Free Market OR Oil Market Economy?

Conservatively, greater than 36% of the revenue and 35% of the profits of the Top 100 Global companies as ranked by FORTUNE Magazine is based on the production and use of OIL…A more advanced free market economy is being shaped by global corporations embracing Social Response Capitalism, and a deliberate shift from a petro-based economy to a more diversified and sustainable economy.

Fortune Magazine recently published the latest annual ranking of the World’s largest corporations. With greater scrutiny on the rising cost of energy, and mounting global concern over climate change with the G8 nations recently pledging to “move toward a carbon-free society”, it will be interesting to see which American and Global companies remain on Fortune’s list five, ten and twenty years from now.

Consider this…as of July 10, 2008 greater than 36% of the revenue and 35% of the profits of the Top 100 Global companies as ranked by Fortune Magazine is based on the production and use of oil. This conservative accounting captures the following:

Automotive manufacturing companies (Toyota, GM, Daimler, Ford, Volkswagen, Honda, Nissan, Fiat, Peugeot, BMW) in the Top 100 global companies account for 12.4% of the revenues and 0.6% of the profits (for the total Top 100 global companies).

Oil and refining companies (Exxon Mobil, Shell, BP, Chevron, ConocoPhillips, China National Petroleum, ENI, Pemex, Valero, SK Holdings, Lukoil, Petronas, Repsol YPF, Total, Petrobras) in the Top 100 global companies account for 20.5% of the revenue and 29% of the profits (for the total Top 100 global companies).

Other energy and utilities companies (State Grid, Gazprom, E.ON, Suez) in the Top 100 account for 3.4% of the revenue and 5.5% of the profits (for the total Top 100 global companies). Note: I excluded Electricite de France from this calculation due to their large portfolio of nuclear, hydro and non-petroleum based energy generation assets.

Now, many of these firms are leading efforts to diversify their product portfolio, adding renewable energy generation to their production mix or manufacturing more fuel-efficient, alternative fueled vehicles. However, suffice it to say the starting gun on the global race to a more sustainable future has been fired and some companies are leading the pack while others are lagging behind. This proverbial race, in this writers view, will dramatically reduce the amount of future revenue and profits derived from our existing petroleum dominated economy in years to come shifting the focus from oil to other forms of energy.

This shift may prove to be transformational with regard to our reliance on oil for the production of goods and services using oil for energy production, transportation fuels, food production, plastics and medicines. It may also prove to be transformational with regard to the economy and environment – as new technologies come on line and energy production becomes more diverse, so to will the economy and capital markets. We’ve locked ourselves into a one-dimensional view of living with oil being the dominant economic and societal force shaping our industrialized world. The new economy before us will look and feel much different, as the last drops of oil are replaced with kWh’s of electricity, cleaner fuels and alternative modes of transport, production of energy and goods and services.

Future revenues and profits for some of the world’s oil-based corporate leaders may actually increase in years to come as petroleum prices remain steady or go higher. However, the corporations that have become global behemoths from an oil dominated economy are at the peak of their civilization. For those that are not careful on how they forecast the future, they may, like the dinosaurs, face a most sudden death. For those corporations that are more evolved, market adaptation and transformation are likely paths that they will lead in years to come. This transformation is underway at some corporations: for example Toyota with hybrid-electric vehicles, Suez with 15% renewable energy generation, BP with renewable energy generation and biofuel production, Nissan with electric vehicle commitments for 2012.

In the book “World Inc.” author Bruce Piasecki introduced the concept of “Social Response Capitalism”. Piasecki’s forecast shows that corporations are increasingly taking on new roles not only in the production of goods and services but also the delivery of social needs throughout the world, often superseding the impact governments are having. The role of the modern corporation has and continues to transform, shaped by a free market economy but also by the global communities in which so many global corporations now touch and influence daily. In Friedman’s flat world the modern corporation has enormous power and influence, but only as far as consumers and government continue to value its products and services. The expectation for corporations in the past century was delivery of quality products at a fair competitive price. Today the expectation from society upon corporations reaches far beyond just the price and performance of products. Consumers are seeking corporations that are responsible to the communities they work in, to the natural environment, to future generations and to their employees.

In his book “World Inc.” Piasecki notes, “After all the complex societal and business mergers in firms and their supply chains since World War II, the "seven sisters" -- the world's largest petroleum exploration, refining and delivery companies -- have become the big five: ExxonMobil, ConocoPhillips, Chevron, BP, and Shell. Each of these world-spanning oil giants is remarkably different, yet many people still think all oil companies are generically bad, placing aggressive corporate tactics of ExxonMobil on the same level as the social change-based ambitions of Suncor Energy, BP and Shell…The question at the heart of the debate on Social Response capitalism, at the center of World Inc., is really quite simple: If competition and the desire to win are such an inherent part of our nature, can we remake ourselves and our firms -- yet again -- to better consider social need?...Projections for the success of a company are, by their very nature and the constant shifting of the marketplace, uncertain. What is certain is that we will eventually run out of oil and gas as a fuel supply to heat our homes, drive our cars, and sustain our industrial output as we know it. This is a fact. The end of this age of oil is an increasing topic of debate and concern in the boardrooms of the largest oil, automotive, consumer product, and agricultural companies.”

Piasecki goes on to define Social Response Capitalism noting, “Social Response capitalism happens when:

1. Companies restructure their operations to actively shape consumer demand by creating new products that bridge the gap between traditional expectations of performance and price and social impacts on the larger world.

2. Often this gap has been ignored in the past because it wasn't considered good business to worry about such "externalities."

3. However, today, these externalities are impinging upon the long-term viability of entire product lines that have served as the basis for our industrial economy.

4. While past efforts at becoming a good corporate citizen often focused on production techniques and efficiency, the latest twist is making better products themselves, products that respond to legitimate emerging social pressures or needs, not manufactured social needs that just spawn irresponsible mass consumerism.

5. Examples of these new social pressures include a drive to eliminate toxic chemicals in products of everyday use, a new corporate emphasis on the reuse and endurance of its products, and some early examples of pure product innovation to issues such as climate change.”

A fundamental shift in how consumers value corporations, and how corporations view their place in the world is upon us. As the price of energy, based upon an oil dominated economy increases; and as consumer and corporate tension over the economy, environment and societal needs collide; a cascading effect will begin to shift the influence of the oil economy to a more diversified and ultimately a stronger economy globally. This shift will result in tangible benefits for consumers, shareholders and the natural environment alike.

Will the composition of the Global 500 look fundamentally different in 2015, 2020, 2030 than it does today? Which firms do you believe will be the dinosaurs and which ones will evolve to compete in a more complex and responsive world?

Mark C. Coleman
Senior Associate & World Inc. Case Leader, AHC Group, Inc.
Mark@ahcgroup.com

Want to get real about the future of energy, natural resources and capitalism, go to www.ahcgroup.com and www.worldincbook.com to learn more on how leading companies are reinventing the future of business through social response product development and social response capitalism.

Addressing National Security through Social Response Capitalism and Business Sustainability

A new report by the National Intelligence Council (NIC) points to climate change as a future US security threat.

On June 25, 2008 Thomas Fingar, the deputy director of national intelligence for analysis and chairman of the National Intelligence Council spoke before the House Permanent Select Committee on Intelligence and House Select Committee on Energy Independence and Global Warming. Fingar noted:

“From a national security perspective, climate change has the potential to affect lives (for example, through food and water shortages, increased health problems including the spread of disease, and increased potential for conflict), property (for example through ground subsidence, flooding, coastal erosion, and extreme weather events), and other security interests. The United States depends on a smooth-functioning international system ensuring the flow of trade and market access to critical raw materials such as oil and gas, and security for its allies and partners. Climate change and climate change policies could affect all of these—domestic stability in a number of key states, the opening of new sea lanes and access to raw materials, and the global economy more broadly—with significant geopolitical consequences. In addition, anticipated impacts to the Homeland—including possible increases in the severity of storms in the Gulf, increased demand for energy resources, disruptions in US and Arctic infrastructure, and increases in immigration from resource-scarce regions of the world—are expected to be costly.”

Sorry to begin this blog with a lengthy quote, however the remarks by Thomas Fingar on the potential security risk implications of global climate change are noteworthy and warrant a moment of pause, reflection and hopefully some further perspective. Fingar further points out… “Government, business, and public efforts to develop mitigation and adaptation strategies to deal with climate change—from policies to reduce greenhouse gasses to plans to reduce exposure to climate change or capitalize on potential impacts—may affect US national security interests even more than the physical impacts of climate change itself.”

First, a Brief Pause and Reflection
Government, corporations, politicians and citizens often accentuate, debate, and glamorize the environmental impacts of global climate change. However few characterize the other critical influences climate change poses to our economic, industrial, agricultural, transportation and infrastructure systems. The concept of sustainability is inclusive of environmental requirements but also the economic, societal needs and governance objectives of corporations, government and society at large as well. A great deal of attention has been paid, from automakers to lobbyists on The Hill to non-government organization groups, to the environmental damages incurred from climate change and modern industry. It is actually a good thing to see the environment “getting its due”, but it is of great importance, some might say of national security, to keep a balanced and holistic view of sustainability, particularly in a post-9/11 world. In the absence of any federal policy direction on sustainability, most governments and corporations are left to their own determination of what the concept means to them, and how they should ultimately address issues like climate change. Some firms view climate change as opportunistic, others as a cost of doing business, still yet others view it as a liability to be negotiated, mitigated or marginalized. Regardless of where you or your firm is on the sustainability continuum (one end being in favor and in high pursuit – the other end being clouded, overwhelmed or unconcerned) there are options for you to consider. First, sustainability in not only about the environment, it’s also about what’s the right thing to do for social needs and economic prosperity. Secondly, sustainability is just as much about environmental protection and conservation as it is about energy security and national security. Third, sustainability is ultimately defined not by governments or corporations but by society at large, thus governments and corporations need to be the eyes and ears, listening to society and transforming the state of our infrastructure, products and services to reflect societal need.

Now, Hopefully Some Insight
The physical impacts of climate change are likely to yield changes in how we produce, distribute store and use energy; produce, distribute and use goods and services; and produce, store, distribute and consume food. Global shifts in the production of food, availability of water and distribution of wealth may result from climate change. Couple this with damages to ecosystem services and the effects of climate change may become even more profound upon human food, information, intelligence, transportation and energy networks. A transformation is underway in the human-built environment and natural environment. In some instances we are patching-or-cleaning up mistakes of the past, in others we are seeking to prevent future mistakes. In the case of climate change the path many see before us, including Thomas Fingar, includes mitigation and adaptation.

There are folks like Mr. Ira Feldman, president and senior counsel of Greentrack Strategies that are thinking 60 months out on mitigation and adaptation strategies. Mr. Feldman recently spoke at the June 19-20th AHC Group Corporate Affiliate Workshop in Saratoga Springs, NY on the topic, “Three Emerging Legal and Strategic Shifts to Sustainability - - Climate Change Adaptation; Ecosystem Services; and Voluntary Standards for CSR”. Speaking from this triage of emerging issues: climate change adaptation, ecosystem services and creation of management systems for CSR such as ISO 26000; Mr. Feldman offered a glimpse of the future to a diverse mix of 80 global corporate leaders on why these topics will be on the global government and corporate agendas within five years.

In addition there are notable firms like Environmental Security International (ESI) who are forward looking enough to be designing systems for governments and corporations focused on operational efficiency, security priorities, and risk management objectives related to the security risks of energy, environment and climate change. ESI works to evaluate and assess environmental security for critical infrastructure within the context of the strategic sustainability missions of their government and corporate clients.

There are also thought leaders like Bruce Piasecki who published his book, “World Inc.: When it Comes to Solutions - Both Local and Global - Businesses Are Now More Powerful Than Government” in 2007 focusing on how a new era of capitalism is reshaping how governments and corporations address adaptation and mitigation strategies through product design, selection and response to climate change. In “World Inc.” Piasecki hones in on the power of business as a transformational agent in creating a better (more secure, less polluting, more enriching) world that addressed social needs through social response product development, that is, building and delivering products that don’t just compete on price and technical quality, but also on their ability to address global challenges like climate change, resource consumption or ecosystem services.

As corporations and governments think through security issues in the context of climate change, or where they are on a sustainability continuum, as well as their own climate change strategies for adaptation or mitigation, there are expert resources for them to utilize like Greentrack Strategies, ESI and the AHC Group. As corporations and governments think about climate change, and perhaps begin to respond through policy, market or product solutions, remember that there are multiple dimensions to this issue and that the hierarchy of beliefs, values and needs is likely to be different for each stakeholder involved domestically as well as internationally. Thus, success will come from listening to multiple perspectives while framing your position and strategy in this ever-changing world.

Mark C. Coleman
Senior Associate & World Inc. Case Leader, AHC Group, Inc.
Mark@ahcgroup.com

Want to get real about the future of energy, natural resources and capitalism, go to www.ahcgroup.com and www.worldincbook.com to learn more on how leading companies are reinventing the future of business through social response product development and social response capitalism.

Looking for the Next Economic Boom?: Put Your Greenbacks into Companies that Enhance Ecosystem Services

Ecosystem services sustain all life on planet earth. They are the critical gears, valves, filters, pumps, batteries and buffers that accomplish essential earth functions such as moderating weather, storing carbon, mitigating droughts and floods, cycling nutrients, cleaning the air and water, protecting against erosion, regulating the diffusion of disease, maintaining biodiversity, pollinating plants, decomposing wastes, rejuvenating soil and regulating climate. Ecosystem services have really only begun to be understood by humans including how essential they are to life and to the long-term sustainment and quality of life we’ve established.

Ecosystem services represent the processes the produce and sustain life, many of which we have taken for granted for decades. The “commons” as some ecologic services have been come to know, are becoming less common. The availability of clean water, old growth forests and timber, habitat for fisheries and the pollination of flowers and agriculture commodities are each examples of ecosystem services, each of which is undergoing stress from overproduction, overconsumption and degradation placed upon them from a burgeoning global population of 6.5 billion people.

The Ecological Society of America, US Forest Service, Millennium Ecosystem Assessment, The World Conservation Union, and The Katoomba Group's Ecosystem Marketplace are each useful references for defining ecosystem services as well as organizations that have committed resources to understanding the science, economics and social aspects of how ecosystem services impact the future of capitalism.

For example, The Katoomba Group's Ecosystem Marketplace seeks “to become the world's leading source of information on markets and payment schemes for ecosystem services; services such as water quality, carbon sequestration and biodiversity.” The Ecosystem Marketplace provides “solid and trust-worthy information on prices, regulation, science, and other market-relevant issues, markets for ecosystem services” in hopes that they “will one day become a fundamental part of our economic and environmental system, helping give value to environmental services that have, for too long, been taken for granted.”

The future of capitalism is intimately linked with ecosystem services. It always has been. The key difference between the first 100 years of industrialization and the next Century is the realization that there is just as much value in preserving, protecting and enhancing ecosystem services as there is in extracting the value through consumption and degradation, marked by our behavior with ecosystem services in the last 100 years.

Gary Luck, Associate Professor in Ecology and Environmental Management and Principal Researcher in the Institute for Land, Water and Society at Charles Sturt University has written:

“…I am unaware of any scientist who argues that the ecosystem-service approach should replace traditional strategies for protecting nature. However, it offers great promise as a value-adding tactic to secure conservation gains in regions dominated by humans. It is especially powerful in arguing for the importance of nature conservation in the spheres of society where moral and ethical responsibilities are sidelined – and money talks…The concept of ecosystem services offers a fantastic opportunity to link research and land management agendas across disciplines, as it can incorporate ecological assessment of service-providing organisms, economic and social valuation, and cost – benefit trade-offs of different land management strategies for both the landholder and society.”

US policy makers are now taking a serious look at ecosystem services for future policy and market based mechanisms for conserving natural resources, cleaning and protecting the environment. For example, The Food, Conservation, and Energy Act of 2008 seeks to establish a procedure, protocol and register for measuring, reporting and collecting/maintaining information on environmental (ecosystem) services within the US.

With 100 years of industrialization and environmental damages under our belt its refreshing to see that we’re now taking a more proactive, interdisciplinary and bipartisan approach to environmental economics and valuating the building blocks of life, environmental services. In the next 50 years there will be greater market, shareholder and public attention/emphasis on companies that conserve, protect and enhance ecosystem services – perhaps more than was ever placed on those that purely exploited resources. As we further our understanding about the full extent of “human services” embedded in ecosystems perhaps we will finally give the environment its true market valuation.

Watch firms like ARCADIS, Dow, DuPont, IBM, Geosyntec, Akzo Nobel, Syngenta, BC Hydro and others in years to come as they identify new business opportunities to enhance, conserve and protect ecosystem services. The World Resources Institute March 2008 publication The Corporate Ecosystem Services Review is a useful on-line guide outlining and summarizing the emerging business opportunities to address human induced changes in our ecosystems.

Mark C. Coleman
Senior Associate & World Inc. Case Leader, AHC Group, Inc.
Mark@ahcgroup.com

Additional Note: In an unfortunate example of how humans impact the environment, this past week the National Oceanic Atmospheric Administration’s (NOAA) Fisheries Service officially reported that the Caribbean Monk Seal has become extinct, largely due to overhunting by humans; however other influences like climate change, coastal development and entanglement in marine debris played a role in this mammal’s ultimate demise.

Dow Chief Says it's Time to Get Out of the Petro-Desert Sandbox!

With 46,000 Employees, $53 billion in Sales, and Top Level Committment to the Human Element of Business, Dow is an Emerging Social Response Product and New Age Global Business Leader Looking for a Sandy Beach Beyond the Sandy Desert

In a press release issued today, Dow’s Chairman and CEO Andrew N. Liveris stated, “Our first quarter feedstock and energy bill leapt a staggering 42 percent year over year, and that trajectory has continued, with the cost of oil and natural gas climbing ever higher…the new level of hydrocarbons and energy costs is putting a strain on the entire value chain and is forcing difficult discussions with customers about resetting the value proposition for our products.”

Liveris went on to issued the statement, "For years, Washington has failed to address the issue of rising energy costs and, as a result, the country now faces a true energy crisis, one that is causing serious harm to America's manufacturing sector and all consumers of energy… the government's failure to develop a comprehensive energy policy is causing U.S. industry to lose ground when it comes to global competitiveness, and our own domestic markets are now starting to see demand destruction throughout the U.S."

One of Dow’s corporate energy goals is to reduce the energy intensity of its operations by 25% between the years 2005 and 2015. According to data from Dow’s 2015 Sustainability Goals Update (1Q 2008), the company’s energy efficiency and conservation efforts have “yielded savings of over 26 trillion BTUs and $190 million” from their 2005 baseline year of measurement.

A company committed to seeing the “ Human Element” in its business operations and products, Dow is focusing more on social response capitalism as a business strategy and one that embodies elements of solving the world’s most pressing challenges. Chairman and CEO of Dow has stated, “Sustainability begins at home, but its destiny is to engage the problems of the world. We will build on our company's rich legacy of leadership in solving the world's most pressing problems with a spirit of fearless accountability, not just for our own footprint on the planet, but the collective footprint we make as part of the human family."

Dow’s 46,000 employees develop and deliver products people in 160 countries with the goal of using science and technology to improve human progress. Dow’s sales exceeded $53 billion and net income more than $2.8 billion in 2007. It is refreshing to see that the executive leadership of this global firm is committed to the human element of their business as well as to sustainability.

Dow is an emerging leader in this new economy based on social response product development and capitalism highlighted in Bruce Piasecki’s book, “World Inc.”. And, with aggressive goals to reduce its energy intensity within the next decade, Dow seems to be distancing itself from other firms playing in the sandy desert of an oil based past and instead looking for solutions to get to the sandy beach of a more enriched and sustainable future!

Mark C. Coleman
Senior Associate & World Inc. Case Leader, AHC Group, Inc.
Mark@ahcgroup.com

Want to get real about the future of energy, natural resources and capitalism, go to www.ahcgroup.com and www.worldincbook.com to learn more on how leading companies are reinventing the future of business through social response product development and social response capitalism.

Doing Business in a Shrinking Sandbox

Why Social Response Capitalism Will Put Us on a Sandy Beach Instead of a Sandy Desert

All that I need to know about business sustainability, I learned in kindergarten. Are the actions and behaviors of adults and modern corporations remarkably different than those of children? This is not necessarily the most important question of our time, but its answer is revealing…No! Modern corporations and the adults that manage them are just bigger versions of the toddlers playing in local park sandbox. The sandbox has gotten bigger, and in many cases so has their ego, but the rules of play are just the same.

We learned as toddlers to share, to play fair, to put things back where we found them, to clean up our own mess, not to take things that were not ours, to live a balanced life and to have a balance diet. Robert Fulghum summarized some of these early childhood discoveries in his now classic book, “All I Really Need to Know I Learned in Kindergarten”. Like the book “World Inc.: When it Comes to Solutions - Both Local and Global - Businesses Are Now More Powerful Than Government” by Bruce Piasecki, Robert Fulghum’s book is essential reading for corporate managers and executives. It’s good to have a refresher to reevaluate why your firm is in business, how it does business, and what the future business of your firm will be.

As companies, consumers and citizens we’ve spent too much time in the petrochemical sandbox. In fact we’ve spent so much time that we’re now being charged more and more money to even show up at the sandbox to play anymore (the month of May welcomed $130/barrel oil to the world). Today’s petrochemical sandbox is enormous. It’s includes 195 countries, 6.6 billion people, 148.94 million sq. km. of land, 361.132 million sq. km. of water and one over consumed resource – oil.

The petrochemical sandbox is often not a clean place to play either. On November 11, 2007 more than 560,000 gallons of fuel spilled into the Strait of Kerch and in the nearby area of the Black Sea when massive seas crushed a Russian tanker. Three days prior a ship bound for South Korea spilled in excess of 58,000 gallons of oil into the San Francisco Bay when it struck a tower supporting the San Francisco-Oakland Bay Bridge in dense fog. Whether human error, natural disasters or acts of God, natural resource damages from oil are messes we need to clean up.

It is no secret that the world is running out of oil as well as a host of other natural resources. It’s also no secret that we have a limited supply of fresh and potable water, as well as clean air. Modern society as we know it is unsustainable. While we have mastered the art of production and consumption we are not yet even apprentices in learning the art of sustainability and social responsibility. But, how do you master an art without a teacher? Earth has been around much longer than humans, so I would postulate that our teacher is present. The question is, are the students? Unfortunately most of the students that matter, like corporate executives or politicians, the “decision makers” are at recess or gambling their futures in the petrochemical sandbox. That’s too bad because consumers are at social response class and taking notes. In fact Americans drove 11 billion fewer miles in 2007 compared with 2006 according to the US Department of Transportation in their own social response to higher gas prices (a year over year 4.3% decline in miles driven and the sharpest year over year decline ever recorded since the US DOT began keeping records and monitoring such data in 1942). And CNN.com recently reported that some consumers and business professionals are changing their lifestyles as they choose to ride bikes away from the petrochemical sandbox as their primary mode of transport to work each day.

While most believe the sandbox to be in Saudi Arabia, Iran, Iraq, Kuwait and Venezuela, the children at play are stationed all around the world. The petrochemical sandbox has no boundaries. It’s a modern machine pumping, refining, consuming and banking on the children to show up at the park the next day. The question is, why do we continue to show up to play in the sandbox?...Particularly in a world where we don’t share, don’t play fair, don’t put things back where we found them, don’t clean up after ourselves and don’t respect ourselves through a balanced diet. Have we learned nothing from our Kindergarten years?

In his book “World Inc.” Bruce Piasecki examines a new paradigm in business, government and capitalism where the sandbox is no longer defined by our petrochemical past and that the new kids on the block are playing new age games that are more inclusive, cleaner, and more rewarding than the petrochemical sandbox ever was. While we have to hang onto our youth for just a little while longer, there are positive signs that we’re growing up as citizens, companies and governments to practice what we learned in Kindergarten many years ago.

I don’t expect big egos to “say they are sorry when they’ve hurt somebody” even if that somebody is the natural environment, the economy, entire cultures or religions or thousands of retirees without adequate health coverage.

But why not? An apology might be a healthy start. Besides, if modern innovators, scientists and entrepreneurs have it their way there will not be a petrochemical sandbox in fifty years to show up to, making discussions of peak oil relatively moot. It’s interesting how many politicians and government leaders are so focused on whether or not we are close to running out of oil versus doing anything about it at times. We get caught up in creating too many rules for our sandbox as opposed to thinking outside of our sandbox for solutions. Perhaps that is where the saying “get your head out of the sand” came from?

Anyway let’s stop blaming those that run the petrochemical sandbox and start developing our own end game for the future beyond oil, beyond past mistakes and beyond the impasse that we so often revert to when its easier to not share and not play fair than it is to let down our guard and world together for the betterment of commerce and the betterment of government and society. The petrochemical sandbox is a zero-sum game. In the short run we might seek to further optimize the use of oil through greater efficiency, but this ultimately just buys us more time in the sandbox, and likely not at lower cost. In the mid term we can seek to bridge the present with the future by incorporating new technologies like plug-in hybrid electric vehicles into our vehicle fleets or renewable energy technologies into our electric generation mix, but these also have their limits. Ultimately we will likely have a mix of technologies and strategies and oil may still be one of those options. No matter what the future holds for technology we will be left with the scars of unfair sandbox play, left to clean up our messes and deal with the repercussions of an unbalanced energy diet that lasted in excess of a century. Over the next thirty, fifty or more years many of the world’s largest corporations and governments will spend in excess of one trillion dollars conducting long term operations, maintenance and monitoring (OMM) of environmental liabilities, waste sites, many left from our days playing in the petrochemical sandbox. Some might say no wonder the current cost to play in the sandbox is rising. Other might say it was truly a zero-sum game after all.

The balanced energy diet of the future will be filled with nutritious sources of energy. To get there however will require corporations, governments, special interests and the global community to work together, play fair, and respect one another. What will be different from today is how we as companies, governments and society play in the sandbox and whether we choose to take what we learned in Kindergarten and apply it, or choose to remain petty, infantile and underdeveloped. It’s too bad so many politicians, corporate executives and even special interest groups have chosen the latter. It speaks volumes of who they are as “regular people”.

The future of capitalism will be driven by cleaner technologies, renewable energy and innovative business models that seek to reduce pollution, optimize the efficiency of our machines and products, and create long lasting value for shareholders, stakeholders and future generations alike. Companies (and governments) that share, play fair, put things back where we found them, clean up after their own mess, don’t take things that are not theirs, and that live a balanced life with a balanced energy diet are better investments in our future. They reduce risk, extinguish liabilities and seek to enhance quality of life by delivering on social needs. Removing our heads from the petrochemical sandbox is a start. Ultimately we will diminish our reliance on oil and just might reshape our economy in the process so that we can someday relax on a sandy beach instead of buying time by fighting in a sandy desert.

Want to get real about the future of energy, natural resources and capitalism, go to www.ahcgroup.com and www.worldincbook.com to learn more on how leading companies are reinventing the future of business through social response product development and social response capitalism.

Mark C. Coleman
Senior Associate & World Inc. Case Leader, AHC Group, Inc.

Mark@ahcgroup.com

fOILed by our spOILs

Companies are eliminating the potential for future energy market turmoil through social response energy diet solutions in their operations, product portfolio and community relations.

Is continued economic growth in the US and the world obstructed by the price and availability of oil? Is the lifeline of modern society clotting, or is it simply thinning out and offering no substantial pressure to continue its legacy of economic growth? Are the days of plundering ending or just beginning?

Oil has given society many rewards: the ability to transport people, goods and services; the ability to heat and electrify; the ability to produce quality products and services; the ability to shelter, feed and cloth billions of people; the ability to advance civilization through education, healthcare, telecommunications and scientific advancement.

The World Factbook published by the CIA lists the top economies of the world. In the list of 193 nations, firms like Wal-Mart and Exxon Mobil would rank in the top 30 largest economies of the world. If you totaled the sales of the following eight oil giants, they would equate to one of the top ten economies of the world.

Exxon Mobil
Royal Dutch Shell
BP
Total
Chevron
ConocoPhillips
Pemex (Mexico)
Petrobras (Brazil)

The sales of eight giants listed above exceed $1.8 trillion and their revenues exceed $160 billion. Together these firms employ more than 680,000 people worldwide.

Oil is one of the most widely used commodities on earth. Some 85 million barrels of oil are produced and used per day globally according to the Energy Information Administration, the data and analysis arm of the USDOE. Oil prices have reached record high’s topping more than $120/barrel in recent days. Over the past decade the price of oil has increased more than 1000%. On December 28, 1998 the price of oil was approximately $10 barrel. And during the week of April 22nd 2008 the price of oil flirted with $118, $119, and $120 per barrel.

The world has a love hate relationship with oil. When the economy is strong and the pocketbooks fat, we forget about the price of oil. When the economy struggles and our pocketbooks empty, we focus intently on the price of oil and point to it as the root of all economic evil. Every Greek tragedy needs a lead antagonist, and in the story of the rise and fall of global industrialization the antagonist is oil.

tOILing toward a balanced energy diet
Oil has been the consummate enabler for industrialized nations to feed the veins of commerce with a “performance enhancement” and “mood adjusting” supplement. It’s almost too bad that there were not product disclosures and warnings 100 years ago before we became fully addicted. You know those commercials where they say “side effects may include…nausea, vomiting, fatigue, etc.”. Perhaps the disclosure for oil would have read, “side effects may include…sluggish economy, natural resource damages, global warming, geo political and economic warfare, social inequity, and detachment from living due to chronic idle time spent driving”.

But truth of the matter is that 100 years ago we had no idea about the scale and magnitude by which oil would play in everyday life, our economy, our standard of living, and our ability to sustain critical infrastructure and networks. As oil has pumped through the veins of commerce, we’ve grown. But like the overuse of performance enhancement drugs in top athletes, too much can result in serious injury, suspension of play, or even death. In the case of oil, perhaps we’ve grown so quickly and have become so strong; we simply cannot score enough performance enhancement oil to help us keep pace. Or perhaps we’re now overweight, bloated and ready to suffer a massive heart attack due to one or more blockages in our system (e.g., global demand, climate change, availability of refineries, aging infrastructure, cost pressures, etc.).

Oil is not bad. It’s just a performance enhancer that has been over sold and over used. Sure it has its side effects, but no technology or energy source is without their fair share. And, with 6.5 billion addicts around the world a premium can be placed on the availability, price and quality of oil. Oil is an earth based commodity with a man-made purpose. Sometimes that point is lost. We’ve created a flat world whose pace of growth has quickened, all in part to our friendly performance enhancer, oil. We have the ability to transform our flat world into a new dimension, neither round nor flat, but shapeless bound by only our imagination and innovation to bring to it new life not bound by technology, resource or ideological constraints. Oil will have a place in this new shapeless world, but so to will other forms or energy that will displace and yet balance our traditional thirst for petro-based nourishment.

bOILing this down
When it comes to high energy prices and environmental challenges related to oil, we need to move beyond blame and get serious about creating real change. It's so easy to blame the Bush Administration or point the finger toward OPEC or hedge fund managers that are perceived to be in cahoots with big oil executives padding their wallets and patting each other on the back for influencing oil markets and reaping huge profits. Are their inefficiencies, potential back door deals, unneeded confusion in how the price of oil is set? Sure, but blaming one administration or one company over another will solve nothing and will only fuel more wasted time, money, and oil.

The 21st Century challenge before each of us, as consumers, industrialists, policy makers, shareholders, innovators, scientists, students and conservationists is to collaborate on a way to reduce our appetite for oil while simultaneously working toward performance enhancement supplements that we can develop and use to round out our energy diet.

So often I hear references to the “silver bullet” technology that will transform our energy diet. According to the Schlumberger Excellence in Educational Development project, oil was first drilled in 347 AD. Since that time oil has been somewhat of a “silver bullet” for the energy needs of human kind. Oil has provided us with heat, electricity, transport, cooling, and that performance enhancing high that has fostered economic growth. But we now know that oil cannot be the “silver bullet” for our future prosperity or sustainability.

There is no “silver bullet” anymore. A well balanced diet has a mix of energy sources rich in nutrients. A well balanced energy diet may include exercise (energy demand reduction), it may include a balanced approach (combined heat and power, distributed generation), it may include options low in proverbial cholesterol – that is carbon (wind power, solar, geothermal, etc.) it may include fortified vitamins and minerals (engineered petrochemicals and biofuels) and it may include new age supplements yet to be fully qualified (fuel cells, hydrogen, carbon sequestration techniques). The point is that we need an energy diet that is balanced, nutritious and positions us for longevity, not just performance enhancement. The performance enhancement will come from a renewed focus on energy research and development and new innovations. Besides are we foolish enough to believe the best we can do as a society is rely primarily on an oil based economy? Is that the extent of our ingenuity and imagination? Oil has given us so much, but its time to transition to more secure, reliable and economic sources of energy that promote independence and sustainability.

social response to energy - avoiding energy market turmOIL through social response product development, deployment and capitalism

It’s time for the oil economy to be shaken up, agitated, and churned. It’s certainly causing enough turmoil at its current state of being today. High energy prices, environmental degradation, water and soil contamination, air pollution, climate change, inequitable distribution of wealth, socio-political conflict. These are the spoils of oil? I don’t believe that’s what we had intended.

If the state of civilization were equated to the life-cycle of a human, we’re still in our infancy. We’ve been formula fed with oil for a few weeks/months and now its time to introduce new nutrients into our everyday diet so that we can grow, mature and lead a balanced life. The largest economies of the world, from industrialized nations to the wealthiest of corporations are taking strategic, proactive and leadership actions to prepare them for an exciting childhood, adolescence, adulthood and old age.

Companies that are rounding out their energy diet are becoming better investments. As they transition from the one-dimensional oil based economy to a multi-dimensional energy services economy they ultimately hedge on the price of energy in the future. In addition they are more apt to compete over a longer term as well as offer better products at a better price as they are less reliant on price fluctuations associated with oil. We call companies with well balanced energy diets social response leaders because they are positioning themselves for future growth and with growth that is in alignment with societal needs and values. Companies, large and small, public and private, that we classify under the heading of social response leaders (due to their responsible and innovative approaches toward a balanced energy diet and new age product and service innovation) include:

Boeing – is developing lighter and more fuel efficient airliners. This is a social response product innovation that is adaptive – meaning it seeks to optimize efficiency and reduce demand for aviation fuel. In the absence of other forms of energy, Boeings fuel efficient 787 Dreamliner is a dream. Boeing is contributing to a new era of efficiency in air travel that will reduce side effects of a petroleum rich diet like carbon emissions. With greater fuel efficient aircraft, Boeing stands to fly 30,000 feet above its competition toward a balanced energy diet.

Canadian National – is a Canadian rail company that operates the largest rail network in Canada and the only transcontinental network in North America. The company operates in eight Canadian provinces and 16 U.S. states. As part of its equipment upgrade policy the company is upgrading its fleet of locomotives with models that are at least 17% more fuel efficient than their predecessors which reduces air emissions and enables more efficient delivery of goods. The company also remanufactures its older locomotive engines which reduces waste, recaptures energy used in manufacturing processes and minimizes the need to produce new materials for locomotive engines. Canadian National optimizes the flow of goods through the use of rail, a demand side response to energy use in our transportation sector.

Energy Answers International – offers communities a resource recovery solution to solid waste. Since 1981 the company has been developing resource recovery facilities around the world with a goal of zero disposal of waste. The company works within communities to find equitable and economical production of energy. The company often works on Brownfield sites giving once blighted industrial facilities new productive uses and upgraded with state-of-the-art clean technologies that enable the more sustainable production of energy. Energy Answers excels at discovering how energy use can be optimized through the use of waste resources, another important input into a balanced energy diet.

Evergreen Energy Inc. – out of Denver, CO this small but growing company is attempting to transform the US’s largest energy resource (coal) into a highly efficient, low emission and economically viable fuel for the future. Evergreen Energy’s technology is offering many US industries and electric utilities a new option to balance their energy portfolio into the future. Reducing carbon dioxide emissions, enhancing the efficiency of operations and offering a cleaner fuel option for the future are each elements of the Evergreen Energy technology platform. Evergreen Energy is innovating new solutions for minimizing the impact of abundant fossil fuel resources, an important element of a well balanced national energy diet.

Fuhrlaender AG – one of the last (if not the last) privately owned and operated wind manufacturing companies in the world is also one with a strong product portfolio. Based out of Waigandshain, Germany this company has been a quiet innovation leader for years. They are developing more reliable wind turbines and with designs that are conducive to quick maintenance enabling them to be in operation longer thereby generating every last kWh that is possible. They’ve expanded into China and seeking to foster more sustainable growth of emerging economies through their portfolio of wind products that range from 30 kW to 2.5MW. The firm was one of the first in the industry to launch a production model for a 2.5MW wind turbine. Small, agile and committed to quality, Fuhrlaender AG is truly a “friendly energy” company that is worth watching in years to come even if not the size of a GE, Suzlon or Vestas. Fuhrlaender offers new economies an energy diet supplement, one that is less harmful and ultimately longer-lasting thereby contributing to a healthier energy diet.

Green Mountain Coffee Roasters continuously brews better coffee and a better world through social response innovations in their facilities, supply chain, products and operations. In the energy realm the company installed an electricity cogeneration system at its Waterbury, VT facility to reduce demand and reliance on the electric grid. The company also purchases 100% of its electricity from renewable energy credits making them greenhouse gas neutral. The company sets an annual goal to reduce energy use by 5% per a certain unit of sales. In 2006 the company reduced its natural gas usage by 15% from the previous year. The company has been active in conducting energy audits of its facilities and offices and retrofitting equipment where possible to foster energy efficiency improvements. The company is also greening its fleet of vehicles and encourages conservation of energy among its employees.

Social response corporate leaders are balancing their energy diet within their operations, their product portfolio, among their employees and within the communities in which they operate. Ultimately their more balanced energy diet is translating into a stronger business and a stronger bottom line due to operational efficiencies, cost recovery, product innovation, margin improvements and enhanced reputation.

Everyday we see more and more companies making conscious decisions to evaluate their firms’ energy diet and ways to enrich their diet. Share with us some of the corporate leaders you are aware of that are creating a more balanced energy diet for their operations, employees, customers, shareholders and communities in which they operate.

Mark C. Coleman
Senior Associate & World Inc. Case Leader, AHC Group, Inc.
Mark@ahcgroup.com

Author note: The Basel Agency for Sustainable Energy (BASE) provides a summary of big oil’s investment in alternative and renewable energy. While not summarized in this blog, the BASE summary is a useful comparison of the capital expenditures of big oil versus their investments in other forms of energy production.

A “Force for Global Good”…From Flighty Service to Social Response Leader: How Delta Airlines is Reshaping the Future of the Global Airline Business

With flights to 481 destinations in 105 countries on Delta, Delta Shuttle®, the Delta Connection® carriers, and their Worldwide Partners®, Delta Air Lines operates service to more destination than any global airline.

This past week Delta Airlines topped itself as a global destination leader with the acquisition of Northwest Airlines. The merger creates the world’s largest airline, a firm with that will have a value of approximately $17.7 billion (according to Delta). According to a LATimes.com article, the Delta/Northwest merger provides Delta with a fleet of 800 planes with a staff of 75,000 employees. In addition, Delta will now fly more than 105 million passengers annually to more than 390 cities worldwide, and would be the largest airline in terms of fleet, destinations and total passengers.

What’s interesting about the Delta and Northwest merger is the potential for Delta’s existing “Force for Global Good” initiative may have even greater global reach and influence. For those that are unaware, Delta’s “Force for Global Good” initiative is essentially their corporate social response solution to foster a more sustainable environment in the regions in which they provide service throughout the world. Delta’s web-site notes:

“Delta's employees, customers, and community partners—together form a force for positive local and global change, dedicated to bettering standards of living and the environment where we and our customers live and work. We are Delta's Force for Global Good.”

Delta focuses its “Force for Global Good” initiative on four critical social needs:

1. Breast cancer research in partnership with The Breast Cancer Research Foundation.

2. Protection and restoration of wildlife habitats including reforestation efforts in partnership with The Conservation Fund.

3. Elimination of poverty and substandard living conditions in partnership with Habitat for Humanity.

4. The need to think global but also act local on issues pertaining to “health and wellness” through its unique partnerships like the American Red Cross, Children’s Miracle Network, Martin Luther King, Jr. National Memorial Foundation, American Cancer Society, and The Juvenile Diabetes Research Foundation International.

Delta’s unique social response approach for engaging employees, communities and customers to have positive influence and impact on social needs is gaining elevation and respect. In 2007 Delta employees contributed more than $500,000 to The Breast Cancer Research Foundation, a record year for fund-raising at Delta on behalf of this cause.

Delta’s “Force for Global Good” initiative involves not just the firms’ employees and community partners, but also customers. In the month of April 2008 Delta will “match all carbon offset donations” made by ticket purchasers to their “Force for Global Good” partner, The Conservation Fund via delta.com. Carbon emissions offsets can be made when airline tickets are purchased at delta.com. Delta’s offer states, “For every customer who donates to The Conservation Fund when they purchase a ticket online at delta.com between April 1 and April 30, 2008, Delta will match the contribution amount up to $10,000 for total contributions.” For those travelers seeking to reduce their carbon footprint associated with airline travel, the Delta Airlines April 2008 promotion is a wonderful way to have an even greater impact. 100% of the carbon emission offset donation will benefit The Conservation Funds’s Go Zero program.

The Conservation Fund’s Go Zero program uses financial donations to plant trees to help offset carbon emissions. The Conservation Fund notes, “The average American's annual carbon footprint is just over 20 tons”. For airline travelers making a roundtrip flight from New York City to Los Angeles and back their carbon footprint would equate to approximately 1.19 tons (according to the The Conservation Fund - GoZero Calculator. The Conservation Fund estimates that at least one tree should be planted to offset each round trip between New York and Los Angeles.

At a time when airlines are being touted as the “New Culprit in Climate Change”, Delta’s social response partnership with The Conservation Fund to offset carbon emissions through reforestation practices is timely and necessary. Today’s companies are not evaluated by financial rating agencies, government, consumers or shareholders based solely on quality, service and price. These traditional tenants of business success remain the key performance indicators today. However, new indicators of success, focused on long-term sustainability are now reshaping how firms like Delta think about and conduct their business globally.

Building homes and revitalizing communities, conserving wildlife and natural resources, supporting local not-for-profit organizations focused on health and wellness, these are not the day-to-day business activities of most large corporations, particularly those that transport people over the Atlantic and Pacific oceans. However in an effort to create a better company and a better world, one that is more healthy, more diverse, and full of life and promise, Delta Airlines is becoming a “Force for Global Good”, competitively and philanthropically.

Does it make sense for a global airline like Delta to offer carbon emission offset programs in partnership with The Conservation Fund? Share with us your thoughts on how the Airline Industry can couple “green with green”, that is, remain financially strong while addressing contemporary environmental and energy challenges associated with airline travel.

Mark C. Coleman
Senior Associate & World Inc. Case Leader, AHC Group, Inc.
Mark@ahcgroup.com