical sense) tool that might help to navigate such a murky future.

It is called the Lyapunov exponent. For those of us that are not advanced mathematicians or who, when faced with a page of algebraic equations shrug and say “It’s all Greek to me” it can be simply expressed as follows:

The Lyapunov exponent is a means by which to predict, in a chaotic system, the limits of certainty – the “distance” beyond which forecasting is either inadequate, unlikely or likely to be just plain wrong.

Our world appears to be pretty predictable, the sun comes up every morning (unless you are at the Poles), spring comes around every year (unless you are on the Equator) and so on.

Yet at levels of detail our world is a chaotic system. Not in the sense that anything can happen at any time, but in the very specific sense that the complexity of the natural world (including animate and inanimate systems; life, energy and matter) interact with each other at such extreme and unmappable levels of complexity that they are essentially chaotic. Stated simply, the natural world exhibits complexity beyond our currently relatively crude understanding of cause and effect relationships.

In physics, chaos is defined as:

“the property of a complex system whose behaviour is so unpredictable as to appear random, owing to great sensitivity to small changes in conditions.”

 Chaos and order – a false dichotomy?

 “There are different kinds of rules. From the simple comes the complex, and from the complex comes a different kind of simplicity. Chaos is order in a mask…”

Terry Pratchett. Thief of Time

A strict delineation between a wanted and an unwanted state, of order and chaos, is perhaps too binary to match up to the nature of our reality. The Holocene has provided our species levels of predictability that we have interpreted too simply, and upon which we have built yet more simplistic, inchoate models of the nature of reality. Each step masking the innate and fundamental complexity of the place where we dwell.

This simplification has allowed us to feel falsely certain about the real nature of existence – that nature and physical systems on our planet are never and have never been either merely ordered or chaotic but are a mix of one giving rise to the other and vice versa.

This combination of certainty and uncertainty can be described as chaordic (a portmanteau term “coined” by Dee Hock, the founder of VISA). Facing up to a chaordic reality gives rise to a need for us to develop not only better ways of shining a light through the darkness – a Lyapunov torch perhaps – but also a different, more intuitive and less organised approach to planning and exploring an uncertain future.

The term chaordic is really trying to reflect that “chaos” is not the opposite of order, and that “ordered” or relatively predictable outcomes or conditions emerge from the complexity of fundamentally chaotic systems. These outcomes can be termed ‘emergent properties’ – aspects or characteristics that arise through complex interactions which are produced reliably enough to be capable of being considered as predictable until or unless circumstances change. Such properties have been defined as follows “An emergent property of an ecological unit is one which is wholly unpredictable from observation of the components of that unit” (George W. Salt, The American Naturalist, Vol 113, No 1. Jan. 1979).

A hard dichotomy between chaos and order is too simplistic – it is from the functional chaos of our massive complex and interdependent world that elements of predictability and order emerge. However the more we change the properties of our system, through physical interventions in ecosystems and changes to the balance of our atmosphere, water and soil systems the less predictable and reliable the properties that emerge from these systems will be. Our current civilisation has thrived because of the relative predictability and stability of the systems we depend upon. Changing the equilibrium of these systems will change the outcomes of their interactions – possibly in ways we can ill afford and predict.

Put simply, it will become increasingly difficult, unless we start to add to the quality and resilience of the ecosystems we depend upon, to rely on our ability to predict the future.

The limits to Assumptions

Given that the threshold of predictable emergence may be getting closer to us by the year and the chaotic nature of our planet is a simple and unavoidable fact, isn’t it time for us to develop systems of value and prioritisation which recognise rather than ignore the limits of uncertainty?

Our current systems of value derive from classical economics, which was developed in a time when natural resources could easily be considered as free goods and the planet as effectively infinite.

The fundamental tenets upon which classical economics is based, though venerable, remain at the heart of economic theory. They are no more right or really useful for helping our species navigate the physical world than they were when they emerged from the thinking of Adam Smith, Jean-Baptiste Say, David Ricardo, John Stuart Mill or the other pioneers and thinkers in this area (for a simple exploration of the thinkers, theories and assumptions see this overview). The difference is that now we are running out of headroom for them being as wrong as they are.

Stated simplistically, the tenets of classical economics (and therefore the bedrock of our systems of value) are as follows:

  • Ceteris parabus – that everything else is equal.
  • That economic actors take action in the light of perfect market knowledge.
  • That economic actors behave rationally.

For a discussion of these, see this discussion of the main assumptions of economic theories.

Recognising the limits to our certainty starkly reveal (as if it isn’t already obvious) that none of the above assumptions actually hold true in any real sense. The market is merely a subset of the physical system it operates within. Since we do not fully comprehend the properties and interactions of the system, perfect market knowledge is impossible. In a market which is dependent upon inflows from functioning natural systems (resources, air, water etc.) then everything is transparently not equal – some things are much more equal than others.

Finally, if rationality were a characteristic of economic behaviour then market bubbles would be unknown, we would not price and prioritise the availability of dirty energy over that of a functioning climate and preserving the quality and availability of toilets would be more important than the availability of mobile phones.

The future’s so dark…..

“What’s the use of having developed a science well enough to make predictions, if all we’re willing to do is stand around and wait for them to come true?”

Sherwood Rowland

The utility of the Lyapunov exponent in the context of our planet’s future could be to provide us with a clear idea of where the threshold of predictability lies. To project our gaze towards this threshold. Towards when, over the coming decades, all bets will essentially be off and when any investment predicted to perform beyond that time threshold could be classed as junk.

Beyond an indication of the unpredictability threshold, it might be used as a metric to tell us how we are getting on in extending that threshold away from the present.

Other such approaches exist to indicate our proximity to system-wide tipping points. The most famous is the Doomsday Clock. This initiative of the Bulletin of Atomic Scientists has, since 1947, assembled a prediction of “how close we are to destroying our civilization with dangerous technologies of our own making”. It analyses not just the danger posed by nuclear weapons and atomic energy but also the growing threat of climate change and problematic technologies.

The clock is (in 2015) at three minutes to midnight: “because international leaders are failing to perform their most important duty—ensuring and preserving the health and vitality of human civilization.

This is serious stuff. It is not the apocalyptic predictions of depressives in darkened rooms, but the sober analyses of engaged and intelligent scientists.

In addition, organisations have constructed scenarios based upon the logical possibilities arising from current and likely future trends. Many of these are from reputable and sober organisations not given to wild speculation and doom mongering, such as the WBCSD, the World Economic Forum and the US Department of National Intelligence (DNI). The best scenarios in my opinion are those produced by the Global Scenario Group.

Not one of the scenarios noted above predict a smooth transition to a sustainable world without fundamental, deliberate, planned change being undertaken. Each one, to varying degrees, predicts significant disruption to economic and social conditions over the coming decades. The scale of such disruption is magnified by each year in which the scale of coming resource, water, climate, energy, consumption challenges and changing demographic power dynamics are effectively ignored by our economic and political systems.

Pretty much anyone who stares too long into the future we are currently on course for feels at least a frisson of fear. However, such analyses, of either our proximity to catastrophe or the diminishing predictability of the coming decades, seems to have no real effect upon our systems of value or production.

We just keep on valuing fossil fuel firms as though they were companies of the future rather than of the present-past and demanding consumption-based growth irrespective of physical limits.

 A Lyapunov torch…shining a light on uncertainty

 “We can only see a short distance ahead, but we can see plenty there that needs to be done.”

Alan Turing

If the future is too dark to see clearly we need to grow our ability to be comfortable with uncertainty, to design systems and processes that are capable of flexibility, multiple redundancy and of changing tack when the wind (or the climate) changes. Of course such capabilities are hardwired into nature already, it’s just that we seem to have decided we can transcend such approaches through the linear power of our rationality.

Taking the Lyapunov exponent as an inspiration, we need a torch to light the darkness ahead as much as a clock to tell us how late it has got.

We need to be able to consistently assess and expand the limits of our ability to predict and forecast and, beyond that, we perhaps also need a Lyapunov torch to reveal the reality of our chaordic system.

The survival of our species in uncertain times will likely be because we have used our outstanding capacity for flexibility in the face of adversity to adjust to this ever-present but newly rediscovered uncertainty. To reconfigure our systems of value, production and consumption in the light of the fact that nothing stays the same forever.

The simplified picture of the world that was developed which delivered the industrialisation of the last 200 years may well fall to pieces in the face of systemic disruption to our physical and economic certainties.

Whether our massively interdependent civilisations will fall down with it depends upon our ability to perceive the limits to our certainty, and to embrace the uncertainty that has always been there.

A Lyapunov torch might be a valuable tool to help us see beyond ourselves through the coming darkness of the future. To shine a light into the chaos that surrounds and nurtures our existence.

 

This concept at the heart of this piece was inspired by Alastair Reynold’s stupendous novel On the Steel Breeze, which introduced me to the Lyapunov exponent in the first place. In addition, I would also like to give huge thanks to Lois Guthrie and Alain Ruche – who each kindly lent constructive ideas and input to navigate the tangle and chaos of my own making in early drafts of this piece as well as firm ideas on the navigation of complexity. Other thanks of course go to Iain M. Banks for a title to borrow.

Contact Terrafiniti

 

A planetisation of finance: The Earth as a going concern

“We have statesmen and politicians who profess to guide our destinies. Whither are they guiding our destinies?”

 H.G Wells

Valuing continuing existence

In recent decades considerable effort has been invested into describing and identifying the planet’s natural environment in terms that can be appreciated and integrated into the A place to do businesslanguage of economics and finance.

From the 1997 work of Robert Constanza et al onwards, the TEEB coalition and the Natural Capital Coalition, to the multi-capitals approaches to accounting and reporting that are forming part of efforts by organisations such as the SASB (Sustainability Accounting Standards Board) and the IIRC (International Integrated Reporting Council). Each is seeking to quantify and therefore consider the value of natural systems and their outputs in comparable financial terms.

I have written extensively on these approaches – mostly from the perspective of a critical friend rather than a wide-eyed fan, mostly because I feel that the conceptualisation of natural and social capital into economic terms will lead to a commodification of nature (a financialisation of the planet) unless there is radical change to the nature and purpose of global markets (the planetisation of finance).

In order to move beyond a critical analysis of the pros and cons of the multi-capitals approach it seems to me that there is a simpler pre-existing conceptual vehicle that could be adopted to provide a forward looking perspective on the value of the planet and its assets (natural, human, built and otherwise).

This is the concept of the going concern, an accounting approach to assessing the value of an enterprise based upon its potential for continuing existence. It is at the heart of our thought experiment to explore an IPO for the Earth, a finalist in the ICAEW/ Accounting for Sustainability Finance for the Future Awards 2014.

Opportunity costs…and benefits

Approaches to the valuation of currently under-represented/under-priced sources of capital (those which are not pure financial capital) predominantly focus upon two aspects of value, of capital stocks and capital flows. A simple metaphor for these two categories is that of a bank account – where the stock is the money in the account and the flow is the interest that is generated by the capital.

I would argue that there is a more significant area worthy of attention – to focus upon the going concern value that the existence of healthy stocks and flows gives rise to. This is not a value of the stock or flow itself – but is derived from the opportunities that become possible because of the existence of the stocks and flows.

When viewed through this lens, natural capital becomes most powerful not when it is used to give rise to an asset value (“what would we get if we sell it?”) calculation, but a going concern value “what does the asset’s continued existence and health allow us to do and how valuable is that?”.

This distinction between asset price and the value of the opportunities that arise from the asset, is partially reflected in the concept of stocks and flows – but the idea of a going concern value goes beyond a flow valuation. An example of these category differences for a company like Google would be as follows:

  • Asset value – the market capitalisation of the company – what it would fetch if it were sold.
  • Asset flow value – the yearly revenue of the company.
  • Going concern value – in addition to the categories above, the value of all the things that exist because Google provides and facilitates fertile ground for a huge range of activity.

Valuing our planet as a going concern

If the motivation behind approaches to valuing natural, social and other capitals is to highlight their value to the economy rather than leave them as either economic externalities or considered as effectively free goods, shouldn’t we take a more creative approach to using the accounting techniques that already exist?

Wouldn’t it be far more productive to focus upon the value of the planet as a going concern – as a place to do sustainable business over the long term?

Luckily, there is a well-established approach to doing just that. Accountants do it all the time, all we need to do is expand its scope and scale somewhat, from the going concern value of a specific entity to the going (common) concern of the planet as a whole.

In accountancy, the going concern principle is “the assumption that an entity will remain in business for the foreseeable future.” If it can be assumed that a business will remain viable over time, it can be considered to be valuable because of its capacity to sustain economic activity “the value of an entity that is assumed to be a going concern is higher than its breakup value, since a going concern can potentially continue to earn profits.” (Accounting Tools).

Going for how long?

While it may seem perverse to say so, in cold mechanistic terms the Earth’s value to humans lies in it providing us with the means to carry on doing stuff – not in either its inherent value (what we would pay to keep it) or in its value when broken up and traded (what we would get if we sold it).

The idea of planetary going concern value is too often ignored, partly because it asks us to project value into the future. In accounting terms, going concern assessments/judgments focus upon a consideration of “the foreseeable future” but this is only judged using one year forward time horizon (aligned to annual accounting and reporting).

At a planetary scale an annual going concern perspective wouldn’t get us very far, we need to be thinking about how to project the value of a going concern much further – say to 2050.

Such projections happen for smaller things happen all the time. The world is full of news stories and analysis saying “the market for X could be worth $10 billion by 2025” or “sales of Y set to grow by 200% over the next ten years”. All such projections assume a continuation of certain elements of business as usual (i.e. a reasonably similarly functioning market to today) and certain elements of change (e.g. increased disposable income, increased urbanisation etc.) that are interpreted from various trend analyses and forward predictions.

At the planetary scale a going concern calculation could be done for a range of scenarios, e.g. where no significant strategic response is made to evolve to meet the challenges of resources, consumption increase, reduction in soil fertility, increased pollution and climate uncertainty, as opposed to the planetary enterprise that would be possible if we made the transition to a sustainable economy fit for 9 billion interdependent citizens, all capable of making sovereign social and economic decisions.

It seems clear that the former would, by its nature, be less valuable than the latter.

Not under current management….

Accountants judge a going concern according to range of criteria that could easily be adapted to apply to the planet as a whole.

The Financial Reporting Council’s Statement of Auditing Standards on the issue in 1994 states that for financial audits seeking to judge whether an entity is a going concern, they should take the following into consideration:

  • “Whether the period to which the directors have paid particular attention in assessing going concern is reasonable in the entity ’s circumstances and in the light of the need for the directors to consider the ability of the entity to continue in operational existence for the foreseeable future;
  • The systems, or other means (formal or informal), for timely identification of warnings of future risks and uncertainties the entity might face;
  • Budget and/or forecast information (cash flow information in particular) produced by the entity;
  • Whether the key assumptions underlying the budgets and/or forecasts appear appropriate in the circumstances;
  • The sensitivity of budgets and/or forecasts to variable factors both within the control of the directors and outside their control
  • The existence, adequacy and terms of borrowing facilities, and supplier credit; and
  • The directors’ plans for resolving any matters giving rise to the concern (if any) about the appropriateness of the going concern basis. In particular, the auditors may need to consider whether the plans are realistic, whether there is a reasonable expectation that the plans are likely to resolve any problems foreseen and whether the directors are likely to put the plans into practice effectively.”

The text above is mildly summarised in the interests of space, the full text is available in paragraph 23 of this document.

If a planetary-scale auditor used the criteria noted above to assess the current de facto administration of the planet (our economic and market systems) would they judge the Earth to be a going concern, and if so, for how long?

Is the simple but frightening answer that the Earth is not capable of being considered as a going concern over the coming decades under current management?

Towards a planetisation of finance.

“The twelfth law is that such things as cannot be divided, be enjoyed in common…”

Thomas Hobbes’ 12th Law

The vast majority of approaches to bring under-priced or unpriced capitals within financial domains tend to do so by treating them as adjustments to existing prices (e.g. as carbon taxes etc.) rather than focussing upon and questioning the origination of their price in the first place.

Externalities should not be priced per se. However, price must reflect them (they shouldn’t really be externalities at all, just a fundamental aspect of costs that should be naturally recognised) if any approach to building a sustainable economy is to succeed.

The point of exploring the planetary going concern concept is to provide another driver towards the more innate consideration of sustainability as a defining aspect of financial success over the long term. The planet can only be considered as a going concern if such fundamental dependencies are integrated into the heart of decision making, not considered after the fact as most current approaches to “pricing externalities” currently require.

Without a fundamental reconsideration of what actually constitutes sustainable value, and an effort to align the origination of money (and price) against that, we are just building ever more rickety structures upon the already unsteady foundations of current economic and market processes.

Valuing the planet in economic terms runs the risk of financialising, commodifying and privatising nature. The task in front of us is not to tinker with the methods, but to reverse this concept, moving from the financialisation of the planet to the planetisation of finance.

Economics and markets based upon the value of the planet as a going concern might be a powerful and positive step towards aligning financial value with the physical facts of life on this planet – the only place we have (as yet) do to business.

 

My profuse thanks go to Jane Gleeson-White for her feedback and comments on a draft of this piece. Any errors of logic or hyperbole are unquestionably mine. Her book “Six Capitals: The revolution capitalism has to have – or can accountants save the planet?” is a must-read for anyone keen to explore how we might meaningfully value the priceless.

 

Contact TerrafinitiThis piece was also published by the Toronto Sustainability Speaker Series (TSSS) Innovation Hub on 3/06/15 and Sustainable Brands on 22/06/15.

Utility – the fundamental metric of social impact

“No man is an island, entire of itself; every man is a piece of the continent, a part of the main”

John Donne

Is the world a better place because we exist?

Socially useful business is neither a new idea nor one which is particularly at odds with the fundamental point of business – to sell things which people want or need.Interdepen Dance

However, demonstrating social utility has becoming rather a burning issue in recent years, spurred not just by the slow growing questioning of the current mode of international capitalism but also by the rather more pointed challenges to the purpose of whole sections of the economy raised by the recent financial crash.

The topic was the subject of this recent McKinsey piece on business and society and also an exploration session earlier this year, hosted by innovation organisation The Foundation, which asked the question “Socially useful business – Necessity or Nonsense?”

For my answer, I am definitely in the camp of Henry Mintzberg et al when they said “Corporations are economic entities, to be sure, but they are also social institutions that must justify their existence by their overall contribution to society” – perhaps as a direct riposte to the famous quote (attributed variously to Milton Friedman or Alfred P. Sloan) of “The business of business is business”.

Set against the regular mantras of companies justifying their existence by stating that ‘We pay lots of tax’, ‘We employ lots of people’ or ‘We sell stuff that people buy’  there is an increasing groundswell towards requiring a clearer and more detailed demonstration of why the existence of any given company is a demonstrably good thing.

Of course there is a world of difference between ‘We pay lots of tax’ and ‘we pay all the tax we ought to pay’!

 

The economics of utility

Utility (usefulness, serviceability) has long been a fundamental component of economics. It was at the heart of the neoclassical economic approaches initiated by Thorstein Veblen and before that in the functional utilitarianism (the maximum good for the maximum number) of Jeremy Bentham and John Stuart Mill. Under neoclassical theory, individuals maximise utility and firms maximise profit.

This distinction between utility and profit maximisation within conceptions of economics goes much further back in history to the origination of the very term economics itself. In “Politics”, written in the 4th Century BC, Aristotle discussed two dimensions of activity which are at the heart of today’s perspectives on economics, capitalism and the tensions between common and private good.

Aristotle drew a clear distinction between household management (oikonomia – where the word economics originates) and wealth creation (chrematistica – from the term chrema – a ‘thing’ of which money and wealth is a specific meaning).

Aristotle describes the difference and relationships between the two (in Part IX): “the art of wealth-getting which consists in household management, on the other hand, has a limit; the unlimited acquisition of wealth is not its business.”

Under this description, the process of delivering value creation is a requirement of household management, but not for its own sake “Hence men seek after a better notion of riches and of the art of getting wealth than the mere acquisition of coin, and they are right”.

In their book ‘For the Common GoodHerman Daly and John Cobb, Jr distinguish between the two concepts further:

“Oikonomia differs from chrematistics in three ways. First, it takes the long-run rather than the short-run view. Second, it considers costs and benefits to the whole community, not just to the parties to the transaction. Third, it focuses on concrete use value and the limited accumulation thereof, rather than on an abstract exchange value and its impetus towards unlimited accumulation…. For oikonomia, there is such a thing as enough. For chrematistics, more is always better… “

 

Social impact metrics – measuring the symptoms not the disease?

The extent to which the creation of social utility is at the heart of organisational purpose is frequently obscured, often by company activities seemingly intended to create social value.

All too often, the social impact conversation fails to focus upon core business. Instead becoming fixated upon what is done with profits, rather than upon the overall social utility of the business in the first place. Using Aristotle’s distinction – the social dimension of a businesses activities have been interpreted through a ‘wealth-getting’ rather than upon ‘household management’ lens – where the scope of the household is increasingly not only society but also the planet as a whole.

As a personal anecdote, I was once asked to present on climate change risks to the Senior Management and Chair of a large company with significant exposure to such threats, potentially affecting every aspect of its business model. After going through the varied dimensions of the challenges they faced to their business and perhaps, over the long term, their very existence, the Chair thanked me for my input and said that it was important to remember that their ability to invest in such “good works” as responding to climate change was dependent upon generating lots of nice surplus profit by doing business as usual.

This was possibly the most spectacular example of missing the point I had come across for a long time. Yet it is reflective of a key issue in terms of attitude to impact – impacts are those that arise from the existence of a company, not ones that arise from the philanthropic activities, social investment or charitable partnerships of a company undertaken with surplus profits.

Another wonderful example is that of major company that used its philanthropic funding to secure spaces for school playgrounds and playing fields and proudly, publicly, patted itself on the back. Set against this, the business also generated large profits by being a major player in the public-private-partnerships that gave rise to vast quantities of school land being sold off for housing and shopping developments. Does the former come close to addressing the impact of the latter?

Moving beyond such simplistic, not to say actively disingenuous approaches to demonstrating social benefit is a pressing need for 21st Century businesses. It is no longer enough for companies to say that their legitimacy comes from their existence or from the way in which they spend their spare change, they need to prove their worth to society now and in the future by exploring and demonstrating their fundamental social utility.

 

Getting to the core of social impact – beyond charity and investment

There is a fast growing range of tools and approaches for measuring social impact, yet the majority of such approaches are designed for charities, not-for profits and impact investors. This means that most attention is paid to spending money in a way that is socially beneficial, not upon the source of the money in the first place.

Going back to the root and purpose of companies and their profits is required.

This is where initiatives such as Shared Value fit in. Moving beyond the tired old narrative of distributing pennies to the poor outside the mansion gates, Shared Value (conceived by Michael Porter and Mark Kramer), is an approach to indicating the intent for and actualisation of economic activity which spreads its benefits to all actors in a transaction, not just some.

B Corps (Benefit Corporations) also seek to demonstrate innate social benefit rather than the after-the-fact conscience-salving that has characterised much corporate philanthropy. B Corp categorises its process as a certification scheme for business, like Fair Trade labels are for products.

B Corp status can only be achieved through processes of assessment of purpose, activity and impact. There are now more than 1,000 Certified B Corps from 33 countries and over 60 industries around the world.

 

Exploring social utility

Below the level of the structured and detailed approaches of Shared Value and B Corps there is a fundamental and simple question about the social utility of an enterprise: “Is the world a better place because we exist?

Organisations can further examine their social utility in detail by exploring the answers to the following questions:

  1. Which of your businesses’ activities provide utility to society (beyond shareholders)?
  2. To how much of (global) society do you provide utility?
  3. To what extent does utility provide a wider benefit to people other than direct beneficiaries?
  4. How can you prove the extent and equity of sharing?
  5. To how much of (global) society do you wish to provide utility?
  6. For how long?
  7. Will your current business model support that wish or prevent it?

 

An issue of scale

Questions of scale and scope of social utility are critical. For instance, you could make an argument that Hedge Funds are fantastically socially useful for the property market in the West of London, for high-end restaurants and for Lamborghini dealerships as well as providing market liquidity – but would this pass a notional social utility test?

In order to find out, you would have to martial opposing thoughts on the extent to which Hedge Funds also contribute to market hysteria and instability, undermine the strategic purpose of markets, accelerate short termism and contribute towards rising social inequity.

How could these bundles of opposing things be set against each other in order to achieve an understanding of net impact? It is worse than comparing apples and pears, it is more like apples and concrete!

 

Towards common self-interest

 “We are all dependent on one another, every soul of us on earth.”

George Bernard Shaw

Defining and delivering true social utility without getting lost in complex and misleading net-impact calculations requires a more fundamental perspective and approach to assessing the purpose of enterprise in the first place.

The concept of ‘common self-interest’ may provide a solution; the idea that in a massively interdependent world respecting and balancing interrelationships should be a defining theme and design criteria for activity – at the heart of company purpose and activity.

Common self-interest can be expressed as follows (after Arthur C. Clarke), that ‘At scale and over sufficiently large periods of time, private interest should be indistinguishable from common interest’.

The alignment of common and self-interest in the context of a company can be explored by considering the following criteria:

  • Interdependency – how reliant are we upon others to conduct our business?
  • Inter-subsidy – how is our quality of life subsidised by other people’s quality of life?
  • Freedom of choice and opportunity – does our freedom of choice and opportunities depend upon other people lacking their own?
  • Diversity and resilience – how do our activities contribute to the capacity and strength of the societies we sell to and depend upon to survive and thrive?

A company seeking to balance self and common interest would naturally need to align its business models and social relationships with the dependencies that represent sources of potential vulnerability and risk to individuals and society over time. A company seeking to enhance its utility would naturally therefore:

  • Preserve and enhance natural capital and ecosystem services.
  • Focus on the sustainable use of scarce resources.
  • Prioritise the use of abundant and renewable resources.
  • Recognise social interdependence, prioritising personal and societal wellbeing.

Following this approach is of course, merely harnessing the existing hard-wired drivers of capitalism to a longer term perspective, reinforcing the truth that we all have to live on the same planet and depend up each other for our mutual wellbeing.

A focus upon social utility – to assess and demonstrate the contribution that a company makes to the strength, diversity and wellbeing of society as a whole – is a defining characteristic of the companies that will thrive and shape the 21st century.

Contact Terrafiniti

This post was republished by 2Degrees on 30/04/15 and Toronto Sustainability Speaker Series (TSSS) Innovation Hub on 29/04/15

I agree 10 per cent – the principle of minimum consensus

 “We build too many walls and not enough bridges.”

Isaac Newton

I agree 100%

How many times can we honestly say that we really agree one hundred percent with someone else on an issue? It is certainly not unknown, however it can be quite rare.The Consensual World

Often this is because finding points of disagreement with other people is one of the ways that we establish legitimacy and expertise in addition to our sense of self.

Put simply, whilst we might almost totally agree with someone on an issue, we can also be motivated to find and highlight the nuances of where and how our understanding (unrecognised genius) and clear thinking provides us with a more accurate, pragmatic or relevant analysis.

The private intent of this behaviour is pretty clear – it allows us to feel good about ourselves and superior to others as an aspect of our contribution. However, the net-public-outcome of such activities can arrest the chance of progress. By highlighting and focussing upon minor, inconsequential points of detail, it can undermine the possibility of consensus and action on really important stuff.

Turning to the murky little backwater of the world that is sustainability, the practice of arguing the nuance of everything is rather aggravating and perverse. For instance, you get collections of people who all fundamentally agree that business as currently configured is unsustainable, that capitalism’s systems of value need to change and that humanity needs to respond rapidly, innovatively and creatively in order to build an equitable, resilient and sustainable world. However despite this they will also argue endlessly over why the points they make in the service of these aims are somehow superior, more appropriate, more intelligent or based upon more years in service of a better world than their correspondent’s.

This is of course ridiculous and won’t get any of us anywhere.

As I have noted in another post, the levels of consensus required by people of definable groups can vary. An article in Psychological Science in November 2013 “Liberals aren’t like the rest, or so they think” noted that that progressives (perhaps most likely to be sustainability advocates) tend towards considering themselves distinct or different from others with similar views (they overstate this difference). While conservatives (perhaps more likely to be distrustful of sustainability), tend towards considering themselves as in greater alignment with those holding similar views.

 

What levels of consensus do we need to work together?

A potential approach by which to reduce the time we spend disagreeing over things that are far less important than the things we agree upon is to consider the degree of consensus that is required in a given situation. To ask, ‘What do we really need to agree upon in order to work together?

By working together I mean a variety of things. At its most basic level that we are willing to act with a collaborative and constructive intent in face-to-face and online discussions. At higher levels it means joint enterprise, mutual dependence and partnership for the common good.

The levels of desired consensus for collective action can be explored by asking other questions about working together:

  • Do we want to work together?
  • What is the additive purpose?
  • What are the benefits?
  • What do we need to agree on?
  • (and conversely) What can we disagree upon?

Given that answers to the questions above result in the potential of joint work, the following questions further refine the levels of consensus which might be needed:

  • Do we have shared understanding of our focus and intent?
  • Are there assumptions being made that are not agreed upon?
  • Which elements are good enough?
  • Which parts are not good enough and must be revised?
  • What must I share because the joint enterprise will collapse without it?
  • What should I keep quiet about because to voice it would be letting perfect be the enemy of good?
  • What is a break point beyond which I am unable to constructively contribute?
  • When is the time to stop talking and do something because we agree enough already?

Minimum and maximum consensus

The unspoken default position in many sustainability discussions is “can’t you see how clever I am?” Not a good starting point for shared action.

If we really want to make a positive contribution to a sustainable future we need to get beyond such blatant ego-polishing and figure out just what levels of consensus are required.

There are many definitions of consensus in the world (Wikipedia’s page on the issue lists a large number). They range in practice from it being defined as a need to disagree on almost nothing in order to do anything together, to the practical approaches deployed by institutions such as the International Organization for Standardization (ISO), which defines consensus as:

General agreement, characterized by the absence of sustained opposition to substantial issues by any important part of the concerned interests”.

Put simply (and learned from hard personal experience) the levels of resource and persistence a party can contribute to an ISO process (and many others) has a significant impact upon the chances of that party being considered as ‘important’ and the more likely the final agreement reached is to reflect that party’s views.

The levels of required consensus concept is not a new one. For instance it was explored in the questions and answers proposed by the great moral philosophers John Locke and John Stuart Mill while considering the limits of liberty in relation to the rights and responsibilities of both the individual and the state.

A directly applicable description of the principle to the challenge of sustainable change was articulated by the author, academic and politician Michael Ignatieff. He defined minimalism as an outlook capable of accommodating the fact that “people from different cultures may continue to disagree about what is good, but nevertheless agree about what is insufferably, unarguably wrong.” (Quoted in the Yale Journal of International Law paper “The Minimum Core of Economic and Social Rights: A Concept in Search of Content”).

The role of consensus in change is a complex one. Across human history change has frequently taken place at the behest or whim of those individuals with the opportunity and ability (power) to make decisions regardless of the views of, and consequences for, others. Change via dictatorship or tyranny is not known for prioritising consensus.

For those of us lucky enough to live in democratic countries some form of consensus, or at the least the ability to exercise or indicate our views, is at the heart of our concepts of freedom.

Similarly, the majority of us interested in contributing to a sustainable and equitable world innately believe that consensus is a fundamental component of achieving that change – you cannot have an equitable world where only certain voices are heard.

Seeking minimum consensus

“Truth suffers from too much analysis.”

Frank Herbert

If we are capable of endlessly arguing about essentially irrelevant details on topics we fundamentally agree upon, wouldn’t it be logical to stop seeking total agreement?

If constantly aspiring for total consensus on every aspect of existence is fruitless, we need to move from asking:

Why doesn’t anyone recognise that my analysis of the world is better than yours”, to “How much consensus do we actually need to create something together?

Shouldn’t we therefore tend towards desiring a minimum level of consensus?

 

Minimum consensus in practice

These challenges are discussed, explored and overcome in sustainability as elsewhere. The existence and success of truly participatory multi-stakeholder initiatives (MSIs) are a testament to that (this Oxfam blog by May Miller Dawkins has an interesting discussion on such initiatives from the perspective of stakeholders).

Each successful multi-stakeholder process started with the development of the appropriate level of consensus. Such a level doesn’t preclude disagreement in total, it’s just that everyone agrees to abide by the level of consensus required for achieving a shared goal. This means they might disagree on many things but that the disagreement is not bigger than the wider purpose of their joint endeavour.

An example (there are many other good examples out there) of minimum consensus in practice can be found in MSIs such as the programmes facilitated by IDH, the Dutch Sustainable Trade Initiative.

Focussed around sustainability and supply issues in key global commodity chains, the initiatives bring together organisations involved in (as participants and stakeholders) the production, supply and sales of that commodity. For instance the IDH Cocoa initiative involves a number of companies which actively compete for market share and NGOs that may be critical of business. However they agree that without significant changes to the sustainability and resilience of the supply chain all of their interests will suffer. The levels of consensus sought by such an initiative are significant but essentially low – participants agree upon a relatively few points of fundamental and unarguable fact.

Can’t we all just get along?

Of course, griping about the levels of pointless argument in on-line and real life contexts is hardly a new or earth-shattering thing to do. Many initiatives and websites don’t really exist to be drivers of collective, collaborative knowledge but as portals for self-promotion and intellectual self-aggrandisement (and few of us are truly innocent of at least a little of each).

Nevertheless, the motive behind this post is a positive one. If we are to achieve a sustainable and equitable world we need to work together – there is no discussion to be had on that point.

Finding the fundamental points of shared human experience and aspiration is key. It is clear that at the level of globally shared values, humans show a striking degree of agreement on what they aspire to for themselves and their children. A glance at the World Values Survey provides ample testament to that.

Developing and applying the principle of minimum consensus might be one way to do this that we could all agree on – if only a little!

 

My huge thanks to Alain Ruche for both making me aware of this concept and inspiring me to write it.

 

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This post was republished by Sustainable Brands on 30/03/2015

Show me the money! Sustainability and financial outperformance

“The Analytical Engine has no pretensions whatever to originate anything. Its province is to assist us in making available what we are already acquainted with.”

Ada Lovelace

At the leading edge of sustainability best practice some leading companies are already developing meaningful pathways towards truly sustainable business models. Financial questionsFor the followers, there is perhaps a perceptible acceptance that sustainability is an important aspect of good corporate management. However, there still remains a need to demonstrate, within the current modes of capitalism, how sustainability impacts upon financial performance.

In our discussions with companies and sustainability practitioners within them, we often find that establishing of a clear business case for sustainability – to show that more sustainable business practice can be measured and valued in the context of financial performance – is still required.

The world as it is and the world how it might be

Debates within the relatively small world of sustainability tend to have two broad areas of focus: conversations about how to achieve sustainability within the world (and system) that we have, and discussions of how sustainability might be achieved if the world were different.

As with any group of humans talking about stuff, a focus upon one of the categories above often gets derailed by participants asking why the other is being ignored. Participants in discussions about the business case for sustainability in the current economic reality are frequently told that there is simply so much wrong with capitalism as it is that ‘sustainable business’ is not only an impossibility but also an offensive term (random capitalisation OFTEN also GETS used).

Conversely, utopian discussions about how the world might be and how we might get there are similarly beset by people saying that we must recognise the realities of where we are and not depart into sustainable flights of fancy.

Such is the stuff of life on the internets.

Of course there is room and necessity for each type of effort. We won’t achieve a very different, sustainable world, without dreaming big, and we also won’t establish the importance of sustainable business without proving its worth in the system we have now.

While I am happy to rail against capitalism as currently configured I also see the need to try to map a pathway from here to there…which will in part involve using the finance and economics that we have now to create the case for sustainable change. Given this, there remains a consistent need to be able to demonstrate how sustainability makes business and financial sense now.

This post presents a quick overview of some of the available sources of evidence on how the financial performance of companies which are relatively more sustainable (i.e. less bad) compares with that of companies which are either ignorant of or in ‘opposition’ to sustainability.

Sustainability and share price performance

The focus of this information is primarily upon listed companies as indicated by their share performance as this is where the best data are freely available. That is not to say that privately held companies or those with other ownership structures will not have stories to tell, just that they are often more difficult to find.

A few disclaimers

Before supplying what I believe is a pretty decent set of evidence for sustainability aligning with good financial performance, it is important to establish some health warnings:

  • Sustainability is of course not a per se an indicator of business success – there are many ‘sustainability rejecters’ that sail-on doing well in terms of share price and revenue.
  • Disentangling cause and effect relationships is always difficult – therefore it is just as difficult to tell which ‘bit’ of share price performance is due to which policy, decision or happening. While it’s possible to find examples of share price dips in relation to identifiable, time-specific incidents (e.g. Tesco’s recent travails, BP and the Macondo oil spill), in other cases there may be a wide range of aspects influencing share performance (some having nothing to do with sustainability issues).
  • Sustainability can be seen as part of ‘good business’ – the cause-effect issues tend to resolve by seeing CSR/sustainability as a bundle of aspects of what could be called ‘good management’ – and arguing that prudent risk analysis, strategic awareness and responsiveness to stakeholders (investors and others) simply makes good sense!
  • Markets aren’t always very logical – hysteria and sub-second trading can easily swamp other trends (for more on the problems with current markets see here).
  • Statistics are never indicators of absolute truth and can be discussed endlessly – the examples listed below are not exhaustive and there will be other perspectives (and findings) out there!

Nevertheless, the following information presents a range of evidence as to why sustainability makes good financial sense.

Overall evidence

In my previous life at WWF-UK, we produced a range of materials on the business case for sustainability, both by presenting data on the alignments between sustainability and financial performance and by seeking to identify the mainstream investment tools and metrics which were capable of appreciating sustainability as a value driver.

A simple expression of this work can be seen here.

At a larger and more comprehensive scale, a good ‘survey of surveys’ on the evidence for alignment between more sustainable companies and positive financial performance was published a few years ago by the Natural Capital Institute – Sustainability Pays.

Reduced Volatility

Simple outperformance is not the only valuable metric for sustainability in financial terms. Share price volatility is also a critical aspect. While experts with bigger brains than mine might well argue it is simplistic to suggest that higher share price volatility is always a bad thing, it is generally thought that higher volatility is associated with greater risk, and that at a market level, it may also indicate a higher likelihood of a declining market.

There does seem to be a reasonable amount of evidence that good CSR and sustainability has a contribution to make to reduce share price volatility (which is almost as ‘valuable’ as pure outperformance). This research piece from the Network for Business Sustainability explores the relationships and the evidence.

In addition, this 2012 Deutsche Bank document presents an overview of sustainability and its impact upon long term investments.

The 2013 Business in the Community (BITC) and Legal & General report ‘Conscious Capital: Bridging the gap between business and investors’ noted the contribution of sustainability to reduced volatility.

Additionally, this 2011 White Paper from the global asset management company RCM “Sustainability: opportunity or opportunity cost?” focused upon the performance of portfolios with integrated ESG (Environmental, Social and Governance) criteria.

Financial Outperformance

Beyond the evidence for reduced volatility, some research records the pure financial outperformance of the shares of more ‘responsible’ or ‘sustainable companies’ – that such companies (or the indexes they are featured in such as FTSE4Good or DJSI) have better average share performance than those that are not prioritising sustainability.

This report from RobecoSAM focusses upon enhanced Alpha* (a relative measure of performance on a risk-adjusted basis) from more strategic sustainability.

While here is Goldman Sachs saying the same thing (warning – it is long!), and also an academic thesis finding that SRI portfolios outperform the market.

The recent report from Arabesque Partners and the Smith School of Enterprise and the Environment ‘From Stockholder to Stakeholder: How Sustainability can Drive Financial Outperformance’ presents a comprehensive overview of the relationships between different elements of sustainability with financial metrics and also focuses upon share price performance.

Finally, here is a very good overview on links, correlation, strengths and weaknesses.

Further exploration

There are many sources of useful information on this topic but one of the very best places to explore sustainability and financial performance is SRI-Connect. Run by the sustainable investment pioneer Mike Tyrrell, SRI-Connect is free to join and not afraid to ask hard questions about the effectiveness of current sustainable investment while also presenting empirical evidence and expert insight into the progress that it has been made to date.

The UN PRI (Principles for Responsible Investment) initiative presents a wealth of evidence and thinking of sustainability and finance, including this publication which presents approaches for communicating the business value of sustainability. In addition, the 2006 UN PRI document, titled (like this post) ‘Show Me The Money‘, provides a comprehensive overview of the links between ESG issues and company value.

Conclusion

As noted above, this piece is neither comprehensive nor the last word on the subject of sustainability and financial performance.

As is often said, correlation is not causation and it is important not to state that there is always a ‘killer case’ for financial outperformance by more sustainable companies.

Nevertheless, the available evidence is both persuasive and meaningful. Certainly there is more than enough evidence out there to persuade the potentially persuadable that sustainability is good for business right now. Until we have an economy that prioritises sustainability innately, we must use such evidence to take us another step towards a brighter future.

* Alpha is a measure of performance on a risk-adjusted basis. It takes the volatility (price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund’s alpha. This definition was sourced from Investopedia.
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This post was also published by 2Degrees on 13/02/15 and by Sustainable Brands on 16/02/2015.
 .

Sustainability Context – the elephant is the room

“How far you can go without destroying from within what you are trying to defend from without?”

Dwight D. Eisenhower

This piece is a mildly revised version of a blog commissioned by 2degrees as part of a series of future-gazing pieces from sustainability thought leaders on the big issues for the agenda in 2015 and beyond.Jumbo issues

This version has more elephants in it.

There is much more to be said on the issues of context related sustainability, Planetary Boundaries and the multiple capitals approach than is included below. We intend to evolve and publish some further ideas on the challenges and opportunities of measuring and locating absolute sustainability in the context of the planet’s limits in further blogs in 2015 (and perhaps beyond).

Context is everything

Known unknowns and unknown unknowns

Predicting the future is always difficult, as Donald Rumsfeld so famously said (and was perhaps unjustly ridiculed for): there are known knowns (things we know we know), known unknowns (things we know we don’t know) and unknown unknowns (things that we don’t know that we don’t know). In addition, the philosopher Slavoj Žižek also suggests a further category, of unknown knowns (things that we don’t know – or wilfully fail to remember – that we know).what do I know about anything

Sticking to the first two categories, I will try to explore one of the biggest issues companies need to face up to in 2015 – the challenge of context. To locate their strategies for sustainability and impact management within the frame of what is physically sustainable in the long term.

The elephant is the room

In sustainability, many topics are routinely labelled as being the ‘elephant in the room’. These supposedly ‘hot-button’ but routinely ignored issues vary from population concern, capitalism, water scarcity, economic growth, vested interests, regulatory capture, political inertia, consumer disinterest, advertising and pretty much anything you care to mention that drives people to CAPITALISE their writing INDISCRIMINATELY in on-line discussion fora.

For companies to really get sustainability and be on a meaningful pathway to true sustainability (rather than relative unsustainability) the elephant they need to deal with is not just in the room but it is the room.

The animal which is metaphorically in question is sustainability context – the idea of positioning the scope for company activities, intent and performance within the planet’s capacity to support and sustain that activity without undermining the planet’s core functions

The best expression of what is physically possible, the best scientific ‘guess’ at the limits of sustainability, is described by the concept of Planetary Boundaries. A clear offspring of the Club of Rome’s 1972 Limits To Growth, the Nine Planetary Boundaries were developed by Johan Rockström et al in a 2011 paper in Nature and are at the heart of the popular Doughnut model developed by Kate Raworth while at Oxfam.

Put simply, it’s a concept seeking to identify and quantify aspects of the Earth’s natural systems which present close-to-absolute thresholds we should not cross.

Expressing limits is a notoriously difficult activity (see here for more on this issue) and predicting exactly where such thresholds lie has long been fraught. From Malthus to the Club of Rome to Peak Oil, each attracted criticism over the predictions they made. However it is possible to be right in principle but wrong on a point of detail. When it comes to limits the fact that we live on a single planet substantially closed to matter though open to energy means that we are born into an existence with observable (though large) inherent limits (unless or until we make it out of the gravity well and into space).

To put it simply, Jumbo may be big, but there is no such thing as an infinite elephant.

Relating company performance and intent to the big picture

Recently we have been having conversations about the growing trend of relating big picture global sustainability issues to individual organisations. This is happening in a number of areas. It is well underway in terms of climate and GHG emissions reporting and is growing for natural capital through the development of the ‘multiple capitals’ approach. In addition, people are starting to explore how they might understand company performance and scope for impact with reference to the concept of Planetary Boundaries.

For a company, relating their activities to specific Planetary Boundaries calls for an understanding of cause and effect that does not exist yet. However, there are some possibly useful ways of relating Planetary Boundaries and Multiple Capitals to individual organisations. A key approach might be to adapt the GHG Protocol’s Scopes approach, which assigns differential responsibilities to various aspects of overall impact.

A Scopes approach to Planetary Boundaries?

Scopes have been used by organisations utilising the GHG Protocol as a means to define boundary issues and help condense and navigate complexity. Under this scheme, organisations analyse their impacts in the following three categories:

  • Scope 1 – direct impacts arising from organisational activities.
  • Scope 2 – indirect impacts arising from purchased energy.
  • Scope 3 – indirect impacts arising from a variety of sources in the total value chain (to the company and from the company).

I believe that 2015 will see some interesting developments along this line, either cross-applying the Scopes to Planetary Boundaries or by developing and implementing the multiple capitals framework articulated by the International Integrated Reporting Council’s (IIRC) Capitals Framework.

Work is already being conducted along these lines, the Sustainability Context Group is focussed upon just this challenge, and the MultiCapital Scorecard initiative has produced tools to seek to measure and report performance across the varied dimensions of the capitals.

However, the answer is always the same – be kind to the elephant

Of course the challenge with all this analysis is that it doesn’t change the necessity for change or the direction of that change, both of which are generally clear before analysis takes place.

Perhaps the only thing a company should do, when considering their relationship to Planetary Boundaries, is to define and develop products and services which innately strengthen or reinforce the Boundaries. Of course, implicitly, this will require curtailing and then ceasing activities and processes that undermine the boundaries.

Therefore, while it can be critical to understand the impact of company activities upon Planetary Boundaries and Multiple Capitals, activities measuring relative unsustainability should be no more than a step on the path to developing innately sustainable strategic intent and action.

Resolving the tension between the way we do business and the way our planet works, so that growth in economic activity does not undermine the potential for future growth is a significant challenge.

The steps taken in 2015 on this journey will hopefully make a key contribution to overcoming this challenge. We must first recognise that context is everything, and then turn our human creativity and capacity for great endeavours towards making the planet a fit and fertile place for elephants, humans and all life alike.

 

The original version of this piece was published by 2degrees on 5/01/2015. This version was also republished by Sustainable Brands on 02/03/2015.

All capitals are unequal, but some are more unequal than others

“Price is what you pay, value is what you get”

Warren Buffett

 

“All capitals are unequal, but some are more unequal than others”. This was my takeaway from the fascinating and enlightening ‘Rethinking Capitals – Going Beyond the Financial’ conference I attended organised by the accountancy body ICAEW, in partnership with Newcastle University Business School and the Natural Capital Coalition (formerly known as the TEEB for Business Coalition).Taking the pip - the same but different

The event was an accountancy focussed exploration of the idea of multiple capitals (presented by Forum for the Future as 5 – though others consider there might be more – up to 8!). This is an evolving concept that seeks to expand the notion of value beyond money, cost and price.

This post represents a personal take on the conference and the issues explored. It does not provide a comprehensive overview of the capitals concept which contains more nuance and strategic thinking than is reflected within a subjective blog post.

However, I hope it presents a useful meander around the subject and the issues it raised in the mind of one participant.

The concept as a metaphor

A number of speakers, notably Professor David Otley of Lancaster University Management School emphasised that the capitals concept is perhaps best understood as a metaphor, rather than as a concrete approach to accounting, useful to reinforce the fact that a sustainable world requires us to recognise a number of categories of value rather than a reductionist focus upon one – financial capital.

The danger of metaphors is that they don’t always travel well – they run the risk of not roaming very far before they are interpreted as a fact, not the reference to a fact. This was (somewhat horrifyingly) illustrated to me a few years back in a parliamentary discussion of Natural Capital Accounting when an environment minister rebutted voiced concerns about the ability to reduce natural capital into a financial figure by saying (mildly paraphrased): “You don’t understand how useful it is to translate natural capital into a comparable metric (money). Once we do that we can use that figure to decide what the cost-benefit of a given action is.”

The trouble with this understanding is that, firstly it ignores the fact that natural capital is a metaphor for understanding value, not a mechanism for determining price, and secondly (and more importantly) price cannot be used to assess trade-offs when the trade-offs are between aspects of value with fundamental dependency relationships at their heart.

Fundamental dependencies – ceteris non paribus

When one capital depends upon another – such as in the case of financial capital (and all others) deriving from natural capital then reducing each to a number for the purposes of assessing trade-offs ignores the fact they are not equal – that one can only exist with the continued presence and health of the other.

Fundamental dependencies indicate a value hierarchy. Using a comparable metric like money as a way to put things on a level playing field makes sense, but only up to a point. Such an approach would be fine if the things we were comparing were truly comparable. However, the environment is something we can’t do without. There is a dependency relationship. Put simply, there is no money without human beings capable of inventing and using it. There are no human beings without food, air and water.

The concept in practice

Are companies telling the story well yet….?

The multiple capitals concept is already at the heart of a number of approaches seeking to support organisations in reflecting their total impacts in a more three dimensional way than current accounting practice does at present. Most significant of which is the multi capitals framework within the International Integrated Reporting Council’s (IIRC) Integrated Reporting Framework.

This approach is undoubtedly valuable, yet that value is yet (in my opinion) to be realised. Early adopters have often failed to understand either the meaning or implications of the Framework, as evidenced by some recent work we undertook to assess the entries to CorporateRegister.com’s CRRA 15 Reporting Awards. Of the integrated reports using the IIRC Framework, a number merely saw the capitals as ‘labels’ for existing thinking rather than calling for more fundamental analysis of the impacts and dependencies of their business. The most egregious examples of this problem were shown by a number of companies reporting against natural capital only in terms of efforts to minimise direct operational impacts – entirely ignoring the impacts of core business.

For more information on this issue and on the state of sustainability reporting in general see here.

In addition to this, is the challenge of communicating with investors, many companies still struggle to communicate their approach to sustainability in a manner that has meaning to mainstream investors – as strategic issues which relate to the company’s ability to create or protect value.

In order to do this, companies need to understand how to translate their sustainability activities into their implications for the measures that mainstream investors use to evaluate company performance and intent when making investment decisions.

Sustainability has clear financial and risk benefits, likely to lie somewhere in the following areas:

  • Direct impacts upon the performance of capital – where sustainability increases efficiency and reduces costs.
  • Impacts upon equity risk profile – where effective risk improves the likelihood of share price stability and growth.
  • Influence upon the assessment of drivers of shareholder value – analysis undertaken by investors of the management of risks likely to affect the company’s ability to create shareholder value.
  • Intangible value – representing a significant proportion of overall company value, these refer to ’soft‘ issues which do not feature upon company balance sheets such as leadership, transparency, intellectual capital, human capital, workplace organization and culture. Sustainability has a significant role in intangible value in terms of reputation, brand value, trust and stakeholder relations.

More information on making the sustainable investment case can be found here.

…and who is listening?

Investors barely acknowledge the existence of a number of environmental and social externalities as relevant factors in investment decisions. They certainly do not (at present) recognise that a company’s treatment of the multiple capitals upon which they depend has strategic relevance for the long term success of that company (and therefore their investment decision).

Even if they do, the individual, rational decisions of a given investor are swamped by the mass effect of the market – which at present prioritises market movement over longevity, stability and the potential longevity of any given company. This issue is explored in greater detail here.

Navigating the capitals

There remain significant conceptual and structural challenges to overcome before a multi capitals approach can be effective – driving a balanced and sustainable world.

Given the fundamental challenges posed by dependencies between capitals, a key approach to addressing this issue would require a focus upon valuing interdependence.

Valuing interdependence

The route to a sustainable future lies in recognising and valuing the dimensions of interdependence we have with each other and with the natural world:

  • Ecological interdependence – the natural environment is the foundation of human existence, the bedrock of social stability and the basis of all financial value. Humans are fundamentally dependent upon the Earth as our (so far) only home.
  • Financial interdependence – our markets are massively complex and interdependent. Resource and logistics systems are global and the rise and fall of market actors can mean success, failure, feast or famine across the world. The narrow financial success of one party must not continue to come at the common expense of many.
  • Social interdependence – nothing happens in our modern world without the involvement of others. We need to recognise and re-balance this interdependence so that our quality of life is not bought at the expense of others and is not at risk if those we depend upon decide to withdraw their subsidy.

This thinking is explored further here.

Peter Burgess of True Value Metrics has published a number of useful and interesting pieces on the use and evolution of capitalism and a capitals approach, see here for more detail.

Can accountants save the world?

Putting aside for a moment that it is not the world that needs saving (it will persist with or without us – notwithstanding the range of eschatological threats – for potentially another 4.8 billion years, when the sun burns all its hydrogen) the question of whether accountants can play a significant role in saving our world (the one of massively interdependent global capitalism) is an interesting one.

The question was raised in the conference and coincidentally is a topic explored in a fascinating, informative and balanced discussion on the blog of Jane Gleeson-White, the author of “Six Capitals: The revolution capitalism has to have – or can accountants save the planet?

In my opinion accountants must be in the vanguard of saving our world– they are the custodians of value, and accounting approaches are at the heart of defining, in social terms, what is valuable.

The challenge that they (and all of us) face is that a recognition of value is nothing without the means for translation into useful action, and our current systems of value are proving mighty hard to evolve.

Can the capitals thrive without other, more fundamental change?

This is the question explored powerfully by one of the conference’s final speakers. John Fullerton of the Capital Institute, presented his analysis of our current mode of capitalism, and presented the Regenerative Economy – a model for a different operating system for our economic activity – prioritising thermodynamics, interdependence and systems thinking as the fundamental aspects of any truly sustainable economy.

Surely if we are to truly use the mechanisms of capital markets and international trading to deliver environmental and social good then those markets need to be fundamentally reformed, such that they are capable of truly valuing a common future as more valuable than a private present.

Economics and markets must have both the incentive and capability to deliver the required strategic outcomes. They must rise to the challenge of valuing activities and behaviour which pay off over the long term, to compound rather than discount the value of a more sustainable future and to start valuing decisions that allow the growth and stability of ecosystems and societies as an outcome of advantage to the market as a whole. In this future, sustainable decisions and behaviours would be inherently valued and prioritised rather than considered as an afterthought.

Truly sustainable economies and markets, those dedicated to the discovery, trading and distribution of really sustainable value would therefore, be:

  • Thermodynamically optimised – their use of energy and materials would be in alignment with the physical characteristics and limits of the planet with a focus upon ‘entropic efficiency’.
  • Value abundance rather than scarcity – prioritising technologies and behaviours which deliver either natural (e.g. biologically-based) or managed (e.g. through closed loop stewardship) abundance.
  • Enhance natural vitality – valuing technologies and processes which make use of the planet’s natural rejuvenative and productive abilities, learning from and utilising natural production techniques as the basis for their technological and industrial models.
  • Balance their interdependence – recognising and balancing the web of social interdependencies they exist within, seeking mutual equity within all relationships.

More information on these concepts in the context of enterprise can be found here.

The multiple capitals approach – as yet a journey not a destination

The value of multiple capital approaches can only be realised when we have economic approaches (and consequent markets), which are founded on the understanding that maintaining and growing the fabric of the place that we do business (our planet) is a precondition rather than an afterthought.

They will only become useful when we have companies truly able to understand and integrate their meaning into the way they prioritise and manage their relationships with the capitals and are capable of translating these into the value conversations that they undertake with investors.

We are perhaps at the start of our journey to reform our concepts of value. The capitals approach provides a fantastic and useful map of the territory we must traverse. However, the route we will take remains uncertain and our ability to successfully reach a sustainable destination, in the time we might have available, also remains in question.

 

A revised version of this piece as a stand alone exploration of the multi-capitals concept was published by Sustainable Brands on 19/01/15 and by the Toronto Sustainability Speaker Series (TSSS) Innovation Hub on 11/03/15.

Sustainability Reporting 2014 – the State of the Art

“The future has already arrived. It’s just not evenly distributed yet.”

William Gibson

Rewarding the best of the best – the CRRA Awards

For the last three years my firm (Terrafiniti) has had the distinct pleasure of supporting CorporateRegister.com’s annual CR Reporting Awards (CRRA 15), the unique global, non-financial reporting accolades.
Our role has been to support shortlisting; reading and scoring all awards entries, which gives a fantastic snapshot of current practice in reporting across the world. This year Getting-the-message-out(2014, for the 2015 Awards), the CRRA had a record number of entries, with around 100 organisations submitting reports.

As ever, the reports vary hugely. Coming from all corners of the world, some follow recognised best practice, others explore new approaches while some plough the same furrow they have done for years. Reports ranged from a svelte 30 to 40 pages to a dense 400!

Based upon the scoring, CorporateRegister.com shortlists the best reports in 9 different categories and opens voting to registered users of CorporateRegister.com (43,000 and rising at the time of writing). It is free to register on the site and the more people that get involved the better the Awards will be.

This post presents a high level overview of what we learned about the state of reporting from this somewhat exhausting exercise. It is a meander around the issues we feel are of wider interest rather than a scientific discourse. It does not seek to comprehensively cover every issue related to sustainability reporting at present.

It is also not seeking to represent the views of CorporateRegister.com or present a sober or statistical analysis of reporting in 2014.
We will not tell you which report we thought was best, worst, most serious or most fun. For that you need to take part in the CRRA voting process and decide for yourself!

A note on terms: In this piece, I tend to use the term ‘sustainability reporting’ to refer to any non-financial reporting (the communication of organisational social and environmental performance). Reports use a range of terms: ‘Integrated’, ‘Corporate Responsibility’, ‘Corporate Social Responsibility’, ‘Shared Value’, ‘Corporate Responsibility & Sustainability’, ‘Corporate Citizenship’ etc.

The Headlines

The following broad aspects, in our opinion, sum up the state of sustainability reporting at present:
The overall standard of reporting seems to be rising – mostly because the poorest reports have closed the gap on the average; the improvement is typically seen at the bottom end. At the top end, already exceptional reporters have maintained quality.
Tending towards the middle – there are probably fewer ‘awful’ reports but also fewer ‘utterly stand-out’ reports.
Size isn’t everything – there are some very impressive short reports, though the giants can also be good.
Increased global uniformity – there is a higher degree of consistency across territories, sectors and company sizes.
GRI’s G4 is definitely making an impact – for the good.
Context is still often largely absent – most reports ignore the fundamental sustainability context of business operations.
The jury is still out on Integrated Reporting – both in terms of uptake (it’s not clear from our work whether the numbers are increasing) and in utility (an integrated report isn’t necessarily a better report).
Assurance is not really moving forward – there is little apparent increase in the use of assurance or in the depth of engagements.

The Details…

Materiality – GRI’s G4 takes the concept into the mainstream

Materiality has been a concept experiencing a long and slow emergence into the mainstream of sustainability management practice. As far back as 2001, whilst I was at WWF-UK, we put materiality (although not using the term) in the form of ‘issues of strategic business concern’ at the heart of our publication providing guidance on aligning sustainability and business value, ‘To Whose Profit: Building a Business Case for Sustainability’. In 2003 Accountability published ‘Redefining Materiality’, the progenitor of today’s current approaches and we embedded it within WWF’s 2004 publication ‘To Whose Profit (ii): Evolution – Building Sustainable Corporate Strategy’.
Many leading companies have, over the intervening decade, used and adopted materiality within their sustainability management and reporting, but it seems that the emergence of the Global Reporting Initiative’s G4 Sustainability Reporting Guidelines (G4), with iGRI G4ts (very welcome) materiality orientation has had a significant impact on the adoption of this concept.
The launch of G4 has meant that reports increasingly include references to materiality, disclose their approach to identifying material issues and list those issues – mostly through a materiality matrix. We believe that this has had a significant impact in terms of raising the quality of reporting.
However – a report which follows G4 is not always a better one! There are still organisations which use G4 but tend towards opaqueness regarding the processes they use to identify and prioritise issues.
In addition, a report can have a materiality identification approach and matrix but then dive straight into a series of content sections without maintaining a materiality narrative or cross-referencing issues. There are some honourable exceptions to these phenomena; some organisations not only explore the relationships between their material issues, but also consistently cross-reference them throughout the content of their reports.
With GRI cross referencing, the devil is in the detail. Just as with G3.1, some reports will report full compliance to a section when that is not justified in the content, or display an incomplete understanding (or interpretation) of what GRI is asking for.

Context (the big picture)

Context is at the heart of truly strategic sustainability management and reporting. Over the years context has been conspicuous by its absence in the majority of reporting in practice. Set against this non-trend, there has been growing clarity on the global mega-trends that will increasingly shape the operating context for the business – providing new and evolving sources of threat, opportunity, limits and possibilities. Sustainability management and reporting which ignores this context is neither strategic nor very sustainable.Location location location
Despite this, most reports ignore context. Some include information on big picture megatrends but do very little with them, the majority focus instead upon incremental reductions in impact (concentrating on being ‘less bad’ rather than understanding and communicating whether their activities and plans are, in any categorical way, actually sustainable).
Some of the bigger (mostly mature) reporters however do seem to ‘get’ context. Those with a clear and direct dependency upon the productivity of natural systems are starting to locate their performance within the context of the planet’s limits, though there remains a huge distance to travel on this journey.
Organisations with water hungry processes and products tend to be advanced in the use of strategic tools which contextualise their practice in terms of absolute availability. However, all too often, companies are still limiting their ambition to ‘do less damage than last time’.
At the top level there is a generally poor coverage of big picture global drivers and how they will shape strategy and business opportunities in the coming years. At a more specific level, few companies are doing more than paying lip service to a statement (if at all) of the main trends – resource and energy squeezes, the water/food nexus and demographic changes.

Integration

Each year we see a number of integrated reports. Long touted as the ultimate destiny of non-financial reporting and predicted to join financial information in a consolidated format, it is still unclear if their use is on the increase.
A number of such reports use the International Integrated Reporting Council (IIRC) Warp speed integration?Framework or are part of the IIRC pilot – and many use a multi-capitals approach (categorising ambition and performance in the context of different capitals: financial, manufactured, human, intellectual, natural and social). However, there seems to be a poor understanding of what a capitals approach means and some companies treat it incredibly shallowly. For example, a number of companies reporting against natural capital did so only in terms of efforts to minimise direct operational impacts – entirely ignoring the impacts of core business on natural capital. It is especially problematic when extractives or finance companies take this approach.

The continued emergence of geographical regions

Recent years have seen an increase in the quantity and quality of reporting from around the world. Particularly notable are reports coming from South Korea, Brazil and Canada in terms of quality, ambition and approach.Global emergence
Of these three areas, South Korean reports in particular are improving in quality and scope. Their approaches are more consistent than you tend to find from a single geography and they often use ISO 26000. This is very likely driven by clear signals from the Korean government and is also supported by the work of the Korean Standards Association (KSA) – which has developed an assurance-like assessment procedure using ISO26000.

Reporting strategy, targets and performance – could do better!

Many reports still fail to report or explain strategy well and/or to link it convincingly to wider report content. Even worse perhaps, some companies will refer to their strategies a number of times but without actually describing what it is! For eOn target?xample, “Our sustainability strategy empowers us to create a positive impact etc. etc.” but not “Our strategy is XXX”.
There are still far too many unjustifiable examples of non-contextualised data (e.g. “we trained 170 people last year”) and too much activity based ambition: “Next year we will engage more”, or: “We will expand on site generation of renewable energy, since 2008 we have generated 20 GWh”. The continuing existence of such disclosure serves to reinforce the idea that sustainability performance is not serious, not meaningful and raises the dreaded spectre of greenwash.
In performance reporting there is a perceptible, though probably not statistically supportable, growth of a ‘We said, We have, We will’ format for performance disclosure. We like that!

Assurance – saying less and less every year

The quality of assurance seems to have declined in recent years, it is less informative and more about risk mitigation/avoidance than adding value. This is a challenge, especially as it is only a minority of reports which include assurance in the first place. This decline seems to be due to the ambition of companies commissioning assurance engagements, perhaps indicating risk aversion on the part of reporters.Empty words
Assurance statements are frequently ‘limited’, and often based on ISAE3000 or equivalent, do not include (or publish) recommendations and are generally confined to a double-negative bound conclusion e.g. “We didn’t find anything that lead us to believe that the contents of the report that we were asked to assure weren’t accurate within the context of how they were stated”.
There is the odd brighter spot where a company has engaged ‘reasonable’ assurance to ISAE 3000 or even used AA1000AS as the methodology for the assurance engagement. These assurance engagements tend to produce statements with meaningful findings, observations and recommendations for the further development of sustainability management and reporting. Such statements are a breath of fresh air in the context of the stale pseudo accountancy-speak of most report assurance.
While there is some debate about the theoretical and realised utility of obtaining independent, third party assurance for sustainability reports, assurance should perhaps be seen as a required part of any good report. For much more discussion on assurance, whether it is required and what to look for, see our brief piece on the issue.

Conclusions?

As noted in the headlines at the start, there are some clear trends emerging from the reports we reviewed as entries to the CRRA 15. This sample is of course not necessarily representative of sustainability reporting as a whole, but it is representative of those reports considered by someone (probably the organisation reporting) as being good examples with at least a chance of winning an award. In addition, it undoubtedly contains some of the world’s best reports.
In my opinion the sample tells us the following, that:
• Reporting is getting more uniform, more consistent and uses more common elements – in short it is becoming more standardised.
• In a small number of cases, reporting is locating itself in the context of the global challenges facing the planet and its inhabitants and starting to indicate how performance rates on a scale of absolute sustainability rather than relative responsibility.
• Reporting is developing fast in some parts of the world and more consistently and impressively than in others.
• Integrated Reporting still has much to prove in theory and in practice.
• Performance disclosure is patchy but improvements by some organisations do tell us something meaningful about work to reduce environmental and social impacts.
• Assurance seems to be losing its way – before it ever really found it.

Reporting has traveled far over the past two decades. It is increasingly about core business, strategic context and strategic integration. Yet it still has further to go and requires many changes in the outside world in order for sustainability disclosure to be understood as equivalent or even greater in importance than financial information. The entries for the CRRA 15 represent a snapshot of the progress so far in this journey, we look forward with interest to where reporting will take us in the coming years.

 

This post was also published in two parts by 2Degrees on 2/12/14, by Sustainable Brands on 11/12/2014 and TSSS (Toronto Sustainability Speaker Series) on 31/01/15.

Geoengineering – are you feeling lucky?

“No man chooses evil because it is evil; he only mistakes it for happiness, the good he seeks.”

Mary Wollstonecraft

I’ve got a bad feeling about this…

There has been increasing discussion of late, in the context of the IPCC’s latest report on the dangers of climate change, about geoengineering – deliberate intervention in the Dicing with doom?functioning of planetary systems intended to arrest trends we don’t like or encourage ones that we do.

Geoengineering solutions (which might be termed mechanical geoengineering) fall into two categories:

1.  Solar Radiation Management (SRM) or Solar Geoengineering – techniques designed to increase the Earth’s albedo (increasing the amount of the Sun’s energy reflected into space) and;

2.  Carbon Dioxide Removal (CDR) or Carbon Geoengineering – approaches designed to capture and store atmospheric carbon.

Proposed mechanical geoengineering approaches include the introduction of iron filings into the sea to stimulate plankton growth and therefore carbon fixing, the release of stratospheric aerosols into the atmosphere to reflect sunlight back into space and the construction of space mirrors – to block sunlight before it hits the planet.

An overview of approaches and principles for their use, is available from the University of Oxford’s Oxford Geoengineering Programme.

I don’t know about you, but these ideas seem a little less like surgical interventions and more like indiscriminate, last gasp desperation.

At an event I attended last year at the Oxford Geoengineering Programme, one of the planet’s foremost geoengineering experts described the actual use of these approaches as a last throw of the dice, when anything more sensible and predictable had been tried and had failed. He likened it to a terminally-ill patient with weeks to live trying an untested drug, because they were certain that nothing else would work…

Is this an approach we should seriously consider in preference to reducing the dependence our economy and way of life has upon carbon dispersal? Does it make more sense to reject the development and scaling of provably safe technologies and instead put our trust in what might be a reckless, irreversible gamble?

The fundamentals of risk management

Whilst it’s a complex art, risk management essentially comes down to two basic questions:

  • What is the chance (probability of occurrence) of the worst happening? And;
  • If it did, could we cope with it (impact of risk)?

When these questions are applied to most proposed geoengineering planetary hacks, the answer to both of these questions is: “Er…..not sure….”.

It’s not just me saying this, actual experts freely acknowledge that the effects of many geoengineering approaches will be highly uncertain. For a quick overview of the potential flaws and benefits of differing approaches, see the graphic from New Scientist on the Oxford Geoengineering Programme website.

Given this, aren’t there other tactics that it might be better to try, that are innately safer and more certain in their outcomes? There are alternative interventionist approaches with an entirely different risk profile, innate safety and benefits, they generally fall under the heading of “regreening” but we prefer the term “vital engineering” (to steer clear of the use and abuse that the word “green” frequently attracts).

 

Why does vital engineering make more sense than mechanical geoengineering?

Vital engineering is about working with the planet’s natural processes to increase the scale and health of life on the planet. It includes re-forestation, ecosystem restoration, watershed management and the creation of fertile productive places (such as this work in the Sahel). Unlike seeding the skies with aerosols with effects we would struggle to predict vital engineering doesn’t need crossed fingers, just support, time and scale.

The problems of mechanical geoengineering and regreening

Geoengineering is stymied twice over before it starts (I hope) by the twin facts that we neither have the understanding of complexity that would allow us to use it safely nor yet the need to use it. We have plenty of proven, safe ways of helping the planet to become better at climate and water regulation, carbon capture and storage, not to mention food production. The planet’s life must be encouraged to thrive through vital engineering of all kinds.

Conversely, the problem with the vital approach is that it relies upon a myriad of individual acts, whereas mechanical geoengineering is more monumental in nature. Given this, it is of course geoengineering which we seem to leap at, seeing it as a simple answer to a complex problem. We humans are perhaps too easily swayed by oversimplification, blinded to the fact that the planet is too complicated to truly know.

Geoengineering will have consequences beyond uncertain effects on the climate which will impact upon the functioning of life and cause change piled upon the strain imposed by existing pressures.

Reality on this planet is beyond our conceptions of complexity

 “Human judges can show mercy. But against the laws of nature, there is no appeal.”

Arthur C. Clarke

Our current time on this planet is characterised by relative safety and predictability. The planet’s systems provide self-replicating and sustaining conditions for life in general and modern human societies in particular. The planet has not always been as hospitable to life, and there are no guarantees that it will be always so in future.

Set against this is the fact that our understandings about the limits of stability and certainty are hazy, whilst we know something about how physical and ecological systems function and interact we do not really know much about where their thresholds of change lie.

While concepts such as Planetary Boundaries articulate clear ‘red lines’ that we should not cross without significant changes in the planet’s function, much remains fundamentally uncertain. Even the best understandings of how our planet’s systems intertwine really only allow us to make crude guesses as to the extent and implications of deploying almost any kind of geoengineering.

Geoengineering requires us to rely upon luck, that’s not a good thing.

We don’t know where the current thresholds of our stability really lie, though we have some ideas, but the interactions of change at the thresholds is, quite simply, beyond us.

Our environmental stability, the ‘predictability’ that has allowed life to thrive over the millennia, is actually merely a metastability (a “temporary” state defined by dependencies and circumstances), one of many across the course of the earth’s history.

We don’t know where the tipping points are, so why rock the boat further? Especially when we don’t need to.

 

Life is (ahem) good for us, why turn away from it when we need it so?

Vital engineering is a form of geoengineering – conscious intervention designed to create planetary scale impact. However, it is one which concentrates not on the introduction of atmospheric aerosols, or dumping iron filings but in spreading life, actively and with intent.

We need the earth to be capable of producing life. It does this now, and though in decline it still provides wonder in abundance. Vital engineering only requires us to do what we already know how to do but don’t do enough of. To revitalise, to re-green, to spread plants and creatures in multitudinous shapes and sizes which inherently fix carbon, clean water, provide raw materials for building, clothing, sugars, chemicals and all the essentials for a human life well lived. They can do this as a matter of course and charge very little for their services.

When this is our possible future why would we instead choose approaches whose impacts are merely guessed at and whose consequences geological in timescale?

Vital engineering, you know it makes sense. The planet still fairly throbs with life, let’s go with that flow, not change the course of the river even further.

 

If you want to read more on these issues, see also our suggested regreening pledges: a Manifesto for Rejuvenative Technology, and a discussion about the Planetary Boundaries concept – Which straw broke the camel’s back?

 

This post was also published by Sustainable Brands on 28/11/2014.

 

Update 19/03/15  This post was revised to replace the term “regreening” with “vital engineering”.

This was done for two reasons:

  1. Because people on the internets kept telling me I couldn’t use the word “green” even though it was being used in a pro-chlorophyllic context and I know what I am talking about (some of the time), and;
  2. Because we had already developed the idea of “vital” technologies before (see here) which is a groovier sounding way of saying the same thing and I don’t know why I didn’t use it in the first place!