Utility – the fundamental metric of social impact

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“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.
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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.

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!

Sustainable energy – the many dimensions of energy quality

“The energy–matter world, which is also part of the economic system, has been given little, if any, attention.”

R Kummel

Progress towards sustainability inevitably requires significant changes in both the way that we do things and in the things that we do – affecting our industrial production, social infrastructure and value systems. Energy lies at the heart of almost all of this. In fact, developing clean energy would help unblock many obstacles on the path to a sustainable future.

Is the efficient use of energy only an issue in an unsustainable world?Green power - where will it come from?

Much thinking on sustainable energy has focused upon the efficiency of its use – measuring the extent to which energy intended to undertake work is ‘employed’ effectively in doing that work and whether a required outcome might be achieved with less energy.

New approaches to assessing this effectiveness are an increasing focus of effort and attention. These include Net Energy Analysis and its economic counterpart Energy Return on Energy Invested (EROEI), while Exergy concentrates upon assessing the quantity of useful energy available to undertake work and Emergy is the amount of Exergy employed directly or indirectly to produce a product or a service.

Efficiency of use is clearly a critical consideration for the sustainability of energy, where energy might be scarce, expensive or polluting. However, the ‘quality’ of sustainable energy is also a critical dimension. If the impacts, costs and wider social and environmental externalities which arise thorough our current use of energy could be radically reduced or even reversed through the use of ‘truly sustainable’ energy, then would the amount used become far less relevant?

In previous posts, we have explored new dimensions of energy quality and suggested the need for prioritising ‘Real-time energy’ (energy which passes from origin to use relatively quickly and with few thermodynamic losses) over prehistoric sources – while also considering the opportunity costs of using fossil fuels.

In this post we further explore those characteristics of energy utility and performance which should be considered in order to define truly sustainable energy.

The many dimensions of energy utility

 “I admire Homo sapiens’ capacity to follow through on an idea, no matter how it hurts.”

Harry Harrison

Effective utility is a defining characteristic which prioritises and drives the use of particular energy sources. Utility in this context is derived from a mix of high energy density, portability and relative safety (at least if we ignore the pesky externalities).

It is the nexus of these characteristics that makes us so dependent upon CONG (Coal, Oil and Natural Gas). It is concentrated, portable and relatively safe. Against this combination, renewable energy sources often compare unfavourably, so CONG remains the status-quo energy source of choice.

However, there is an urgent need for change; for us to move away from finite and polluting energy sources, towards sources that are capable (through their availability and systemic safety) of supporting human energy needs over the long term. Such perspectives are not only those of environmentalists, mainstream energy organisations such as the International Energy Agency (IEA) also predict a major shift towards renewables over coming decades.

So, just what are the energy characteristics which we should focus upon in order to identify the most useful and sustainable sources?

The key issues can be grouped into 6 dimensions:

  • Cleanliness
  • Abundance/Scalability
  • Renewability
  • Energy density
  • Opportunity cost
  • Infrastructural overhead
  • Timeliness

Cleanliness

Considering the whole production and consumption lifecycle, sustainable energy sources should be clean enough to enable long-term use without significant environmental or social impacts.

Probably the most critical consideration of energy performance for sustainability is the relative and (in the long run) absolute cleanliness of using different energy sources. This refers in the widest sense to different environmental and social impacts and therefore looks beyond just CO2 and climate change. CONG sources have high utility (in the short-term) but are highly polluting at all stages of their production and use lifecycle. Renewable sources are inherently cleaner and most operate without generating significant pollution, but they require plant and infrastructure manufacture which currently relies upon fossil-based energy sources and minerals with varied impacts. The long-term waste created by current (light water) nuclear power technology (together with other risks including safety, efficiency and proliferation) makes many environmentalists highly sceptical of its value as a low carbon alternative. Thorium-based fast breeder reactors and the as yet unrealised grail of fusion may go a long way to addressing these issues.

Abundance/Scalability

Sustainable energy sources should be widely available and capable of scaling for widespread use and to meet the significant demands of industrialised societies.

Without getting mired in the peak oil debate, it is clear from first-principles logic that a (more) sustainable energy source would be one based upon an abundant resource rather than a scarce one. This isn’t necessarily a sustainability issue per se but rather one of basic utility. A technology which uses abundant resources is likely to be easier and cheaper to deploy than a technology based upon scarcity. If we want to build sustainable societies we need energy sources that will be available over the long-term to support renewability (see below) and be sufficiently abundant or widespread. First generation renewable energy sources such as hydro, biomass and geothermal rely upon the relatively local abundance of relevant resources.

Renewability

Sustainable energy sources, by definition, should be viable over the long-term.

A vital characteristic of sustainable energy, renewability refers to the ability of the source to continue providing energy. In practice this can be seen as providing adequate abundance in real time. This effectively rules-out sources with limited supplies or restricted access.

A renewable source might not be entirely clean, but it has to be clean enough to avoid long-term impacts that would preclude its use at scale over time.

Density

Energy sources with high densities are inherently more useful, particularly because we have developed high power demands in industry and society. In the long-run we need to adapt our systems and technology to accommodate lower power, intermittent, sustainable sources.

Energy density refers to the effectively useful or extractable energy per unit mass (specific energy) or volume. The energy density of a source tells us a lot about its utility (although utility is highly context related). The high energy density of CONG sources is the key reason why they are so useful. We can fill a car with a tank of fuel and gain a 400/500 mile range, whereas most electric cars are currently still struggling to provide a range of much more than 100 miles, giving rise to ‘range anxiety’ even though the average journey length (in the UK at least) is perhaps only 8.5 miles (UK DfT 2010).

Energy sources are inextricably related to industrial and technological infrastructure; the “highly concentrated nature of these energy sources is a fundamental enabling factor in relation to the forms of social and economic organisation that have evolved over the course of the industrial age” (Josh Floyd, 2012) but such an interrelationship also gives rise to significant risks and vulnerabilities. High density energy infrastructure drives structural coupling and vulnerability to interruptions in supply.

Material Energy type Specific energy (MJ/kg) Energy density (MJ/L)
Uranium (in breeder) Nuclear fission 80,620,000 1,539,842,000
LPG (including Propane / Butane) Chemical 46.4 26
Gasoline (petrol) / Diesel / Fuel oil Chemical ~46 ~36
Fat (animal/vegetable) Chemical 37
Coal Chemical 24
Carbohydrates (including sugars) Chemical 17
Protein Chemical 16.8
Wood Chemical 16.2
Lithium-ion battery rechargeable Electrochemical 0.36 – 0.875 0.9–2.63
Lead-acid battery Electrochemical 0.17 0.34

Source Wikipedia – Energy density

An initial look at energy density suggests that renewable sources (with the exception of biomass) do not perform well in these terms. However, we need to consider utility on a more equivalent basis. CONG energy sources are inherently stock-based (the energy source is the stock, once it is burnt the total quantity of stock is reduced) and, by their nature, renewables are mainly flow or ‘real time’ based (the energy source is generated by activity but the activity itself is not diminished). Nuclear energy sources are of the highest density and also offer the ability to ‘plug-in’ to existing infrastructure.

Opportunity cost

There are important non-energy uses of fossil fuels and other potential opportunity costs of other sustainable energy sources.

Using stock-based energy sources such as fossil fuels has a range of well-known environmental impacts. However, the opportunity costs of use are given far less attention. Modern society relies upon petroleum-based products for making plastics, pharmaceuticals and agricultural inputs. There are also likely to be (currently) unknown future uses.

Use of oil - entropy

 

 

 

 

 

 

 

A number of current and possible alternatives exist for these uses but conservation of stocks to support non-energy applications is likely to be important. Their use could be made more sustainable through the development of closed-loop production and use cycles to maintain the availability of useful long-chain polymers.

There is also a range of possible opportunity costs for sustainable energy sources that should be considered within a production and use lifecycle, and in assessing benefit and impact trade-offs.

Infrastructural overhead

When different energy sources are compared, a lifecycle approach should be used that also accounts for the infrastructure required to manufacture plant and the supply/distribution networks necessary for utilisation.

The infrastructural overhead (after/ inspired by Josh Floyd – see link above) refers to the relative size, complexity and impact of the infrastructure required to support the generation and/or distribution of energy. For example, petroleum offers a convenient high density energy source for powering vehicles or generators, often in very remote locations. However, it requires a global infrastructure to extract, refine and transport it. In contrast, wind turbines or solar PV don’t require additional ‘fuel’ and a supply infrastructure to service it. They do, however, have an initial material and manufacturing overhead and (in current centralised grids) require a power distribution network, with the inclusion of storage to provide smoothed supply characteristics.

Timeliness

Different energy sources apparently offer power availability instantly or intermittently. While this is often a characteristic of the source it is also an aspect of the technical ecosystems which support it.

Timeliness is a contextual measure of importance for assessing utility. It relates to both supply and demand. The modern world has developed a socio-cultural-infrastructural model that relies upon instant availability and has a dependence upon high-density energy sources. National electricity grids provide always-on power supply that requires large scale generation which is maintained 24/7 and frequently has to provide a base-load capacity. As we have become accustomed to this model, and built industrial and social models which rely upon it, changing to different systems that may be intermittent and/or discontinuous in their supply presents a number of challenges and the need for adaptation.

How to assess sustainable energy?

Using the characteristics above it is possible to visually explore the characteristics of different sources. This is illustrated in the radar diagrams below by assigning a relative score for each criterion for a given source. The ‘perfect’ sustainable energy source would look like a full circle.

It is important to emphasise that these scores have been estimated for conceptual/illustrative purposes – they are not data-based so please don’t assume great accuracy or total objectivity! (However, observations and comments are welcome).

Interpreting the charts

The charts illustrate how well renewables score on important sustainability characteristics but also show that their utility in terms of energy density and timeliness is less good (in current terms) than CONG or nuclear.

Energy assessment graphsFeb15Scored 0-10 where 10 is sustainable on a relative & arbitrary scale. Assuming current starting point. (Graphic revised 11/02/2015 for Nuclear decreasing Inv Ov score and increasing Abundance score – to reflect a more balanced assessment).

 

Production, use and demand – moving towards a sustainable energy future

“Everything is the way it is because it got that way”

D’Arcy Wentworth Thompson.

Production and demand issues are heavily dependent upon the infrastructural ecosystem we have developed. This has been shaped by the relative abundance of CONG energy sources and their high density values. When renewables are assessed against CONG as direct replacements we have immediate problems – they are not ‘always on’ (but conversely not always burning fuel) and they can lack the energy density or power needed as direct replacements. Moving away from this towards an ecosystem based upon renewables will require far reaching and iterative changes in the way we provide and use power, and most likely a far higher level of differentiation betweenThe irony of origin uses and the systems that support them than we have in place at present.

As an example, we may have industrial systems that require and are provided with high quantities of continuous power, but this could be provided as a function specific to this use. Domestic energy requirements may be met separately through multiple systems; space and water heating provided by solar with or without short term interim smoothing-storage. Short-term high power needs such as cooking could be met through dwelling-specific battery or flywheel storage, pumped storage or via larger local/neighbourhood flow batteries. There is also scope for the further development of stock-able renewables (e.g. biomass, ethanol, hydrogen etc.) which would help moderate supply and distribution issues.

Energetic evolution

“The hand of change rests on it all, unfelt, unseen; resting for a while, as it were half reluctantly, before it grips and ends the thing forever. One frost and the whole face of things will be bare, links snap, patience end, our fine foliage of pretences lie glowing in the mire”

H G Wells

Sustainable sources that deliver on the crucial criteria of cleanliness and renewability present challenges to the way we currently use energy because of their relatively low density and intermittent supply. Nuclear lies somewhere in-between, with many environmentalists split by the philosophical watershed of whether it is safe and clean enough to contemplate. Further developments in Thorium-based reactors (or even fusion) could help swing the argument further in its favour – but the public is wary of the risk. It may have a role in the transitionary phase we should now be in – of moving from our current infrastructural position to a future longer-term and sustainable position.

In the long-term a major part of the sustainable solution lies in making better use of lower density, lower power demand and more discontinuous supplies. Some existing and predicted technologies such as biomass and algae fuel already do so (plants can grow when conditions permit, slowly aggregating biomass, proteins and sugars as they go). Breakthroughs in battery technology will ease the way to storage of renewable electricity and provide the means to ramp up grid supply and power homes and businesses whose space and water heating is met by solar or heat source pumps.

In addition, we have yet to scale the use of renewable energy as an input to the production of other forms of energy. For instance, the generation of hydrogen (which has energy density and portability characteristics on a par with CONG) might be undertaken cleanly and affordably, through the use of solar furnaces, just as they could help with turning air into rocket fuel.

As an essentially flow-based resource, renewable energy will require a substantial re-think of how we generate and utilise energy. In turn this demands a reconceptualisation of how we need, obtain and supply energy from both the supply and demand sides, in concert with innovation to make best uses of the potentially unlimited opportunities they offer.

The chance exists for us to develop systems of energy production and safe use that rely upon abundant supply. We should not allow the inertia of convention to prevent us from imagining and building a sustainable energy future.

Discounting the discount rate…how can we value a sustainable future?

“We are made wise not by the recollection of our past, but by the responsibility for our future.”
George Bernard Shaw

A bird in the hand…

We know that a bird in the hand is worth two in the bush. The adage worksBird-in-the-hand well, and it makes sense for a hunter-gatherer, but does it also hold true for a globalised species seeking a sustainable future?

Under some circumstances might the bird in the hand actually be worth less than a larger number of birds which are potentially available but currently out of reach?

Does the value proposition change at four birds in the bush, at six, or at ten?

How do we value something we could have against what we have already?

Such questions abound as we focus upon on of the most fundamental challenges to the achievement of a sustainable and prosperous future; the lack of a functional economic mechanism to help us positively value the future.
Our financial measures predominantly focus upon the value of the immediate. There is of course a certain logic to valuing today more highly than we value next week or beyond – the present actually exists (for the sake of argument) whilst next week is only a logical probability. In any case, even if we could be sure that next week will exist, we have no idea what might happen between now and then, what new technologies would transform the opportunities we might have to catch birds/make bird substitutes/change our dependency upon birds etc.

Discounting our chances for a sustainable future

A consideration of future value is a key part of any investment decision, financial planning or accounting process. An amount of money in your hand can be considered as definitely real (in as much as money is ever real) whereas money in the future is always considered to be less valuable as it is far more notional and conditional upon circumstances. This is referred to in terms of the discount that future value would have when set against its value now (net present value).

The mechanism for calculating this reduction of value over time is the discount rate. A seemingly innocent and rational accounting technique, the discount rate is perhaps the most significant reason why we find it so hard to invest in a sustainable future.
Some approaches exist which allow us to value future outcomes, yet each is substantially constrained by the deadening effect of the discount rate.
Cost benefit analysis, for instance, is the main vehicle for assessing the likely financial outcomes of different courses of action. It was used by Lord Stern to calculate that the costs of a transition to a lower carbon economy were a fraction of those of dealing with the implications of unconstrained climate change.

Logical? Sort of…

Discounting future value makes a great deal of sense for many things but it also projects a restraint on forward planning that restricts adequate investment in sustainable change.
Like so many aspects of economics and accounting, it is intensely logical (and useful) within a very specific frame of reference. If that frame of reference shifts, then logic would dictate a re-consideration of its utility.
The frame of reference for the discount rate has definitively shifted.

From discounting to compounding – our route to a sustainable future

Economics, finance and accounting may not have developed mechanisms to compound value over time (as noted, because the future doesn’t exist yet). However, it’s conceivable to imagine a social and economic architecture that would innately involve an ability to compound the future.

There a couple of possible ways to increase future value and therefore encourage behaviour which pays off over the long term, these are:

1. For there to be a purpose to capitalism…
This solution is exquisitely easy to express, though perhaps rather harder to achieve. We need to introduce a long term purpose for economic activity. In addition to being financially and personally worthwhile for individuals to participate, economic activity should make a manifest contribution to the achievement of:

  • Healthy and thriving ecosystems.
  • A global human population of 9 billion capable citizens.

With these goals in place, it would be relatively easy to compound value, to judge behaviour by its contribution to these goals, asking the question ‘are these activities likely to achieve or to undermine our sustainable destination?’

Just as investors currently (in theory) assess the likelihood of a company achieving its stated aims and value them accordingly, so this could done in the context of a shared long-term goal.

2. Long money and short money – changing the rules of money

This refers to ideas which either change the conception of money itself (I have previously suggested that thermodynamic performance, abundance, contribution to natural capital and balanced social interdependence are good suggestions to add to the current basic elements of scarcity, supply and demand) or which alter the rules that are applied to money.

One such approach to the rules of money would be to create “Long money” and “Short money”. Short money would have a use by date and be spent on day-to-day things, Long money would be more suited to infrastructure investment and projects with a long term or common-good payoff.

The mechanism for creating such distinctions exists, it is called demurrage, it is a reverse interest rate and refers to a cost levied for holding or owning money for a given period. Applying demurrage universally would naturally discourage people and organisations from sitting on money, and encourage its circulation or investment as Long money which would be inherently more useful for the common good.

A practical example of this type of thinking is in the area of alternative currencies, which have been used in reality across the world in order to achieve a range of rather amazing things. A pioneer of alternative currencies is Bernard Lietaer, his books and websites give a number of incredibly inspiring and creative examples as to how alternative money can change the world and in many cases already has.

We meant to save our civilisation but didn’t have a budget code for the work…

The discount rate dominates and dictates an unsustainable future because, surprisingly or not, humanity doesn’t have a plan. As a species we are old enough, and dangerous enough, not to be blundering around without a destination and a plan by which to get there.
A common direction is not dictatorship, communism or even collectivism, it is simply an intention to survive, and perhaps even to thrive over the coming decades.

Our current mode of capitalism is no less collectivist than what I propose – it defines shared modes of behaviour, measurement, legality and value – however current capitalism lacks a definable and constructive plan for the prosperity of our species or planet over the long term. This is an issue which is manifestly worth addressing as it is clear that the demand is there: most of humanity is keen to ensure a viable and successful future for themselves and their loved ones.

LIkewise, our conceptions of the meaning and purpose of money are no more fixed in stone or incapable of change than any other systems (though they may have more inertia). Money is a tool, a means by which we signify value and facilitate exchange. Valuing the long term success of our species should certainly be worth something and perhaps it is time we considered the role that our means of exchange could have in achieving that success.

The forthcoming challenges of sustainability should spur our action, so that we might design ways to overcome the barrier of the discount rate and work towards building a greater future value than our limited financial mechanisms currently allow us to conceive.

“This is the first age that’s ever paid much attention to the future, which is a little ironic since we may not have one.”
Arthur C. Clarke

This post was also published by 2Degrees on 3/10/14 and by Sustainable Brands on 13/10/2014.

Traffic Jams – the manifest will of the people?

“There are two things a person should never be angry at, what they can help, and what they cannot.”

Plato

Just because we want one thing, must we want all that comes with it?

It is a peculiar fact of human existence that the mass effect of individual actions can produce an outcome at odds with or likely to underCar Marmalademine (even if in the long run) their original intent.

This not exactly earth-shattering observation reflects the challenge of balancing individual and collective freedoms; the subject of philosophical reflection on the nature and limits of the rights of the individual since the times of Socrates and Plato.

However, at times we humans seem to be prone to conflate intentions and implications, to erroneously ascribe a complete intent. That is to say, it is somehow inferred that because we want to undertake a given action, we must also be consciously seeking all of the possible consequences of that action.

For example, our wish to make use of the incredible benefits of accessible, concentrated energy doesn’t mean that we consciously desire irreversible climate change and a slow degradation of our planet and way of life. Similarly, we don’t actually demand a side-order of rainforest destruction and Orangutan death when we buy a packet of biscuits. We just want a biscuit.

While the cause and effect implications of such consumption choices can frequently be understood and asserted, it is not logical to assign conscious intent to all outcomes. Assuming such an intent implies that the net-effect of individual choices is deliberate and intended.

If this implication were taken to the extreme (for the purposes of playful provocation), this would suggest that: A traffic jam represents the manifest will of the people.

Err, seriously?

Its simple really. In a “free” society we have the following:

  • Freedom to choose (within legal and social reason, and as far as we can afford to do)
  • Freedom to act (again within legal and social reason, and dependent upon wealth, technology, etc.).

Given the above, the following should also be true:

People must be free to go to the seaside and come back if they want to.

On sunny days, the traffic jams and gridlock that arise as we seek out the sun and sand must therefore be a consciously desired aspect of the day too….

“I don’t want to just go to the seaside (people would need to say under this scenario), I also demand to be able to sit in a jam, breathe in exhaust fumes, have my children conducting an alternating programme of asking if we are there yet (when we are plainly forever “here”) with being sick over the upholstery. It is my right as a citizen and consumer.”

This is what drivers in such a jam want. It must be.

Because they they want one thing, every aspect and implication which arises from that initial desire or need must be conscious and deliberate. Therefore the traffic jam is an expression of the absolute, aligned, collective will of the (individual) people.

Isn’t it?

Or perhaps the relationship between desire and consequences is a little more complicated, more opaque and a little less deliberate….

….sometimes what we want brings us more than we bargained for.

 

 “Human behaviour flows from three main sources: desire, emotion, and knowledge”

Plato

 This piece was inspired by and owes a debt to “Gridlock” by Ben Elton.

 

This post was also published by 2Degrees on 1/09/14 and by Sustainable Brands on 12/09/2014.

Out with the old?

“Affairs are easier of entrance than of exit; and it is but common prudence to see our way out before we venture in.”

Aesop

The old phrase tells us that new and old ideas find a natural balance, If you want to get into it...you got to get out of it...that the introduction of the new requires that it is also “out with the old”. Indeed, sustainability should be about saying “let’s do something new” rather than “stop doing that old thing”. However, most sustainability practitioners and campaigners spend much of their lives fighting to change existing behaviour. Much time is spent rationing unsustainability, rather than doing as Buckminster Fuller advised: “To change something, build a new model that makes the existing model obsolete.”

This is to a large extent related to a combination of familiarity, status quo bias, infrastructural inertia and willful resistance to change of vested interests than the conceptual or practical problems of imagining and implementing new ways of doing things.Rarely do we find that the entrance of the new means that it is out with the old.

Indeed, the “new” seldom really is new, built as it so often is upon the ramshackle foundations of the old – not upon fresh footings of its own.

The asymmetry of acceptance and rejection

“Two quite opposite qualities equally bias our minds – habits and novelty.”

Jean de la Bruyere

In technological terms, there is a huge asymmetry between the ease of introduction of new things, be they technologies, products or processes, and the difficulty of phasing them out when they prove to be problematic.

It seems to be the case that the burden of proof required to retire a functioning (definably problematic) technology is far higher than that required to introduce it.

350 or 355 ppm? It is risky dancing on the head of a pin

The introductory narrative for technologies tends to be focused around utility (what this wondrous new technology will do for us) and the removal narrative upon a debate about the probability and extent of risk.

This means that instead of concentrating upon the introduction of innately and undoubtedly sustainable technologies, we tend to waste all our time in discussing and proving the dangerousness of unsustainable technologies already deployed.

We get stuck in internecine, angels on the head of a pin arguments about the exact thresholds of toxicity which are “acceptable” – rationing safety rather than producing products through processes that are innately safe (and for the most part eminently feasible).

The challenge to introduce technology, sometimes high though it may feel, is still lower than that required to remove it.

This is wonderfully demonstrated by the burden of proof seemingly required to demonstrate the blindingly obvious; that burning fossil fuel is a bad idea from pretty much any perspective (other than we are already addicted to it and the withdrawal comedown would hurt).

This level of required proof is way, way beyond that required to introduce a new drug (significant though this is), a new genetic technology or to flood the world with phones and computers full of complex, semi-disposable aggregations of precious metals, intensely energetic processes and scarce elements, produced by workers toiling long days in poor conditions.

Come on in…please don’t go!

“The difficulty lies not so much in developing new ideas as in escaping from old ones.”

John Maynard Keynes

The height of the hurdles to the removal of unsustainable and deadly technologies are set not only by custom, precedent and vested interest, they are also mandated by systems of economics and finance which seem to find it irrelevant and pointless to evolve the means to value the planet and its people as a going concern over the coming decades.

Just as the thresholds overcome for the introduction of industrial technologies in the 17th and 18th centuries were low, so were the ones required for the introduction of the economic theories which dominate, shape and drive our unsustainable world.

Conversely, the barriers that we face for the reform of our economic theories such that they produce innately sustainable outcomes are set very high indeed. It is not just a fight of fact against fact, but of sentiment, familiarity and private profit, set against the long term interests of us all.

Such a fight with either be long, or will suddenly flip, perhaps as we recognise that money and markets don’t represent the physical world we depend upon for our very existence.

Still, a long fight is no less worth fighting. As Winston Churchill didn’t quite say:

“Sustainability at all costs, sustainability in spite of all terror, sustainability however long and hard the road may be; for without sustainability, there is no survival.”