Sunday, May 03, 2015

Fossil fuels: The stranded assets stymie

 Oil companies seem to be moving towards an acceptance that some hydrocarbon assets may never be developed  

From the weekly Innovation Forum Business Brief. Sign up here for weekly insight. 

When under pressure, is it better to rigidly resist or to prove pliable? Resistance could entail the risk of a sudden collapse if the pressure becomes too much, but pliability could ultimately mean giving in.

This is the dilemma faced by oil and gas majors over climate change. The industry has a bad reputation as a rigid resister – lobbying against regulation and funding climate sceptic think-tanks, for example. 

But the picture is not black-and-white.

Take BP, for example. In the 1980s and 1990s, BP funded extensive research into renewable energy and energy efficiency. In 1997 it went “beyond petroleum”. More recently, in 2005, it committed to spend $8bn on renewable investments by 2015.

A step back…   

But then the 1980s and 1990s programmes were closed down, “beyond petroleum” was dropped and much of the renewable investment in the last decade ended up being sold off. BP has not made any post-2015 renewable investment commitment.

It’s almost like someone trying to beat their bad habits by getting fit at the gym. They know it would be good for them, but lack the willpower to really go for it.

Now it looks like BP is at it again. At its AGM on 19 April, the company backed a resolution requiring it to disclose from 2016 more information about what it is doing to stress-test its business against the risk that its fossil-fuel assets will become stranded. This could happen if there are dramatic greenhouse-gas emissions cuts. The resolution was overwhelmingly adopted.
Then forward

BP’s move has been welcomed by some. The Church of England’s responsible investment team, for example, characterises it as “a step change in engagement between institutional shareholders and the oil and gas industry on the strategic challenge that climate change poses to the industry”.

Others will take more convincing, seeing the resolution as an attempt to head off the increasing fossil-fuel divestment movement. Campaign group, for example, says that BP is doing little so far to change its operational focus from oil and gas drilling.

What is most likely, however, is that BP’s resolution is what it is: an acknowledgement of increasing pressure on its core business, and that it must address the concerns of shareholders about this pressure.

Other companies look set to similarly take account of shareholders’ concerns. Shell and Statoil are likely to adopt identikit resolutions in the near future.

Paris pledges? 

The moves come ahead of the United Nations climate conference in Paris later this year, where politicians could make emissions-cutting pledges. Other regulatory measures are encroaching and will continue to encroach on the oil business.

For example, the day after the BP resolution, 62 institutional investors with about $2tn in assets wrote to the US Securities and Exchange Commission asking for tougher rules on disclosure of climate-related risks by oil and gas companies.

BP’s Energy Outlook 2035, published in January 2015, forecast a 37% rise in energy demand by 2035, with fossil fuels meeting most of that.

But with the AGM resolution, the company has in effect accepted that things might not turn out like that and it could be left with stranded assets on a vast scale. In the interests of shareholders, agreeing to assess this risk would seem to be the least it can do.

If you've any comments, do get in touch

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Upcoming cutting-edge Innovation Forum sustainability meetings. 

Join us for one of them. Just click on an event title below to check out the speakers and agenda.

Innovation Forum will also be hosting an event on "The Living Carbon Economy: Biomass, Cellulose and Trees - what they mean for successful corporate sustainability in the very near future". The conference will be held on November 19-20 in London. Email if you'd like to be involved.

Friday, May 01, 2015

Companies warm to carbon pricing

Corporate leaders can have a crucial role in the carbon price debate, says Paul Hohnen

As the Paris COP 21 UN climate summit approaches, expect to hear more and more CEOs coming out in favour of a price on carbon.

The trend has been long in coming and is – with some caveats – to be welcomed.

It was given additional impetus in June 2014 when a thousand firms signed a “putting a price on carbon” statement developed under a World Bank initiative.

Several months later, at the UN secretary-general’s climate summit, leading companies (including Acciona, Braskem, EDF, Nestle, Novozymes and Philips) supported a “carbon pricing champions” initiative.

This included a commitment to set an internal carbon price and publicly advocate the importance of carbon pricing.

CEO chatter

With even mainstream business newspapers such as the Financial Times and the Economist now on record as supporting a carbon price, more CEOs from major mining (such as coal miner BHP), oil (Shell) and agriculture (Olam) companies are talking about the need for a carbon price.

The reasons are easy enough to understand.

If climate change is to be tackled effectively, the cost of carbon-based fuels needs to rise to reflect their real cost in terms of climate disruption, current and future.

At the same time, government subsidies to the fossil fuel sector, estimated by the International Energy Agency to be over $550bn annually, need to be phased out.

As business leaders have rightly pointed out, there needs to be a level playing field globally on energy costs, and a carbon price is the most obvious way of moving in this direction.

Internal pricing

Some companies, including Microsoft, have long since begun introducing an internal carbon price. Many that have done this have reported a range of performance improvements, including reduced CO2 emissions and energy costs.

So far so good.

In the eight months remaining until the Paris summit, however, more attention will have to be given to the “how” and the “how much” questions. So far there has been too much silence here.

When CEOs endorse a carbon price or tax, company stakeholders need to be quick to ask them to define how they think that this can be achieved. By intergovernmental agreement? Through industry sector agreements or voluntary internal price-setting? Through national trade laws (such as import tariffs)?

They will also have to be ready to support CEOs in defending this line with shareholders who will argue that increased energy costs could affect competitiveness.

Just a bit of PR?

If the call for a carbon price is not to be seen as a new wave of sophisticated PR posturing – and sometimes covering behind the scenes support for efforts to undermine either a global agreement or national legislation to increase the cost of fossil fuels – CEOs need to be more specific on how and where they would like to see such a price introduced.

They also need to start putting out some figures on what the right price might be, and how that should be assessed. What are the appropriate criteria? Carbon intensity per barrel of oil equivalent, where coal would fare badly? Or relative radiative forcing potential – and hence impact on the greenhouse effect – where natural gas might not look so attractive?

Crucially, if they are serious, CEOs will also need to enter – and lead – domestic political debates on carbon pricing.

There are no easy answers to these questions, but CEOs are smart and practical people. They are to be encouraged to lead this conversation and to help co-design a working system of carbon pricing.

And the (too many) CEOs still silent on the issue should be encouraged to be part of the solution.

Paul Hohnen is an Amsterdam-based consultant who advises, speaks and writes on global sustainable development issues. He is an associate fellow of Chatham House.

IF is running a conference this June on Measuring and Valuing Corporate Sustainability. Many topics will be discussed including the latest thinking on putting value on climate change. For more information go here

Innovation Forum will also be hosting an event on "The Living Carbon Economy: Biomass, Cellulose and Trees - what they mean for successful corporate sustainability in the very near future". The conference will be held on November 19-20 in London. Email if you'd like to be involved.

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Wednesday, April 29, 2015

What does "zero deforestation" really mean?

A couple of weeks ago we debated this point with 160 company, NGOs and other experts in Washington D.C. 

A brief summary of some key points from that meeting is here.

The point was raised by Tensie Whelan of the Rainforest Alliance. has published an article looking at the term, and the problems with it.

Here's a couple of excerpts. 

"Firstly, though many major companies have signed up for these commitments, many other producers and buyers will not...

...Secondly, focusing solely on deforestation risks drawing attention away from other business practices within the commodities supply chain which may deserve equally urgent attention. 

...In addition, the use of “zero deforestation” as a catchphrase is problematic because there remains no clear agreement over what the term means..."

Here's a bit more detail:

"Deforestation generally refers to the conversion of primary or secondary natural forest to less biologically diverse uses, such as agriculture or timber farming. On the other hand, selective logging of well-defined tracts of natural forest is essential for the livelihood of many communities, and should not be considered as deforestation. There is also confusion over the terms “zero deforestation” and “zero net deforestation,” which are used in similar contexts but refer to very different things. While “zero deforestation” refers to the prevention of any forest clearance, “zero net deforestation” refers to the replacement of logged forest with an equivalent area of new forest through replanting. However, it is difficult to ensure that the area that is replanted is equivalent to the area that is logged, and even more difficult to ensure that no environmental impacts or losses in biodiversity are incurred in the process. This makes “zero net deforestation” a much more complex and unreliable strategy."

We'll be debating this topic, and many others, with leading brands, NGOs, suppliers, traders, farmers and others in Singapore on September 28-29. Email if you'd like to be involved in the conference. 

Monday, April 27, 2015

Can sugar be sustainable?

Innovation Forum have launched a conference this week to assess the commercial potential of sustainability in sugar.

The Sustainable Sugar Forum (London, 16-17 June) will look to assess the growing demand for sustainable sugar and how companies can build sugar supply chains that are ethical, resilient and secure from environmental pressures.

The event also has a big focus on general agricultural issues such as land rights and developing livelihoods and productivity of smallholder farmers.

You can see the website here with full details.

Some of the key topics being addressed include:

·         Improve the resilience and productivity of sugar beet and cane cultivation through sustainability initiatives
·         Build sugar production that is ethical and promotes socio-economic development in the supply chain
·         Proactively ready sugar production for future environmental pressures such as loss of biodiversity, climate change and water scarcity
·         Present the clear, quantifiable commercial case for sustainability and potential market for sustainable sugar
·         Address the unique sustainability challenges facing beet and cane farming

We have confirmed participation from the International Sugar Organisation, Bonsucro, SABMiller, Nordzucker, the International Finance Corporation, Mars, Shell, ED&F Man, AB Sugar, Fairtrade Foundation, ASR-Tate & Lyle, Cristal Union, Suiker Unie and Sainsbury’s.

You can see the full event details of speakers and agenda here.

Any questions, just drop a note to my colleague Boris:

Boris Petrovic
Project Director
Innovation Forum
+44 (0)20 3780 7434

Measurement and Valuation of Corporate Sustainability

This should be of interest to many blog readers: "The Measurement and Valuation of Corporate Sustainability - Does it all add up?

Hope you can join us on June 29 and 30 in London.

The conference is designed for company executives, to share and learn in an off the record environment, where they can also meet investors and key NGOs to benchmark strategy and hear views.

Lots of large companies have signed up to send people so far.

Saturday, April 25, 2015

It's time to modernise notions of "Green development" for the 21st Century

I was asked to take part in a debate on the topic of "Green development in the global south" at the SOAS Policy Forum on Friday, held at London's School of Oriental and African Studies. 

Here's what I had to say below. 

I have two problems with the title. Both around accuracy.

First, "green" progress is impossible without social progress. 

Secondly, "the global south". Where is that? It sounds far away, like the kingdom of Dorn in Game of Thrones. 

In short, it is an outmoded, wrong and unhelpful dichotomy. 

We have immense poverty and development challenges on the borders of, even within the EU. Look at average wages and pollution problems in Bulgaria, for example. 

How about Russia? The 'Stans?, Mongolia? Albania, Ukraine? These countries are in some cases only a few hours away yet sustainable development (not just green development) is just as important for them. 

We must get away from this "them and us", the rich guilty north vs the impoverished south.  

This is an old paradigm and its increasingly unhelpful, even if it still seems to be popular in the United Nations and the shaping of the Sustainable Development Goals.

Instead we need to view our world as inexorably and inevitably connected. 

Technology transfer can now become two way. Entrepreneurial ideas, which drive economies, can and do come from emerging markets. 

Two examples are mobile banking pioneered in Africa and much cheaper soft loan funded Chinese solar. 

These will change "us" as much as "them". They already are. Look at how China is now taking the reins, not just imformally in the case of solar but formally with shaping and creating the Asian Infrastructure Investment Bank.

Back to green development. 

My company works a lot in the area of how big companies can help prevent deforestation.

Deforestation has traditionally been seen as a green issue. 

It is. But it's much more than that today. 

For example lets talk about Indonesia. Almost all large companies who were engaging in cutting down natural "high carbon stock / high conservation value" forests have stopped now. 

This is due to NGO, market, regulatory and investor pressure. This has taken a long time, but serious progress is being made. 

There are still some rogue actors, suppliers, a couple of big companies, but today much of the deforestation that causes the haze you may see on a bad day in Singapore is caused by impoverished communities, illegal land squatters (often the same thing) and rogue individuals or groups, low level crime if you like.

So what does this mean? It means that much deforestation in Indonesia is being caused by people. Often very poor people.

This means the solutions have to be socially oriented. 

They must be about practical business/NGO partnerships, dialogue, about sustainable livelihoods, about agricultural diversification, about access to micro finance and capital. 

But also about functioning legal systems, well trained and respected police, properly paid judges, defenders and appropriate institutions. We should also include education systems and accountability, which is where academic institutions also come in. This is particularly true in the sharing of ideas, convening and developing technologies and a sense of exploration.

The solutions to these difficult challenges of creating social capital and functioning systems where few currently exist are myriad. 

They may have green outcomes but they must be social in design and implementation.

That's why green development in the global south should be replaced by the notion of global sustainable social, economic, institutional and environmental development.

And it must not be based on notions of guilt but on the encouragement of entrepreneurship, access to capital and systems reform to prevent unsustainable business and encourage sustainable innovation. This is vitally important.  

This is harder to put on a banner perhaps, but is infinitely more effective as a paradigm. 

Tuesday, April 21, 2015

The dangers of circular economy thinking

In this short five minute video, Dr. Karl-Henrik Robèrt, founder of The Natural Step, talks about circular economy as a means and not as a goal in itself.

The circular economy is only a small part of being sustainable, and there's a risk it may get sidelined along with so many other paradigms, suggests Robèrt.

There's a huge amount to be done that doesn't fit into circular thinking, he says, so the risk is that we forget the big task ahead of us.

This strategic task we have in front of us, is to work out what sustainability means. Then design the systems to get us there. We often forget this, he suggests.

The circular economy is part of how we get there, but not the end goal, he reckons. Some things must simply be excluded (CFCs, plutonium) and circular thinking risks ignoring planetary boundaries.

His summary is very much the traditional European perspective. The economy serves us, not the other way around. The US perspective evolved to be, "look after the economy, and the economy will look after us".

Of course that approach has made some folks billions, but has ignored externalities as we all know. This attitude is slowly changing, at least in some businesses and parts of society.

This is a useful video to remind us not to get caught up in obsession with the circular economy.

But I'm not entirely sure most people are. Most of us realise there's a lot outside it to be done too.

The circular economy is part of our tool kit, as Robèrt suggests, and this is a helpful reminder of the bigger picture.

We'll be debating all this, and really practical strategies to make circular thinking truly embedded in strategy at the below conference in June. Come join us.

Circular Advantage Business Forum

Discover and implement circular business models that generate new revenue streams, reduce costs and create sustainable growth

8th-9th June 2015, London, UK

With Accenture Strategy, Tarkett, Balfour Beatty, Akzo Nobel, Product Life Institute, BT, HP, Carlsberg, Novelis, Interface, Desso, Marks & Spencer, Coca-Cola Company, Kingfisher, Jaguar Land Rover, Dell and many more.

Check out the agenda here:

Monday, April 20, 2015

Some key points on the latest deforestation debates

Last week Innovation Forum ran the latest in our series of conferences on how companies can prevent deforestation.

This time it was in Washington D.C. and alongside it we published this free briefing

You can also see a number of tweets and quotes from the event at: and also at

One of my favourite quotes from the event was this one:

"For every complex problem there is an answer that is simple, clear and wrong"

I moderated a number of discussions and here's a few bullets of what I picked up from the discussions between companies, NGOs and even some investors. 
160 leading players got together last week. Debate was spicy
  • Companies are becoming more comfortable with the often incredibly ambitious targets they are putting in place even though they are not entirely clear how they will achieve them. Good examples of this are Wilmar, IOI Loders Croklaan, Dunkin' Brands and 3M to name a few.
  • There's a three stage process to get started. Step one is good practical NGO relationships to provide confidence around putting the corporate head above the parapet and taking the leap. Step two is to deliver on transparency (using technology) and show the world the challenges, and progress as implementation begins to happen. Step three is to work with other companies to help raise the bar in the supply chain and lobby for others to do the same and governments to support. (Step four will likely be to revisit and revise targets and engage in restoration but for many that comes much later)
  • The GMO debate around deforestation is similar to other areas. There's a lot of mistrust of the science, and exasperation on behalf of the industry as to why they are not believed by some. There appears to be no genuinely respected middle ground actors who might broker further progress. The arguments around irreversible gene pollution in the environment remain as they were a decade ago.
  • The investor community is even more absent on deforestation than in other areas of sustainable business. We had two at the conference, Calvert and Permian Global. We marketed the event to plenty but for some reason forestry and land use, despite their potential for carbon advantage, doesn't seem to be on the finance agenda yet, even in this, of all years.
  • The potential for land use and forestry issues/areas to make a lasting and relatively quick contribution to assisting against climate change is huge. Yet actors outside a few governments, many NGOs and the leading companies appear still, somehow, incredibly, unaware of the potential, despite the rhetoric one hears constantly to the contrary. This five minute video from Stephen Rumsey of Permian Global helps show you the potential, it's extraordinary.

    (Sample quote: ."..emissions from human destructions of forests have been three times that of burning fossil fuels, and secondly, if forests could recover a quarter of the biomass that they have lost that would reduce atmospheric CO2 from 400 PPM to 280 PPM". Forest recovery is incredibly cheaper than any other solution to climate change, Rumsey argues)
  • Corporate/Campaigner relations in the US are still much more combative in many ways, than in Europe. There was considerably more tension in the room between some campaign groups and companies than at our London conference. Companies tell me this is because some campaigners use unscrupulous tactics. Campaigners say it's because companies in North America fight change much harder. The truth, as so often, lies somewhere in between.
  • All that said, some companies are making enormous progress. More than 90% of global palm oil trading is covered by no deforestation commitments. Leading traders, brands, and even suppliers are bringing targets forward. And it's not just in palm oil, large forestry companies are almost all making great steps forward, and this, and the lessons learned, should not be overlooked.
  • Individuals can make a difference. Amongst those who have, I'd note the work not only of Greenpeace in general, but TFT and ForestHeroes too, particularly those individuals who run them.
  • There are significant business opportunities out there for companies who get sustainability right. Here's an example where one leading company, Sime Darby, paid something like an 85% (ish) price premium to buy a sustainability leader, New Britain Palm Oil, earlier this year. 
  • There's still a lot of silo'ed thinking in industries. Land use and livelihoods issues are common across industries but there's a real lack of communication and knowledge sharing across commodities.
  • The UN Guiding Principles on Business and Human Rights and their potential for forestry and palm oil in terms of managing stakeholder relationships were not mentioned at all. At least, only by me. This is worrying and suggests companies are not using all the tools at their disposal.
  • Equally, key lessons from North America, particularly around negotiating with communities in forestry areas, may not be being taken on board elsewhere, as much as they might.
  • Companies are becoming reluctant actors in the public policy debate, as has been happening for a decade or more. But it's a long slow road to institutional and implementable policy reform, which may now finally be accelerating. Companies are struggling to define their roles here.
  • The Sustainable Development Goals are going to be a much more significant tool for companies to use in 'mainstreaming' their work than many other sets of commitments. Industry groups should take note, as a focus on these may supersede other, less prominent and ambitious sets of commitments. 
  • A new Rainforest Alliance report titled "Halting Deforestation and Achieving Sustainability" was released to co-incide with the conference is a very useful read and can be found here
Our next "How Business can prevent Deforestation" conference takes place in Singapore on September 28-29. Organisations confirmed to speak include Unilever, APP, Golden Agri Resources, TFT, Sime Darby, HSBC, Wilmar and the World Economic Forum. Contact to take part. 

Product passports pros and cons

While legislators warm to the concept, the circular economy debate may have already left product passports behind 

Could product passports be part of the push to the circular economy? Product passports are a set of information on the components and materials that a product contains, with details about how the product can be dismantled.

When the product becomes waste, recyclers would find it easier to pull it apart and ensure reuse of the resources it contains. The product could include a QR code for scanning to get access to the relevant information.

A couple of years ago, the idea was put forward by a high-level expert group, the European Resource Efficiency Platform. In 2013, in recommendations to the European commission, the platform said that passports would make product information “easily accessible and applicable to the supply chain, thus facilitating efficient material flows and encouraging the creation of value in the circular economy”.

Brussels wades in

The European parliament has now taken up the idea. On 14th April, MEPs discussed the idea of “mandatory” product passports, especially for imported products, so that when they reach the end of their useful lives, European Union companies can capitalise on the raw materials.

The European parliament’s pondering is preliminary, but the European commission says it “might be taking up the idea of product passports”.

Although the idea is not yet fully fleshed out, the implications for business could be significant should mandatory product passports ever be introduced. Companies should in principle know what is in their products, of course, even those that have long supply chains behind them. But in practice, the work of verification at each stage in the production of a complex product could be challenging.

Guarded IP

Then there are intellectual property concerns. Companies are likely to be wary about sharing information about their product design templates more widely – for example with recyclers. Intellectual property is “something manufacturers guard very closely,” says Susanne Baker, senior climate and environment policy adviser with UK manufacturers’ organisation EEF.

However, companies are already obliged to share some information about what goes into their products, such as the use of hazardous chemicals in consumer electronics, so more openness might not necessarily be an obstacle.

Instead, the main shortcoming of product passports would arguably be that they are predicated on the idea that products inevitably become waste. As such, would they really be true to the principles of the circular economy, or just a way of making recycling easier?

Sell function not product 

In a circular economy, products would ideally never become waste. This is the idea behind movements such as the sharing economy and servitisation – the idea that a company no longer sells a product, but sells the function that the product provides.

This would mean that products would always remain the property of the company that makes them. The company would take back obsolete products and remake them into new ones.

Companies are increasingly experimenting with sharing or “product service utility” business models – for example BMW with electric car sharing, and Philips with its “pay per lux” lighting scheme.

Product passports might be useful in some contexts, such as fast-moving consumer goods that are difficult for manufacturers to retain control of. But the most efficient approach, wherever possible, would be to keep products out of the waste stream.

Upcoming relevant sustainable business conferences from Innovation Forum in June 2015:

The Circular Advantage Business Forum 8-9 June 2015 (London)

Strategy for integrating circular business advantage with: Royal DSM, Accenture, Kingfisher, Suez, Coca-Cola Company, HP, and many others. Email for details or go here.

Further events:

Thursday, April 09, 2015

How business can tackle deforestation - another management briefing from Innovation Forum

Our latest management briefing on deforestation is now available here for free for blog readers.

That's how special you are people.

Don't say I never give you anything.

This one, like the last, is a little cracker.

With contributions from Wilmar, Future 500, Permian Global, Rainforest Alliance, APP,, Global Canopy Programme, IOI Loders Croklaam, Weyerhaeuser, Sime Darby, World Resources Institute, and International Paper, what more can you ask for?

And yes, it's free, so get downloading, saving, reading and thinking.

Ads, but highly relevant ones:

How Business Can Tackle Deforestation - 14th-15th April 2015 (Washington D.C.)

All the major brand players meet with the leading NGOs to debate progress. With: Staples, PepsiCo, Disney, Asia Pulp & Paper, Friends of the Earth, Greenpeace, WWF, Domtar, Sime Darby, Canopy, TFT and many others. Click here for more details.


The Circular Advantage Business Forum 8-9 June 2015 (London)

Strategy for integrating circular business advantage with: Royal DSM, Accenture, Kingfisher, Suez, Coca-Cola Company, HP, and many others. Email for details or go here.

This event may also be of interest to readers:

The Measurement and (e)valuation of Corporate Sustainability, does it all add up? June 29-30 (London)

A cold hard look at how companies put numbers against progress, and what those numbers mean for investors, internal and external stakeholders. With: Rio Tinto, Tullow Oil, Walgreens Boots Alliance, JP Morgan, Oxfam, Aberdeen Asset Management, Trucost, First State, Marks & Spencer and many more. Email: for details or visit this link.

Analysis on all the above topics can be found at: