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24 May 2018

Book Review: Doughnut Economics by Kate Raworth

I haven't reviewed many Sustainability books on here of late, mainly because the few I have read recently have been terrible, some to the point of being unreadable. Frankly I didn't want to bore you with diatribes against poor authors (in both senses of the word 'poor'). However, a couple of weeks ago I took a duplicate present back to Waterstones and, on a whim, picked up Doughnut Economics by Kate Raworth as a replacement. Talk about serendipity.

The titular doughnut is Raworth's analogy for a sustainable economy which is strong enough to pull people above the inner limit of the poverty line (the social foundation), yet stays within natural limits (the ecological ceiling). Within these two thresholds we should be 'agnostic' about growth. I love a simple, resonant analogy and this is one of the best Sustainability models I've come across for a long time.

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6 November 2015

Milton Friedman was not only wrong on CSR, but dangerously wrong

1024px-Portrait_of_Milton_FriedmanThe continued fall out from the VW scandal has made me mull on the risks of ignoring corporate social responsibility (CSR) in the favour of profit. Milton Friedman, the late guru of the Chicago School of Economics and advisor to both Ronald Reagan and Margaret Thatcher, had no time for CSR, famously saying:

There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.

Now you could argue that if the business case for CSR is as strong as people like me argue it is, then CSR is compatible with the Friedman Doctrine as it will lead to increased profitability.

There is some logic in that, but the problem is the mindset. As soon as you read the doctrine, your mind narrows down to a purely financial/economic frame. You start ignoring the fact that any business is completely dependent on society and the environment to survive. If you forget that crucial truth, you are putting the long term future of your business at serious risk.

We have to do business in the real world, not within the models of economic theorists.


Photo: The Friedman Foundation for Educational Choice

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4 September 2015

Digging an ethical hole...

sustainability climate CSR

Interesting example from Daniel Kahneman's excellent psychology book, Thinking, Fast & Slow:

A hardware store has been selling snow shovels for $15. The morning after a large snowstorm, the store raises the price to $20.

Is this Fair, Acceptable, Unfair or Very Unfair?

A whopping 82% of participants in the experiment rated this as Unfair or Very Unfair, despite the fact it is a simple case of supply and demand – the economic principle which determines everyday vital commodity prices such as oil or grain. Kahneman concludes that a basic rule of fairness is that you shouldn't use market forces to impose losses on others (the price hike was voluntary).

To me, there's a wider implication. Milton Friedman-style thinking says that the only social responsibility of the hardware store is to maximise its profits. However, this assumes that the consumer will accept such thinking as fair and yet it is clear from many real-life examples as well as psychology experiments like this one that they don't.

Fairness matters to people, and customers are people.


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22 May 2015

Circular Economics 101

circular economy

Yesterday I was at the North East Recycling Forum in Darlington. NERF is one of the very few green events I attend as a punter as they have great agendas and I get to catch up with a lot of familiar faces.

The speaker I most wanted to hear was Andrew Dickson from Zero Waste Scotland. During the Q&A, there was a debate over the circular economy. I said while I was pleased that Andrew had said encouraging things about the need for a circular economy, most of Zero Waste Scotland's efforts seem to be focussed on pushing decent quality recyclate into the loop, and that it wouldn't be sustainable without industrial demand for the material.

Andrew reiterated his position that quality standards were necessary to unlock demand, but a representative from a major waste company waded in on my side, saying "We could produce much higher quality material than current standards – if somebody wanted to buy it."

Interestingly, the next speaker, Jenny Robinson from WRAP, put up a graph showing the decline in recycling of newsprint due to falling newspaper readership, which she said would cause problems for hitting UK recycling targets.

"Do the recyclers in the room want more newsprint?" asked the Chair.

"No." came a firm voice from the back "Supply and demand."

And that, to me, sums up the challenge for the circular economy. We can set all the targets, action plans and quality standards we want, but the basic economic principle of supply and demand will make or break it. Demand will increase volumes, drive efficiencies, improve quality, cut costs and spur innovation – as it does in every other industrial supply chain. Focussing solely on the supply side – the default approach of most public servants and quangocrats – is doomed to failure.

In the circular economy we cannot ignore basic economics.


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15 December 2014

The Oil Industry: Resurgence or Death Throes?

old oil pump

Like many, I've been completely gobsmacked by the plummeting oil price - down from over $100 a barrel at the start of the year to $64 a barrel this month. Trying to unpick what has happened has led me to the following line of thinking:

  • The growth in demand is slowing dramatically, worrying all producers (IEA);
  • Production is actually falling (IEA);
  • Shale oil production in the US is threatening OPEC's stranglehold on oil markets (BusinessWeek);
  • OPEC are trying to drive out shale oil and other competitors by keeping quotas high (BusinessWeek) - presumably draining their stocks.

Given this political/economic wrestling match, it is very hard to say where oil prices will be in 2-3 years time. Given the relative flexibility of shale oil extraction compared to lumbering OPEC conventional extraction, I can't help but think, like BusinessWeek, that OPEC are going to emerge a much weaker force as a result of their tactics. It may be they are up against the wall and lashing out in desperation. So the answer to my question above is: both - resurgence for shale, long term decline for OPEC.

This uncertainty is a massive problem for investors in alternative energy - who need to know what the market will be like to invest. I can't help but think that the solution is still a carbon tax to reflect the damage done by carbon based fuels - along with the removal of fossil fuel subsidies. This would stabilise the market and give renewables a level playing field.


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17 September 2014

The old sustainability vs growth chestnut gets another roasting

go green

Two interesting interventions caught my eye this week:

  • First of all we had Naomi Klein, of No Logo fame, wading into the climate change debate by declaring that the problem wasn't carbon but capitalism - and that all of us working with big business to facilitate change were as deluded as climate change deniers.
  • Secondly, a report from the Global Commission on the Economy and Climate concluded that there was no fundamental conflict between economic growth and tackling climate change.

The two viewpoints couldn't be more different. In my view Ms Klein is on the wrong side of this argument for the following reasons:

  • Finger pointing is easy; facilitating real change is the real challenge;
  • Big business is not just going to disappear overnight because of the righteous indignation of the activist;
  • She admits she does not have an alternative practical solution to climate change (so why bother entering the debate?);
  • I was inspired to embrace sustainability by witnessing the ecological legacy of the Soviet regime in Russia - it doesn't matter whether carbon is emitted under socialism or capitalism, carbon is carbon.

But it still leads us to a fundamental question: is economic growth compatible with sustainability? And the answer from the Global Commission on the Economy and Climate is that it is. They set out a series of practical measures to harness capitalism to tackle climate change rather than trying to destroy it wholesale - for example removing the subsidies propping up the fossil fuel industry (which are estimated in the report as being six times that of the subsidy to the renewable sector).

I would go further. We must MAKE growth compatible with sustainability. A vibrant global economy is the only way we will continue to bring down the costs of, say, renewable energy technology. In conjunction with appropriate Government action on taxation, subsidies and investment, I do believe we can create a prosperous and sustainable society.

Naomi Klein's vision would take us back to mid-90s noisy inaction on the climate while the global juggernaut judders on regardless.

Which would you choose?


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9 October 2013

The 'cost of living crisis' is ecological


The UK's political conference season was dominated by a debate over the 'cost of living crisis'. Labour leader Ed Miliband blamed this on a lack of competition in energy markets and pledged to freeze prices should he take power in 2015. Right-wing Conservative MPs countered that the rise in energy prices has been due to the green taxes implemented by Miliband when he was energy and climate change Secretary and his Liberal Democrat successors.

Unfortunately neither claim stands up to much scrutiny - the evidence suggests the problem is much more fundamental than that.

First of all competition - the big 6 energy producers do not make excessive profits, at around 5-7% they are comparable to the big 4 supermarket chains which operate in a ferociously competitive market. Secondly, green taxes account for less than 10% of energy bills - and a proportion of that pays for energy efficiency programmes without which average energy bills would be even higher.

Look instead at the MGI commodity index (which includes energy, food and minerals) in the graph above. Having spent the 20th Century falling, commodity prices have soared in the 21st. Some blame this on speculation by investors, but prices have been on the up for over a decade now, a strong trend unlikely to be caused by short term financial manoeuvring in the markets.

I believe, the only explanation left for such an uptick is that supply is simply struggling to keep up with demand - our consumption is rubbing up against ecological limits. So maybe our politicians need to broaden their thinking and their policies - and the rest of us, too.


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9 September 2013

Does big = bad?

schumacher-small-is-beautifulLast Thursday I had a fantastic night's debate at the Green Thinkers book club run by my friend Marek Bidwell. Up for discussion was one of the seminal books of the environmental movement, Small is Beautiful by EF Schumacher - a 1973 paean to organisations and institutions being of the 'right size' rather than growing too big. Growth is a major theme of the book, as Schumacher was one of the first to challenge the GNP/GDP obsession of our times.

And a great debate we had too, ably chaired by Marek fuelled by local real ales - most of which I argued weren't about 10 years ago showing that 'going large' isn't a one-way street. But does big = bad?

While I love the great green-niche entrepreneurs out there, and the diversity they bring to the market, there's one things the big boys have which they don't - buying power. If Walmart, Unilever or Tesco, so much as twitch, the ripples spread out across the world. If they invest in a new technology, its price plummets. They have the power to shape the entire economy and many of them are starting to understand the full depth of the responsibility that goes with that power.

Building those supply chains and bringing technologies forward can have interesting side effects. There was an interesting piece on Dara O'Briain's Science Club on how games consoles like the Kinect and the Wii have brought down the price of certain sensors to a level where specialist equipment for people with severe disabilities becomes viable. In the same way, if Marks & Spencer creates a supply chain for recycled polyester thread or Unilever cracks the sustainable palm oil problem, it's an opportunity for everyone big and small.

Maybe big can be beautiful after all.


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19 August 2013

Are You Creating Wealth or Creating Value?

Mark CarneyAt the risk of sounding like a Mark Carney fanboy (yep, second blog in a week), the brand shiny new Governor of the Bank of England told the BBC:

"I think finance can absolutely play a socially useful and an economically useful function but what it needs in order to do so, the focus has to be... on the real economy... And it's the loss of that focus, it's finance that becomes disconnected from the economy, from society, finance that only talks to itself and deals with each other, that becomes socially useless.

One of my other responsibilities is chairing the Financial Stability Board and a lot of what we’re doing there internationally is to strip out that type of behaviour."

This is all music to my ears as I believe too many people, particularly in the City, mistook 'wealth' for 'value' - and that's why the system imploded. We should all be striving to create value in business - particularly what Umair Haque of HBR calls 'thick value' - economic benefits which enhance society and the environment, as opposed to 'thin value' which creates wealth by depleting either or both.

Carney is right - every business must have a social purpose, creating value for others - preferably thick value - otherwise it is simply a leech on the rest of us.


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5 August 2013

Zero Hours and CSR

digital clock

Another week, another corporate responsibility issue hits the headlines. This time its the number of workers (up to a million) that are on 'zero-hours' contracts where in any week they aren't guaranteed any work or pay until the very last moment. Many don't get holiday or sick pay. While this might be OK for somebody studying who is flexible timewise and just needs a bit of extra cash, it is no way to live for, say, somebody with parental responsibilities.

I have long been concerned about the deeper structure of the economy. Youth unemployment and a squeeze on the standard of living have been increasing since 2003/4 - so can't be blamed entirely on the 2007/8 crash or different Governments' responses to it. There is something more fundamentally wrong and I suspect the sort of thinking where 20,000 out of 23,000 Sports Direct employees are on zero hours contracts is a part of the problem.

The HBR blogger Umair Haque talks of thick value and thin value - the former is created by business which enhances society, the latter from those who leach value from society. It is clear to me that zero hours contracts lead to very thin value, causing much more damage to society than benefits. It is impossible to deliver thick value unless CSR is truly embedded into the core of an organisation's values - and that, folks, is what our mission must be.


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28 June 2013

The Lesson from the Green Deal...

Tjurruset Competition

Yesterday, the UK Government released initial figures on the uptake of its flagship Green Deal programme. This was developed to help homeowners retrofit energy efficiency measures in their home, financed from their electricity bills, but under the 'Golden Rule' that repayments would never exceed savings from the scheme. Sounds good? Well, uptake has been slow.

According to the Guardian, over 40,000 assessments have been undertaken, but only 3 people have taken out a loan with another 200 in the process of doing so. 5000 having financed the measures themselves and got cashback from the Government. This suggests that the people the Green Deal is aimed at - those who can't afford that capital investment themselves - are not taking advantage of the finance - not yet, anyway.

Why not? They'd always get some cash in their pocket, get warmer homes, contribute to a greener future - why not?

Well, it's all a bit complicated, isn't it? I mean think of a harassed working parent, dashing from school gate to the office or factory and back again, feeding the family, getting them to bed and then slumping on the sofa. They've got a choice between watching the latest shenanigans on The Apprentice or getting their head around the Green Deal's Golden Rule. Which wins?

When I sat on the board of a WarmZone project, we struggled to give away insulation for free to low income households. Why wouldn't people take their arm off? Some people didn't believe it really was free, others saw clearing out their loft as too much hassle - despite the big economic, health and comfort benefits the insulation would bring. Add a relatively complex financing deal to that and it doesn't surprise me that people demur.

Again and again we keep getting the same lesson - that if you offer a green option it must not only be better than the alternative, or the 'do nothing' default option, but be simpler and more intuitive as well.

A walk in the park, not a slog through the mud, in other words.


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26 April 2013

Triple Dips, GDP and Sustainability

George_osborne_hiAll eyes were on UK Chancellor George Osborne yesterday as the first quarter's GDP growth results were released. If they were negative, then we would have been in a 'triple-dip' recession - don't you love the way it rolls off the tongue - which would be terrible, and if positive then everything's absolutely fantastic. It went positive and George sighed a big sigh of relief.

The whole hoo-hah over the figures of course is nonsense. The definition of recession - two negative quarters in a row - has absolutely no economic significance in itself. Statistically the UK economy has been flatlining for 18 months, and whether or not we hit the accepted definition of recession or not in this period makes little practical difference.

All this makes me think about the growth/no growth debate in the sustainability world. If this is what zero growth feels like, then nobody seems particularly happy with it. My argument is that we've never really tried to decouple GDP and, say, carbon emissions, so we don't know whether the two are locked together as tightly as the no-growth proponents claim.

Which leads on to GDP itself. The big problem with this being the dominant measure of progress is that it treats all economic activity as equal whether that activity is highly socially/environmentally damaging or whether it adds value to society and the natural world. If we could get a better definition of GDP that focussed on 'good' economic activity, then the growth/no growth argument might become redundant.

Another aspect of the weakness of GDP was flagged up on BBC's Today programme early yesterday morning. The debate was how come employment was increasing if there was no growth. Economist Prof Jonathan Haskell of Imperial Business School explained that method of calculating GDP used in the UK was developed in the grimy post-war times of Keynes and doesn't handle 'production' from the modern knowledge economy. If we switched to the system used by the US, growth would leap by 1% - which would make George a very happy boy indeed.

But the implications of that current system is that relatively clean industries like software (and by extension the whole lightweight digital economy) don't register as growth whereas old smokestack industries and resource intensive sectors like construction do - a perverse incentive. So, go on, Georgie boy, change the system and make us all happy.


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15 April 2013

Do Business Schools Get Sustainability?

bowlerDeprived of BBC radio here on my Spanish holiday, I've taken to downloading the Beeb's podcasts to listen to while cooking or doing the washing up. The change in medium is leading to quite a bit of serendipity and at the weekend I happened upon Peter Day's World of Business and, in particular, an edition on whether big-name MBA courses are worth the huge amount of money they cost.

Pertinently, Day asked academics from Harvard Business School and the Sloan Business School at MIT how come the Masters of the Universe they had expensively groomed had failed to avoid the great financial crash of 07/08. The immediate response was "we have an ethics module."

We have an ethics module.

Hmmm. Kind of reminds me of "we have ISO14001" as a straw that businesses clutch at when they're challenged on their sustainability performance. ISO14001 will not deliver sustainability. A module on business ethics is hardly going to overcome the predominance of the profit motive in the rest of the course.

Out of interest I took the top scoring business school on the 'Beyond Grey Pinstripes' social/environmental ranking, Stanford Graduate School of Business, and had a browse through their MBA cirrculum. There was indeed quite a lot on ethics, but virtually nothing worthwhile on the fundamental relationships between business, society, and the environment. On environmental issues there was a lot on the green buildings in which the course was taught, but I couldn't find anything about, say, the circular or low carbon economies. If it was there, it wasn't obvious. And Stanford is meant to be the best at this.

No-one needs to pay me megabucks a year to learn an inconvertible and basic truth that underpins all business: the economy exists to serve society which is part of the environment - and all three are thus interdependent.

If a business school isn't teaching you that, I'd ask for your money back.


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12 November 2012

C.S.R? How about T.A.X?

Today some top honchos from Starbucks are up in front of MPs to explain how they organise their tax affairs. The papers have been full of articles recently about the minuscule amounts of tax some of these big companies pay - some of them pay no corporation tax whatsoever. Everybody from Vodafone and Amazon to U2 and Jimmy Carr have been accused of going way beyond what the man or woman in the street would think was fair.

I'm a businessman. I love business and I'm not averse to earning a profit, far from it. And I employ an accountant to make sure that I pay all the tax I should and not a penny more. So what's the difference between me and, say, Starbucks?

Well, I'm playing by the rules and the spirit of the rules - my accountant takes my income, deducts legitimate/bog standard allowances and I pay tax on the rest. These corporations have made an art-form of shifting cash between parts of their businesses around the world simply to minimise that bill.

Of course Governments should legislate - by insisting on a minimum tax on turnover, banning corporate entities which have no trade other than tax 'efficiency' and/or placing punitive taxes on those that do. There's an element of tragedy of the commons here - any one country that 'gets tough' on tax avoidance may lose out if others stand back - so an international agreement may be required, which in turn would take years of negotiation on past performance.

But what about the businesses themselves? Many of these companies claim to take Corporate Social Responsibility seriously. Well, paying tax is a moral and social issue - think of all those countries around the world which are struggling with huge deficits and who could ease their painful austerity programmes if companies operating on their turf paid fair taxes?

Is any captain of industry going to show moral leadership here? Maybe propose a code of conduct for others to sign up to? Anyone?


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20 June 2012

Why Rio+20 and the G20 should be one meeting

Two big global jamborees at the same time: Rio+20 trying save the planet and the G20 in Mexico trying to save the global economy. Really they should all be meeting in the same place as to a large extent the same problem is causing both ecological destruction and the global slowdown - our addiction to fossil fuels. Countries should be listening to their own advisor, Fatih Birol, Chief Economist of the International Energy Agency who has said:

"When we look at the oil markets the news is not very bright. We think that the crude oil production has already peaked in 2006." (June 2011)

"Oil prices are a serious risk for the global economic recovery." (Feb 2011)

"Energy will become viciously more expensive and polluting if governments don’t promote renewable and nuclear power in the next two decades instead of burning coal." (World Energy Outlook, 2011)

"Oil prices remain a threat to the fragile global economic recovery. Even current prices are far too high for the current economic context. I'm concerned for Europe and I'm also very concerned that these high prices would hit the still hesitant and slow U.S. economic recovery.” (May 2012)

The IEA was set up to advise Western nations on energy policy after the oil shocks of the early 1970s. They are not some lefty green pressure group but hard nosed economic analysts. Dr Birol wouldn't make such pronouncements if he didn't believe they were true.

Yes, sceptics, might say, but alternatives to fossil fuels are too expensive. But this is short sighted - renewables technology will only get cheaper whereas fossil fuel prices, according to Dr Birol, are only going to rise. When will we jump trains to get on the one headed in the right direction?


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20 January 2012

There's no such thing as too much renewable energy

There were stories in the press this month about £1.2m worth of 'constraint payments' made to Scottish wind farms over Christmas to not generate electricity when demand was low. These stories appear to have been placed by dodgy "think tanks" (read: propaganda machines) protesting about public subsidies going to renewables.

And I agree with them.

Sort of.

It is madness to pay to restrain renewable energy. We need as much renewable energy as we can get (here I diverge sharply from the propagandists), so what on earth are we doing saying "not now! take some cash"?

The money would be much better invested in smart grid technology and storage facilities. In a smart energy world such "excess" renewable energy would be used to cheaply charge electric vehicles and portable devices as well as distributed storage systems.

The problem is our thinking hasn't got past that of the 1930s. The grid we plug wind turbines into in the UK hasn't changed much since 1938. 1938! That grid was designed to distribute electricity from centralised power stations - a bit like television channels broadcast the same entertainment to lots of people. A sustainable energy system would be more like the internet than TV with energy entering, being stored, and accessed at different places and times by a wide variety of players. It's about time we brought energy into the internet age.

The wider point is our tendency to be hidebound by linear, incremental thinking - to innovate to the degree to tackle the sustainability challenge, we need to break free of business as usual.

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30 November 2011

Is our obsession with the cuts blinding us to the oil shock?

The BBC's Evan Davis made a very interesting point when interviewing Labour's Shadow Chancellor Ed Balls this morning on Radio 4. Trying to wrongfoot Balls, the economically astute Davis stated that the 1% impact on consumer spending from Chancellor George Osbourne's cuts was much smaller than the 1.5% impact from what he called the 'oil shock'.

I was, ironically, driving to a client's site at the time and nearly swerved off the road. I have always believed that oil prices were hurting the recovery, but I didn't realise just how much an effect they were having.

We have pages and pages of newsprint and hour after hour of broadcast on the political battle between Osbourne and Balls over public spending, but almost nothing on oil prices. If Davis is right, and he most probably is, we are barking up the wrong tree. If we want to get the economy running again, weaning ourselves off our addiction to oil should must be much higher up the agenda.

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16 November 2011

Standing Still or Going Backwards?

You read it and you hear it again and again, the same old mantra "we/you/they can't afford to go green in the current economic climate". It gets repeated so many times it becomes reality and it rarely gets challenged.

The evidence explodes this lazy myth - the latest of many studies to show green businesses out perform the rest was released by Harvard and London Business Schools shows that $1 invested in "high sustainability" companies in 1993 would earn you 47% more than if you invested it in "low sustainability" companies.

The threat from the myth is serious. Companies are losing business as contracts are awarded to greener competitors. Laggards are more susceptible to price rises in utilities and raw materials, will lose out on the best recruits and be at higher risk from legislation and green taxes. In the current economy you have to make modest progress on environmental performance just to stand still commercially, and you really have to go for it to get competitive advantage.

Some people clearly get it - my business is booming!

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26 September 2011

Does Commerce Trump Charity?

I spent a very pleasant evening on Friday listening to Chris Packham at a Northumberland Wildlife Trust fundraiser (he's vice-president of the Wildlife Trusts). He may be 50 now, Packham retains all the enthusiasm, charisma and rebelliousness of the days when I watched him present The Really Wild Show back in the late 80s - and he isn't afraid to mince his words.

He started his talk with photos he had taken of Siberian tigers in the snow. This took him to the conservation of these beautiful animals and the shocking figures that a tiger is worth $100,000 to the poacher that shoots it, and $300,000 to the guy illegally selling its parts for medicine in China.

He went on to berate what he called "the tiger conservation industry" for hoovering up huge amounts of money, but failing to even slow the decline of the tiger. "The only thing I've seen that works is eco-tourism", he said "You've got to make the tiger worth more alive than dead to local people."

This is something I passionately believe in. In my opinion, much 'charity' is at best ineffectual and often makes serious problems worse - in effect when we sign a cheque we are buying a feeling of "having done something". If you look at international development, the third world countries which are breaking through like India are doing it by entrepreneurialism, not by accepting charitable handouts which can undermine local markets, trapping people in poverty. (If you are interested in this way of thinking, you must read "The Fortune at the Bottom of the Pyramid" by JK Prahalad - and before anybody gets angry, I'm not including disaster relief in this critique).

Bringing it closer to home, when I started in this career, a surprising number of businesses expected to be given environmental advice for "free" - paid for by the taxpayer in other words. For many years this was what I did - delivering projects where the beneficiary wasn't writing the cheque. Something I noticed early on was that the "free" advice I gave was rarely if ever acted upon, not because it wasn't any good, but because it was seen as free and wasn't valued. Thankfully we have largely thrown off the shackles of publicly funded business support and the bulk of Terra Infirma's turnover is now earned from those who are directly benefiting from our skills, experience and knowledge. We charge them quite a lot of money for this and guess what? Our clients value what we do.

Another great example is the explosion of solar energy in countries which enact feed-in tariffs, creating a market for small generators and undermining the monopolies of the big generators. Those markets are doing more  to ramp up renewable energy than virtually any other attempt I can think of.

The free market is by no means perfect, but I believe in working with what we've got. The challenge is can you harness markets for good? Can you make 'good' financially worthwhile and 'bad' expensive?

Photo © BBC

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29 September 2010

It's the economy, stupid

Back in the early 1980s, I persuaded my parents to part with the princely sum of £399.00 for a BBC Micro Model B. My initial reaction was to feel a bit let down - all that white-heat-of-technology talk around home computers and the best thing this one could do was putting you in charge of a crudely realised kingdom with a river, fields and mountains (at least until Elite came out, but that's another matter...). At today's prices, that £399.00 could buy you four, yes, four, iPhone 4 handsets, each with about a million times more processing capability and a cornucopia of sci-fi type technology (video, maps, access to vast stores of information) that the 11 year old me would never have dreamed of.

So what has this got to do with green business? Well it demonstrates a number of basic economic principles - new technology starts off expensive until a mixture of economy of scale and innovation makes it accessible to all. But reading some accounts, you would think that renewables, to take an example, were exempt from this rule. "They're too expensive" we keep hearing. Only because they are the exception, rather than the rule. Already, with demand increasing and manufacturing shifting to China and India, prices of solar panels and wind turbines are starting to drop.

By the way, I'm not saying that offshoring manufacturing is a good or bad thing per se, just that once again, in the economic world we live in, that's what happens and we shouldn't be surprised if it does.

Demand also derives technology improvements and recently we have seen breakthroughs in dye-based solar PV technology which could deliver lower costs, higher efficiency and lower carbon footprint. Likewise, electric vehicles are currently expensive, but that's because the extraordinarily lean supply chains that supply conventional vehicle manufacturers have not been built for electric vehicles yet. One manufacturer told me that an extra 1000 vehicles a year would cut his bill of material costs by 40%. 45% of the cost of an electric vehicle is the battery, so, given the innovations in mobile phone battery technology, we will eventually see massive improvements there.

The flip side of this is true too. I once sat through a presentation on a new biodiesel plant for the North East of England. I asked whether it would take waste oils as well as rape seed oil, but the presenter said that to make the economics of the plant would only stack up if they produced pharma-grade glycerol as a by-product so they needed to be very tight on the quality of raw materials. His company later went bust, allegedly because putting that amount of high grade glycerol on the market depressed the price. More supply, same demand = lower prices. Welcome to the real world.

I also have little patience for those who complain that environmental legislation or corporate social responsibility will cost business or the economy money. Hold on, what's a cost? It's an income for someone else in the economy - it's not lost. Environmental legislation protects the world we live in and creates new markets. What's not to like?

Whether or not you like the economy we live in, we live in it and that's a fact. If you run, or want to run, a green business, you'll quickly find you're not exempt.

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Everything you need to know to integrate sustainability into the DNA of your business.

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By Gareth Kane

A highly accessible, practical guide to those who want to introduce sustainability into their business or organization quickly and effectively.

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By Gareth Kane

The smart way to engage effectively with employees

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