Thursday, February 11, 2016

The State of Green Business, 2016 | GreenBiz

The State of Green Business, 2016 | GreenBiz:

The latest report by GreenBiz (and Trucost) on the State of Green Business is great. Optimistic, but no green-colored glasses. There was a lot of progress in Paris (COP21) in December, but the progress from businesses is were major progress seems to be forming.

It is great to see businesses taking more control and starting to shape sustainability arguments and the form the solutions. We at SustainZine are not great proponents of big government efforts coming to "help" solve all the world's sustainability issues; businesses can avoid this help by being proactive (and no, proactive does not mean and army of K-street lobbyists protect smoke-stack industries and to inhibit all forms of progress).

More and more companies are offering more transparency about social and environmental impacts. More companies are stepping forward with transparency on the labels (Campbell's "non-GMO" labeling, for example) and more transparency on the footprint of the supply chain, and cradle-to-cradle efforts. Management should monitor their full impact on the environment, and investors should care about progress in the most critical areas of the business. Employees are critical to any and every sustainability effort, on corporate facilities, in transit, or in their personal lives.

It is possible to develop new business models. The sharing economy is kicking huge industries in the rears.  The sharing economy is causing massive and dynamic reallocated of time and resources of homes, cars, crowd funding and innovation on a time-share basis. The old economies of taxis and hotels are going to have to scramble to stay relevant, often sending them to court and to congress to try to stop the renegades from tipping over the ship. The time and resources savings from a sharing economy, often have profound savings to the environment. Many of these improvements in performance will go unmeasured by the traditional metrics of performance (like GDP).

On a leadership level. Just saying it out loud, seems to be the GIANT step: measurement, forming initiatives and the monitoring progress toward goals. As of 2014, about half of the companies had Greenhouse Gas (GHG) reduction targets. That percentage seems to be increasing at about 2-4% per year since this reporting was started a decade or so ago.

The current targets by companies represents only about 28% of what is needed in reductions by about 2030 of about 3 gigatons of GHG emissions reduction per year. With the magic of compounding geometric growth, the required reductions per year would need to be about 32 gigatons each year if we wait until 2050. (Or 51 gigatons reduction per year if we continue business as usual until 2100; obviously far too late to consider seriously since CO2 persists in the atmosphere for about 100 years.)

Sidebar on GHGs. In terms of greenhouse gasses, this year has blasted through the 400 ppm level for carbon dioxide in the atmosphere. Look at the Keening Curve on this. January 2016 was 402.5 ppm. We may never be below 400 ppm again. Since this is an El Nino year, the September-to-September increase should be about +4 ppm, not the current trend of +2.2ppm per year base on the lowest month of the year (September in Mauna Loa, Hawaii). Paul Keening developed this curve starting with observatory data starting in 1958 when the CO2 level in the atmosphere was below 320 ppm. At that time the annual increase was about +0.75 ppm but quickly jumped during the global industrialization to the current average increase of +2.2 ppm each year. Many (rapidly becoming most) scientist believe that we need to get down below the 350 ppm level to avoid massive impacts from warming and climate change.

A decent percentage of companies are reporting on water, about 20% in the US and 15% globally. This seems unnecessary for many companies.

There is an interesting discussion and presentation related to natural capital (R&D, investments, profits and savings).  Natural capital costs are the unpaid costs to the economy from pollution, natural resource depletion and related health costs (see the Natural Capital Project and at Stanford). Natural capital takes into consideration factors that tends to elude normal accounting and finance. A company's financials may show profits, but when all costs are considered -- including externalities -- those profits might evaporate. In fact, the S&P 500 have natural costs of about $1T per year and overall natural costs have escalated about 22% since the great recession. If all costs were considered, about 115% (to 153%) of corporate accounting profits would be wiped out in the US (and globally). (Even if you question the cost assignments for natural costing, the general methodology is sound; and this is not a pretty picture of corporate sustainability in terms of true profits.)

So, in the real world, with full costing, corporations, on average, are not profitable. And, if the company is not sustainable, then the true costs and profits are not real. Right?

Innovation and patents: Lot's of CleanTech patents, but the number is way down. The measure of Clean Tech patents is fuzzy and getting fuzzier. Electronic and auto companies (Toyota & Honda) are at the top of the list of patents. But IBM is not listed.

GreenBiz and Trucost have a wonderful 2016 report; and lots of progress is being made, in large and small ways. But keep in mind that too much reporting is, well, too much. We don't want businesses to adopt (or have forced on them) the same approach from education where testing and reporting has replaced much (most) of the teaching/learning!:-(

But, for the 50% of business that is not reporting (may not be monitoring at all), no metrics and no reporting has multiple implications. First, you obviously don't have a business plan, if you don't also have a sustainability plan in it. Second, you definitely don't know your true costs if you don't assess externalities and supply chain. Third, you have no idea what all your risks are, so you have no ability to manage or mitigate them. Even Sarbains-Oxley would have to kick in at some point when it becomes "material" to the company. Lastly, you don't know if you are actually, and truly profitable, your accounting system misrepresents the business.

If you like Sarbains-Oxley, then you will have no end of joy if/when governments starts requiring more environmental or natural capital reporting. Seems like businesses should take initiatives voluntarily, and on their own terms. A sustainable leader would insist on knowing a fully sustainable path forward. Investors, business partners and employees would want to know.

Note that this report is based on a Trucost database of 12,000 global companies that represents 93% of the world markets by market cap.

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  1. I find it interesting that many companies have to be told what to do through regulations; instead of taking the initiative to serve the needs of their business, customers, and stakeholders.

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