Gil Friend’s Blog

What if Bloomberg, Branson and Grantham came together to buyout the coal industry, close and clean up the mines, retrain workers and accelerate the expansion of renewable energy?

(That’s the subhead for the slightly abridged version of this provocation that ran in the Finance Hub of Guardian Sustainable Business Tuesday. Here it is intact.)

Would you make a one time $50 (£31) investment to save $100-500 each year? Sound good? Add nine zeros to each of those numbers. In other words, invest $50bn once over the next decade, and generate $100-$500bn in benefits every year.

That’s the surprisingly low price to buy up and shut down all the private and public coal companies in the US, breaking the centuries-old grip of an obsolete, destructive technology that threatens our present and our future. It’s a compelling high-return opportunity available now in the US if some farsighted investors merge purpose and private equity in a new way.

How would it work? The deal would phase out coal companies over 10 years, close and clean up the mines, write down the assets, retrain and re-employ some 87,000 workers, and create job opportunities and prosperity for coal-based communities. If at the same time the US accelerates expansion of renewable energy sources and transmission facilities, this could be accomplished with no interruption to electricity supplies, adding only about a penny or two to each kilowatt-hour on electricity bills.

This one-time transaction would generate multiple benefits. It would eliminate US’s largest single source of greenhouse gases: carbon dioxide from coal plants. What’s it worth to cut out at least one quarter of US carbon emissions? To assign a dollar value, we’d need to put a price on carbon.

Even without that number, though, we can already tally the direct health and environmental benefits of ending coal: the sulphur dioxide that causes acid rain, the nitrogen oxide that becomes smog, the particulates that provoke asthma, and the toxins like mercury, lead and cadmium that harm human brains, animals and fish. Estimates range from $100bn a year in a 2010 National Academy of Sciences report to $345bn a year in a 2011 Harvard Medical School study.

This buyout could come at a deep discount, rescuing the beleaguered owners, shareholders, and workforce of a dead-end industry. Coal has a dark future, already foreshadowed in declining stock market prices and abandoned plans for new construction. It faces competition from natural gas and renewables. And public opposition has led to hundreds of coal plants closed or blocked by the Sierra Club and its allies.

The industry’s market valuations could plunge further as it faces more taxation or regulation. As what’s now being called a “carbon bubble” deflates, insurance companies, markets, and elected officials may all conclude that, of all fossil fuels, coal’s deadly poisons put our world most at risk. Institutional investors that don’t recognise these risks are already failing in their fiduciary duty to shareholders. And coal company directors and executives may come to see a buyout as the best way to protect shareholder value.

There’s an inspiring precedent: When slavery was abolished in Britain’s colonies nearly 200 years ago, the British government paid out 40% of its annual budget to compensate some 3,000 slave-owning families for the loss of their ‘property’.

Who can make it happen? In normal times, we’d expect government to take the lead, since everyone, not just investors, would enjoy the savings by avoiding damaging coal emissions. But that’s not on the cards right now, neither from Congress nor the White House. Can we figure out a way to inspire third parties to remove what economists call “negative externalities?”

What if a few shrewd and enlightened investors step up to “do the right thing” – through the marketplace? Leadership could come from the 114 billionaire families who, encouraged by Bill Gates and Warren Buffet, have already committed through the Giving Pledge to donate half of their assets to charity. What better investment could they make to protect their families, future generations, and their assets? They would be recognised forever as pioneers in responding to climate change.

Savvy climate hawks like Michael Bloomberg, Richard Branson, John Doerr, Jeremy Grantham, and Tom Steyer know all about buyouts. These financial superstars could figure out the best way to structure a Coal Buyout Fund – maybe even at a profit. Private equity firms could get management fees for the deals. A crowdsourced component could become the biggest kickstarter ever.

A coal industry buyout could then become the inspiring foundation for a global financial strategy to get us off fossil fuels, head off the worst consequences of climate change, and rewrite our future.

Gil Friend is founder and former CEO of Natural Logic, Inc., author ofThe Truth About Green Business and is the chief sustainability officer of the City of Palo Alto, CA.

Felix Kramer founded The California Cars Initiative in 2002; he spent a decade in the campaign to bring plug-in hybrid cars like the Chevy Volt to market.

Over the course of my more than 40 years of work on sustainability issues in business, government, and the civic sector, one challenge has remained central, reappearing again and again as a make-or-break element of all we are trying to accomplish. I’m encouraged to see that it is now moving to center stage.

It’s the challenge of getting the prices right—of ensuring that the workings of the market reflect the physical reality of, well, physics, and the living systems that sustain the human economy. Meeting this challenge is critical to the health of economies, enterprises, and ecosystems.

Some businesses are beginning to expand their focus beyond the surprisingly recent, single-minded obsession with maximizing shareholder value. Yet we haven’t solved the core problem, because the game is fundamentally defined by its rules. And markets, for all their agility and elegance, are massively distorted in several critical ways:

  • Values that are difficult to monetize or quantify—like social welfare, the regenerative capacity of living systems, and the economistic fiction of “externalities”—just don’t get counted.
  • The future doesn’t matter—and even if it does matter, it isn’t worth anything.
  • One person’s subsidy is another person’s investment. Perhaps most endemic—sober assessment of investment opportunities is too often distorted by historic ROI-blindness.

What is to be done?

  1. Drive persistently and systematically to full-cost accounting that factors in all five capitals—financial, natural, human, social, and manufactured—and that uses all these perspectives to inform and guide decision-making. Puma and other companies exploring ecological profit & loss accounting are finding significant and potentially game-changing weaknesses in their financial statements and assessments of material risk when these other capitals are taken into account. As Paul Herman observes, people are your biggest asset. So how can you manage effectively when your biggest asset is listed as a liability on your books?
  2. Replace the practice of discounting the future with financial tools that value the future—metrics that realistically compare the enhanced future value of trees, intact forests, or topsoil with net present value. The medieval practice of demurrage, for example, interpreted the time value of money in the opposite way than we do today, “creating an incentive to invest in assets which lead to longer-term sustainable growth.” This practice is what enabled the construction of the great cathedrals that would arguably be impossible to justify under today’s schemes. Money in the future may not be as valuable as money in the present, but natural capital will be.
  3. Understand and eliminate your company’s exposure to subsidies. Yes, exposure. Just look at the ratio of subsidy to profit (or subsidy to market cap) of the coal industry. What are those ratios for your company? Subsidies may seem to provide benefit, and in some cases reflect social investment in activities outside the reasonable risk/reward landscape of individual enterprises. But they are fragile at best, subject to shifting political winds, and the inevitable public revulsion at bought-and-paid-for government. Because iIf your business depends on subsidies— whether they be unmonetized non-monetized externalities like carbon emissions, or direct transfer payments like welfare to make up for in adequate wages—if it’s not able to carry its full weight, then maybe you don’t really have business.
  4. Drop the obsolete, knee-jerk, unsupported-by-the-data assumption that better necessarily costs more, because it’s not supported by data. This long-held habit of thought distorts investment processes  by otherwise capable and intelligent people. Sure, Cadillacs cost more than Chevys, but what’s the ROI when “net-zero-energy” buildings can be built with no incremental capital cost at all?

This is challenging territory. It will require new tools, new mindsets, and new alignments of very significant financial interests. But conquering this territory is indispensable to meeting the challenge of reinventing the economy of an entire planet. This planet. In one generation.

Originally published on the EcoInnovator blog at Corporate EcoForum.

Cities are uniquely positioned to drive the sustainability revolution—whether in concert with national governments (as is possible in some countries) or on their own (which is necessary in some countries).

Cities lead the way in greening transportation, the built environment, food production, procurement, economic development and more, with impacts far beyond their borders. What can cities—and regional clusters of cities—do to create a living model of the green economy?

What do cities do?
Cities perform four key roles, each of which can have significant impact on quality of life, economic prosperity, and environmental sustainability, and provide powerful leverage for change.

Cities express and leverage the public will.
Government, though out of fashion in some US circles these days, is simply “what we do together”—a collaboration to create viable communities and the systems that sustain them. Through general planning processes, zoning and building standards, and economic development policies, cities define the landscape of the rest of our lives—for example by building distributed generation into it.

Cities collect and spend money.
By operating eco-efficiently, in facilities and fleets, cities act as skillful fiduciaries of the public trust and set examples for other developers and operators. By establishing green procurement standards—perhaps in collaboration with local universities, hospitals and businesses to provide economies of scale—cities provide consistent market demand for the businesses of the new economy. By using their bonding authority, cities can guide capital formation and investment to accelerate the new economy.

Cities gather and dispense information.
Cities collect lots of data—their spending, building permits, infrastructure, and more—and can provide open access to most of it, as Palo Alto is doing, both to support transparency and democracy and to fuel the innovation with open APIs. Cities—and regions—can track the resource “metabolism” of energy and materials, and make those and other community sustainability indicators available in interactive scoreboards that let people see progress and compete to do better—in real time.

Cities provide shared services.
In addition to formal educational services, cities can provide technical assistance to support entrepreneurship and the green evolution. In addition to the operating infrastructure of urban life, cities can convene conversations about what we want that future infrastructure to be.

The key:

  • Set compelling goals—not just energy efficient buildings, but net zero buildings. Not just an iconic project or two, but requiring all new buildings to be net zero, all renovations, or, over time, the entire city?
  • Streamline policies, programs and practices. The biggest problem with regulation isn’t that it demands better—or safer— performance; it’s that too often its burdensome or unpredictable. But it doesn’t have to be; design thinking can make it better/faster/cheaper—and more effective.
  • Integrate. Commit to systems-based, multi-stakeholder and trans-disciplinary approaches. Traffic isn’t just a transportation problem; it’s a planning and design problem. Land use isn’t just a planning problem; its a water and hence energy problem. Addressing these issues systemically can challenge existing habits and turf but drive leapfrog innovation and orders of magnitude greater financial benefits.
  • Encourage engagement and open feedback. Giving people a clear line of sight that connects their needs, actions and impacts—and that lets them see how theirs connect with those of others—is one of the most effective drivers of innovation and improvement we’ve seen.

Cities face the challenges we all face: Do we try to slow the damage? or build the regenerative capacity of the living systems that sustain the human experiment. Do we apply band-aids? or build lasting solutions? Do we leave money on the table? or define the markets of the future? In each of these challenges, cities will be pivotal players.

—Gil Friend, Chief Sustainability Officer, City of Palo Alto

This post is a submission to Masdar Engage.

When I learned of Nelson Mandela’s passing earlier this month, I spent the afternoon in tears.

Not tears of grief alone, but of love, admiration, awe, inspiration at the contribution this one man has made—both to the people of South Africa on their long path to freedom, and to the people of the entire world in our daily challenge to understand what it means to be a human being.

There is no passion to be found playing small—in settling for a life that is less than the one you are capable of living.
― Nelson Mandela

Thank you, Madiba.

This month I began serving as the Chief Sustainability Officer of the City of Palo Alto.

As many of you know, I’ve been dedicated for the last 41 years, since cutting my teeth with Bucky Fuller’s World Game in 1972, to connect the human economy with the laws of nature—the time-tested, open-source principles that govern the living systems that underlie the human enterprise and all we hold dear.

After more than 20 years advising corporations and governments, I’ve found myself hungry to shift from an external advisory role to bringing all my experience to bear in one place—as a responsible executive with his ass on the line. This is a great opportunity to do that—in a remarkable community with a passionate citizenry, a tradition of innovation, a geyser of entrepreneurship and, I’m told, a pretty decent university.

Their question to me:

How can we make Palo Alto the greenest city in the country?

My question to them:

What can one small, innovative city contribute to the sustainability revolution?

It’s a thrilling opportunity—one that opens many new possibilities on innovation and influence, and that hearkens me back to my earliest labors in the sustainability vineyards, back at the Institute for Local Self Reliance in the early 1970s. But that’s a story for another time.

Natural Logic will continue operating under the leadership of my remarkable colleagues, notably Natural Logic principal (and long time friend and colleague) Michael Kleeman, senior associate Shripal Shah and others. My own role in client engagements will be much more limited and leveraged, after fulfilling current commitments. I’ll of course continue to speak, blog, tweet, podcast, etc., actively, as well as support a very small portfolio of individual coaching and thought partner clients.

There’ll be more details to come over the coming weeks—and hopefully a chance to speak directly, if that makes sense! Meanwhile, you’ll be able to follow my exploits on my  CSO twitter site and a blogging venue TBA, as well as my usual social media coordinates.

My new contact information for City of Palo Alto business and “sustainable city” matters: gil dot friend; the domain is cityofpaloalto dot org; 1-650.329.2447. For all other matters, please continue to use my Natural Logic coordinates.