simon zadek » Dear Mr Wolf…Reflections for the Magic Mountain

Dear Mr Wolf…Reflections for the Magic Mountain

simon — Mon, 23 Jan 2012 14:16:26 +0000

The Davos countdown has begun, as some of the world’s most powerful embark on the ritual trek up the Magic Mountain. What should be expected from this glitzy dialogue in this Year of Unreasonableness. Davos this year is titled The Great Transformation. But can Davos offer real alternatives or will it serve up a smiling, gritted-teeth espousal that ‘business as usual’ can and should be sustained…read my response to Mr Wolf’s proposed ‘seven ways to fix the system’ on OpenDemocracy @ http://bit.ly/wP96tP…

Sustainability’s Cinderella – Us!

simon — Mon, 16 Jan 2012 11:41:06 +0000

The World Economic Forum has launched its latest report on sustainable consumption in advance of its presentation and debate in Davos later this month. Entitled More with Less: Scaling Sustainable Consumption and Resource Efficiency, the report sets out the case for companies, governments and in particular plain old citizens to embrace sustainable consumption as a means of advancing the transition to a sustainable economy. So why is the Forum, and its members and friends, so interested in sustainable consumption, this being its fourth report on the topic in as many years?

“Sustainable consumption has gained centre-stage”, wrote S.D. Shibulal, Infosys’s Chief Executive, in celebrating the 10th birthday of the ‘BRICS’, highlighting the sad fact despite a decade of extraordinary advances in emerging economies, hundreds of millions of Indians still living in dire poverty. And he is certainly right that consumption lies at the core of our challenge and its solutions. Indeed, the very term ‘sustainable consumption’ reflects the paradoxes that it seeks to resolve.

Consumption for many is pure and simply the means to drive economic success. Consume more from us, plead the Europeans of the abstemious Germans, as China commits to boosting its domestic consumption to provide a more balanced growth pathway in years to come. Wayne Swan, Australia’s treasurer, in describing the country’s economic bounce back, concluded, “We have an economy with strong investment, rising incomes, sustainable consumption and low unemployment and these are the building blocks of a strong economy”. Mr Swan’s call for sustainable consumption has little to do, one suspects, with Mr Shibulal’s call to address endemic poverty.

For others, it’s all about the role of the consumer in driving change. Mark Bolland, Chief Executive of Marks & Spencer, champions the view that technology-enabled consumers will increasingly use social networking to ‘choice edit’ their consumer decisions. This is an opportunity, he argues, for those companies that get it, and a profound threat for those who do not, and for us all a chance to get sustainability on track. This view of the empowered consumer is not, it must be said, universally shared. Peter Brabeck-Letmathe, Nestlé’s Chair, speaking at the Global Green Growth Forum in Copenhagen last October, pointed out that consumers did not ask for the internet, but have embraced it now that it is available to them. Similarly, he argued, they will not be the driving force of green growth, but will respond positively once business gives them affordable and desirable, green products.

Sustainable consumption figures as a cross-cutting theme in the draft text for the UN’s Rio+20, The Future We Want, which sets out the need to, “establish a 10-Year Framework of Programmes on sustainable consumption and production”. Whilst being typically UN-unspecific as to what this might include, the UN surely intends the focus to cover both Mr Shibulal’s anti-poverty agenda and the need to secure ‘more for less’ in reducing the use of natural resources and levels of pollution. Economic growth per se, let alone business success, is not really the UN’s thing despite the focus on green growth at the forthcoming Rio+20 event in June.

Paul Polman, Unilever’s Chief Executive, speaking at the launch of the company’s Sustainable Living Plan at its headquarters in London in late 2010, provided perhaps the most integrated vision of sustainable consumption. In asserting that there is “no conflict between sustainable consumption and business growth”, he reaffirmed the three-fold essentials of sustainable consumption: as a growth driver, a means of bringing improved material well-being to the poor, and as a means for reducing the material impact of that consumption.

Mr Polman is right, but it is easier to describe sustainable consumption’s three-cornered hat than deliver it in practice. We can all list our noble consumer items, the low energy bulbs, organic t-shirts, low-pollutant freezers and carbon-offset (very low cost) holiday flights. Equally, we can with some prompting mention a few of the benchmarks for our changing consumer standards, the forest and marine stewardship councils’ signature stamps, fair trade marks, and for some the more exotic and time consuming benchmarks for de-selecting products made by companies with a bad record in anything from climate to internet privacy.

But for the world’s two billion or so middle class consumers (and I applaud the exceptions) this represents a small niche in our overall consumption patterns. Green growth may well mean ‘more-with-less’, as the Forum’s title seductively promises, but it still means way too much of the ‘more’. There remains a daunting gap between action and what needs to be done. Consumer-facing sustainability initiatives, whilst making laudable progress in everything from coffee to buildings to vehicles, are not making serious inroads into their respective markets to safeguard their targeted resource, species or indeed community.

Scale is therefore at the heart of the challenge, and so rightly this is the focus of the Forum’s new report, and I am pleased to have had the opportunity to contribute to its creation. By 2030, three billion middle class consumers will be out there demanding products and services. In a resource constrained world, those companies and economies that can deliver against these demands without unsustainable natural resource use and pollution will secure powerful competitive advantage. Accenture, the Forum’s research partner, calculates that the economic output at risk in 2030 if the response to a “peak metals” scenario on iron and steel is business as usual. Similarly for nations – sustainable competitiveness for nations is the new buzzword in the Forum’s corridors as it launches its first country-level rating alongside its traditional global competitiveness index, building in vision and substance on some of the early work on the ‘responsible competitiveness’ of nations.

So if there is money to be made, economies to be grown, as well as a world to save, what’s the hold up? It’s a puzzle that we have so far failed to get to scale in addressing the challenge and hopefully reaping the economic and business benefits. After all, we live in an era of scale. Our US$ 70 trillion global economy is powered by US$ 210 trillion of financial assets; over five billion mobile phones are in circulation with penetration rates rising by 35% each year; and over a period of just two weeks in August 2008, 4.7 billion people (70% of the world’s population) tuned in to watch the Beijing Olympics on television. Modern societies are addicted to ‘speed-to-scale’, so why can’t we make it happen when it comes to sustainable consumption, or can we?

The Forum’s report usefully distinguishes three, complementary ways to deliver ‘more-with-less’: by rebuilding the value chain and products themselves, essentially supply-side responses; through consumer responses, the demand side; and finally by changing the rules of the game, whether this means norms, voluntary standards or the rule of law. Noticeably, the report’s emphasis is on the supply side and to some extent the rules of the game, perhaps confirming broader support for Peter Brabeck-Letmathe take that consumers are market-takers rather than makers. And supply side responses are of course what are needed if we are to re-engineer global value chains to be environmental smarter and share the wealth they generate more fairly.

Yet we write off consumer action far too easily. Many cite the problem of price premiums to buying ethically when we do not blink at design and status of premiums of hundreds of percent for everything from underpants to airlines. Technology, as Mr Bolland points out, is a game changer in catalyzing collective action. Indeed, we are witnessing an up-swelling of new forms of collective action, from the unfinished business of the Arab Spring to the on-going actions of the Occupy movement, which spread to over 900 cities in less than 3 weeks. Tens of millions of microblogs were generated in China within 24 hours of the train crash last year, and even Burma appears to be succumbing to the tripartite pressure of people, politics and profit. Citizens are making themselves heard from the protests on the streets of Moscow to those of Athens.

These citizens’ movements are rarely thought of as the vanguard of sustainable consumption, but we should not be so hasty in our judgment. Many commentators of Egypt’s early uprising have pointed out the coincidence of food price spiking, in significant part triggered by the financial market’s speculative trading in commodities. The Occupy movement has not focused on consumption per se, but has called for corporate reforms and greater equality in outcomes of today’s global markets. Many of the estimated 180,000 ‘mass protests’ in China last year called for less corruption, greater accountability and a fairer deal for poorer communities. These scaled uprisings may not be about the peaks of sustainable consumption, but are without doubt the heartland of its foothills.

Collective citizen action on sustainable consumption will ultimately be rooted in their imaginations about themselves and the societies that they want to live in, more than it is about price or even ‘point-of-sale-ethics’. Beyond the basics, consumption follows social identity, a point well-understood by sociologists and marketers, but still painfully absent from the strategies of sustainable consumption crusaders. Governments can help, not just through establishing new rules, but by providing leadership in setting and pushing foward visions of what is possible. President Lula of Brazil did just that in insisting that malnutrition could be overcome, and in his tenure went a long way to doing just that. Governments of Denmark, Germany and Korea, and perhaps most of all China, are redefining the international political landscape by moving unilaterally and ambitiously forward on the green growth agenda.

Businesses, similarly, can catalyze dramatic change by advancing what I have elsewhere called ‘unreasonable ambition’ for their own companies. Partly this is about the aspirations and strategies of individual companies led by unusual, amazing folks, and we need to celebrate such leadership. But scaling ultimately demands collective action, sometimes through competitive forces but often grounded in collaboration. Acting together, some of the world’s largest companies could commit to targets that would put many national targets, including those of major economies, to shame. Imagine this happening in the run up to Rio+20, a set of post-Millennium, Sutainabable Development Goals that businesses, working with others, commit to over the period to 2020. Could such goals shame, goad or create the imperative for governments, at Rio+20, in the climate negotiations, or at the World Trade Organisation or any one of a dozen stalled, inter-governmental, to act with courage and collective intelligence.

The World Economic Forum’s ‘More with Less’ report is a call to action that blends pragmatism with radicalism into a cocktail fit for this era. It spells out what needs to be done, the cost of inaction, and the potential benefits from turning big words into big actions.

At the G8 (remember them) in Birmingham back in 1998, the New Economics Foundation, organiser of the counter, Peoples’ Conference, published the report ‘Purchasing Power’. That report set out many examples of sustainable consumption, mainly emerging from the politics of change from South Africa to Chile and even the US. It was a voice for change, from the outside, barely heard on the inside. The Forum’s report on the other hand comes not from the street, but from the boardrooms of global businesses and their international and local partners. We cannot afford to choose. Both despite and because of the power of business, scale will only happen when it finds either common purpose or mutual interest to act in concert with the street. The opportunity does exist, and must be taken, to join the dots.

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Debt, Sustainability and the Long Con

simon — Sun, 07 Aug 2011 06:00:19 +0000

China’s criticism that the US is failing to live within its means is a little rich given that it has benefited so much by the US’s debt addicted, three decade long consumer binge. But that aside, China does have a point. And so does Standard and Poor in its historic downgrading of the US’s credit worthiness, despite the dispute over an alleged US$2 trillion maths error deemed by S&P as ‘neither here nor there’.

So how should sustainability geeks understand and respond as the world once more (or still) stands on the brink of a financial sector-precipitated economic and political crisis?

Well, there is the well-worn, finger wagging route taken by many that evokes the need for ‘sustainable consumption’, involving life style changes underpinned by technology, price, behavioural changes and for most value shifts. The World Economic Forum, perhaps an unlikely venue, has articulated this argument in and for the mainstream business and policy community, summarised in a recent piece entitled The Consumption Dilemma. Bottom line on this front: business says that efficiency measures along the value chain combined with technology adoption and further development, blended with some much needed business model re-engineering, can take us a long way. Civil society and some business argues that much public policy innovation and effective implementation is needed, and a few maintain that deeper value shifts will be needed to achieve the 30-40% increase in resource productivity that McKinsey says is needed to meet growing consumer demands within our planetary capacity over the next two decades.

Anger towards the financial sector has a special place in many folks’ hearts and minds right now. Allegations, often well-founded, have pointed fingers in particular towards predatory lending practices that have financed very unsustainable consumption. And the cheap credit tapped for this purpose that has flushed through the global economy has come of course through the Great Deregulation, especially of Wall Street and The City. This in turn provided the opening to recycle the huge financial surpluses arising from the global economic imbalances associated in significant part with the growth of China Inc.

This long con, however, has been made possible by some very dubious accounting practices. Imagine being asked to invest in an enterprise whose balance sheet omits a wide range of assets and liabilities that are likely to be change in value enormously over the coming years. And furthermore, imagine on examining the prospectus one finds that free cash flow predictions were so heavily discounted beyond a few years that future scenarios were in essence irrelevant to the picture presented. And then finally imagine that the auditors brought in to stress test the prospectus was paid by the would-be investee and had a similar distaste for the long term.

Failing to account for natural resources and social externalities is a practice that will bring the house down. Sovereign debt credit ratings are meant to measure the credit worthiness of a country, but they do not count in the main their social and environmental assets, or the liabilities that they are building up in terms of domestic damage and international pushback and claims for recompense. Sustainability geeks all know the aggregate numbers, such as those offered up by UNEP, which estimates that annual environmental costs from global human activity already amounted to US$ 6.6 trillion in 2008, equivalent to 11% of global GDP. The same study concluded on current trends that global environmental costs would reach US$ 28.6 trillion, equivalent to 18% of projected global GDP, by 2050. But surely such data and the associated underlying thinking should feed through to credit ratings (and loads of other things), so undermining a key plank of the long con.

Relatively little work has been done on sovereign credit ratings and sustainability, although more has been done on corporate credit ratings and governance, often taken as a weak proxy for sustainability. One study by the Oekom Research highlights the high correlation between measures of a country’s sustainability and their financial debt credit rating, highlighting interesting the exception of the US, which has a poor sustainability score by Oekom’s measure compared to its credit rating. Another more recent study by Bank Sarasin suggests that longer-term, sustainability factors are more accurate in predicting credit worthiness, “to a large extent, a country’s long-term solvency depends on its future tax receipts. This requires a sustainable tax base, which needs to be mainly in the form of future goods and services. This depends on a country’s available natural, social and economic resources and its efficiency in converting these resources into goods and services” (Bank Sarasin). The World Economic Forum is now preparing its first ‘sustainability competitiveness index’ of countries , reinforcing the message that sustainability is a key basis for enhanced productivity and sustained wealth creation. This builds in part on the earlier work reported in the Harvard International Review in developing a country-level Responsible Competitiveness Index

Credit rating agencies need to count in environmental and social externalities, and the work of Bank Sarisin, Oekom and others demonstrate proof of concept in practice. These externalities impact on productivity (the core to wealth creating economies), and so can and should be counted. Yet we sustainability geeks appear to be silent on the current financial and economic meltdown beyond the usual rage against greed. Perhaps awe and ignorance inform this silence, that we are persuaded that this calamity has nothing to do with sustainability as we understand it. Nothing could be further from the truth.

No Peace for the Wicked

simon — Wed, 09 Feb 2011 06:24:34 +0000

There is no peace, says the Lord, for the wicked. But the wicked are like the troubled sea, when it cannot rest, whose waters cast up mire and dirt. (Book of Isaiah 57:20). Classically, yes, but the street level meaning is more often that ‘something not very good is continuing although you might like to stop‘.

The busy-bee activities of the financial community fit this bill rather well right now. Whilst Egypt runs the gauntlet of political transformation alongside its catalyzing Tunisian comrades, the bankers have remained focused on the business at hand. In Davos, bankers had clearly visited the Wizard of Oz, recovering their courage enough to ‘bash the bashers’. The Guardian reported that JP Morgan’s chief executive, Jamie Dimon, announced that banks were not prepared to simply “bend over and accept it” from regulators. Meanwhile, the Goldman Sachs president, Gary Cohn, declared that extra regulations on banks would encourage people to put their money into riskier hedge funds, an astonishingly unveiled threat akin to arguing that country’s that strengthened the rule of law were encouraging folks to head off and commit crimes in less law-abiding communities.

Meanwhile, back in the trading rooms, honest sugar traders represented by the World Sugar Committee are complaining publicly about the ‘parasitic traders’ who, as their Chairman argued in the Financial Times, were “causing difficulties for members of the real sugar community”. He added: “As you know, the exchange’s popularity with members of the real sugar community is at a low ebb.”

Meanwhile, events back at home suggest that the apparent pasting that Cameron and Osborne got at Davos from the bankers might be a charade. An excellent article by vigilante George Monbiot in today’s Guardian walked us analytic slouchers through what he calls the tax heist of the century, essentially allowing major UK-based companies to legally avoid UK tax on their global earnings, whilst setting off global costs against residual tax obligations. And hey, who gets to benefit from Messrs Cameron and Osborne’s largesse…yes, you guessed it, the same financial institutions staging a fistycuff with the lads from Downing Street in the limelight of Davos.

Sarkozy may not be your favourite politician for any one of many, many reasons. But he is the only guy on the main political stage calling out the financial community, and demanding change. Whatever his political logic, it may just come to some good – after all, the road to heaven is indeed paved with bad intentions.

Mainstreaming Responsible Investment, co-authored by me and some good friends, is a little dated, but still gets the story more or less right, and benefits from being published several years before the global financial meltdown and ransacking of our public finances.

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Davos: Uplifting Flashback on Steroids

simon — Fri, 04 Feb 2011 22:37:42 +0000

History will associate Egypt with the last week of January 2011 irrespective of what comes next in what could be a revolutionary moment in the region that the Chinese call ‘West Asia’. But although Davos was eclipsed by real time political transformation, that does not mean that the mountain chatter was in vain.

Davos 2011 may well not go down in history, but maybe it should. It provided me with an uplifting flashback (along with the usual panic attacks followed by intense Lemming-type feelings) of my time at the New Economics Foundation. Over an amazing six years as the Development Director working alongside Ed Mayo, the Executive Director, NEF with others made major strides in staking out a radical economics. It stretched from alternate measures of success (we reproduced Herman Daly and John Cobb’s Index for Sustainable Economic Welfare for a gaggle of countries), to community currencies (we supported the creation of the UK-based Local Exchange Trading Systems Link), to the first contemporary social audits (Ben & Jerry’s, Traidcraft and Body Shop) and the creation of AccountAbility, to the promotion of ecological economics over the reductionist alternative, environmental economics. And of course not forgetting the originating energy of The Other Economic Summit (TOES) that NEF was established to promote alongside the G7/8 from 1984 onwards, the prototype for the civil society party at the Rio Summit in 1992.

What on earth can Davos, you might ask, have to do with such a hive of radical innovation?

Dr. Han Seung-soo, former Prime Minister of the Republic of Korea, and now Chairman of the newly-established Global Green Growth Institute, might seen an unlikely candidate as an inheritor of NEF’s radical tradition. But talking softly at a roundtable of CEOs and senior government ministers from around the world that i was moderating, he remarked, “there are two types of people in the world, tinkerers and structuralists…i am in the second category”. And he was rapidly followed by Jim Balsillie, CEO of RIM and member of the UN High-Level Panel on Global Sustainability, who challenged his peers, “if we add up the impacts of everything we have talked about in the last two hours, it just does not add up to anything like what needs to be done”.

On the mountain i witnessed the slow spark of a deeper structural debate about the future of capital markets and the nature of progress. After 15 long years of trying to make the best of a neoliberal narrative, i saw folks coming out in direct opposition to many of its underlying tenets and demanding answers to uncomfortable questions that they had never voiced before.

Signalling the revolutionary potential of Davos might be beyond the bounds of credibility. But that is not the point. The global elite that Chrystia Freeland talks about so eloquently in the Atlantic this month is restless, and there is an opening, just maybe, for resurrecting and progressing a radical agenda that is more fit for purpose given the state we are in.

And it might just be that the greatest challenge to such an opening is not merely the inertia and opposition of incumbents, but the practical imagination of how to insert that radical agenda at scale into the world we inhabit. There is, i suspect, much work to be done…

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How Much is WEF Worth ?

simon — Thu, 27 Jan 2011 05:39:04 +0000

How much is WEF worth…well, obviously a lot given who it can draw to the table and what folks pay to get in the door and how the media covers Davos in particular…but how much?

Of course one answer is that it is a public interest organisation and cannot be thought about in that way. Trust in commercial organisations is after all painfully low, as the Edelman Trust Barometer for this year highlights. But then again, the same might have been (and was) said about hospitals and schools in the UK, and the private finance initiative demonstrated in-our-faces the commercialisation opportunities in providing public services. Think about it, if Goldman values Facebook at US$50 billion by privately investing US$450 million, what could a market-making move do for the Forum. Yes, sure, I know it is not the same thing, but all the same, it makes you think.

Relationships is core to the Forum’s success, of course, and these can only be traded within boundaries. Many are deeply personal and build up over decades, creating clusters of interaction, and effectively ‘repeat business’, that are hard if not possible to commodatise. The uniqueness of the Forum’s founder and executive chairman, Klaus Schwab, exemplifies this confusing factor in the equation. But hey, maybe financial markets can handle this, after all, leading lights from the investment industry just yesterday on the Magic Mountain were reassuring us that “there is no such thing as resource scarcity, merely a matter of mis-pricing”. And price tags for uniqueness are regularly estimated, just look at the US$25 billion price tag on Apple’s Steve Jobs.

Since the investment community’s brightest are here in this snowy retreat, I thought I would just ask them about this perplexing valuation question. And I will take this opportunity to thank this small squad of suitably anonymous experts, who it must be said entered into the spirit of this exercise with an almost suspicious level of enthusiasm.

Distilling the excellent advise received left me with a bedrock approach made up of three parts:

1. Valuation of ‘the entity’ based on future cash flow. (Enterprise Value)
2. Valuation of economic activity of future cash flow generated (Participant Value)
3. Valuation of economic, social, and environmental impact on the world of current and expected future value created or loss avoided using a GVA analysis (Societal Value).

Suitably enlightened, I headed off to look at the available numbers. And yes, there is a decent slug of revenue, more or less US$200 million a year. Davos itself makes up a lot of this, alongside underlying member fees. Some of which is rather nicely laid out in a recent (unaudited) piece “A Hefty Price for Entry to Davos“. Contextually, by the way, this compares rather poorly to Oxfam International’s global annual revenues that seem to hover around US$1 billion (from what one can make out from a rather opaque, federated accounting framework).

But beyond that the going gets tough for the valuation traditionist (measures one and two above, and some risk-based version of three). After all, the Forum has no real surplus as such since the Forum is a non-profit organisation. So any attempt to work with net earnings multiples falls by the wayside. And although one can imagine a bit of merchandising, I suspect that any sort of Ryanair-style profiting-taking, such as charging heads of state for use of toilets, would put rather a downer on the brand.

Yes, of course, the real question is whether the asset can be transacted at all without an immense loss of value. Would folks show up, for example, if the Qatar Government or the China Development Bank ‘bought in’ to the Forum. One of my cautious advisors summed up the general view about this, “decidedly not”, whilst caveated the advise in adding that an eccentric or highly trusted investor such as Buffett might just get away with it in the spirit of ‘capitalising the greatest private dialogue for good in the world’. This all seemed to me a little rash-and-resolute and demonstrating some unfortunate but probably accurate views on trust. But nevertheless, it might be right, and perhaps the asset would hold its value better if there was a ‘citizen’s distribution’, we might ask my old employer, the New Economics Foundation, how best to do that.

And the bottom line? Well, my sturdy team of advisors were asked to provide an actual valuation, albeit without any implied legal commitment or other implication. It must be said, they were not keen at first, but eventually rose to the challenging moment. Frankly, the valuations were a little scattered, ranging from a miserable US$200 million through to a far more interesting US$2-3 billion. However, in the limited time available under such pro bono arrangements, more perhaps could not be expected.

Our global governance is truely in a mess, and venues such as the Forum are in reality part of a very messy pathway in our collective efforts to work out how to reasonably look after ourselves and our planet. Its bloody tough for any of us to answer this zeitgeist question let alone do anything intelligent to put smart governance in place. So dismissive cynicism is an unhelpful attitude in understanding that the Forum, with its many limitations, remains the only global platform that has lasted longer than any head of state, any head of an international organisation, and longer than any but the most entrenched heads of businesses and civil society organisations. With all its quirks, designed and otherwise, it is one of the only long term games in town that can mobilize a global debate between the best and the worst, but in most instances the most powerful.

The Forum’s financing model works in the most obvious sense, but clearly introduces real or perceived biases into the mix…money counts in the governance stakes, of that there is no doubt. It would be profoundly unfortunate in many ways if all or part of the Forum’s assets could be crystallised financially, either because it would damage it fatally, or far more seriously because it would not. Commercialising our governance arrangements, formerly not just through the back doors of corporate lobbying, may be an idea that will not go away despite our views on the matter. Indeed, given the tenor of the discussion on the Mountain, notably the sustained view that our global challenges can be resolved through adjusted pricing, we should not be surprised if some of our global governance arrangements are next in line.

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Navigating the Valley of Death

simon — Wed, 05 Jan 2011 08:39:46 +0000

Start-up companies call it the Valley of Death – the arduous terrain between proof of concept and the beginning of mass production and significant sales. The business and sustainability agenda has reached its own Valley of Death. We ‘get’ what needs to be done, but we do not know how to do it at the scale needed to make a serious dent in the problem. This variant of the Valley of Death is no more apparent than at the annual World Economic Forum gathering, as described in my Davos 2010 blog:

“Davos this week has exposed a second and far more worrying valley of death. Sessions on water scarcity, deforestation, climate and any number of profoundly relevant topics reveal an underlying cycle. Initially comes the radical concern from civil society, then a more coherent call to arms, then a gradual mobilization of major actors, and then some serious analysis and reflective analytics…THEN…we all say ‘something must be done AND it can be’…it can be surely because everyone is at table, from national presidents to chief executives to the leaders of major corporate NGOs…and then…yes, and then there is this moment when folks say ‘here is an example, lets do some pilots, cases and briefings’, or they wring their hands and say ‘we do need better laws and for them to be enforced’.

In one session on ‘water’, we faced a superb set of analytics provided by McKinsey with its global cost curve for water, then drilled down to country level for several nations. Round the table sat many CEOs of some of the world’s most well-known consumer brands together with their NGO counterparts. And what was the action suggested: cases, pilots, guidelines, and a rather abstract notion that there was a need for better rules, regulations and pricing. Let me be clear, these are seriously smart, committed folks, they have power, money and influence, and in the main the right values and a desire to operationalize them…but…

This is the new valley of death, everyone agrees with the analysis, the urgency and the possibility, and some of the most powerful folks are at the table…and then we implode into marginal actions or fall back on old tools that cannot deliver systemic change.”

There are noble exceptions, such as the large-scale investments promoted by Gates and others in overcoming basic health problems in poorer developing countries. But not only are these are few and far between, but more importantly they rarely if ever reconfigure core global markets and associated business activities, remaining dependent on post-profit philanthropy and tax dollars. Technology-enabled potential for business alignment to sustainability does exist in specific fields, such as renewable energy and energy efficiency, but even realising this potential in the short to medium term relies on public policies that impact energy and carbon prices.

We are facing the ‘new normal’. The nexus between climate, water and food exemplifies this frustrating historical moment. After two decades of intense activities, we have excellent data on the nature and scale of the problem, an abundance of cases of successful and less effective experiments, and the growing attention of political and business leaders. Yet we cannot contain our production of carbon, manage the scarcity of water, or dampen the speculative fluctuations in the price and availability of basic foodstuffs.

The business and sustainability agenda epitomizes the ‘new normal’. We celebrate incremental changes in the spirit of optimism, and at best patronizingly marginalise those who demand lasting solutions as unrealistic or even part of the problem. This is exemplified by our failure to act on the global financial meltdown in curbing the short-term trading mentality that has distorted capital markets and underpinned unreasonable profit-taking and a lack of long term investment in a green economy. We continue instead to excitedly advocate a bit more transparency and a few more codes of conduct whilst a child dies of avoidable diseases every three seconds.

But ‘more is not enough’, we need lasting, scaled solutions. We understand a lot about achieving rapid scale – in selling mobile phones, going to war, watching the world cup, catalyzing fundamentalism in many forms, and in spreading disease. But we are getting lost in the Valley of Death when it comes to the role of business in advancing sustainability. The closest we get perhaps is China’s last three decades that delivered scale in material development beyond our wildest dreams, 300 million people raised out of absolute poverty. But at what cost to the environment, and with little more than an accelerated ‘business as usual’ for the business community.

Over the coming weeks, i will explore through this blog what ‘unreasonable ambitions’ we need to set and pursue to get to scale in impacting the problem and navigating away from the Valley of Death. So do sign-up and receive updates on this developing exploration.

National Action on Economics – the New Climate Narrative

simon — Sat, 04 Dec 2010 14:37:36 +0000

Weeks before COP15 at Copenhagen, ChinaDialogue and OpenDemocracy published versions of my ‘Plan B’ blog, where I argued that national initiatives would form the base currency of climate management for the foreseeable future, and the sooner we got with this new narrative the quicker we could work out how to get it done.

In a nutshell, I argued not just that a decent deal would not be done at Copenhagen, but if my accident one was indeed cut, it might prove to be a distraction that absorbed much energy (the human kind) and money, and most of all time, until its inherent shortfalls became apparent. In summed up the potential shortfalls in a paper prepared as part of Project Catalyst as the “five institutional horses of apocalypse”, bureaucratisation, undue political influence, gaming, rent-seeking and good old-fashioned corruption. Rather, I argued, focus on getting a few national initiatives driven by economic self-interest going, supported in places by international co-operation, and this might just then tip us into a far better global deal with greater emphasis on promoting green growth and development than in securing international public transfers.

My argument proved unfashionable at the time, and folks piled in both publicly and privately to point out how wrong I was. Plan A was the only way forward, came the riposte, and there was a real danger in saying anything else because it would undermine the very possibility of achieving it.

How time flies, and fashion with it. Getting climate off an inaccessible place in today’s media requires one to talk about green growth and energy security. The very ‘C’ word has become passé in policy and business circles, and even the staunchest defenders of the faith such as the United Nations Environment Programme are turning to instrumental economic arguments to promote climate change. At a recent World Economic Forum meeting in Dubai, informing people that I was part of the climate change ‘global agenda council’ was like saying that I had some incurable disease or body odour, a sure-fire way to lose friends and even enemies.

Cancun is proving less fashionable and more conflicted. Negotiations and associated grandstanding remains focused on not so much climate as ‘climate accountability’, with the Third World Network leading the charge, and indeed making the charges, on behalf of the G77. But on the sidelines, the green growth story has emerged as the most interesting conversation along the beachfront.

My time in Cancun will be spent in these side shows, and I have been privileged to be involved in some interesting ‘green growth’ initiatives in the last year. Most absorbing has been the South African Renewables Initiative, a set of policy options developed for the South African Government’s Department of Trade and Industry. At its heart is the opportunity for South Africa to take advantage of major economic opportunities by increasing its renewables, and a proposed means for financing the US$9 billion or so incremental costs through the smart use of available concessionary debt, risk-mitigation instruments and some international and domestic public finance. The net-net option for South Africa is to a secure a huge investment with little domestic burden.

Second in line has been my involvement in the World Economic Forum’s Critical Mass initiative, formed in early 2010 in the wake of Copenhagen and the Forum’s earlier work on how best to leverage private finance for low carbon infrastructure investment. The initiative has spent the year working out what it takes to move forward, yes, you guessed it, major national initiatives driven by economic self-interest and supported internationally. In fact the South African initiative was one of the cases, alongside others that focused for example on solar in India, energy efficiency in China.

Third and last is the next Project Catalyst paper in a long line of data-driven analytics. You might recall that this initiative, powered by McKinsey and friends and paid for by the ClimateWorks Foundation, was influential in shaping the climate finance debate right through 2009, at least in helping to establish a broadly used methodology and some consensus on key aspects of the mitigation costs to 2020 associated with achieving a 2 degree pathway. This latest paper provides an excellent bridging of the old and the new narrative, including a helpful analysis of the work of the UN High Level Advisory Group on Climate Finance, which has recently reported on how to mobilize the US$100 billion a year by 2020 set out in the Copenhagen Accord. Crucially, it shifts the lens outside of the narrow and problematic ‘climate finance’ lens and opens the door to a broader analysis of how to green the wider global pool of finance.

We are living a Plan B world, however much folks want to deny it, or else bury it dead or alive. There is no conceivable global deal to be done that could have the strength alone to advance action on mitigation and adaptation at the scales needed to meet the science or the requirements of vulnerable communities. There are international deals to be done, however, and important ones at that. Bilateral and mini-lateral deals to develop low carbon infrastructure, leveraging mutual economic interests and public financing grease to make it happen, such as export and investment credits. It is very important to move to deflect a trade and investment war fought out in the World Trade Organisation over public involvement in paying for low carbon developments that do enhance export competitiveness. And there are clearly opportunities to secure some funds from carbon markets and some from Northern (and Southern) tax-payers that could be advanced in the context of an international framework.

Most of all, of course, the global process needs to maintain public interest and momentum, track progress and promote innovations – in fact, exactly the things it is not doing very well, or in some cases at all. Drip feeding the process with a Plan B mindset would help, such as the stuff outlined above.

Beyond Climate Finance – a Cancun Agenda

simon — Sun, 21 Nov 2010 07:28:23 +0000

Climate finance, now the focus of much of the international climate negotiations, are those funds designed to address the climate challenge and its implications. Framed by the principle of common and differentiated responsibilities, climate finance has become synonymous with the accountability of richer nations to support the mitigation and adaptation efforts of poorer nations. This crucial principle has informed the work of the UN High-Level Advisory Group on Climate Finance, discussed elsewhere in the paper, and underpins its conclusions and insights.

The focus on climate finance has delivered practical results, including significant financing for REDD+, funds associated with carbon markets, and additional international public financing for adaptation. Although falling short of what is needed, these results are tangible and significant. Over time, however, practice on the ground has progressed largely independently of either climate finance or the associated principles of responsibility and accountability. Ambitious renewables programmes from Morocco to China and South Africa, and broader green growth strategies from South Korea to Brazil exemplify how green growth and development are becoming the lens through which our responses to climate change are, and need to be framed, designed and implemented. Such a reframing remains fundamentally about how to advance mitigation and adaptation rapidly and effectively. But the lens shift is more than new words to describe old needs and solutions.

Economics, rather than just financing, is the crucial difference. Much of the work done to date on ‘low carbon growth plans’, for example, remains centrally about least cost mitigation and adaptation, how to avoid or solve a problem as cost-effectively as possible. Such plans, with notable exceptions, do not take account of the potential and additional challenges associated with the economic dynamics of investing in green. Policy debate about mitigation is rarely placed within a broader economic analysis, and so remains the preserve in most instances of ministries responsible for the environment, energy and finance.

Reframing the conversation towards green growth and development is more than a change in words, opening up new financing opportunities, because of the economic and broader policy objectives that are addressed as a result. Energy security concerns in Europe make attractive the potential for tapping renewables generation in Morocco, and so impacts its openness to investing in, and paying a premium for such energy. Economic growth and related employment gains from localising parts of the global value chain in renewables – manufacturing, servicing and in some instances research and development – underpins policy-led initiatives from Ontario to South Africa, and an openness to put public funds on the table, often with the prospect of seeing much of it return through increased tax revenues from the resulting increased economic activity. Concessionary finance, especially debt, must be made available for mitigation not only from climate-focused funds, but those focused on export and investment promotion where industrial joint venture opportunities exist, as they increasingly do.

Finance to address “only” climate will likely be a moderate proportion of the funds needed and available to pay for the transition of economies onto low carbon trajectories. Reality on the ground is that finance for green growth and development is already, and will continue to come in many shapes and forms, from reconfigured international development assistance through to profit-hungry private equity. That does not mean that economic opportunities, and associated national self-interest, will always and everywhere exist. And negative impacts of climate change on vulnerable communities will remain a core issue that needs to be addressed with new public monies from the international community. But even in such cases, specialised climate finance is so far playing a relatively small, remedial role, and the challenge and opportunity is to leverage what is out there to better effect. That is, to remain within a ‘climate finance’ paradigm is self-limiting given what needs to happen on the ground and starts emerging in some countries’ programmes, and given what could happen if such cases were leveraged through replication elsewhere.

The opportunity and need is to allow for innovations in financing that take advantage of national self-interest and international co-operation within the framework of international accountability that underlies the negotiations. Treating them as alternatives, or worse still as mutually exclusive, narrows the scope for action and reduces the potential of the negotiations to advance change on the ground.
Advancing such an approach in practice could be helped by three steps. Firstly, exemplary national actions need to be better understood, especially the pathways along which such ambitious, nationally-led initiatives, leveraging international co-operation are being built in practice. Several initiatives such as the World Economic Forum’s Critical Mass initiative, are already active in this learning space, but more is needed. Secondly, is to determine how such initiatives are already, and can best be supported by mechanisms being designed through the climate negotiations. And thirdly, in rapidly maturing the work on low carbon plans to reflect more fully the economic opportunities and dynamics and the associated financing opportunities, ensuring a focus on how best to achieve maximum leverage from scarce public resources.

Davos vs Copenhagen:Its a Knockout!

simon — Sun, 31 Jan 2010 16:28:26 +0000

Copenhagen was a structured, sovereign-state based negotiation with clear rules of engagement (albeit abused). It had a beginning, middle and (at least in theory) an end. It was designed to reach agreement on a specific set of activities entirely focused on the public good. It was also a veritable ‘walk through babylon’ (as my video clip painfully illustrated), and as we now all know deteriorated into a shambolic, ego-laden, mecantilist dog-fight.

Davos is designed as the elite market place for anything the globe has to offer. Intellectuals, activists and would be politicians ply their trade as casually as the attending traders normally do so glued to their phones, computer screens and wallet books. It is ordered along the lines of chaos, legitimacy is a matter of power, money, influence or stardom through the arts. There is no one deal to be done, no obvious rules of the game (there are some less obvious ones, to be sure), and governments compete for airtime with the latest bestselling writer, and the rowdiest Texas oilman.

Davos is a spectacle to behold, always threatening to reflect our worst Darwinian inclinations. Copenhagen, on the other hand, was meant to reflect humans at their best, open to collaboration for the public good. And yes, you have guessed it (you smart, cosmopolitan blog readers), life has its way of inverting the expected. Copenhagen actually demonstrated humans’ capacity to be petty, narrow-minded, and deeply tribal. far from being focused on the public good, it was focused on the private gain of vested interests largely not in the room, whether they were businesses, parochial politicians or even short-sighted populations of citizens who should have known better.

And Davos…well it is what it says on the tin, in one moment abstracted from any sense of reality, at another exhibiting the human ego at its most profoundly revolting. Yet it somehow unlocks the participants’ passion, innovation and a will to imagine and take risks. In muddling up the public good with private gain, it evokes much of what is amazing about our species and without doubt explains how we have survived to date (for better and worse). It is in Davos that investors in green technology have the stage,

yes aching for public subsidy if they can get it, but in truth knowing that they will fund the low carbon economy if it is going to happen. It is in Davos that the Chinese business community schmoozes with Western Governments and vice versa. It is on these snowy hills that more irreverent potential is discussed than could be dreamed of in any formal multilateral procedure.

Yes, a Managing Director of the World Bank was right when she reminded us at Davos that the farmers we were discussing were not in the room. And who knows what complex political equation Strauss Kahn from the IMF was making when he supported Soros’s proposal to unlock capital to fund climate management. And it is slightly crazy making when Sarkozy proposes to rewrite the rules of capitalism (better than his Italian counterpart though), and it makes you wonder when Davos declared itself ‘green‘ on the back of a half-hearted labelling of carbon-spewing, attending SUVs. But frankly such weaknesses are chicken-feed when compared to the cynical nonsense that stalked the corridors of the Bella Center in Copenhagen just weeks before.

You may well despair, and I might join you for an accompanying drink when you do, but Davos is more about our future than Copenhagen will ever be in bringing more of the right people to the table, and providing more opportunities for the deal making that is needed to safeguard our children and theirs in turn. We can bemoan the elitism, the false dawns too often announced and then neglected forever more, and the fly-in humbug of much that is said and neither meant nor even heard. But through this there is an authenticity in the demonstration of real power, truly extraordinary wealth, unbelievable innovators (for whatever reason and end), and a will to grasp the world as it is and shape it into the future. The tens of thousands leaving Copenhagen were angry, burnt out, and deeply exhausted. Those leaving Davos will be tired, often confused, but in the main better informed, connected and able and willing to act.

Have I drunk the Davos Kool Aid for too long to have any remaining sense? Well maybe, self-diagnosis is not humankind’s speciality, far from it, and I am no exception to the rule. Certainly Davos exhibits in technicolor more than it resolves what I called in an earlier blog this week sustainability’s very own Valley of Death, in a nutshell our ‘struggle to innovate at scale in a timely way in addressing the world’s toughest problems‘. But its more likely that the solutions lie lurking beneath the canapes at Davos than the decrepit cheese sandwiches of Copenhagen if only because the folks in the former are actually treated with respect, treat each other in the main with respect, and have a will to live rather than just survive.