February 2009

The anatomy of a latte

February 25, 2009

Have you ever wondered how much water it takes to make a Starbucks grande latte? I hadn’t until I met Jason Clay.

Jason is a Missouri farm boy who earned a Phd in anthropology from Cornell, wrote a definitive book on agriculture and the environment and is now senior vice president for market transformation at the World Wildlife Fund. (I wrote this column about him last year for fortune.com.) He’s one of those people who is always bursting with both facts and ideas, so I was pleased to run into him today in Atlanta, where we had both been invited to speak to senior executives of Coca Cola Enterprises, the big bottler of Coke products and a FORTUNE 500 company in its own right. CCE is doing great work on sustainability, but that’s another story.

Jason’s presentation was mind-expanding, as usual, but my favorite part came when he analyzed the “embedded water” in a Starbucks latte. There’s a terrific video about this at the WWF website; view it by clicking on the coffee cup.

Here’s the breakdown, by liters, of the water needed to make that latte:

0.1 for the water itself
2.5 to make the plastic lid
5.5 to make the paper cup and sleeve
7.5 to grow the sugar
49.5 to feed the cows that make the milk
143 to grow the coffee

That adds up to more than 200 liters of water to make a latte.

Now, this doesn’t mean we should stop drinking lattes. The water to grow coffee, after all, comes in the form of tropical rainstorms, which are abundant. And a bowl of Rice Krispies with milk has a much bigger water footprint: According to Jason, roughly 58% of all the water on the planet used by people for any purpose—farming, manufacturing, cooling nuclear power plants, swimming pools, showers—is used to grow rice. His point is that we, collectively, need to better understand the full environmental impacts of all that we consume. Then we need to make and grow things more efficiently, and consume less of them.

That not as simple as it may sound. One common mistake in the world of business and sustainability is to optimize for a single outcome—sell more organic cotton, say, or wild-caught fish, or fair trade tea—without understanding the overall impact of  products on water, energy, soil, land use, even poverty alleviation. Favoring organics might, for example, limit the development of genetically modified foods that require less water and fewer fertilizers. Clay’s open to the idea of GMOs as tools to grow more calories on less land. “Let’s be a little more neutral on the technology,” he says, “and a little more focused on the results.”

The need for clear thinking about such matters is urgent because population and, more important, consumption are growing fast.

“We’re beginning to wake up to the fact that we live in a finite world,” Clay says. “Business as usual is not going to set things right.”

“The average cat in Europe has a larger environmental footprint than the average African over a lifetime because of the fish it eats,” he says. [I’m going ask Jason for the data to back up that claim next time we meet.]

So what’s he doing to provoke change? He’s working with big companies like Coca-Cola, Mars, Procter & Gamble and Wal-Mart, urging them to take a thorough, science-driven approach to their supply chains, so they use less water, produce fewer greenhouse gases, make less waste and protecting forests. That’s because these companies have scale and clout.

“Working with 300 to 500 companies is easier than working with 6.7 billion consumers,” he says.

Of course, consumers should be urged to reduce, reuse and recycle, but Clay argues that it’s unrealistic to expect even committed and well-informed consumers to drink their coffee black or switch from Rice Krispies to oatmeal.

“Consumers shouldn’t be asked to make those choices,” Clay says. “We think they ought to have only good choices on the shelves.”

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Clean energy: curing all our woes

February 23, 2009

Bill Clinton. Al Gore. Harry Reid. Nancy Pelosi. Steven Chu. Robert Kennedy Jr. Boone Pickens. Carl Pope. John Sweeney. Andy Stern. Van Jones. George Pataki. John Podesta.

They all agreed.

Clean energy will revive our economy, create new jobs, curb climate change and help end our dependence on imported oil. So they said today at a Washington forum organized by the National Clean Energy Project, a project of the influential think tank, the Center for American Progress.

Speakers droned on for nearly three hours. Had they stayed longer, they would have told us that clean energy would cure baldness and whiten teeth, too.

I don’t mean to sound cynical, but it’s hard to see the point of getting all this brainpower together, along with the CEOs of Wal-Mart, Owens Corning and American Electric Power, for a conversation that never got down to the nitty-gritty.

Clean energy is many things, but it’s no panacea. And the real question isn’t whether we want to replace polluting fossil fuels with solar, wind and geothermal energy. The difficult challenges revolve around how we should we do it, how much it will cost, and how to overcome the many obstacles to the so-called clean energy revolution. If it were easy, it would have been done by now.

Those question were all but ignored–surprisingly, since the big names on the program, Clinton and Gore, have been around for a long time. They supported clean energy and opposed global warming in the 1990s but had little to show for it when they left office. “We didn’t have the votes, before,” Clinton said, when asked why. In fairness, Clinton and Gore since then have done great work raising public consciousness around climate.

Maybe their evangelism is—finally—paying off. Certainly the Obama administration’s $787-billion economic stimulus bill allocates lots of money for clean energy, the grid and energy efficiency, Now, despite the dismal economy, momentum seems to be building for the next step—a federal energy bill to promote renewable energy and drive the modernization of the electricity grid.

“We’re going to do an energy bill soon,” Reid said, and it will include a national renewable portfolio standard and policy changes to bring a so-called smart grid a step closer. Only after that, he said, will Congress take up climate legislation.

Clinton and Gore agreed that clean energy had brought together a broader coalition than ever before.

“This [clean energy] coalition has intensified, and held its position in the wake of falling prices for coal and oil,” Clinton said. In the past, he said, “Every time oil dropped, people said give me my Hummer back. That’s not what they’re saying now.”

The country faces three crises, Gore said—the climate crisis, the economic crisis and national security challenges—and “the common thread running through all of them is our ridiculous overdependence on dirty, dangerous carbon-based fuels.”

Only occasionally did the forum get much more detailed than that. No Republicans from Congress were invited to challenge the conventional wisdom, and the business leaders stuck to generalities. Here are a few highlights:

Enhanced federal power will be need to drive the buildout of a national grid. George Pataki, the former New York governor, said: “You try to run a wire through somebody’s community, and that gets as contentious as you can get. Nobody’s going to be for it…What we need is a federal permitting process—not one that’s authoritarian, but one in partnership with the states.”

Reid went a step further. When, during a news conference after the event (see below), he was told that the leader of an association of state regulators had expressed doubt about whether Washington could grab the power to site big tranmission lines, Reid replied bluntly: “He represents state regulators. Whatever we pass at the federal level trumps all that.”

If clean energy means costly energy, poor people will suffer. So said Lee Scott, the outgoing CEO of Wal-Mart: “Remember that if it costs them $5 a week more, they’re not going to buy medication or they’re not going buy something for their children.”

But Scott also urged government leaders to follow Wal-Mart’s lead and set big goals when it comes to sustainability, even if the path forward isn’t unknown. “We had a crystal clear vision of where we wanted to go, but we did not have a crystal clear vision of the route we wanted to get there,” he said.

Turns out that one place the route led was to the chicken fryers. Wal-Mart is about to roll out a few trucks that will run on “the brown grease, the oils that we fry the chicken in, in the deli,” Scott said.

“You’ll be able to eat fried chicken and save the environment,” he added. “We’re going to work on marketing that.”

Energy storage will be needed to drive renewables. Secretary Chu said the technology to build a smart grid is mostly available, but that breakthroughs in storage will be needed before renewable energy can become a bigger part of the electricity mix.

“We have to remember that renewable energy resources like wind and solar are transient. They go up and down,” Chu said. “We don’t have large scale power storage yet. We should start to invest heavily in pump-hydro storage. There’s a possibility of putting in compressed-air storage.”

The winds of change are everywhere. Denise Bode, the new CEO of the American Wind Energy Association, said that 8300 megawatts of new wind power capacity were added last year, that the U.S. now has 70 facilities that manufacture turbines and other products for the wind industry, and that the industry added 35,000 jobs last year. Impressive stuff.

Even more telling is the fact that she joined the wind energy association last fall after a stint as CEO of the American Clean Skies Foundation, a natural gas industry group, and seven years as president of the Independent Petroleum Association of America (IPAA). When oil lobbyists because wind lobbyists, maybe we really are on the verge of change.

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Marriott’s Queen of Green

February 20, 2009

Does global warming worry the Marriott hotel chain? “We face tremendous risk from climate change,” Kathleen Matthews tells me. “Our hotels will be underwater, literally.”

If, like me, you are a Washingtonian, you know Kathleen. She was an evening news anchor at the local ABC affiliate for 15 years as well a community activist who served on the board of Catholic Charities and Suited for Change (which provides clothes for women moving from welfare to work), among other groups. She’s been married to Chris Matthews of Hardball fame since 1980. And since 2006, she has been an energetic and effective advocate for sustainability at Marriott International, where she is exec vp of global communications and community affairs.

Last week, Marriott invited its hotel guests to “green” their hotel stays by buying carbon offsets to protect rainforests in the Juma reserve in the state of Amazonas in Brazil. Marriott, in cooperation with nonprofit Conservation international, had previously agreed to donate $2 million to rainforest preservation in Amazonas. Protecting rainforests, as you probably know, is an important way to mitigate the threat of climate change because tropical forests remove lots of carbon dioxide from the atmosphere.

Marriott’s initiative is noteworthy for several reasons.. First, it’s part of a broad green push by the company. Second, it’s a great way to expose millions of people to the role of rainforests in preventing climate change. (I’m told that about half a million people are staying in a Marriott property on any given night.) Third, the company says that its s efforts will help attract so-called “green” meetings. Finally, the way Marriott announced its news speaks volumes about where the media business—and corporate PR—are going today.

As part of its overall environmental commitment, called Spirit to Preserve, Marriott has agreed to reduce its fuel and water consumption by 25 percent per room over the next 10 years, install solar power in as many as 40 hotels by 2017 and expand reuse and recycling programs. They are also greening their supply chain by buying key cards made of 50% recycled plastic (24 million a year!), replacing more than 100,000 pillows with new ones made from recycled bottles (let’s hope they are as soft as the old ones), eliminating cardboard from more than 2 million rolls of toilet paper a year, and buying Bic pens (47 million) made with recycled material. The company is also ramping up its development of LEED-certified hotels.

In other words, Marriott is getting its own house in order, or at least starting to—the essential first step to any corporate sustainability plan.

The new “green your stay” program invites guests who book on www.marriott.com to offset the carbon generated during their stay for as little as US$10, or US$1/day for 10 days. The cost to offset the carbon generated in a single night in a hotel is about $1, Matthews explains, but the $10 minimum contribution helps insure that the vast majority of the funds donated will go to rainforest preservation, rather than to administrative costs.

This program expands a relationship between Marriott and a nonprofit called the Amazonas Sustainable Foundation, which supports about 2,500 residents of the Juma area who help protect the forest from illegal logging and farming. Contributions help fund people and equipment to monitor the forest, as well as other community services, designed to provide an alternative livelihood for the Brazilian poor.

For now, the Marriott website is the primary means of recruiting guests to participate. But the company may well expand that to email blasts to members of its Marriott Rewards program, tent cards in the rooms or promos on the hotel TV sets. “It’s a big communications challenge,” Matthews said. “A lot of companies that have launched these offset programs in the past haven’t gotten huge traction.”

Speaking of communication, Marriott is using social media–often called Web 2.0–to spread the word about its new program. CEO Bill Marriott Jr. wrote about the program on his blog. There’s a video promoting the project on YouTube. Marriott has set up a twitter feed alerting people to its green initiatives. The company has posted photos on Flickr. And, of course, there’s lots of detail on Marriott’s own website.

“We’re going directly to the consumer, as opposed to trying to go through the media,” Matthews says. That’s smart, and it’s a strategy that both reflects and accelerates the decline of traditional media.

In fact, Matthews told me, there are times when she travels the world for Marriott when she feels like she never left her role as a local TV reporter and anchor. She reports stories, and does her standups. The only difference is, when reporting for Marriott, she’s got to do her hair and makeup by herself.

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KKR, cutting costs–and pollution

February 18, 2009

When Casey Stengel managed the woeful ’62 Mets, he’d lament, famously, “Can’t Anybody Here Play This Game?” Some days, I ask that question about the people who run corporate America, and I’m not just talking about mortgage brokers and Wall Street risk managers.

The latest data point leading me to wonder whether executives running big companies know what the heck they are doing comes from the nonprofit Environmental Defense Fund and the private equity firm KKR, which formed a partnership last spring, and announced today that, after studying the operations at three KKR-owned companies, they had identified about $16 million in cost savings that also produced meaningful environmental benefits. Here’s the press release.

This is welcome news, of course. U.S. Food Service, a big food distributor, saved $8.2 million in fuel costs through better driver training and technologies that turn off trucks when idling or set maximum speeds. Primedia, which publishes magazines and websites for home buyers and tenants, saved $2.9 million in material costs by shrinking paper sizes and putting more content on the Internet. Sealy Corp., the nation’s biggest bedding manufacturer, saved $4 million by recycling the raw materials, like cotton and wood, used to make mattresses. These initiatives all delivered environmental as well as cost benefits, so EDF and KKR have reason to be pleased.

“We were just experimenting, and look what we found,” says Gwen Ruta, EDF’s vice president of corporate partnerships. An EDF news release described the results as “a high note in a low economy.”

Well, sure, but doesn’t it make you wonder why all that money was wasted before a bunch of young and likely underpaid environmentalists came along to kelp KKR and its managers run their companies? I had always thought that what the private equity guys did best was to improve operations (i.e., squeeze costs) at the companies they buy.

When I asked Gwen Ruta about this, she acknowledged that none of the changes ushered in by the EDF-KKR partnership required technology breakthroughs or top-to-bottom reengineering of manufacturing processes. “None of this is rocket science,” she said. “You just need to be more thoughtful about what you are doing.”

U.S. Food Service, for instance, advised the drivers of its trucks not to step too hard on the pedal when starting up after making a full stop. Funny, I recall hearing that in a driver ed class, oh, about 40 years ago.

Ruta further explained that KKR had found the efficiency gains after working with EDF to devise new ways to analyze company operations. U.S. Food Service decided to measure how many gallons of fuel the company burned to move each ton of product. By tracking that metric, they improved efficiency by 4%, a significant gain. Similarly, Primemedia began looking at paper use per dollar of revenue and Sealy began to measure how much scrap it throws away per manufactured bed. There’s an old adage in business that “you can’t manage what you don’t measure,” and so by measuring waste and fuel efficiency, these firms are better able to manage them.

The argument here—and I think it has merit—is that by looking at company operations through the fresh lens of sustainability, managers will discover new opportunities to save money and reduce their environmental impact. If they are smart, they also will unleash the creativity of their workers, who really know how and where money is being wasted. Wal-Mart learned that when it began  rethinking its operations as part of a company-wide sustainability campaign.

KKR and EDF now plan to extend their efforts to other KKR-owned firms in North America and Europe. They will also make their methodology available to anyone who asks; that’s required when companies engage with EDF, which doesn’t take any corporate donations for its advice. I’m very pleased that Gwen Ruta (below), Ken Mehlman, the head of global public affairs at KKR, and Bob Aiken, the CEO of U.S. Food Service, have all agreed to speak in April at FORTUNE’s Brainstorm Green conference about business and the environment.

(Disclosure: I’ve got a contract with EDF to write a report about environmental innovations in business.)

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GE & Google say: Get Smart

February 17, 2009

Imagine driving into a gas station, filling the tank and not knowing how much the gas cost–until a bill arrives at the end of the month. That’s how most of us buy electricity, it’s a crazy way to do business and, if all goes well, it won’t last.

Why? Because momentum is building behind the so-called smart grid, which, among other things, will make buying electricity more transparent. The $787-billion stimulus package signed into law today by President Obama includes $4.5 billion for a smart grid, along with tax incentives to promote solar and wind power.

This afternoon, an event called “Plug In to the Smart Grid” organized by General Electric and Google attracted a standing-room only crowd of more than 500 people to Google’s New York Avenue offices in Washington. Among the speakers were such power players as Carol Browner, the president’s climate czar (although she didn’t say anything), John Podesta, the head of Obama’s transition team and leader of the Center for American Progress think thank, and Chris Miller, a senior aide to Senate leader Harry Reid.

Washington’s renewable-energy crowd is downright giddy about the president’s push for clean energy.

“Look where President Obama has chosen to be today,” said Dan Reicher, a Google executive and former Clinton administration official who was co-host of the event, along with Bob Gilligan of GE. “He could be standing by a bridge or a highway. But he’s at the Denver Museum of Science, looking at a solar panel.”

Gilligan ticked off the advantages of the smart grid: “It enables higher penetration of renewables. It allows the utilities to operate in a more efficient manner. Most importantly, it empowers and enables consumers by giving them more information.”

Because a smart grid is essentially the application of information technology to the electricity business, Google (an IT company) and GE (an energy company) have joined together to push for better federal and state policy to enable the grid. This was their first outreach event in DC. Here are a few things I learned:

Information is power. Power over power, in this case. A smart grid will tell consumers how much their electricity costs at any given time of day, how much each appliance draws down from the grid, how their usage compares with their neighbor’s, perhaps even whether they are using clean or “dirty” power. So, for example, if consumers know that it’s cheaper to run the dishwasher or washing machine at night, many will do so. Can you think of a better way to promote energy efficiency in homes?

As Ed Lu, a Google executive (and former space shuttle astronaut for NASA), put it: “All of our work in this area is based on the premise that consumers ought to be able to see how much energy they are using.” Google’s working on a software, called the Google PowerMeter, to show consumers their consumption in real time.

Andy Karsner, the smart and outspoken former Bush administration energy official, said: “This is about full transparency and disclosure and empowerment of every consumer and small business in America. People ought to know how the biggest investment they make in their life performs, on the day they buy a new home.”

How that information will be delivered is no simple matter. It raises issues of privacy, intellectual property and security, among others.

The grid needs to get bigger and stronger, as well as smarter. Right now, there’s not enough transmission capacity to move wind power from the Great Plains to Chicago or solar power from the southwest to urban centers like Los Angeles.

“That’s going to require literally thousands and thousands of miles of new transmission, and we’ve seen very little (recently) in this country,” said Reicher.

To get major transmission lines built, the federal government will need more authority to site them, even over objections from state and local officials.

“Siting continues to be a problem,” Podesta said. It’s a lot easier to move oil and gas around this country than it is to move electricity, in part because the federal government exercises its power to get gas pipelines built.

Turning to Chris Miller, the Senate aide, Reicher asked: “Is the federal government going to end up with significantly more authority to site transmission lines?”

“Yes,” Miller replied. He said enhanced federal clout could be part of an energy bill that the Senate will take up this spring.

Karsner added: “This is not a question of the opportunity to bring solar from the southwest or wind from the Midwest. I would say it’s a necessity…If the planet could talk, it would say, stop choking me.”

Highlights from the Plug Into the Smart Grid event will be posted on Google’s DotOrg channel on YouTube (a Google property), where there’s also an interesting video about the Google PowerMeter gadget. We’ll also be looking at the smart grid during FORTUNE’s Brainstorm Green conference, with a panel that includes the CEOs of smart-grid firms GridPoint and Silver Spring Networks as well as venture capitalist and grid guru Chuck McDermott.

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Well, black is always in style

February 15, 2009

“I can’t understand,” Al Gore said a while ago, “why there aren’t rings of young people blocking bulldozers and preventing them from constructing coal-fired power plants.”

Just wait, Al. The Capitol Climate Action, a coalition of activist groups, is organizing what will almost surely be the largest mass civil disobedience for climate in U.S. history. The target: The Capitol Power Plant, a 99-year-old coal-burning plant, situated blocks from Capitol Hill, which heats and cools the U.S. Capitol. (It hasn’t generated electricity since 1952.) Organizers say the plant “symbolizes the stranglehold coal has over our government and future” and the nation’s wrong-headed climate policy. They also say:

As with Ghandi’s walk for independence and Martin Luther King’s march for equal rights, history now calls on people of conscience to peacefully take a principled stand on global warming.

This event could attract thousands of people. It’s endorsed by Greenpeace, the Rainforest Action Network, Global Exchange, SDS (who knew they were still around?) and Tikkun. The writer and activist Bill McKibben, poet and activist Wendell Berry and climate scientist James Hansen all plan to attend. Here’s a link to letter from McKibben and Berry, well worth reading, explaining the thinking behind the event.

Now, there are a lot of controversial questions about coal. Can it be made clean? How else will we power the future? Will more expensive, low-carbon fuels create a drag on the economy? But I was amused to stumble upon a different question that’s sparking debate among the young people planning to attend the action: What should one wear to a protest against coal?

You’ve heard of dress for success? This is all about dress for arrest.

The organizers’ website says: “We will be there in our dress clothes, and ask the same of you.” This led to a “Strategy Note” on a website called It’s Getting Hot in Here, Dispatches From the Youth Climate Movement, headlined: “Dress to Impress at the Capitol Climate Action” noting that McKibben and Berry had asked participants to dress in their “Sunday best.” Blogger Joshua Kahn Russell included this photo from the civil rights movement:


He wrote:

We understand that we are the inheritors of this spirit and its tone of seriousness and respectability. Throughout the labor movement and various currents for racial justice people have chosen to wear suits as part of their message they send through these bold actions.

Debate ensued. One commenter wrote:

I think encouraging people to dress up is capitulating to established power, as though decision-makers won’t listen to us unless we dress up…. We should dress the way we feel comfortable, not to “impress.” Impress who?

Another shot back:

thinking like yours is exactly why progressive movements don’t get anywhere fast. …It may not be ideal or how you think things should be, but appearances matter, and they matter a lot in this country.

Which led to:

Business suits are part of the dominant/hegemonic cultural symbols of Wall Street.

And finally:

Honestly, shouldn’t we be wearing recycled clothing or something so that we don’t look like a bunch of hypocrites?

You gotta love the left. People can argue about anything.

Seriously, though–I’m excited to see the momentum gathering behind this protest. It could deliver a much-needed sense of urgency and a powerful grass-roots boost to ongoing efforts to curb greenhouse gas emissions and stop the construction of conventional coal-fired power plants that contribute to global warming. The issue is certainly generating attention. The business section of today’s New York Times ran an otherwise unremarkable story with the arresting headline, Is America Ready to Quit Coal?. Environmental groups like the Sierra Club, NRDC and Environmental Defense have filed lawsuits to block coal plants and lobbied state legislatures and Congress. What’s been missing is grass-roots action.

Here’s an online ad featuring Susan Sarandon, urging people to attend the protest. Protesters are being urged to get training in nonviolent civil disobedience before the event.

I’m planning to cover the March 2 protest. Not sure yet how I’ll be dressed.

(Disclosures: my wife Karen Schneider of Greenpeace helped create the Susan Sarandon video, with The Concept Farm, a New York ad agency. I’m writing and consulting with NRDC and Environmental Defense Fund.)

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A new green sheriff in town

February 12, 2009

Coca Cola Enterprises claims its aluminum cans contain more than 50% recycled content.

Clorox claims its Greenworks all-purpose cleaner is made with plant and mineral-based ingredients.

And GE claims its compact fluorescent lightbulbs use up to 75% less energy and last up to 10 times longer than standard bulbs.

How do we know that those claims are true?

The fact is, we don’t. My experience tells me that the risk of exposure and embarrassment is enough to deter any big brand-name company from lying about the environmental attributes of its products. But there’s lying, and then there’s telling a selective truth or merely leaving out inconvenient facts.

What we need is a reliable, independent and trusted source to analyze such claims, the way websites like Politifact separates truth from fiction in the political arena. One organization that could emerge as a standard-setter, fact-checker, product-tester and verifier has been around for more than a century—Underwriters Laboratories. These are the people who test thousands of products to make sure they meet strict safety standards. Last month, Underwriters Laboratories launched a new subsidiary called UL Environment. It’s intended to help industry and the public make sense of the “green” claims that are flooding the marketplace.

Think of UL Environment as the new green sheriff in town.

“There’s a lot of greenwashing out there,” says Marcello Manca, who is vice president and general manager of UL Environment Inc. “We want to get rid of some of the confusion.”

I spoke by phone with Marcello, who’s based in Milan, Italy. He’s an Italian who got an engineering degree from the University of Nevada, spent 13 years working in Nevada and California, and then returned home to Italy. The president of UL Environment is Steve Wenc, a Chicago native now based in Geneva. UL has 66 offices, clients in 104 countries, 127 inspection centers and it employs about 5,000 engineers, scientists, chemists and technicians. A nonprofit that oversees a group of for-profit subsidiaries. UL is paid by the manufacturers of the products it tests and certifies.

Marcello told me that UL Enviromnent initially plans to focus on two categories, building materials and consumer goods. The company intend to begin by verifying environmental claims about energy, water use and recycled content.

“One of our employees recently purchased an all-natural mattress for his newborn child because he didn’t want his son to be exposed to chemicals,” Marcello told me. But because manufacturers of products ranging from household cleansers to children’s toys are not now required to disclose their ingredients, claims like “all-natural” are hard for consumers to verify.

UL Environment also hopes to establish standards for sustainable products, working in an open and transparent manner with manufacturers, retailers and NGOs. This, too, will require the cooperation, and financial support, of manufacturers, many of whom are existing UL clients.

“We’re taking a very pragmatic approach,” Marcello says. “Our intention is not to make the world perfectly green from the outset. We know that’s Mission Impossible.”

Finally—and this gets really interesting—UL Environment would like to take a broad look at company operations. So, for example, if a product claiming to be “green” is made by a supplier in China who pollutes a nearby river or the air, UL Environment could decide that the product failed to meet its standards.

“There is a school of thought that says that you cannot build a green product unless you are a green company, too,” Marcello says.

What’s intriguing about all this is that standards are enormously important to business. Think about how the organic standard has affected the food industry. Or how the Energy Star rating has driven appliance-makers to sell more efficient dishwashers or refrigerators. Or consider the impact of the LEED building standards on the real estate industry. An array of sustainability standards has the potential to drive green business practices deep into the economy.

Of course, that makes it sound simple, and it’s not. Devising standards and getting them recognized is a long and complex process, requiring value judgments. As my friend Joel Makower is fond of asking, “How green is green enough?”

What’s more, Marcello says: “Doing it right is expensive. Doing it right takes a lot of passion.”

UL Environment will have to convince manufacturers, retailers and consumers in the midst of a global recession to invest in environmental claims verification and sustainability standards. It won’t be easy. But it will worth watching closely.

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Steve Howard, climate crusader

February 10, 2009

“The low carbon world will be built,” declares Steve Howard of The Climate Group. “The question is, will we get it built fast enough?”

Yes, that is the question facing business, political leaders and environmentalists in 2009: Will this be the year that governments get their act together and enact a global treaty to regulate greenhouse gas emissions, setting the world on a path towards a low-carbon economy? Not just Europe, Japan, Australia, Canada, which signed onto the Kyoto treaty, but the U.S., China and India, which did not. That’s a tall order, and it’s becoming the focus of The Climate Group.

If you don’t follow environmental issues closely, you may not know about The Climate Group. A global nonprofit, the organization was launched in 2004 in London, with startup money from the Rockefeller Brothers Fund. It’s been growing rapidly ever since, thanks in part to the dynamism and energy of Howard, 42, a charismatic leader who previously worked as a consultant and an executive with the World Wildlife Fund. Recently. my friend Kate Krebs, who did an outstanding job as executive director of the National Recycling Coalition during the Bush years, joined The Climate Group as its director of sustainable resources, based here in Washington.

When I met Steve  at the UN climate meetings in Poznan, Poland, back in December, I asked him why the world needed yet another environmental organization. He replied that The Climate Group, unlike, say, WFF or Greenpeace, focuses solely on climate and works with top businesses and government leaders.

“This is the biggest public-private partnership of all time, fighting climate change,” Howard said. ““We’ve been absolutely relentless and ambitious, ambitious for the impact we can make.”

“There wasn’t an organization working holistically on leadership,” he added.

Howard has demonstrated a knack for attracting big-name allies to the cause. Political and business leaders who work with The Climate Group include Tony Blair, Arnold Schwarzenegger, Michael Bloomberg, James Murdoch, Jeff Swartz of Timberland and winemaker Paul Dolan.

Their U.S. corporate partners include Dell, Duke Power, Dow Chemical, Google, Starbucks, JP Morgan Chase, Nike, News Corp, Starbucks, and Target.

Pretty impressive for such a young organization.

But what, exactly, does The Climate Group do? Quite a lot, judging from my talk with Howard and a tour of its website. The group has a partnership with HSBC in five big cities—New York, London, Hong Kong, Mumbai and Shanghai—to “encourage low carbon consumption and help to facilitate major emissions reduction actions.”  With partners like Tesco and Target, the group has a campaign called Together that seeks to persuade consumers to reduce their own emissions. The group is teaming up with state and regional governments including California, Bavaria, Scotland and South Australia to help them develop low-carbon strategies and exchange best practices. Finally, and probably most important, the group is working with Tony Blair on a project called Breaking the Climate Deadlock that is aimed at mustering political and business support in key countries for a post-2012 global climate change agreement.

All of this is work worth doing of course, but I wonder whether this far-reaching agenda is a product of ambition or a lack of focus or both.

Kate Krebs, who has worked in the environmental movement for nearly 30 years, told me that all these efforts are complementary: “Climate is the environmental issue of the moment. And we have one goal which is to make sure there is a framework for a climate treaty that includes the United States, China and India.”

Howard says one of the group’s top priority in the U.S. is to work with business and government to scale up renewable energy and promote carbon capture and storage projects—because coal, he argues, is going to have to be part of any energy and climate-change solution. “CCS is really important transition technology,” he says. “This will be the solar century, but really, it may be the end of the century before solar is ubiquitous.”

Next month, The Climate Group hopes to make a big splash in Washington. The group is working alongside the World Resources Institute to sponsor a March 3 event featuring Tony Blair and Sir Nicholas Stern, author of the Stern report on the potential impacts of global warming. Senators McCain, Bingaman, Snowe and Stabenow will host the briefing for fellow legislators and staff, Kate Krebs tells me.

A bit more about Steve: He grew up in industrial Manchester, England (where I have family and roots). He’s got a degree in ecology and a PhD in Environmental Physics. He has worked in more than 30 countries. And he’s got a wife, a young son and a competitive streak that has led him to participate in triathlons, one of which recently included a swim near Brownsea Island, in the south of England. “I did four miles in the worst conditions they’ve had in years,” he told me. “I didn’t drown and I didn’t finish last, which were my two objectives.”

I’m pleased that Steve has agreed to speak at Brainstorm Green, FORTUNE’s conference on business and the environment, in April. He’ll be part of a great lineup of speakers and panels for an event which will bring together some of America’s top business and environmental leaders to address the question: How can business profitably help solve the world’s big environmental problems?

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Hubris and the meltdown

February 4, 2009

So many forces drove  the global financial meltdown that it’s all but impossible to keep track of who and what’s to blame. My partial list: Mortgage lenders, subprime borrowers, real-estate speculators, investment banks that peddled collateralized debt obligations, other banks that held the toxic assets, lax regulators, inept or compromised bond ratings agencies, the Fed, the Treasury, the Congress for encouraging too many people to buy homes, tax policies that tilt too far in the direction of real estate and, of course,  greed, stupidity and keeping up with the Joneses. I’m sure I’ve left someone or something out.

Early this week, I spent a stimulating day at the Hoover Institution at Stanford University, listening to several prominent economists explain what went wrong, why and what, if anything, can be done to fix it. I wish I’d taken this seminar before writing my FORTUNE cover story on Hank Paulson last fall, because I came away from Stanford persuaded that Paulson, Ben Bernanke and other in the Bush administration (yes, including our current treasury secretary, Timothy Geithner)  were too slow to grasp the depth and seriousness of the crisis. I was also persuaded that the stimulus package now awaiting action in Congress probably won’t do the job, despite its enormity. But before we get to that, I want to show you a chart that points to yet another explanation for the current mess that we’re in:

See what the chart shows? Or seems to show? We’re getting a lot smarter, or at least the people in charge of the economy are. The U.S. struggled with recessions for most of the 19th and 20th centuries until the period from 1982 to 2007, a long stretch which gave us “the best macroeconomic performance in our history,” said Michael J. Boskin, a professor of economics at Stanford, who showed this chart. (You may know his name because he was chairman of the president’s council of economic advisors during the first Bush administration,) The Dow, he reminded us, was at 770 in 1982. By the early 2000s, the conventional wisdom held that smart monetary policy, a.k.a. the genius of Alan Greenspan, and structural changes in the economy, that is, the information technology revolution, drove this remarkable economic performance. Reinforcing the view that mere mortals knew how to manage the increasingly complex and interconnected economy was the fact that each time the economy or the stock market hit a bump, including such big bumps as the 1987 stock-market crash or the 2001 terrorist attacks, the economy and the markets bounced back very quickly.

You remember how that felt, don’t you? Those were the days of “Buy on the dips” and Dow 36000. Risk? Why, the I-banks had sophisticated, proprietary models that reassured them that risk was under control, as Joe Nocera explained last month in an excellent magazine story in The Times.

Of course,  the people in charge weren’t quite as smart as they thought they were. Nor, truth be told, were the rest of us, at least those of us who turned their houses into ATM machines or neglected to read the fine print in our adjustable rate mortgages.

It’s one more reminder, not that we need one, that perhaps the most underrated quality in a business or political leader is humility. Knowing what you don’t know is worth a lot. So is admitting to uncertainty. That, at least, was my big takeaway from the day-long immersion with these very smart economists. Even with 20/20 hindsight, they don’t know for sure what caused the meltdown. And they certainly can’t agree on how to dig ourselves out.

As Russsell Roberts, an economics professor at George Mason University and a Hoover research fellow put it: “If you laid all the economists in the world end to end, they still wouldn’t reach a conclusion.” Roberts organized the program and meeting him was a  a highlight of my trip because I’m a regular listener to his excellent series of podcasts in which he interviews economists, called EconTalk. They’re available on iTunes.

Here are just a couple of other highlights from my day at Stanford:

Serious warning signs that something was truly awry with the U.S. economy were evident by the fall of 2007. John Taylor, another Stanford prof and one of the world’s preeminent monetary theorists, delivered an eye-popping presentation in which he argued, persuasively, that Paulson & Co. badly misdiagnosed the problem with the financial markets in late 2007 and early 2008. I wish I could reproduce his argument here, but the essence is that beginning in August 2007, after the collapse of several housing-related hedge funds, unprecedented and truly shocking interest rate spreads arose between the three-month LIBOR and the three-month overnight index swap. (Don’t ask me to explain, please.) These spreads were essentially alarm bells, signaling financial stress. “We call it a black swan in the financial markets,” Taylor said, referring to the now-famous book by Nassim Nicholas Taleb.

Paulson, Bernanke & Co. misdiagnosed the problem, according to Taylor. They thought the problem was lack of liquidity. So they made it easier for banks to borrow, cut interest rates and supported last March’s ineffective fiscal stimulus. Taylor argued that this prolonged the crisis. The real reason that the spread increased was that big lenders no longer trusted big borrowers to pay back their loans. Even today, by all accounts, the credit markets are not functioning well.

Of course, the lenders were right to be worried about risk because the big banks – Bear Stearns, Lehman, Merrill and Citigroup – were all insolvent or close to it. “One of the surprising things,” Taylor said, “is how little the CEOs and boards knew about the instruments that were on their balance sheets. That was amazing.” Hubris.

For those who want to know more, Taylor has a small book (less than 100 pages) coming out soon called Getting Off Track: How Government Actions and Interventions Caused, Prolonged and Worsened the Financial Crisis.

Alan Greenspan caused the crisis—or he didn’t. Boskin and Taylor both place much of the blame for the housing bubble and resulting crash on Greenspan. They argue that the fed kept interest rates too low for too long even as the economy grew briskly after the 2001-2002 recession. Real interest rates, that is, interest rates after inflation, were negative, setting off a frenzy of borrowing. Said Boskin: “You get to borrow $100 and you’re only going to have to pay back $98.” Aggregate U.S. credit market debt went from about 2 times GDP in 1990 to 3.5 times GDP by 2007, he said.

“People were getting mortgages of several hundred thousand dollars who couldn’t quality for an auto loan,” Boskin said.

Meanwhile, investment banks like Bear Stearns and Lehman took on so much debt that a decline in the value of their mortgage-backed assets pushed them into insolvency. Goldman Sachs and Morgan Stanley “were maybe a week from insolvency,” Taylor said. Again, this was hubris–these guys figured they were too smart be so wrong.

But Robert Hall, another Stanford prof, defended Greenspan. The low interest rates in the early part of the decade, he argued, were responsible monetary policy to head off deflation, not an irresponsible contribution to a housing bubble. Deflation is a “very, very large danger to the country,” Hall said. “With deflation, people’s debts become larger and larger relative to their incomes. That causes more and more collapse.” Hall and economist Susan Woodward have posted their own detailed analysis of the financial crisis and recession, which is well worth reading, at their website.

There was lots, lots, lots more, including Hall’s argument that the fiscal stimular before Congress, while badly needed, won’t be spent fast enough. A better approach, he said, would be for Congress to encourage people to spend more right away—by, for example, having the federal government pay all state sales taxes for the rest of the year. The three Stanford profs all forecast a very gloomy 2009, I’m sorry to report.

Then again, as Russ Roberts argued, no one really knows what’s going to happen or how we can best dig ourselves out of this hole. The problems are so complicated, the variables so many, the historical precedents are so few.

“In the debate over the stimulus, we have Nobel laureates on both sides,” Roberts says. “What does that tell you?”

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Greening skiing

February 1, 2009

This may come under the category of Too Much Information, but I relieved myself the other day into a waterless urinal near the summit of the Park City Mountain Resort. A plaque informed me that each environmentally-friendly urinal at the ski resort saves about 40,000 gallons of fresh water a year.

This is part of what the Park City calls its “Environmental Commitment.” Right on every trail map, the resort says it “recognizes that the environment is one of our most valuable assets.” Now there’s a bold statement. It might be more attention-grabbing to say that  if we don’t do something about global warming soon, Park City will have the climate of, say, Phoenix, before too many decades go by.

But what does it mean for the ski industry to make an environmental commitment? Skiing requires chopping down big trees on beautiful mountains to make way for ski runs and slope-side second homes. It’s an utterly unnecessary pursuit that usually takes place far from population centers, requiring air travel or long car trips. It’s energy-intensive, too. Think of artificial snow-making, and all those steaming hot tubs.

Still, I love to ski. Just being in the mountains makes me happy. And skiing has been a great way for me to spend time over the years with my brothers and my daughters (that’s my older daughter, Sarah, who came with me this time.)

As a tree-hugging (not literally) skier hoping for insight into this conundrum, I have been reading an advance copy of Getting Green Done: Hard Truths from the Front Lines of the Sustainability Revolution, by Auden Schendler. Schendler is executive director of community and environmental responsibility at Aspen Skiing Company, a business known for its sustainability efforts.

I’m halfway through the book, and I’m enjoying it a great deal. Right up front, Schendler takes on those who tell him that the best thing that the Aspen ski resort and, for the matter, the entire town of Aspen could do for sustainability would be to shut down:

Certainly Aspen’s lifestyle is lavish. But then, so is the entire U.S. lifestyle. You’ve heard the stations before: we’re 5 percent of the world’s population, and we use 25 percent of the planet’s resources. Americans burn more fossil fuel per capita than any nation on earth…

So what do we do? Close down Aspen, then close down the United States? The U.S. is hugely wasteful compared to Europe…and actually, Europe is pretty bad compared to India…Do we shut down Paris?

In short there’s no way to draw the moral energy line in the sand showing which activities are OK and which are not.

Fair enough. So the more reasonable question for Aspen, Park City and every other business is: Are you doing as much as you can to be environmentally responsible?

Park City’s record is mixed in that regard. The resort says that it offsets 100% of its power consumption from renewable energy sources—a claim that is hard to verify, without knowing more detail, but let’s assume that it’s true. The resort’s fleet of snowcats is “powered entirely by biodiesel fuel.” One of the best things about staying in Park City area is the free, well-run public bus system which shuttles people around resorts, lodging and restaurants. Then there are those waterless urinals. You can read more at www.saveoursnow.net.

But much of this appears to be for show. On the mountain, you can eat chili in a paper bowl that is 100% compostable, but the bowls get thrown in with other trash, making the claim worthless. There’s lots of self-congratulation on the website, but no mention (that I could find) of the resort’s overall carbon footprint, or its goals.

And, as Schendler argues in his book, the most important measures of a company’s environmental commitment may be well its actions in the policy arena, because that’s where the climate change problem will be solved, or not. He writes:

Before businesses can effectively lobby for government action on climate, they need to have done something themselves or they lose their credibility and appear to be hypocrites. This may be the single most important reason businesses and individuals should implement policy reductions: so that their political case-making has more power and credibility.

This is a great point. Aspen measures up well in this regard—it filed an amicus brief before the U.S. Supreme Court in a lawsuit requiring EPA to regulate GHG emissions. It also joined a Greenpeace campaign against Kimberly Clark, the forest products firm. I’ve never heard of Park City doing anything like that.

More to the point, why don’t we hear more from the entire ski industry on the climate-change issue? They have databases of skiers—why not enlist their customers to support federal action? The same could be said for the travel industry. It’s not just ski areas, but beaches that are threatened by climate disruptions. Where are Marriott, Hilton, Starwood and the airlines when it comes to global warming policy? Actually, I know where the airlines are—they don’t want their emissions to be regulated. Marriott, by contrast, is taking steps to help preserve rainforests.

Unfortunately, only a handful of progressive companies, including Nike and Starbucks, have taken bold positions on the climate change issue. They’re part of a coalition called Business for Innovative Climate and Energy Policy, or BICEP.) Only when a lot more companies join them will the odds get better than we can truly save our snow.

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