by Parag Khanna
Even oil-rich countries are investing in a non-oil future. Abu Dhabi’s Masdar City, a joint venture with General Electric, MIT, and numerous other international partners, aims to create a $22 billion, fully carbon neutral eco-city to be ready by 2016, complete with fifty thousand residents. All power will come from photovoltaic cells and hot-water collectors, cars will be banned, electric-powered shuttles will ferry citizens around, and waste water will irrigate biofuel farms.
Africa is another emerging market for clean energy, and a continent that could literally grow its own power. In Mali (as in the Asian countries of India, China, and the Philippines), a low-maintenance plant called jatropha is being planted widely, and modified generators that run on oil from its seeds are being distributed hundreds of miles from any electricity grid.3 In Malawi, the Dutch mail delivery company TNT has planted biofuel beans, creating a market for twenty thousand farmers. And in Ethiopia, the French firm Vergnet is building the continent’s largest wind farm.
Biofuel cars in Brazil, CO2 scrubbers in China, electric cars in India, and crop power in Africa—these are the signs of progress on climate change, not goals set for 2050. A treaty is just the icing on the cake after innovative firms have done the real work.
Eco-Crusaders
Some people go to great lengths to protect the environment when no official authority will. Ted Turner and other philanthropists have bought up chunks of Montana and now Argentina in order to protect its wilderness—while also keeping in mind that if the rest of the forests don’t survive the ax, their plots will be the most valuable to turn into eco-resorts. Then there is Anthony White, a wealthy Australian painter who offered Blackwater millions of dollars to protect whales from Japanese harpoons since the Australian coast guard won’t. Since trees and tribes lack a political voice, representatives of the UK-based NGO Survival International and the World Rainforest Movement laid down their bodies to block two major Brazilian logging companies from destroying a major section of the Paraguayan Amazon inhabited by indigenous peoples. NGO pressure has resulted in more than a third of the Amazon now being self-governed by local tribes.
The role of NGOs in transforming the world’s economy and consciousness in an eco-friendly direction cannot be understated. In 1995, Greenpeace spent $1 million to prevent Shell’s sinking of the Brent Spar oil rig in the North Sea, setting a precedent whereby all out-of-use rigs are now disposed of on land. No company wants to be named one of the notorious “Toxic Ten” in the categories of air pollution or chemical waste either, so they often comply to get NGOs off their backs. After the Brent Spar incident, Shell seeded a foundation with $250 million, much of which is distributed in loans to African small- and medium-sized enterprises and invested in infrastructure services for poor communities in Africa and Asia. One signal success has been Zingisa Coal, a small mining firm started by just five women in South Africa. After the women were turned down by dozens of banks, Shell loaned them $70,000, enough to grow and even expand their operations across Africa.
Shell and other companies have learned that NGOs aren’t all out to get them, but can help their image and their bottom line. Companies don’t want their personnel to be attacked and held hostage by tribes in protest of their disposal of arsenic and mercury into local waters, as happened to Denver-based Newmont Mining in Indonesia. Nor do they want to contribute to deforestation and soil erosion to such an extent that locals are driven into the arms of insurgencies that block their access to mines, as was the case with BHP Billiton in the Philippines. NGOs can help enhance their local credibility. Yes, certain NGOs are made up of hysterical activists, such as those who blocked the opening of a Romanian gold mine that would have provided thousands of jobs for poor locals. But increasingly they follow the savvy model of Fred Krupp, who as head of the Environmental Defense Fund (EDF) was not only a chief architect of America’s Clean Air Act but also a pioneer of coalitions with Fortune 500 companies to coach them in reducing emissions. When private equity giant Kohlberg, Kravis, Roberts & Co. partners with EDF to evaluate all its investments for eco-compliance, you know something has changed in corporate-NGO relations.
NGOs set the very standards governments and companies use to measure their own environmental policies. The World Business Council for Sustainable Development (WBCSD)—whose unofficial motto is “Business cannot succeed if society fails”—has two hundred members whose combined economic value is $8 trillion. Its Greenhouse Gas Protocol is the most widely used international accounting tool for both governments and businesses to quantify and manage their emissions. WBCSD specializes in working by sector as well. Its cement initiative represents almost half the world’s cement industry and helps construction giants such as Lafarge of France consume less energy in cement production and building construction. The Access Initiative, Climate Action Network, and Carbon Disclosure Project are other networks of hundreds of NGOs who each provide tailored guidance to companies and gather disclosures from them one by one.
The future of managing the environment can be seen in multi-stakeholder initiatives that often have NGOs as their hubs. For example, the Forestry Stewardship Council (FSC), launched by the World Wildlife Fund, takes no funding from the timber industry but manages the de facto standard codes for timber-harvesting operations and allocates the coveted FSC logo, which certified companies can label on their products. When the American Forest and Paper Association and other industry groups countered with their own voluntary and more lax codes, NGO pressure through the Rainforest Action Network forced Georgia-Pacific, International Paper, and retailers such as Home Depot to drop the ruse and elevate to the FSC standards. To protect their brand, Office Depot and Staples have ended their relationship with Asian Pulp and Paper, whose practices plundered the Indonesian rain forest. The Marine Stewardship Council plays a similar role for fisheries, 70 percent of which are being harvested to below replacement levels, using the power of its labels to certify seafood producers. It even uses real-time Google Earth maps on its website to track and promote sustainable fisheries and their techniques. In Alaska, the privatization of fisheries incentivized fishermen to catch halibut only when prices are high, saving the fish from overexploitation. For both forests and fisheries, a sense of local ownership is the key to building community-level sustainability.
Protecting natural habitats can go hand in hand with tourism. In Brazil’s Amazonian state of Pará, the minerals conglomerate Vale operates a massive open-pit iron ore mine but also partners with local government and NGOs to preserve one million acres of forest around the mine. Rather than chop the trees down, the group instead runs a guesthouse to show tourists how such a partnership has resulted in greater community revenues while preserving huge natural habitats. In New Caledonia, Vale cooperates with local authorities to hire people from tribal communities and train them as environmental technicians to protect plant species. NGOs have also convinced Vale not to mine in areas designated as UNESCO World Heritage sites. Marriott, too, has partnered with the provincial government of Amazonas to protect 1.4 million acres of endangered forest, where it promotes sustainable tourism, while UNESCO and Expedia have combined to rehabilitate war-ravaged forests in Congo and hurricane-devastated communities in Mexico, opening them both to ecotourists.
NGOs are also the key drivers of government policy in the environmental arena. Conservation International spends more than $100 million per year in forty-four countries to protect endangered species, something few governments bother to advocate for, while the International Union for the Conservation of Nature (IUCN) directly advises seventy-five countries on biodiversity strategy and runs online training programs for environmental management professionals. The Russian government commissioned IUCN to conduct an impact assessment on its $20 billion Sakhalin II gas project, leading to a sound strategy for managing the local habitat. Governments may hold legal responsibility for protecting the planet, but it is mostly NGOs that show them how to do it.
The Business of Business Is Sustainability
Environmental innovation is a process, not an event, and it is best embodied in the work of SustainAbility. A mix of think tank and consultancy, SustainAbility counsels chemical, energy, and finance giants on managing their environmental risk and integrating reporting procedures into their operations. It actually pioneered the “triple bottom line” concept in the early 1990s to explain how companies should measure performance based on social and environmental criteria, in addition to financial. Corporations are paying top dollar for such insight today. SustainAbility recently helped DuPont start to transition beyond hazardous chemicals toward products and services with a greener footprint. SustainAbility is also a discreet broker among corporations, watchdog NGOs, and academic experts. It provides politics-free analysis of the environmental impact of everything from fuel cells to nanotechnology, and gets behind hortatory declarations to uncover whether the Chinese government is moving toward efficient technologies, and what impact urbanization is having on that country’s water supply. In this fourth wave, corporate statesmen have become environmental brokers as well. Acting in his private capacity as Goldman Sachs’s chief in China, John Thornton proposed that the China Yangtze River Three Gorges Project Development Corporation retain the Nature Conservancy, an American NGO, to consult on making the dam more efficient and erode less soil, a relationship that has stuck as the dam proceeds to completion.
One of SustainAbility’s principal backers, the reinsurance giant Swiss Re, shows how regulation within the private sector can move faster than any government. Upon realizing the impact of climate change on its own risk exposure, Swiss Re demanded that all of its clients perform climate assessments, as two-thirds of the FTSE 100 and Fortune 500 have now done. Swiss Re even invested $3 billion in wind and biomass power research. Given its client base of the world’s largest firms, the company can be as powerful a climate regulator as almost any world government.
Globalization makes government regulation of corporate activity far more complicated than it seems. Governments fear that corporations will run off to regulation-free zones, resulting in a loss of tax revenue for them. Yet a mix of regulation, shareholder activism, consumer boycotts, and other forms of leverage have steered many multinationals toward high environmental standards, even in developing countries where rules are lax or nonexistent. The same cannot be said of state-owned Chinese, Malaysian, or Russian companies. Chinese authorities have allowed lead-poisoned baby formula to circulate on the world’s grocery store shelves, but multinational corporations can almost never get away with such egregious actions due to the ISO standards, a set of thirteen thousand codes for product development and safety that apply much more to Pepsi and McDonald’s than to nameless state-owned firms with opaque or nonexistent standards.5 Globalization seems to allow for the regulation of everyone but the state itself.
In a world in which the mining multinational Rio Tinto has higher emissions than the country of Ireland, getting the largest companies to think in terms of the “triple bottom line” of people, planet, and profits simultaneously is more important than any international environmental convention. Even in the absence of strong regulations, and despite the financial crisis and volatility in oil prices, major energy-related firms are innovating internally to reduce their greenhouse gas emissions. BP, GE, Toyota, DuPont, and Michelin have all used their own equity to keep renewable projects going. UPS and FedEx are quickly converting fleets of thousands of vehicles to hybrid electro-diesel or other alternative fuels. John Browne’s efforts to reduce BP’s emissions cost the firm $20 million per year, but have saved more than $1.5 billion. The company continues to invest substantially in renewable energy, such as solar panel businesses and sustainable biomass, indicating a potentially long-term shift in the company’s acronym toward “Beyond Petroleum.”
Every industry can improve its environmental performance. Every year, 1.3 billion tires are shipped to third world countries to be burned or discarded in giant heaps into the oceans, polluting air, sea, and land equally. Green Rubber, a company based in rubber-rich Malaysia, has pioneered the science of devulcanizing tires and recycling them into new products. Paradoxically, the information revolution has not only failed to deliver the paperless office, it has also vastly increased electricity consumption. The world’s data centers consume more energy than all of Sweden. Air-conditioning accounts for 96 percent of the electricity that data centers use, with only 4 percent needed to actually store data. More efficient data center cooling, placing servers closer together, and making computers out of recyclable material are all steps the IT industry could take to live up to its aspiration to be a realm of abundant information without destroying nature’s abundance.
As in the arena of labor rights, perhaps no entity in the world can influence the global economy’s eco-footprint like Wal-Mart. The firm spends $500 million of its own every year to implement renewable energy in its supply chain, and it is moving toward a “zero waste” policy globally as well, requiring environmental reporting from all its suppliers—everywhere, with no exceptions. At its Sustainability Summit in Beijing in 2008, it announced that suppliers must make cuts of at least 20 percent in their energy usage to maintain their contracts. The NGO Environmental Defense no longer demonizes Wal-Mart but instead works with it to green its stores, improve conditions at the fish farms that provide its seafood, minimize its packaging waste, and improve the environmental performance of the thirty thousand Chinese factories that supply its stores.
Launched in 2005, GE’s Ecomagination initiative represents another blockbuster commitment by one of the world’s largest companies toward an alternative energy future. The project’s seventeen major products include the GE90–115B aircraft engine, which in a twin-engine plane emits 141,000 fewer tons of greenhouse gasses than competing four-engine planes, or enough CO2 to be absorbed by thirty-five thousand acres of forest. Ecomagination’s sales are reaching 10 percent of GE’s overall portfolio while making the company’s worldwide customers more energy efficient. Ecomagination is now reaching beyond its Masdar City work in Abu Dhabi. Together with the emirate’s Mubadala sovereign wealth fund, it has announced venture funds of a combined $40 billion to invest in pursuing renewable energy in Africa and Asia and has signed an agreement with China’s National Development and Reform Commission to advance renewable energy in two hundred second-tier Chinese cities. Between Wal-Mart and GE, the private sector is doing more to elevate China’s environmental policies and standards than any vague treaty could.
What remains is to ensure that more efficient and accessible technologies emerge for rich and poor nations alike. American and European venture capital funds pour $6 billion per year into clean technology, and institutional investors such as pension funds, endowments, and sovereign wealth funds represent by far the largest pool of capital taking an interest in clean energy. Whereas there used to be an unbridgeable “valley of death” between public and private-sector support for renewable energy research, the two now cooperate to commercialize risks from the earliest stages. Governments alone could never identify, fund, and scale up proven biomass, wind, hydro, geothermal, methane capture, and nitrogen-free fertilizer projects as quickly as those who want to profit from these innovations, including Kleiner, Perkins,
Caufield & Byers; RNK Capital; and Global Change Associates. Clearinghouses for clean energy trends such as the Climate Group and New Energy Finance have become a vital resource for investors lining up to enter the alternative energy market. The goal is not to find a single breakthrough, but to create an innovation space such as the GreenXchange, in which Nike, Best Buy, Yahoo!, and Salesforce operate an online commons to track and share eco-innovations seeking investment.
Nobody holds a monopoly on providing incentives to those interested in saving the planet. Companies and charities together fund huge competitions such as Coke’s clean water prize and the X-Prize, which awards $250 million in prizes across fifteen areas but has inspired $2.5 billion in investment among the competing teams to find solutions to cancer, emission-free driving, and human genome sequencing. Richard Branson has put $25 million into a “Carbon War Room” to fund emissions reductions in “battle theaters” such as industrialization, transport, electricity, and deforestation. Where else would we get ideas such as using ocean waves to generate electricity, feeding atmospheric CO2 to algae to produce biofuel, floating sulfur-dioxide balloons into the stratosphere to reflect more sunlight, and engineering giant parachutes to pull supertankers across the ocean? Competitions like those sponsored by the X-Prize Foundation are not a silver bullet but a symbol of the revolution in incentives under way to innovate solutions to problems that world leaders could never otherwise solve. We need more X-Prize competitions and fewer proposals for a toothless World Environment Organization.