Energy for Tomorrow

I spent last week at the Energy for Tomorrow conference in Paris. This was timed to coincide with the COP21 talks taking place at Le Bourget, just northeast of Paris. While leaders of world governments were hashing out an agreement to limit CO2 emissions, leaders of many of the world’s major companies were at Energy for Tomorrow, discussing their plans for sustainability and limiting the carbon footprints of their firms.

The lineup at the conference was impressive by anyone’s standards.  CEOs from Unilever, Statoil, Total, ABB, Ikea, Patagonia, RWE, Ericsson, Norges Bank Investment Management (the group that manages the Norwegian Sovereign Fund), SolarCity, and Renault-Nissan, among others; Felipe Calderon, former President of Mexico and now the Chair of the Global Commission on the Economy and Climate; John Kerry, U.S. Secretary of State; Ernest Moniz, U.S. Secretary of Energy; Ibrahim Baylan, the Minister for Energy of Sweden; Lord Nicholas Stern of the London School of Economics; John Danilovich, Secretary general of the International Chamber of Commerce; Angel Gurria, Secretary general of the OECD.  And that’s not even close to a comprehensive list.

Almost every one of the CEOs described how implementing the early stages of their sustainability strategies was increasing revenues, not just profitability. They are all in Stage 4 of Matt Arnold’s four stages of sustainability: they have recognized the growth opportunities and are moving to capitalize on them. Companies that don’t, companies that retrench and try to defend the 20^th Century approach to powering our society and conducting business, will be left behind.

Not that it is all sunshine and inspiration. Conspicuous by his absence was David Crane, the recently-forced-out CEO of NRG. Several speakers mentioned his ouster as a cautionary tale. A long-term visionary is not always treated well by short-sighted investors, regardless of how accurate the vision.

But overall, the tone was very optimistic. I have often framed sustainability issues in terms of compromise, of trade-offs between objectives. I am increasingly convinced that I was wrong. In order to achieve a sustainable global economy and a healthy global society, things will have to be different, but they should not have to be less pleasant. We will not have to accept living lower on Maslow’s hierarchy of needs.

In fact, much of sustainability thinking simply consists of adopting a holistic frame in which nothing is left out. Costs cannot be externalized because someday,

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somewhere, someone will have to pay them. All benefits – even those years into the future – are included because someone will eventually realize them. Ulrich Spiesshofer, CEO of ABB, referred to the “OPEX – CAPEX block” that results in horribly inefficient buildings springing up because the developer is responsible for the capital investment required to build the facility, but not the operating expenses over its life cycle. Start thinking holistically/sustainably, and it makes excellent sense to use recycled materials, put solar panels on the roof, include heat exchangers in the ventilation system, install LED lighting everywhere, etc. In the long run, fewer resources are consumed, less material goes into landfills, and the total cost goes down. Mr. Spiesshofer calls this “running the world without consuming the Earth.”

Peter Terium, CEO of RWE talked about “crowdfunding” the installation of photovoltaic solar panels on rooftops. The return is only about 2 1/2%, which is unlikely to interest big companies, but beats the heck out of what individuals get on their bank deposits. Patrick Pouyanne, CEO of Total, sees opportunities in helping companies with energy efficiency, in supplying the natural gas that is replacing coal in power generation and is increasing in importance as a transportation fuel, and in renewable energy sources. Felipe Calderon describes the entire economy as completely decarbonized by the second half of the century – and will people like Bill Gates funding the research to make it happen, who would bet against it? John Danilovich emphasized that the difference between COP21 and previous COP meetings is that this time, “business is fully engaged.”

One last thought. Feike Sijbesma, CEO and Chairman of the Managing Board of Royal DSM, predicted that a hundred years from now, the fossil fuel age will be looked back on as a brief blip in the thousands of years of human development. We were carbon neutral for millennia before it, and we’ll be carbon neutral forever after.

As a veteran of the fossil fuels industry myself, I’d like to modify that perspective a bit. In previous posts, I’ve drawn an analogy between natural resources and the assets on an accountant’s balance sheet, in the sense that using up resources is like drawing down a trust fund. It makes no sense to do this just to have fun or to make yourself comfortable, but it can make sense to do it if you’re going to invest in something that will yield long-term benefits. That’s basically what the fossil fuel age was all about. All of the technologies that are enabling the companies at the Energy for Tomorrow conference to go carbon-neutral, all of the yet-to-be-developed technologies being funded by Bill Gates and his co-investors – we wouldn’t have any of these right now had we not gone through the last several hundred years of fossil-fueled rapid development. Yes, we consumed some “assets” and generated some “liabilities” (in the form of greenhouse gasses and other pollutants), and we often did so rather blindly. But just as taking out a loan or spending a portion of your bank account can enable you to make capital investments that generate long-term value, so did fossil fuels jump-start our development to a society in which people can enjoy a longer, healthier, more pleasant life.

However, it is time to stop eroding the balance sheet and go back to living off the income. Fortunately, we are in an excellent position to do just that, and many of the companies at the Energy for Tomorrow conference are leading the way. As we at Decision Strategies ramp up our Sustainability practice, we look forward to helping more companies to identify new opportunities, develop sustainable strategies, and become more profitable along the way.