How Landfills Can Provide Electricity

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Landfills across the U.S. are teeming with waste. In fact, the average American throws away over 1,130 pounds of waste a year. That’s an environmental disaster because rotting garbage produces landfill gas (LFG) which is made up of 50 percent methane, a greenhouse gas with the warming potential 23 times greater than carbon. Municipal solid waste (MSW) is the third-largest source of human-related methane emissions in the U.S. In 2009, MSW accounted for about 17 percent of methane emissions according to the EPA. MSW landfills released an estimated 27.5 million metric tons of carbon equivalent to the atmosphere in 2009.

The environmental disaster can be avoided by using LFG as a source of energy to create heat or electricity. Landfills can “significantly reduce” their methane emissions through LFG projects. Over 365 landfills in the U.S. already recover methane and use it to produce electricity or heat. An LFG energy project can capture 60 to 90 percent of the methane emitted from a landfill. Generating electricity from LFG makes up about two-thirds of the operational projects in the U.S. Using LFG to offset the use of another fuel such as natural gas or coal occurs in about one-third of the operational projects.

The emerging area of LFG is producing alternative fuels. There has been successful delivery of LFG to a natural gas pipeline as a fuel, according to the EPA, and LFG has been converted to vehicle fuel as compressed natural gas and liquefied natural gas. There are also projects in the planning stages to convert LFG to methanol.

LFG projects save money

Using LFG to provide power or heat generates revenue from the sale of the gas, and creates jobs for communities. Businesses save money by using LFG, and some companies can even save millions of dollars over the life of their LFG projects, the EPA states on its website.

Businesses are not the only ones that can save money by using LFG for power or heat. The LFG project developed in 1997 in Maryland Heights, Missouri for Pattonville High School saves the school $40,000 a year. The Fred Weber Sanitary Landfill runs a 3,600-foot pipeline run from the landfill to the school’s two basement boilers. The school is less than a mile from the landfill. To develop the project, the school received a $150,000 loan from the Missouri Department of Natural Resources, and a $25,000 grant from the St. Louis County Solid Waste Commission. Fred Weber invested $220,000 for the pipeline construction.

From New Mexico to Ohio

The City of Albuquerque, in New Mexico, will develop a LFG project to heat water in the Metropolitan Detention Center. The City Council unanimously approved the $1 million project earlier this month. The landfill already has 46 wells that extract the gas, but it’s burned off and not used in order to avoid releasing a greenhouse gas into the atmosphere. The EPA is contributing $500,000 to the project, the city about $300,000 and the county about $230,000.

The Houston-based Elements Markets LLC recently made its LFG-to-pipeline project in Amsterdam, Ohio public. The project is at the APEX Sanitary Landfill which is located on 1,285 acres, and receives about 1.8 million tons of waste a year. It is one of the fastest growing landfills in the U.S., according to a press release by Elements Markets. The project will produce over 32 million of British Thermal Units (MMBtu) of biomethane, enough to power 19,000 homes. It is expected to be in operation in 2013.

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Fallacies of Free Markets

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3p is proud to partner with the Presidio Graduate School’s Macroeconomics course on a blogging series about the economics of sustainability. This post is part of that series. 

By Justin Semion

The concept of the “invisible hand of the market” underlies classical and neoclassical economic theories advocating for a free market economy, one with no government regulation.  In summary, free market theory proposes that supply and demand in the unregulated marketplace naturally reach a state of equilibrium where the maximum possible social good is achieved. 

Many economists over the past half century have developed complex mathematical models to demonstrate how this basic concept works, and these proofs have led to substantial deregulation, principally of financial markets, over the past quarter century. Many criticisms have also been made of free market theory.  The most well known criticism is that a free market economy does not account for externalities, side effects such as pollution that are borne by society at large and not by the individual supplier or consumer. 

However, there are more significant flaws to this theory that are rooted in the assumptions underlying its basis, the economic concept of “perfect competition”.  Perfect competition is the ideal state in classical and neoclassical economics, and functions properly only when held to certain assumptions.  These assumptions are necessary for a pure free market economy to function efficiently.  

A brief examination of each of these assumptions can show some fallacies in arguments for a pure free market economy.

1.  That the flow of information regarding the prices and quality of goods and services is perfect; that is, free and accessible to everybody in the market.

In an unregulated free market it is in the best interest of a firm or group of firms to maintain an imbalance of information.  Viewed in this way, the assumption of perfect information is self-defeating when applied to free market theory.  A recent and influential example of this is the sale of mortgage derivatives that played a large part in the current financial crisis. 

Complex derivatives comprised of individual mortgages carrying varying levels of risk were bundled and sold under a single risk classification.  Information regarding the individual mortgages within these packages was not readily divulged, and not free and accessible to everybody in the market.  It was in the best interest of the firms brokering these derivatives to maintain a lack of information regarding the structure of these instruments because it made them easier to sell at volume.  Buyers were eager to cash in on the bubble and so did not ask the right questions.  This lack of perfect information contributed heavily to the devastating effects of the mortgage bubble.  

2.  Consumers and producers always make rational decisions when purchasing or producing goods and services (i.e., buy at the optimal price and produce at optimal levels).

Some failures of this concept are described in Richard Olsen’s writing The Fallacy of the Invisible Hand.  In that article, differences in time horizons of different investors are used to examine the problem of heterogeneous agents.  In other words, investors do not make decisions based solely on price, but also depending on the length of time they expect for a return. 

The assumption of rationality also ignores interpersonal aspects of consumers and producers, such as emotional purchases or production decisions, and decisions made based on social preferences and priorities.  For this assumption to hold true, the flow of information would also need to be perfect, which as described above, is not often in the best interest of a profit-maximizing firm.

3.  Entry to and exit from the marketplace is easy (low “barriers to entry”). In short, barriers to entry are advantages held by established firms over firms entering the market, such as up-front capital costs, reputation, and revenue to support operating costs.  In modern times, this assumption holds true only in a very limited number of industries, such as some consulting services, computer programming, and internet retailing. 

The technological knowledge required to participate in lower barrier to entry industries often requires significant personal investment of time and money, which in itself is a barrier to many.  In addition, low barrier industries are often reliant on higher-barrier industries, such as manufacturing, real estate development, and energy production.  For the majority of industries, a startup competing with established firms requires a huge influx of resources, investments of both time and money, to compete with firms that have established reputations and economies of scale.  The resources required to compete in today’s landscape are available to very few.

4.  There are a large number of firms within a given industry, each selling a homogenous product. A real-world condition that represents this assumption has yet to be found.  Homogenous products are just not good for business (General Motors is one example).  Industries where products are largely homogenous trend in real-world examples towards fewer firms, such as with Coke and Pepsi. 

It is often industries with largely heterogeneous products that trend towards the greatest number of firms.  A world of homogenous choices also raises questions about personal freedom and individual choice, values that are promoted by many free market pundits as benefitting from a free market economy.

5.  The actions of an individual firm have little to no effect on market price. To see the fallacies of this assumption, one only need look to the effects of WalMart on local small businesses.  In today’s economy, large firms have amassed sufficient market power to be able to affect market prices by influencing suppliers, driving down price and margin to levels that competitors cannot maintain.

Capitalism has been a very successful system producing a host of innovations and generally increasing the standard of living around the world.  However, it is not a perfect system.  People make the markets, and people are not perfect.  People do not exist in the abstract and are not controlled by assumptions we choose to place on them for market-based analytical purposes. 

At their core, the invisible hand and free market economy are romantic notions, born from a romantic time.  The conditions necessary for the free market economy to function simply do not exist in today’s world, if they ever did.  A pure free market does not provide for the greatest social good, only the greatest good to those with the means to exploit weaknesses in a free market system. 

This can be seen in the large increases in income disparity that correspond with the deregulation of financial and other markets over the past three decades. To function properly and efficiently, markets need guidance.  The term “invisible hand” first appeared in The Wealth of Nations, where author Adam Smith popularized the notion that the study of market forces was a worthy pursuit, and one that could serve the greater social good, largely establishing economics as an academic discipline. 

The study of economics has been working to guide markets ever since.  In a sense, the notion of a pure free market economy seeks the absence of this guidance, and thus is contrary to the notions that build its foundation.

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What Will the Crowdfunding Bill Do For Startups?

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By Piper Kujac

Since the crowdfunding bill, officially called the HR-2930 Entrepreneur Access to Capital Act, was accepted by the House on November 2nd, and is expected to pass in the Senate any day now, we’re all wondering what this really means for small business fundraising.  Is this the access to fundraising start-ups need from the SEC?  With sites like Kickstarter, Kiva, IndieGoGo, and Rockethub, does the new act really matter?

As it stands, individuals who wish to fund their bright ideas may do so by collecting "donations" in the form of crowdsourcing, but they cannot sell stock or other securities to their benefactors through social media. In the 1930s, the Securities and Exchange Commission prohibited organizations from "general solicitation" for funding without a substantive relationship with accredited investors. Therefore, social media sites, such as Twitter and Facebook, cannot currently be used to reach people for funding unless the solicitation takes place in the form of a direct message. Third-party social media sites must be registered with the SEC as an official "broker-dealer" before users can legally accept transaction-based compensation or offer securities sales or stock in the company.

The Entrepreneur Act proposes that these commonplace crowdsourcing sites may now be used to solicit funding up to a $2M cap, with a max $10K allowed per investor (or 10 percent of the investor’s income).  This vastly increases the potential of small startup businesses, as well as established businesses, to secure funding from individual and even anonymous investors through social media sites, when they otherwise may not be able to with a traditional bank.

There are certain downsides to crowdfunding for startups, however.  Under state law, minority stockholders have certain rights, such as voting rights, and may inspect a company’s books and records, as well as bring claims against a company they invest in.  Having a large number of people invest insignificant amounts into a company, and earn stockholder rights in that company, is a potential administrative nightmare as well as time-consuming and costly.  Additionally, crowdfunding may deter traditional VCs from investing in a company if they see hundreds of non-SEC registered investor/stockholders.  These same VCs may not want to sit on the board of directors of a company that has hundreds of other investors and stockholders, due to liability and risks of lawsuits. Likewise, D&O liability insurance rates could skyrocket for these companies.

That said, it takes money to start and run a business, and in today’s economy securing a loan is difficult, if not impossible, for most would-be startups.  At this point, the proposed law has Obama’s support, and some version of it is expected to be passed by the Senate in the coming weeks.  This will significantly improve small businesses’ ability to raise funds and grow their business, but not without significant risks.

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Environmental Stewardship on the NASCAR Circuit....Confusing?

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3p is proud to partner with the Presidio Graduate School’s Managerial Marketing course on a blogging series about “sustainable marketing.” This post is part of that series. To follow along, please click here. By Joseph Wilzbacher In Ken Belson’s New York Times article on NASCAR, the author highlights the green initiatives being taken within the industry. NASCAR, going green? It seems like an oxymoron as he suggests. The industry exists due to a grand desire to watch fast vehicles going in circles consuming a gallon of fuel every four to five miles. Like many indulgences, the NASCAR pastime isn’t going anywhere. Yes, it heavily pollutes and drives (no pun intended) demand for consumption. Despite its negative impacts on the environment we shouldn’t dismiss the positive efforts being put forth to mitigate the impact. Large recycling efforts including lubricants, fuel rags, scrap metal, tires, and metal shavings have been implemented along with solar power fields, sheep grazing on the infield, and tree planting offsets. [caption id="attachment_94781" align="alignright" width="259" caption="Shredded for children's playgrounds and asphalt mixtures"][/caption] Critics call it greenwashing, but as the recipients of that message may not be as responsive to green marketing, the actions being taken appear to be driven more closely by benefits other than marketing their sport. In fact there are worries from the diehard fans that switching to ethanol could affect the performance of the vehicles, while environmentalists express concern over the substitution of corn fields supplying food to supplying fuel. The side effects of our ethanol consumption are profound. Marketing it as green has many challenges and critics. Most people accept ethanol as a greener alternative to fuel because it is cleaner, but it also exacerbates problems to other resources.  The U.S. exports of corn will be reduced, driving the development of alternative land within the higher income importers. The lower income importers would have to substitute corn for wheat or other grain. The price of beef will increase as herds are reduced to make room for corn fields. The water required for expanding fields will have a global impact.  Ethanol is currently 5 billion of the 12.5 billion bushel U.S. corn crop, growing from 1.4 billion just 6 years ago. “Green” initiatives and marketing those initiatives get a variety of responses depending on the industry, the target audience, and systematic impact. Environmental activists can continue to protest and fight industries that have a large impact on our environment but they must applaud the incremental strides towards becoming more responsible, such as the case with NASCAR.  They also must continue to raise the interdependent effects of some of these trends to bring full awareness to the impact and best prepare for those consequences whether intended or not. Each green initiative can be viewed from many personal frameworks offering benefits that satisfy each individual’s values. The concentration of NASCAR fans from the Midwest and South may see these initiatives as patriotic duties to wean our country of reliance of foreign oil. Other’s strictly value the environmental impact with reduction in waste generations from the events. Operation managers enjoy the monetary savings or growth they receive from energy efficiencies and positive PR respectively. All perspectives can claim satisfaction in environmental stewardship, whether they enjoy the monetary savings, the impact on climate change, or sovereign independence. Is it marketing or just the common sense driving the evolution of how things are done? Just as sustainability has penetrated movie making, shopping, professional sports, and the airline industry, why not penetrate all contributors to our environmental consumption? Perhaps it’s because it makes business sense too.
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Renewable Energy Credits Explained

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By Mirsad Hasic

Many companies which cannot invest in their own solar panels or wind turbines purchase green energy credits. These credits represent the renewable energy resources associated with power production. When they are certified, they are eligible for renewable energy certificates (RECs). The credit can be sold, bartered or traded and the green energy credits represent the source of the energy produced.

RECs are similar to carbon emissions trading except, instead of trading tons of avoided carbon, kilowatt hours are traded. For RECs, the green energy credits represent electricity produced using environmentally friendly processes while the certificate is sold to a third party company.

For example, a wind farm would be credited with one green energy credit for every 1000 kWh of electricity produced. A designated agency certifies the production and issues a number for each certificate.

The electricity produced by the wind farm is then routed into the commercial electrical grid (this is a requirement for an REC). At that point, the REC can be sold by the owner of the wind farm.

Markets for Green Energy Credits

Markets for renewable energy certificates are divided into compliance ad voluntary markets. Compliance markets exist in 29 states in the US, the District of Columbia and Puerto Rico. Electric companies in those states must generate a percentage of power from renewable resources by a certain time.

In California, the law mandates 33% of electricity produced must utilize renewable resources by the year 2020. By 2013, New York will have a 24% requirement for renewable energy.

By purchasing green energy credits, the states can meet the requirements set by the laws of that state. It’s a balancing act where solar and wind energy created in one part of the country can be used to offset use of fossil fuels in another state.

Voluntary markets are states that do not have set requirements for producing a certain amount of power through renewable resources. In these states, customers choose to buy renewable energy due to concerns for the environment. RECs sold in voluntary markets are usually sold for less than in the compliance markets where acquiring REC’s is the only way to meet timelines of state laws.

There is much discussion and dispute over the marketing of green energy credits as critics have pointed to flaws in the system. Solar and wind power can be intermittent as they depend on natural factors out of our control (sun and wind).

The critics claim the unreliable electrical production of solar and wind cannot be used to cancel other energy sources. Proponents of green energy credits hold that greenhouse gas, sulfur, nitrogen and other pollutants are reduced overall.

The business of selling renewable energy certificates has grown rapidly but there is not a national registry of the RECs being issued. There is a voluntary program to ensure the certificates account for and not double counted. This program is form of an audit where a third party verifies the creation and sale of an REC.

Today most RECs are assigned numbers that are uniquely identifying and can be tracked. Systems are becoming available on a regional basis that can keep a running audit of green energy credits and this tracking ability will grow as the business of green energy continues to flourish.

Where Do Green Energy Credits Come From?

There are several power producing technologies that can qualify for creating green energy credits. These are

Why Would Business Buy Green Energy Credits?

Environmental concerns have gained public awareness and focus in recent years. Damage to the environment caused by burning fossils fuels to provide for our ever increasing need for electricity is problem that must be solved.

The renewable energy resources must be captured where they are readily available. You can build a fossil fuel burning power plant anywhere there’s enough land but you can’t relocate a geothermal field.

Some areas of the country have winds that blow reliably day after day while others have winds that are blocked by mountains or other topography. In states like Arizona, the strong sunshine is a daily fact of life while in northern Ohio clouds hide the sun for days on end throughout the year.

Selling green energy credits encourages the use of renewable resources for electricity production by providing a financial incentive to companies investing in these energy sources. At the same time, use of renewable energy decreases the environmental damage of fossil fuel plants in that area.

Renewable energy certificates provide money for further growth of natural renewable power sources and allow companies and individuals across the country an opportunity to participate in the “green” movement.

One of the leading web hosting providers in the country features green energy credits on sales pages. Located in Texas, this company buys REC’s produced by Texas wind farms.

That company now hosts over 4,000,000 websites with 130% wind power. By purchasing renewable energy certificates, the company has in effect eliminated its reliance on fossil fuels and can advertise as an environmentally responsible hosting provider.

An entire new group of businesses has resulted from REC’s. These companies focus on providing funds for clean energy and carbon reduction projects by selling green energy credits to businesses in large cities that will allow wind farms and solar power producers to expand their production.

Summary

When a wind farm, geothermal field or other form of renewable resource is used to produce electrical power that power can be sold to a commercial power grid. If that is done, a renewable energy certificate is issued and that certificate can then sold to offset power use of a company located in a city far away from the power plant. Once the certificate has been sold, it is used to offset the buyer’s electrical use and meet state requirements. At that point, the certificate is retired as it can only be used one time for one power offset.

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Starbucks Prepares for Disrupted Coffee Production Due to Climate Change

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There's just something about coffee. From that first sacred sip in the morning while reading the paper to the mid-day pick-me-up, coffee is like fuel for many people. The price of that fuel may increase in the future as coffee supplies dwindle thanks to climate change. Last week Starbucks sustainability director, Jim Hanna told the Guardian that climate change is already affecting coffee farmers.

"What we are really seeing as a company as we look 10, 20, 30 years down the road – if conditions continue as they are – is a potentially significant risk to our supply chain, which is the Arabica coffee bean," Hanna said. "Even in very well established coffee plantations and farms, we are hearing more and more stories of impacts."

Starbucks is taking a proactive approach to climate change risks. Hanna will be in Washington, D.C. on Friday to speak to members of Congress about climate change and coffee at an event sponsored by the Union of Concerned Scientists (UCS).

"If we sit by and wait until the impacts of climate change are so severe that is impacting our supply chain then that puts us at a greater risk," Hanna said. "From a business perspective we really need to address this now, and to look five, 10, and 20 years down the road."

Coffee supplies are being reduced by higher temperatures, long droughts and intense rainfall, plus more resilient pests and plant diseases, according to the UCS, "all of which are associated with climate change." Coffee varieties adapted to certain climate zones so a temperature increase of just a half of a degree can have a big affect and cause lower crop yields. A good example is the almost 30 percent decrease in Indian coffee production From 2002 to 2011.

"Coffee likes a pretty narrow range of temperatures, and one of the hallmarks, really, of climate change will be increased extremes in temperatures," said Todd Sanford, a climate scientist from the UCS.

Chocolate and tea production also affected by climate change

Coffee is not the only food product affected by climate change. A recent International Centre for Tropical Agriculture (known by the Spanish acronym, CIAT) study predicted a one-degree Celsius temperature increase by 2030 and 2.3 degrees Celsius by 2050 in the Ivory Coast and Ghana, which would make it too hot to grow chocolate. Both countries supply more than half of the world's cocoa.

The CIAT report's lead author, Peter Laderach said that preparation is very important. "There is no doubt that these findings are severe," said Laderach. "But preparation is the name of the game. There is a lot that farmers, governments, scientists – and key players in the cocoa supply chains – can do to help protect and improve cocoa production. But these measures need to be implemented very quickly."

Tea is also being affected by climate change, according to a CIAT report released in May. Climate change will cause increases in average temperatures and rainfall which will cause many Kenyan farmers at lower elevations to abandon growing tea.

Photo: Flickr user, Dyobmit

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Patagonia Asks Its Customers to 'Buy Less' and Boosts Customer Base

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Asking your customers to buy less of your product isn't typically considered a good sales strategy but that is exactly what Patagonia is doing. As the California-based company opens its first flagship store in London's Covent Gardens it has also teamed up with eBay to create the Common Threads Initiative. This campaign aims to encourage customers to buy fewer new things and instead to participate in a dedicated used-clothing marketplace for Patagonia gear.

The company has always been a bit of a maverick when it comes to sustainability. It gives 10% of pre-tax revenue to environmental activist groups and always aimed to make its clothing as eco-friendly as possible. It has also made a promise to its customers to make their products durable in order to ensure that a product can be used for as long as possible. 

According to TIME, the campaign bolsters Patagonia's strong environmental credentials and attracts more customers. Secondly, since there are actively spreading the message to "buy less, buy quality," they are indirectly marketing themselves. Harvard Business Review points out that this could actually justify the high-prices of the merchandise as the customer is paying for quality. Indeed by asking customers to buy less, Patagonia may in fact be boosting sales. Eric Lowett goes on to elaborate that:

Two types of customers could be more inclined to buy new Patagonia apparel as a result of Patagonia’s efforts: customers who make decisions based on sustainability considerations and customers who can now sell their used Patagonia apparel for cash to buy new apparel.

Patagonia also offers a recycling service for its customers for items that are so badly worn out that they cannot be resold. Since 2005, they have taken back 45 tons of clothing and have made 34 tons into new clothes. They have managed to recycle old clothes into new fiber or or fabrics or repurpose what cannot be recycled.

Through both these methods, Patagonia is increasing their brand value by boosting the perceived value of their products. Items are traded second-hand only if there is an after-sale value that is tangible. Most clothing items are so poorly manufactured that second-hand sale is not an option. By creating a marketplace for its own goods via eBay, Patagonia is effectively creating an untapped secondary market for its own products. What is beautiful is that it creates its own self-reviving loop which can also attracts new customers and increase market reach. A Patagonia customer can sell his old apparel online and use that income to buy new Patagonia products. The buyer of second-hand gear may well be a brand new customer that Patagonia has yet to reach.

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Ray Anderson: Our Captain, Our Captain

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By: Martin Melaver

Ray Anderson, founder and chairman of Interface, Inc., author of two books on sustainability and a tireless champion for re-inventing business to service the environment, passed away last Monday at the age of 77.

Ray was vice-chairman of my company for eight years, a mentor, a guide, and a dear friend. I write this in the hours leading up to his memorial service, a bittersweet time for so many of us, whose sadness at his passing is mixed with a celebration of a life that helped launch the sustainability movement globally.

For Ray was one of those rare individuals who somehow touched the core of what human-ness is all about – a blend of ambition and selflessness. He would begin most every talk he gave with the statement that he was as driven and as competitive as any businessman you would ever meet. And yet somehow, he would “flip” this all-so-common human trait, one most of his audience identified with, into something filled with a higher purpose: stewardship of planet earth. He was a self-proclaimed plunderer of natural capital, a sinner – but then by implication so weren’t we all? And his hope and undiminished optimism gave us all a clear path toward redemption.

Ray never said a lot at our quarterly board meetings. But when he did, you sat up and took notice. At one of our last board meetings together, several years ago, Ray came up with this pronouncement: “Wouldn’t it be something,” he said, “if as a real estate development company, we would be profitable as a result of what we didn’t build instead of what we did.”

I thought he was crazy. Well, to be more accurate, what I really thought at the time was more along the lines of it sure must be nice to sit back and make these Yoda-like oracular pronouncements. He’s Ray Anderson. Everything he says is wise, right? How in the hell are we supposed to reinvent a real estate company that profits more by building less?

But like a true radical industrialist, Ray was on to something. It’s just taken a lag time of several years for me to figure that out and launch a new business based on his premise.

It’s a document chock full of data on the diminshment of our home, one that we all need to keep close by. But one chart buried in the middle of the report gets to the heart of it all:

WWF Living Planet Report 2010, p. 73

In 2010, the World Wildlife Federation, in conjunction with the Global Footprint Network, published its Living Planet Report.


The chart looks at Human Development around the globe as it relates to consumption. The message is as clear as it is known to many of us already. We in the first world are consuming more and more resources, but not getting much more from that consumption. We're not getting more in the way of longevity, or reasonable healthcare or educational access, or economic well-being or downright happiness. I don’t know if Ray would have expressed it this way, but our consumption has become both a cause and symptom of our increasing lack of community and our lack of connection to one another.

But Ray knew this intuitively. He knew that we needed to better utilize all that we already have, rather than discard and replace with some new thing. He knew that a sustainability movement was not about technology – despite his engineering background – but about people. It was about changing one mind at a time, one mindset at a time, one business at a time, one community at a time, one law at a time. One of his best aphorisms went like this: “Every time a person embraces the environment, that’s one more of us and one less of them.”

I feel blessed to be one of the many thousands whom Ray embraced as one of his own.

Martin Melaver is a principal and founder of Melaver McIntosh, a sustainable development and consulting firm focused on transformative approaches to regenerating communities and businesses. He is the author of Living Above the Store: Building a Business That Creates Value, Inspires Change, and Restores Land and Community, foreword by Ray Anderson.

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Stakeholder Engagement in Mining Operations

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This post is part of a series on Stakeholder Engagement sponsored by Jurat Software.

Stakeholder Engagement can actually be worth its weight in gold. Prof. Witold Henisz of Wharton Business School has been studying political and social risk management for 15 years, focusing mainly on strategies of avoidance by studying gold mines. Henisz and this colleagues used data from 26 gold mines owned by 19 publicly traded firms between 1993 and 2008. By coding more than 50,000 "stakeholder events" found in media reports they developed an index of the degree of stakeholder cooperation or conflict for these mines.

The term "stakeholders" in this context, says Henisz, includes everyone from local and national politicians and community leaders to priests, war lords, paramilitary groups, NGOs and international bodies like the World Bank. The term "stakeholder event" includes reported actions or expressions of sentiment from these groups that indicate cooperation with the mine owners, as well conflict with them.

The researchers' goal was to figure out what role these stakeholder events played in companies' efforts to maximize profits. As Henisz notes:

"There is a powerful business case to win the hearts and minds of external stakeholders. We found in our research that the value of the relationship with politicians and community members is worth twice as much as the value of the gold that the 26 mines ostensibly control."

Putting a Value on Stakeholder Engagement

But how do you put a value on stakeholder engagement? In order to quantify this, the researchers looked at the firms' listings on the Toronto Stock Exchange, which requires each company to disclose enough data to calculate the net present value of their gold mine(s). The data includes audited information on gold reserves, what it will cost to get the gold out, what a mine's fixed costs are, etc. Based on this information, an estimate of gold value from each mine and market value of the parent company was calculated. Then tracking the actions of media-relevant stakeholders allowed the researchers to study the degree of cooperation and conflict for each mine. Then they came up with a single metric that served as an estimate of these delays and disruptions, improving the fit of the financial market valuation estimation of the 19 publicly traded parent firms.

"By incorporating this metric in a market capitalization analysis that also includes macro-political level constraints on policy change, we reduce the discount placed by financial markets on the net present value of the gold controlled by these 19 firms from 72% down to between 33% and 12%," the authors write in their paper.

This research is important because it finally quantifies what some mining firms have known all along -- that reducing conflict with external stakeholders in favor of winning their cooperation improves the companies' chances that a business plan can proceed on budget and on time, and most importantly, generate sustainable shareholder value.

Wider Implications of the Study

"Our findings are applicable wherever there is a project-based investment that can be delayed or disrupted and where people are worried about water supply, traffic patterns, environmental damage and so forth." Henisz says.

He has  also compiled a list of best practices for businesses that are serious about engaging stakeholders. First, he says, change the mindset of the company so that employees across the board believe that stakeholders are important. Second, get the necessary data to explain who the stakeholders are, what they want and who is connected to whom. Third, find a way to link data to operating performance, integrating the information into risk management systems rather than treating it as a separate category. Fourth, interact with stakeholders in the community in a genuine and fair manner; respond to their concerns and form connections rather than just writing a check. And last, find a way to disseminate information about the ongoing project that is credible and transparent.

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Albertsons Shows How to Engage the Unengaged

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This post is part of a series on Stakeholder Engagement sponsored by Jurat Software.

When you consider a business like Whole Foods, the connection between customer engagement and sustainability is obvious, because the company has established a firm identity in conservation and related issues -- and when it forgets, alert customers will remind it. The challenge for a more mainstream supermarket like Albertsons is to bring conservation and recycling topics home to a clientele that may be too caught up in the rush of daily life to press for changes. The reward, though, is to reach a large cross-section of the population that may not otherwise cross paths with a well planned, focused sustainability effort. Albertson's has some ambitious zero waste plans for this fiscal year that promise to make corporate social responsibility part and parcel of one of life's most ordinary routines, the trip to the supermarket.

Albertsons, Zero Waste and Food Banks

Albertsons, which is a division of SUPERVALU, already tested the waters of zero waste with two of its Albertsons stores in Santa Barbara. The new plans include adding another 40 more by the time its fiscal year ends in February 2012. Although to SUPERVALU a zero is not necessarily a zero - the stores only have to achieve 90 percent to qualify for "zero waste" - it's still a good goal. Of particular interest is the company's existing engagement with food bank donations in order to reach that goal. SUPERVALU already has a strong track record in that regard, with about 60 million pounds donated through its Fresh Rescue program last year.

Engaging the Unengaged

One glance at an Albertsons weekly flyer is enough to tell you that the customer base is still shopping in pre-conservation mode, but that provides even more value to the company's CSR efforts. Reaching out to new audiences can be, and should be, a primary goal, and that's where companies selling "non-sustainable" products can have the greatest effect. That goes for services and activities, too, especially those in which sustainability would seem to be the last thing on anyone's mind. One great example is the world of auto racing, where California's Infineon Raceway is bringing sustainability concepts to thousands of racing fans. Another example is the U.S. military. Among many other sustainability programs, the Army's Net Zero Vision for military bases is going to impact hundreds of thousands of military personnel, their families, and their communities.

SUPERVALU and CSR

SUPERVALU may have a long way to go in some areas, but its latest CSR report (caution, big file) indicates a key strength, and that is its community partnerships. Aside from the Fresh Rescue program, the two Albertsons partnered with the City of Santa Barbara in a joint organic waste composting program. The report also underscores the profitability potentials for a well planned waste reduction effort, with a combination of recycling revenues and avoided waste disposal costs.

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