On Wednesday, the Financial Times sponsored a very timely conference in New York with a focus on sustainable investments. In the face of uncertainty surrounding climate legislation, long term viability of certain alternative energy sectors, and risk averse investors, there were many relevant topics to be discussed.
The primary theme of the conference centered around tools and themes relating to investments in the environmental infrastructure of the next 10-50 years. Like any conference with a green theme, the typical high-level topics were covered. Discussions were woven around ESG reporting requirements, market outlooks for renewable credits, equity driven recommendations around who is/is not taking the lead, and long term sustainable investment themes.
Despite all of the positive discussions, I felt somewhat empty after leaving the final session of the day. I should be clear that this is not through a lack of qualified speakers or interesting discussion topics. Quite the contrary — for the most part, the speaker lineup was far better than what has been the standard self-promotional speakers that typify green conferences.
The problem was that there was not much new to discuss in what can be a viewed as a great market opportunity. I have been working at the intersection of applied technology, finance and environmental commodity markets for more than 15 years. The piece that bothers me is that the action items, for the most part, are the same as those that were ubiquitous when I came out of graduate school (ie., define “sustainability”) in 1996.
The bright spot: data
However, it became clear through the course of the day that there is a bright spot for a niche that has not been exploited to any meaningful degree in this community: the application and analysis of new and existing forms of data.
It was only a couple of decades ago that most manufacturing companies reported only what was required to satisfy local, state and federal pollution permits and/or regulations. The environmental management divisions were usually part of health and safety groups (many still are) and they were largely considered to be internal watchdogs, making sure that operations continued with minimal permit violations.
As cost pressures on raw materials and operations increased, innovative companies started to look at their own wastestreams for alternative uses of material not integral to the primary activity of the facility. As a result, new markets were spawned out of incremental improvements in operational procedures, centered around efficiency. Fast forward to 2011 and we now see job titles such as “chief sustainability officer” and “director of global environmental strategy.” Instead of being a liability, cleaner operational procedures essentially evolved into a strategic profit center, right alongside the “core” business units.
The fact is that most companies are now tracking their inputs and byproducts very carefully, whether they are doing so as a direct means to reduce pollution, as a cost-savings measure, or simply for PR to satisfy investors. The net result is that there has been an exponential increase in efficiency/environmental data available for primary stakeholders and investors alike. The challenge, and what I see as the opportunity, is how this data can be turned into something that creates value beyond the obligatory satisfaction of regulatory requirements.
All of the panels at the FT event presented cogent arguments for being proactive, and how their financial performance correlates to their various activities (I was particularly impressed by the discussion by the Bombardier exec). But I do want to see what comes next. What I really wanted to learn was how these massive datastreams, possibly analyzed in a different way, can create new markets. It is nice to say that we reduced pollutant-X by a measure of 20% year on year. It’s even better to say that we turned 15% of pollutant-X into a profit center.
Some interesting facts and partial truths came out of the various talks of the day, many of which stressed that new ways of doing business are needed to keep up with seemingly insatiable demand for raw materials. For example, in one early talk, a panelist noted that the US has only one metro population center with greater than 5 million people. By contrast, China has 51.
But there were also times where some fact checking was probably needed, evidenced by the statement from another panelist who described the sustainability initiatives at most Indian companies as top of mind to everyone from CEO to clerk. Or, that China has emerged as the world’s cleantech leader as a result of the desire to develop industries around cleaner sources of energy extraction and production. While the benefits can not be discounted, we should be clear that in both cases the market is the driving mechanism.
I was also pleased to see a session devoted to what I feel will be the environmental wildcard of the century. Regardless of what may or may not emerge on the climate side, the limiting factor for all global corporations, whether they be in energy, material extraction, or agriculture, will be water.
Getting back to data, the sustainability focus of a manufacturing company stands to benefit from the current developments in the fledgling world of the smart grid. Industrial ecology is, at heart, a perfect application of applied data science. If what the associated sectors have been moving toward comes to fruition, in theory, a facility can be expected to manage every ounce of material (and byproduct) from the moment it crosses the gate on the inbound side, to where it leaves the facility as product, emission or effluent. New economic uses for previously discarded material will also be realized, as one man’s waste is another’s treasure. One need to look no farther than bagasse in Brazil for a simple example.
When it comes to establishing a meaningful dialogue around the creation and utility of data, the use of proper metrics will certainly arise as an issue, as will the creation of a meaningful baseline. When a panelist described her percentage reduction of a certain byproduct without referencing normal usage at a facility, this does not mean very much out of context. A weather analogy is appropriate here: Regions of interior Australia have been reported over the last few months to have received 500% more precipitation than the five-year average. However, +500% over 0.1 mm is still nothing.
What I am really looking forward to is next year’s FT conference, with at least a session or two that has data at its core.