California’s Bold Move to Legitimize Sustainable Business
A bill introduced in California’s state Senate last week holds enormous potential to give sustainable business a push by making it — well, legal.
Under current law in California and most other states, companies can be sued by their shareholders or investors for taking environmental or social measures that negatively affect shareholders’ financial returns. The proposed bill would enable a new form of for-profit corporation, encouraging and expressly permitting companies to pursue other things besides simply making money.
This is no small matter. The legal issue of fiduciary responsibility has long been seen as a barrier to companies taking more proactive social and environmental measures. In many cases, it has given companies a fig leaf to avoid taking substantive measures to, say, clean up pollution or avoid sourcing from sweatshops. Indeed, the requirement for companies to put profits above all else has been blamed for much of society’s ills — at least the kind allegedly propagated by business. And the alternatives have been a cold cup of tea: to become a nonprofit organization, a hybrid model championed by social entrepreneurs, or some other legal entity frowned upon by capital markets. That pretty much guarantees that these "good" companies are destined to remain small.
For years, groups of socially responsible investors, social and environmental activists, and others have tried to change this state of affairs, with little success. Maryland and Vermont recently enacted measures to allow “for-benefit” companies, such as those advocated by the nonprofit group B Lab, and a few other states are considering them. However well-intentioned, these laws are limited in scope in that they focus principally on smaller, privately held firms.
Getting large publicly held companies to change has been all but impossible, which is why SB 201, the Corporate Flexibility Act of 2011 (download - pdf), introduced in California’s State Senate on February 8, is of such significance. It would authorize and regulate the formation and operation of a new form of corporate entity known as a “flexible purpose corporation.”
Under SB 201, “Any company establishing in California will be permitted to negotiate to include a social and environmental mission that is given equal weight, perhaps even greater weight, than profits,” Susan H. Mac Cormac, who co-led a working group that helped draft the bill, told me recently. “We have given additional protection to boards and management if they do that. We also have a metric for shareholders to enforce the social and environmental mission, just the same as shareholder value.” It’s a model, she says, that can be used by both public and private companies.
SB 201 differs from the “for-benefit” statutes in at least one significant way: It doesn’t proscribe what a company must do. The Maryland and Vermont laws, in contrast, spell out the requirements of a “benefit corporation” — a checklist that hews largely to B Labs’ model for sustainable business.
There are good arguments for both approaches. On the one hand, a set of criteria sets a standard for what a company must do to be “beneficial.” On the other, it lets legislators and regulators set those criteria, a process that often ends up muddled or worse. Unfortunately, traditional California corporations are not able to amend their articles to “embed” environmental and social criteria without considerable risk, thereby creating an issue for California corporations seeking “B Corporation” status.
Cormac, who co-chairs the 550-lawyer Business Department as well as the Cleantech Group at the law firm Morrison & Foerster, has been working on these issues for the better part of a decade. As co-chair of the California Working Group for New Corporate Forms, she and a small team spent nearly 18 months deliberating and drafting this proposed new division of the California Corporations Code. Along the way, the group solicited comments from an advisory committee comprised of members of the California legal and communities.
"We have the conservative folks behind us from the chamber of commerce," she says. "We have a lot of support and have spent a lot of time working with folks to get it right."
Cormac admits that big corporations aren’t likely to quickly adopt this new legal form should it become law. “The companies that could easily do this are the ones where there’s a really strong link between their profitability and their sustainability — the Methods or Revolution Foods of the world,” she says.
Even if SB 201 passes, it will be just one step in a longer journey to transform mainstream business to pursue environmental and social goals as aggressively as they do financial ones. To gain traction, these companies will need the support — or the demands — of institutional investors, such as large pension funds, embracing flexible purpose corporations. It will take leadership companies, government agencies, universities and other large buyers of goods and services to adopt policies giving procurement preference to these companies. And it may well take preferential tax treatment for flexible purpose corporations, or other policy mechanisms, such as fast-track permitting or reduced oversight.
All of which is only one part of the puzzle, says Cormac. “I’ve looked at every part of the system, and it’s not just corporate structure that ties it to profitability. It’s executive compensation with stock options. It’s the analysts on Wall Street and the quarterly reports, and a whole confluence of factors that lead to this unholy emphasis on shareholder value.”
I asked Cormac how she and her law firm would benefit if SB 201 became law. After all, she heads the corporate division of one of America’s larger law firms.
“This is pro bono,” she says. “We have no skin in this game.” To back it up, she explains that she is working working with law schools at Stanford, Berkeley, and UCLA to establish free legal help for companies that want to set up flexible purpose corporations. "This is a passion, not a business opportunity."
For now, it’s all about getting this bill passed — it needs to pass the gauntlet of two committees, then the full Senate, then the State Assembly and getting Governor Jerry Brown to sign it. It’s looking good, says Cormac, but we’ve all seen “sure things” blow up at the last minute.
This will take everyone’s best efforts — letters of support and all of the other usual tools of the trade. (You can send letters to Senator Mark DeSaulnier, State Capitol, Room 2054, Sacramento, CA 95814.) And it will take mainstream companies and investors standing up to be counted.
Without such a law, we’ll be stuck with business as usual — companies hamstrung by their legal obligation to put shareholders’ financial returns above all. But if bellwether California can get this passed, it will make it legally possible, once and for all, for companies to truly integrate the triple bottom line.
February 14, 2011 in Business Practices, Money Matters | Permalink | Save This Page | Comments (7)
Who's the Biggest Greenwasher of Them All?
"We're doing everything we can to help the environment. We are reexamining how we operate and are working hard every day to reduce our impacts. We are committed to making the world a better place for our children's grandchildren and beyond. We believe that everyone must do their part to address the serious environmental challenges we face."
If you read or heard a statement like this from a big company — in, say, an advertisement, conference presentation, or annual report — I'm guessing you'd be skeptical at best. You'd want to look beyond those broad, aspirational statements to see what, exactly, that company is doing and how much it was walking its talk. If you learned that the sum total of that company's actions were merely a few token gestures — recycling copy paper and cardboard boxes, for example, or swapping out inefficient light bulbs — you'd be anything from disappointed to angry. You might accuse the company of greenwash. As you should.
I'm going to step out on a limb and suggest that for all the sound and fury over deceptive, disingenuous corporations seeking to falsely create a green image, that the biggest offenders of greenwash aren't companies. And they're not politicians, the mainstream media, green marketing firms, or environmental groups.
The biggest greenwashers are consumers.
Consider the statements at the top of this page, a compilation of common company proclamations. What if these statements were uttered not by a company, but by your neighbor, a friend or relative — or you? Would they be believable? How much substance would there be to back them up? Could you honestly say you are reexamining how you operate every day and are working to make changes, and that you are doing better this year than last?
I'm guessing not. And for all the eco-aware people I know — friends, colleagues, and many others — I don't know many who can.
Of course, most of us don't overtly make such boastful statements. But we do so covertly via anonymous polls and surveys in which high percentages of consumers make boastful claims — saying they regularly seek out green products, recycle and compost at home, are more energy conscious in their purchasing decisions, switch brands in favor of greener ones, take public transportation whenever possible, invest their money with so-called responsible funds and companies, and otherwise take action on behalf of the planet.
As I've often pointed out — and as even casual students of green marketing know — reality looks nothing like this. Shoppers overwhelmingly buy what they want, most likely the same things they've always bought, perhaps with an exception or two. Except during brief periods of high fuel prices, they drive what they've always driven with little regard for alternatives. Despite 20 years of green consumer surveys suggesting otherwise, people haven't changed their shopping habits much.
So, are consumers greenwashers?
In pondering this question for the past several months, I looked at what various people mean when they use the word "greenwash." After all, there's no legal definition; "greenwash," like "green" itself, is largely a matter of perception. Here are two reasonable definitions I found:
"A false or misleading picture of environmental friendliness used to conceal or obscure damaging activities." (Source: Wikitonary)"The practice of giving a false green or a false sustainable image." (Source: SustainabilityWorks)
Greenwashing was described by others as "dissemination of misleading or false information" and "the unjustified appropriation of environmental virtue."
By these definitions, most consumers are greenwashers extraordinaire. For more than two decades, they've said one thing and done another, making outsized claims about their environmental commitments — and the actions they take where they live, work, and play — with little evidence to back up those claims. They seem to find no qualms in painting "a false and misleading picture of environmental friendliness."
If consumers were a corporation, we'd be boycotting them.
I'm not letting companies off the hook here. There are many, many instances of firms large and small that have been less than forthcoming with their environmental achievements and green marketing claims. Some of their transgressions are merely annoying — vague or unverifiable product claims such as being "eco-friendly" or "all-natural." Some green claims are decidedly overblown, such as those by purveyors of rayon clothing masquerading as bamboo; they got their hands slapped by the Federal Trade Commission.
Other transgressions are far more serious — I'm thinking about a certain oil company who, for the better part of a decade, made audacious representations about moving "Beyond Petroleum," despite the fact that the percentage of its revenue from things beyond petroleum (and natural gas) never exceeded 1 percent. That's not just greenwash. That's outright fraud.
But as I've argued in the past, many activist cries of corporate marketing malfeasance (and of alleged green marketing "sins") tend to be overblown, headline-grabbing sensationalism. To the contrary, nearly every large corporation, and many smaller ones, have instituted a range of programs to reduce or eliminate wasteful, polluting, and toxic practices. Many of their goals are bold — to achieve zero waste, closed-loop manufacturing, Cradle-to-Cradle products, or carbon-neutral operations. None of these companies is perfect, of course — far from it — but their imperfections are a far cry from nearly 20 years ago, when the term "greenwash" first came into use, referring to companies that "embraced the environment as their cause and co-opted the terminology ... while little changed in practice," according to the 1992 Greenpeace Book of Greenwash. These days, companies are changing for the better, and continuing their progress year over year.
Can the same be said for consumers? How many can say that they are making substantive changes in their daily lives? How many are doing more this year than last? How many have set bold goals about their environmental progress — two, five, or ten years from now? Oh, right: Many of us have forsworn paper and plastic shopping bags for cloth ones; household recycling has become mainstream; people are buying more energy-efficient appliances and light bulbs and insulating their homes. A tiny handful even have solar panels or hybrid cars. But these are simple, relatively symbolic actions.
Compare this to the latest consumer research findings. "Eight in 10 consumers are interested in some type of green product," according to the latest LOHAS Consumer Trends Database from the Natural Marketing Institute. (What, exactly, does this mean? "Interested in some type of green product" is a tad vague.) Or Eco Pulse's finding that "68 percent of men said they were searching for greener products — a 14 percent jump up from last year"? (What has led men to suddenly ramp up their green shopping during a recession?) Or Mintel's recent finding that more than one-third of consumers "say they would pay more for 'environmentally friendly' products." (Recession? What recession?)
So, who's fooling who? Are companies nefariously saying one thing and doing another, or is it consumers who are masquerading as eco-heroes while making only symbolic changes?
It's probably a little of each, but if I had to put money on which of the two was more likely to build a green economy, I sure know where I'd place my bet.
June 16, 2010 in Money Matters, State of the Art | Permalink | Save This Page | Comments (18)
When It Comes to Cars, ICE Is Still Hot
If you were to believe the mainstream media, the future of transportation is electric. And so it seems: In the coming year or two, we'll see a parade of electric vehicles (EVs), hybrid-electric vehicles (HEVs), plug-in hybrid electric vehicles (PHEVs), and extended-range electric vehicles (EREVs) — and probably a few variations on those themes — all of which employ kilowatts where gasoline once reigned. They're coming from both the world's biggest car companies and some of the smallest.
But the conventional gas-powered internal combustion engine (ICE) won't be going away any time soon. While the spotlight belongs to electricity, off in the shadows the auto industry remains in high gear to ensure that the century-old ICE technology doesn't go the way of the buggy whip.
There's good reason: Even the more optimistic estimates put sales of all of types of EVs at only 20 percent of the U.S. market by 2020. That's a good start, but it leaves millions of new car sales employing ICE technology, not to mention nearly a billion ICE-power cars already on the roads, hundreds of millions of which will still be on the road a decade from now.
As a result, the world's major car companies, in both collaboration and competition with dozens of Fortune 500 companies and startups, are turning up the heat on ICE technology, seeking to improve the fuel and greenhouse gas performance of both new and existing vehicles.
The fortunes of some of these firms rose last week when the Obama administration set new greenhouse-gas emissions standards for automobiles and light trucks, a long-awaited and much-needed move to prod the U.S. transportation system in the right direction. The first-ever national greenhouse gas emissions standards "will significantly increase the fuel economy of all new passenger cars and light trucks sold in the United States," according to the U.S. Department of Transportation and U.S. Environmental Protection Agency, which jointly issued the standard.
Of course, the big automakers, not to mention the rest of the free-market crowd, viewed the standards as a needlessly expensive, technologically infeasible, and counterproductively intrusive mandate that will crush a U.S. car industry just coming out of bankruptcy, along with the jobs that come with it. And it will raise car prices, too, though the added cost will be more than covered by fuel savings.
But improving ICE technology turns out to be not that hard, technologically speaking. And much of the technology already has been invented, as the Wall Street Journal pointed out last week, referring to "a number of more mundane solutions to reduce fuel consumption of vehicles that look and operate like cars now."
Among some of the incremental solutions: more-efficient tires, low-friction engine lubricants and added gears. Auto makers also will use technology to build four-cylinder motors that can deliver the power of six-cylinder engines and replace V-8 motors with more efficient six-cylinder versions. More use of turbocharging allows for reduced engine size while maintaining performance.
There's no shortage of companies working on these things. A January report on the topic by analysts at the financial services firm Robert W. Baird & Co. listed some of the products and technologies that can improve internal-combustion engines, along with estimates of their benefits. They include diesel (30% to 35% potential fuel-efficiency improvement), turbocharging (7% to 8%), direct injection (11% to 13%), cylinder deactivation (6% to 8%), variable valve timing (4% to 6%), continuously variable transmission (5% to 7%), automated manual transmission (5% to 15%), stop-start ("micro-hybrid") technology (7% to 9%), and low-resistance tires (1% to 2%). Many of these are in the market, or close to it. Behind these are still other technologies, says Baird, with exotic names like "homogenous charge compression ignition" and "advanced torque transfer technologies," each of which brings further improvements.
Put several of these together — and throw in some lightweighting, thanks to advanced carbon-fiber materials — and suddenly, Obama's new standard — fuel economy of 2016 model cars about 34 percent better than last year's models — seems like a relatively low bar.
Such technologies represent a significant business opportunity for the auto industry's biggest suppliers — companies like BorgWarner, Eaton, Johnson Controls, Navistar, TRW, and Visteon — as well as dozens of startups — firms with a far, far lower profile than electric-vehicle darlings like Tesla and Better Place, among them Achates Power, EcoMotors International, Pulstar, Fallbrook Technologies, Transonic Combustion, and Zajac Motors.
And then there's the question of what to do with the current stock of cars on the road. Is there a way to retrofit them with enhanced technologies, or to convert them to hybrids, plug-ins, or other EV technologies?
Felix Kramer believes there is. The founder of the California Cars Initiative, better known as CalCars.org, last year launched an initiative "to 'fix' a large fraction of the 250 million U.S. vehicles and 900 million globally to run partly or fully on electricity, thereby gaining millions of cleaner, more efficient vehicles that are cheaper to drive, while creating many jobs and providing new revenue streams to automakers from vehicles they've already sold."
Kramer and his team point to a a dozen or so companies and organizations already in the process of converting ICE cars to hybrids, including ALTe, Bright Automotive, ElectraDrive, Linc Volt, and Poulsen Hybrid. It's a market that's scarcely tapped, with blue-sky potential — literally and figuratively.
What will it take to turn this potential into real business — and jobs? It won't likely happen through individual consumer purchases of these upgrades. More likely will be fleet buyers — the thousands of government agencies, taxi companies, rental car companies, and corporations that own hundreds or thousands of vehicles — that will create a demand for ICE upgrades and retrofits. (My colleague, Tilde Herrera, recently reported on the billions in fuel savings fleet buyers will enjoy from the new Obama emissions standard.) But what will motivate them? Tax incentives? High gas prices? A price on carbon? Public pressure?
Another key challenge is how to accelerate the pace of innovation in the design of new cars, shortening the long product cycles now typical of the major car companies, thereby allowing more rapid adoption of new technologies. The Chevy Volt, for example, an EREV that will be in the market this fall, was first unveiled in late 2006 and formally announced in early 2007. Assuming its conception goes back at least a year earlier, that suggests the Volt took fully half-a decade to get to market. Even then, Chevy plans to make only about 10,000 of them in the first model year. How can tomorrow's cars get to market in half that time?
That will be a challenge for car makers going forward: creating scale and speed. We know how to make cars, even green cars, accelerate wicked fast. The next hurdle will be to bring new, clean technologies to market at similarly impressive 0-to-60 speeds.
Of course, all of this addresses only automobile technology — the nature of the vehicles themselves. That omits the larger picture — the notion of buying mobility services, as opposed to owning vehicles. There's vast opportunity for innovation in business models that provide alternatives to owning vehicles in the first place.
Until entrepreneurs and big companies focus their sights on that part of the transportation picture, all these techno-fixes will drive us to making good time going in the wrong direction.
April 4, 2010 in Clean Tech, Climate Change, Money Matters, State of the Art | Permalink | Save This Page | Comments (12)
Exxon, the Rockefellers, and the Future of Big Oil
Last week, the Rockefeller family made an historic challenge to Exxon Mobil Corp., the company founded by John D. Rockefeller in 1870 (as Standard Oil), and in which dozens of family members still hold stock. The challenge came in the form of a shareholder resolution to require an independent chairman of Exxon's board of directors, so that the company can better maximize long-term shareholder value in a rapidly changing energy environment.
Making the board chair independent of the CEO may seem a technical governance matter, but it has great significance. The family argued that having a board that was independent from the day-to-day operations of company management would enable Exxon to better assess the risks and opportunities that are altering the energy and environmental landscape — and that Exxon might alter its business strategy based on a different set of assumptions than those under which the company has been operating.
Research conducted by my colleague Ron Pernick and me at Clean Edge in 2006 looked into Exxon and its set of assumptions about our energy future. Exxon has long adopted a stance that renewable energy will be a negligible part of the energy mix for the foreseeable future, and that operational and market conditions will remain static and relatively unchanging. At the time, we wondered, given the realities of our increasingly volatile global energy marketplace — growing demand, declining production, global security issues, climate change, rising food costs, and other business, social, and environmental challenges — whether Exxon's narrow view would leave the company at risk from competitors and less able to seize new opportunities and adapt to shifting market conditions.
We found some of Exxon's assumption flying in the face of the facts — for example, that only 2% of the world's energy will come from renewable sources by 2030, despite estimates by the Renewable Energy Policy Network that already attribute 4% of the world's energy to new renewable sources. The company consistently underestimates the annual growth of solar, wind, geothermal, biofuels, and other alternative energy resources. Moreover, company statements — as underscored by its actions — is that they are waiting for a major breakthrough in renewable energy technology, at which point it will deploy its significant resources in bringing that technology to market.
There is good reason for the Rockefellers and other shareholder to be concerned about this strategy. By placing nearly all of its emphasis and focus on oil and gas, Exxon risks losing out on the new markets for renewables and places the company strategy within an outdated model of energy markets. As the renewable energy market has developed, it has become clear that our energy future won't be based on a single breakthrough, but on dozens, even hundreds, of smaller ones — new technologies, products and services, and business models. Everyone from GE to Goldman Sachs to Google seems to get this, and are investing accordingly.
So, diversifying investments more aggressively into clean-energy research and development would position Exxon to be better able to adapt to changes, capitalize on anticipated carbon trading schemes and expected developments in the regulatory environment, hedge its bets, and build new business opportunities as alternatives to petroleum-based technologies gain market traction.
Instead, the company seems to be biding its time, waiting for renewable energy markets to develop rather than jumping in to help build them. As a result, rather than taking a proactive role in advancing these technologies, Exxon runs the risk of either not having sufficient access to a viable partner when it finally decides to enter the renewables market in a substantive way, or of arriving too late and losing first-mover advantage, if not significant market share. Most of the other majors — BP, Chevron, Shell — have at least some robust renewable energy programs in place — wind, solar, geothermal, fuel cells, tidal power, and more — albeit relatively small ones in terms of revenue. But at least they're gaining experience and partners in the renewables space.
There are billions of dollars being invested by some pretty smart people in the notion that there's a Moore's Law of energy — that is, that innovation can make clean energy both ubiquitous are cheap. They're betting that energy can follow the path of microprocessors, hard-disk storage, and wireless telecommunications, where costs have plummeted as technology has steadily improved — and carbon can, in effect, be taken out of the energy equation. If even some of these bets pay off, Exxon's assumption — that oil and natural gas will remain the dominant energy sources for decades to come — could put them at a competitive disadvantage. Hence, the interest of long-term, multi-generational shareholders like the Rockefeller family.
It doesn't take much to roil the markets, as Exxon found out last week. At the same time that it revealed gusher-level profits, it's stock took a dive. The reason: Exxon's oil production was down 10 percent, continuing a yearlong decline. It's unclear whether the company will continue to have difficulty finding sufficient new reserves to replenish the billions of barrels it is pumping out of the planet, but if the trend continues, Exxon could find itself in trouble.
It's not too late. By changing strategies, Exxon stands to capture a better foothold in the evolving energy market and a significant percentage of revenues that would otherwise be lost.
Experts believe that the most viable technologies for the near term — such as cellulosic ethanol, next-generation solar technology, and plug-in hybrid technology, along with copious amounts of energy efficiency — represent the future of energy. With the likelihood of such events as a carbon tax or carbon caps within the next decade, the conditions for market acceptance of lower-carbon solutions become more attractive. The concept of negawatt programs is gaining traction, with power companies investing in conservation (average cost of $350/kilowatt) over coal ($1,000/kilowatt). The emergence of small, lightweight, long-running lithium-ion batteries has helped create a market for notebook computers, cell phones, and other portable devices. Efforts to scale that technology for use in automobiles could do for that industry what improved batteries did for computer and phone companies, building a market for hybrid, plug-in, or electric vehicles with great efficiency, acceleration, and range — at the same price or cheaper than today's gas-powered vehicles.
It's not just technologies that are changing. So are markets. For example, until relatively recently, the distribution of gasoline has been controlled by entities with an interest in keeping alternatives out of the infrastructure — the oil companies. But Wal-Mart and other independent retailers with large fuel distribution networks are largely impartial to the type of fuel they carry, and their market reach to consumers can accelerate the growth of alternative products and infrastructure. Large fuel purchasers like the Defense Department are actively creating conduits for the market acceptance of oil and gas alternatives by encouraging economies of scale and increased R&D. There are other disruptive technologies on the horizon that could gain market acceptance, further dampening demand for oil and gas. By waiting for a single "breakthrough" technology, Exxon is overlooking that this sector is engaged in an iterative process that is building a new approach to energy applications; waiting for the perfect solution is a potentially dangerous approach, from a business strategy perspective.
The modern history of innovation suggests that being big is no assurance of survival. Consider that six of the thirty multinationals included in the Dow Jones Industrial Average 20 years ago are gone today (Allied-Signal, American Can, Bethlehem Steel, Texaco, Union Carbide, and Woolworth), and a seventh, AT&T, exists in name only, the original entity having been scattered into multiple companies. Several others — Eastman Kodak, IBM, Sears, and Westinghouse — look radically different today than then. In many industries, the dominant players not that long ago are gone. Burroughs, Data General, Digital Equipment, NCR, Sperry, Univac, Wang — all leading computer manufacturers of the 1970s and 1980s — are cases in point.
The Rockefellers' efforts are aimed at ensuring that Exxon doesn't follow this path, and that it will overcome its stubborn, decidedly non-green, outlook toward one that recognizes the realities of a world in which carbon and climate become significant business considerations.
Will the strategy work? The odds are long, but we'll know more after the company's annual meeting on May 28. If history is any indicator, Exxon is likely to downplay dissent in favor of its own hellbent course.
May 5, 2008 in Business Practices, Clean Tech, Money Matters | Permalink | Save This Page | Comments (12)
The 2008 Shareholder Season
Some of the most important voting of the year doesn't involve candidates or political parties. It's taking place between shareholders and the companies they own.
It has become an annual rite of spring: a bumper crop of shareholder resolutions filed by activist investors aimed at compelling companies to address any of a wide range of social and environmental issues. This year is no different.
A new report on the 2008 season — the majority of companies hold their annual meetings in the spring — has been published by As You Sow (Free download). And while its intended audience are foundations, whose endowments typically include large stock holdings, the report offers insight for anyone interested at the state of the art of shareholder activism.
First, some background. Shareholders file all sorts of proxy proposals at annual meetings. Many have to do with corporate governance — such issues as selection of directors, appointment of auditors, and approving company stock plans. There are also social proxy proposal, frequently introduced at annual meetings by activist pension funds, especially those representing public employees and schoolteachers; universities (remember how schools divested investments in companies doing business in South Africa during Apartheid?), labor unions, foundations, and large faith-based institutional investors (what I lovingly refer to as "Little Sisters of the Immaculate Investment").
Over the past decade of so, shareholder proposals from such organizations have grown, from just over 200 in 1999 to 368 last year, according to As You Sow's "Proxy Season Preview." Environmental topics have historically accounted for the largest category of social proposals filed, covering such issues as greenhouse gas emissions, recycling, water, forestry, genetically engineered food, nuclear waste, oil production, protected lands, and environmental justice.
Many of these proposals never come up for a vote, but that's part of the process, As You Sow explains.
The goal of shareholder advocates is to change a company's practice or policy. Most shareholders prefer to do this through a "good faith" dialogue with the company. Shareholders file proposals if a dialogue is not going well or the company is unresponsive. Filing a proposal can often bring the issue to the company's attention and lead to a dialogue or change in policy or practice, in which case a proposal is no longer warranted and ultimately withdrawn.
Even when votes are held, success doesn't always require a majority vote. While most social and environmental proposals receive votes in the single digits, a significant number have received 20% to 50% in the last few years. "These votes are comparable to or better than traditional governance proposals and serve as further evidence that social, environmental, and reputational risks are being viewed as legitimate concerns in their own right by mainstream investors," says the report.
Because of this, proposals tend to be repeated year after year, largely in hopes of garnering bigger and bigger support. Indeed, says As You Sow, many of last year's top issues will dominate this year's crop of proposals, though 2008 will also see a slew of new proposals and shareholder campaigns. Major issues include global warming (50+ proposals covering climate change, greenhouse gas emissions, energy, and related issues), sustainability (35+ proposals), and animal welfare (25+ proposals).
One topic entering the picture is "toxic TVs." On February 19, 2009, all television signals in the U.S. will convert to digital broadcast, rendering millions of analog TVs obsolete. This so-called Digital Deadline is likely the largest government-mandated planned obsolescence in U.S. history. Tens of millions of TVs are expected to be discarded as consumers purchase new digital sets rather than obtain a low-cost converter which will allow current sets to function. Absent a responsible recycling system, this flood of TVs will add to the growing electronic-waste stream, much of which is sent to unsafe overseas recycling facilities. As You Sow filed a proposal at Best Buy asking the company to study the feasibility of using its stores as a take-back venue for e-waste and to give special consideration to have infrastructure in place for the digital switchover next year.
If nothing else, the "Proxy Season Review" is a good primer on environmental topics companies are being asked, or forced, to confront. Historically, a handful of leadership companies break ranks with their corporate brethren, taking a bold stance on a topic that has become a sore spot with investors and activists.
What topics and companies will be the talk of the 2008 proxy season? What will be the next domino to fall?
We should all take stock.
April 28, 2008 in Money Matters, Trendwatching | Permalink | Save This Page | Comments (3)
Follow the Money: The (Slow) Rise of Green Financial Services
Markets for environmental products and services tend to cluster in categories. Makers of computers and other electronics, for example, have almost unanimously embraced energy efficiency, product takeback, and the like, as demands accelerated from from customers, activists, shareholders, and regulators. Energy and environmental considerations are also becoming commonplace in appliances and most other energy-consuming goods -- with the notable exception of automobiles. It's hard to find a dishwasher, for instance, that doesn't boast about its energy-saving features.
We seem to be on the cusp of a cluster of green financial services -- everything from energy-efficiency mortgages to green consumer banks to climate-friendly credit cards. It's hardly approaching a tipping point, but financial services companies seem increasingly interested, almost eager, to cater to green-minded consumers and companies.
A new report from the United Nations Environment Programme Finance Initiative has nicely documented the trend, showing what's happening and where, and what it might take for such services to garner even greater interest.
The report (Download - PDF) looks at the current crop of green products and services, in North America, Europe, Australia, and Japan. It notes that "Relative to their North American counterparts, banks in other developed regions have traditionally been more proactive and innovative with respect to 'green' product and service development." As usual, we Americans are green laggards.
One reason is that U.S. banks have gone through a wave of consolidation in recent years, leaving fewer, larger banks. As a result, says UNEP,
it becomes more challenging to integrate innovative banking products, including "green" products and services, into their respective portfolios. In a less competitive environment, banks are not given a high incentive to innovate and thus differentiate themselves from peers with state-of-the-art offerings, such as "green" financial products and services.
When they do offer green products and services, it's usually because of one of two drivers, says UNEP: they are either "board-driven" (when a bank's leadership recognizes the opportunities or risks of an environmental issue, then responds by defining one or more optimal products or services) or "client-driven" (where a bank recognizes a considerable demand and fills a niche). For example, in the area of emissions trading, the board of Paris-based BNP Paribas made an executive-level decision to enter the climate change market long before clients expressed the need for such a service. Conversely, Italy's Banca Intesa waited to establish an emissions trading desk until a considerable number of corporate clients requested the service, which over time became highly profitable.
Of course, activists have played a role, too, with environmental and shareholder organizations demanding that financial institutions adopt sustainable banking policies and practices, such as the Equator Principles, which govern project financing, especially in the developing world. Some groups, such as BankTrack, also provide advice on improving bank sustainability policies. Last year, for example, BankTrack engaged with several European banks, including ABN, AMRO, Citigroup, HSBC, and Rabobank, to review their environmental initiatives.
What impressed me most about the UNEP report was its exhaustive catalog of green banking products and services, including examples from around the world. Consider the world of retail banking -- the kinds of services typically available to individuals and small businesses. A sampling of green offerings:
That doesn't include any of several green credit cards that, variously, donate a portion of sales to environmental groups, offset emissions associated with purchases, or reduce interest rates for green products and services, among other schemes.
Such products seem to be paying off for some banks. For example, the goGreen car loan offered by Australia's mecu -- in which the bank provides low interest rates to cars based on their greenhouse gas rating, the offsets the car's carbon emissions during the life of the loan -- has led to a 45% climb in car loans at the bank. Meanwhile, Barclays has issued nearly 11 million of its Breathe carbon neutral debit and credit cards.
And then there's the corporate and investment-grade banking category, featuring another wide spectrum of offerings, involving project finance, securitization, bonds, technology leasing, carbon finance and emissions trading, and other products and services. The UNEP report offers examples of each.
There's more to come, says UNEP, including green commercial real estate, carbon markets, clean technology, and climate-related insurance, to name four broad markets expected to gain traction in coming years.
For all the promise, however, UNEP remains skeptical about the U.S.
There continues to be minimal environmental leadership, or at least awareness, in North America's retail banking sector. The popular perception is that the consumer and [small and midsized company] banking space remains relatively neutral in terms of environmental impact; a stance that overlooks the formidable influence, positive and negative, that clients wield over the use and management of natural resources.
Moreover, UNEP acknowledges that most green financial products and services remain either in the nascent stage of development or haven't yet proven themselves in the marketplace. As a result, "any rigorous measurement or ranking of these designs would be overly speculative and risk misrepresenting some designs over others."
Still, the growth of green finance seems inevitable, as banks and other financial institutions recognize the pressing environmental need and the growing customer demand for more socially responsible financial services.
And that, at the end of the day, money is the root of all evolutions.
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September 23, 2007 in Green Marketing, Money Matters | Permalink | Save This Page | Comments (4)
Google's $10 Million Search for the Keys to the Plug-in
Google today is launching a fascinating experiment in clean-tech investing in the form of a worldwide search for products, services, and technologies that can advance the market for plug-in electric vehicles. And it plans to invest a total of $10 million in the ones it likes.
The request for proposal just issued by Google.org, the company's philanthropic arm, invites "entrepreneurs and companies to show us their best ideas" with the aim of making "catalytic investments to support technologies, products and services that are critical to accelerating plug-in vehicle commercialization." Google.org says it will invest between $500,000 and $2 million in the companies it believes stand the best chance of advancing plug-in technology.
Think of it as "The Apprentice" meets "An Inconvenient Truth."
As the company explains in a "Googlegram" it distributed this morning:
We realize that this type of open call for proposals is not the usual model for investment, but we wanted to use a process that was open to new ideas and new entrants. Part of our goal is to get as many people as possible to work on solutions to our vehicle emissions challenges. We welcome and expect to receive submissions from a wide variety of companies -- from cutting edge battery technologies to innovative service businesses - and from companies of all sizes. We also encourage participants from all over the world to submit proposals. This is a global challenge, and it will take all of us to solve it.
Entrants are asked to submit a five-page proposal by October 15. Those entries selected will be asked to submit a more complete business plan, which will then go through the usual vetting and due diligence processes. (Read an FAQ doc here.)
Why the open RFP? "It is, admittedly, an unusual approach, but we felt as though we wanted to reach the largest number of people with potentially interesting products, services, or technologies that could advance plug-in vehicles," Dan Reicher, Director of Climate Change and Energy Initiatives at Google.org, told me earlier this week. "We felt these technologies, services, products need to be developed sooner rather than later given the climate challenge that we've got. We thought this would be an interesting way to get maximum response."
A worldwide competition for the chance to have Google invest two million bucks in your fledgling firm? "Interesting way," indeed.
As the Googlegram puts it:
This open RFP process is a new approach to mission-focused investing, and we're interested to see what we can learn from it, both in terms of opportunities and gaps that exist in this space today, as well as ways that we can improve on this solicitation process for future investments. Our focus on learning is the primary reason we decided to narrow this first RFP to investments in private companies, rather than a combination of grants and investments.
The RFP is the latest in a string of efforts by Google to advance electric vehicles. Earlier this year, Google.org launched the RechargeIT Initiative that aims to "reduce CO2 emissions, cut oil use, and stabilize the electrical grid by accelerating the adoption of plug-in hybrid electric vehicles and vehicle-to-grid technology." RechargeIT to date has focused on philanthropy, committing $1 million in donations to nonprofits, and has created a small demonstration project that, the company says, will eventually lead to 100 or more plug-in hybrids in Google's corporate fleet. In addition, the foundation is putting its money toward advocacy and policy matters related to growing the plug-in hybrid market.
So, how will Google vet what could be a tsunami of investment proposals? "We're going to take advantage of the talent we have here at Google," explains Kirsten Olsen, Project Manager for RechargeIT initiative. "We have a lot of people here who have experience either screening business plans or have worked for electric vehicle companies." Eventually, she says, they'll whittle down the initial pool and use Google.org's management team, along with outside advisers, to choose the company that will comprise Google's investment portfolio.
I suggested to Reicher the potential for Google.org to receive countless business plans from small, struggling players with little to offer beyond a promising idea -- the kinds of things that many of us working in this space see on a daily basis. "We're not looking to fund research," he replied. "We're looking for commercially viable products, services, and technologies." On the other hand, he said, "some of these may look like earlier-stage ventures."
In the end, Reicher emphasized, these are investments, not grants. "We're going to put money to work in an equity-like way and expect to make something on it." But it's clear that making the most bang for the buck is not Google.org's mission. And, in Google's typically quirky way, there's a significant fudge factor here: Google.org isn't committed to how much it will actually invest -- "we could invest less than $10 million, we could invest more," says Reicher. It doesn't have any goals to actually make money, though it could easily do so if any of the investments take off. Instead of setting out internal rates of return, he says, "We have a specific problem we're trying to solve."
It will be interesting to watch, both to see what products and services eventually come out of this quirky experiment, but also how much the RFP investment approach itself is replicated by others. On the one hand, it seems obvious to invite the best and the brightest to compete for a relatively small but meaningful pool of money. On the other hand, like so many of Google's other innovative initiatives, no one has done this kind of thing before -- or at least done it well.
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September 12, 2007 in Clean Tech, Climate Change, Money Matters | Permalink | Save This Page | Comments (6)
