Gil Friend - opening keynote - CleanTechForum 2013

So I don't know if you have had a chance to look over the agenda yet. We've got a very full day for you today. A little bit of drinking from the fire hose, one after another of exceptional speakers, taking the big picture that Melanie has said and diving us into the specific actions in the many domains of what we are loosely calling cleantech. Actually, we're going to stretch that definition a bit today. Can you bring up my slides, please? So while we're waiting for the slides to come up, what I'd like to do this morning is set a bit of context for the day and let me start with some context on Natural Logic on myself. Natural Logic is a strategy consultancy. We help companies and cities create value at the intersection of business and sustainability. We've had the honor to work for some of the best companies in the world who are already moving well on these issues and our job is to help them take significant steps. Further Gradient Capital, which I mentioned before, is an investment firm building financial instruments and financial strategies to help accelerate the development of of the regenerative economy. So we're in big trouble. We are headed on, we're set on a collision course. We as a society set on a collision course with a series of trends and events that most businesses, most leaders don't understand, have not boundaried effectively, have not assessed and analyzed and calculated risk and benefit appropriately. And it's big trouble. It's bigger than we think. If you look at the trajectory of billion dollar damage, storm events in the United states in the 1980s and 1990s, it was one a year, in the aughts it was about five a year. 2011 it was 10. 2014, it was 2012, it was 14. How do you bet your future on this trajectory? Which way do you think it's going to go? And you'll have a very different opinion about this if you're running an insur insurance company, for example, than if you're a member of Congress. And climate. And rising sea level is not the only issue that we face. It's as if we have a series of storms stacked off the coast. Water, soil, biodiversity, urbanization, growing populations, toxic materials in living systems and of great concern to many of us, the threat to the viability of life in the ocean. And these aren't just environmentalist concerns. This all reflects ecosystem services that are the fundamentals that underlay the human economy. These go south, we're in deep trouble. Spock had it right. Actually, the Economist had it a little bit more bluntly. And yet in the Midst of all this, there is great opportunity. We know that it's not something that's solved by simple solutions. This is not how you fix global warming because it's a much more integrated network of problems. This is from KPMG trying to summarize the whole scope of the challenges around. Call it clean tech, call it sustainability, call it regenerative. Absorb this quickly. I'd be happy to share slides with you later if you'd like them. It's a host of problems that are interconnected, deeply interconnected, and that lend themselves most effectively to systemic solutions that don't, for example, look at energy and food and water as separate issues, but as interconnected issues where the solutions to one become the solutions to the other or the problems for the other, depending on how you design your approach. The scale of these issues is huge. You've seen talk about the carbon bubble, International Energy Administration's declaration that we need to keep 3/4 of proven reserves in the ground in order to have a prayer of staying below 2 degrees Celsius. Climate improvement. People talk about this as stranded assets or potentially stranded assets. HSBC has estimated that this could take out 50 to 60% of the market cap of global energy industries. I like to think about it as stranding assets. What are the affirmative financial strategies that can actually close down the industry? When you consider that the coal industry has a global subsidy of about $800 billion a year and a market cap of about $100 billion a year, there are interesting strategies that become available. The fact is that the business case for environmental management, or we'll call it sustainability and cleantech, has never been stronger. This is not from Greenpeace, but from Henry Kravis, founder of KKR public equity firm. The fact is that you don't have to choose between making money and making sense. And I say this even though it's probably known to most of the people in this room, because the barrier, understanding this is one of the most significant barriers that we continue to find after 20 years of work in this field. Most people assume that there's a necessary trade off. There's not. In fact, there's an opportunity here to do all these at once. To build profit and build brand and build resilience and reduce risk and to drive innovation. How? By fulfilling the purpose of your business and to organize that purpose around serving life. Not life in service of business, but business in service of life. So what we're going to explore today is what is the potential and the path for a regenerative economy. I would assert that this is the biggest business opportunity of this century, a scale that dwarfs anything else, also holds some of the biggest risks that we will face this century. But for those who understand the course that we're on, understand the synergetic and network effects of the strategies that we're looking at, and can organize business around a high purpose of a world that works. There's plenty of money to be made here, so you probably want the proof. Some years ago, I had lunch with Gary Pfeiffer, who at the time was the CFO of dupont Corporation. And someone asked Gary, why doesn't Wall street get it about sustainability? And he said, well, actually, Wall street gets it just fine. Wall street wants three things from us. They want us to make more money. They want us to make more money faster because the net present value of a dollar today is worth more than one ten years from now. And they want us to reduce the risk that stands between us and making more money faster. That, he said, in fact defines DuPont's sustainability strategy with major commitment to renewable feedstocks, renewable energy, cleaning up toxics and so forth. Pfeiffer said that this has delivered a 340% increase in share value, coincident with a 60% decline in environmental footprint. And he asked, can I prove to you that those two things are correlated? He said, no, no more than I can prove that this billion dollars of advertising produced this billion dollars of revenue. He said, but I have no doubt that those are correlated. And here's just a few examples from a number of companies around the world. Here are savings in cost structure. These are eco efficiency savings. Big numbers, hundreds of millions of dollars. For Interface, the carpet company, that $450 million over 10 years was about equivalent to the company's profit in that 10 year period. Put that together another way. Had they not done the eco efficiency, they would not have been in the black. Unilever, $395 million in just two years. Marks and Spencer. Interesting. With IBM savings from telecommuting, almost $3 billion in real estate savings because of less footprint to have to serve in the buildings. So this is taking stuff out of the cost structure. But the top line benefits are even more interesting. Clorox $200 million annual revenue from Greenworks, DuPont, 10 billion from environmentally advantaged products. Levi's, who we had the opportunity to work with, went from looking at a life cycle assessment that identified where the water impacts were in their production system, developed a line of water, less genes, 90% less water in the production process. That's a half a Billion dollar top line revenue item. So for the folks who think that there's a choice between making money and making sense, we say, sure, take cost out of your cost structure. Stop spending money on energy and resources and water and waste management that you don't really need to do. But look at what happens when you reorient the purpose of the business, the value proposition of the business, the offers that you make into the marketplace. General Motors, a billion dollars Phillips, 45% of $24 billion annual revenue tied to green products of one sort or another. And General Electric, the big dog here, $130 billion of revenue from their ecoimagination program. Jeff Immelt said here in San Francisco some years ago as he launched the program, he said, look folks, green is green. Bottom line, focus. And this was, you know, General Electric presented ecoimagination as you would expect. A product launch of any major product from a major company. Disciplined, focused, structured and rolled out strong and consistently over the years. Carbon efficient firms are beating the market. And you know, don't take my word for it. This is a collection of about 35 reports compiled by my friend Hunter Lovins, including the wild eyed socialists at Goldman Sachs. One after another documenting the business value of integrated sustainability initiatives. My favorite though is this one from Raj Sisodia and a book called Firms of Endearment. Looking at companies that have high purpose at the core of their business. Companies like Whole Foods and Southwest Airlines and the Container Store. 18 companies in this profile. 10x out performance over the general market over the last 10 years. Not 10%. 10x. And I want you to hold the thought of 10x in mind as we go through the day. What would 10x improvement look like either in your companies or in the companies that you are serving with the technologies that you are bringing to the table. One powerful question to ask is what business are you really in? Amory Levin said years ago that utility companies aren't really in the business of delivering natural gas and electricity because nobody wants to buy natural gas and electricity. What we want is hot showers and cold beer. Figure out how to deliver that with less capital, less resource and you've got a serious business model as we have seen in California. So what's the opportunity when we take a radical look at redesigning everything that we do on the path to this regenerative economy? What happens when we have digital everything, when we have the industrial Internet? General Electric's term for this, digitizing everything. They're putting live real time sensors into the 40,000 jet engines in the Global fleet that are powered, that are General Electric manufacturer to give them real time performance data on those jet engines so they can be optimized both in flight and in future design. 1% efficiency improvement in that fleet seems within reach. Right. That savings would exceed the total profit of the global airline industry. That's the kind of scale of opportunity that we're looking at here and think, you know, so take that further into dematerialization. Selling smaller and smaller things and service instead of product transparency. Radical transparency. Collaboration, 3D printing which will turn manufacturing on its head around the planet, enabling mass customization. The sharing economy. The challenge of free. And we're seeing it happen now. The end of coal. Coal investment declining around the world. Global investment in renewables and efficiency is now either right on the heels of or about to exceed global investment in coal and nuclear and perhaps even the end of the utility. Recent data point, and this one just in, one of the utility companies in Germany has declared itself shifting from centralized power production to distributed generation. In contrast to most of the ones in the United States who are digging in their heels and saying no, no, no or it won't work. Watch this space and we've seen radical change. We know this happens here on the left, 5 megabytes of memory in 1956. On the right, 32 gigabytes now, actually two years ago. So this is probably highly obsolete by now. We've seen radical change. What happens if we apply this kind of breakthrough design thinking and innovation to everything in our industrial and commercial system? When we think about zero as the focus? Not less bad, but more good. Integral Group based here in San Francisco has built 410 net energy footprint buildings, none of them at any incremental cost over standard buildings, some of them at less capital cost. What's the ROI when you have elimination of resource spend at a less capital cost to get there. You can't do the math. So some of the elements that we'll see in this mix as we move forward. So what we really need to do is to manage the transition to what John Fullerton at the Capital Institute calls regenerative capitalism. Not just sustainable. As Michael Browngart says. We don't want to sustain things where we are now because where we are now is not acceptable and not happy. We still have a billion people going to bed hungry every night on this planet. It's now 1/7 of the population, not the 1/3 of the population that it was when I was a kid. So there's progress, but it's unacceptable. Not just restorative not just bringing things back to the golden age of our youth or our parents youth, but something that's regenerative, in Bucky Fuller's words, that regenerates the productive capacity of the living systems that sustain the human economy. How do we do that in our lifetime? How do we reinvent the economy of an entire planet, this planet, and do that in one generation? So what does it look like? Some of you may know the book Looking Backward from early in the 19th century. That was a 200 year retrospective look a utopian novel looking at a possible future for the United States from in a future where it already happened. The World We Made just released by Jonathan Poratt, co founder of Forum for the Future. Looking back 2050 at the success of the world that we made, that we now made into this next 30 or 40 years. Owning our Future from Marjorie Kelly at the Telus Institute, which is looking not just at the technologies of the regenerative economy, but at the structures of the regenerative economy. Looking at companies like the John Davis partnership in the UK, $15 billion company, employee owned retailer. Looking at companies like Novo Nordisk, the major pharmaceutical company, 100% owned by a foundation. The purpose of the foundation is to eliminate diabetes in the world. Global competitive company, completely different ownership structure. Looking at things like the Evergreen Cooperatives in Cleveland, building a network of employee owned companies to revitalize the economy of that city. So we have an opportunity to think about different structures as well as different technologies. Fullerton and Hunter Lovins just published last week in Fast Company. Probably the most comprehensive layout of the economic strategy and vision that I've seen yet. I commend it to you. It's on FastCo just came up last week. And remember, this is not about the business case. This fairly smart guy once said that if you can show me the business case, you're too late. A lot of people think that business decisions are made on the analytics and in part they are. But the best business leaders are leading from something else. The leading from a vision and a sense of possibility that then has to be supported by the analytics. And that takes some other skills besides financial and engineering. It takes curiosity, if you'll allow me. It takes love and it certainly takes courage. So let's do this folks. Thank you.