How the Circular Economy Offers New Business Opportunities

Originally published on www.inc.com on December 11, 2014.

A key to sustainable business in every industry is creating a circular economy: what used to be considered waste is fed back into the production process as raw material. Factories are increasingly identifying "zero waste to landfill" as a goal, seeking new ways to recycle and repurpose their waste, and industry research looks at how to make products more recyclable. This focus is known as "product stewardship."

Some products, such as paper or aluminum products, can be recycled into new paper and aluminum products, but this is not always the case. For example, tire production includes a vulcanization process, similar to baking, and just as it isn't possible to take butter and flour out of an already baked cake, it is not possible to extract natural rubber or other ingredients out of a vulcanized tire. This means an old tire cannot really be converted to a raw material for a new tire.

Still, the tire industry has been called upon in many parts of the world to take responsibility for disposal and recycling of discarded tires including removal of tire stockpiles. In the US, market-based solutions have emerged.

Today, around 95% of tires too worn to use are repurposed for other applications. Of these, 56% become tire-derived fuel, a substitute for coal and other fuels commonly used in cement kilns, pulp and paper mills, and for electricity generation. 25% of scrap tires are repurposed for ground rubber applications, including rubberized asphalt, artificial turf fields and playground surfaces. Rubberized asphalt lasts longer than ordinary asphalt, and has properties such as noise control, erosion prevention and better drainage. Another 5% are used in civil engineering applications.

In 1990 there were around one billion stockpiled tires in the US; by 2013 that number had fallen by 92%.

Many of these new markets got off the ground with the help of state incentives. The state would give grants for market development and stockpile abatement, funded by a small fee paid by the consumer dropping off her old tires at the dealer when replacing them with new tires. Another part of the consumer's small fee (usually between one and three dollars) would go to a scrap tire collector, who would cart the old tires to processors en route to the end use markets. Much of the new market development was stimulated by representatives of tire manufacturers, who have held conferences, set up meetings with states, and put processors in touch with companies that could use the ground up tires. In the case of rubberized asphalt, the new product is ready for use but often local governments won't spend the extra money up front for pavement that will last longer, even if they would save money long-term by having to repave less often. This is an open opportunity for financing solutions.

The hope is that with a boost from technology innovation and financing solutions, scrap tires could become so valuable as a raw material for other uses that people will be willing to pay handsomely for them.

All this is an example of the direction needed in order to create a circular economy approach to waste. Manufacturers of any product need to focus on ways to produce the product so that it is more recyclable, and new markets for recycled products can be developed strategically. Technology can fill in the gaps.

A suggestion for entrepreneurs looking for markets to fill: look at the waste cycle of any product. Find the weak links in the circle, and identify cost-effective solutions. Customers will be lining up.

4 Reasons to Focus on Long-Term Strategy

Originally published on www.inc.com on November 13, 2014

The Iroquois were governed by the principle that important decisions had to be made weighing not only their immediate effects but also how they would impact seven generations to come. Wall Street and the flash trading it created are dictating the opposite. Investors' and analysts' focus on quarterly profits is trapping CEOs in a 90-day cycle, making it hard for them to implement long-term strategies such as major technology shifts or product phase-ins. Venture capital and private equity, looking to maximize profits and then exit, have only added to the trend. CEOs' average terms are getting shorter, and they are often ushered out before they have the time to lay the groundwork for real value creation.

The 2008 financial crisis woke many to this paradox, and leaders in and out of the financial industry have drawn attention to the dangers of "short termism." But with an entrenched system incentivizing it, how can business be nudged back in the direction of Iroquois wisdom?

Here are a few thoughts on the subject for CEOs:

1. Long-term shareholders make better partners. Finance was originally supposed to support production and trade, before it spun off into a whole world of its own. The best financial partners are just that: partners. You want them to believe in your product and your strategy. You might find them in your local community or network, or through crowd funding. If your company trades on a stock market, you can still be strategic about courting certain types of investors, such as pension funds, who are more interested in your long-term plans.

2. Risk management and mitigation are important. Be articulate about explaining to your Board and shareholders why water scarcity, energy efficiency, or a disruptive technology will be important down the road. Purposefully shift their attention away from 90-day bean counting to the big picture. Take control of the conversation.

3. Shareholders aren't your only stakeholders. Healthy relationships with your customers, suppliers, employees, community and environment bring value to your company; focusing on all these stakeholders will bring your company the right balance of economic, social and environmental sustainability. We are now in an age where attention to the sustainability of all these stakeholder relationships improves the bottom line. This has been proven and you can prove it to your shareholders, too.

4. Use long-term thinking to put yourself forward as an inspiring leader. You want to help create a bright future for generations to come, so why not say so? Your job is to inspire, strategize, organize, and communicate. Your employees will be most productive when they feel a sense of purpose, and if you get the conversation going, they will all come forward with ideas on what to do for future generations. Inspire them to make changes at home, too, and in their communities. Make them feel connected. Tell them they are important.

Shifting to a longer-term focus couldn't be more urgent; it might be the key to your company's survival, renewal and resilience. And while you're at it, you might just be helping the world become a better place.

Why Systems Thinking Is the Next Step in Sustainability

Originally published on www.inc.com on October 23, 2014

Sustainability has evolved significantly since it first began to appear in the 1960s. It began with regulatory compliance; public concern about pollution led to the National Environmental Protection Act of 1969, followed by Nixon's order to create the Environmental Protection Agency in 1970.

This first wave of regulatory compliance evolved into what Andrew Hoffman, director of the Erb Institute for Global Sustainable Enterprise at the University of Michigan, calls "Strategic Environmentalism." A wave of enthusiasm among companies and consumers rose in the late '80s, but began to wane in the '90s before momentum gathered behind a new term, "Sustainability," in the new millennium. Corporations have begun to take some responsibility for leading efforts to bring about social and environmental good. The business case for sustainability has been made.

In Dr. Hoffman's analysis (together with John Ehrenfeld), crisis in the Anthropocene era (a name for the current geological period, marked by human impact on the planet) is quickly leading us into a fourth wave: Systems Thinking. This new phase in the evolution of sustainability includes group efforts to approach crises such as poverty, famine, deforestation, and the mass extinction of hundreds of animal and plant species, by framing problems and solutions in terms of systems. Responses will increasingly rely on cooperation and coordination, and as we move forward we will see disruptive organizational innovation, along with the revolutions in technology needed to effect dramatic change.

Within a company, it is impossible to implement an environmental strategy by relegating the task to one department working in a silo. An environmental strategy affects new product development, corporate reputation, employee retention and culture, consumer demand, cost of capital, insurance risk management, disaster preparedness and resilience, resource availability, operational efficiency, supply chain logistics, strategic direction and of course regulatory compliance. An environmental strategy isolated to only a few of these areas is ineffective.

Outside a company as well, complex problems need to be dealt with by all the key stakeholders working together. A recent workshop in El Paso, Texas, for example, brought together US and Mexican tire manufacturers, tire retailers, scrap tire recyclers, and local, state and federal authorities to improve levels of scrap tire recycling in US-Mexico border areas.

Dr. Hoffman notes that moving into the fourth wave of Systems Thinking is a cultural revolution as profound as the industrial revolution. Already, the opportunity for corporate sustainability strategies, reporting and metrics is having a snowball effect: companies are forcing their suppliers to comply with sustainability codes, and these suppliers, in turn, are pulling their own supply chains into the movement. We are also seeing a democratization of corporate structures, with more co-ops and new end-user driven models such as those being introduced by Airbnb and Uber.

Let the fourth wave begin!

5 Reasons Business is Joining the Climate Cause

Originally published on www.inc.com on September 24, 2014

In the run-up to next year's Paris climate summit, governments, investors and businesses are expressing a new sense of urgency and making new commitments in an attempt to slow global warming.

While UN member countries took up the issue in New York this week, companies rallied behind the Carbon Disclosure Project, the UN Global Compact, the Climate Disclosure Standards Board, the World Bank and others, offering commitments such as these:

• Commit to setting GHG emissions reduction targets that will limit global warming to below 2C
• Provide climate change information in mainstream corporate filings
• Responsibly engage policy makers on climate change policy
• Put a price on carbon

Nearly 350 global institutional investors representing over $24 trillion in assets issued a statement calling on government leaders to provide stable, reliable and economically meaningful carbon pricing.

And the World Bank announced that 73 countries, including China and Russia, and 22 states, provinces and cities, which together account for 54% of global greenhouse gas emissions, and 1,042 businesses and investors, rallied to signal support for carbon pricing.

But why is it good for business to join the climate cause? Here are five practical reasons:

1. Risk management. Companies know that sound management includes planning for all kinds of risks, including climate-related risks. Water shortages, for example, can have a dramatic effect on production. Companies recognize that they need global solutions to mitigate many of the risks they are faced with.
2. Investor pressure. Investors want full disclosure on risks of all kinds. They are pressuring companies for disclosure of climate risk and mitigation strategies. They are also making their own calculations on what investments might be more profitable over the long term, and some pension funds, for example, are integrating sustainability criteria into their investment strategies.
3. Energy efficiency means cost savings. A company needing to replace lighting in a factory today will find several environmentally friendly solutions offering huge cost savings in electricity bills. And there are plenty of examples beyond light bulbs, all with innovative financing solutions designed to be cash-flow friendly.
4. Sustainability sparks innovation. An R&D department in, say, a kitchen appliances company may stumble on a whole new product line while looking for energy savings, making the company much more popular with its customers and leading to a boom in sales.
5. Millennials feel strongly about climate change and talented ones will be most drawn to the companies doing something about it.

More to come as business leads the charge for change.

Everyone Wants to be an Impact Investor

This article was first published on www.Inc.com.

This year's edition of San Francisco's annual impact investing fest, known as SOCAP14, actually featured money. The message was: there's a lot of liquidity out there, and everyone wants to do some good before they die. Average Joes want to give to their communities; high net worth individuals are putting "good" on their bucket lists; even Wall Street is tripping over itself to "do good, and do it well."

A growing industry of "impact investing" is springing up in order to funnel all that money into enterprises making an impact. If you were a social entrepreneur at SOCAP, you might have felt a little bewildered by the jungle of money trees. There were angels investors, donor-advised funds, hyper-specialized venture capital funds, crowdfunding circles, community lenders, and community direct public offerers. They had funds for different levels of start-up, seed, growth story, scaleable and scaling enterprise. And Morgan Stanley, Deutsche Bank, Goldman Sachs and US Trust all showed up for the party.

People brought up the Rikers Island story: in 2012 Goldman Sachs launched a $9.6 million social impact bond to lend the City of New York funds to reduce the rate of young criminals returning to prison. If all goes well and a large number of teens are successfully rehabilitated over time, Goldman can make more than $2 million in profit while the City will save $20 million in prison related costs. In addition to being financially sound, the transaction has been a media and reputational jackpot for Goldman.

The big banks say clients are clamoring for impact investing, so they're scrambling to accommodate: they're lowering thresholds, reducing bureaucratic obstacles, making it easier for some of the smaller deals to get through the door. "There's definitely more demand than there is product available," said Gary Hattem of Deutsche Bank. He points to opportunities in microfinance and the energy sector beginning to evolve.

All these financiers, moneylenders and social capital innovators admit that it's tough to fish out the best social enterprises to fund. Of course, your enterprise can't just make an impact; it needs to also promise returns. Due diligence is expensive and might not be worthwhile to do for small fry.

The first movers bringing social impact investing to the mainstream say they're cautious: they don't want to make a glaring mistake that will cause everyone to take their money right back out of impact investing. The stories in these early days need to be winning ones.

If you're an entrepreneur, despite all this liquidity it might still seem impossible to find capital. Most impact investors have very rigid criteria you might not fit. They want you to have a track record of already having launched two or three successful companies. They want you to be already on the market. They may ask a lot in return for sharing your risk.

So how can you make your particular social enterprise stand out in the crowd? One impact investor suggests getting B Corp certification from B Lab, a Pennsylvania-based nonprofit that assesses companies for sustainability, so that you can put yourself forward already pre-screened. Your business plan has to show returns, but even more important is your ability to impress your bankers with the idea that you're on a mission, that you have courage, commitment, resilience, follow-through.

You also need a good financial advisor or lawyer that knows how to navigate the panoply of possibilities available to you for your financial backing, and can direct you to the right one. An Impact Hub in your city may be able to help too. (If that doesn't work, attend SOCAP next year.)

Will the flow of money dry up anytime soon? Jenny Kassan of Cutting Edge Capital thinks not. "It's exciting," she says, "more and more people are not happy with their investment portfolios, feeling like they are not doing good for the planet. Imagine if everyone took 1 percent out of their retirement fund and invested it in the community, where jobs are created?" she asks.

Imagine that.

6 Sustainability Buzzwords to Use at Cocktail Parties

This was originally published on Inc.com.

The world of Sustainability evolves so quickly that it can be a little hard to keep up with. You may remember Michael Porter, of Harvard Business School, trumpeting in the new term "shared value," making anyone still cooing about "corporate social responsibility" suddenly seem terribly pass.

So always make sure your buzzwords are up to date. Here are a few to get under your belt while they're still hot:

1. Triple Bottom Line. This one's been around since what seems like ancient history, but it's still going strong. Just focusing on profits (the original bottom line on the balance sheet) is a no-no; companies today need to show good social and environmental performance along with good financials. An even classier way to refer to 'social, environmental and financial' is to wax poetic: people, planet, and profits, or the 3 Ps.

2. "Multi-Stakeholder Engagement." Engaging only with shareholders has an '80s greed ring to it. Companies must engage with their employees and communities, as well as with NGOs and regulatory watchdogs. This may sound like the latest politically correct trend, to look warm and fuzzy but without any serious business reason for it--but companies still focusing on only one bottom line and one stakeholder can see their reputations--and share prices--crash and burn.

3. Net Positive. European home improvement retailer Kingfisher has set out a plan to "be restorative to the environment" as well as having a positive impact on people and communities, becoming carbon positive, wasting nothing, AND creating wealth. This is the future. Across the spectrum of sustainable companies, the next frontier is to not only 'do less bad' and to 'do more good,' but to actually leave the planet a better place than it was.

4. ESG and SRI. "Socially Responsible Investing (SRI)" has morphed into "Environmental, Social, and Governance (ESG)" investing. The SRI acronym also gets translated in different ways: "Sustainable, Responsible, and Impact" investing and "Sustainable and Responsible Investing". But whatever: it's all Green. Now that it's catching on in the US, ESG is becoming institutionalized. Big pension funds are making it strategic and fleshing out the concept with more lists and acronyms. CalPERS, for example, talks of "three forms of economic capital--financial, human, and physical--that are needed for long-term value creation," and has proceeded to roll out a new acronym, with its Sustainable Investment Research Initiative (SIRI).

5. Materiality Matrix. Let's face it: it is tough to get quantitative about sustainability. If I'm in the tire business and doing something for rubber farmers in Indonesia, how can an investor put a number on that? How can her ESG index compare my social responsibility to that of a canned food company working on feeding the poor in Africa? And what about measuring environmental impact or governance? But even ESG investors need graphs and charts. So companies using the latest GRI (Global Reporting Initiative) framework to do their sustainability reporting are producing a matrix, with X and Y axes. Stakeholders tell them what to put on it, and this helps prioritize. Investors love it. Don't report without one.

6. Circular Economy. The basic premise here is that all waste should become some sort of fuel or resource. Technology is making that possible, right now, so the next step is implementing it across the board. Products need to be made with recyclable materials; new applications need to be developed for end-of-life products to be turned into new things, and infrastructure for collection, recycling and transformation needs to develop further. This is a good buzzword to have, especially since at some cocktail parties you might run into people who think sustainability is just about energy efficiency and LEED-certified buildings. LEED, by the way, stands for Leadership in Energy and Environmental Design. But that is a buzzword for another column.

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