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Sustainability R.O.I.

Issue 8: November 2018

Greetings! Welcome to the November 2018 edition of
Valutus Sustainability R.O.I., a
Roundup of things that caught our attention along with some 
Observations and 

This month’s Intelligence section continues with ‘Materiality’ and how it can be mended; while Observations deals with barriers to corporate recognition and acceptance of sustainability. 

We hope you find this valuable and if you do, please consider forwarding it to your colleagues.

Thanks for being part of making the world a better place.

Warm regards,

Daniel Aronson,
Founder, Valutus
The Value of Values        +1-212-658-0405

Want to pick and choose? Here's what's inside…



In Tunnel In The Sky, one of Robert A. Heinlein’s characters recounted the following relevant anecdote:
“Psychologists once locked an ape in a room from which they had arranged only four ways of escaping.
Then they spied on him to see which of the four he would find.

The ape escaped a fifth way.”*

We, too, are in a box with few exits, a box of our own making.
As of yet, we apes have not agreed upon our best means of escape: the ones we know or some new, innovative routes we have not found yet.

Sustainability innovation, though generally uncoordinated, is nonetheless moving at an incredible pace and, while some innovations will turn out to be small cogs in our solution’s wheel, others may change the game and be the means of our salvation. It hasn't been sorted out yet but, either way, we will take note of several such innovations each issue as they arise.

This time we celebrate Scotland’s Surf’n’Turf renewables program; better ways to make everyone’s favorite trousers; suggestions for investing in green innovations; a lil’ help for our friends the bees; and more. We will continue to report on sustainability innovation every month until, as with our wily ape, we have collectively found our '5th way' out of this dilemma.

* Robert A. Heinlein, Tunnel In The Sky, Scribner's, 1955

Scotland: The New Prince of Tides

One thing to be said for global warming… it’s not exactly going to calm the winds, still the tides or cool the sun. And as long as that’s the case, we might as well turn it to our advantage and harness what we can for power. Wind? Handled. Solar, too, is far advanced. That leaves the tides and waves, where a milestone was just reached when engineers in the Orkney Islands, Scotland, hooked a new generation of tidal turbines up to the UK’s power grid.
The Independent notes that, “the MeyGen project, which utilizes the rapidly flowing waters of the Pentland Firth to operate three 200-tonne, 1.5 megawatt turbines, generated 700 megawatt hours of (MWh) over the course of the month.” That’s enough to power thousands of homes, true, but tidal turbines have been used before.

The difference this time, as reported in The Scotsman online  is storage: These turbines not only generate power but also store surplus in batteries -  built by automaker Tesla - for use when the grid needs more juice, allowing a smooth, consistent, and predictable flow of energy into the system from a renewable source. Some of the excess is also used to create hydrogen power, as our next story details. (See: While We’re On The Subject Of Scotland...)  Tidal energy, the only technology to draw on the Earth-Moon - and to some extent the Earth-solar - orbital system for energy, has truly arrived. As The Independent notes, due to the unique shape of the seabed in the waters, “separating the coast of Caithness with the Orkney Islands, the Pentland Firth is a strait with some of the fastest-flowing tides in the world. Parts of the strait experience a phenomenon known as ‘tidal races’, where large volumes of water surge through narrow outlets as the tide rises and falls.”  All that makes it an ideal spot for tide turbines to operate at maximum efficiency.” Perfect!

As Scottish energy minister Paul Wheelhouse noted, “By undertaking this work in Scotland, we can also play a key role in helping inform the sustainable decarbonisation of energy for communities across the world.” The use of “both renewable tidal technology…(and wind) to enable the improved, uninterrupted, provision of low-carbon energy,” makes Scotland a powerhouse - no pun intended - of renewable energy production.

While We’re On The Subject Of Scotland...
How About Some Hydrogen!

Windmills off the North Sea coast

The Orkney Isles, off Scotland’s northernmost coast, have rough weather, fast tides, high winds, and big waves. They also have brilliant low-carbon-energy engineers and strong funding from the Scottish government to experiment with new ways to harvest same. But wait! There’s more. Surplus energy from their wind and tidal turbines is, in a process known as Surf’n’Turf, redirected from the grid to a contraption called an electrolyzer - yes, you heard me! - on land which uses that energy to make hydrogen.

The hydrogen is then used for other energy needs. For a full report on the Surf’n’Turf program click here. This is considered perhaps the Holy Grail of sustainable energy where two renewable sources power a third. Time to cue the bagpipes, trot out the vegan haggis, and celebrate!

Fighting Foulbrood: Helping Bees Fight Back

Reading up on American and European Foulbrood (AFB and EFB) - to bees what the Black Death was to us centuries ago - it is striking that up to now there has been no way to protect the the little guys from these hive-wasting diseases. Smallpox, for example, was effectively wiped out in a single generation once a good vaccine was developed...could not the same be done with AFB and EFB? Unfortunately, as the University of Helsinki Online notes, bees do not have antibodies - defense materials common to other animal species - that are needed for successful human vaccine inoculation.
So what to do? The matter is urgent as bees are already under enormous pressure from pesticides and habitat loss while, according to a study this year by UC San Diego scientists, and reported in, “data from around the globe has shown that honey bees are the world's most important single species of pollinator in natural ecosystems and a key contributor to natural ecosystem functions.”
Enter researchers from the University of Helsinki, who have created a workable and marketable vaccine against AFB and, more importantly, learned the general key to inoculating bees. It turns out, as reported in Arizona State University’s online ASU NOW that queen bees have always immunized their offspring against some diseases but the delivery method was not understood. "Now we've discovered the mechanism to show that you can actually vaccinate them. You can transfer a signal from one generation to another," said one of the two lead researchers, Dalial Freitak.
The breakthrough was learning that a protein found in bee blood, called vitellogenin, is the delivery system - from queen to workers - for the bees’ own immune functions. As such, it is now the basis for vaccine delivery and could potentially save thousands of apiaries worldwide every year that currently fall prey to AFB and EFB. Now, if we could only figure out how those chubby little guys can fly... 

Mr. Green Jeans Actually Goes Green?

‘Mr. Green Jeans, AKA, Hugh Brannum, Captain Kangaroo  1960 
Photo Source, Wikipedia

Remember Mr. Green Jeans? As Captain Kangaroo’s sidekick he talked and danced and sang and just generally was a cool and lovable guy. But it turns out his signature green overalls were not so loving to the planet.

Denim, with its wild west, rough-rider provenance, is actually pretty rough on the environment as well. Ecowatch once detailed, “the brew of toxic chemicals and hundreds of gallons of water it takes to dye and finish one pair of jeans.” Yikes! Given that “approximately 450 million pairs of jeans are sold in the United States” alone every year, and upwards of 7.5 billion feet of denim fabric is produced, this is indeed a crisis. Ecowatch also notes the additional water pollution  - fouling up to 80% of Asia’s rivers and streams - as a byproduct of textile manufacture which makes our favorite skin envelope an full-fledged environmental disaster.

Yet look straight ahead, or to your right or left, and you’re bound to see someone’s fundament covered with the grainy blue stuff. So what to do?

Fortunately, there are now inroads being made by Fair Trade and environmentally friendly fabric manufacturers on what The Guardian suggests are all the major fabric sustainability fronts: “Raw material extraction, textile production, added chemistry and end-of-life.”

Of course, sales-driven manufacturers generally don’t address the biggie: over-consumption via ‘fast fashion’ causing overuse of raw materials in the first place. But until we find our way to a circular economy, what are we to do?

Some clothiers like Reformation are using “super-sustainable materials, rescued deadstock fabrics, and repurposed vintage clothing,” in addition to sustainable textiles, to meet their sustainability goals. This means reduction in textile production, hence less environmental degradation.

Bluer Denim out of Oregon has a buyback program where, “for every pair of jeans you purchase, Bluer will buy back your used pair for $5, sanitize them, and deliver them to someone who really needs them.”

New fabrics are coming along and being embraced by sustainable manufacturers such as Nudie and Reformation. Nudie has focused on organic cotton but also uses some of the new Innovative materials such as Tencel®, made from Eucalyptus fiber; Modal®, a semi-synthetic fiber - meaning material made from natural cellulose polymers from beech or other trees which has then been chemically purified; and ProModal®, a combination of the two, are filling the sustainable void.
Now, even in blue, we can all be Mr. Green Jeans.

Going Green Needs Folding Green

With The Organisation for Economic Co-operation and Development’s (OECD) Centre on Green Finance and Investment Forum about to kick off in Paris, it’s a good time to discuss a playbook for green investment.

However you parse it, the recent UN report has ramped up both the need and demand for environmental funding, As one fund manager, Steven Liberatore of Nuveen investments, told the New York Times recently. “A report like that lays out the solutions. If we need $2 trillion to invest to save the planet...I think it allows people to see what they need to do to accomplish their goals.”  Yet there are still important personal investing decisions to be made beyond the mission of the product or company, the most obvious being, will there be ROI for me while we solve the world’s problems?

Yes, the fundamentals still have to be there. The early days of green investing saw many invest with their hearts more than their heads and, in the process, some lost their shirts. For sustainable investing to itself be sustainable, such investments have to pay off. As such, the Times outlines several strategies for would-be green investors.

  • The debt market, which has been offering good returns

  • publicly traded equity and debt; and

  • look for companies who are growing their responsible business

This last one interests us the most for, as the Times frames it, the two main trunks of green investment strategy are:

  • direct investment in green energy or

  • climate proofing

The second of these recognizes that the planet is changing and; that companies with a long-term strategy to expand into the new reality are the best investments. This suggests not only funding green, but defunding companies who will lose out in the coming years. Fossil fuel companies, for example, would not be strong choices for the climate-proofer. CPing is the environmental equivalent of throwing a long forward pass to the spot where your receiver will (hopefully) be when it comes down: invest right now in sectors that will likely still be prospering after the thermometer has risen and the water marks are high on the seawalls. Climate Proofing is by no means a recent concept. For example a 2012 report from the Institute for European Environmental Policy (IEEP) laid out a comprehensive strategy for climate-proofing a portfolio. Yet now it is more urgent and less theoretical than formerly.  

A classic example is current wind farming technology, which initially was priced far higher than traditional electric. “Today, that difference is nonexistent,” Kevin Walenta, an environmental fund manager with Fidelity also told the Times.  Whereas, “a decade ago, they weren’t the best investments because you had significant premium for a wind turbine or a solar panel relative to the other options, like natural gas and coal.”

Solar power in areas which are getting warmer and drier is also the kind of investment worth considering for the longer term.

The good news is, green investing can not only fund truly worthwhile innovations and technologies but, if managed carefully, may be able to fund your kid’s college education as well.


On the outside looking in...

Periphery: Sustainability practitioners are all too often considered to be on the periphery of the business, not at its core. We looked at over 500 top sustainability influencers and, for those in corporations, checked their company websites - on a hunch.

We wanted to see if their 'about us' sections listed the top sustainability people - Chief Sustainability Officers and the like - among the CEOs, COOs and the rest of the top leadership.
Spoiler alert: They didn't.

Companies don't see sustainability as integral to how the business generates value, and the biggest part of that is, they don't really get that sustainability can be a powerful ROI driver.

ROI: Some people focus on ROI, and it’s their prime motivator. For others it's not their sole focus, but they need it to outweigh cost/difficulty as part of balance with other factors. For some, it's a required gate: They need to see ROI exceed the hurdle rate before they’ll act.

Still others don’t understand sustainability language, or think it’s not the language of work; they speak the language of ROI and they need to hear us speak it too.. Even some champions are uncomfortable advocating without standard business ideas like ROI on their side.

And, fundamentally, some folk simply won’t trust or have confidence in sustainability practitioners so long as we don’t walk their walk and talk their talk.

Until we fix this we will remain: on the outside looking in.


Materiality Continued: Let's Fix It!

Last issue we discussed the limitations of materiality as generally practiced. I explored this further while addressing the New Metrics ‘18 conference last month in Philadelphia in a session titled, “Materiality is Broken.”  Yet I also outlined what is needed to mend it and here’s a brief summary of solutions to make materiality the terrific tool it was meant to be.

First, we must increase the scale and scope of the survey process.

  • Greatly increase the usual number of stakeholders involved - we should reach out to many times more than is the norm today

  • Widen the net with which respondents are selected such that a very broad sampling of those with a stake in the outcome are involved

  • Build a weighted system for grouping types of stakeholders to better reflect the realities of specialization and individual stakeholders’ expertise

  • Create new ways to sort results by stakeholder groups across more dimensions than is currently done. This greatly increases the power of the outputs for informing company priorities  

We need to think differently about time frame.  

  • Expand the traditional 3-5 year planning horizon by asking all stakeholders to assess the length of time they believe is needed to address each issue. For example, lowering emissions from energy use might be possible in under 5 years, while becoming ‘regenerative’ might require redesigning R&D, the product portfolio, and the company’s economic model, taking perhaps a decade or more

Materiality must also include submerged value: secondary and tertiary ROI resulting from sustainability decisions that is not immediately obvious at first blush. This is often as much as 80% of sustainability's value. 

  • Your company decided to go paperless? Great, that's a lot of savings on paper while keeping a bunch of trees upright. But what about savings on receiving, purchasing, and much more, once this ROI has been ferreted out. Proper materiality practice does the ferreting. (Note: we will be exploring Submerged Value at length in an upcoming issue.)

SDGs are another overlooked issue.

  • SDGs provide important information about what the world needs, drawn from a much greater group of stakeholders than any individual company can muster; while aligning company initiatives with SDGs increases a company’s recognition for its efforts. There is even an Exchange Traded Fund (ticker SDGA) that invests in companies on the basis of SDG performance). But realizing these benefits requires company initiatives to be purposefully aligned with the SDGs from the outset by asking, “Which SDGs do we want to go after and which issues must we affect in order to get there?" Realizing that an initiative supports an SDG after the fact carries far less force than asking in advance.

The domino effect:

  • For example, a pharma company can impact gender equity by providing free medicines. How? The person who stays home when a family member is sick is usually female. Free medicine cures or prevents the illness, the girl or woman can go to school or work, voila! Gender equity is moved forward

  • The challenge for practitioners is to understand domino ramifications in advance and to use them to multiply the company’s positive impact. Once again, more penetrating questions to more types of stakeholders will augment the work of experts to reveal those potential dominoes

Finally, there is the issue of output. Current materiality reports are static and incomplete, conveying stakeholder priorities in too general a form. Dynamic reports are much more useful.

  • There’s often a disconnect between perceived performance and reality. A CEO’s belief that the company is doing brilliantly on carbon may be at odds with the surveys from experts in the carbon field. Flexible reports may reveal such disconnects and also point to areas where company initiatives are underappreciated

  • Filter stakeholder response by level of expertise. A thought leader in one field may not share the expert opinion of a practitioner in another and vice versa, and this must be taken into account. Weighting based on expertise makes evaluating results far more accurate.  

So while materiality has not yet delivered on its promise, all is not lost. A major change in focus and some powerful additions to the toolkit can unlock the latent power of this process. Together they will give companies the value they’ve been hoping materiality would bring all along.

Thanks for reading.

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