May 2009

IBM: CSR is good for business

May 31, 2009

IBM has some advice for companies that are tempted to ease up on their commitment to corporate social responsibility during the recession: Don’t.

To the contrary, IBM argues companies need to get better at collecting data that measure their social and environmental impact, whether that be a carbon footprint, the results of factory inspections or life cycle analyses of products they sell.

In a new report issued today, based a survey of 224 senior executives, IBM says there are “significant gaps” between the corporate responsibility goals of companies and their ability to achieve them. The survey found:

–Companies aren’t collecting and analyzing the right information about CSR or aggregating it often enough.

–Few are collecting CSR data from their suppliers.

–Most don’t understand the concerns of their customers when it comes to CSR.

“There is a gap between the aspirations and the capabilities that are necessary to realize those aspirations,” says Eric Riddleberger, IBM’s business strategy consulting global leader, who heads up the company’s corporate social responsibility consulting efforts.

You won’t be surprised to hear that IBM is ready to help companies close those gaps. Riddleberger heads up a group of about 3,500 business strategy consultants, most of whom do some work around corporate responsibility and sustainability.

You can find the IBM survey here.  To me, what’s more interesting than the survey is the fact that IBM is putting so much of its intellectual capital, as well as its marketing dollars, behind sustainability. My FORTUNE colleague Jeffrey O’Brien wrote a terrific story recently about the substance behind IBM’s Smart Planet campaign; if you missed it, it’s well worth checking out. IBM’s consulting work, meanwhile, is driving sustainability deeper into hundreds of other companies.

IBM’s view—again, not surprising for an IT company—is that the spread of the Internet has made CSR a front-burner issue. In a report called Attaining sustainable growth through corporate social responsibility, IBM says:

Companies are more visible, more exposed, than ever before, especially as they expand their sphere of operations and their markets. Watchdog organizations are working hard to keep people aware of what businesses are doing.

Since 1990 the Web has spurred the growth of more than 100,000 new citizen groups devoted to social and political issues. And the torrid pace of information traveling the Internet is transforming consumer expectations as customers gain continuous access to special-interest action plans and third-party scorecards that rate companies on environmental practices and ethical concerns. In fact, companies can easily lose control of their own brands and reputations.

Customers are joining with activist NGOs and advocacy groups, who no longer depend on door-to-door canvassing and street demonstrations to bring environmental and fair trade issues to worldwide attention. They use blogs, podcasts, text messaging, MySpace and YouTube to proliferate their messages.

Whatever the reason, the people at IBM are persuaded that CSR helps drive shareholder value. Businesses that get CSR right

will have a significant advantage attracting investors, talent and customers, developing new products and services, and gaining access to new markets and new opportunities. It also will help them improve operational efficiency and reduce costs, and meet regulatory requirements, which can allow them to qualify for incentives and avoid penalties.

All this would indicate that CSR is going mainstream, right? Well, maybe. Harvard Business School graduates its class of 2009 next week and, according to The New York Times, about 20 percent of them have signed a student-led pledge called “The MBA Oath” that says the purpose of a business executive is to “serve the greater good by bringing people and resources together to create value that no single individual can create alone.”

That’s nice, but what about the other 80 percent?

{ 5 comments }

CH2M Hill: Engineering big changes

May 29, 2009

You can tell by its name that CH2M Hill, an engineering, design and construction firm based outside of Denver, is not a company driven by marketing. Indeed, there’s not much that’s glamorous about CH2M Hill, except for the list of mega projects around the world that it is overseeing—the 2012 London Olympics, the expansion of the Panama Canal and Masdar City, the zero-carbon, zero-waste new city being built in Abu Dhabi. These guys—and gals, because women hold some top management posts—know how to get big jobs done. You can read my profile of CH2M Hill in the current issue of FORTUNE. It’s the first of a series of profiles of FORTUNE 500 companies that I’ll be doing for the magazine during the rest of 2009.

As  interesting as what the people of CH2M Hill do is how they do it. CH2M Hill is an employee-owned company with solid values shaped by its founders, who were all World War II veterans, and so it aims to be sustainable in the broadest sense of the word.

CH2M Hill is increasingly turning the world’s environmental problems into business opportunities. The London Olympics will be the most sustainable Olympics ever. Its renewable energy business is hot. The company’s core strength is in water, so it is building water reclamation and desalination projects in places like Singapore and Australia. It’s rebuilding London’s sewers and the Mumbai airport.

The company generated $5.6 billion in revenues last year, and it’s growing. As the world becomes more urban, the demand for clean water, sewers, clean energy and mass transit is bound to increase. As Tom Searle, the president of CH2M Hill International, told me: “The third world wants to become the first world. People as they get richer won’t tolerate pollution. They won’t tolerate poor quality water.”

Now, about that name and the culture it spawned: In the late 1930s, three Oregon State engineering students—Holly Cornell, Jim Howland and Burke Hayes –fell under the sway of a charismatic, British-born professor named Fred Merryfield. After grad school, all four served overseas doing engineering-related work during the war; they formed the company, lining up their initials in the order that they returned from the war. Howland and Hayes became H2, and Hill was added later.

Howland led CH2M Hill as president, general manager and then chairman for nearly 30 years, staying close to the firm until his death last August at 92. His ideas about management shaped the culture, particularly after he encapsulated them in a pocket-sized booklet called the Little Yellow Book that is given to every CH2M Hill employee. It’s been translated into Spanish, French, Russian, Arabic and Chinese. Some excerpts:

Avoid position perks such as parking spaces reserved for individuals, thick rugs, swivel thrones, and oversized offices. Smaller offices and more conference rooms provide better use of space.

Administrative help is important. However, private secretaries, as generally used, are expensive and insulate their bosses from both the people working with them and the clients…neither desirable ends.

The 5-minute speech will win over the longer variety. Few points are made or souls saved after the first 5 minutes of a monologue.

Let’s everybody be generous. It is especially important that those at or near the top of the heap be willing to spread the returns in dollars and recognition around. The gymnast on top is dependent on all those solid people who support him.

Admit your own mistakes openly and in good humor. Everybody will feel better!

This kind of plain talk might not inspire Wall Street traders or Hollywood agents but it works for CH2M Hill, where to this day there are no reserved parking spots and everyone eats in the company cafeteria. “Jerks don’t do well here,” a company executive told me.

Here’s a link to my FORTUNE story, and a few photos of the company’s work–the London Olympics site, a water treatment plant in Brisbane, Australia, and an Xcel gas-fired power plant in Minnesota that replaced and older, dirtier coal plant.

london_2012_olympics03

luggagepoint_08241096

xcel_high_bridge

{ 2 comments }

An inconvenient mess

May 28, 2009

In more than 30 years (!) as a reporter, I’ve covered government and business and spent a fair bit of time thinking about which is more likely to move us closer to a sustainable, just and compassionate world. Of course, it will take both—the power of markets tempered by the hand of government. But over the years, and despite the catastrophic economic events of the past year, my faith in the ability of business to solve big problems has grown while my belief that government–yes, even a Barack Obama-led government–is going to get us where we want to go has waned. There are a lot of reasons for this, having to do with the role of incentives and accountability and bureaucracy, but we’ll leave those for another day.

I’m thinking about the effectiveness of government today for two reasons. First, I’m struck more and more by how forcefully and confidently the Obama administration is moving to reshape the automobile and energy industries, let alone the financial markets. (See an earlier post, Beware of Obama’s Battery Gold Rush, which is getting some nice traction around the net.) Second, I dug into my past as a media-industry reporter to write a column about cable TV regulation for Slate’s The Big Money that is running under the headline, An Inconvenient Mess: How Al Gore and Kevin Martin screwed up cable regulation.

Now, cable regulation is an arcane topic, and so the column is a little dense. Before you read it, let me pose a question: Why on earth is the government regulating cable TV? I will grant you that the cable companies need local government permission to tear up the streets to lay their wires, and that the original franchising process for cable may have done some good by requiring cable operators to set aside channels for municipal and educational purposes. (Although, honestly, when was the last time you watched a local school board meeting or community college lecture on cable?) But today, you can get hundreds of channels of TV  from lots of places —your cable operator, satellite companies, telcos and to an ever-growing extent, over the Internet. Or, if you prefer, you can choose the ever-popular “none of the above.” Cable is, after all, not a necessity. It competes not only with all those other TV providers but with the movies, newspapers, magazines, books, live entertainment, your local tavern, running, sleeping and the like.

And yet the FCC not only retains the power, in some locales, to regulate cable rates, it also has a say over what channels your cable operator must carry, and whether they may discriminate against channels they don’t own, which is why lawyers for a number of programmers (including The National Football League, which is not exactly an underdog in need of government protection) have taken their omplaints about distribution to the FCC. The legal arguments quickly get into questions about the value and pricing of content—exactly the kinds of questions that markets are good at settling.

You can certainly  argue that there was a time when cable operators behaved like obnoxious monopolists and deserved to be regulated. They may still be obnoxious (although some people I like actually work for cable companies) but they are clearly no longer monopolists. Yet the government won’t let go.

Here’s how the column begins:

In the early days of cable, long before anyone dreamed of a 24-hour food channel, Real World Season 22, or Glenn Beck, a startup network showing nothing but music videos struggled to get carried by cable systems—that is, the companies that own the wires leading into people’s homes. Frustrated, the owners of this new channel created a now-classic advertising campaign urging teenagers to call their cable operators and declare: I Want My MTV!

Ever since—this was the early 1980s—the media companies that own networks (Viacom (VIA), Disney (DIS), CBS (CBS)) have fought with the companies that own cable systems (Comcast (CMCSA), Time Warner (TWC), Cox Communications) over distribution. Even today, when the average cable system offers about 120 channels—and many carry 500 or more—programmers complain that they can’t get their fare onto the cable menu.

Now, though, instead of seeking to arouse the masses with “I Want My MTV”-style campaigns, disgruntled programmers hire lawyers to take their complaints to Washington—most recently, to a windowless conference room at the Federal Communications Commission, where dozens of high-priced attorneys have been arguing about which channels should be carried by what cable systems and at what prices.

You can read the rest here.
cable-guy-744227

{ 3 comments }

You are brilliant, and the earth is hiring

May 27, 2009

While I thoroughly enjoyed all of FORTUNE’s Brainstorm Green conference last month, my personal highlight was meeting and interviewing Paul Hawken. He’s done great work as an entrepreneur, social critic and teacher. His books have inspired me. And now he has done something really hard: He has given a commencement speech worth reading. Ordinarily, I don’t republish the writings of others on this blog but I want to share Paul’s words with you. (You can download a PDF version that’s easy to print out here.) The speech was delivered on May 3 at the University of Portland. Enjoy! And then pass it on to a young person you know.

paul-hawken

–

When I was invited to give this speech, I was asked if I could give a simple short talk that was “direct, naked, taut, honest, passionate, lean, shivering, startling, and graceful.” No pressure there.

Let’s begin with the startling part. Class of 2009: you are going to have to figure out what it means to be a human being on earth at a time when every living system is declining, and the rate of decline is accelerating. Kind of a mind-boggling situation… but not one peer-reviewed paper published in the last thirty years can refute that statement. Basically, civilization needs a new operating system, you are the programmers, and we need it within a few decades.

This planet came with a set of instructions, but we seem to have misplaced them. Important rules like don’t poison the water, soil, or air, don’t let the earth get overcrowded, and don’t touch the thermostat have been broken. Buckminster Fuller said that spaceship earth was so ingeniously designed that no one has a clue that we are on one, flying through the universe at a million miles per hour, with no need for seatbelts, lots of room in coach, and really good food—but all that is changing.

There is invisible writing on the back of the diploma you will receive, and in case you didn’t bring lemon juice to decode it, I can tell you what it says: You are Brilliant, and the Earth is Hiring. The earth couldn’t afford to send recruiters or limos to your school. It sent you rain, sunsets, ripe cherries, night blooming jasmine, and that unbelievably cute person you are dating. Take the hint. And here’s the deal: Forget that this task of planet-saving is not possible in the time required. Don’t be put off by people who know what is not possible. Do what needs to be done, and check to see if it was impossible only after you are done.

When asked if I am pessimistic or optimistic about the future, my answer is always the same: If you look at the science about what is happening on earth and aren’t pessimistic, you don’t understand the data. But if you meet the people who are working to restore this earth and the lives of the poor, and you aren’t optimistic, you haven’t got a pulse. What I see everywhere in the world are ordinary people willing to confront despair, power, and incalculable odds in order to restore some semblance of grace, justice, and beauty to this world. The poet Adrienne Rich wrote, “So much has been destroyed I have cast my lot with those who, age after age, perversely, with no extraordinary power, reconstitute the world.” There could be no better description. Humanity is coalescing. It is reconstituting the world, and the action is taking place in schoolrooms, farms, jungles, villages, campuses, companies, refuge camps, deserts, fisheries, and slums.

You join a multitude of caring people. No one knows how many groups and organizations are working on the most salient issues of our day: climate change, poverty, deforestation, peace, water, hunger, conservation, human rights, and more. This is the largest movement the world has ever seen. Rather than control, it seeks connection. Rather than dominance, it strives to disperse concentrations of power. Like Mercy Corps, it works behind the scenes and gets the job done. Large as it is, no one knows the true size of this movement. It provides hope, support, and meaning to billions of people in the world. Its clout resides in idea, not in force. It is made up of teachers, children, peasants, businesspeople, rappers, organic farmers, nuns, artists, government workers, fisherfolk, engineers, students, incorrigible writers, weeping Muslims, concerned mothers, poets, doctors without borders, grieving Christians, street musicians, the President of the United States of America, and as the writer David James Duncan would say, the Creator, the One who loves us all in such a huge way.

There is a rabbinical teaching that says if the world is ending and the Messiah arrives, first plant a tree, and then see if the story is true. Inspiration is not garnered from the litanies of what may befall us; it resides in humanity’s willingness to restore, redress, reform, rebuild, recover, reimagine, and reconsider. “One day you finally knew what you had to do, and began, though the voices around you kept shouting their bad advice,” is Mary Oliver’s description of moving away from the profane toward a deep sense of connectedness to the living world.

Millions of people are working on behalf of strangers, even if the evening news is usually about the death of strangers. This kindness of strangers has religious, even mythic origins, and very specific eighteenth-century roots. Abolitionists were the first people to create a national and global movement to defend the rights of those they did not know. Until that time, no group had filed a grievance except on behalf of itself. The founders of this movement were largely unknown — Granville Clark, Thomas Clarkson, Josiah Wedgwood — and their goal was ridiculous on the face of it: at that time three out of four people in the world were enslaved. Enslaving each other was what human beings had done for ages. And the abolitionist movement was greeted with incredulity.  Conservative spokesmen ridiculed the abolitionists as liberals, progressives, do-gooders, meddlers, and activists. They were told they would ruin the economy and drive England into poverty. But for the first time in history a group of people organized themselves to help people they would never know, from whom they would never receive direct or indirect benefit. And today tens of millions of people do this every day. It is called the world of non-profits, civil society, schools, social entrepreneurship, non-governmental organizations, and companies who place social and environmental justice at the top of their strategic goals. The scope and scale of this effort is unparalleled in history.

The living world is not “out there” somewhere, but in your heart. What do we know about life? In the words of biologist Janine Benyus, life creates the conditions that are conducive to life. I can think of no better motto for a future economy. We have tens of thousands of abandoned homes without people and tens of thousands of abandoned people without homes. We have failed bankers advising failed regulators on how to save failed assets. We are the only species on the planet without full employment. Brilliant. We have an economy that tells us that it is cheaper to destroy earth in real time rather than renew, restore, and sustain it. You can print money to bail out a bank but you can’t print life to bail out a planet. At present we are stealing the future, selling it in the present, and calling it gross domestic product. We can just as easily have an economy that is based on healing the future instead of stealing it. We can either create assets for the future or take the assets of the future. One is called restoration and the other exploitation. And whenever we exploit the earth we exploit people and cause untold suffering. Working for the earth is not a way to get rich, it is a way to be rich.

The first living cell came into being nearly 40 million centuries ago, and its direct descendants are in all of our bloodstreams. Literally you are breathing molecules this very second that were inhaled by Moses, Mother Teresa, and Bono. We are vastly interconnected. Our fates are inseparable. We are here because the dream of every cell is to become two cells. And dreams come true. In each of you are one quadrillion cells, 90 percent of which are not human cells. Your body is a community, and without those other microorganisms you would perish in hours. Each human cell has 400 billion molecules conducting millions of processes between trillions of atoms. The total cellular activity in one human body is staggering: one septillion actions at any one moment, a one with twenty-four zeros after it. In a millisecond, our body has undergone ten times more processes than there are stars in the universe, which is exactly what Charles Darwin foretold when he said science would discover that each living creature was a “little universe, formed of a host of self-propagating organisms, inconceivably minute and as numerous as the stars of heaven.”

So I have two questions for you all: First, can you feel your body? Stop for a moment. Feel your body. One septillion activities going on simultaneously, and your body does this so well you are free to ignore it, and wonder instead when this speech will end. You can feel it. It is called life. This is who you are. Second question: who is in charge of your body? Who is managing those molecules? Hopefully not a political party. Life is creating the conditions that are conducive to life inside you, just as in all of nature. Our innate nature is to create the conditions that are conducive to life. What I want you to imagine is that collectively humanity is evincing a deep innate wisdom in coming together to heal the wounds and insults of the past.

Ralph Waldo Emerson once asked what we would do if the stars only came out once every thousand years. No one would sleep that night, of course. The world would create new religions overnight. We would be ecstatic, delirious, made rapturous by the glory of God. Instead, the stars come out every night and we watch television.

This extraordinary time when we are globally aware of each other and the multiple dangers that threaten civilization has never happened, not in a thousand years, not in ten thousand years. Each of us is as complex and beautiful as all the stars in the universe. We have done great things and we have gone way off course in terms of honoring creation. You are graduating to the most amazing, stupefying challenge ever bequested to any generation. The generations before you failed. They didn’t stay up all night. They got distracted and lost sight of the fact that life is a miracle every moment of your existence. Nature beckons you to be on her side. You couldn’t ask for a better boss. The most unrealistic person in the world is the cynic, not the dreamer. Hope only makes sense when it doesn’t make sense to be hopeful. This is your century. Take it and run as if your life depends on it.
……….
Paul Hawken is a renowned entrepreneur, visionary environmental activist, and author of many books, most recently Blessed Unrest: How the Largest Movement in the World Came into Being and Why No One Saw It Coming. You can visit his website at
www.paulhawken.com

{ 1 comment }

Uh-oh: Obama’s “battery gold rush”

May 26, 2009

A lot of smart people—Warren Buffett, Andrew Grove, Nissan’s Carlos Ghosn—believe that electric cars will be a big answer to our climate and energy problems. GM and Ford have apparently come around to that view as well, and even Chrysler recently released a cool little neighborhood vehicle called the Peapod. (See below.) I’m impressed by BYD, the Chinese battery and electric car company, and by Better Place, Shai Agassi’s bold electric-car startup aimed at transforming the global automobile industry. Batteries are the key to making electric cars affordable. So why did this Wall Street Journal headline make me cringe?

Obama Administration Sparks Battery Gold Rush

Companies, States Vie for $2.4 Billion in Funding Aimed at Turning U.S. Into Top Maker of Fuel Cells for Electric Cars

The story went on to say that the Department of Energy has received 165 applications from companies seeking some of that $2.4 billion. which is “aimed at turning the U.S. into a battery-manufacturing powerhouse.” The Journal’s William M. Bulkeley reports:

Companies vying for the federal money include General Motors Corp., Dow Chemical Co., Johnson Controls Inc. and A123 Systems, a closely held battery maker backed by General Electric Co. and others. States including Michigan, Kentucky and Massachusetts are also weighing in with applications, usually in alliance with their favored battery makers.

When the winners are decided, as soon as the end of July, the Energy Department may anoint Livonia, Mich., or Indianapolis or Glendale, Ky., as the future U.S. hub of car batteries.

Reading carefully, it’s clear that The Journal (“free people, free markets”) is not happy about this news. Note the use of the word “anoint,” hinting that the government is assuming divine powers. The article characterizes the DOE grants as “one of the government’s biggest efforts at shaping industrial policy”—fighting words in Journal-speak.

They’ve got a point, though, don’t they? One unhappy result of all the bank bailouts of the fall is that $2.4 billion doesn’t seem like much—hey, Citi alone has collected north of $45 billion, last time I checked—but a billion here, a billion there, and you’re starting to talk real money. And if electric cars are going to be as big a business as a lot of people think, then why government investment should be needed at all? Particularly since we have a climate change bill making its way through Congress that will, at long last, if all goes well, put a price on carbon emissions—thereby giving low-carbon energy sources what they desperately need, which is a fighting chance to compete with fossil fuels on something resembling a level playing field. I thought the whole idea behind cap-and-trade (which I strongly favor) is  to capture the externalized cost of global warming pollutants, and then let the market figure out how best to reduce greenhouse gas emissions: regulation that would have a light touch but a profound impact.

But no—with Waxman-Markey, CAFE standards, biofuels mandates, subsidies for “green jobs” and the like—the administration is giving us a belt and a couple of pairs of suspenders, too. Much as I admire Steven Chu, the energy secretary, do we really want to entrust him and his staff to decide which battery technologies are likely to succeed and which companies can most wisely spend that $2.4 billion? What’s more, since the states and their legislatures are competing as well, you can be sure that the likes of John Murtha and Robert Byrd will weigh in on these investment decisions. Indeed, the states themselves are already competing to subsidize battery makers, as The Journal notes:

“If you’re the place where the batteries are made, there’s an opportunity to spin it into other things as well,” said D. Gregory Main, president of the Michigan Economic Development Corp., a state agency that has committed up to $400 million in incentives for battery manufacturers.

Kentucky is promising $110 million in aid and a 1,550-acre site, in Glendale, that it assembled in an unsuccessful effort to land a Hyundai plant several years ago.

Some of these batteries, by the way, could well find their way into cars like the Tesla (sticker price:$109,000) and those made by Fisker Automotive, a California firm that plans to sell $88,000 luxury-hybrids next year. So tax dollars collected from working people and the middle class go to subsidize rich boys and their toys.

Please don’t get me wrong. I think electric cars are a great idea. The faster they arrive, the better. But judgments about which battery-makers to finance should best be left to venture capitalists, investors like Buffett (who bought 10% of BYD), big investment banks and the like. They may be no smarter than the people at the DOE but at least they are putting their own (or their investors’) money on the line. If they’re wrong, they’ll be held accountable, or at least they should be. You can be sure that some of them will be wrong, and that’s fine.

This is why I respectfully take issue with Jesse “Watthead” Jenkins of The Breakthrough Collaborative, who with me is a lead blogger at The Energy Collective, a website that aggregates blogs about energy and the environment. Jesse’s a smart guy and a good guy, but he has more faith in government than I do and so he favors substantially more federal investment in clean energy research and development. If we’re talking basic research, that’s fine, I suppose—the private sector can’t be asked to underwritethat, because the potential payoffs are so uncertain and long-term.

But this battery program is explicitly about picking winners and losers in one industry sector, which may or may not turn out to be a real business. It reflects, I’m sorry to say, the Obama administration’s faith that the best and the brightest Ivy-educated government executives can figure out what needs to be done, and just how to do it. I have no doubt that the people around Obama are smart, well-intentioned and hard-working. I dearly hope that they can, in fact, figure out just what needs to be done. But if we learned anything from Bush II, it is to worry about people in Washington who think they have all the answers.

images17

{ 4 comments }

Exclusive: Warren Buffett’s utility man

May 25, 2009

As Washington debates climate change, a lot of utility company CEOs have assumed high-profile roles: Jim Rogers of Duke Energy is appearing in commercials with the Environmental Defense Fund, David Crane of NRG Energy has emerged as a leading advocate for nuclear power and Michael Morris of American Electric Power, the nation’s biggest coal-burning utility, naturally talks up clean coal.

David Sokol, the chairman of an Iowa-based utility holding company called MidAmerican Energy Holdings, which is 80%-owned by Warren Buffett’s Berkshire Hathaway, has for the most part been quieter. But Sokol and MidAmerican Energy have been positioning their business for a low-carbon future. MidAmerican’s investments in wind power mean that it generates more power from renewable source than any other regulated utility, as best as I can tell. It was Sokol, at Buffett’s request, who engineered MidAmerican’s investment in BYD, the Chinese battery-maker and auto company that is building low-cost electric cars. (See Warren Buffett Takes Charge, my story about BYD that ran last month in FORTUNE.) And now there’s more news from MidAmerican, and you heard it here first: The company will soon begin testing batteries from BYD that, if all goes well, could store electricity on a large scale at a reasonable cost.

That’s a big deal.

“We’ve never really had storage capability on utility systems,” Sokol told me recently, by phone. “Given the progress BYD has made on the technology of batteries for electric vehicles, the question is, how do we ramp that technology up so that we can use it for multiple purposes in the utility world?

“Probably the most obvious is the ability to store intermittent renewable resources, such as wind or solar,” Sokol said.

Put simply, cheap battery storage at scale would address one of the biggest drawbacks to wind and solar energy, which is that, unlike coal or nuclear power, they are unpredictable—you can only make electricity when the wind is blowing or the sun is shining.

“If you can store electricity when the wind blows, and have it available when you need it, that argument goes away,” Sokol says. But he cautions: “There’s a fair bit of distance between here and there.”

Just a few details: This fall, MidAmerican will build a 2 megawatt storage facility using BYD batteries at an existing substation in Portland, Oregon, where it operates the local utility, Pacific Power. BYD, meanwhile, is building a bigger storage facility in China, and plans to build a third one in a still-undisclosed location on in southern California. That’s about all I can tell you because BYD is reluctant to talk about its research.

The 2 megawatts of battery storage in Portland will allow MidAmerican to test BYD batteries to see how well they charge, what control systems are needed to discharge the electricity and to analyze their reliability and cost. “It will let us do a fair amount of testing to understand the economics of a 100 or 200 megawatt storage facility to back up wind,” Sokol says.

Currently, electricity can’t be stored economically on a large scale except in systems that pump water uphill, then release it to generate hydropower. So-called pumped-storage systems, however, often consume more energy than they generate; they make sense only because water can be pumped uphill using cheap off-peak power, then released so the electricity can be sold during periods of peak demand when prices are higher.

Low-cost battery storage would be a dramatic improvement over pumped storage for many reasons, not the least of which is that the batteries could be located in urban areas where electricity demand is high.

Sokol has credibility when he talks about energy and environmental issues, in part because of his association with the plain-spoken Buffett but mostly because of MidAmerican’s own track record. “For the last six years, we have been very focused on trying to move our overall portfolio to the lowest carbon footprint possible,” he says. “We’re building every wind and geothermal project that we are able to.” A thoughtful and unpretentious Omaha native, Sokol is a student of business and author of a slim and insightful volume of management advice called Pleased But Not Satisfied. MidAmerican, whose subsidiaries provide electricity and natural gas to nearly 7 million customers in the Midwest, Pacific Northwest, Rocky Mountain states and the UK, had about $12.7 billion in revenue last year.sokol_sm

About 24 percent of MidAmerican’s generating capacity now comes from renewable or noncarbon fuel sources, including wind, geothermal, hydroelectric and biomass. About 50% comes from burning coal, which is about the same as the U.S. average, but its PacifiCorp subsidiary caused a stir back at the end of 2007 when it said it would scrap plans for new coal-fired power plants in Wyoming and Utah, in part because of concerns about climate change.

When we met last December in New York, Sokol explained to me that he is a big believer in electric cars because electric engines are far more efficient than those that burn gasoline. An all-electric vehicle–even one powered by today’s U.S. mix of electricity generation—produces about 20% of the greenhouse gas emissions of a gasoline-powered car that gets 20 miles per gallon. As battery prices come down, electric cars will be both cheaper to drive and cleaner than today’s fleet. Just this week, BYD and Volkswagen agreed to work together on electric cars.

Sokol nevertheless opposes the Waxman-Markey climate change bill approved last week by the House energy committee. In an opinion piece in The Washington Post, he wrote that the legislation will place an undue burden on consumers because it requires utilities to pay for allowances to emit CO2 and creates a complex and unnecessary trading scheme:

The real hidden catch of the cap-and-trade system, though, is that it will require consumers to pay twice: first for emission allowances and then for the construction of new low- and zero-carbon power plants.

Sokol did say, however, that the electricity sector can achieve the 83% reduction in greenhouse gas emissions by 2050 mandated by the bill. Getting there will require advanced technologies like the electric cars, large-scale batteries and solar photovoltaic panels being developed by BYD.

Founded in 1995, BYD now employs 130,000 people in 11 factories, eight in China and one each in India, Hungary, and Romania. If nothing else, the company has demonstrated that it can move fast. “Working with them,” Sokol says, “is sort of like watching bamboo grow.”

{ 1 comment }

In search of the perfect biofuel

May 21, 2009

Funny thing about the biofuels business. Roughly 200 companies are pursuing the perfect biofuel—as cheap as fossil fuels, adaptable to today’s infrastructure, low-carbon, sustainable and no threat to the food supply or to tropical forests. But even cutting-edge startups that say they have the puzzle just about solved can’t raise the money they need to get into commercial production.

“Everyone wants to be the first to finance the second plant,” says Arnold Klann, the CEO of biofuels firm Blue Fire Ethanol. “No one one wants to be first to finance the first one.”

“Banks are not willing to lend,” Klann said. “They’re risk averse.” The industry needs the support of banks or the public markets because a commercial scale will cost upwards of $100 million, more than the venture capitalists now financing the industry want to put at risk. Publicly-traded Blue Fire makes ethanol from wood wastes, urban trash, rice and wheat straws, and it was awarded a $40 million U.S. Department of Energy grant, but it has been slow to get to commercial production and investors are skeptical. The firm’s market capitalization is only about $25 million.

Biofuels are on my mind because I  spent the day at BIO International, a sprawling (14,000 attendees) biotech industry convention in Atlanta. I’ve written very little about biofuels, mostly because the science of turning plants into fuel is quite complicated, and so it’s hard to separate companies with a shot at making it big from those with no hope. That’s not just a challenge for me—the corn ethanol industry has destroyed many millions of dollars of capital from investors who rushed in too quickly.

Still, there are strong forces driving biofuels, most of them emanating from Washington where Congress has adopted biofuels mandates. The historic Waxman-Markey climate change bill just passed by the House energy committee will, if it becomes law, provide another boost to biofuels by raising the price of gasoline and diesel fuels.

At BIO, Laurence Alexander, the managing director of investment bank Jefferies & Co., moderated an excellent panel that taught me a bunch of things. Some highlights:

It takes a lot of feedstock to make biofuels. For ethanol to account for 5% of U.S. gasoline use, it would require turning 33% of the U.S. corn crop into ethanol. Globally, it would take 100% of the soy, rapeseed and palm oil production to produce 10% of the global supply of diesel. That’s at current yields, of course, which is why it’s so vital to drive up yields.

Biofuels have an image problem. “Glib critics,” Alexander said, “could shift the policy debate.” The industry needs to prepare to answer tough questions, even if they are only loosely based on reality: How many children did you starve to drive to work today? Can we run out of arable land? Will biofuels drain the acquifers?

Not all feedstocks are created equal. I knew that, of course, but the variations in productivity are dramatic. In terms of gallons of fuel that can be produced per acre, according to Aristides Patrinos, the president of a company called Synthetic Genomics, sugar cane (800) and switchgrass (500) outperform corn (375) and jatropha (202). Still, his company, which was started by Craig Venter, is excited about jatropha because it yields a high quality oil, grows in poor soils and can live in semi-arid regions. “That’s in our view an ideal fuel because it doesn’t really compete for the same land where you can grow food,” Patrinos said. It’s ripe for significant genetic modification to improve yields. “We’ve just recently announced the sequencing of the jatropha genome,” he said. Who knew?

Two well-funded startups delivered impressive presentations. One was Amyris Biotechnologies, which I knew about. A fascinating company, backed by Kleiner Perkins, that first produced a low-cost anti-malaria drug for the Gates Foundation and is now making diesel fuel at a pilot plant in northern California. (Jack Newman, a co-founder, has twice been a popular speaker at FORTUNE’s Brainstorm Green.) The other was Solazyme, another Bay Area firm that uses algae to convert cellulosic feedstocks into fuel. Harrison Dillon, the president and chief technology officer, who also happens to be a patent lawyer, said the firm is able to make oil-based fuels at a commercial scale but that its cost are still higher than fossil fuels.

Because of capital constraints, it may be that well-established players will have to enter the market to take biofuels to scaleor . DuPont and Genencor, a division of a Danish firm called Danisco, formed a joint venture last year to develop a cellulosic ethanol business using corn stover or switchgrass in Tennessee, which has provided grants to the plant and pays farmers to plant switchgrass. (It takes three years to develop the first group)  DuPont–whose Pioneer division hired me to moderate a panel at BIO–and Genencor have committed to a three-year investment of $140 million. They obviously have the capacity to invest more if needed.

They’ve also got a track record.  DuPont and Genencor got together nearly 15 years ago to research the process that now produces a renewable material known as bio-PDO, which is made from corn starch, that goes into carpets, textiles and shampoos. It’s one of the big successes of the bio-materials biz.

{ 4 comments }

The evolution of laundry detergent

May 19, 2009

“People are very entrenched in the way they do their laundry,” says Adam Lowry, the co-founder and chief “greenskeeper” at Method. And that’s a problem, as we’ll explain in a moment.

Method is an eight-year-old company that makes “environmentally-friendly cleaning products that are safe for every home and every body.” Started in a San Francisco bachelor pad by Lowry—a former climate scientist!—and his friend Eric Ryan, privately-held Method now has more than $100 million in annual revenues, about 100 employees and a good deal of buzz for its style as well as its green products. Although Method was the first company certified as a Cradle to Cradle company in the U.S., it’s probably better known for its packaging aesthetic than for its commitment to sustainability.

methodimages

“If your brand position is, hey, we’re the green alternative to the toxic stuff, and everyone else offers green products, you’re no longer differentiated,” Lowry says. “It’s also not very interesting.”

“We’re trying to create broad appeal, way beyond the green consumer, for products that have ‘green’ as one of their qualities,” he says. “There have been far to many green things that have been designed to be green, and they suck.”

Lowry spoke today at the Greener By Design conference in San Francisco, hosted by my friend Joel Makower and run by Greener World Media. (I’m a senior writer at Greenbiz.com, a GWM media property.) He’s an interesting guy—34, with a chemical engineering degree from Stanford, who worked for the Carnegie Institution before starting Method.

Method is at the forefront of changes sweeping the home cleaning business. (No pun intended.) Premium brands like Method, Seventh Generation and Restore are growing. The big players in the industry, meanwhile, are introducing green brands, like Clorox’s Greenworks and SC Johnson’s Nature’s Source. All tend to talk about themselves as plant-based, biodegradable, natural, non-toxic, chlorine-free and the like. I confess, I can’t even begin to sort out the competing green claims.

Method, though, was the first cleaning company to introduce a triple-concentrated laundry detergent back in 2004. That was a simple and very good idea—it reduced packaging, appealed to retailers because it saved shelf space and shipping costs and was easier for consumers to shlep home. At first consumers balked—they weren’t sure they were getting enough detergent for their money—but with a big push from Unilever, which introduced a product called Small & Mighty All, and an even bigger push from Wal-Mart, the idea caught on. Now most laundry detergents are compacted.

“We thrive by making the market change and getting our competitors to follow our innovations,” Lowry says. “You now can’t buy at Wal-Mart or Target a non-concentrated laundry detergent.”

Even so, there’s lots of waste in the laundry biz. Most customers fill the cap on the bottle to the brim. More is better, they figure. Lowry says Method would like to find a way to get people to use only the detergent they need, and to deliver it with less packaging.

“We have a quandary.” Lowry says. “We make a lot of plastic bottles. I’d rather make a refill system.”

If consumers were willing to bring their empty containers back to the store and refill them, they could eliminate the packaging associated with each purchase and, presumably, save money. Restore is trying out a refill system for its products in cooperation with Whole Foods Markets in the Midwest. (Here’s a link to the Restore website that explains how it works.)

The problem is, it’s inconvenient. “If you don’t bring consumers along with you, the most wonderful innovation is useless,” Lowry says. Plus have you ever seen how much coffee is spilled on the floor in supermarkets where people grind the beans themselves? The aisles could get pretty sticky once people start dispensing laundry detergent.

Method is working on the next big idea in laundry detergent, Lowry tells me, but he won’t say much more than that. “It will bring fundamental change to the category,” he says. He will say that when he thinks about the future of laundry detergent – and it’s a good thing someone is – he sees an evolution from plastic bottles to a refill model to a subscription model to a service model.

“We want to get paid for cleaning people’s clothes, not for selling liquid. The business model has to change,” he said.

No, I don’t know what he’s talking about either, but one can envision a smart washing machine that would dispense exactly the right amount of detergent and no more, then clean your clothes, separate the rinse water from the detergent and the dirt, and then  recycle the water and detergent and do it all over again. A closed-loop system, if you will.

“When I think about Method in the future,” Lowry sats, “I want to be able to revolutionize every product category in which we compete.” Continuous improvement is the name of the game. Method is worth watching. And it’s clearly about a lot more than pretty bottles.

photo4

{ 0 comments }

REI’s active, activist CEO

May 18, 2009

Sally Jewell, the president and CEO of REI, arrived for our dinner toting a backpack and water bottle, talking up the importance of America’s national parks and admitting that her company, which sells outdoor gear and apparel, is a long way from being sustainable—though not for lack of trying.

REI is installing solar panels on some stores, retrofitting others to save energy and reducing its carbon footprint in absolute as well as relative terms. Still, its overall impact is not entirely benign. “Our customers jump in their SUVs and drive to the mountains,” Jewell says, ruefully.

Jewell is not your typical CEO. Then again, REI, the nation’s largest consumer cooperative, which is owned by its 3.7 million members, is not your typical company. They seem to be a good fit.

Jewell, who is 53, is active and an activist. She was in Washington (where we ate at Ten Penh) for a meeting of the Initiative for Global Development, a business-backed nonprofit that tries to use the power of business to fight global poverty. She’s a board member of the National Parks Conservation Association, which works to preserve our national parks for future generations. (Years of neglect have taken a toll.) She loves the outdoors, spending weekends and vacations hiking, camping, boating, skiing and snowboarding in her home state of Washington and around the world. “There is nothing like a taste of nature to nurture the soul,” Jewell says.

images-12

Of course, Jewell spends most of her time guiding REI, which had $1.4 billion in revenues in 2008 and, like most retailers, is struggling to adjust to the recession. The company eliminated about 60 jobs last year. Fortunately, because it’s a co-op, Jewell can focus on building REI for the long term instead of worrying about day-to-day stock-price fluctuations. “There are not analysts beating our door down saying, why aren’t you growing,” she says.

The company, which is based outside of Seattle, was profitable last year ($73 million in operating income), and expects to make money again in 2009. Profits are shared among employees, who get end-of-year bonuses in good times, and customers, who get annual rebates based on how much they spend.  The Environmental Defense Fund recognized REI, which has about 105 stores, for its work retrofitting stores in its 2009 Innovations Review, which I helped write. Here’s a brief story about REI and an interview I did with REI’s manager of corporate responsibility, Kevin Hagen.

Jewell took a roundabout route to REI. Trained as a mechanical engineer, she worked for ExxonMobil after college, joined a Seattle bank as an energy analyst in the early 1980s, became president of a small bank and then a senior executive at Washington Mutual, one of the go-go financial institutions that came crashing down last fall. (It’s now part of J.P. Morgan Chase.) She joined REI’s board in 1996, became its chief operating officer in 2000 , and was named CEO in 2005.

She has known about the company since she was a kid. Her father, a doctor and a British immigrant, was an early member, and her family took lots of camping trips when she was young. Jewell climbed 14,410-foot Mount Rainier for the first but not the last time when she was 16. It’s a strenuous three-day hike.

Here are a few highlights from our conversation:

On green products. The backpack that Jewell was carrying is an REI product called the Acumen, made from, among other things, 44 recycled plastic water bottles. But Jewell was quick to note that until the company can do a more sophisticated life cycle analysis of its products, it can’t really tell which ones have more or less impact. A group of companies in the outdoor industry, including Patagonia, Timberland and North Face, are working together to develop a credible index for products. I’m hearing more and more about companies that are taking seriously the need to analyze products and develop credible, green metrics.

“Customers are going to hold us to higher and higher standards,” Jewell says. “We’re a member-owned coop. A trustworthy brand.”

On the national parks. Jewell enjoys her work with the parks conservation group, which is already planning for the 100th anniversary of the national parks system in 2016. Improving the parks and getting more people to use them will help turn more Americans into environmentalists, she says. It should also be good for REI.

“My competition is anything that take people away from spending time outside,” she says. “Video games. Best Buy.”

On business and global poverty. The Initiative for Global Development was begin by a group of Seattle business leaders, the best known of whom are William Gates Sr., Bill Ruckelshaus (the first chief of the EPA), Daniel Evans (former U.S. senator from Washington). They are trying to organize other U.S. companies to promote jobs and trade in poor countries, and to exchange people and ideas with growing companies in the developing south.

An immediate focus is lowering trade barriers so that agricultural products like cotton and sugar can be more easily imported into the U.S. “Products imported from Bangladesh pay higher duties than products imported from France,” says Jewell. “How much sense does that make?”

As an REI member for many years, I’ve always enjoyed shopping at the stores and had good experiences with REI products. After meeting Jewell, I feel even better about doing business with the company.

{ 0 comments }

A day in the life of Steven Chu

May 14, 2009

Interesting day for Energy Secretary Steven Chu.

Here’s how it begins:

Washington, DC – In recognition of Bike to Work Day, U.S. Energy Secretary Steven Chu will ride his bike from his home to a rally at Freedom Plaza this Friday, May 15. The Secretary is participating in the event to highlight the Administration’s commitment to reducing our dependence on foreign oil by supporting alternative, clean energy modes of transportation.

And then:

US Energy Secretary Steven Chu will address the National Coal Council Spring Meeting on Friday, May 15, 2009. Secretary Chu will highlight the Obama Administration’s commitment to carbon capture and storage as an important part of our nation’s effort to create new jobs and transform the way we use and produce energy.

I wonder if he’ll bike over to see the coal guys. He used to bike all the time as a Stanford prof. That’s him in the middle, below. I assume he took his helmet off for the photo. Hope someone snaps a better one tomorrow.
images15

{ 1 comment }

← Previous Entries