Gil Friend’s Blog

On April 2, Nora Bateson and Gil Friend will meet at the Commonwealth Club in San Francisco for A Conversation at the Edge of Now, (the first in a new series from Natural Logic). It’s an honor to be invited to this venue of prestige and important conversations. So, what to do with a high level invite such as this one?

Use the opportunity to say difficult and dangerous things that desperately need saying.

We will do that at the Commonwealth Club (register here), and by popular demand we’re adding this deeper dive April 4 at the Institute for the Future in Palo Alto. (Space is limited, so register now—our mailing list members are seeing this before social media does!)

Here’s where we’ll begin:

The world is coming undone, all sort of chaos looms. It’s pitch dark. There’s no moon. You can’t find your map. The ground shifts beneath your feet. You grope tentatively to detect sure footing, or the edge of a precipice, and long for a hand to hold.

How we meet this era is critical. Are we going to soothe ourselves and pretend that business as usual is an option? No. There is no more time for trendy buzz-words or promises of getting rich on a green economy.

To meet the challenges of this era is to accept that, no matter how well intended, previous approaches to sustainable and just socio-economic solutions were not sufficient to meet the systemic nature of the problems. A paradigm shift is more than an incremental adjustment of existing institutions, more than a detailed strategy for silo-ed solutions to silo-ed crises that have been bought about by silo-ed thinking.

Climate, immigration, trade, innovation, wealth gap, AI, biodiversity, racism, acidification, mental health, urbanization, power, supply chains, exploitation of human beings and nature…all are connected, through similar blocks, similar blindness, and something that illuminates it all.

Underlying our dilemmas is the problem of how we think—“the difference between how nature works and the way people think,”as Gregory Bateson put it—and how we encounter the world, others and ourselves.

It is time to authorize another kind of description of the meta-crises we live in, another kind of response, and another kind of conversation, with each other and with ourselves—since we create worlds in these conversations, and open or close the possibilities we live into.

This is a radical move, out of the standard accepted models of goals and deliverables into what it really takes to meet the trans-contextual complexity of now.

Register here to join Nora and Gil for an exploration of “Warm Data at the Edge of Now.”


Nora Bateson is an award-winning filmmaker, writer and educator, and President of the International Bateson Institute, based in Sweden. Her work asks the question “How we can improve our perception of the complexity we live within, so we may improve our interaction with the world?” Nora wrote, directed and produced the award-winning documentary, An Ecology of Mind, a portrait of her father, Gregory Bateson. Her work brings the fields of biology, cognition, art, anthropology, psychology, and information technology together into a study of the patterns in ecology of living systems. Her book, Small Arcs of Larger Circles, released by Triarchy Press, UK, 2016 is a revolutionary personal approach to the study of systems and complexity.

Gil Friend is a strategist, ecologist, author and businessman, named “one of the top ten sustainability voices inthe US” by The Guardian. As CEO of Natural Logic, he has challenged and guided some of the world’s leading companies to build value and competitive advantage by applying nature’s 3.8 billion years of open source R&D to today’s biggest problems. He served as the first Chief Sustainability Officer for the City of Palo Alto, and is founder of Critical Path Capital. Gil is author of The Truth About Green Business (FT Press, 2009) and numerous articles for GreenBiz, Sustainable Brands, and the LA times Syndicate. He began his sustainability journey at Buckminster Fuller’s “World Game” nearly 50 years ago.

Invitation #1: In just two weeks, I’ll be kicking off my new series of intimate conversations with some of the most provocative thinkers I know. We’ll start with the remarkable Nora Bateson and the Commonwealth Club of California. Please join us! And stay tuned for the recording—and the follow-on workshop, TBA! (And see below for a second invitation.)

Gil Friend and Nora Bateson: A conversation at the edge of now

It’s pitch dark. There’s no moon. You can’t find your map. The ground shifts beneath your feet. You grope tentatively to detect sure footing, or the edge of a precipice, and long for a hand to hold.

Welcome to the Anthropocene—perhaps the most uncertain era in the human evolutionary experience.

Underlying the climate crisis and other pressing dilemmas of our times is the problem of how we think, and how we encounter the world, others and ourselves.

“The major problems in the world are the result of the difference between how nature works and the way people think.”
Gregory Bateson

Join Nora and me as we explore warm data, the patterns that connect, the dilemma of purpose, and the ways our words shape the worlds we inhabit, and the possibilities we generate, in each other and in ourselves.

Nora Bateson is an award-winning filmmaker, writer and educator, and President of the International Bateson Institute, based in Sweden. Her work asks the question “How we can improve our perception of the complexity we live within, so we may improve our interaction with the world?” Nora wrote, directed and produced the award-winning documentary, An Ecology of Mind, a portrait of her father, Gregory Bateson. Her work brings the fields of biology, cognition, art, anthropology, psychology, and information technology together into a study of the patterns in the ecology of living systems. Her book, Small Arcs of Larger Circles, released by Triarchy Press, UK, 2016 is a revolutionary personal approach to the study of systems and complexity.

Gil Friend is a strategist, author and businessman, named “one of the top ten sustainability voices in the US” by The Guardian. As CEO of Natural Logic, he has challenged and guided some of the world’s leading companies to build value and competitive advantage by applying nature’s 3.8 billion years of open source R&D to today’s biggest problems. He served as the first Chief Sustainability Officer for the City of Palo Alto, and is founder of Critical Path Capital. Gil is author of The Truth About Green Business (FT Press, 2009) and numerous articles for GreenBiz, Sustainable Brands, and the LA Times Syndicate. He began his sustainability journey at Buckminster Fuller’s “World Game” nearly 50 years ago.

Invitation #2: I intend Conversations at the Edge of Now to be a continuing (if irregular at the start) series. You can help, by telling me: Who are the most provocative thinkers you know? People you’d like me to consider for a future conversation? People who haven’t been heard from widely in the sustainability/regeneration conversation, who bring a distinctive and challenging perspective to climate chaos, business innovation, ecosystemic vitality, reality-based finance, the power of words, and how to live creatively, powerfully, and well in this crazy world?

I welcome your nominations. 

Sent to the CalPERS Board, with regard to the 3/18/19 meeting discussion of: Sustainable investment & CalPERS Divestment Overview. If you want to send your own, the address is [email protected]
 
Dear CalPERS Board,
 
I am a CalPERS member, based on my service in the Governors Office and as Chief Sustainability Officer for the City of Palo Alto.
 
I question the Wilshire conclusion that fossil fuel divestment would be economically disadvantageous to portfolio performance. Many other analyses have reached different conclusions, including:
– https://www.sciencedirect.com/science/article/pii/S0921800917310303
– https://impactalpha.com/how-divestment-from-fossil-fuels-can-benefit-your-investment-portfolio-9421f3e44c13/
– http://ieefa.org/research-finds-fossil-fuel-divestment-not-a-drag-on-investment-returns/
– https://www.ussif.org/climatereinvestment
 
to name a few.
 
I’m concerned that maintaining a significant investment in fossil fuels exposes our retirement asses to unwarranted risk—notably the rising monetization of the cost of carbon emissions, the growing impact of “climate chaos,” and the concomitant risk of stranded fossil fuel assets (whether for economic, regulatory or political reasons, or all three).
 
I urge you to broaden your consideration of fossil fuel divestment to substantively address the concerns. I suggest that it is your fiduciary duty to do so.
 
Thank you,
Gil Friend

Now that I’ve wrapped up my five year “secondment” as the first Chief Sustainability Officer for the City of Palo Alto, I’m back in the saddle at Natural Logic (with a little side gig as Expert in Residence at Presidio Graduate School), and ready to resume a regular communications rhythm with you. And we have some exciting new things underway. There’ll be a websiite update soon—with new offers for companies, cities, leaders and investors—but let me give you an early preview first!

(Before I do, check out my new keynote speaker “sizzle reel”!)

Natural Logic helps companies and communities prosper—building economic and strategic advantage, reducing risk, and enhancing their capacity to navigate the uncertain landscapes of this strange and challenging century. As you probably know, most of the companies that come to us are already well down the road—far enough to realize that something substantial is missing—and come to us for re-set.

(This year, we’re choosing to focus on deeper work with fewer clients, and we’re setting a higher bar. You can expect us to challenge you on lost value, hidden risk, fiduciary duty, and your organization’s capacity to deal with contingent futures it faces—and a new opportunity for your CFO.)

Our typical individual client is a business, political or sustainability leader (or emerging leader) ready to significantly increase their effectiveness, impact and well-being.

We’re building on the Palo Alto work to help smart and sustainable cities—which are on the front lines of the climate crisis. (As a reminder, here’s where I started with Palo Alto, and here’s where we wound up—with a carbon neutral utility, an advanced “new mobility” strategy, and perhaps the toughest green building code—and most aggressive climate goals—in the country.)

And now, after decades of advising some of the world’s best companies, we’re opening a new channel of activity focused on impact investors. (I don’t particularly like the term, since all investment has impact—it’s just a matter or what kind of impact!—but it does seem to be the term of art these days.)

So: Companies. Cities. Leaders. Investors. (And some surprises still to come.) Watch for more details in upcoming mailings—or call or contact me to share your journey and concerns, and to explore how we might help you deliver more value with less stuff.

Coming up:

  • My new Conversations at the Edge of Now series kicks off with the remarkable Nora Bateson at the Commonwealth Club of San Francisco April 2.
  • Hear me speak at the Environmental Leader and Sustainable Brands conferences (with others to come), and book me to shake things up at your next conference or corporate retreat.
  • Follow me on LinkedIn and Twitter for previews of my latest thinking and my comments on breaking events.
  • And join me to celebrate my 70th birthday (!)—and nearly a half century at the front lines of sustainability, regeneration and value discovery—in Berkeley, CA March 13!

I’m grateful we’re connected, and for all you do, and I’ll send you off to your day with the quote of the week: “I am always doing things I can’t do—that’s how I get to do them.” —Pablo Picasso.

[[This article was first posted at GreenBiz.com May 22, 2018.]

First in a two-part series on business risk and strategic duty.

My sustainability work over the past several decades has focused on value — discovering, generating and capturing the often-hidden value that can be revealed by looking at your business through the lens of 3.8 billion years of open source R&D (and not only the lens of a 500-year-old accounting scheme).

But there’s also risk. And just as most businesses are flying blind with regard to value, nearly all are flying blind with regard to risk.

The currently obvious (and perhaps least understood) one is climate — the impacts of rising temperatures and seas, increasingly destructive storms and increasingly unstable weather on everything from flooding and infrastructure functionality to human health and migration, from supply chain stability to the viability of agriculture and even outdoor work (think construction) in many regions.

And those are just the uncertain risks. There are also the certain risks — what Salesforce senior vice president (and co-founder of scenario planning at Shell Oil) Peter Schwartz once called “inevitable surprises” — and unmonetized externalities.

Odds are none of this shows up in your financial statements, little in your 10-K and even less in your management reports and incentive systems.

In fact, as sustainability data expert Trucost has noted, few companies would be profitable if these costs had to be booked. As they don’t have to be booked — neither under GAAP (the Generally Accepted Accounting Principles) or IFRS (the International Financial Reporting Standards) — most companies choose to ignore them and merely pay them lip service. Some, however (such as Puma and Unilever) choose to use this “second set of books” as an early warning system, a strategic guide that helps continuously identify where value and risk might appear, and continually develop flexible, adaptive strategies to prevent them — and, yes, profit from them.

But you know all that. Unfortunately, it’s worse.

As my colleagues and I wrote in The Wall Street Journal 14 years ago (“Wishing Won’t Make It So”): “The ‘train wreck’ [with regard to 40 percent of companies self-described as unready for WEEE] owing to many companies’ failure to keep up with increasing global requirements for environmental performance — was completely avoidable. It raises concerns about the level of fiduciary duty exercised by business leaders who should have done a better job of seeing it coming, and of preventing it.… The challenge to senior executives and boards is to steer away from the collision course with a set of global trends that many have evaluated incorrectly.”

That same year, Mark Van Clieaf and Janet Langford Kelly expanded this notion of fiduciary duty in “The New DNA of Corporate Governance (PDF),” highlighting the “‘strategic duty’ of directors for minimal process for good governance, and the all too common lack of robust, good faith, meaningful process for CEO selection, compensation and other issues.”

The following year, Delaware Chief Justice Leo E. Strine Jr. concluded that the ultimate role of the corporation is to create “durable, long-term wealth,” which he further characterizes as “societal wealth” and finally refines to “sustainable wealth.”

And this year, BlackRock CEO Larry Fink surprised markets when he wrote: “Today’s culture of quarterly earnings hysteria is totally contrary to the long-term approach we need. … We are asking every CEO to lay out for shareholders each year a strategic framework for long-term value creation.”

Van Clieaf and Kelly take Strine’s and Fink’s challenges further, asserting: “Compliance and oversight constitute only a portion of a director’s duty … The ultimate goal of corporations is to continue to create wealth as a viable and growing entity for the long term; directors have a proactive responsibility to ensure that the corporation they serve has those processes and metrics in place — including strategic and financial plans — that they believe will accomplish this end. In other words, they have a ‘strategic duty,’ not just a compliance duty.”

They observed more recently, “If you extrapolate from these documents and case law and the COP21 agreement, then some 90 percent of the world’s business models must be transformed to net-zero GHG business models by 2050.”

This major transformation for the planet also requires major transformation in the ways we do business. The demands going beyond compliance, beyond business as usual, beyond scenario planning, to rethinking fundamental business models and developing “transformation strategies” and plans, innovation roadmaps, R&D and capital investment plans, succession plans, long-term incentive design and more, to get to 95-plus percent “clean” — for power, mobility, food and fiber systems, buildings and cities — to both thrive and be agile in the carbon-constrained world that is likely to be upon us this century. And it demands to do so in face of unprecedented uncertainty in global technology, policy and financial landscapes.

This is not just geeky sustainability scuttlebutt, but a window into substantive/material economic weakness and risk. Consider:

  • 85 percent of listed companies’ longest strategic planning horizon is less than five years.
  • 85 percent of listed companies in the S&P 1500 have Long-Term Incentive Plans with performance periods of less than three years.
  • More than 85 percent of the S&P 1500 have no disclosed “line of sight” process metrics aligned to future value, such as innovation and related drivers. 

  • Some 75 percent of companies have no balance sheet or capital efficiency metrics in their long-term incentive plan design.
  • On the positive side, the use of performance-based incentive vehicles in long-term incentive plan design has increased every year since 2009 — from 52 percent in 2009 to 76 percent in 2013.

So what? The short-term, myopic focus of “quarterly capitalism” fails. Its financial impacts are already visible — and are not small. Despite their narrow focus on generating total shareholder return (TSR):

  • Only 35 percent of S&P 1500 companies generated both five-year positive relative TSR and five-year (2008-2012) positive cumulative economic profit (ROIC exceeding cost of capital). 

  • 18 percent of companies over five years (2008-2012) had a negative relative TSR, while at the same time achieving a positive cumulative five-year economic profit (ROIC exceeding cost of capital). 

  • 17 percent of companies over five years (2008-2012) had a positive relative TSR, but a negative five-year cumulative economic profit (ROIC less than cost of capital). 

  • 30 percent of companies over five years (2008-2012) had negative relative TSR and negative five-year cumulative economic profit (ROIC less than cost of capital). 


Who cares about this? Well, your shareholders do. Or will. (Especially allegedly long-horizon shareholders such as pension funds and insurance companies.) Investment managers — starting with those responsible for the $15 trillion of assets under management (AUM) with an ESG focus — do, and more will. Your employees, your customers and your family do — as does your own heart and soul, if you dare to tell yourself the truth and dare to drop the pervasive myth that values and value need to be in conflict.

As do the recent — and thus far voluntary — recommendations from the Task Force on Climate-related Financial Disclosures (TCFD). “As of Dec. 12, an estimated 237 companies from 29 countries — with a combined market capitalization of more than $6.3 trillion (PDF) — publicly had committed to supporting the TCFD recommendations. Among them were 150 financial firms responsible for assets of $81.7 trillion, such as Bank of America, BlackRock and Citigroup.”

TCFD is a big step in the right direction, as is its call for 2 degrees Celsius scenario analyses. But as Preventable Surprises and Reporting 3.0 argue, the urgency of the climate crisis demands more decisive action, such as “transition plans” to new business models aimed at net zero GHG emissions by 2050.

AEP is one company that has built a Business Model Transition Plan Report. But as Preventable Surprises CEO David Murray summarized at a recent international dialog hosted by Reporting 3.0’s New Business Models Blueprint Working Group (of which I’m a member): “It’s possible that AEP’s transition plan will be held aloft as ‘best in class,’ but sadly it also seems that on some critical points — e.g. no commitment to net-zero emissions — ‘best in class’ [is not]…good enough to sufficiently tackle the systemic risks associated with the climate crisis.”

Here’s the bad news: The risks and uncertainties that will confuse and misdirect most companies will provide significant business, innovation and investment opportunities to those who understand and embrace them. As Chauncey Bell and I wrote nearly 10 years ago: “Your business is on a collision course with a set of global shifts that almost no one has adequately prepared for. These ‘inevitable surprises’ are coming fast. For those who are ready, these shifts will be platforms for change; for those who are not ready, they are traps.”

Van Clieaf and Kelly go further: “Lack of governance processes for most of this will be a ‘systemic breach’ of duty of loyalty, duty of care and the Strategic Duty of Directors. The Directors could be at risk of having to be personally be liable for any shareholder losses.”

Here’s the good news: “Thar’s gold in them thar ‘ills.” McKinsey and Co recently estimated the financial impacts of short-term-ism. “From 2001 to 2014 the revenue of long-term oriented firms cumulatively grew on average 47 percent more than the revenue of other firms, and with less volatility. Similarly, on average, the earnings of the long-term firms grew 36 percent more over this period than those of other firms, and their economic profit was 81 percent higher by 2014.”

What then is to be done? How will you and your organization build these platforms and strategic leadership capacity for change and business model transformation, and then build and execute effective strategies on those platforms? How will you build the transition and transformation plans that will be required of your company and your industry? How will your leaders begin to understand their barely recognized strategy duty, their known but poorly understood fiduciary duty, as well as their familiar compliance duty?

I’ll address these questions, and offer specific suggestions for action, in the weeks and months to come.