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The Business of Sustainability

GE: Good citizen, but where’s the payoff?

July 29th, 2010

“Responsible business,” says Bob Corcoran, “is good business.”

And what’s responsible business? “Make money, make it ethically and make a difference.”

Bob Corcoran

Bob is vice president for corporate citizenship at GE, a 30-year company veteran, and a good guy. We met in 2o04 when we traveled together in Ghana while I was reporting a story on GE’s values for FORTUNE. (See Money and Morals at GE.)  Recently we spoke about GE’s 2009 citizenship report, and about what GE has learned in the past five years from its corporate citizenship efforts, including its high-profile campaign around Ecomagination, which focuses the company, and its marketing, on products and services that help solve the world’s big environment problems.

Inside GE, Ecomagination is deemed a success, so much so that it has spawned a sister initiative (if you can spawn a sister) called Healthymagination, focused on profitably creating better health for more people. GE says that it expects Ecomagination product revenues to grow at twice the rate of GE’s overall revenue between now and 2015.

The logic behind both initiatives is simple, Bob noted. Big global problems demand big solutions from big companies. GE prides itself on “tackling the world’s most complex and pressing problems,” as chief executive Jeff Immelt writes in the report.

The trouble is, the payoff for GE’s shareholders have been disappointing. I didn’t realize just how disappointing until I put together this chart comparing GE’s stock-price performance to the S&P500 and to a couple of its conglomerate competitors, Siemens and United Technologies. Read the rest of this entry »

Gouda cheese, wienerschnitzel and the Amazon

July 26th, 2010

Consider this thought experiment: Given the importance of the Amazon rainforest to the effort to curb climate change, and the potential value of the thousands of species that live only in the Amazon, and the vastness of the place (See Just how big is the Amazon?), what benefit, if any, can justify destroying a few trees, or a few thousand trees, or even a few thousand square miles of trees? Feeding a hungry family? Providing energy, at a lower cost to a nearby city? Making meat or cheese cheaper in the U.S. or Europe?

These are obviously not theoretical questions. They’re the kinds of questions facing the Brazilian government, and they are relevant to the rest of us because decision we make—about the government leaders we elect or about what to eat for dinner—can have an impact on the Amazon. These are also the kinds of questions that arose frequently during my six-day tour of Brazil last week. The government-organized trip for international reporters focused on the Amazon.

The good news is that the rate of deforestation of the Amazon is decreasing, and dramatically. Six years ago, 27.7 square kilometers of trees were cut down—that’s about 10,700 square miles, an area bigger than the state of Massachusetts. Last year, about 7,000 sq. km. were cut down, and this year the pace is slowing further, satellite photos show.

Americo Ribeiro Tunes, who’s in charge of protecting the forest for IBAMA, Brazil’s equivalent of the EPA, told us: “Brazil is on the verge of a major victory over deforestation.”

Well, maybe, but, along with stepped-up law enforcement, a big reason for the decline in deforestation is the global recession, which drove prices down timber, soy and beef, easing pressures on the Amazon. A strong global economy recovery will likely renew the pressure to destroy forest land to raise cattle or harvest timber, no matter what the laws say.

Besides, there’s plenty of opportunity for legal deforestation of the Amazon. Today, landowners are permitted to cut down up to 20% of their land under Brazil’s Forest Code;  proposed revisions would raise that to 50%. Government-approved plans for industrial development include the controversial Belo Monte Dam, which would be the world’s third largest dame, and the potential expansion of the Urucu Oil Province, which we visited (See Deep in the Amazon, learning to like fossil fuels) also pose a threat. Revenues from Amazon development can be used to promote social and education programs in Brazil, the government says.

This may—may—justify drilling for more oil and gas at Urucu. The Petrobras project has done minimal damage to the rainforest, while providing tax benefits to the region, as well as cleaner energy and cheaper electricity to Manaus, where 2 million people live.

Similar arguments can be made for hydroelectric projects like the Belo Monte Dam, which has been in the works for years. The environmental costs are significant, Reuters reports:

The 6 kilometre-long (3.75 miles) dam will displace 30,000 river dwellers, partially dry up a 100-kilometer (62.5 mile) stretch of the Xingu, and flood a 190-square-mile (500-sq-km) area three times the size of Washington D.C.

And the benefits? According to Amazon Watch, which opposes the project,

The electricity may be exported in large part to eight industrial mining and construction companies: Alcoa, ArcelorMittal, Camargo Corrêa, CSN, Gerdau, Samarco, Vale, and Votorantim.

Without knowing more about what these companies do, how much they pay in taxes and how many people they employ, it’s hard to whether the dam will be worth building. In an interview last week, Brazil’s energy minister, Marcio Zimmerman, said the dam is valuable because it’s a source of carbon-free electricity.

As an outsider, and someone just starting to learn about Brazil, I’m not prepared to offer an opinion about these big infrastructure projects. It turns out, though, that while they attract a lot of controversy–movie director James Cameron of Avatar fame last spring joined a protest against Belo Monte–they aren’t the major cause of deforestation. Cattle ranching is, by far, No. 1:

Which brings us to gouda cheese and weinerschnitzel. The oil and gas from Urucu are necessities, so long as we drive cars and fly in airplanes. Likewise electricity–energy is a driver of economic growth, jobs and wealth. But the soy plantations and cattle ranches? They occupy a great deal of land, employ relatively few people and produce animal feed and meat, much of which is shipped to Europe at the U.S.  Ocean-going ships filled with soy, for example, travel from the Amazon port of Santerem to Amsterdam, to feed Dutch and German cows. Meat’s a luxury–millions of people can, and do, live without it.

Destroying rainforests to make cheese, veal and burgers seems like a bad trade-off. At the very least, it’s another reason to eat less meat–not that we really need one. (Among them: Meat is an inefficient and expensive way of getting calories, it contributes to heart disease and obesity, causes of animal suffering, pollutes waterways, etc.) Now that I’ve seen the Amazon, and come to understand the connection between deforestation, cattle and soy, I’m going to curb my own consumption of meat. It’s easy, and it seems like the very least we can do.

Disclosure: My week-long trip to Brazil, with a focus on the environment in the Amazon, was organized by Apex-Brasil, a government-backed agency that promotes trade and investment. It’s sponsored by Electrobras, Petrobras and Banco do Brasil.

Just how big is the Amazon?

July 25th, 2010

It’s one thing to read about the Amazon, and quite another to see it first-hand, as I did for the first time last week. Even then it’s hard to get your head around the size of the world’s largest rainforest and the world’s largest river.

Yet size is really important when talking about the Amazon.

Size is why the fate of the Amazon matters to everyone: it’s a crucial storehouse for carbon, and the richest repository of  biodiversity in the world. It’s also the reason why “managing” the rainforest is hard, if indeed it can be done at all. (Back in the 1970s, for better or worse, Brazil tried to build a 5,200km road called the Trans Amazonian Highway, but it never finished the job. Too much heat, rain, flooding, etc.) While Brazil has made great strides in stopping illegal deforestation (See Can Brazil Save the Amazon?), protecting what’s left of the forest remains a daunting task.

My government-sponsored trip with a group of international reporters focused on climate and the Amazon. When we met with Izabella Teixeira, Brazil’s environment minister, someone asked her whether the ministry needs more cops on the ground to enforce laws prohibiting deforestation. Of course, she said, smiling, but she was honest enough to add that there’s no way to catch all the violators. Remember, she said, we’re talking about a region of 3.5 million hectares, or  1.6 million square miles, and that’s just the portion of the rainforest inside Brazil. “If you put an army unit there, it would not be enough,” she said.

Size also makes predicting the Amazon’s future very difficult. Just last week, Andrew Revkin of The New York Times, who has reported on the region for more than 20 years, wrote on his blog:

I’m convinced that the system of rivers and forests is durable enough — not to mention expansive enough — to persist, and even thrive, as Brazil and its neighbors develop their economies.

But Lou Gold, a well-informed American blogger in Brazil, sees things very differently, warns that there’s a rush to develop the rainforest with roads, dams, energy projects, and more of the cattle ranches and soy plantations that have destroyed so much of it. A World Bank study called “Assessment of the Risk of Amazon Dieback,” available here, is summarized like this by the Bank Information Center:

The study predicts with more certainty than any other prior study that the legal Amazon (one of the four primary global climate feedback mechanisms) is very close (about 2-3% of total deforestation) to a tipping point of combined events that will lead ultimately to its collapse

Who’s right? I’m not expert enough to offer an opinion. Meanwhile, here are a few words, numbers and pictures from the trip, most chosen to give you a sense of the size of the river and rainforest.

First, a few words: Brazil is the world’s fifth biggest country and almost half the country is covered by the Amazon. One day, we flew for 90 minutes from the city of Manaus to an oil-and-gas outpost in the forest and in between saw nothing but treetops. They looked like a giant carpet of broccoli. Another day, we flew an hour in the opposite direction, from Manaus to Santerem and, again, saw nothing but forest between the two cities.

No bridges cross the Amazon. That’s not because the river is too wide, I was told, although there are places where, during the rainy season, the river grows to more than 120 miles (!) across. It’s because there aren’t enough people living alongside it to create a need for bridges. People travel from place to place by ferryboats like these, bringing hammocks to sleep in because riverboat journeys often take several days.

Ferryboats in Santerem

Now, a few numbers: The Amazonian forest holds 20% of the world’s fresh water. It’s home to about 45,000 species of plants, 1,800 species of butterflies and 2000 species of fish–ten times as many as all of Europe. (One night at dinner in Santerem, we enjoyed the ribs of a big fish called the Tambaqui that eats plants, by swimming among the trees that get covered during the rainy season when rivers rise by as much as 45 feet. A treat not to be missed if you visit Brazil.)

Tambaqui

Some other things that I saw on the trip…

The Negro River, one of several huge tributaries to the Amazon, from our hotel in Manaus:

The Negro River

The Tabajo River, another big tributary, seen from the riverfront in Santerem. Way in the background, you can see a big Cargill dock, used to ship soy to Europe.

The Topajos River

Trees in the Tapajo national forest, part of the Amazon biome:

A church at dusk in Santerem:

Tomorrow, in my last report from Brazil, I’ll explore the question: Is sustainable development possible in the Amazon? Or is it an oxymoron?

Disclosure: My trip was organized by Apex-Brasil, a government backed agency that promotes trade and investment in Brazil, and financed by Petrobras, Eletrobras and Banco do Brasil.

Brazil’s climate guy is green but blue

July 22nd, 2010

Sergio Serra

A cell phone rings. It belongs to Sergio B. Serra, Brazil’s ambassador for climate change, a longtime diplomat with a professorial manner. Actually, it doesn’t ring. It croaks. Sounds like something in the rainforest.

“It’s a frog,” Serra says, laughing, during a meeting today with a group of visiting reporters. “Very politically correct.”

Serra is a green. But he’s also blue.

Green? Brazil will commit to reducing its greenhouse gas emissions, even as a developing country, in the next round of climate negotiations. Brazil gets nearly half of its energy from renewable sources, mostly hydropower and sugar cane ethanol. Brazil is even winning the battle against deforestation in the Amazon.

That’s green.

Blue? Well, even though Serra is spending virtually all his time promoting a global climate treaty—this weekend, for instance, Brazil is hosting a meeting of the so-called BASIC countries (Brazil, South Africa, India and China) to talk about climate change—he has modest expectations for COP16 in December in Cancun, the next big UN meeting on climate. Nor does he have much hope that a global climate treaty with binding caps on carbon emissions, the kind of deal that will likely be needed to deal with the climate crisis, can be negotiated in the immediate future.

No wonder he’s blue.

The biggest obstacle to a global deal is the U.S. Congress, which has yet to pass a law capping climate pollution in the U.S. and, even if it does, may resist a UN-administered treat. Other counties won’t go forward without a commitment from the U.S., the world’s No. 2 emitter of greenhouse gases, behind China.

The U.S. is pivotal, Serra said: “Just as pivotal as the U.S. thinks China is pivotal.”

Serra, who speaks near-perfect English, spent about 90 minutes chatting with the visiting reporters, and provided an insider’s view of the thorny politics of climate action. He was in the room, representing Brazil, when President Obama personally tried to broker a deal last December in Copenhagen, and he moves easily between the western powers and the poor countries of the global south, no surprise since Brazil is somewhere in between.

Climate is the biggest and most complex collective action problem ever. No action by an individual, a company or even a country to curb its greenhouse gas emissions will solve the climate crisis until most everyone agrees to do so. Each country’s circumstances and history differ, leading to arguments about who is obligated to do what. And the climate crisis creates risks for politicians because the costs of action are short-term and significant, while the benefits are long-term and uncertain.

Unlike some enviros in the U.S., Serra acknowledges the cost issue in a straightforward way.  “There’s a price for being responsible in terms of climate,” he says. “Especially because much of the evolution towards a green economy depends on technology.” Developing countries can’t be expected to foot the bill, he said, because, one, they’re poor and two, they didn’t make the climate mess; the rich countries did.

He explained:

This is the concept of historical responsibility, and it’s not that complicated. The situation we are in regarding global warming is due mostly to the burning of fossil fuels since the beginning of the industrial revolution. So the countries whose industries which industrialized later are much less responsible for global warming.

China is now the world’s No. 1 emitter but “they have much less of a historical responsibility than the U.S.,” he said.

Post-Copenhagen disappointment, if not dismay, led some critics to suggest that the UN process itself, which seeks to reach a global consensus, is to blame. Why not let the world’s 20 biggest countries work on a deal, I asked Serra.

“We will get nowhere if we don’t try to make the negotations as transparent and inclusive as possible,” he replied. He said “consensus is not exactly unanimity” because some countries can express their consensus with their silence. Besides, he said, poor countries in Africa, Asia and Latin America “that are more vulnerable, that are most affected” are not part of the 20 major economies, and they need to help shape a  global deal.

Serra expressed two hopes for Cancun. First, that an agreement could emerge around REDD (Reducing Emissions From Deforestation and Forest Degradation) that would provide financing to developing countries, like Brazil, that protect vital forests. Second, that rich countries could work out details of a $30-billion financing commitment they made at Cancun to help poor countries adapt to climate change and develop new technologies. The financing deal is ridiculously complicated, with disagreements about who should administer the fund, how spending should be monitored and where the money would come from.

As if that weren’t enough, the global economic crisis has left rich countries feeling  less rich, although my travels in Brazil, where you can see people living in conditions that would not be tolerated in the U.S., made clear that even in these tough times, most Americans are very, very well off by global standards.

When our discussion ended, I checked my email and learned that Senate Democrats have given up on a climate bill this summer.

Barring a stunning performance by Democrats in this fall’s midterm elections, that means no climate legislation until 2013, if then.

Now I’m blue.

Disclosure: My six-day trip to Brazil was organized by Apex-Brasil, a government-backed agency that promotes trade and investment, and sponsored by Petrobras, Electrobras and Banco do Brasil.

Sustainable livelihoods in the Amazon

July 21st, 2010

Inside the Tapajos National Forest, where 228 people have joined in a cooperative known as Coomflona, workers display sandals and wallets made of latex from rubber trees, necklaces and earrings made from the seeds of plants and tiny bottles of plant oils:

More important, they talk about how they are harvesting timber from the rainforest with extreme care, strictly limiting the number of trees that are cut, preserving younger specimens and removing the older ones with minimum impact.

These activities and others like them—harvesting acai or Brazil nuts, ecotourism, or developing oils for medicinal or cosmetic use–are absolutely vital to protecting the Amazon because they generate the income needed by the people who live there.

They’re often called sustainable livelihoods, meaning that they are ways to make a living that preserve or restore the environment.

Without them, people would resort to cattle ranching—small-scale agriculture, soy farming or illegal logging—the very activities that already have deforested nearby areas, as shown here:

Yesterday (July 21), I visited  Coomflona with a small group of reporters from the U.S., UK, France and Brazil. Before the visit, we took a charter flight from the small city of Santarem over the Tapajos forest to see the contrast between protected zones and denuded areas. Below is an image of the forest and another of deforestation, taken from the plane:

After the flight, we drove an hour from Santerem to the coop– a potential solution to the problem of deforestation, albeit at a small scale. Coomflona, which began in 2005 with lots of Brazilian government and international support, has organized people from nearby communities to exploit the rainforest in sustainable ways. Read the rest of this entry »

Deep in the Amazon, learning to like fossil fuels

July 19th, 2010

Deep in the Amazon rainforest, many miles from anywhere, the Brazilian energy giant Petrobras is producing oil and natural gas from an industrial development carved out of the landscape that includes 70 working oil wells, five drilling rigs, an airport, two river ports and lodging for 1,800 workers.

This remote outpost is known as the Urucu Oil Province, and, believe it or not, state-controlled Petrobras says it’s an example of  “sustainable development.”

Flaring gas: Is this sustainable development?

Flaring gas at Urucu: Is this sustainable development?

This is sustainable only if you believe that the oil and gas will last forever, that climate change isn’t a worry, and that drilling for fossil fuels in one of the world’s most unspoiled and biodiverse regions makes sense.

Here’s the surprise, though: Petrobras’s Urucu project may not be sustainable in the strictest sense,  but it is about as environmentally benign as an oil-drilling project in a rainforest can be. That may be damning with faint praise, but I have to confess that I came to like Urucu after visiting today with a group of reporters on an six-day tour of Brazil.

Urucu has issues, to be sure, but it is generating thousands of jobs, contributing considerable wealth to a developing nation in the form of taxes and royalties, and generating electricity in ways that are cleaner and cheaper than the current alternative. Read the rest of this entry »

Can Brazil save the Amazon?

July 18th, 2010

This morning I woke up in a hotel in Manaus, Brazil, had breakfast overlooking the Negro River, then went for a run along the river’s beaches. It was an enjoyable way to begin my first visit to Brazil, a six-day, government-backed, jam-packed tour with a focus on the environmental issues facing the Amazon.

Environmentalists have labored for decades to protect the impossibly vast rainforests of the Amazon, which make up more than half of the world’s tropical forests. But until recently they had little to show for their efforts. (Ben & Jerry’s Rainforest Crunch doesn’t count.) Since the 1970s,  about 230,000 square miles of the Amazon have been lost to development, mostly cattle ranches, soy plantations and illegal logging.

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Only lately has the rate of deforestation began to slow, thanks to more progressive government policies and corporate campaigns by NGOS, notably Greenpeace.  Just last week, there was encouraging news from a British think tank called Chatham House, which published a major report on illegal logging around the world. Fiona Harvey wrote in the Financial Times:

Illegal logging has fallen by 22 per cent worldwide in the past decade according to a report published on Thursday …

The assessment found that that in certain key countries the decline was even more dramatic, showing a fall of between 50 and 75 per cent in the Brazilian Amazon, 75 per cent in Indonesia and by about half in Cameroon.

The New York Times said:

In Brazil in particular, an overhaul of logging laws and a new zeal in enforcement have led to a significant drop not only in illegal logging but also in overall deforestation rates in the Amazon, according to satellite data from Brazil’s National Institute for Space Research.

Why should you care?

The big reason is that deforestation is a major cause of greenhouse gas emissions, accounting for as much as 20 percent of global emissions, scientists say. Preventing deforestation of the Amazon is incredibly complicated: It requires good government policy, effective local law enforcement, satellite monitoring and global cooperation because soy, beef and logs are shipped from Brazil to the U.S., Japan and Europe. Rich countries, NGOs and even some corporations  have been trying for years to find way to create market mechanisms or outright grants that would get money to places like the Amazon, so that trees  are worth more standing than cut down. (See Your parents were wrong and Marriott waves the REDD flag.)

Even oil and coal companies like this idea because preserving trees is low-cost way to generate carbon offsets and one of the very cheapest ways to fight climate change–much less expensive, say, than building solar or wind power.

Tropical forests are also storehouses of biodiversity that are the source of medicines, food and chemicals used worldwide.

Manaus has been the gateway to the Amazon since the 19th century. You can get here by plane or boat but no roads connect the city, which is home to about  2 million people, to the rest of Brazil. (In that regard, it’s a little like Juneau, Alaska, but hotter.) A half dozen or so reporters are taking this trip; this afternoon we Read the rest of this entry »

Greening the world’s biggest supply chain

July 14th, 2010

The U.S. government is going to ask its suppliers to disclose their greenhouse gas emissions. It’s not going to require it. It won’t happen right away. But this is a big deal.

government_uncle_sam_go_greenIt’s a big deal because the government is by far the nation’s largest single buyer of goods and services: It occupies nearly 500,000 buildings, operates more than 600,000 vehicles, employs more than 1.8 million civilians, and purchases more than $500 billion per year in goods and services. The General Services Administration, which is more or less the government’s purchasing department, buys more than 12 million products and services–an astonishing number, when you stop and think about it. And almost 600,000 companies are registered to do business with the government. Yes, 600,000!

In any event, although they won’t be required to disclose their greenhouse gas emissions, and although it’s not clear when or how or even if the government will give preference to companies or products with a lower carbon footprint,  you can be sure that many, if not most, of those 600,000 companies will soon think seriously about counting carbon. Once they do, they’ll begin to look at opportunities to curb their energy use–by operating more efficiently, opting for greener offices, promoting tele-community, whatever.

To learn more about how this might work, I spoke by phone with Steve Leeds, who is the Senior Counselor to the Administrator for the U.S. General Services Administration as well as the GSA’s senior sustainability officer. Read the rest of this entry »

Social funds and BP: How embarrassing!

July 11th, 2010

bp_logo_color.180105622If you are a shareholder in a so-called socially responsible or sustainable mutual fund, you may also be an owner of  BP, the company responsible for the environmental catastrophe in the Gulf of Mexico.

When BP’s oil rig in the Gulf of Mexico exploded on April 20, the company was a major holding of the Dow Jones Sustainability Index–which calls itself an index of “the leading sustainability-driven companies worldwide.”

BP was also held by Pax World Funds (“sustainable investing is a better smarter, way to invest”), by the MMA International Fund, which is part of a fund group that is “guided by Christian values,” and by the Legg Mason Social Awareness Fund, which, as of March 31, had BP as its single biggest holding.

These are not anomalies. When Cary Krosinsky, an editor of a book called Sustainable Investing: The Art of Long Term Performance, tallied up the holdings of about 350 socially responsible investment (SRI) funds from around the world, he found that at the end of 2008, BP was the second biggest holding, in terms of how much money the funds had collectively invested. The five biggest holdings were Royal Dutch Shell, BP, Nokia, Vodafone and HSBC Holdings.

Does this look "sustainable" to you?

Does this look "sustainable" to you?

What’s more, BP and Shell aren’t the only oil companies held by the social funds. The biggest holding of a mutual fund called the Sentinel Sustainable Core Opportunities Fund–which says it “screens for fundamentally strong, well-managed companies with sustainable business models and a commitment to corporate responsibility”– was, as of March 31, believe it or not….Transocean, the world’s largest offshore drilling contractor, which operated the Deepwater Horizon rig for BP.

While no mutual fund manager could have foreseen the oil rig explosion, you’ve got to wonder how a fund with the word sustainable in its name could have as its biggest holding an offshore oil drilling company. I emailed Sentinel to try to probe their reasoning a bit. You won’t be surprised to hear that they declined to be interviewed.

So what does the BP-SRI connection tell you? At the very minimum, it suggest that any investor in a mutual fund that calls itself socially responsible, sustainable, green, blue or any other color would do well to dig deep beneath the magazine ads and website fluff to understand what the fund is really all about. (Disclosure: I’m a small investor in Calvert and Domini Funds, and a believer in the SRI idea.) Some SRI funds still focus on feel-good, negative screens that shield investors from weapons, tobacco and alcohol, and don’t get much more analytical than that. (See Socially Responsible Investing’s Silly Screens) Read the rest of this entry »

Solar’s long and winding road

July 8th, 2010
fredmorse_headshot

Fred Morse

In 1969, the Nixon White House asked a young assistant professor of engineering at the University of Maryland whether solar energy made sense for America. Absolutely, he replied.

Four decades later, Fred Morse is still trying to persuade the government to put its muscle behind solar. Last week, he scored a big victory.

In his weekly radio address on July 3, President Obama announced that the Department of Energy had awarded a $1.45 billion loan guarantee to Abengoa Solar — a Spanish company where Morse is senior advisor for U.S. operations — to build one of the largest solar power plants in the world near Gila Bend, Arizona. Obama said:

Once completed, this plant will be the first large-scale solar plant in the U.S. to actually store the energy it generates for later use – even at night.  And it will generate enough clean, renewable energy to power 70,000 homes.

What he didn’t say is that the plant, called Solana, has been in the works since 2007, when Abengoa bought an old alfalfa farm on which to site the plant. If all goes well, it will begin to make electricity in 2013. That’s right–six years, at least, to build a power plant with mostly proven technology. Read the rest of this entry »