Four Studies that Ponder the Road from Here

Our world these days seems to be a succession of forks in the road, points at which decisions need to be made about which pathway we collectively must take. In nearly every case, there's an unsustainable "business as usual" scenario (often shortened, unappealingly, to BAU) along with one or more alternatives. Each presents any number of quandaries about whether, how, and how aggressively to address the challenges at hand, whether economic revival, health care or electoral reform, social equity — and, of course, the array of environmental and resource challenges that confront us. (Never mind that all of these issues are connected. Much as it would be ideal to address them holistically, that doesn't seem to be in the cards.)

And so it's not surprising, as 2009 sputters to an end — as we anticipate an intensifying global debate on climate, address our growing global need for energy, consider our options for ensuring an adequate water supply, and plot the surest footing possible for commerce and investment — that we would see the unleashing of a mild torrent of studies and findings in recent weeks. Each tackles intriguing and important questions, summarizing the opinions and conclusions of scientists, corporate executives, business leaders, and others. And each offers some roadmap of where to go from here.

I've been perusing a subset of the recent research spanning a range of topics. Herewith is a summary of four reports that offer valuable food for thought.

To begin, there's "Managing the Unavoidable" (PDF - registration required), by Henderson Global Investors, Insight Investment, RAILPEN Investments, and the Universities Superannuation Scheme. The group aimed to better understand the impact of climate change on companies and their investors in four sectors: electric utilities, oil and gas, real estate, and water utilities. The focus was on climate change adaptation, not mitigation — that is, how companies in these sectors will shift their products, processes, and policies to succeed in a world grown warmer, but not necessarily what they'll do to help prevent warming in the first place.

The conclusion: Adaptation is beginning to receive more management attention but, with the exception of the water sector, most companies are focused more on  mitigation. That is, "Companies are more concerned about risks than opportunities," such as the potential to profit from higher rates resulting from disruptions to the electricity supply. That may seem a cynical view, but from a business perspective, it's a little like automobile manufacturers seizing the opportunity to build ambulances to respond to an increase in auto accidents: So long as the need exists, why leave money on the table?

Of course, this has implications for investors. "We believe that investors need to examine how the risks and opportunities associated with climate change adaptation affect company-specific business models, value drivers, strategy, governance, cashflows and assets," say the authors. Moreover, investors "should ensure that companies have appropriate governance and management systems in place," such as robust risk identification and assessment processes, clear strategies for managing and responding to climate change, and clear reporting on risk assessment and management processes and on the company's views on the materiality of climate change-related risks for their business.

Takeaway: Climate change adaptation strategy is becoming a boardroom issue. It may no longer be enough to measure and manage one's carbon footprint. Companies that don't have a strategy to adapt to climate change may find themselves reeling from "surprises" they might have otherwise anticipated.

A similar, sector-specific concern was expressed by the insurance giant Allianz and the nonprofit environmental group WWF in a report on "Major Tipping Points in the Earth's Climate System and Consequences for the Insurance Sector" (PDF). It ponders the small changes that, at some point, could cause big changes in weather, sea levels, and other things. It chronicles several potential consequences — sea-level rise along North American coasts, Indian Summer monsoons in Asia, Amazon die-back and drought, desertification of the southwestern U.S. — and the "insurance aspects" for each.

Their conclusion: We're hopelessly in the dark about what these things mean financially.

Despite their potential to affect very significant numbers of people and assets, these tipping points are virtually absent from policy and decision contexts concerning what changes in temperature or other variables constitute "dangerous climate change." Work to provide early warning of such tipping elements could help us adapt to or mitigate them. But getting companies to take action on the basis of such early warnings is, arguably, the greater challenge.

Takeaway: The impacts of climate change on companies may not come through horrific, sudden hurricanes, fires, or other calamities, but through seemingly small changes that rapidly turn into big ones. Once again, the need to anticipate and plan for various climate scenarios is rising in importance in some industries.

"Charting Our Water Future" (PDF), by the Water Resources Group — an ad hoc association that includes the World Bank, the consultancy McKinsey & Co., and companies like Coca-Cola, SABMiller, Nestlé, and Sygenta — set out to "shine a light on water resource economics." The study looks at the water worlds in four countries — India, China, Brazil, and South Africa — and examines each region's challenges and solutions, including how to "unlock" the transformation of the water sector.

The report points up how little most of us know about water, let alone about the water realities of these disparate regions. It talks us through such basics as water supply and demand, quantity and quality, as well as the various types of water needed for various purposes, from ultra-pure water to potable water to gray water; four different types of water metrics; and the distinction between "blue water" (that found in rivers, lakes, and other bodies of water) to "green water" (water that naturally infiltrates the soil from precipitation). These are important concepts and distinctions that need to be widely understood if companies, policy makers, public agencies, water utilities, and others are to effectively manage the world's water supply.

One stark reality is the inefficient use of water by agriculture, which accounts for about 80 percent of water use. Roughly 80 percent of that can be used more efficiently through "productivity levers" — that is, measures that increase the yields of individual fields, offsetting the need for additional land and additional irrigation. These include no-till farming, improved drainage, optimized fertilizer use, germplasm or other seed development, and the application of something called "crop stress management."

But it's not just ag. In China, where industrial and urban water use are the fastest growing uses of water, the Water Resources Group identified aggressive, industrial efficiency measures whose cost is negative (including annualized capital and net operating expenditures), producing net annual savings of approximately $21.7 billion. In South Africa, industrial measures such as paste-thickening in mining and pulverized-bed combustion in power production could generate up to $340 million in annual net savings — again, including capital expenditures and operational costs — while dramatically cutting water use.

In each country, the potential for reducing the gap between supply and demand comes from different private-sector initiatives. "The cost curve thus empowers the private sector to engage meaningfully on defining the institutional mechanisms of the future."

Takeaway: Much as with energy, there's a strong understanding that "business as usual" is no longer an option in the water sector. Water will be an important investment theme for companies and governments in the coming decades, providing opportunities for those that can provide cost-effective solutions. And there is significant "low-hanging fruit," in which existing technology and water-management strategies can close the gap between what's available and what's needed.

Finally, there's "Betting on Science" (PDF), a report from Accenture that looks at technologies in transport fuels that have the potential to "disrupt" the current views of supply, demand and greenhouse gas emissions in the next decade. You may have thought that the idea of biofuels from plant matter, microbes, and other material had come and gone. (Remember "Live Green, Go Yellow" and "food versus fuel"?) While the hype may have died, the R&D around them is alive and well — genetically engineered feedstocks that increase the yield density and reduce the intensity of pre-treatment and required enzyme; a "diesel" solution through synthetic biology that allows sugar cane to be converted into a clean diesel; microbes that have been able to overcome the toxicity challenges of converting starches and sugars to butanol; genetically modified algae that have higher yields and can be cultivated and harvested at lower cost; and more.

Accenture examined a range of technologies through the lens of scalability (those offering a greater than 20 percent potential impact on hydrocarbon fuel demand by 2030); greenhouse gases (those affording savings greater than 30 percent relative to the hydrocarbon it is replacing); cost (those competitive at an oil price of $45 to $90 per barrel); and time to market (those that could be commercialized in less than five years). The technologies are also divided among three groups: evolutionary, revolutionary, and "game changers."

The last category, it turns out, weren't biofuels at all, but electricity — that's right, electric vehicles, plug-ins, and all the rest, along with the controlled charging infrastructure and a "smart grid." It was the middle group — "revolutionary" fuels — that were eye-opening: sugar cane-to-diesel technologies are close to commercial viability, says Accenture; so are "bio-crude," a replacement for geologically sourced crude oil, made from biomass; and biofuels for airlines.

Takeaway: Research and development of oil alternatives is robust, with dozens of companies working to bring a wide range of alternatives to market. The question is no longer if or how these technologies will be commercialized, but when and how fast.

This is, I said, only a sampling of recent studies. There will be more, no doubt, as the Copenhagen climate summit nears, the inevitable end-of-year assessments are unveiled, and as just about everyone opines on Barack Obama's first 365 days in office.

Their collective conclusions are important. What we do with them is critical.

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Searching for Greenwash at Greenbuild

I'll admit to entering the halls of Greenbuild — the mammoth green building conference and expo, held last week in Phoenix — with a cynical theory: Greenbuild would be filled with greenwash. I assumed that with nearly 1,100 exhibitors, up 25% from the previous year amid a horrid economy, the U.S. Green Building Council, the event's organizers, had lowered its standards, accepting anyone that had a green story to tell. It would be, I surmised, a case study in what happens when green goes mainstream: that good intentions and high standards give way to the lowest common denominator of the mass market. We'd seen it before with organic foods, where just about any fat-laden, additive-intensive food could be deemed "organic." I assumed history would repeat itself here.

I'm happy to report that I was wrong.

Greenbuild was by no means a hype-free zone, but as I walked the miles of aisles, looking for examples that would prove my theory, I was profoundly disappointed — and duly impressed. Green building has matured from the exception to the rule, with the market rising to the occasion, producing an increasingly gushing pipeline of products and services that, increasingly, are reducing the environmental toll of the built environment.

As my colleague Rob Watson — executive editor of GreenerBuildings.com and one of the founders of the green building movement, in particular, the LEED green building rating system — found in the recent Green Building Market & Impact Report, the potential to reduce those impacts is enormous. LEED in 2009 is estimated to grow by over 40% compared to 2008, for a cumulative total of over 7 billion square feet worldwide since the standard was launched in 2000. The free report details the energy, water, land, and employee commuting savings of LEED.

Given this success, it's no surprise that everyone is rushing into the green-building market. And with green building's rise has come a new wave of big companies. It's all reminiscent of the world of energy, where, as I noted more than three years ago, just about every big company seems to now be in the energy business.

So, too, with buildings. The expo floor at Greenbuild has become populated with billion-dollar companies. Many of these you'd expect to see — large construction companies (DPR, Turner), building automation and controls manufacturers (Honeywell, Johnson Controls), office furniture makers (Herman Miller, Steelcase), architecture firms (Gensler, HOK), flooring manufacturers (Interface, Shaw), and others. But there were some unexpected ones, too.

Firestone, for example. What was the venerable tire company (since 1988 owned by the Japanese conglomerate Bridgestone) doing at a green building show? Seems that the company has migrated from roadways to rooftops, and nearly everywhere in between. It offers an "Enviroready Roofing System," a rubber membrane married to a layer of insulation and other materials, that can accommodate everything from solar panels to vegetable gardens (both of which Firestone also sells). The company also offers permeable asphalt, zero-discharge stormwater collection systems that minimize toxic runoff into sewers and streams, and a range of metal products, from wall panels to sunscreens.

There were others. BASF, the chemical giant, offered a similarly bewildering array of environmental construction solutions — adhesives, solar panels, wall coatings, waterproofing, concrete, insulation, sealants, gypsum board, even termite control — each with its own green story.

(Therein lies one of green building's dirty secrets: To make buildings resource-efficient and less-polluting requires a host of not-always-friendly chemicals and materials, which is why BASF was joined by Dow, Dupont, and other old-line chemical companies at Greenbuild. As always, there are trade-offs: Constructing energy-efficient buildings requires using more synthetic materials derived from oil.)

There were a few pleasant surprises. Like Sanyo, offering a "synergetic hybrid bicycle," a two-wheeler that seemed to borrow the best of the Prius, featuring regenerative braking and seamless transition between electric drive and manual pedaling modes.

And there was more than a little hype — for example, the aforementioned Sanyo ("Think GAIA"), Steel ("The New Green"), Cold Spring Granite ("Releasing Rock's Full Potential"), and Armstrong, the flooring company, with a "Greenstock" hippie theme, including tie-dyed t-shirts and a VW bus. (What were they smoking?) There were green nails, green asphalt, green plumbing, green ceilings, green floors, and — for good measure — green artificial turf.

But I'll overlook a little irrational corporate exuberance in favor of the greater, greener good.

There's good reason for this exuberance: Green building is one of the few bright spots in an otherwise dismal building market. Consider Turner Construction, one of the world's largest construction companies, with $10 billion or so in annual revenue. This year, fully half of its projects will be built to LEED standards, a 20% growth from 2009 — a year when the company's overall revenue dropped. Put another way, green is propping up the building market.

Which is to say: Green building is no longer mere marketing hype — it's become nothing less than the status quo.

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Green Consumers and the Recession: Is It Really Different This Time?

How have consumers' green shopping habits changed during these tough economic times? There are at least a couple schools of thought: one, that green consumerism has gotten steamrolled by the recession, viewed as a luxury no longer affordable; the other, that green shopping has endured as consumers go back to basics, rethinking the need to consume, redefining what it means to be fulfilled, and becoming less wasteful and more conscious of the impact of their purchases.

So, which is it? Is a green shopping ethic alive and well, or has "saving the earth" taken a backseat to "saving the day"?

In search of answers, I recently tracked down Kathy Sheehan, senior vice president, and Tim Kenyon, senior market analyst, at GfK Roper. For nearly two decades, GfK (formerly Roper Starch) has been studying green consumer habits. GfK's principal product is the mostly annual Green Gauge, which it describes as a "long-term syndicated study of consumer attitudes and behaviors towards the environment." Green Gauge was the first, in 1990, to illustrate the "many shades of green consumers" through its market segmentation: True-Blue Greens, Greenback Greens, Basic Browns, and the like.

In advance of our conversation, Sheehan and Kenyon sent me three talking points about today's consumers, one of which was titled "It's different this time." It stated that "past recessions had a much greater impact on environmental attitudes and behaviors."

That was where our conversation began.

"When you look at people's concerns in the U.S., as well as globally, yes, their concerns about the economy have gone up," said Sheehan. "But it hasn't been at the expense of the awareness and concern about the environment." In fact, she said, "The recession has almost been a catalyst to being green." Sheehan explained that consumers are looking harder at energy- and money-saving measures, for example, taking advantage of rebates and other incentives.

But that's not the only difference. Another is that premium pricing for green products is a thing of the past, at least for mainstream consumers, says Sheehan. That syncs with the boon in less-expensive "house" brands of groceries, and in the continued profitability of Walmart and other discounters compared to their more midmarket counterparts. Except for a small niche of well-off consumers, people interested in buying green simply won't tolerate paying extra.

Given this, I asked, does being a green shopper these days extend only to the point that it saves money, such as in buying energy-efficient products? "For a majority of mainstream consumers, and especially given the economic climate that we're in, I think it does have a lot more to do with the personal benefit," said Kenyon.

That's understandable. Tough times lead consumers to make tough choices. But here's where Sheehan's and Kenyon's analysis stopped me in my tracks. As Kenyon explained: "What's interesting is that when you look at and compare some of the attitudes and behaviors in the U.S. to other developed markets, the U.S. is actually more like a developing market in terms of the way they think and behave green."

Say what?

Kenyon elaborated. "What we see in more developed countries is that, yes, there is the idea of having a personal benefit, but there is a greater sense of altruism when you're behaving green. In the U.S., it has more to do with the personal benefit as opposed to having some sort of general sense that we have to save the planet."

I wanted to be sure I understood. "So, in a developing economy, there's much more of a personal self-interest involved in making green purchasing choices, and less emphasis on the greater good, and that's similar to what you're seeing in the U.S.?

Replied Kenyon, "That's exactly what we're saying."

There you have it. American consumers may have more in common with their counterparts in Chad, Chile, and China than one might ever have imagined.

GfK's latest research also indicates that the recession may be leading Americans to let businesses off the hook in addressing their environmental impacts. In its most recent semiannual "core wave" survey of 4,000 consumers, it found that "being environmentally responsible" ranked last in a list of five qualities of what it means for companies to be "responsible," behind providing good jobs, protecting workers, producing quality products, and charging reasonable prices. In most developed markets, such as Western Europe, "being environmentally responsible" ranks second or third.

Moreover, when asked who should be taking the lead in addressing environmental problems, business again ranked last, with only 32% of Americans naming it as their first or second choice of who should be responsible, behind the federal government (46%) and individuals (39%). Says Kenyon: "It's no longer this idea of going green at the expense of some other issues."

None of this exactly shocked me — though the fact that personal responsibility trumps business responsibility seems noteworthy — and it's generally consistent both with my unscientific observations as well as the hardcore survey research done by my colleagues as part of GreenBiz.com's recently launched Green Confidence Index, which found a similar distrust for companies and a growing reliance on government for solutions, but still showed that green hasn't gone away during the recession, having become embedded in the marketplace.

So, is it really different this time? Not so much. In fact, I'm amazed how American attitudes toward green shopping aren't that different than they were nearly twenty Earth Days ago. As was true in the early 1990s, people today tell pollsters overwhelmingly that they want to be part of the solution, but that they won't budge much more than an inch to do so.

As I've been saying lately on the stump: When it comes to "change," Americans love the noun, hate the verb.

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